[BREAKING] Supreme Court Nullifies Rs 158 Crore Byju’s-BCCI Settlement To Conclude CIRP Proceedings

The Supreme Court of India Today (Oct 23) nullified the Rs 158 crore settlement between Byju’s (Think and Learn Pvt Ltd) and the Board of Control for Cricket in India (BCCI). The decision overturned a previous ruling by the National Company Law Appellate Tribunal (NCLAT), which had closed the insolvency proceedings against the ed-tech giant Byju’s, following a settlement with BCCI. The court criticized the NCLAT for prematurely concluding the Corporate Insolvency Resolution Process (CIRP) by invoking its inherent powers under Rule 11 of the NCLAT Rules 2016.

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NEW DELHI: The Supreme Court of India, on October 23, 2024, nullified the Rs 158 crore settlement between Byju’s (Think and Learn Pvt Ltd) and the Board of Control for Cricket in India (BCCI). The decision overturned a previous ruling by the National Company Law Appellate Tribunal (NCLAT), which had closed the insolvency proceedings against the ed-tech giant Byju’s, following a settlement with BCCI.

The court criticized the NCLAT for prematurely concluding the Corporate Insolvency Resolution Process (CIRP) by invoking its inherent powers under Rule 11 of the NCLAT Rules 2016.

The Supreme Court held that the NCLAT had overstepped its boundaries by allowing the withdrawal of the insolvency application in this manner.

“The NCLAT erred in allowing the withdrawal of the insolvency application by invoking its inherent powers under Rule 11 of the NCLAT Rules 2016. When there is a specific procedure provided for the withdrawal of insolvency applications, the NCLAT cannot invoke its inherent powers.”

Committee of Creditors and Legal Proceedings

The Chief Justice of India (CJI) highlighted ongoing investigations by various authorities, including those initiated by the Delaware court and India’s Enforcement Directorate. During these proceedings, a Committee of Creditors (CoC) had been formed, which permitted involved parties to pursue remedies such as withdrawal or settlement under the legal regulations that govern the CIRP. The court clarified that this decision was not intended to reflect on the actions or behavior of the parties involved in the insolvency case.

Additionally, the court ordered that the total amount of Rs 158 crores, along with any accrued interest, be deposited in an escrow account.

“A total of Rs 158 crores, along with any accrued interest, must be deposited in an escrow account, which the committee of creditors is directed to maintain until further instructions from the National Company Law Tribunal.”

Criticism of NCLAT’s Handling of the Settlement

The CJI emphasized that NCLAT’s inherent powers should not override established legal procedures.

“Inherent powers cannot override established legal procedures designed for the National Company Law Appellate Tribunal (NCLAT).”

The Court ruled that the NCLAT had failed to provide adequate justification for deviating from the prescribed procedures when approving the settlement. According to the CJI, the NCLAT’s correct course of action would have been to stay the formation of the CoC and ensure full compliance with the regulations.

Consequently, the Supreme Court overturned the NCLAT’s judgment from August 2024, ruling that it was not the appropriate time to address concerns over the settlement agreement since the matter is being litigated in other legal forums.

“The Supreme Court has set aside the NCLAT’s judgment from August 2024, stating it is not the right time to address objections regarding the settlement agreement, as these issues are being litigated in various forums.”

CIRP Settlement Under Scrutiny

The appellant in this case was a verified creditor in the CIRP, raising concerns about the process. The appellant argued that the NCLAT’s approval of the settlement was improper since the CoC had not been formally formed by July 31, 2024.

“On July 31, 2024, the Committee of Creditors (COC) was not formed, and the NCLAT stayed its formation.”

Moreover, no official application had been submitted for withdrawal from the CIRP, further questioning the NCLAT’s procedural adherence. The appellant highlighted concerns about potential unfair treatment if the settlement led to mismanagement of funds, particularly with operational creditors being prioritized over others.

