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In a significant setback for edtech giant Byju’s, the Supreme Court has annulled the National Company Law Appellate Tribunal (NCLAT) ruling that sanctioned a settlement of Rs 158 crore between Byju’s (Think and Learn Pvt Ltd) and the Board of Control for Cricket in India (BCCI) on October 23.
This ruling nullifies the NCLAT’s earlier decision that had halted insolvency proceedings against Byju’s following its agreement with the BCCI. The Supreme Court found that the NCLAT had not adhered to the procedural norms established in the Insolvency and Bankruptcy Code (IBC), thus wrongly approving the settlement.
As a result of this judgement, the Rs 158 crore that the BCCI had deposited in an escrow account will now be redirected to an escrow account managed by the Committee of Creditors (CoC). The ruling was delivered by a bench led by Chief Justice of India (CJI) DY Chandrachud, with Justices JB Pardiwala and Manoj Misra. Senior advocates Shyam Divan and Kapil Sibal represented Glas Trust, while Abhishek Manu Singhvi appeared for Byju’s. The BCCI was represented by Solicitor General Tushar Mehta.
Inadequate procedures
The court criticised the NCLAT for prematurely concluding the Corporate Insolvency Resolution Process (CIRP), stating that it had improperly invoked its inherent powers under Rule 11 of the NCLAT Rules, 2016, to approve the withdrawal of the insolvency application. The judgement noted, “The NCLAT erred in allowing the withdrawal of the insolvency application by invoking its inherent powers under Rule 11 of the NCLAT Rules 2016. When there is a specific procedure provided for the withdrawal of insolvency applications, the NCLAT cannot invoke its inherent powers.”
The court also clarified that any application for withdrawal must be made through the Interim Resolution Professional (IRP), not directly by the parties involved. It asserted that once a CIRP is initiated, the IRP assumes control of the debtor’s affairs, and any withdrawal must be processed through them. The National Company Law Tribunal (NCLT), which oversees insolvency cases, is not merely a “post office” for automatic approvals, and the NCLAT exceeded its authority by approving the settlement between Byju’s and BCCI.
Furthermore, the court highlighted the absence of a formal withdrawal application in this case. Instead of approving the settlement, the NCLAT should have paused the formation of the CoC and directed the parties to comply with the established legal procedure under Section 12A of the IBC, which governs insolvency application withdrawals.
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The CJI also drew attention to ongoing investigations by various authorities, including those initiated by the Delaware court and India’s Enforcement Directorate. With the settlement annulled, the insolvency proceedings against Byju’s will now recommence, prolonging the company’s legal challenges.
Ongoing legal challenges for Byju’s
Byju’s has faced numerous legal difficulties across various jurisdictions, including courts in New York, the NCLT, NCLAT, and the Indian Supreme Court, while negotiating with multiple lenders, including the BCCI and its US-based creditor Glas Trust, regarding the repayment of loans amounting to billions.
The saga began in June 2023 when Byju’s defaulted on an interest payment for a $1.2 billion term loan, sparking disputes with its US lenders, primarily Glas Trust. These lenders accused Byju’s of defaulting and sought repayment, while Byju’s argued that the loan terms were being unfairly manipulated.
Simultaneously, the BCCI initiated insolvency proceedings against Byju’s at the NCLT over the Rs 158 crore loan default. The NCLT subsequently commenced corporate insolvency resolution and appointed an interim resolution professional to oversee the company’s financial affairs during the process.
On August 2, 2024, the NCLAT had approved the settlement of the Rs 158 crore dues with the BCCI, effectively halting the insolvency proceedings. This ruling allowed Byju Raveendran, the company’s founder, to regain control of the firm. However, Glas Trust objected to this settlement, leading to the current Supreme Court challenge against the NCLAT’s decision.
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