Supreme Court declines Byju’s plea to block formation of creditors’ committee

New Delhi: The Supreme Court on Tuesday declined a plea by Byju's to prevent the resolution professional of the bankrupt edtech company from constituting a committee of creditors till the top court decides on the case.

A primary responsibility of the resolution professional was to collate information on the entire dues that Byju’s owed to all its stakeholders and create a committee of creditors. The management of the company would then, in theory, be passed on to the creditors.

The apex court on Tuesday denied the interim relief sought by Byju's, it has agreed to hear the case in detail on 22 August.

The Supreme Court had on 14 August revived the insolvency case against Byju's, suspending the National Company Law Appellate Tribunal's (NCLAT) order that had quashed bankruptcy proceedings against the company.

The court also directed the Board of Control for Cricket in India (BCCI), an operational creditor that had petitioned for the insolvency proceedings, to deposit a settlement amount of ₹158 crore from Byju's in a separate escrow account until the resolution of an appeal by a US lender to the edtech company.

A bench led by Chief Justice D.Y. Chandrachud revived the insolvency process following an appeal filed by US-based lender Glas Trust Inc. The lender claimed that Byju's owed it over ₹8,000 crore and, as a financial creditor, argued it should receive priority in repayments.

“Lordships, it would be infructuous if the CoC is constituted within 48 hours. The RP should not constitute the CoC before Friday,” remarked senior advocate Abhishek Manu Singhvi, appearing for Byju's.

Solicitor General Tushar Mehta, appearing for BCCI, echoed the same concern, stating that the CoC cannot be formed without hearing the matter.

What Byju Raveendran is saying

In an email, Byju Raveendran informed employees that the company has been unable to pay July salaries due to the Supreme Court’s temporary stay on the NCLAT's recent decision favouring a settlement in BCCI's case against Byju's.

He explained that because of this stay, the company has not regained control of its accounts, preventing the founders from infusing additional capital to cover salaries, a practice they have maintained for the past several months.

Raveendran reassured employees that all outstanding salaries will be disbursed as soon as the former management, under his leadership, regains control of the company’s accounts.

"I guarantee this: When we regain control, your salaries will be paid promptly, even if that means raising more personal debt. This isn't just a promise - it's a commitment," he said.

Mint has reviewed a copy of the email.

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

The case revolves around a deal Byju's had signed with BCCI in 2019 to feature its branding on the front of the Indian cricket team’s jersey. In June last year, the company extended its sponsorship rights with BCCI until November.

The company had requested the cricket board to encash a ₹140 crore bank guarantee, with another ₹160 crore to be paid in instalments. Eventually, BCCI dragged Byju’s to the bankruptcy court for allegedly defaulting on dues worth ₹158 crore.

More here | Byju’s downfall: From being startup star to filing insolvency

While permitting a settlement to BCCI, the NCLAT had on 2 August set aside the National Company Law Tribunal’s (NCLT) order initiating corporate insolvency proceedings against the edtech firm after it defaulted on paying dues to the cricket board.

Riju Raveendran, brother of founder Byju Raveendran, had raised ₹158 crore for a settlement with BCCI.

What SC denying relief today means for Byju's

Following Tuesday's hearing, it is likely that Byju's may face insolvency proceedings. However, legal experts have differing views on the matter.

While some believe that, in the ordinary course, whenever an NCLAT order is stayed, it means that the lower court’s order stands operational or revived. In this case, if the NCLT order stands revived, it will directly lead to the formation of the CoC.

Nirav Shah, an independent counsel and an expert on India's Insolvency and Banruptcy Code, believes that since a stay order is interim in nature, the matter will be first heard on merits at length and only then be decided.

However, it is unlikely that the Supreme Court will reject any settlement between the parties involved. There cannot be any action on the insolvency proceedings until the top court resolves the matter, he added.

Additionally, until the lenders factually prove that the Raveendran brothers have committed some sort of fraud, it is unlikely that the Supreme Court will stay a settlement, Shah said.

Once a settlement is reached between the lender and the company in bankruptcy, the matter is disposed of. Therefore, the US lender is in all likelihood trying to prevent the halt of insolvency proceedings, he added.

Ashish Pyasi, founder, Aendri Legal, has a similar view. “It is a settled law that the third parties generally have no locus in a bilateral settlement. In fact, in some cases where the lenders or creditors opposed the withdrawal of process then same was not entertained by the courts."

The Supreme Court has only passed an interim order so Byju's will get a chance to address the court and oppose the appeal filed by the foreign creditor, Pyasi said.

But the order could be set aside if any illegal activities are detected.

“If (the) brothers are declared fugitives, then it will lead to a negative impact on the settlement process and order as they might have given some personal undertakings,” Pyasi said. Or “if the money for settlement has come from some illegal activity, the Supreme Court will have a different view on the process and withdrawal”.