Appellant’s Rights to Appeal

The CJI noted that there is no strict limitation on who can appeal decisions from the NCLT or NCLAT.

“The term ‘any person agreed’ indicates that there is no strict requirement for who can appeal against orders from the National Company Law Tribunal (NCLT) or the National Company Law Appellate Tribunal (NCLAT).”

Given the appellant’s position as a verified creditor, they had legitimate grounds to challenge the NCLAT’s decision to approve the settlement.

Key Issues for Consideration

The Supreme Court also outlined several critical issues for further legal examination:

• Locus Standi: Whether the appellant, not a direct party to the settlement between Byju’s and BCCI, has the standing to challenge the proceedings.

• Use of Inherent Powers: Whether the NCLAT was correct in using its inherent powers under Rule 11 of the NCLAT Rules 2016 to approve the settlement.

• Adequacy of NCLT’s Response: Whether the National Company Law Tribunal adequately addressed the appellant’s objections while exercising its discretion under the same rule.

The court will further delve into the legal history surrounding the withdrawal process for CIRP cases after a creditor’s application has been admitted.

“The court will also trace the evolution of legal provisions related to the withdrawal of the Corporate Insolvency Resolution Process (CIRP) after an application by a creditor is admitted.”

In conclusion, this ruling by the Supreme Court reaffirms the importance of adhering to established legal procedures during insolvency proceedings and calls into question the NCLAT’s handling of the Byju’s-BCCI settlement.

The case continues to evolve as multiple legal forums are involved in resolving related matters.

PREVIOUSLY IN APEX COURT

The Supreme Court on Sept 26 reserved its judgment on the appeal filed by the U.S.-based creditor, Glas Trust Company LLC, which challenged the decision made by the National Company Law Appellate Tribunal (NCLAT).

The NCLAT ruling had stayed the insolvency proceedings initiated against the ed-tech giant BYJU’s and instead approved a settlement of Rs 158.9 crore in dues with the Board of Control for Cricket in India (BCCI).

The case was being heard by a Bench comprising CJI Chandrachud and Justices JB Pardiwala and Manoj Misra.

This legal development came after Glas Trust Company LLC, one of BYJU’s significant creditors, contested the NCLAT’s decision to halt the insolvency process. The case hinges on the settlement terms approved by the tribunal, which some creditors have argued does not adequately address their financial concerns.

The Supreme Court, while considering the appeal, has “reserved its judgment” and paused any further actions related to the case until a final decision is rendered.

As part of this move, the Court has put on hold today’s scheduled meeting of BYJU’s creditors, which was supposed to be convened by the Interim Resolution Professional (IRP) at 4 PM.

Moreover, “any further meetings of the creditors’ committee” have also been suspended until the Court delivers its judgment.

This decision delays any immediate progress in the insolvency proceedings, leaving the future course of action for both the ed-tech company and its creditors in the hands of the apex court’s forthcoming ruling.

The Supreme Court on Sept 25 expressed reservations regarding the National Company Law Appellate Tribunal (NCLAT)’s decision to halt insolvency proceedings against the ed-tech giant, Byju’s. The Court raised concerns over whether the NCLAT had thoroughly applied its mind while arriving at its conclusion, and indicated that the matter might be remanded back to the Tribunal for fresh consideration.

“See the reasoning in the NCLAT order. Which is just a para. This does not show any application of mind at all… Let the Tribunal again apply its mind and see it afresh,”

-Chief Justice of India (CJI) DY Chandrachud remarked during the hearing, which was addressing an appeal that challenged the NCLAT’s ruling.

The case was being heard by a Bench comprising CJI Chandrachud and Justices JB Pardiwala and Manoj Misra. The appeal was filed by US-based financial creditor Glas Trust, which was challenging the NCLAT’s decision to halt insolvency proceedings initially initiated against Think & Learn Pvt Ltd, the parent company of Byju’s.

