Byju’s wins legal tussle over stake dispute with Aakash Institute

Edtech startup Byju's on Tuesday achieved a legal victory in a dispute concerning its subsidiary Aakash Institute. The civil court in Bengaluru dismissed a plea by Byju's lenders who were challenging Manipal Group Chairman Ranjan Pai's acquisition of a 40 per cent stake in Aakash Institute. 

The lenders had attempted to halt Pai's conversion of a loan amounting to approximately $250-$300 million into equity in Aakash Institute, arguing that this debt-to-equity conversion at a reduced valuation harmed Think & Learn Pvt Ltd, Byju's parent company.

The lenders, holding a $1.2 billion term loan, contended that the transaction should not proceed without their prior approval, as stipulated in the credit agreement. They also expressed concern over the lower valuation of $600 million for the equity conversion, compared to the $950 million valuation when Aakash was acquired by Think & Learn in 2021. Despite these arguments, the court did not grant the injunction and noted jurisdictional issues with the case.

Byju’s also stated, “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.”

Ranjan Pai has already approached the Competition Commission of India (CCI) seeking approval for the deal, which would make him the largest investor in Aakash Institute. This move is part of his plan to invest new capital into Aakash to support its operations, particularly ahead of the student enrollment season.

This legal battle is one of several challenges faced by Byju's, which includes insolvency proceedings initiated by lenders and bankruptcy filing by its US subsidiary. However, Byju's has shown resilience, asserting that demands for management and board changes by some investors lack authority, and indicating ongoing efforts to raise funds through a proposed $200-million rights issue.

Prosus, another investor in Byju’s, has issued a legal notice to Pai concerning his stake conversion in the company.

Last Thursday, a group of investors, including Peak XV Partners and Prosus, announced their call for an extraordinary general meeting (EGM) following the board's dismissal of their previous appeals to the Think & Learn board. 

Meanwhile, Byju's has decided to put Lionel Messi’s three-year endorsement deal on hold. The contract, which was signed in November 2022, was part of Byju's 'education for all' campaign and estimated to be worth $5-7 million annually.

The decision to pause this high-profile partnership comes amidst a tumultuous period for Byju's. The company faced backlash when it laid off nearly 2,500 employees just a month prior to announcing the campaign with Messi.

Further complicating matters, Byju's is currently embroiled in internal strife, with shareholders expressing a desire to replace founder Byju Raveendran due to concerns over the company's future stability. Notably, Prosus, which holds a 9% stake in Byju's, along with Sofina and Peak XV (formerly known as Sequoia Capital India), have publicly voiced their concerns.

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