BYJU’S Earmarks INR 18.8 Cr As Potential Penal Liabilities For Non-Compliance

As beleaguered edtech giant BYJU’S released its financial results on Tuesday (January 23), mounting losses and red flags raised by its auditor grabbed immediate headlines. 

What also emerged was that the company has also made provisions for potential penalties for glaringly flouting the Companies Act. The company has set aside INR 18.87 Cr in its FY22 financial statements towards expected penal liabilities for no-compliance to norms, as per auditor MSKA & Associates. 

These violations span multiple provisions of the Act, which deal with compliance requirements within the prescribed timelines. 

“The Holding Company has not complied with the provisions of sections 42, 92, 96, 137, 185, 188, 134, 88, 135, 179, 129, 144 and 148 of the Companies Act…. In line with the provisions of the Act, the holding company has recognised an amount totalling to INR 18.87 Cr… towards expected penal liabilities…,” said an auditor’s note in statements. 

The note also stated that the company is also mulling applying to the Registrar of Companies (RoC) for compounding of these non-compliance issues.

Not just the parent Think & Learn, but the startup’s other subsidiaries are also potentially in the dock for not complying with other provisions of the Act. In a note, the auditor said that BYJU’S three subsidiaries – Aakash Edutech, Aakash Educational Services, and Whitehat Education Technology — were in contravention of the companies’ rules. 

The three verticals are not compliant with Section 96, Section 137 and Section 92 of the Companies Act, 2013, as per the auditor. These provisions pertain to conducting the annual general meeting (AGM) of the company within the prescribed timelines, filing of the financial statements and the filing of the annual returns respectively.

This comes on the same day as BYJU’S released its financial statements for FY22 after a delay of nearly two years. While revenues more than doubled YoY to INR 5,014.6 Cr, losses widened more than 81% YoY to INR 8,245.2 Cr in FY22. 

Not just this, but BYJU’S auditor, MSKA & Associates, also flagged a slew of issues with the company. The auditor noted that the Bengaluru-based startup was in violation of multiple sections of the Companies Act and cited material uncertainty over the group’s ability to continue as a going concern.

It also raised the issue of the lengthy list of dues to be recovered, nearly INR 3,800 Cr at the end of FY22, by the startup. A majority of these receivables were from loans handed out to subsidiaries such as Toppr, WhiteHat Jr, among others.

On top of that, the auditor also did not recognise revenues to the tune of INR 260 Cr emanating out of services sold to customers in the Gulf Cooperation Council (GCC) countries citing that the transfer of revenue from the said nations did not meet the criteria under Indian Accounting Standards (Ind AS) with respect to the probability of collection. 

Overall, it has been a tough two years for BYJU’S as pandemic-led growth flattened and user focus again shifted towards offline coaching centres. However, the rot within BYJU’S runs deeper. The company has been in dock for multiple reasons including paucity of funds, a looming debt crisis, a series of exits by top executives and tightening of screws by regulatory authorities. 

This has resulted in the company undertaking a mass restructuring exercise to streamline operations and cull losses. As a result, the edtech major has laid off more than 5,000 employees in the past two years while shelving expansion plans. The Bengaluru-based startup has also seen investors such as BlackRock slashing the valuation of the company on its books by as much as 95% to less than $1 Bn.    

On top of that, funding winter has wreaked havoc on plans to raise capital. On the same day as the startup announced FY22 results, reports surfaced that it was looking to raise $100 Mn to $200 Mn at $2 Bn, a far cry from the peak $22 Bn valuation at which it raised funds in 2022. 

However, BYJU’S India CFO Nitin Golani told a news agency that it was mulling raising funds at a valuation of $7-8 Bn during its upcoming rights issue in February. While the markets are expected to remain gloomy till the latter half of 2024, what is next in store for the edtech major remains to be seen.