BYJU'S' investors allege $533M siphoned off; NCLT reserves order on rights issue

Investors in BYJU'S on Tuesday alleged that the edtech giant siphoned off $533 million in an obscure hedge fund in the US and sought a stay on a $200 million rights issue, calling it illegal and contrary to law.

The company law court asked BYJU'S to submit a written response to the investors' plea within three days and reserved its order.

The rights issue, through which promoters of BYJU'S are seeking to infuse funds into the startup, is to close on Wednesday, and the two sides cited technicalities if the rights issue could go ahead.

While BYJU'S did not comment on the charges levelled by four of its shareholders in proceedings before the Bengaluru bench of the National Company Law Tribunal (NCLT), sources close to the firm said in the absence of a stay by NCLT, the rights issue can proceed as planned and would close on Wednesday.

However, investors, who are baying for the blood of founders for mismanagement and eroding value of the company through misdemeanours, argued that a rights issue can happen only if the authorised share capital of the company is increased and existing shareholders apply and get the new shares.

This hasn't happened yet, and it can be done only through an extraordinary general meeting of shareholders, where at least 51% vote for such an increase.

During the hearing before the NCLT, sources said the investors alleged that the company's move to call for rights issue was illegal and contrary to law and sought a stay of it. The company management, on the other hand, argued that the investors were creating obstructions to the company.

Investors, in their plea, stated that BYJU'S, in 2022, transferred $533 million to Camshaft Capital Fund, which was founded by a 23-year-old and whose principal place of business once was a pancake restaurant in Miami.

The founder of the investment firm, who apparently lacked formal training in investing, had luxury cars—a 2023 Ferrari Roma, a 2020 Lamborghini Hurac n EVO, and a 2014 Rolls-Royce Wraith—registered in his name since the transfer occurred.

While BYJU'S did not comment on the allegations made in NCLT on Tuesday, the firm had, when the allegations first surfaced in September last year, stated that "an offshore subsidiary remains the beneficiary of the money invested in high security fixed income instruments invested with a multi-hundred billion dollar fund in the US." It had denied insinuation that it was no longer a beneficiary owner of the funds.

In the NCLT, lawyers for investors argued that promoters want them to invest more money when $533 million has been siphoned off. They feared irreversible consequences if diverted funds stayed abroad.

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Sources said investors argued that the rights issue offer letter was not issued in accordance with the Companies Act of 2013 as it gave only two days' notice for the board meeting called for approving the rights issue, instead of a mandatory three days or more.

The board meeting of January 27, which approved the right issue, was not valid, and no resolution was passed. They said the meeting was scheduled as an investor update call, and the investors had disputed such rights offer to be rolled out without the company giving them enough information on the financials.

They also disputed the $200 million valuation of the company in the rights issue, a far cry from the $22 billion valuation the firm commanded once.

Sources said lawyers for BYJU'S argued that the investors were forum shopping. According to the company, while the Karnataka High Court had asked the investors not to implement any resolution passed in the EGM that happened on February 23, the investors approached the tribunal instead of appealing against the court order.

In the February 23 EGM, 60% of the investors voted to remove founder Byju Raveendran and his family.

They argued that the High Court order would be diluted if the NCLT were to pass any order. They claimed that the representatives of investors were present at the meeting where the decision on the rights issue was made, and hence can't claim that they were not consulted.

Stalling the rights issue, they said, it would not benefit anybody, and the company would utilise the funds from the issue only after the requisite legal procedures are complied with.

The investors are not looking at the interest of 100 million students and the 12,000 employees but only at their value maximisation, they added.

Sources said the lawyers for the investors said BYJU'S wants investors to contribute more money to the company. Their 25.4% stake (of a group of four investors) will come down to 2.5% if they don't subscribe to the rights issue. If they subscribe, they don't know what happens to their money.