Byju’s Rights Issue Got Delayed by NCLT Amid Investors’ Allegations

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Three points you will get to know in this article:

  • Byju’s planned $200M rights issue for sustainability.
  • Investors accused Byju’s of $533M transfer to hedge fund.
  • NCLT delayed judgment; rights issue halted pending shareholder approval.

Byju’s, the most valued edtech startup in India, faced a major setback in its fundraising plans as the National Company Law Tribunal (NCLT) reserved its order on a plea filed by four of its investors against the company’s proposed rights issue. The investors, who collectively own about 45% of the company, alleged that Byju’s had mismanaged its funds and transferred $533 million to a shady hedge fund in the US without their consent. They also claimed that the rights issue was illegal and contrary to the law, as it required an increase in the authorised share capital of the company, which could require approval and should only be done after getting the consent of the shareholders.

The Rights Issue Controversy

Byju’s announced in January 2024 that it would raise $200 million by way of a rights issue, which is a way of offering existing shareholders the opportunity to buy additional shares at a discounted price. The company said that the funds raised would be used to clear its immediate liabilities and meet its operational requirements, while maintaining the current rights of its valued shareholders. The company also claimed that the rights issue would value it between $220 million and $230 million, a steep drop from its peak valuation of $22 billion in 2022.

However, four of its key investors, namely Prosus, General Atlantic, Peak XV Partners, and Sofina, opposed the rights issue and filed a petition in NCLT, seeking an urgent order to stay the process. They argued that the rights issue could not be carried out without increasing the authorised share capital of the company, which was fixed at Rs 6 crore. They said that the company was trying to issue Rs 40 crore worth of shares through the rights issue, which was beyond its legal limit. They also alleged that the company had not sought their consent or approval for the rights issue, and that it was a ploy to dilute their stake and benefit the promoters.

The Siphoning Off Allegations

The investors also accused Byju’s of siphoning off $533 million to an obscure hedge fund in the US, called Camshaft Capital Fund, which was founded by a 23-year-old with no formal training in investing. They said that the fund’s principal place of business was once a pancake restaurant in Miami, and that its founder owned several luxury cars, including a Ferrari, a Lamborghini, and a Rolls-Royce. They claimed that Byju’s had transferred the money to the fund in 2022, without their knowledge or approval, and that it was a clear case of fraud and misappropriation.

Byju’s, on the other hand, denied the allegations and said that the money was invested in high security fixed income instruments with a multi-hundred billion dollar fund in the US, and that an offshore subsidiary of the company remained the beneficiary of the investment. The company also said that it had disclosed the details of the investment to its auditors and regulators, and that it had nothing to hide.

The NCLT Verdict

The NCLT heard the arguments of both sides on February 27, 2024, and reserved its order on the interim relief sought by the investors. The tribunal also asked Byju’s to submit a written response to the investors’ plea within three days, and said that it would pronounce its final verdict after that. The tribunal also observed that Byju’s board could not increase the authorised share capital of the company on its own, and that it had to call for an extraordinary general meeting (EGM) to seek the shareholders’ approval before proceeding with the rights issue. The tribunal also directed that the company could not use the proceeds of the rights issue until it obtained the necessary authorisation.

The rights issue, which was supposed to close on February 28, 2024, was thus put on hold until further notice. The outcome of the NCLT case could have a significant impact on the future of Byju’s, which is already facing a decline in its revenue and user base due to the pandemic and the competition from other edtech players. The company, which was once hailed as a unicorn and a disruptor in the education sector, is now struggling to survive and regain its lost glory.

Byju’s rights issue controversy is a classic example of how a startup can fall from grace due to poor governance and financial mismanagement. The company, which had raised billions of dollars from global investors and acquired several companies in the past few years, is now facing a legal battle with its own shareholders, who have accused it of fraud and siphoning off funds. The NCLT case could decide the fate of Byju’s, which is already facing a liquidity crunch and a loss of trust from its customers and partners. The company needs to resolve the dispute with its investors as soon as possible, and focus on improving its product quality and customer satisfaction, if it wants to survive and thrive in the highly competitive and dynamic edtech market.

SA Team

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