SC Dismisses BYJU’S, Glas Trust’s Plea To Halt Aakash’s Rights Issue

In another major setback to BYJU’S, the Supreme Court (SC) has now dismissed petitions filed by the company and its lender Glas Trust to block Aakash from proceeding with a rights issue, reported Economic Times.

The verdict clears the way for Aakash to undertake its rights issue, a move that will dilute BYJU’S stake in Akash from 25.75% to less than 5%. To safeguard its stake in Aakash, BYJU’S and Glas Trust had unsuccessfully moved the NCLT and NCLAT to halt the rights issue. 

Last month, Aakash’s shareholders approved an increase in the company’s authorised share capital, a prerequisite to the rights issue. It will be eyeing the raise of INR 200 Cr from the issue. The company has maintained that the fresh funds are crucial for its sustenance. 

Glas Trust, representing the edtech company’s US lenders, challenged Aakash Educational Services’ decision to carry out a rights issue saying that Aakash’s rights issue was not driven by genuine business necessity but was instead an orchestrated effort to strip BYJU’S of value and circumvent the status quo order.

However, Aakash chairman Shailesh Vishnubhai Haribhakti defended the right issue, calling it “crucial to keeping Aakash operational and protecting BYJU’S investment.” To note, BYJU’S is currently undergoing insolvency proceedings, rendering it incapable of participating in the rights issue. 

The Bengaluru NCLT had earlier declined BYJU’S request to halt Aakash’s extraordinary general meeting, noting that a rights issue cannot be deemed unfair merely because a shareholder chooses not or is unable to participate.

The right issue EGM also faced a similar objection from BYJU’S Term B loan lenders last year. Akash has long argued that it needs funds for operational needs, especially to cover expenses for its 5,000 staff and continue serving its 3.5 lakh students.

At the heart of the whole legal turmoil lies BYJU’S near $1 Bn investment in Aakash in 2021 to gain a strong foothold in offline test preparation. The deal involved an all-cash component and an equity swap where some Aakash investors received a stake in BYJU’S instead of cash. 

However, over the past few years, BYJU’S has tumbled from a $22 Bn edtech giant to a $1 Bn company earlier this year. From legal faceoffs with investors to regulatory scrutiny, the company has been fighting fires on multiple fronts at this moment. To note, it has had to sell two of its US subsidiaries, Tynker and Epic at discounted prices by a group of lenders who had sued for repayment of a $1.2 Bn term loan B (TLB).