Supreme Court striking down NCLT order brings in further challenges for the edutech major- The Week

The Supreme Court of India overturning the order of the National Company Law Appellate Tribunal (NCLAT) to halt insolvency proceedings against Byju’s is expected to bring in further challenges for the edutech major.

The company will now have to find a way to pay the overdue payments. On Wednesday, a Supreme Court bench, led by Chief Justice DY Chandrachud, rejected the NCLAT’s decision to approve the company’s Rs 158.9-crore dues settlement with the Board of Control for Cricket in India (BCCI).

The Supreme Court had ordered Byju’s to deposit the Rs 158-crore settlement sum agreed upon with the BCCI into an escrow account managed by the Committee of Creditors (CoC). This directive is consistent with the court’s September 26 order, which instructed the interim resolution professional (IRP) to maintain the status quo and refrain from convening CoC meetings until the judgment was delivered.

“Companies in such a situation have to keep up the focus on operations and particularly the cash-generating flywheels. This starts a virtuous cycle of investments. It calls for tremendous resilience and passion to come out of such a scenario,” said Aditya Narayan Mishra, the MD and CEO of CIEL HR.

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The court had emphasised that, while Byju’s and the BCCI might pursue their settlement, they must do so under the tight supervision of the IRP and CoC, following the procedures prescribed in the Insolvency and Bankruptcy Code (IBC). The Supreme Court’s decision followed an appeal by US firm Glas Trust Company LLC against the NCLAT’s verdict. The Bench has now issued a new decision in the matter, stating that the tribunal did not apply its mind when halting the insolvency proceedings against the edutech firm.

“The SC order is a watershed event amid Byju’s financial problems, effectively handing over control of the company from founder Byju Raveendran to its creditors. The verdict is good news for Glas Trust Co. LLC, a financial creditor which challenged the NCLAT’s earlier order halting the insolvency process, alleging that the money was illegal and syphoned off from them, and moved the Supreme Court,” remarked space and aerospace expert Girish Linganna who also tracks the edutech space.

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There is no doubt that the company has fallen in stature from a unicorn achieving USD 22 billion valuation (around Rs 2000 crore) to experiencing a significant drop. The company is straddled with huge demands of outstanding statutory dues while continuing to fight debt repayments and poor investor perception. While its fight against insolvency and claims is going to take some time, Byjus should address the complaints against statutory dues and ensure its current or former employees do not face any harassment from government authorities.

In the recent past, the Income Tax Department issued demand notices for unpaid Tax Deducted at Source (TDS) to over 6,000 current and former employees of Byju’s, with dues amounting to about Rs 848 crore. Mounting troubles may not be good for the company, and it will further add to a lack of customer and investor confidence.