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Supreme Court quashes NCLAT’s order to close insolvency proceedings against Byju based on settlement with BCCI

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Supreme Court quashes NCLAT’s order to close insolvency proceedings against Byju based on settlement with BCCI

The Supreme Court today (October 23) overturned the order of the National Company Law Appellate Tribunal which closed insolvency proceedings against ed-tech company Byju’s (Think and Learn Pvt Ltd) agreeing to a deal between it and the Board of Control for Cricket in India (BCCI) for around Rs 158 crore.

The Court held that the NCLAT erred in allowing the withdrawal of the insolvency petition by invoking its inherent powers under Rule 11 of the NCLAT Rules, 2016. Where there is a specific procedure provided by in withdrawing insolvency petitions, the NCLAT cannot invoke its inherent powers. .

The Court also pointed out that, according to the regulations, the withdrawal request must be submitted by the Interim Resolution Professional (IRP) and not by the parties themselves. It is the IRP that takes over the affairs of the corporate debtor once the bankruptcy application has been accepted. The withdrawal request must be submitted through the IRP.

The Court also held that the NCLT cannot be considered a post office which merely approves the withdrawal application made by the parties. Also, in the present case, it was the appellate forum, the NCLAT, which approved the withdrawal and not the NCLT, which is a serious illegality. Also, there was no formal request for withdrawal.

The Supreme Court noted that the correct course for the NCLAT would have been to stay the constitution of the Committee of Creditors and ask the parties to follow the procedure under Section 12A of the Insolvency and Bankruptcy Code (IBC) and Regulation 30 -A. of the Insolvency and Bankruptcy Board of India (IBBI) (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 for withdrawal.

The amount of Rs 158 crore, which was deposited by the BCCI and maintained in a separate escrow account, as per the earlier interim order of the Tribunal, should now be deposited in the escrow account of the Committee of Creditors and will be maintained these

In the judgment, the Court found that the appellant Glas Trust Company LLC is not an unrelated party, as its claims were verified. Hence, he has the locus standi to challenge the NCLAT order. At the same time, the Supreme Court refrained from ruling on the allegations made by the appellant.

“In the course of the proceedings before this Court, the CdC has been established. The parties are free to invoke their resources, to request the withdrawal or settlement of the claims, in accordance with the legal framework that governs the withdrawal of CIRP. Nothing in this judgment shall be construed as a finding as to the conduct of any of the parties or other parties involved in the bankruptcy proceeding,” the Court said.

The Court delivered its ruling on petitions filed by US lender Glas Trust Company LLC challenging the National Company Law Appellate Tribunal’s (NCLAT) decision to close insolvency proceedings against the company of ed-tech Byju’s (Think and Learn Pvt Ltd) accepting a deal between it and the Board of Control for Cricket in India (BCCI) for around Rs 158 crore.

The bank run by CJI DY Chandrachud comprising Justices JB Pardiwala and Manoj Misra was hearing a challenge to the NCLAT decision by US-based lender Glas Trust Company LLC on appeal and reserved judgment on September 26.

While reserving judgment, the Court directed the Resolution Profession to maintain the status quo and not hold any meeting of the Committee of Creditors (CoC) until the verdict is delivered.

On August 14, the Court stayed the NCLAT order that closed insolvency proceedings initiated by the Board of Control for Cricket in India (BCCI) against ed-tech firm BYJU’s over dues of Rs. 158 Crores based on an agreement between the parties. The Court also directed the BCCI to deposit the sum of 158 Crores in a separate escrow account until further orders.

On August 20, the Supreme Court refused to grant orders to prevent the resolution professional from forming a committee of creditors for ed-tech company Byju’s in insolvency proceedings against it.

Senior advocates Shyam Divan and Kapil Sibal appeared for the petitioners. Senior counsel Dr AM Singhvi appeared for Byju’s and Solicitor General Tushar Mehta for the BCCI.

NCLAT order

Justice Rakesh Kumar Jainpresiding over the case noted that the source of the settlement funds was transparent and that the interests of all parties, including the Glas Trust, were preserved. The Glas Trust has the option to reopen the case if necessary, but the deal as it stands has been officially approved.

The deal will be financed by Riju Ravindran, the brother of Byju founder Byju Raveendran and a major shareholder in the company. Riju Ravindran has pledged to use his personal funds to cover the arrears. These funds are derived from the sale of shares in Think & Learn, the parent company of Byju’s, between May 2015 and January 2022.

The approval of this deal followed concerns raised by US-based lenders. These lenders questioned the legitimacy of the funds being used, suspecting that they could be diverted from the loans granted by them. In response, the NCLAT required Byju’s to submit an undertaking confirming that the funds used for the settlement did not come from the term loans objected to by these lenders.

background

Insolvency proceedings against Byju began when the National Company Law Tribunal (NCLT) in Bangalore ordered the commencement of corporate insolvency resolution on June 16, 2024. This action followed Byju’s failure to comply with a payment of ₹158.9 million related to a sponsorship deal with the BCCI. The NCLT decision included the suspension of Byju’s board and the appointment of an interim resolution professional to manage the company’s financial obligations.

At the heart of Byju’s financial problems was the “Team sponsor agreement” with the BCCI established in July 2019. This agreement granted Byju exclusive rights to display the brand in the Indian cricket team’s advertising during cricket broadcasts and access to tickets for matches organized by BCCI In return, Byju’s agreed to pay a sponsorship fee until March 2022 and cleared the fees for the India-South Africa series in June 2022. paid the subsequent bills, although a bank guarantee of ₹143 crore was collected.

Case Details: GLAS TRUST COMPANY LLC Vs BYJU RAVEENDRAN | Newspaper no. – 35406/2024

Citation: 2024 LiveLaw (SC) 826

Click here to read/download the judgment

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