Thu, 14 November 2024 09:59:53am
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Big Blow to Byju: Supreme Court Voids NCLAT Rs 158 Crore Settlement with BCCI
Big Blow to Byju: Supreme Court Voids NCLAT Rs 158 Crore Settlement with BCCI
In a significant setback to India’s largest edtech company, Byju’s, the Supreme Court recently overturned the National Company Law Appellate Tribunal (NCLAT)’s approval of a Rs 158 crore settlement between Byju’s and the Board of Control for Cricket in India (BCCI). This decision has reinvigorated insolvency proceedings against the edtech giant, raising concerns over its financial future.
The Case Background
Byju’s, formally known as Think and Learn Pvt. Ltd., has been facing financial and legal challenges on multiple fronts, from missed loan payments to contested negotiations with lenders. Byju’s initially struck a settlement with BCCI after the latter filed for insolvency proceedings due to a Rs 158 crore default. The NCLAT approved this settlement on August 2, 2024, a decision that paused insolvency proceedings and allowed Byju’s founder, Byju Raveendran, to regain control of the company.
However, Byju’s US-based creditor, Glas Trust, opposed this NCLAT-approved settlement. Represented by Senior Advocates Shyam Divan and Kapil Sibal, Glas Trust contended that the NCLAT’s approval bypassed key insolvency protocols, challenging it in the Supreme Court. Senior Advocate Dr. AM Singhvi represented Byju’s, while Solicitor General Tushar Mehta represented BCCI in the case.
Supreme Court’s Observations
The Supreme Court, led by Chief Justice DY Chandrachud and Justices JB Pardiwala and Manoj Misra, ruled that the NCLAT’s decision violated essential procedures under the Insolvency and Bankruptcy Code (IBC). According to the court, NCLAT’s use of its inherent powers under Rule 11 of the NCLAT Rules, 2016, to approve the settlement was improper since the IBC requires a formal, IRP-led procedure for withdrawing insolvency applications.
The court underscored that once the Corporate Insolvency Resolution Process (CIRP) begins, the Interim Resolution Professional (IRP) must manage any withdrawals of applications. In Byju’s case, the withdrawal was executed directly between Byju’s and BCCI without involving the IRP—a clear departure from established IBC procedure.
Additionally, the court noted that no formal withdrawal application was filed with the NCLAT, and instead of terminating the insolvency process, the tribunal should have directed the parties to file a formal request through the IRP under Section 12A of the IBC. This ruling ultimately nullifies the NCLAT’s approval of the settlement, meaning insolvency proceedings will resume, and the Rs 158 crore deposited by BCCI in an escrow account will now transfer to one managed by the Committee of Creditors (CoC).
International and Domestic Complications for Byju’s
Byju’s financial woes began in June 2023 when it missed a payment on a $1.2 billion term loan, sparking a dispute with its US creditors, led by Glas Trust. The US lenders alleged that Byju’s defaulted and began enforcing repayment demands, while Byju’s countered that loan terms were being unfairly altered. This conflict saw Byju’s simultaneously embroiled in legal proceedings across various jurisdictions, including courts in New York and India.
Adding to its troubles, India’s Enforcement Directorate has launched investigations into Byju’s, further complicating the company’s ability to resolve its financial challenges.
Impact of the Supreme Court Ruling on Byju’s
This ruling leaves Byju’s in a precarious financial situation, as insolvency proceedings against it will now resume. The move restricts Byju’s from autonomously negotiating with creditors like BCCI and heightens scrutiny on the company’s financial practices. The Supreme Court’s decision could lead to a more controlled restructuring process, limiting Byju’s direct control over its finances until the issues with creditors are resolved.
Additionally, the ruling has broader implications for the NCLAT’s autonomy and the permissible scope of Rule 11 under the NCLAT Rules, 2016. By emphasizing procedural adherence under the IBC, the Supreme Court has set a precedent for future cases where tribunals may be tempted to resolve corporate insolvency matters informally.
Key Points
- Supreme Court Ruling: The SC overturned the NCLAT’s approval of the Rs 158 crore settlement between Byju’s and BCCI, citing procedural violations under the IBC.
- Insolvency Process Resumed: The insolvency proceedings against Byju’s will now resume, with funds held in escrow transferring to a CoC-managed account.
- Byju’s Financial Troubles: The company’s financial issues are compounded by missed loan payments, US litigation, and scrutiny from Indian authorities.
- Legal Precedent: The court’s ruling reinforces procedural requirements in corporate insolvency cases, limiting NCLAT’s use of Rule 11 for settlement approvals.
- Implications for Byju’s: The decision restricts Byju’s autonomy over financial negotiations, potentially delaying its financial recovery and increasing the role of creditors in restructuring efforts.
