Byju’s Vs Investors: What is an EGM and what does the law say about it?

Byju's EGM what does the law say about EGM

On March 29, embattled edtech firm Byju’s concluded its extraordinary general meeting (EGM) to increase the company's authorised share capital. According to sources, there were no objections to the resolutions discussed at the meeting.

The sources said that hours before the EGM, the company’s CEO, Byju Raveendran, told dissenting investors who didn't participate in last month's funding round that they were welcome to participate in the same in the next 72 hours. However, none did.

The EGM was held just a day after the National Company Law Tribunal (NCLT) refused to defer it despite the plea of dissenting investors  such as Peak XV Partners, General Atlantic, and Prosus, to stop it for the time being.

This is in fact the second Byju’s EGM to be held  in 2024. The first one was called by a set of dissenting investors on February 23, wherein a resolution was passed to oust Raveendran from the company. However the resolution now remains in abeyance pursuant to an order of the Karnataka High Court.

These events that unfolded over  a month raises the question as to what exactly is an EGM, and why  dissenting shareholders wanted to defer it.

What is an EGM?

Any major decision of a company requires the consent of shareholders,  as per the Companies Act. While the board of directors have a huge role to play in running the affairs of the company, they cannot make material changes to a company’s functioning on their own. Thus, we have the concept of general meetings to enable interaction between the shareholders and the board.

There are two kind of meetings that a company holds for its shareholders, an Annual General Meeting (AGM), and the EGM. An AGM needs to be compulsorily conducted every year, and all  major decisions pertaining to a company are taken in an AGM by a vote of the shareholders.

However, an EGM is usually called when the company urgently needs the permission of the shareholders to conduct some business and it cannot wait until the next AGM.  To conduct an EGM, the board of directors must give a notice to the shareholders at least 21 days in advance. According to section 101 of the Companies Act, 2013, “Every notice of a meeting shall specify the place, date, day, and the hour of the meeting, and shall contain a statement of the business to be transacted at such meeting.”

Section 102 states that a statement setting that exact nature of the business and the consequences of the same on the company must be annexed with the notice calling for the meeting.

If a company fails to comply with  the conditions defined in the Act when calling for an EGM, the decisions taken in the EGM may be  invalidated if  challenged at the NCLT.

What did the dissenting investors contend before the NCLT?

A company's authorised share capital is the maximum amount of share capital that the company is authorised by its Memorandum of Association (MoA). The MoA dictates the dos and don’ts of a company, and any violation of the MoA is viewed seriously in law.

Byju’s had called for a rights issue to raise funds for its operations. However, dissenting investors wanted to stay the rights issue as they contended that their shareholding in the company would be diluted. They also argued that Byju’s could not carry on with the rights issue without increasing its authorised capital. On February 27, the NCLT declined a stay on the rights issue, but directed the company to keep the proceeds of the rights issue in an escrow account.

To give effect to the rights issue, the company had to increase its authorised share capital as additional shares were being issued.  However, it had not done so on the closing of the issue in February 2024. Thus the company had called for the EGM on March 29 to increase the authorised capital and consequently amend the MoA.

The dissenting investors, on March 28, alleged that some of the shareholders had not received the notice of the meeting. Furthermore, they argued that Byju’s was not permitting them to inspect the documents that would help them decide how to vote in the rights issue. According to the investors, Byju’s was holding the EGM  to get over the contentions they had raised earlier.

However, the NCLT found no merit in their arguments and refused to defer the EGM. The next hearing of the NCLT plea will be held on April 4.