Court Orders Byju's to Deposit Funds: Dark Side of Byju's Success

An earlier ruling that permitted the ed-tech business Byju's to pay Rs 158 crore to the Board of Control for Cricket in India (BCCI) was overturned by the Supreme Court. The National Company Law Appellate Tribunal (NCLAT) made the previous ruling, approving the settlement and halting the court case to address Byju's financial issues. However, GLAS Trust Company LLC, a financial creditor, challenged this ruling, raising concerns about Byju's source of funding for the payment. By rejecting the NCLAT's ruling and directing Byju's to pursue legal action to resolve its financial problems, the Supreme Court has decided to favour the financial creditor. Byju's will therefore have to figure out how to pay back its debts or risk more legal repercussions.

Supreme Court Reverses NCLAT Decision: Byju's to Face Insolvency Process

The three-judge panel led by Chief Justice of India D Y Chandrachud found "considerable force" in the argument made by GLAS Trust Company LLC in its appeal, stating that NCLAT erred in using its inherent powers under Rule 11 of the NCLAT Rules when there was a prescribed procedure in place for the withdrawal of CIRP. The highest court also discovered several procedural errors in NCLAT's methodology. The court observed that although CIRP had been started, the Committee of Creditors (CoC) was not yet established on 31 July 2024, when the parties attempted to record the settlement before NCLAT.

The SC set aside the NCLAT ruling and ordered that the Rs 158 crore be deposited with the CoC, which it stated would hold the money in an escrow account until further events occurred, along with any interest that may have accrued. "In such cases, the legal framework mandates that a (i) application for withdrawal be moved; (ii) the application has to be moved through the Interim Resolution Professional; and (iii) it be placed before the NCLT for approval," the Supreme Court bench, which also included Justices J B Pardiwala and Manoj Misra, stated in its ruling. However, the court found these requirements needed to be met in the current case.

Major Setback for Byju's

The National Company Law Appellate Tribunal (NCLAT) came under fire from the Supreme Court for approving the Byju's and BCCI settlement without adhering to the correct processes. The court noted that Byju's failed to submit its request to withdraw from the Corporate Insolvency Resolution Process (CIRP) through the proper procedural processes. The court further declared that the NCLAT should not have approved the settlement by overriding established legal procedures with inherent powers. The Supreme Court's decision highlights the importance of following the correct legal procedures while filing for bankruptcy.

"NCLAT does not provide any reasons for deviating from this procedure or the urgency to approve the settlement without following the procedure," the court stated in the contested judgement. The SC further said that the NCLAT had not sufficiently addressed the appellant's concerns about the origin of the Rs 158 crore that Riju Raveendran had consented to transfer to BCCI, ostensibly from his "personal funds."

Financial Crisis Deepens for Byju's as Supreme Court Rejects Settlement

It suggests that prior attempts by the business to resolve its financial problems were illegal. But that does not necessarily imply that Byju's is about to fail. The business still has time to deal with its financial issues and find a solution that the court and its creditors would approve. To overcome its present financial difficulties, Byju's must restructure. This may entail restructuring its debt or simplifying its business practices to increase its financial stability. Looking for more investment might be critical for the business, giving it the money it needs to pay off its debt and continue operating. However, Byju's may encounter more legal issues if its financial problems still need to be resolved, making its recovery more complex. The ability of the business to overcome these obstacles and find a viable future will be crucial to its future.

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