Key investors may drag Byju's to NCLT

A consortium of shareholders with over 30 per cent stake in cash-strapped Byju’s might approach the National Company Law Tribunal (NCLT) seeking a management change, if the extraordinary general meeting (EGM) scheduled for Friday failed to yield an ‘amicable settlement’ or faced further delays, sources said.

Earlier this month, these shareholders had issued a notice calling for an EGM to address “persistent issues”, including a change in management.

They will vote for a revamp of the existing board, an exercise which would include asking Byju Raveendran to step down as chief executive officer (CEO) and relinquish his operational role, according to sources.

Sonam Chandwani, managing partner at law firm KS Legal & Associates, said if the investors approached the NCLT, they might seek to enforce changes in the management structure or protect their shareholder rights.

“They may do this, especially if internal mechanisms for resolution have been ineffective,” said Chandwani.

The investors are concerned about the company’s stability under its current leadership and board composition.

They are looking for the resolution of outstanding governance, financial and compliance issues, alongside leadership change.

The current board includes Raveendran, his wife and Byju's co-founder Divya Gokulnath, and his brother Riju Raveendran.

“If these investors take the legal route, it may expose them as well,” said a person familiar with the matter.

“Do they want sensitive details — like who voted for the acquisition of WhiteHat Jr or taking a loan from the US investment firm Davidson Kempner — to come out?”

The losses of Byju’s widened to Rs 8,245 crore in 2021-22 (FY22) from Rs 4,564 crore in FY21 as subsidiaries WhiteHat Jr and Osmo underperformed. These two accounted for 45 per cent of the edtech major’s losses.

Salman Waris, managing partner at TechLegis Advocates & Solicitors, flagged the firm’s financial challenges, with CEO Raveendran pledging his house to ensure employee salaries.

He said it was possible that the firm might get dragged to the NCLT and the management changed.

“However, the shareholders’ agreement does not give the investors the right to vote on the CEO or management change.

"So, the EGM may not be sufficient for the investors,” said Waris.

But investors taking the legal route could affect the company’s recent move to raise $200 million through a ‘rights issue’ to equity shareholders.

If Byju’s raises $200 million, its post-money valuation will be between $230 million and $250 million, a 99 per cent drop from the $22 billion valuation it had in 2022.

Since launching the rights issue, the firm has received commitments for more than 100 per cent of the amount.

However, for the ‘right issue’ to come through, Byju’s has to get consent from shareholders with more than 51 per cent of the voting power, according to sources.

This is where the consortium of key shareholders may have a role to play in supporting the company or going against it.

This legal conflict may also affect the company’s strategy of selling its assets Epic and Great Learning to repay a $1.2 billion term loan B from a group of overseas investors.

“The buyers may wait out to get the assets at a cheaper rate,” said a person familiar with the matter.

However, the rates of these assets may also go up if Byju’s is successful in raising capital via the rights issue.

Byju’s declined to comment on the future implications of the tussle with investors.

However, Think & Learn Pvt Ltd, the parent of Byju’s, recently said investors had no voting rights to change the CEO of the firm.

KS Legal’s Chandwani said the legal proceedings might lead to delays or raise concerns about the company’s prospects, affecting the success of the rights issue. She also said this dispute might make potential buyers hesitant.