SC restores insolvency case against Byju’s, violates NCLAT for procedural overreach

The Supreme Court on Wednesday set aside an order of the National Company Law Appellate Tribunal (NCLAT) that had stayed the insolvency proceedings against Byju’s. It ruled that the company must follow the protocols laid down under the Insolvency and Bankruptcy Code (IBC) to address its problems. ₹158 crore debt with the Board of Control for Cricket in India (BCCI).

The court ordered that the ₹158 crore settlement amount, previously agreed between Byju and the BCCI, will be deposited in an escrow account controlled by the Committee of Creditors (CoC). This directive aligns with the court’s September 26 order, which directed the Interim Resolution Professional (IRP) to maintain the status quo and refrain from convening CoC meetings until the judgment is rendered.

Read this | Mint Explainer: Why Byju’s creditors took their insolvency practitioner to court

The Supreme Court clarified that while Byju’s and the BCCI can still pursue their agreement, they have to proceed under the supervision of the IRP and the CoC as per the IBC regulations.

SC reprimands NCLAT’s overreach

A three-judge bench headed by Chief Justice DY Chandrachud slammed the NCLAT for misusing its inherent powers under Rule 11 of the NCLAT Rules, 2016 to allow withdrawal of an application for insolvency The apex court emphasized that where specific procedures for withdrawal exist, the NCLAT cannot circumvent them by invoking its inherent powers.

The court clarified that once an insolvency petition is admitted, only the IRP has the authority to file discharge petitions on behalf of the debtor, not the parties involved.

In addition, he emphasized that the management of the debtor’s affairs becomes the responsibility of the IRP at the time of admission of the case, that is, any request for liquidation or withdrawal must be aligned with the Article 12A of the IBC and follow the process described in Regulation 30-A of the IBBI (Bankruptcy and Bankruptcy Commission). of India) Rules.

The Supreme Court pointed out that the NCLAT’s mistake lies in approving the deal directly, bypassing the National Company Law Tribunal (NCLT), which has primary jurisdiction over such withdrawals.

This procedural error, the court said, was a significant legal oversight, especially since no formal request for withdrawal was made through the proper channels.

Plea of ​​Glas Trust

The ruling is in response to an appeal by Glas Trust Company LLC, a US-based creditor, which challenged the NCLAT’s decision. Glas Trust claimed that settlement funds provided by Riju Raveendran, brother of founder Byju Raveendran, were “tainted” and should have been allocated to the company’s financial creditors.

Glas cited ongoing investigations by the Enforcement Directorate into Byju’s financial dealings, adding that Byju Raveendran currently resides in Dubai, while Riju is based in London.

On August 14, the high court had asked BCCI, an operational creditor of Byju’s, to deposit the liquidation amount of ₹158 million in a separate escrow account, pending the outcome of an appeal by Glas Trust.

Earlier on August 2, the NCLAT had allowed the settlement with BCCI and set aside an NCLT order initiating corporate insolvency proceedings against Byju’s for the unpaid dues. This decision followed the upbringing of Riju Raveendran, brother of the company’s founder, Byju Raveendran. ₹158 crore to pay for the cricket board. The move temporarily restored Byju Raveendran’s control over the company’s operations, providing a brief respite from the insolvency proceedings.

Byju’s had signed a sponsorship deal with BCCI in 2019, featuring its brand on the shirts of the Indian cricket team. The deal was extended until November 2023, with the BCCI seeking to collect a ₹140 million bank guarantee and we demand an additional one ₹160 million in installments.

However, BCCI eventually took Byju’s to bankruptcy court for failing to honor the ₹Payment of $158 million, prompting the NCLT to admit the insolvency application on June 16.

After the NCLT ruling, Byju’s appealed to the NCLAT, which dismissed the insolvency proceedings on August 2. However, Glas Trust immediately contested the deal, arguing that it undermined the interests of the company’s financial creditors.

Founded by Byju Raveendran and Divya Gokulnath in 2011, Byju’s had become a leading player in India’s edtech sector. However, the company’s rapid growth has been marred by financial difficulties, regulatory scrutiny and disputes with creditors.

Byju’s, once India’s most famous startup, is facing multiple lawsuits from lenders and investors. Lenders have sought repayment of the $1.2 billion loan it took out in November 2021. Investors have sought to preserve their rights to the parent company of Think & Learn, while some such as the Authority of Qatar Investments have sought a court order seeking details of Raveendran’s personal assets.

Also read | Raveendran blames investors, looks at new edtech avatar, says $533M drained

At the peak of business in 2021, the company claimed to be doing ₹10 billion in revenue and had over 85,000 employees including teachers on its platform.