The National Company Law Appellate Tribunal (NCLAT) on Tuesday rejected a plea by US-based Glas Trust challenging Aakash Educational Services Ltd’s 29 October extraordinary general meeting (EGM) to approve a rights issue.
Aakash’s board has proposed the rights issue to raise its authorized share capital.
On Monday, the trustee for lenders to which Byju’s owes $1.2 billion moved the appellate tribunal, alleging that the proposed capital increase would reduce the shareholding of the edtech giant’s parent, Think & Learn Pvt. Ltd (TLPL), from around 25% to 5%, significantly diluting its value in the subsidiary.
To be sure, Byju’s is undergoing insolvency proceedings. Glas Trust is the principal member of the committee of creditors (CoC), holding a 99.41% voting share.
“Indeed, the value of TLPL’s shares in Aakash can never be preserved if it is commercially killed. Therefore, the spirit of the Insolvency and Bankruptcy Code (IBC) is best served when the companies in which the corporate debtor has some shares are allowed to prosper, irrespective of who has the controlling power,” a two-member bench comprising Justices N. Seshasayee and Jatindranath Swain said in its order.
Shareholder dispute
In its plea, Glas Trust argued that, being Aakash’s holding company, TLPL can’t have its shareholding diluted, as such a move would erode the value of its stake in the test-prep firm. It further contended that Aakash has not produced its 2023-24 financial statements to establish the immediate need to raise its authorized share capital, calling into question the urgency behind the proposal.
Essentially, Glas Trust challenged the National Company Law Tribunal’s (NCLT) 17 October order, which refused to restrain Aakash from holding the EGM. The NCLT held that “as a shareholder, the petitioner (TLPL) may validly seek financial documents to be aware of the health of the respondent (Aakash), but the proposed rights issue infusing funds cannot be termed to be inequitable”.
It added that the fact that TLPL may or may not be able to exercise its rights cannot form the basis for assessing the efficacy of the board resolution. “The acceptance of such a plea would lead to an incoherent proposition undermining the independent rights of the company.”
In July 2024, TLPL was dragged into insolvency proceedings by one of its operational creditors—the Board of Control for Cricket in India (BCCI)—for recovering its dues worth more than ₹150 crore. The BCCI settled the matter with Byju’s, but the Supreme Court stayed the settlement and remanded the matter to the NCLT for hearing the case afresh.
