Byju's EGM casts out founders, but company says not yet

Several key investors at an emergency meeting called on Friday voted for the removal of Byju's founder and CEO Byju Raveendran and for reconstituting the board. The company has argued that the EGM was invalied. (Bloomberg)
Several key investors at an emergency meeting called on Friday voted for the removal of Byju's founder and CEO Byju Raveendran and for reconstituting the board. The company has argued that the EGM was invalied. (Bloomberg)

Summary

  • At an EGM called by investors in Byju’s, participating shareholders unanimously voted for a change in leadership
  • Byju’s says the resolutions are invalid without at least one founder-director present at the EGM
  • On Thursday, a consortium of investors moved the NCLT against Byju’s rights issue

MUMBAI : The emergency meeting called by Byju’s investors began with chaos but turned out as expected: with shareholders voting to oust CEO Byju Raveendran and revamp the board, and the online tutor dismissing the resolutions as invalid.

The extraordinary general meeting on Friday was attended by at least two dozen investors, including Prosus, General Atlantic, Sofina, and Peak XV Partners.

Earlier on Thursday, these investors, with support from Tiger Global and Owl Ventures, filed a petition before the National Company Law Tribunal against Byju’s $200-million rights issue, citing alleged suppression of investor rights and mismanagement of the company, a person with knowledge of the development told Mint, declining to be identified.

These developments signal a ratcheting of the increasingly acrimonious relationship between Byju’s and its investors, which has spiked particularly after the troubled edtech company announced the rights issue, which stands to dilute the shareholding of non-participating investors by 99%.

“At today’s extraordinary general meeting shareholders unanimously passed all resolutions put forward for vote," Netherlands-based Prosus, the second-largest stakeholder in Byju’s with more than a 9% share, said in a statement.

“As shareholders and significant investors, we are confident in our position on the validity of the EGM meeting and its decisive outcome, which we will now present to the Karnataka High Court in line with due process," it said.

Byju’s, which on Wednesday said it had secured a favourable order from the high court staying any outcome from the EGM, said the resolutions were invalid and not binding on the company.

“These resolutions merely request the board to “consider" the recommendations passed at the EGM. They do not have any binding effect whatsoever on the company or its decision-making processes. As such, the resolutions lack the necessary authority to impose any obligations on Byju’s or its directors," a spokesperson for Byju’s said.

The company also argued that its Articles of Association mandate the presence of at least one founder-director at such a meeting for the resolutions to be valid.

“These resolutions were voted upon without the valid constitution of a quorum, as stipulated in Byju’s Articles of Association. According to Articles 38 and 39(a) of the AoA, at least one founder-director is required to form a valid quorum," Byju’s said in a statement on Friday evening. “As the founders did not participate in the meeting, the quorum was never legitimately established, rendering the resolutions null and void."

The investor consortium that called for the meeting has disputed this.

The EGM on Friday saw several Byju’s employees joining the meeting link, which ended up disrupting the proceedings at the start. A few employees implored the investor consortium to not move against Raveendran, a person familiar with the EGM proceedings said.  

Earlier on Thursday, there was a phishing attack attempting to access the meeting, which was being run by a law firm, said another person with knowledge of the developments. 

On Friday, the proceedings, which were to begin at 9 am, were delayed by over 90 minutes because of the long queue of unknown persons waiting to enter the meeting.  

Eventually, seven resolutions were put to vote at the EGM. 

These included a “request for the resolution of the outstanding governance, financial mismanagement and compliance issues at Byju’s; the reconstitution of the board of directors so that it is no longer controlled by the founders of (Byju’s parent company Think and Learn Pvt. Ltd); and a change in leadership of the company", Prosus said in its statement.

The investor consortium had approached the Bengaluru bench of the NCLT with a similar set of concerns.

On Byju’s rights issue, the consortium argued that the management had not shared relevant financial information with the investor group, pointing to what they said was the “oppressive nature of the rights offer" and the “oppressive opacity and wilful default in sharing information with stakeholders".

The rights issue is planned at a pre-money valuation of $20 million, a far cry from Byju’s peak valuation of $22 billion a few years ago, when it celebrated as India’s most valuable startup and Raveendran was regarded the Indian entrepreneurial ecosystem's poster boy.

On Wednesday, Byju’s said investors had fully subscribed to the rights issue by Think & Learn. People familiar with the rights issue said the capital committed is likely to be wired to the company only on 28 February, the day the issue concludes. 

“Investors have sought relief (from NCLT) on declaring the rights issue as void and declaring the founders and the management as unfit to run the company," said one of the persons mentioned earlier.

The investor consortium has sought a court direction to Byju’s to not take any “corporate actions that will prejudice the rights of the investors", and to conduct a forensic audit of the company.   

A spokesperson for Byju’s said the company had not received a notice on the NCLT petition. 

“The company has not received any formal intimation of any such petition being filed in the NCLT. Indian regulations stipulate due process for conducting an EGM, intimation of petitions being filed in NCLT, etc. But certain shareholders prefer to manufacture a media spectacle as opposed to following due process," the spokesperson said. “If such a petition has been filed, the company shall respond to the same as per applicable law and due process."

A legal expert said shareholders holding at least 10% of a company could approach the tribunal in such matters.

“Sections 241 and 242 of the Act which deals with cases of oppression and mismanagement also entitle shareholders holding at least 10% of the issued share capital of a company to make an application to the NCLT in case of allegations that the company’s affairs are conducted in a prejudicial and oppressive manner," said Suhana Islam Murshedd, Partner, AQUILAW, a homegrown law firm.

“The NCLT may in such cases, provide for removal of directors, basis the merits of the case at hand," said Murshedd.

Byju’s investors have cited several instances of financial mismanagement to support their petition before the NCLT. 

These include alleged mismanagement that has resulted in Think & Learn losing control of Aakash Education Services, the test-prep company Byju’s acquired in 2021 for about $1 billion. 

Think & Learn currently owns only about 27% for Aakash Education Services, but was slated to fully own the asset when the merger was proposed in January 2021.

Investors also claimed that Byju’s undertook several “unauthorised corporate action", including the acquisition of Northwest Education Pte by its subsidiary Great Learning for about $100 million in May 2022. 

They also cited the multiple insolvency petitions against Byju’s, including by the Board of Cricket Control of India (BCCI) and TLB Lenders.

 

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