Byju’s secured favorable outcomes in two court hearings Thursday, paving the way for the embattled edtech startup to move ahead with the extraordinary general meeting scheduled for Friday.
On Thursday, the National Company Law Tribunal refused to defer Byju’s planned EGM, where the Indian startup seeks to increase the authorized share capital to give effect to the $200 million rights issue. The matter will be heard again on April 4, the company court said. A lawyer representing the estranged four investors of Byju’s pointed out that once the authorized share capital has been increased, it cannot be reversed.
A group of Byju’s investors, including Prosus, Peak XV and Chan Zuckerberg Initiative and Sofina, is legally challenging Byju’s recent fully subscribed rights issue and seeks to remove the founder and chief executive Byju Raveendran from the firm.
The Karnataka High Court separately said Thursday it will only hear the case where the investor group seeks to remove Raveendran after two months.
The rights issue is crucial for Byju’s, once India’s most valuable startup, as it seeks to tap the $200 million it has already received from a set of investors, including Raveendran. In an interim order last month, the tribunal court directed Byju’s to move the funds into an escrow account and not use it until the issues have been resolved.
People close to Byju’s assert that the estranged investors are trying to delay the rights issue to completely starve the edtech group. The investor group had no comment.
Byju’s and some of its investors have been fighting for nearly a year over what the shareholders allege are operational and governance challenges at the Indian firm. The startup was in the final stages to raise about $1 billion last year, but the talks derailed after the auditor Deloitte and three key board members (representatives of Prosus, Peak XV and Chan Zuckerberg Initiative) abruptly quit the startup. Instead, Byju’s ended up raising less than $150 million in debt from Davidson Kempner and had to repay the investor the full committed amount after making a technical default in a separate $1.2 billion term loan B.
As the funds dried up, Byju’s scrambled to launch a rights issue that cut its valuation by 99%. Prosus, Peak XV, Chan Zuckerberg Initiative and Sofina as well as some other investors refused to participate in the rights issue. Instead, they voted to remove Raveendran and his family from the startup last month. Raveendran told employees later that he was still their chief executive and that rumors of his firing had been “greatly exaggerated.”
Raveendran claimed in the letter that the extraordinary general meeting lacked the minimum quorum and failed to win majority support for proposed resolutions. The meeting also violated several other “essential” local rules, he asserted.