Byju Raveendran faces legal risks after US court ruling on fund fraud

Lenders may argue that as the ultimate decision-maker, Raveendran had knowledge of or actively participated in the diversion of funds, potentially justifying a 'corporate veil-piercing' claim

Byju Raveendran, the founder of beleaguered edtech firm Byju’s, now faces significant legal exposure following the US court’s ruling on fraudulent fund transfers. While Raveendran has not been directly named in criminal proceedings yet, the finding of fraudulent transactions opens the door for civil liability, potential personal asset recovery actions, and regulatory scrutiny, according to legal experts and industry sources analysing the order.

 

Judge John T. Dorsey of the United States Bankruptcy Court for the District of Delaware recently issued an order granting summary judgment in favour of Byju’s Alpha Inc. against Riju Ravindran, Camshaft Capital Fund LP and its affiliates, and Think & Learn Pvt Ltd (Byju’s parent, the defendants). Riju Ravindran is the brother of Byju’s founder, Byju Raveendran.

 

The order finds that the defendants, alongside Byju Raveendran, are responsible for orchestrating and executing an unlawful scheme that defrauded the lenders. Damages are to be awarded at a later date. The dispute revolves around the $1.5 billion Term Loan B (TLB) guaranteed by Think & Learn Pvt Ltd, the parent of Byju’s.

 

“Lenders may argue that as the ultimate decision-maker, he (Raveendran) had knowledge of or actively participated in the diversion of funds, potentially justifying a ‘corporate veil-piercing’ claim,” said Sonam Chandwani, managing partner at law firm KS Legal & Associates. “If further investigations reveal wilful intent, he could face proceedings under corporate fraud provisions of the Companies Act, 2013, or even criminal charges under the Indian Penal Code’s Section 420 (cheating and misrepresentation). The Enforcement Directorate may also step in if any Foreign Exchange Management Act (FEMA) violations are found, particularly concerning offshore fund transfers,” Chandwani added.

 

Chandwani said that lenders now have strong legal standing to initiate ‘clawback’ suits, asset attachment proceedings, or insolvency actions to recover their dues. Given the court's clear finding of fraudulent activity, she said Byju’s creditors may move swiftly to freeze corporate and personal assets, challenge any bankruptcy protection claims, or file for civil damages.

 

Speaking on the development in the US, Salman Waris, managing partner at TechLegis Advocates & Solicitors, said the US Bankruptcy Court in Delaware’s ruling signifies a severe legal blow to Byju’s, particularly impacting Byju Raveendran due to his leadership role.

 

“The court’s finding of ‘fraudulent transfers’ directly implicates the company’s financial management, which falls under his purview,” said Waris. “Specifically, the court’s finding that Riju Ravindran violated his fiduciary duty, as well as the court’s statements about the actions of Think & Learn, where Byju Raveendran is the CEO, puts him in a position of high legal risk. The court’s statements about the funds being hidden where the lenders would never find them also directly implicate Byju Raveendran. This ruling not only damages his reputation but also sets the stage for potential personal legal action by lenders,” Waris added.

 

Waris said the US court’s decision significantly empowers the lenders. They now possess a legal validation of their claims, which strengthens their position in negotiations and potential future litigation. “It is highly probable that lenders will pursue further legal action to recover their funds, including seeking damages and potentially attempting to seize Byju’s assets,” said Waris. “They will also likely pursue all avenues to recover the funds that were fraudulently transferred,” he added.

 

Legal experts said the court ruling could also trigger Securities and Exchange Board of India (Sebi) and Serious Fraud Investigation Office (SFIO) inquiries into financial misrepresentation, particularly if investors argue they were misled about the company’s financial health. Any regulatory investigation could lead to operational restrictions, financial penalties, or board restructuring to restore investor confidence. If criminal liability is established, directors involved in the transactions could face disqualification under the Companies Act, 2013, or prosecution for corporate fraud.

 

Shadow on Indian startups 

The larger impact extends beyond Byju’s, casting a shadow over India’s startup ecosystem, especially in the edtech industry. This case sets a precedent for stricter governance standards, increased due diligence by investors, and heightened regulatory intervention. A similar precedent can be seen in the case related to fashion startup Zilingo’s co-founder Ankiti Bose, where investors took swift legal action against financial fraud, leading to forensic audits, corporate restructuring, and an eventual shutdown.

 

“If creditors push aggressively and law enforcement intervenes, this could escalate into one of the most high-profile corporate fraud cases in India’s startup history,” said Chandwani of KS Legal & Associates. “As global investors become increasingly cautious about governance in Indian startups, this case reinforces that financial mismanagement will no longer be tolerated without serious legal consequences,” she added.

 

Valued at $22 billion in 2022, Byju’s has seen its fortunes dwindle due to a massive cash crunch, regulatory issues, and disputes with investors, including a battle with US lenders demanding $1 billion in unpaid dues, triggering the firm’s insolvency. Once India’s most valued startup, the company is now worth nothing, Raveendran recently told reporters as he called for rebuilding the erstwhile empire from scratch, brick by brick.