SUMMARY
Since the NCLT has reserved its verdict, BYJU’S will likely go ahead with its rights issue which closes tomorrow
The NCLT has directed the BYJU’S management to park the money raised from the rights issue in a separate bank account
Lawyers representing the beleaguered edtech giant said that the ongoing rights issue is essential for the survival of BYJU’S and to keep the employment of its 12,000 employees intact
A National Company Law Tribunal (NCLT) bench on February 27 (Tuesday) reserved its judgement on a petition filed by a group of four investors, including Prosus, Peak XV Partners, General Atlantic and Sofina, against BYJU’S CEO and other promoters. The investor group had moved its petition under Sections 241 and 242 of the Companies Act.
The bench asked all the parties to file written submissions within the next three days. It also issued notices to the Registrar of Companies (ROC) and the Ministry of Corporate Affairs.
The investors are seeking status quo on BYJU’S ongoing $200 Mn rights issue. Since the NCLT has reserved its verdict, BYJU’S is likely to go ahead with its rights issue, which will close tomorrow.
The Bengaluru bench of the NCLT, however, directed the BYJU’S board to increase the company’s authorised share capital for receiving any amount with respect to the rights issue. The bench stated that BYJU’S will have to convene an Extraordinary General Meeting (EGM) to seek shareholders’ approval for the increase in the authorised share capital for subsequent allotment of shares post the rights issue.
The NCLT also directed the BYJU’S management to park the money raised from the rights issue in a separate bank account.
Meanwhile, sources within BYJU’S claimed that the company, which has received a commitment of $300 Mn from other shareholders on the rights issue, will go as per the plan.
What’s The Tussle All About?
The fresh standoff between the investor group and the company management is over an ongoing $200 Mn rights issue (at a 99% valuation cut of $225 Mn), which the investors claim will essentially erode their stakes in the company. The investors are also seeking the protection of minority shareholders under the Companies Act.
The lawyers representing the investor group argued during today’s hearing that the management of BYJU’S cannot be trusted with the transparent utilisation of the funds they receive from the proceeds of the rights issue.
They added that in the light of various actions taken by the Enforcement Directorate and Ministry of Corporate Affairs against the company, the investors did not deem it right to invest in the rights issue. They also flagged the reports of syphoning off of $533 Mn company funds to an unknown US hedge fund, lack of transparency in giving information about the transactions of Aakash Education Institution deal, and delay in audits.
The investor group’s lawyers argued that at least 13 communication attempts were made by the shareholders to seek responses from the management of BYJU’S on critical issues. However, this did not yield any answers.
The shareholders are seeking to stop the rights issue, which could eventually dilute their shareholding substantially if they do not participate.
Meanwhile, lawyers representing the beleaguered edtech giant said that the ongoing rights issue is essential for the survival of BYJU’S and to keep the employment of its 12,000 employees intact.
“There is no malice when it comes to the rights issue. Our only interest is to safeguard the company. If this issue doesn’t go through, the company will shut. In fact we provided a 30 days window period for the shareholders to invest their money. Our Articles of Association stipulate only a period of 15 days. This was done to save the company,” BYJU’S lawyers argued.
They said that the investors approached the NCLT at the last minute when the rights issue was about to close, putting the company’s survival at stake. “We can assure you that the money received will be kept in a separate bank account and would be overseen by the CEO and the CFO,” they added.
The company’s lawyers, while quoting the various sections under the Articles of Association, said that the power to restructure the company board completely rests with the promoters and hence the current board is not violating any rule of law.
It is pertinent to note that BYJU’S also moved the Karnataka High Court under Section 9 of the Arbitration Act against the EGM called by the investors on February 23. The company got a temporary relief from the court, which ordered that the decisions taken in the EGM would not come into effect at least till March 13, the next date of hearing in the case.
The investors of BYJU’S passed seven resolutions during the EGM, including those calling for the reconstitution of the company’s board and ouster of CEO Byju Raveendran, along with the removal of his wife Divya Gokulnath and brother Riju Raveendran from their respective management roles
