BYJU’S CoC Controversy: Excluded Creditors Call the Shots

In a significant turn of events, the National Company Law Tribunal (NCLT) Bengaluru bench has raised serious concerns over the governance of BYJU’S as it faces insolvency proceedings. The tribunal has questioned the decision of the company's resolution professional (RP), Pankaj Srivastava, regarding the exclusion of two major creditors, Glas Trust and Aditya Birla Finance, from the Committee of Creditors (CoC). This reconstitution has sparked a legal battle, with the excluded creditors accusing the RP of unfairly sidelining them.

Curious to know what is the whole matter? Find out with TICE!

Tribunal Takes RP to Task for Inaction

During a hearing held on December 11, 2024, the NCLT bench expressed its displeasure over the RP’s failure to address objections raised back in August regarding the CoC’s composition. The bench noted that the RP had failed to respond to the objections that were filed on August 28, even though the CoC intimation was filed several days earlier on August 24.

“You filed this copy (CoC intimation) on August 24, and objections were raised on August 28. What have you done since August 28?” the bench asked pointedly.

This was a sharp criticism of the RP’s inaction, with the tribunal highlighting that its concerns were left unresolved for several months, potentially jeopardizing the legal integrity of the entire insolvency process. The bench gave the RP until December 12, 2024, to respond and take necessary corrective actions, underlining the urgency of resolving the matter in the best interests of all stakeholders.

Read More: Edtech After Byju's: Why VCs Are Now Betting Big on Study Abroad?

Disputed Exclusion of Key Creditors

The heart of the controversy revolves around the exclusion of Glas Trust and Aditya Birla Finance from the CoC. The RP's legal counsel defended the decision to leave out Glas Trust by pointing out that the latter’s $1.2 billion claim against BYJU’S is still pending in a U.S. court. The RP argued that the exact amount of the claim could only be determined once the U.S. court delivers its ruling, and until that happens, the claim remains uncertain.

The RP's legal team further suggested that if the claim amount is revised following the U.S. court's verdict, the CoC could be reconstituted to reflect the updated figures. This justification, however, was met with strong opposition from Glas Trust and Aditya Birla Finance, who accused the RP of intentionally excluding them to avoid their involvement in critical decisions related to the insolvency proceedings.

According to Glas Trust’s counsel, “Their plan is very clear. They want to avoid the CoC because it must be formed according to the original constitution. It has been illegally reconstituted by excluding us.”

Glas Trust claims that if any withdrawal application is filed, it must go before the CoC, which should include them, along with Aditya Birla Finance and other creditors. They further accused the RP of attempting to move an application without the CoC, thereby rendering the process unlawful.

Read More: SC Halts Byju's Insolvency Meetings: Judgment on BCCI Settlement Looms

A Broader Legal Conflict Unfolds

This legal dispute is part of a broader struggle between BYJU’S and its creditors, who are increasingly concerned about the company's ability to navigate its financial turmoil. Glas Trust has gone so far as to claim that the RP is involved in a “secret plot” to reject its claims against the beleaguered edtech giant. Meanwhile, Aditya Birla Finance has accused the RP of fraud by wrongfully categorizing it as a “financial creditor,” a label they argue was improperly applied in the CoC.

In August 2024, following the exclusion from the CoC, both Glas Trust and Aditya Birla Finance moved the Supreme Court in an attempt to overturn the RP’s decision. The creditors argue that their exclusion has undermined their ability to influence critical decisions about the company’s future, including potential withdrawals and restructuring plans.

Additional Troubles for BYJU’S

As if the legal complexities weren't enough, BYJU’S is also grappling with the difficulties of selling a portion of its stake in Aakash Institute. The company’s financial troubles continue to mount, as it struggles to recover from losses and mounting debt. The ongoing disputes and governance challenges within its insolvency proceedings only add to the mounting pressure on the company, which is at a critical juncture in its journey.

Read More: Byju's: A Billion-Dollar Default and the Battle for Control

BYJU’S finds itself in a precarious situation where its legal and governance issues are being scrutinized by both the NCLT and its creditors. The exclusion of key creditors from the CoC has raised serious questions about the fairness and transparency of the insolvency process, with the NCLT bench’s questioning serving as a stark reminder that the company must address these issues swiftly and effectively. The coming days will be crucial for BYJU’S as it tries to navigate through these turbulent times while trying to salvage its business and reputation.

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