Mint Explainer: Why Byju's creditors have dragged its insolvency professional to court

On 19 September, EY Restructuring also stepped down as an advisor to Srivastava, days after MSKA & Associates (BDO) resigned as the company's auditor.

Ahead of Aditya Birla Finance and Glas Trust’s respective hearings on 24 and 25 September, Mint explains how the rift between the creditors and the RP of Byju's will impact the resolution process. 

What do the creditors want?

Glas Trust Llc is seeking reinstatement in the committee of creditors (CoC), after Srivastava excluded it from the CoC. “Srivastava’s actions are unprecedented and entirely illegitimate as no IRP in the history of the Insolvency and Bankruptcy Code (IBC) of India has ever attempted to unlawfully strip financial creditors of claims of this magnitude, amounting to more than $1.35 billion without any legitimate reason and in doing so securing his appointment as the permanent RP," it said in a 3 September letter.

Also Read: Byju’s employees rush to file claims for their dues as deadline nears

Glas Trust moved the Bengaluru bench of the NCLT on 4 September. However, it did not get any relief. Subsequently, it moved to the Supreme Court.

Glas Trust had earlier approached the top court challenging the settlement between Byju’s and its operational creditor Board of Control for Cricket in India (BCCI) claiming that as a financial creditor its dues should have been settled before the cricket board.

The Byju's-BCCI case centres around a sponsorship dispute. On 16 June, the NCLT initiated insolvency proceedings against Byju's on the BCCI's behalf and suspended its board. A settlement was reached on 2 August when Byju's paid ₹158 crore through Riju Raveendran, the co-founder. However, the apex court intervened on 14 August, staying the settlement and directing the amount to be placed in escrow.

Aditya Birla Finance has accused Srivastava of fraud. It has filed a plea in the National Company Law Tribunal (NCLT) against him over the alleged wrongful classification of the lender as an operational creditor instead of a financial creditor.

With financial creditors having a priority over operational creditors when it comes to claiming assets, this misclassification could have significant consequences for Aditya Birla Finance's claim on Byju's assets during the insolvency process.

Are the RP’s actions valid?

The RP is responsible for verifying claims and forming the CoC. In Byju's case, Srivastava verified and admitted Glas Trust’s claims. But later dropped it from the list.

He reportedly believed that Glas Trust did not represent at least 51% of the lenders in the claim process and could not provide sufficient evidence to prove otherwise.

Also Read: Byju's startup lesson: Don’t get carried away with winner-takes-all dreams

As a result, Glas Trust, which previously accounted for approximately 99% of the claim amount, was excluded from the CoC. 

Experts assert that the RP has the authority to include or exclude any claimant in these processes. “It is the RP that constitutes the CoC, and any lender aggrieved by their exclusion or assigned voting share can file an application before the NCLT," said Smiti Tewari, partner, Khaitan Legal Associates.

In response to Mint's queries, the US lender refuted the claim, stating that Glas Trust is the administrative agent and represents all lenders participating in the TLB. 

“The credit agreement empowers Glas to act on behalf of lenders on its own accord – i.e. Glas can still act on behalf of all lenders with zero votes from any lenders," the lenders added. They also mentioned that the vast majority of lenders, holding more than 95% of the TLB, directed Glas to file the proof of claim.

Queries sent to Srivastava, Aditya Birla Finance and EY did not elicit a response at the time of publishing.

How have the dynamics changed?

With Byju Raveendran—the common enemy, no longer at the helm—the alignment between lenders and investors seems to be fracturing, potentially pitting them against each other.

“This exclusion not only undermined their (Glas Trust’s) claims but also shifted the power balance in the CoC," said Ketan Mukhija, partner, Burgeon Law.

Before the exclusion, Glas Trust held the lion's share of the claims, representing roughly 99% of the total debt. “From a corporate insolvency resolution process (CIRP) perspective, the interests of the lenders and investors are not as aligned as the party with the larger voting share would get to run the process of resolution," said Tewari.

The elimination of Glas Trust's claims and the misclassification of Aditya Birla Finance has paved the way for investors to assume a dominant role in Byju's insolvency proceedings.

How will it impact the process?

The Supreme Court's decision on Glas Trust and the BCCI's pleas will provide clarity on the matter. However, the resolution of this dispute, which hinges on court decisions, is likely to prolong the insolvency process, according to experts.

Also Read: Byju's: Battle for control

“In cases of disputes and decisions being challenged, the timeline is driven by the time taken by courts to decide the issue," said Tewari. The case, however, is unlikely to impact the ongoing proceedings, and it will continue as is.

“Until there is a final order on whether the RP can continue with the CIRP or not, the allegations against the RP will not impact the ongoing proceedings," said Krushi N. Barfiwala, counsel, Parinam Law Associates.

What happens next?

Currently, the cases are being heard in the apex court, and the bankruptcy proceedings are going on uninterrupted. “Unless the Supreme Court issues a direction for a stay on the CIRP, the process will continue," said Tewari. The next date of hearing is 25 September.

Once the exclusion or inclusion of the US lenders in the CoC is decided upon and the insolvency process is proceeded with, resolution plans will be invited.

“The plans will be assessed as per the provisions of the IBC. The plans are put to vote. Practically, applications are filed challenging the successful resolution plan. Once all the proceedings have attained finality, the successful resolution plan is implemented," said Barfiwala.

Also Read: Classroom to courtroom: Lenders seek Byju's insolvency

Lenders will then receive their payments according to the schedule outlined in the approved resolution plan. However, the timeline could change if the resolution plan fails and liquidation ensues, she added.