The Supreme Court on Wednesday set aside the order of the National Company Law Appellate Tribunal (NCLAT), which closed the insolvency proceedings against ed-tech company Byju’s (Think and Learn Private Limited), after accepting a settlement between it and the Board of Control for Cricket in India (BCCI) for about Rs 158 crore.
The Bench of Chief Justice of India DY Chandrachud, Justice JB Pardiwala and Justice Manoj Misra held that the tribunal did not follow the due process prescribed in the Insolvency and Bankruptcy Code (IBC), and referred the matter again to NCLAT for fresh adjudication.
Earlier on September 26, the Apex Court had reserved its verdict on a petition filed by US-based lender Glas Trust Company.
The Bench had directed the resolution professional (RP) not to hold any meeting or proceed with the corporate insolvency resolution process (CIRP) initiated against the ed-tech firm till the Court decided the validity of its payment settlement with BCCI.
On September 25, the Apex Court had said it was considering sending the matter back to NCLAT for fresh consideration. The tribunal should apply mind and see where the money was coming from, it observed.
The Bench asked the counsel appearing for Byju’s that when the quantum of the debt was so large, how could one creditor walk away saying one promoter was ready to pay him? It further asked whether this was done by the personal assets of the ed-tech firm, which currently had a debt of Rs 15000 crore.
It further asked Byju’s why the firm chose to pick up BCCI and settle only with them?
Appearing for Glas Trust, Senior Advocate Shyam Divan argued that the tribunal erred in invoking its inherent powers under Rule 11 of NCLAT rules to allow the settlement and termination of the insolvency proceedings.
The US-based lender alleged that the money paid by Riju Ravindran (brother of Byju’s founder Byju Raveendran and a major shareholder in the company) was tainted, calling it a case of ’round-tripping’.
Appearing for Byju’s, Senior Advocate Abhishek Manu Singhvi submitted that the insolvency petition was filed by BCCI itself and there was nothing wrong in closing it on the basis of the settlement. Glas Trust could not move an appeal against the settlement done with BCCI out of the personal funds of Riju Raveendran, he added.
However, the Bench expressed apprehensions over the reasoning applied by the NCLAT.
Referring to para 44 of the NCLAT order, the Bench reiterated that the tribunal did not apply its mind.
The NCLAT observed in para 44 of the order that after perusing the affidavit and undertaking, it found that the money was generated by Riju Raveendran from his own sources by the sale of his shares held in the Corporate Debtor (CD). It added that income tax has been paid on sale of such shares.
In the undertaking, Riju categorically stated that he was not violating the order dated March 18, 2024, passed by the Delaware Court and confirmed that he had not directly, indirectly, or in any form or manner received any sum of money from disbursements made under the Credit agreement. Though the applicant was not satisfied with the undertaking, he also did not bring on record any evidence to the contrary that the money being offered was actually brought by Riju from the money disbursed to the borrower in terms of the credit agreement or was taken out of the coffers of the CD, noted the tribunal.
Senior Advocate NK Kaul, also appearing for Byju’s, submitted that there was nothing wrong in approving the settlement when the CIRP had not progressed to advanced levels. He said the Glas Trust was trying to ‘piggy back’ on the proceedings initiated by another debtor. If Glas Trust wanted to recover their amount, they should file their own application, added the Senior Counsel.
The Bench asked Solicitor General Tushar Mehta, appearing for the BCCI, whether the NCLAT would not bear in mind the debt owned by the Corporate Debtor. If the application moved for withdrawal was minuscule, did the NCLAT not say that it was not allowing this? it further asked.
The Apex Court had earlier refused to stay the meeting of the Committee of Creditors formed by the Resolution Professional in connection with the insolvency resolution of the ed-tech firm
On August 14, the Apex Court stayed the NCLAT order which closed the insolvency proceedings initiated by BCCI against Byju’s over the dues of Rs 158 crore based on a settlement between the parties. It further directed the BCCI to deposit a sum of Rs 158 crore in a separate escrow account till further orders.
On August 20, the top court of the country refused to pass orders to restrain the Resolution Professional from forming a Committee of Creditors for Byju’s in the insolvency proceedings against it.
Presiding over the case in NCLAT, Justice Rakesh Kumar Jain noted that the source of the settlement funds was transparent and the interests of all parties, including the Glas Trust, were preserved. The Glas Trust was given the option to revive the case if needed but the settlement, as it stood, had been approved officially.
The NCLAT ordered that the settlement would be funded by Riju Ravindran, who had committed to using his personal funds to cover the arrears. These funds were derived from the sale of shares in Think & Learn, the parent company of Byju’s, between May 2015 and January 2022.
The settlement raised concerns among the US-based lenders. They questioned the legitimacy of the funds being used, suspecting that the funds in question might be diverted from loans provided by them.
In response, the NCLAT required Byju’s to submit an undertaking confirming that the funds used for the settlement were not sourced from the term loans opposed by these lenders.
On June 16, 2024, the National Company Law Tribunal (NCLT) in Bengaluru had initiated corporate insolvency proceedings against Byju’s after the ed-tech firm defaulted on a Rs 158.9 crore payment related to a sponsorship deal with the BCCI.
The NCLT suspended Byju’s board and appointed an interim resolution professional to manage the company’s financial obligations.
In July 2019, Byju’s had signed a team sponsor agreement with the BCCI, which granted Byju’s exclusive rights to brand display on the Indian cricket team’s kit advertising during cricket telecasts and access to tickets for BCCI-organized matches. Byju’s had agreed to pay a sponsorship fee in exchange of these exclusive rights.
Byju’s met its payment obligations through March 2022 and settled the fees for the India-South Africa series in June 2022. However, it failed to pay subsequent invoices, resulting in a shortfall of Rs 158.9 crore, despite a bank guarantee of Rs 143 crore being encashed.