An earlier decision by the National Company Law Appellate Tribunal (NCLAT) that authorized a ₹158 crore settlement between Byju’s (Think and Learn Pvt Ltd) and the Board of Control for Cricket in India (BCCI) was overturned by the Supreme Court of India, dealing a serious blow to the edtech behemoth. This verdict, which was rendered on October 23, 2024, further exacerbates the edtech company’s already severe legal problems by reopening insolvency proceedings against it.
Credits: Money Control
Byju’s, which has been battling numerous legal challenges and financial difficulties in India and abroad, will be greatly impacted by the Court’s decision.
Why the Supreme Court Quashed the Settlement
The NCLAT’s procedural infractions led to the Supreme Court’s ruling. In August 2024, the tribunal authorized a settlement between Byju’s and the BCCI, which included a payment of ₹158 crore to end the cricket board’s insolvency proceedings. However, Glas Trust, one of Byju’s US-based creditors, contested this settlement.
Along with Justices JB Pardiwala and Manoj Misra, Chief Justice of India DY Chandrachud emphasized that the NCLAT had improperly used its inherent authority under Rule 11 of the NCLAT Rules, 2016 to authorize the insolvency application’s withdrawal. The NCLAT was chastised by the Court for failing to follow the Insolvency and Bankruptcy Code’s (IBC) guidelines.
“The NCLAT erred in allowing the withdrawal of the insolvency application by invoking its inherent powers,” said the Court. The bench stressed that once a Corporate Insolvency Resolution Process (CIRP) is admitted, the control of the debtor’s financial affairs shifts to the Interim Resolution Professional (IRP). Therefore, any settlement or withdrawal of the insolvency application should have gone through the IRP and followed Section 12A of the IBC, which governs such withdrawals. The NCLAT had overstepped by approving the settlement directly between Byju’s and the BCCI.
Criticism of NCLAT’s Ruling
The Supreme Court did not hold back in its criticism of the NCLAT, calling out its handling of the case. The bench noted that there was no formal application for withdrawal of the insolvency application, a crucial procedural step that was overlooked. According to the Court, instead of approving the settlement, the NCLAT should have directed the parties to adhere to proper legal procedures.
In a stinging rebuke, the Court said, “The NCLT is not a post office that automatically approves withdrawals.” It underscored that the tribunal’s role is not simply to rubber-stamp agreements between parties, especially in insolvency matters, where the interests of all creditors need to be taken into account.
The Court also pointed to the ongoing investigations into Byju’s, including probes by the Delaware court and India’s Enforcement Directorate, as part of the company’s broader legal challenges.
What This Means for Byju’s
The 158 crore that was placed in an escrow account by a previous court order will now be moved to an escrow account run by the Committee of Creditors (CoC) as a result of the Supreme Court’s decision. This represents a major change because Byju’s will continue to be governed by insolvency laws and the CoC will now have a vote in how these funds are managed.
The decision means that Byju’s will face further financial and legal challenges as the insolvency processes will recommence. Byju’s has been going through a difficult time, with operational difficulties, disputes with foreign lenders, and missed loan payments making financial instability worse.
Byju’s Financial and Legal Struggles: A Brief Timeline
The roots of Byju’s legal and financial troubles can be traced back to June 2023, when the company defaulted on an interest payment for a $1.2 billion term loan. This triggered a conflict with Glas Trust, which represents Byju’s US-based lenders. The lenders accused the company of manipulating loan terms and demanded immediate repayment, sparking a protracted legal dispute.
Due to these difficulties, the BCCI filed for bankruptcy against Byju’s for failing to pay ₹158 crore. The Corporate Insolvency Resolution Process (CIRP) was initiated by the NCLT, India’s insolvency tribunal, which also appointed an Interim Resolution Professional to supervise the company’s financial management. But Byju’s was able to come to an agreement with the BCCI, which was first accepted by the NCLAT in August 2024—until it was reversed by the Supreme Court’s most recent decision.
Comments are closed.