In a major blow to edtech giant Byju's, the Supreme Court on October 23 has set aside the National Company Law Appellate Tribunal (NCLAT)’s order that had approved a Rs 158 crore settlement between Byju’s (Think and Learn Pvt Ltd) and the Board of Control for Cricket in India (BCCI).
The decision overturned a previous ruling by the NCLAT, which had closed the insolvency proceedings against the Byju’s after it settled with BCCI.
The Court held that the NCLAT had violated the proper procedures outlined in the Insolvency and Bankruptcy Code (IBC) and the settlement between the two parties was wrongly approved.
The Rs 158 crore that BCCI deposited in an escrow account, as per an earlier court order, will now be transferred to an escrow account managed by the Committee of Creditors (CoC).
SC asks Byju's, 'Why settle Rs 158 cr with BCCI but leave Rs 15,000 cr unpaid to others'
The judgement was pronounced by the bench led by CJI DY Chandrachud comprising Justices JB Pardiwala and Manoj Misra. Senior Advocates Shyam Divan and Kapil Sibal represented Glas Trust, while Senior Advocate Dr. AM Singhvi appeared on behalf of Byju’s. Solicitor General Tushar Mehta represented the BCCI.
The observations
Criticising the NCLAT for prematurely concluding the Corporate Insolvency Resolution Process (CIRP), the court found that the NCLAT had wrongly invoked its inherent powers under Rule 11 of the NCLAT Rules, 2016, to approve the withdrawal of the insolvency case.
"The NCLAT erred in allowing the withdrawal of the insolvency application by invoking its inherent powers under Rule 11 of the NCLAT Rules 2016. When there is a specific procedure provided for the withdrawal of insolvency applications, the NCLAT cannot invoke its inherent powers.”
The application for withdrawal can only be submitted through the Interim Resolution Professional (IRP) and not by the parties themselves, as was done in this case, it added.
The Court made it clear that once a Corporate Insolvency Resolution Process (CIRP) is admitted, the IRP takes control of the debtor's affairs, and any withdrawal of the application must go through the IRP.
The NCLT, the tribunal that handles insolvency cases, is not a "post office" that automatically approves withdrawals, and the NCLAT overstepped its role by approving the settlement between Byju's and BCCI.
The Court further noted that there was no formal application for withdrawal in this case. Instead of approving the settlement, the NCLAT should have paused the formation of the Committee of Creditors (CoC) and instructed the parties to follow the proper legal procedure under Section 12A of the IBC, which governs the withdrawal of insolvency applications.
The CJI also highlighted ongoing the investigations by various authorities, including those initiated by the Delaware court and India’s Enforcement Directorate.
With the settlement quashed, insolvency proceedings against Byju’s will now resume, keeping its legal troubles alive.
The case
Byju's legal troubles have unfolded across multiple fronts—New York courts, the NCLT, NCLAT, and the Indian Supreme Court—all while the company negotiates with different lenders, including BCCI and its US-based creditor Glas Trust over repayment of billion dollar loans.
It all started in June 2023 when Byju’s missed an interest payment on a $1.2 billion term loan, triggering conflict with its US-based lenders, led by Glas Trust. The lenders accused Byju’s of defaulting on the loan and demanded repayment, while Byju’s argued that the loan terms were being manipulated unfairly.
Meanwhile, another lender BCCI took Byju's to the NCLT for insolvency proceeding over default of Rs 158 crore loan. The NCLT had ordered the start of corporate insolvency resolution and an interim resolution professional was appointed to take over the company’s financial management during the insolvency process.
On August 2, 2024, the NCLAT had approved the Rs 158 crore dues settlement with the BCCI and set aside insolvency proceedings against Byju's, closing the insolvency proceedings.
The decision paved the way for founder Byju Raveendran getting back in control of the firm.
However, the US lender Glas Trust objected to the settlement and moved Supreme Court to challenge the NCLAT order.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
