Supreme Court prevents Byju’s-owned Aakash from diluting minority investors
- It ordered the company not to implement a resolution to amend its Articles of Association that was passed at its extraordinary general meeting, and approach the National Company Law Appellate Tribunal instead.
The Supreme Court on Friday directed Aakash Educational Services, a subsidiary of struggling edtech firm Byju’s, not to implement a resolution to amend its Articles of Association (AoA) that was passed at its extraordinary general meeting.
The proposed amendments allegedly sought to dilute the rights of minority shareholders, including Singapore VII Topco I Pte Ltd, owned by Blackstone, which holds a 6.97% stake in Aakash. Blackstone had alleged that its rights and interests were being violated.
A two-judge bench comprising Chief Justice of India Sanjiv Khanna and Justice PV Sanjay Kumar directed Aakash to approach the National Company Law Appellate Tribunal (NCLAT) within seven days. The stay on implementing the EGM resolution will remain in effect until the NCLAT hears the appeal.
The order follows Blackstone’s appeal against a Karnataka High Court ruling on 25 November that allowed Aakash to proceed with the amendments despite opposition from minority shareholders. The Supreme Court clarified that the Karnataka High Court’s order would not interfere with the NCLAT’s decision-making process. Aakash assured the Supreme Court it would not pursue a writ petition in the Karnataka High Court challenging an earlier National Company Law Tribunal (NCLT) order.
Case history
The dispute revolves around proposed amendments to Aakash’s AoA, first raised during an EGM. Minority shareholders including Blackstone filed a mismanagement and oppression petition with the NCLT, claiming the amendments violated their rights under a prior merger framework agreement (MFA).
The investors argued that the proposed changes were aimed at diluting their stake in Aakash, a profitable entity that Byju’s acquired in 2021 for $1 billion. They contended that the struggling Byju’s relies heavily on Aakash for valuation and operational stability. They also raised concerns about the decision to allow Byju’s founder Byju Raveendran to represent Think & Learn, Byju’s parent company, on Aakash’s board.
Aakash countered these claims, arguing that the shareholders received their stakes as part of the MFA, which failed to materialise as planned, leaving the investors without any substantive rights in the company. It also said Think & Learn had initiated arbitration proceedings at the Singapore International Arbitration Centre (SIAC) over the issue.
On 20 November, the NCLT had restrained Aakash from implementing the proposed amendments, citing potential dilution of minority shareholder rights. However, Aakash challenged this order in the Karnataka High Court, which stayed the NCLT order and allowed the amendments to proceed. This prompted minority shareholders to approach the Supreme Court.
While Byju’s is grappling with financial challenges and currently under insolvency, Aakash has reportedly remained profitable due to its extensive network of physical outlets.
Share swap fell through
In April 2021, Byju’s acquired Aakash in a deal comprising 70% cash and 30% equity. Under the agreement, Aakash’s promoters—the Chaudhry family—and Blackstone were to receive shares of Think & Learn. However, the share-swap component faced obstacles as the Chaudhry family refused to swap their remaining stake, citing governance concerns, prompting Byju’s to issue a legal notice to Aakash’s founders.
In 2023, Ranjan Pai, chairman of Manipal Education and Medical Group, became the largest shareholder in Aakash after converting his $300 million investment into equity. Pai’s total investments of $500 million between 2022 and 2023 were intended to help Byju’s clear its debts and fund its operations. Pai reportedly holds 39% of Aakash, while Think & Learn owns 26%, Byju Raveendran 17%, and the Chaudhry family and Blackstone 10% and 8%, respectively. In March 2024, Think & Learn and Aakash withdrew their merger petition from the NCLT.
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First Published:29 Nov 2024, 02:54 PM IST
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