A Division Bench of the Karnataka High Court on Friday directed Byju’s to maintain status quo while the National Company Law Tribunal (NCLT) at Bengaluru reconsiders the question of whether the ed-tech firm should be restrained from proceeding with a second rights issue.
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Bengaluru: Division Bench of the Karnataka High Court directed Byju’s to maintain the current status quo while the National Company Law Tribunal (NCLT) in Bengaluru reconsiders whether the ed-tech firm should be restrained from proceeding with a second rights issue.
The rights issue had been contested by four investors, who accused Byju’s and its parent company, Think & Learn Private Limited, of oppression and mismanagement. These investors had previously succeeded in obtaining an interim order from the NCLT on June 12, halting the rights issue.
The investors alleged that Byju’s violated a prior undertaking not to proceed with any rights issue unless it increased its authorized capital.
On July 2, a single judge of the Karnataka High Court set aside the interim NCLT order, finding merit in Byju’s and Think & Learn’s argument that the tribunal’s order was unreasoned. The single judge also refused to stay the operation of this order and sent the case back to the NCLT to decide the matter afresh within two weeks.
The investors challenged the refusal to stay the order through two appeals, which were heard by a Division Bench of the High Court, comprising Chief Justice NV Anjaria and Justice KV Aravind, on Friday morning.
The Division Bench ordered that status quo shall be maintained until the NCLT makes a final decision on the rights issue dispute. The Court added that any allotment of shares made after the single judge’s order on July 2 would be subject to the NCLT’s final decision. Furthermore, the NCLT was asked to expedite its decision on the rights issue by July 31.
“During the proceedings of remand and till the decision which may be taken by the NCLT, the parties shall maintain status quo with regard to the subject matter dispute as obtained on today… The transactions which may have taken place of allotment of shares and other connected transactions between the period from the date of the order of learned Single Judge that is from 02.07.2024 till the date, shall remain subject to final order which may be passed by the NCLT and the rights in that regard shall be governed accordingly,”
-the order stated.
The Court clarified that it has not expressed any opinion on the merits of the matter, emphasizing that the NCLT should consider the case independently and without being influenced by any observations made by the High Court.
Senior Advocate Udaya Holla, representing the investors, argued that since the single judge had declined to order any status quo, shareholders’ rights might be diluted if Byju’s proceeded with its contentious rights issue before the NCLT made a decision. Holla added that Byju’s had already allotted some shares between July 2 and July 3.
Senior Advocate KG Raghavan, representing Byju’s, stated that there was no difficulty for the company in maintaining the status quo as of today. He reiterated that Byju’s had not violated any undertaking, contrary to the investors’ claims.
Holla expressed concern that some shares had already been allotted since the July 2 single-judge order. He argued that Byju’s could not claim equity on any actions taken since July 2 and that all such actions should be subject to the NCLT’s final decision.
Raghavan protested against how allegations against Byju’s had been made and reported, stating,
“Everything that has happened during the pendency of a company petition is always subject to final order. Where is the question? It can’t be, that all these observations are taken from your Lordship and shown to the NCLT, saying ‘Look at what the Hon’ble Chief Justice sitting in Division Bench has said.’ This has become problematic. And tomorrow, this is published in the newspaper as headlines. Everything that orally happens is also published. In this case, one observation was made by an NCLT member yesterday, it was published in headlines yesterday!”
Having heard both sides, both of whom were agreeable to an interim status quo order, the Court disposed of the appeals by directing Byju’s to maintain status quo from Friday.
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