The apex court also overturned the appellate tribunal’s August 2 order that closed the insolvency proceedings against Byju’s after the settlement with BCCI, thus giving relief to US lender Glas Trust Co. LLC, the trustee for lenders owed $1.2 billion, which had opposed the settlement and a halt to insolvency proceedings.
Consequently, Think & Learn’s insolvency proceedings have now been restored in the NCLT. Byju’s was undergoing insolvency proceedings following a complaint by the cricket body which claimed that it was not paid sponsorship dues.
Observing that the National Company Law Appellate Tribunal (NCLAT) invoking its inherent powers did not apply its mind while closing the insolvency proceedings against the edtech giant, a bench led by Chief Justice DY Chandrachud said that the NCLAT violated the procedures outlined in the Insolvency and Bankruptcy Code (IBC) and the settlement between the two parties was wrongly approved as the company’s founders could not have directly approached the NCLAT for settlement after the insolvency proceedings had started.
“The NCLT cannot be considered a post office that will stamp such withdrawal applications being moved by the IRP (interim resolution professional). It was never fathomed that withdrawal would be a unilateral process. When withdrawal is sought before the CoC is constituted, the NCLT must hear all parties,” the top court said.
“There was no formal application made for withdrawal. The first respondent (Byju Raveendran), who was a former director of corporate debtor (Think & Learn), had moved the NCLAT directly. Despite these grave deviations, the NCLAT still approved the settlement,” the top court said, adding that the inherent powers can’t be exercised to subjugate the legal process, which exhaustively provides for a procedure.
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The top court also directed that Rs 158 crore, along with accrued interest, which BCCI deposited in a separate escrow account as per its August 14 order, will now be deposited with the Committee of Creditors (CoC), which will maintain it in an escrow account until further developments and further directions by the NCLT.The top court refrained from deciding on the objections raised by Glas Trust on merits, saying the issues raised are the subject matter of several litigations in different fora, including the Delaware Court, and investigations by various authorities, including the Enforcement Directorate (ED), which are pending.
According to the judgment, even if the procedural infirmity by NCLAT is kept aside, once the CIRP was admitted, the proceedings became collective, and all creditors of the corporate debtor, including Glas Trust, became necessary stakeholders.
Therefore, Glas Trust is not “an unrelated party” to the CIRP, but is in fact an entity whose claims had been verified by the IRP and would fall under the category of any entity aggrieved to challenge the insolvency order in the NCLAT.
The CJI said that Glas Trust had raised detailed objections before the NCLAT to the source of the funds for the settlement and a reasonable apprehension that there was round tripping of funds, in violation of the order passed by the Delaware Court in March 2024. These objections were summarily dismissed by the NCLAT, relying solely on the undertaking filed by Riju Raveendran, it noted.
“Alleged facts such as the fraudulent transfer of USD 533 million to a hedge fund in the United States; the orders of the US Court restraining the brothers from transferring or dissipating the amount; the contempt proceedings against Riju Raveendran; the ongoing investigation by the ED against Byju Raveendran and the corporate debtor; and other attempts by the corporate debtor to dissipate assets, were not adequately addressed by the NCLAT,” the CJI said in its 61-page judgment.
The judgement has come at a time when Raveendran, in a press meet said that Byju’s worth today is zero and that the investors threw him under the bus at the time of crisis despite making good returns from early investments in the firm.
In June 2023, ET first reported that early backer GV Ravishankar, managing director at Peak XV Partners (formerly Sequoia Capital India), along with Russell Dreisenstock of Prosus (previously Naspers) and Vivian Wu of Chan Zuckerberg Initiative, had stepped down from Byju’s board.
Welcoming the judgment, Akshat Khetan, Founder of AU Corporate Advisory and Legal Services, said, that “the SC has underscored the need for strict adherence to procedure by litigants and tribunals to strengthen the IBC”.
According to domain experts, the judgment has set all these issues to rest and Section 12A of IBC, coupled with regulation 30A of CIRP Regulations, has been made sacrosanct to be followed in all cases before the NCLT. “It means that all settlement proposals after initiation of CIRP are to be routed through the IRP, whether before or after the constitution of the CoC and to the NCLT,” former NCLT member Rajesh Sharma said.
On August 2, the NCLAT had set aside the order passed by the Bengaluru bench of the NCLT on July 16 to initiate insolvency proceedings against Think & Learn. However, it had said that the insolvency proceedings would be automatically revived against Think & Learn if there was a breach of the undertaking given by its co-founder Byju Raveendran on payment to the cricket board.
The appellate tribunal had passed the order after it was informed that the parties had arrived at a settlement in the insolvency case. Riju Raveendran, brother of Byju Raveendran and one of the largest shareholders of the company, would pay off the dues of the cricket board, the parties had told the tribunal. Glas Trust had moved the SC alleging that the money paid by Riju Ravindran was tainted.
The US lender had also challenged its removal from Think & Learn’s CoC and sought the removal of the IRP. Glas Trust said it was a financial creditor of the debt-ridden company and had over 99% vote share. However, the IRP disqualified it as some documents had not been provided by it, Glas Trust said.