India’s Supreme Court Paves Path for Insolvency Proceedings Against Byju’s

The Supreme Court of India has intervened in the financial dispute involving Byju’s, pausing a tribunal’s decision that had previously stopped the edtech company’s insolvency processes, marking a significant victory for US lenders demanding $1 billion from the company.

On Wednesday, the Supreme Court temporarily halted the verdict from the National Company Law Appellate Tribunal which had accepted a settlement negotiation involving Byju’s and the Indian cricket board BCCI, reinstating the insolvency procedures against Byju’s.

This intervention from the Supreme Court adds another layer of adversity for Byju’s, which was previously celebrated as India’s most highly valued startup, boasting a valuation of $22 billion.

Financial complications for Byju’s arose after it failed to clear a debt exceeding $19 million owed to the influential cricket board, prompting a tribunal to initiate insolvency actions last month.

The crisis was momentarily resolved when Riju Raveendran, the CEO’s brother, stepped in with a payment, leading to the dismissal of the insolvency case by an appeals tribunal. However, this decision has been suspended by the recent ruling from the Supreme Court.

The action by the Supreme Court was driven in part by opposition from Glas Trust, a U.S. entity representing Byju’s American creditors, who contested the cessation of the insolvency proceedings. They argue that funds intended for lenders were inappropriately redirected to clear dues with BCCI by the company founder’s brother.

Between 2020 and 2021, Byju’s secured over $2.5 billion in funding, inclusive of a $1.2 billion Term B loan from American creditors, eyeing a public offering early in 2022 valued at more than $40 billion before geopolitical tensions led to a suspension of these plans.

As of Wednesday, Byju’s had not commented on the court’s decision.

The startup has been navigating through various challenges, including missed financial report deadlines and falling significantly short of its revenue targets by over half.

Key backers such as Prosus and Peak XV have voiced concerns over governance at Byju’s and are pushing for legal measures to displace founder Byju Raveendran from his position, in light of the over $5 billion raised by the firm in equity and debt.

In a dramatic turn of events last year, board members and the company’s auditor resigned in disagreement with the firm’s direction.

Tensions escalated when Byju’s lowered its valuation to $25 million for a rights offering, inciting criticism from investors including Prosus, Peak XV, Sofina, and the Chan Zuckerberg Initiative. Moreover, Byju’s has been restricted from utilizing funds from the initial rights offering and barred from conducting a subsequent one.

Investment giants Prosus and BlackRock have subsequently marked down their investments in Byju’s to zero, reflecting the deepening crisis.