Investors Vs Byju's: What has been argued in NCLT so far?

"The investors are not looking at the interest of 100 million students and the 12,000 employees but only at their value maximisation," Byju's lawyer argued.

The National Company Law Tribunal (NCLT) at Bengaluru on February 27 witnessed an intense showdown between four investors of ed-tech giant Byju's and the current board of directors of the company. 

The investors alleged that the company's move to call for rights issue is illegal and contrary to law and sought a stay of it, while the board of directors of the company argued that the investors were creating obstructions to the company.  The NCLT is expected to resume the hearing of the case on interim directions in a short while.

What was argued by the investors?

According to the investors, the board of directors could not have decided to call for a rights issue on their own, but they should have done so after calling an Extraordinary General Meeting (EGM) of shareholders wherein they can vote. Their lawyer said, "The board of directors, did not call a general body meeting before rights issues as they are aware that the general body is not in their favour."

The lawyers also said that there are serious allegations of misutilisation of funds against the company and hence, they need to be in the know of its affairs. Furthermore, they contended that the directors were bypassing the law for the rights issue.  The lawyer said, "Byju’s is a start up in the field of education. Think and Learn is the name of the company. Learning here is how to bypass the law.”

Citing investigation against the company by the Enforcement Directorate (ED) and the Ministry of Corporate Affairs (MCA), the lawyer for the investors argued that, "In the midst of these investigations by the MCA and the ED, and in the midst of a financial audit not having been done for two years, they now want us to invest more money failing which they will dilute our capital..” The investors, ultimately, sought for the following relief:

• Stay of the rights issues
• Status of quo of shareholding
• Stay on encumbering and transferring any assets of Byju’s and its subsidiary
• Disclosure of information regarding the company.

Byju's' argument

The embattled edtech giant began its argument by alleging that the investors were forum shopping by approaching the NCLT. According to the company, while the Karnataka High Court had asked the investors not to implement any resolution passed in the EGM that happened on February 23, the investors approached the tribunal instead of appealing against the court order.

"If the NCLT passes any order today, it will dilute the order of HC," the company's lawyer asserted. According to Byju's, the representatives of investors were present at the meeting where the decision on rights issue was made and hence can't claim that they were not consulted.  According to the company, stalling the rights issue would not benefit anybody and the company would utilise the funds from the issue only after the requisite legal procedures are complied with.

The lawyer said, "The investors are not looking at the interest of 100 million students and the 12,000 employees but only at their value maximisation."