NCLT hearing: Why BYJU'S investors are against rights issue
What's the story
Today, a showdown unfolded at the National Company Law Tribunal (NCLT) in Bengaluru between four investors of ed-tech giant BYJU'S and the company's board of directors.
Investigators accused the board of illegally calling for a rights issue, while the board claimed the investors were causing obstructions.
The NCLT is set to continue the hearing soon.
Investors' allegations
Investors' arguments against rights issue
The investors argued that an Extraordinary General Meeting (EGM) should have been held for shareholder voting before deciding on a rights issue.
They also alleged significant misuse of funds by BYJU'S and pointed to ongoing investigations by the Enforcement Directorate (ED) and Ministry of Corporate Affairs (MCA).
Their lawyer stated, "BYJU'S is a start-up in the field of education. Think and Learn is the name of the company. Learning here is how to bypass the law."
The demands
Investors seek relief and disclosures
The investors demanded a stay on rights issues, maintenance of the status quo on shareholding, a halt on encumbering and transferring any assets of BYJU'S and its subsidiary, and disclosure of company information.
Their lawyer added, "The company was valued at $22 billion at one time, it is now valued at $2 billion. I have more than reasonable grounds for apprehensions. At this juncture, they want us to contribute more as rights issue."
BYJU'S response
BYJU'S response to investors' allegations
BYJU'S countered that the investors were 'forum shopping' by going to the NCLT instead of appealing against a Karnataka High Court order.
The company maintained that investor representatives were present during the decision-making process for the rights issue and cannot claim they were not consulted.
BYJU's lawyer said, "The investors are not looking at the interest of 100 million students and the 12,000 employees but only at their value maximization."
Why rights issue?
What caused BYJU'S to initiate rights issue?
BYJU'S raised a sum of $200 million through the fully subscribed rights issue at a 99% valuation cut.
The edtech firm is in desperate need of funds to pay salaries to its employees and maintain business operations.
A rights issue is defined as an offer to shareholders to purchase more shares in the company.