Byju's: Quest for $200 Million - Close, Yet Elusive

NCLT instructs Byju's to hold $200M rights issue funds separately. No halt but mandates an escrow account. Byju's must now secure 51% votes in an EGM to expand its authorized share capital, with the tribunal reconvening on April 4. Details inside.

Swati Dayal
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Byju’s can't withdraw the rights issue money until the court allows as the funds collected through the rights issue will be kept in a separate escrow account and will not be used for any purposes.

“….should not be withdrawn till the disposal of the matter", the tribunal’s Bengaluru bench said.

In a latest development, the National Company Law Tribunal (NCLT) has directed Think & Learn Private Limited, the parent company of ed-tech giant Byju's, to refrain from utilizing funds raised through its proposed USD 200 million rights issue until further notice. While the court did not halt the closure of the rights issue, it ordered the funds to be held in a separate escrow account.

What is an Escrow Account?

An escrow account is a financial arrangement where a third party, typically a neutral entity, holds funds temporarily on behalf of two parties involved in a transaction. The funds are deposited into the escrow account by one party, and they are released to the other party once specific conditions or terms of the transaction are met. This arrangement provides security and ensures that both parties fulfill their obligations before the funds are transferred. Escrow accounts are commonly used in real estate transactions, mergers and acquisitions, and various legal or financial agreements.

Legal Directives and Expanded Investigation

The NCLT's two-judge bench, based in Bengaluru, has instructed Byju's to conduct an extraordinary general meeting (EGM) within 30 days. To move forward with its plans, Byju's must secure a minimum of 51% of votes to expand its authorized share capital. The court acknowledged Byju's commitment not to allocate new shares without a corresponding increase in authorized share capital, as mandated by the law. The tribunal is set to reconvene on April 4 to further deliberate on the matter.

Expanding the scope of the investigation, the NCLT has requested written submissions within two weeks from regulatory bodies such as the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), the Ministry of Corporate Affairs, and the Registrar of Companies.

According to sources from Byju’s, “As per order, there is no stay on Rights Issue. Rights Issue is on- it will close today (Feb 28) and they are requesting us to consider extending the rights issue

Whatever undertaking our lawyer has given they have asked us to follow - Money will be in separate account and not used till disposal of the matter and Shares will be allotted to shareholders after increasing authorised share capital beyond the existing authorised share capital.

A period of two weeks is granted to the Authorities for filing reply from the date of receipt of copy of the notice and two weeks thereafter for filing response/rejoinder, if any, thereto from the date of receipt of copy of reply is granted. List the case for further hearing on 04.04.2024.”

Insolvency Petition and Investor Dispute

Simultaneously, the court issued a notice to Byju's in response to its lenders' petition to invoke insolvency for the repayment of approximately USD 1.2 billion in loans raised by the company in November 2021. Byju's is currently contesting the acceleration of loan repayment by its lenders.

Byju's, backed by investors including Prosus NV, Peak XV Partners, General Atlantic, and Sofina SA, is facing opposition from these stakeholders who collectively hold around 25% stake in the company. The investors filed a petition last week with the NCLT, citing oppression and mismanagement within the company. Allegations include financial mismanagement and improper use of funds by the management.

Liquidity Crisis and Investor Participation Concerns

Byju's, once valued at USD 22 billion, is grappling with a liquidity crisis and seeks the USD 200 million from the rights issue to address current liabilities, repay vendors and debtors. Despite claiming full subscription for the rights issue, concerns arise over the potential non-participation of some top investors, including Prosus NV, Peak XV Partners, General Atlantic, and Sofina SA. This non-participation could lead to a significant dilution of their holdings in Byju's, potentially nearing zero.

As the court deliberates on the allegations of 'oppression and mismanagement' made by the investors, Byju's remains unable to access the crucial funds raised through the rights issue until the matter is resolved. The court, while not imposing a stay on the fundraising exercise, has reserved its final order, leaving Byju's in a precarious position as it navigates legal challenges and financial uncertainties.

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