Key investors move NCLT against Byju's rights issue, firm says yet to get any petition

In a recent development, Byju's, a leading edtech company, has approached the Karnataka High Court, challenging the order of the National Company Law Tribunal (NCLT). The NCLT had previously restrained the company from proceeding with its second rights issue, a move that has stirred up considerable controversy. The second rights issue, which began on May 13, was expected to conclude on June 13. However, the NCLT's intervention has put a halt to these plans.

The NCLT's order has also prohibited Byju's from utilizing any funds raised from the second rights issue. This decision has come at a time when the company is grappling with several challenges, both in India and the US, against its subsidiary. Amid these legal battles and a severe cash crunch, Byju's is exploring out-of-court settlements with two of its creditors, Teleperformance and Surfer Technologies.

The company's plea in the Karnataka High Court is expected to be heard on Monday, according to sources close to the matter. This comes after the NCLT adjourned the cases to June 26.

karnataka high court

Financial Woes and Legal Battles

The NCLT's order has mandated that the status quo regarding existing shareholders and their shareholding be maintained until the main petition is disposed of. Byju's has also been directed to file complete details of the concerned escrow bank accounts from the opening of the right issue on January 29 till date within ten days from June 12.

The company's financial health has taken a significant hit due to these ongoing legal battles and financial troubles. Once valued at a staggering $22 billion, Byju's is now worth zero, according to a recent research note by financial firm HSBC. The note stated, We assign zero value to Byju's stake amid multiple legal cases and funding crunch." HSBC also assigned zero value to investment company Prosus' nearly 10 per cent stake (or about $500 million) in Byju's.

Earlier this month, a group of lenders petitioned against new entities tied to Byju's US subsidiary in a US court, alleging that these entities were not paying their debts. This follows Byju's Alpha's filing for Chapter 11 bankruptcy protection in the US in February 2024.

Comparisons and Consequences

Despite these challenges, the company managed to process the employee salaries for May from monthly "collections". The lenders further stated that due to Byju's failed leadership and mismanagement, significant harm has been done to the company's businesses and the value of the company's assets. The embattled edtech firm is struggling to pay employee salaries amid these mounting legal battles.

This situation is reminiscent of the financial troubles faced by other tech companies in the past. For instance, the downfall of the once-promising startup Theranos, which was valued at $9 billion before its worth plummeted to zero amid legal and financial troubles. Similarly, the Indian startup Snapdeal also faced a severe cash crunch in 2017, leading to layoffs and downscaling of operations.

In conclusion, Byju's current predicament underscores the importance of sound financial management and the perils of rapid expansion without a solid financial foundation. The company's future now hinges on the outcome of its plea in the Karnataka High Court and its ability to navigate through its current financial and legal challenges. The unfolding of these events will be closely watched by stakeholders and the edtech industry at large.