The lenders of Byju’s $1.2 billion term loan had moved the city court last Thursday seeking an ex-parte injunction on the transaction allowing Pai to convert a loan of about $250-$300 million he had advanced to the brick-and-mortar coaching network into equity in Aakash Institute.
Thursday’s legal challenge by the TLB lenders caught both Byju’s and Pai “by surprise” the sources said. The lenders were petitioning the court about Pai’s conversion of debt into equity at a lower valuation of $600 million compared to the valuation of $950 million ascribed to Aakash Institute when it was acquired by Byju’s parent Think & Learn in 2021.
As such, the proposed deal hurts the lenders of Think & Learn, the lenders contended. This lender group controls 80% of the term loan raised by Byju’s in November 2021.
ETtechAccording to people present at the hearing on Monday, the court did not grant the injunction to block the deal as per the lenders’ plea while also adding that the jurisdiction for the case was not correct. The lenders had cited the credit agreement which they said bars Byju’s parent Think & Learn from selling any asset without prior approval from the lenders, the sources said. Byju’s made its arguments over the weekend at the city civil court, they added.
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A spokesperson for Byju’s confirmed the court proceedings without divulging any details.
“In an order issued today, a court in Bengaluru has dismissed a suit filed by the TLB lenders against Byju’s. Consequently, the lenders’ misguided attempt to injunct Byju’s from dealing with its shares in Aakash Educational Services Ltd has been rejected,” the company said in a statement to ET.
Meanwhile, Pai has already approached the Competition Commission of India, CCI, seeking its nod to the deal that makes him the largest investor in Aakash Institute – an offline coaching firm—which is the crown jewel of the beleaguered edtech Byju’s. Pai is planning to invest a new tranche of capital in Aakash to support its operations ahead of student enrollment season.
ET was the first to report on January 25 that Pai is converting his debt into equity in Aakash Institute.
Pai’s loan had helped Byju’s parent Think & Learn pay back its US debtors Davidson Kempner.
It is not clear if the lenders will move to higher courts challenging the civil court’s decision, which marks the first such legal battle in an Indian court over the debt -ridden challenges faced by Byju’s.
Pai declined to comment on the developments. While email queries sent to the lenders group did not elicit any response till press time Monday.
Ongoing battle
Lenders have already dragged the cash-strapped Byju’s to the National Company Law Tribunal with an insolvency plea, the debtors have also forced Byju’s US subsidiary Byju Alpha to file for chapter 11 bankruptcy in the US.
Prosus—another investor in Byju’s–had sent a legal notice to Pai over his conversion of stake in the company. People in the know said that Pai had alerted the edtech firm’s investors before conversion of the debt into equity and had also asked them if any of the investors wanted to buy him out from Aakash.
Meanwhile, Byju’s last week made a combative riposte to some investors’ demand for a change in its management and board, saying the latter have “no voting rights to change (its) chief executive.” On Friday, it termed as “unfortunate” the call by these shareholders to vote out chief executive Byju Raveendran and his family — holding about 26% in the company — from the board.
“The company and its employees are paying the price for a stand-off triggered by some investors,” the company said.
Byju’s–which is in dire need of fresh cash — said it has secured commitments to subscribe to more than 100% of its proposed $200-million rights issue.
Last Thursday, an investor group including Peak XV Partners and Prosus said they sent the notice seeking an extraordinary general meeting (EGM) after requests to the Think & Learn board in July and December last year were disregarded.