On Thursday(28th June),The Karnataka High Court reserved its decision on a petition challenging the NCLT’s interim order that restrained Byju’s from a second rights issue, with the final order due on July 2. Justice SR Krishna Kumar clarified that the hearing focused on the validity of the NCLT’s order, not the cross-allegations between Byju’s and its investors.
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BENGALURU: On Thursday(28th June), The Karnataka High Court has reserved its orders on a petition challenging the interim order passed by the National Company Law Tribunal (NCLT), Bengaluru, on June 12. This order had restrained ed-tech giant Byju’s from proceeding with a second rights issue. Justice SR Krishna Kumar announced that the court would dictate the order on July 2.
During the hearing, Justice Kumar clarified that his focus was on assessing the correctness of the NCLT’s interim order rather than addressing the cross-allegations made by Byju’s and its investors.
He stated-
“I do not intend to address the cross-allegations between Byju’s and its investors. My sole focus is on the validity of the NCLT’s interim order.”
The petitions challenging the NCLT’s decision were filed by Byju’s, which argued against the tribunal’s interim stay on its second rights issue. The NCLT’s June 12 order was issued in response to a petition by four investors—MIH EdTech Investments, General Atlantic Singapore, Peak XV Partners Operations LLC, and Sofina—who accused Think & Learn Pvt Ltd (the parent company of Byju’s) of oppression and mismanagement.
The NCLT’s interim order specifically restrained Byju’s from proceeding with its second rights issue until the main petition filed by the four investors was resolved. This decision was based on the allegations made by the investors regarding the mismanagement and oppressive actions of the company’s leadership.
During the High Court proceedings, Senior Counsel for the investors, S. S. Naganand, argued that the NCLT had sufficient grounds to issue the interim order.
He contended-
“Reading all of the NCLT’s orders together would reveal sufficient reasons.”
Byju’s, a prominent Indian ed-tech company, finds itself at the center of allegations of fraud and misconduct brought forth by its investors. The National Company Law Tribunal (NCLT) has issued an interim order that has intensified the dispute, leading to significant legal arguments.
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During a hearing, Senior Advocate Holla, representing the investors, highlighted the gravity of the allegations against Byju’s.
Holla stated-
“We have alleged fraud and misappropriation, asserting that the issuance of shares is an illegal act intended to oppress our rights. Our hard-earned money has been taken away.”
This statement underscores the investors’ claims that their investments were misused, and the issuance of shares was done in a manner detrimental to their rights.
The NCLT’s interim order, which stays the rights issue pending further orders, has been a focal point of the legal arguments. Senior Advocate Parasaran, supporting the investors’ submissions, critiqued the urgency portrayed by the petitioners in challenging the NCLT’s stay order.
Parasaran pointed out that-
“The NCLT ordered a stay until further notice and scheduled the main petition’s hearing for July 4. They instructed not to proceed with the rights issue in the meantime.”
His argument emphasized that the NCLT’s order was procedural and meant to maintain the status quo until a detailed hearing could be conducted.
Parasaran further elaborated on the discretionary nature of the NCLT’s order, suggesting that even if there were perceived shortcomings, it wouldn’t necessarily warrant overturning by higher courts.
He argued-
“On a demurrer, even if there appears to be no reason in the NCLT order, the Supreme Court maintains that such orders cannot be overturned as they are discretionary.”
This points to the judicial principle that interim orders, particularly those maintaining the status quo, are often upheld unless there is a clear case of judicial overreach or procedural error.
The allegations against Byju’s include serious claims of financial mismanagement and illegal actions that have purportedly harmed the investors. Holla’s and Parasaran’s arguments collectively paint a picture of a company accused of significant ethical and legal violations. These allegations not only challenge the integrity of Byju’s corporate practices but also call into question the protection of investor rights in the rapidly growing ed-tech sector.
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As the hearing progresses, the focus will likely remain on the validity of the NCLT’s interim order and the broader implications for corporate governance and investor protection in India. The outcome of this case could set a precedent for how similar disputes are handled in the future, particularly in sectors experiencing rapid growth and substantial investment inflows.