Allegations and Legal Battle Surrounding BYJU’S: Investors Seek Stay on $200 Million Rights Issue

Investors in BYJU’S have accused the edtech giant of siphoning off $533 million to an obscure hedge fund in the US. The allegations surfaced during proceedings before the Bengaluru bench of the National Company Law Tribunal (NCLT) on Tuesday. The investors are seeking a stay on BYJU’S $200 million rights issue, deeming it illegal and contrary to law.

The NCLT has reserved its order on the matter, instructing BYJU’S to submit a written response within three days. The rights issue, intended to infuse funds into the startup, is scheduled to close on Wednesday, prompting concerns over the legality of its continuation.

Amidst accusations of mismanagement and value erosion, investors argue that a rights issue can only proceed after increasing the authorized share capital through an extraordinary general meeting. They contend that this crucial step has not occurred yet.

During the NCLT hearing, investors alleged that BYJU’S transferred $533 million to Camshaft Capital Fund in 2022, a fund founded by a 23-year-old with no formal investment training. The funds’ use raised eyebrows as the founder displayed ownership of luxury cars post-transfer.

BYJU’S, in response to the allegations, previously stated that an offshore subsidiary remains the beneficiary of the invested money in high-security fixed income instruments with a multi-hundred billion dollar fund in the US.

The ongoing legal battle sees investors expressing concern over irreversible consequences if diverted funds remain abroad. The Enforcement Directorate is currently investigating the alleged fund diversion.

Lawyers for investors argue that the rights issue’s offer letter did not adhere to the Companies Act of 2013, providing only two days’ notice for the board meeting instead of the mandated three days or more. They dispute the validity of the board meeting approving the rights issue on January 27, claiming it was scheduled as an investor update call.

The $200 million valuation of the company in the rights issue is also disputed, contrasting sharply with the $22 billion valuation the firm once commanded.

BYJU’S lawyers counter that investors are forum shopping and point out that the Karnataka High Court had instructed investors not to implement any resolution passed on February 23. Investors, instead of appealing against this order, approached the NCLT.

In the February 23 Extraordinary General Meeting (EGM), 60% of investors voted to remove founder Byju Raveendran and his family. Investors argue that stalling the rights issue would not benefit anyone and emphasize the importance of complying with legal procedures.

As the legal battle unfolds, investors claim BYJU’S aims to compel them to contribute more money to the company, affecting their stakes. The company insists that the investors’ perspective neglects the interests of 100 million students and 12,000 employees, focusing solely on value maximization.