The Indian edtech giant, Byju’s, finds itself embroiled in a legal battle with a group of prominent investors at the National Company Law Tribunal (NCLT) over its proposed $200 million rights issue. The clash centers around allegations of procedural irregularities and concerns about the valuation at which the rights issue is being conducted.

The NCLT Showdown

On a pivotal Tuesday, Byju’s and its investors, namely Prosus, General Atlantic, Sofina, and Peak XV (formerly Sequoia), engaged in a heated dispute at the NCLT. The court demanded a written response from Byju’s within three days and issued notices to the Ministry of Corporate Affairs and the Registrar of Companies. As the tribunal reserved its order, the fate of the $200 million rights issue hung in the balance.

Investors’ Plea and Allegations

The group of four investors, backed by other shareholders Tiger Global and Owl Ventures, sought a stay on the rights issue, arguing that it was undervalued at less than 99% of Byju’s peak valuation of $22 billion. They claimed that participation was forced upon them, leading to potential dilution of their shareholding if they refrained from taking part in the rights issue. The investors alleged that Byju’s breached laws by not increasing authorized share capital, a legal requirement for such financial maneuvers.

Byju’s Defense and Counterarguments

Byju’s, led by founder Byju Raveendran, countered the investors’ claims, accusing them of “forum shopping” and attempting to undermine the Karnataka High Court’s previous order. The edtech firm defended its rights issue process but faced scrutiny over its alleged failure to provide sufficient information to investors, particularly related to financials. The investors disputed the validity of a purported board meeting on January 27, where the rights issue proposal was said to have been approved.

Key Contentions

The investors, holding over 25% of Byju’s, raised concerns about the lack of information provided to them, ongoing investigations against the company, and the questionable validity of the board meeting. They contended that the rights issue should not proceed without an increase in authorized share capital and that their participation was being forced without adequate disclosure.

As the NCLT deliberates on this high-stakes clash between Byju’s and its investors, the Indian edtech sector is witnessing a critical moment. The outcome of this dispute could have far-reaching implications not only for Byju’s but also for the broader investment landscape in India’s burgeoning edtech industry. As the rights issue deadline of February 28 looms, all eyes are on the NCLT, awaiting its decision on whether Byju’s can proceed with its $200 million fundraising initiative.