Byju's second rights issue: Karnataka HC sets aside NCLT interim order

Byju's recently moved the Karnataka High Court challenging the order of the National Company Law Tribunal (NCLT) restraining it from going ahead with the second rights issue

The Karnataka High Court on Tuesday set aside a June 12 interim order passed by the National Company Law Tribunal (NCLT), Bangalore which had restrained beleaguered edtech firm Byju’s from launching a second rights issue.

Justice SR Krishna Kumar pronounced the decision on Tuesday afternoon, after having reserved orders in the matter last week, according to law platform Bar & Bench.

The judge said that the order has been passed on merits and that the matter has been sent back to the NCLT (possibly for reconsideration) for further hearing. The detailed judgment would be made available on Wednesday.

Byju’s and its investors are fighting at the National Company Law Tribunal (NCLT) over the company’s rights issue of $200 million in a petition alleging mismanagement.

The four investors, Prosus, General Atlantic, Sofina, and Peak XV Partners (formerly Sequoia India & Southeast Asia), had sought a stay on the rights issue at less than 99 per cent enterprise valuation compared to Byju’s peak valuation of $22 billion.

Byju’s recently moved the Karnataka High Court challenging the NCLT order restraining it from going ahead with the second rights issue.

The orders of NCLT were expected to be challenged before the National Company Law Appellate Tribunal (NCLAT). However, Byju’s approached the high court.

NCLT Bengaluru had on June 12 told Byju's to maintain the status quo with regard to existing shareholders and their shareholding.

“Status quo with regard to existing shareholders and their shareholding shall be maintained till the disposal of the main petition,” the order that was made available on June 13 said.

This means that Byju’s was restricted from issuing shares and using funds raised from a $200 million rights issue until the tribunal decides the matter. 

The second rights issue started on May 13 and was expected to end on June 13. With that, Byju’s was not allowed to utilise any funds it had collected from the second rights issue, and the amount from the second rights issue had to be deposited in a separate account.

According to industry sources, the legal battles are expected to adversely impact the edtech firm’s ability to run its operations, pay the pending amount to the vendors, as well as salaries to the employees.

Byju’s is facing multiple challenges, including a cash crunch, delays in financial reporting, and legal disputes with lenders and investors.