Supreme Court sets aside NCLAT order halting Byju's insolvency proceedings

With this, Byju Raveendran and his brother Riju Raveendran have again lost control over Think and Learn Pvt Ltd or Byju's

The Supreme Court on Wednesday set aside the National Company Law Appellate Tribunal (NCLAT) order halting the insolvency proceedings against edtech firm Byju’s on a petition filed by US-based creditor firm Glas Trust Company LLC — which represents lenders to which Byju’s owes $1.2 billion.

 

This order has sent cash-strapped Byju’s back to the corridors of the National Company Law Tribunal (NCLT), where it will once again face the insolvency proceedings that had kicked off on a plea filed by the Board of Control for Cricket in India (BCCI).

 

In July, the NCLT had started the insolvency proceedings after BCCI alleged that Byju’s had defaulted on ~158 crore. But the NCLAT halted the proceedings after Byju’s claimed that it had reached an agreement to pay ~158 crore to BCCI towards outstanding dues.

 

But Glas Trust, while alleging that the money was “illegal” and siphoned from them, had moved the apex court. 

 

On Wednesday, a Bench of Chief Justice of India (CJI) D Y Chandrachud, and justices J B Pardiwala and Manoj Misra said: “The NCLAT cannot be considered a post-office which will stamp such withdrawal applications being moved by the IRP... There was no formal application made for withdrawal, the first respondent who was a former director of corp debtor, had moved NCLAT directly,” it said.

 

 

“Despite these grave deviations, the NCLAT still approved the settlement... Exercise of inherent powers cannot be done to subjugate the legal process and the NCLAT should have stayed the composition of CoC instead. Thus, we allow the appeal and set aside the NCLAT judgement,” the Bench said.

 

It asked other parties to approach the Committee of Creditors (CoC) of the insolvent firm to pursue appropriate remedies. The apex court also said the money should now be deposited in an escrow account managed by the CoC.

 

“We allow the present appeal and set aside the impugned judgment of the NCLAT dated August 2, 2024, in the above terms. At this stage, it would not be appropriate for this court to adjudicate on the objections of the appellant to the settlement agreement on merits. The issues raised are the subject matter of several litigations in different fora, including the Delaware Court and investigation by various authorities, including the Enforcement Directorate, which are pending,” the court said.

 

The apex court also said: “Nothing in this judgment should be construed as a finding on the conduct of any of the parties or other stakeholders involved in the insolvency proceedings.”

 

In September, the top court had raised concerns about the NCLAT order, which closed the insolvency proceedings against Byju’s, saying the appellate tribunal “did not apply its mind at all”.

 

Byju’s US-based lenders had opposed the settlement. They had told the NCLAT that the money being used for the repayment was “tainted” as it was part of $533 million that had gone “missing”.

 

On his part, Riju Raveendran had told the NCLAT that the money being paid to the BCCI was “clean”. His counsel had told the court that the money being paid to the BCCI was not part of the “missing” $533 million as alleged by the US-based lenders. The missing money is at the heart of a fight between the US-based lenders and Byju’s parent company Think & Learn. 

"The impact on Byjus & BCCI individually is immense as the erstwhile management will now be able to go for settlement, if any, only after procuring consent of 90% of the members of Committee of Creditors whereas BCCI, being an operational creditor would be on the losing end owing to their position being relatively lower on the waterfall as per Section 53 of the Code(Insolvency and Bankruptcy Code) when compared with financial creditors(such as banks)," said Amir Bavani, Founder, AB Legal, Hyderabad. 

 

"Byju's insolvency will significantly impact its creditors, investors, employees, and customers. However, there is a chance for Byju's to restructure under new ownership by way of a Resolution Plan, which could lead to a recovery or revamped business strategy," said Adhish Sharma, Principal Associate, Khaitan & Khaitan.