NCLT reserves order as Byju's faces allegations of diverting $533 million
While Byju's refrained from directly addressing the accusations aired during the NCLT proceedings, it previously defended its actions, asserting that the funds remained invested in secure instruments through an offshore subsidiary.
Investors in Byju's have made startling allegations against the edtech behemoth, accusing it of diverting a staggering $533 million to an obscure hedge fund in the United States. The National Company Law Tribunal (NCLT) was approached by four shareholders who sought to halt a $200 million rights issue, denouncing it as illegal and in violation of established laws.
During the proceedings before the Bengaluru bench of the NCLT, investors demanded a stay on the rights issue, arguing that it could only proceed through a legitimate increase in the company's authorised share capital, a step yet to be taken. Sources revealed that the investors contended that Byju's move to initiate the rights issue was unlawful and against regulations.
Investors, in their plea, stated that Byju's, in 2022, transferred $533 million to Camshaft Capital Fund, which was founded by a 23-year-old and whose principal place of business once was a pancake restaurant in Miami. The founder of the investment firm, who apparently lacked formal training in investing, had luxury cars — a 2023 Ferrari Roma, a 2020 Lamborghini Huracn EVO, and a 2014 Rolls-Royce Wraith — registered in his name since the transfer occurred.
While Byju's refrained from directly addressing the accusations aired during the NCLT proceedings, it previously defended its actions, asserting that the funds remained invested in secure instruments through an offshore subsidiary. However, the investors, fearing irreversible consequences of the alleged diversion of funds, emphasised the urgency of halting the rights issue.
In addition to the NCLT's reserved order, the Enforcement Directorate (ED) is reportedly investigating the matter, amplifying the legal and regulatory challenges facing Byju's. The company's management, meanwhile, maintains that the investors' actions are obstructing legitimate business operations, underscoring the broader tensions between the two sides.
The board meeting of January 27 which approved the right issue, was not valid and no resolution was passed, they said the meeting was scheduled as an investor update call and the investors had disputed such rights offer to be rolled out without the company giving them enough information on the financials. They also disputed the $200 million valuation of the company in the rights issue, a far cry from the $22 billion valuation the firm commanded once.
Sources said lawyers for Byju's argued that the investors were forum shopping. According to the company, while the Karnataka High Court had asked the investors not to implement any resolution passed in the EGM that happened on February 23, the investors approached the tribunal instead of appealing against the court order. In the February 23 EGM, 60% of the investors voted for removing founder Byju Raveendran and family.
They argued that the High Court order would be diluted if the NCLT were to pass any order. They claimed that the representatives of investors were present at the meeting where the decision on rights issue was made and hence can't claim that they were not consulted. Stalling the rights issue, they said, would not benefit anybody and the company would utilise the funds from the issue only after the requisite legal procedures are complied with.
The investors are not looking at the interest of 100 million students and the 12,000 employees but only at their value maximisation, they added. Sources said the lawyers for the investors said Byju's wants investors to contribute more money into the company. Their 25.4% stake (of a group of four investors) will come down to 2.5% if they don't subscribe to rights issue. If they subscribe, they don't know what happens to their money.
(With inputs from PTI)
Also Read: Byju’s investors want NCLT to stay rights issue, edtech says they can choose to not subscribe
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