Byju’s strikes a deal: will insolvency relief by NCLAT hold against billions debt claims?

Byju Raveendran may be breathing a sigh of relief after the National Company Law Appellate Tribunal (NCLAT) halted insolvency proceedings and approved a settlement between the Board of Control for Cricket in India (BCCI) and Byju's (Think & Learn Pvt Ltd). However, this decision raises serious questions about the state of insolvency proceedings in India.

“This order seems like a mockery of the Insolvency and Bankruptcy Code (IBC),” said legal experts.
In an order passed on August 2, NCLAT stated that a settlement had been reached between the parties before the Committee of Creditors (CoC) could be constituted. The source of the money, from one of the ex-promoters and shareholders of the Corporate Debtor, was not in dispute. As a result, the settlement was approved, the appeal succeeded, and the impugned order was set aside.

The promoters were returned the control of Think & Learn Private Limited, the holding company of BYJU’S.

According to the undertaking, Riju Raveendran, the largest shareholder of the company and Byju's brother, made a payment of ₹50 crore on July 31 against the outstanding dues of ₹158 crore owed by Byju's to BCCI. Another ₹25 crore is to be submitted on Friday, with the remaining ₹83 crore due on August 9 through RTGS. But what about the billions that Byju's still owes?

Vivek Parti, an Insolvency Professional, told Business Today, "This order passed by NCLAT favors the promoter. Prior to the admission of BCCI's application, an operational creditor, there were Section 7 applications with significant default amounts pending. Though they were allowed by NCLT to file claims in the Corporate Insolvency Resolution (CIR) process, the decision to admit these claims will take time. This delay gives the promoter more time to siphon money or alienate assets."

The biggest question as per legal experts is, why give Raveendran the opportunity if he has defaulted with so many others? If Raveendran had the financial capacity to settle larger amounts, it would make sense. But settling ₹158 crore in insolvency when facing billions raises serious concerns. The restoration option for BCCI and the Section 7 right to restart applications are there, but the critical issue is the purpose behind Raveendran's desperate settlement while ignoring larger debts.

US-based Glas Trust had approached the Indian court to prevent the quashing of insolvency proceedings for this once-giant ed-tech firm, as lenders represented by the trust are owed $1 billion. There were also concerns that the money Raveendran is paying might be tainted. However, Byju's representatives presented the source of the money and the income tax filings at NCLAT, clarifying that Riju is paying the money himself, not using funds from creditors or the company. No evidence has been shown to prove that the money offered by Riju came from previously disbursed credit funds.

One lawyer familiar with the matter said that Raveendran is disputing the liability to the claims by Glas Trust. They have not been able to establish their debts under the guarantee they claim to have, so the guarantee is under challenge.
On the record, Byju’s has yet to settle claims from Oppo Mobiles India Private Limited (₹1 crore), Cogent E-services Limited (₹6.7 crore), McGraw Hill Education India Pvt Ltd (₹1.7 crore), and I-energizer (₹13 crore). Sources indicate that Oppo claims approximately ₹13 crore to be settled, but Byju’s disagrees.

Raveendran also has substantial amounts to pay off in salaries and vendor payments, which have not been fully accounted for. Representatives of the company assert that they have been gradually paying off these amounts.
Legal experts say that judicial bodies often suggest filing avoidance applications, which is like trying to catch a thief after they've already escaped, instead of dealing with them when they're right in front of you.

With insolvency proceedings now set aside, Byju's still faces significant challenges, including the $200 million held in an escrow account, the rights issue by investors, and ongoing legal battles. While it may seem like the battle is halfway won for Byju’s, creditors remain deeply concerned.