Karnataka High Court stays NCLT order barring Aakash from amending AoA

Karnataka high court

The Karnataka High Court has stayed a National Company Law Tribunal (NCLT) order that barred Byju’s-owned Aakash Educational Services from passing a resolution to amend its Articles of Association (AoA).

The resolution was an attempt to reduce the influence of minority shareholders, the investors had argued, accusing Byju’s of trying to giving a greater say to big investors like Manipal Education.

The high court granted interim relief to Aakash on November 25, finding merit in its argument that NCLT failed to provide sufficient reason for its decision to halt the resolution, the Bar and Bench website reported.

On November 20, NCLT ruled in favour of investors, directing Aakash Institute to not give effect to the resolution to amend AoA.

The interim order prevented Aakash from making any changes to its governance structure until the tribunal’s final decision in the dispute.

The order followed claims from investors, including Blackstone-owned Singapore Topco, that Byju’s, which acquired Aakash in 2021 for $1 billion, was allegedly attempting to alter the AoA to benefit larger shareholders such as Manipal Education at the expense of minority stakeholders.

Singapore Topco holds a 6.97 percent stake in Aakash Institute and had alleged that its rights and interests were being oppressed.

"It is settled law that reasons are an objective expression of an opinion and the Tribunal must substantiate their orders in the interest of legality, propriety, and in adherence to principles of natural justice," high court Justice Hemant Chandangoudar was quoted as saying by the website.

The court, however, made it clear that the ruling was not a final decision. The case will now be heard on December 2.

Singapore Topco, along with other lenders, had argued that Byju’s management was allegedly attempting to amend key provisions of Aakash’s AoA to reduce the influence of minority shareholders, particularly those with "reserved matters" rights and increase the sway of Manipal Education.

The alleged move was being seen as an attempt to reduce Byju’s control over its highly valuable asset.

Aakash argued that the investors' shares were obtained as part of a Merger Framework Agreement (MFA), which was never fully executed, stripping them of rights in the company.

In the previous hearings, the lenders raised concerns about founder Byju Raveendran’s continued involvement in Aakash’s board decisions despite the appointment of a resolution professional (RP) to oversee the edtech’s parent company, Think & Learn.

“The RP is not bothered even though the assets of the company are being frittered away,” Glas Trust’s counsel told the tribunal during a hearing.

Blackstone’s counsel had even called the proposed extraordinary general meeting (EGM) an “act of oppression” against minority shareholders.

On November 25, a Bloomberg report said the government had asked the regional office of the Registrar of Companies in Hyderabad to investigate Byju’s books to ascertain if the company misreported financial statements and whether funds were siphoned off.

There were shortcomings in the accounts of Byju’s, sources said, explaining the reason for the new probe.  The registrar’s office has one year to submit its report.