Mint Explainer: The mountain of legal cases that could bury Byju’s

Byju Raveendran, co-founder and CEO of Byju's. Photo: Christopher Pike/Bloomberg
Byju Raveendran, co-founder and CEO of Byju's. Photo: Christopher Pike/Bloomberg

Summary

  • The online tutor is involved in at least five legal cases, including one filed by key shareholders and another against investors seeking to remove founder Byju Raveendran as the company’s CEO.

Last week a consortium of prominent investors in Think and Learn Pvt. Ltd, the parent company of Byju’s, filed a case before the National Company Law Tribunal against the troubled edtech firm’s $200-million rights issue. They alleged that the issue suppressed their rights and accused the company of mismanagement. This is currently the most important legal case involving Byju’s, but it’s hardly the only one.

Byju’s earlier approached the Karnataka High Court against an extraordinary general meeting called by its investors last week seeking the ouster of the company’s co-founder and CEO Byju Raveendran and a revamp of its board of directors. The resolutions at the EGM went though. But Byju’s has dismissed the EGM as invalid, also pointing to the case pending before the high court.

The edtech company also faces legal cases filed by its lenders and some vendors, including the powerful Board of Control and Cricket in India.

Apart from these, the Enforcement Directorate has issued a look-out notice against Raveendran in connection with its inquiry into alleged violation of India’s foreign exchange rules involving 9,362.35 crore.

Mint explains the circumstances behind the various legal cases Byju’s is battling.

What is the investors’ case against Byju's?

On 22 February, a consortium of four Byju’s investors—Prosus NV, General Atlantic, Sofina, and Peak XV Partners, with support from Tiger Global and Owl Ventures—moved the Bengaluru bench of the NCLT against the edtech firm’s rights issue.

This is currently the most important legal case for Byju’s and its investors, as it will determine if the company can use the money raised from the rights issue, which it desperately needs. Investors are challenging the $200-million rights issue, launched earlier this month, because it is taking place at a pre-money valuation of just $20 million, meaning it could dilute the shareholding of non-participating investors by 99%. At its peak, Byju’s commanded a valuation of $22 billion.

Byju’s has said the rights issue has been ‘fully subscribed’. As a sweetener to hostile investors, the company has said it would appoint a third-party agency to monitor the use of funds raised through the issue.

The investor consortium has claimed before the NCLT that Byju’s management had not shared relevant financial information on the rights issue with them, and pointed to what they termed the “oppressive nature of the rights offer" and the “oppressive opacity and wilful default in sharing information with stakeholders".

What is the legal case related to the EGM?

Before moving the NCLT, the investors had sought to oust Raveendran from the company’s board and take control through an extraordinary general meeting last Friday. The meeting was attended by at least two dozen investors including Prosus, General Atlantic, Sofina, and Peak XV Partners, who ‘unanimously’ passed all the seven resolutions put to vote.

Byju’s, however, had moved the Karnataka High Court earlier and said it had received a favourable order against the EGM. According to Byju’s, the court has ruled that any decisions taken at the EGM would not come into effect until the case filed by Byju’s questioning the validity of the EGM was heard. The next hearing is scheduled for 13 March.

What are the legal issues around Byju’s term loan B?

In November 2021, when interest rates were low, Byju’s raised $1.2 billion through a term loan B (TLB) from overseas investors. Interest rates have risen sharply since then, and the company has been struggling to repay the loan, resulting in a legal battle with its bondholders. 

Byju’s also committed a series of “technical defaults" on the loan because it failed to file its financial statements on time and did not satisfy other covenants that had required it to put up guarantors.

The lenders took the company to court in Delaware to accelerate the repayment of the loan. Byju’s counter-sued the lenders in the US alleging “predatory tactics", and challenged the acceleration of the loan repayment.

Meanwhile, the company initiated the process of selling two of its businesses—reading platform Epic and higher-education platform Great Learning—to pay its debts.

Apart from this, overseas lenders of Byju’s in January filed an insolvency petition against Think & Learn at the NCLT bench in Bengaluru seeking to recover the loan. 

“This action was taken following over 16 months of good faith efforts on behalf of the Ad Hoc Group (of lenders) to restructure the term loans, which, if successful, would have immediately solved for the loan’s numerous outstanding defaults, acceleration, and ended all open litigation while avoiding further enforcement actions," said a representative of Glas Trust Co. Llc, an agent for the group of lenders who had extended the $1.2 billion TLB said.

Why do vendors have a problem with Byju’s?

In January, French multinational Teleperformance SE’s Indian unit filed an insolvency petition against Byju’s for unpaid dues amounting to a few crore rupees. It’s not the only entity to have done so. The Board of Control and Cricket in India has also filed a petition with the NCLT to recover pending dues. Byju's was a sponsor of the Indian cricket team but could not pay the sum it owed the cricket board. Other smaller vendors also have dues pending from Byju’s.

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