New Delhi:

Edtech firm Byju’s parent company, Think & Learn Pvt, has found itself embroiled in a complex web of financial mismanagement, offshore dealings, and legal disputes. At the centre of it is $533 million, a Florida hedge fund, a bankrupt shell company and Byju’s beleaguered founder, Byju Raveendran. 

Byju’s major stakeholders last month voted to remove Mr Raveendran from his role as chief executive officer and stripping him of his position on the board of the company he established back in 2015. Byju’s, once hailed as one of India’s most profitable start-ups with a valuation exceeding $20 billion, has witnessed a staggering decline of approximately 90 per cent in the past year.

The Florida Link

The story begins with a small Florida hedge fund, Camshaft Capital Fund, accused of assisting Think & Learn in concealing $533 million. This staggering amount, crucial to the ongoing financial tussle, was initially held by Byju’s Alpha Inc., a bankrupt shell company affiliated with Think & Learn. Lenders, owed $1.2 billion, took control of Byju’s Alpha after it defaulted on its loan. The $533 million, allegedly transferred to Camshaft Capital Fund, was subsequently moved to an undisclosed offshore trust by Raveendran’s brother, Riju Ravindran.

Last month, Alpha had filed for bankruptcy protection over the $1.2 billion loan default.

The lenders, seeking repayment of the $1.2 billion and the elusive $533 million, have been locked in a legal struggle with Byju’s. A court ruling in the US state of Delaware gave lenders control of Alpha, a decision now under appeal by Riju Ravindran. A US court on Friday dismissed Camshaft Capital Fund’s attempt to avoid disclosing details about the cash. 

Byju’s lawyer, Benjamin Finestone, revealed during the hearing that the $533 million was initially transferred to Camshaft Capital Fund before being moved to an unnamed offshore trust. 

Potential Sanctions

Camshaft Capital Fund has resisted disclosing information about the money, citing its “duty” to protect clients and redirecting inquiries to a Delaware company called Inspilearn, a Delaware company that allegedly received the money from Camshaft before its transfer to the unnamed trust.

However, a US judge labelled Camshaft’s reluctance as a “huge red flag.” Failure to comply with the court’s order could lead to sanctions, as the judge threatened a “show cause” hearing on Monday if the information is not provided.

Series Of Setbacks

Byju’s, once valued at $22 billion in 2022, has faced a tumultuous period since early 2023. Auditor resignations, lenders initiating bankruptcy proceedings, and a US lawsuit challenging loan terms have contributed to the company’s downfall.

Byju’s is also grappling with financial challenges that extend beyond courtrooms. Mr Raveendran informed employees recently that the company is unable to process salaries due to a legal dispute with investors, reported news agency Reuters. 

Byju’s started its venture in 2006 by offering classes for MBA aspirants preparing for the CAT exam. Over the years, the edtech firm diversified its offerings, extending its reach from postgraduate to undergraduate and eventually school students. In 2015, it launched Byju’s learning app, setting the stage for the company to become India’s first ed-tech unicorn in just four years.

Byju’s logo.
| Photo Credit: REUTERS

Byju’s founder Byju Raveendran on March 2 said the edtech company will not be able to pay salaries to employees as the recent funds raised through a rights issue are inaccessible due to a legal dispute with certain investors.

In a letter to staff, Mr. Raveendran said the rights issue, launched a month ago, has been successfully closed.

“This was supposed to be a happy correspondence. After all, we now have funds to meet our short-term needs and clear our liabilities. However, I regret to inform you that we will still be unable to process your salaries,” he said.

In the letter — seen by PTI — Mr. Raveendran said the company is still striving to ensure that salaries are paid by March 10.

“We shall make these payments the moment we are permitted to do so as per law,” he added.

Further, Mr. Raveendran said that last month, the company faced challenges due to a lack of capital, and “now we are experiencing a delay despite having funds”.

“Unfortunately, a select few (4 out of our 150 plus investors) have stooped to a heartless level, ensuring that we are unable to utilise the funds raised to pay your hard-earned salaries,” Mr. Raveendran said.

“At their behest, the amount raised through the rights issue is currently locked in a separate account,” he added.

Mr. Raveendran accused these select investors of having a callous disregard for the lives and livelihoods of others even though they had reaped substantial profits from investment in Byju’s.

“It is an agonising reality that some of these investors have already reaped substantial profits — in fact, one of them has made a staggering eight times their initial investment in BYJU’S. And yet, their actions convey a callous disregard for our lives and livelihoods,” he said in the letter.

Mr. Raveendran noted that he has fought fearlessly and tirelessly, “leaving no stone unturned” to find a way to honour the company’s commitment to employees.

“Countless hours have been spent exploring every possible avenue, engaging our legal teams, and advocating for your rights. However, despite our best efforts, we are left with no option but to confront the heart-wrenching reality that we are temporarily unable to provide you with the financial support you deserve,” he said.

Earlier this week, a company law court had asked the embattled edtech firm to consider extending the closing date of the $200 million rights issue, a request that the management had hinted it would not accept even as estranged investors flagged technicalities that prevented the closure of the issue on Wednesday.

In an interim order dated February 27, the National Company Law Tribunal (NCLT), Bengaluru Bench said the funds received by the company in respect to the rights issue should be kept in a separate escrow account, and it should not be withdrawn till the disposal of the matter.

The next hearing has been listed for April 4.

The select group of investors in Byju’s alleged that the edtech giant siphoned off $533 million in an obscure hedge fund in the U.S. and had sought a stay on a $200 million rights issue, calling it illegal and contrary to law.

In a high-voltage corporate drama that unfolded last month, Byju’s shareholders (prominent investors) voted unanimously for removing Founder-CEO Raveendran and his family from the board over alleged “mismanagement and failures” at what was once India’s hottest tech startup but the company hit back calling the voting done in the absence of founders as invalid and ineffective.

Sources close to the investors had earlier said more than 60% of the shareholders voted in favour of all the seven resolutions at the EGM, which included removing the current management, reconfiguration of the board and a third-party forensic investigation into acquisitions done by the company.

The once-storied edtech startup, Byju’s rose to dizzying heights before it faced a series of setbacks.

While the return of students to physical classes post-pandemic and the recent acquisition of Aakash put Byju’s under a financial strain, the edtech firm in the last one year suffered other issues, including its auditor resigning, lenders beginning bankruptcy proceedings against a holding company, and a US lawsuit disputing the terms and repayment of a loan.

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.