The National Company Law Tribunal on Wednesday reinstated Glas Trust Co. Llc and Aditya Birla Finance Ltd as Byju’s financial creditors, in a major setback to the edtech company as the two lenders will now have a say in all decisions related to its insolvency process.
The tribunal also found Byju’s interim resolution professional (IRP), Pankaj Srivastava, unfit to oversee the insolvency process, and directed the Insolvency and Bankruptcy Board of India (IBBI) to take disciplinary action against him and disband the Committee of Creditors (CoC) that he had constituted.
The insolvency court also set aside the resolution passed by the reconstituted CoC on 3 September appointing Srivastava as the resolution professional.
The court directed that the reconstitution of the CoC on 31 August 2024 be cancelled, and the erstwhile CoC from 21 August 2024 be retained. The retained CoC from 21 August 2024 will now convene the meeting to appoint a new RP to oversee the insolvency proceedings.
The NCLT’s Bengaluru bench passed the order on the pleas of Byju’s lenders, US-based Glas Trust Company and Aditya Birla Finance Ltd, who alleged fraud in creditor classification.
“It is clear from the aforementioned that the IRP has a duty to assist the tribunal with integrity in an honest and fair manner, and the conduct of the IRP in the present case has been filed with the intent to mislead the tribunal,” the tribunal said.
“The actions and decisions taken by the IRP are prejudicial to the interests of the corporate insolvency resolution process (CIRP) outlined by the Insolvency and Bankruptcy Code (IBC), 2016, and to stakeholders… the above conduct on the part of the IRP needs to be dealt with by way of disciplinary proceedings by the IBBI,” NCLT added in its order.
NCLT’s decision to eject Byju’s interim resolution professional and reinstate Glas Trust and Aditya Birla Finance as financial creditors is a major victory for both lenders, who will now be included in Byju’s Committee of Creditors.
Under India’s Insolvency and Bankruptcy Code, the CoC has the power to make key decisions about a company during the corporate insolvency resolution process.
However, a legal expert said changing the resolution professional at this stage could complicate Byju’s insolvency process and delay decision-making.
“The removal of the IRP could lead to unnecessary delays and procedural complexities in Byju’s ongoing insolvency proceedings. A new RP will have to be recommended by the CoC, which could cause further delays,” said Zubin Morris, partner at law firm Little & Co.
“Additionally, the new IRP will need time to adapt to the case, potentially leading to inconsistencies in decision-making. Meanwhile, the IBBI’s disciplinary proceedings against the former IRP will add further procedural requirements, complicating the insolvency process.”
For the edtech company’s founder Byju Raveendran, NCLT’s decision presents a further setback as he will continue to be excluded from taking charge of the company.
If, however, the tribunal approves Byju’s ₹158 crore settlement deal with the Board of Control for Cricket in India (BCCI), the edtech company would exit the insolvency proceedings and Raveendran would regain control. Until then, the company remains under the control of the CoC, led by the lenders.
A precedent for insolvency cases
Glass Trust, which provided Byju’s with a $1.2-billion Term Loan B, and Aditya Birla Finance had moved the NCLT in September, accusing Byju’s IRP, Pankaj Srivastava, of misconduct in the bankruptcy process.
Aditya Birla Finance accused Srivastava of committing fraud in the edtech’s corporate insolvency resolution process, allegeding that it had been wrongfully classification as an operational creditor instead of as a financial creditor.
Financial creditors provide loans or other forms of credit to a company, while operational creditors supply goods or services as part of the company’s regular business activities. The primary distinction between the two lies in the nature of their claims during an insolvency process.
Financial creditors have a primary claim on a bankrupt company’s assets, followed by operational creditors. India’s IBC aims to balance the interests of both types of creditors to ensure a fair and transparent insolvency process for all parties involved.
Glas Trust had alleged that Srivastava had unlawfully ousted it from the creditors panel. Srivastava had admitted the lender’s claims under ‘contingent liability’.
The Committee of Creditors (CoC) in Byju’s insolvency process will now be primarily composed of Glas Trust, which holds a dominant 99.41% voting share reflecting its substantial claim of ₹11,432 crore.
Aditya Birla Finance and Incred Financial Services, with claims of ₹47 crore and ₹20 crore, respectively, hold much smaller voting shares of 0.41% and 0.18%. ICICI Bank, with no claims or verified amounts, has no voting rights in the CoC.
Morris of Little & Co said NCLT’s action sets a precedent for insolvency cases, reinforcing that any deviation from procedures or legal requirements will be scrutinized and action taken in case of violations.
“This could lead to stricter IBBI regulations, ensuring that resolution professionals adhere to higher standards of due diligence and professional conduct in insolvency proceedings,” Morris said.
The BCCI angle
The NCLT initiated insolvency proceedings against Byju’s on 16 June 2024 for defaulting on dues worth ₹158 crore owed to the Board of Control for Cricket in India (BCCI) as part of a sponsorship deal.
Byju’s had entered into a sponsorship agreement with BCCI in 2019, featuring its branding on the Indian cricket team’s jerseys. The contract was extended until November 2023, but when Byju’s failed to meet its financial obligations, the BCCI filed an insolvency petition with the NCLT.
However, both have filed for a settlement application before the court. The NCLT has yet to pass an order in this matter.
Earlier, the Supreme Court quashed an older settlement process on 23 October. The court found that the settlement did not follow the due process under the IBC and instructed the parties to approach the NCLT for fresh proceedings.
Byju Raveendran had challenged the insolvency proceedings before the National Company Law Appellate Tribunal (NCLAT). On 2 August, the NCLAT dismissed the insolvency proceedings against Byju’s and approved the settlement with the BCCI after Riju Raveendran raised the ₹158 crore to repay the cricket board, temporarily restoring his control over the company’s operations.
Glass Trust had argued that the funds raised by Riju Raveendran, Byju’s founder’s brother, for the settlement, were “tainted” and should be allocated to financial creditors.
Additionally, it cited ongoing investigations by the Enforcement Directorate into Byju’s financial dealings. Byju Raveendran currently resides in Dubai, while Riju is based in London.
Founded in 2011 by Byju Raveendran and Divya Gokulnath, Byju’s quickly became a leading player in India’s ed-tech sector. However, the company’s aggressive expansion has been marred by financial difficulties, regulatory scrutiny, and disputes with creditors. Once considered India’s most celebrated startup.