During the hearing, CJI Chandrachud expressed concern that creditors of Byju’s—apart from the Board of Cricket Control for India (BCCI)—could be left disadvantaged if the insolvency process was halted. He specifically questioned why Byju’s had settled its dues with the BCCI while ignoring other creditors.

“Today you (Byju’s) have Rs 15,000 crores due. Why did you pick up only BCCI and settle it? What about others?”

-CJI Chandrachud asked.

Solicitor General Tushar Mehta, representing the BCCI, urged the court not to overturn the NCLAT’s ruling, cautioning about the potential consequences of reopening the insolvency process.

“Please consider the consequences if the appeal is allowed,”

-Mehta submitted.

However, the Court pointed out that the BCCI was not the only stakeholder impacted by the closure of the insolvency proceedings. The BCCI had claimed that Byju’s owed it Rs 158 crore as part of a sponsorship deal related to cricket jerseys, but CJI Chandrachud noted that the amount owed to the BCCI was relatively small compared to Byju’s overall debts.

“BCCI has a small amount due of Rs 158 crores… What about others? They all again have to go through the entire circle,”

-CJI Chandrachud stated.

The insolvency resolution process against Byju’s was initiated in June 2024 by the National Company Law Tribunal (NCLT) in Bengaluru. The proceedings were based on a plea by the BCCI, which claimed that Byju’s had defaulted on a payment of Rs 158 crore for jersey sponsorship agreements.

However, the situation took a turn when the BCCI later submitted that it had reached a settlement with Byju’s. As part of the settlement, Riju Raveendran, the brother of Byju’s founder Byju Raveendran, agreed to personally clear the dues. Based on this settlement, the NCLAT, in its Chennai Bench, decided to close the insolvency proceedings.

Glas Trust, the US-based financial creditor, strongly opposed the NCLAT’s ruling. They raised concerns that Byju’s might use funds owed to financial creditors to settle its debts with the BCCI. Glas Trust argued that this was unfair, and accused the ed-tech company of using potentially stolen money to repay its creditors selectively.

On August 14, 2024, the Supreme Court stayed the NCLAT’s decision and revived the insolvency process against Byju’s. A week later, the Court declined to defer or halt the operations of a Committee of Creditors (CoC) overseeing the corporate insolvency resolution process (CIRP).

During Wednesday’s hearing, Senior Advocate Shyam Divan, representing Glas Trust, criticized the NCLAT’s handling of the matter, describing its reasoning as unacceptable. He emphasized that NCLAT is expected to carry out basic arithmetic when deciding on such matters.

“NCLAT is expected to carry some basic maths… Now, without any notice to us, we (Glas Trust) have been dropped entirely from the Committee of Creditors. This is unprofessional,”

-Divan argued.

Senior Advocate Kapil Sibal, also representing Glas Trust, further argued that Glas Trust, which holds a 99.5 percent stake in Byju’s debt, cannot be excluded from the CoC. He stated that personal funds of individuals, such as Riju Raveendran, cannot be recovered under Section 12A of the Insolvency and Bankruptcy Code.

“We have 99.5 percent stake… we cannot be removed… Personal money cannot be recovered under Section 12A,”

-Sibal said.

In response, Senior Advocates AM Singhvi and NK Kaul, representing Byju’s, questioned Glas Trust’s actions and accused the creditor of changing its stance multiple times during the proceedings. They also addressed allegations that Byju and Riju Raveendran were absconding.

“So many statements with perjury. That we are absconding. Me and my brother visited India on 12 occasions… They are now world record holders, of two people teaching students. This is only about a large corporate entity flexing its muscles,”

-Singhvi said.

“He visited last time also… How can they call me absconding?… There was no default of payment. You (Glas Trust) keep changing your story. Sometimes you say ’round tripping’, sometimes you say it is personal funds of Riju Raveendran. Ultimately, the onus is on you… to prove the statements being made,”

-Kaul added.

Click Here to Read Previous Reports on Byju’s

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