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Allegations of financial impropriety have surfaced against India’s prominent edtech giant, Byju’s, as investors claim the company siphoned off a staggering $533 million to an obscure hedge fund in the United States. In response, investors are seeking a stay on Byju’s $200 million rights issue, labeling it as illegal and in violation of established laws.
The National Company Law Tribunal (NCLT) in Bengaluru has demanded Byju’s to furnish a written response to the investors’ allegations within three days, with the court reserving its order on the matter. The rights issue, intended to infuse funds into the startup, faces uncertainty as technicalities surrounding its execution come under scrutiny.
While Byju’s has refrained from commenting on the accusations put forth by four of its shareholders, sources close to the company suggest that, in the absence of a stay by the NCLT, the rights issue will proceed as planned, with its closure scheduled for the following day.
Investors contend that the rights issue can only proceed if the company’s authorized share capital is increased, a process requiring approval through an extraordinary general meeting of shareholders. They argue that such an increase has not yet been ratified, casting doubt on the legality of the rights issue.
During proceedings at the NCLT, investors revealed that Byju’s purportedly transferred $533 million to Camshaft Capital Fund, an entity founded by a 23-year-old individual with no formal investment training. The founder’s lavish lifestyle, including ownership of luxury vehicles, raises concerns about the prudence of the fund transfer.
Byju’s had previously defended the transfer, asserting that an offshore subsidiary retained ownership of the funds invested in high-security fixed-income instruments with a reputable US-based fund. However, investors fear irreversible consequences if the diverted funds remain offshore.
The dispute extends to the issuance of the rights offer letter, which investors argue was not issued in compliance with the Companies Act of 2013 due to inadequate notice for the board meeting approving the rights issue. Additionally, discrepancies in the company’s valuation, marked by a significant decline from previous estimates, further compound the investors’ grievances.
Lawyers representing Byju’s contend that investors are engaging in forum shopping, bypassing judicial orders and disrupting the company’s operations. They stress the necessity of the rights issue for the company’s growth and dismiss claims of inadequate consultation with investors.
Amidst the legal standoff, the fate of Byju’s rights issue hangs in the balance, with implications for the company’s financial stability and its ability to serve its vast student and employee base. As the dispute unfolds, the integrity of Byju’s operations and its commitment to investor trust are brought under intense scrutiny.
Sources By Agencies
