Karnataka High Court reserves order on Byju's challenge to NCLT stay on rights issue

The Karnataka High Court today reserved orders on a plea challenging the June 12 interim order passed by the National Company Law Tribunal (NCLT), Bengaluru restraining ed-tech firm Byju’s from going ahead with a second rights issue..Justice SR Krishna Kumar said that he would dictate the order on July 2.While reserving orders, the judge expressed that he was not inclined to delve into the cross-allegations made by Byju's and its investors, but was only concerned with the correctness of the NCLT's interim order. .Two petitions had been filed before the High Court challenging the NCLT's decision to issue an interim stay on a second rights issue by Byju's.The NCLT passed the June 12 interim order on a petition filed by four investors (MIH EdTech Investments, General Atlantic Singapore, Peak XV Partners Operations LLC and Sofina) which accused Think & Learn (parent company which owns Byju's) of oppression and mismanagement.The interim order restrained Byju’s from proceeding with its second rights issue till the main petition of the four investors was disposed of..NCLT halts Byju’s second rights issue for raising funds.The move was challenged in two writ petitions filed by Think & Learn as well as its Managing Director Byju Raveendran and executive directors Riju Raveendran and Divya Gokulnath.Appearing for the petitioners, Senior Advocates KG Raghavan and Dhyan Chinnappa argued that the NCLT's interim order of stay was liable to be set aside as it was bereft of reasons.The senior counsel told the Court that apart from extracting various submissions by the rival parties, the NCLT did not give any reasons as to why it was imposing a stay."Independently is there any reasoning given in the order? Nothing," Raghavan contended."I may be in the wrong, but I am entitled to be told by the tribunal why I am wrong," Chinnappa added.They also vehemently objected to the allegations of fraud and mismanagement levelled against the ed-tech firm."These (the investors who approached NCLT) are shareholders who have made eight times their investment in one case...two and half times, in another case. They are not people who have lost money. Today, they say the valuation has come down...I am putting money to save it, you are trying to destroy it,” Chinnappa argued.Raghavan also asserted that contrary to the investors' claims, there was no violation of any undertaking given by Byju's to the NCLT when it came to the proposed second rights issue.He argued that the undertaking recorded in NCLT's February 2024 order did not restrain Byju's from issuing further shares, provided that it was within the authorised capital of the company.He also told the Court that the investors had tried to stall the Extraordinary General Meeting (EGM) called to increase the authorised share capital of the company, but had failed to do so..Meanwhile, Senior Advocates Udaya Holla and Satish Parasaran, appearing for the investors, maintained that Byju's and Think & Learn had violated its earlier undertaking to the NCLT. They argued that apart from an undertaking not to proceed with the rights issue in question (which would further dilute the rights of existing investors), Byju's had also been directed to disclose certain information regarding their financials, which was also not complied with. Countering the allegation that the NCLT's June 12 order was unreasoned, Holla argued that this interim order has to be read along with the earlier orders of the tribunal and not in an isolated manner. If all of the NCLT's orders were read together, sufficient reasons would emerge, Holla said. While pressing the investors' case, Holla also touched upon the allegations of misconduct against Byju's."We have stated (that there is) fraud, misappropriation and we said this issue of shares is an illegal act, calculated to oppress our rights...We have invested hard-earned money, they have taken it away," Holla argued. Supporting his submissions, Parasaran added that the petitioners were trying to project a false sense of urgency in their petition against the NCLT's interim order of stay. "NCLT only said pending further orders (there shall be stay). They kept (the main petition's hearing) on July 4. They only said, in the meantime, don't go ahead with the rights issue...On a demurrer, assume there is no reason (in the NCLT order). Still, the Supreme Court says such an order cannot be set aside, it is discretionary," Parasaran said.