Majority of Byju’s shareholders on Friday voted unanimously for removing founder CEO Byju Raveendran and his family from the board over alleged “mismanagement and failures” at what was once India’s hottest tech startup, but the company dug in its heels, calling the voting done in absence of founders as invalid and ineffective.
Founder CEO Raveendran Byju, his wife and brother – the only three members on company board as of now – stayed away from the extraordinary general meeting (EGM) called by a group of six investors, who collectively hold more than 32% in Think & Learn (T&L), the firm that operates online tuition platform Byju’s.
At the end, more than 60% of the shareholders voted in favour of all the seven resolutions, which included removing the current management, reconfiguration of the board and a third party forensic investigation into acquisitions done by the company.
Prosus – one of the six investors who had called the EGM – in a statement said “shareholders unanimously passed all resolutions put forward for vote.
“These included a request for the resolution of the outstanding governance, financial mismanagement and compliance issues at Byju’s; the reconstitution of the board of directors, so that it is no longer controlled by the founder of T&L; and a change of leadership of the company.” Sources with direct knowledge of the matter said the EGM was to start at 0930 hours on Friday but was delayed for almost an hour as around 200 people, some of them Byju’s employees, sought to join the virtual meet.
Only after due verification the investors were let in, they said, adding some 40 people representing the investors were allowed in and voted on the resolution moved by some investors.
However, the outcome of the vote at the EGM will not be applicable until March 13, when the Karnataka High Court will next hear Raveendran’s plea challenging the move by certain investors to call the meeting.
The High Court on Wednesday had refused to stay the EGM but stated that any resolution passed shall not be given effect till the next date of hearing. Raveendran and family own 26.3% in the company.
Byju’s in a statement, issued before the EGM results were declared, said it “firmly declares that the resolutions passed during the recently concluded EGM – attended by a small cohort of select shareholders – are invalid and ineffective. The passing of the unenforceable resolutions challenges the rule of law at worst.” Ahead of the EGM, four out of the six investors, on Thursday evening filed an oppression and mismanagement suit against the management of the company in the Bengaluru bench of the NCLT, seeking declaring of founders, including CEO Byju Raveendran, as unfit to run the company, appointment of a new board, declaring the just-concluded rights issue as void and a forensic audit of accounts.
A Byju’s spokesperson reacting to the news of suit being filed said the company has not received any formal intimation of any such petition. “Indian regulation stipulates due process for conducting an EGM, intimation of petitions being filed in NCLT, etc. But certain shareholders prefer to manufacture a media spectacle as opposed to following due process.” Sources said as per the process, the National Company Law Tribunal (NCLT) will issue notices once the petition gets admitted.
“As shareholders and significant investors, we are confident in our position on the validity of the EGM meeting and its decisive outcome, which we will now present to the Karnataka High Court in line with due process,” Prosus said.
Byju’s in its statement cited the Karnataka High Court order and said “coupled with numerous procedural irregularities and deficiencies, invalidates the resolutions passed by a select, narrow group of shareholders.” “These resolutions were voted upon without the valid constitution of a quorum, as stipulated in BYJU’S Articles of Association (AoA). According to Articles 38 and 39(a) of the AoA, at least one founder-director is required to form a valid quorum.
“As the founders did not participate in the meeting, the quorum was never legitimately established, rendering the resolutions null and void,” it said, adding “only around 20% of the number of shareholders attended this farcical EGM.” Byju’s referred to the number of shareholders and not the shareholding they hold in the company.
“The founders maintain that this purported EGM was designed to provoke a trial by the media and is fundamentally devoid of merit, having been brought forward by a select few shareholders as part of a self-serving agenda against the company and its founders,” it said.
“In any event, these resolutions merely request the Board to “consider” the recommendations passed at the EGM. They do not have any binding effect whatsoever on the company or its decision-making processes. As such, the resolutions lack the necessary authority to impose any obligations on Byju’s or its directors.” Investors have also sought a forensic audit of the company in the plea filed before the NCLT on Thursday evening, according to a court filing. They sought declaring the present management as unfit to run the company and appointing a new CEO and a new board. The plea also wants a forensic audit and a direction to the management to share information with the investors.
Sources said the plea also seeks a declaration of the just-concluded $200 million rights offer as void and sought a direction that the company should not take any corporate actions that will prejudice the rights of the investors.
The petition has been signed by four investors — Prosus, GA, Sofina, and Peak XV — along with support from other shareholders, including Tiger and Owl Ventures.
The edtech firm in the last one year suffered other setbacks, including its auditor resigning, lenders beginning bankruptcy proceedings against a holding company and a U.S. lawsuit disputing the terms and repayment of a loan.
Byju’s was valued at $22 billion in 2022 and it is now valued at $200 million in a rights issue.
