NCLT reserves orders on Byju’s rights issue; gives three days to file written submissions

The National Company Law Tribunal (NCLT) on Tuesday asked Byju’s and a group of shareholders opposing the cash-strapped edtech firm’s $200 million rights issue to file written submissions within three days, and reserved its order on a plea for interim relief.

The tribunal will also seek the views of the Ministry of Corporate Affairs and Registrar of Companies on petition, NCLT’s Bengaluru bench led by judicial member K Biswal said.

Four key Byju’s investors, led by Dutch investment firm Prosus, told the NCLT that the company was allowed to issue capital of Rs 6 crore through the rights issue, but it was instead issuing Rs 40 crore, as mentioned in the offer letter. This violated the Companies Act, they said.

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Byju’s counsel said the amount the company is expecting to receive is more than Rs 40 crore. The Companies Act allows an entity to issue shares as long as the issue value stays within the authorised capital value, the counsel argued.

Authorised capital can be increased later by a resolution passed in an extraordinary general meeting (EGM), the counsel said. At present, it only made an offer to the shareholders to subscribe to the rights issue and has not made any allotment, he told the tribunal.

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The allotment will take place after the board and the EGM approve the ramping up of authorised share capital, he said.

The issue that opened on January 29 is scheduled to close on Wednesday.

A person familiar with the matter said the company cannot use the funds from the rights offer till an EGM happens and approves the increase in authorised capital. “Whether or not a rights offer will go through would depend on the interim order,” this person added.

A person close to the company, however, said the NCLT was not inclined to issue any order on Tuesday. “That means the rights issue can proceed as planned and will close tomorrow (Wednesday),” he added.

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Spokespeople for Prosus Ventures and Peak XV Partners — part of the investor group — and Byju’s did not immediately respond to ET’s request for comment.

On February 23, a group of investors in Byju’s parent Think & Learn voted to remove founder Byju Raveendran as CEO and revamp the board, which includes his wife and cofounder Divya Gokulnath and brother Riju Ravindran.

Sources said the investors that voted in favour of the resolutions hold about 60% in Think & Learn. Byju’s, however, asserted that the claims made by “a small group” minority shareholders that they had unanimously passed the resolution in the EGM was “completely wrong”. Only 35 out of 170 shareholders (representing around 45% of shareholding) voted in favour of the resolution, it said, adding: “That in itself shows the very limited support that this irrelevant meeting received.”

During Friday’s hearing, the shareholder’s counsel argued that without increasing the authorised share capital, an entity cannot receive capital under the rights issue through equity shares as it has happened in this case.

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Apart from this, the shareholders pointed out that the edtech firm had not followed the due process mentioned under the Companies Act for a rights issue, as it gave just two days’ notice to the shareholders before the issue opened on January 29, instead of three days as prescribed under law.

Byju’s counsel argued that this was a minor breach, which didn’t strike the core of the rights issue. Further, the company’s interest should be of paramount importance and not the shareholder’s interest, added the counsel.

The counsel asked why the investors waited till the last minute to get a halt on a rights issue. “It was extremely sinister of the investors, with due respect,” the counsel said.

The counsel for shareholders sought an interim relief, since the offer closes on Wednesday.

On Byjus’ argument that the shareholders have filed this petition right at the cusp of the right issue closing, the shareholder's counsel said they had written letters to the management seeking information and were assured that information would be provided within five days, but this didn’t happen. As a last resort, the shareholders had to file the present petition.