NCLAT Seeks Replies From Aakash, Others On Byju's Plea To Block Rights Issue

The National Company Law Appellate Tribunal (NCLAT), Chennai, on Thursday sought replies from Aakash Educational Services Ltd. (AESL) and other respondents in a plea filed by debt-ridden edtech major Byju's (Think and Learn Pvt. Ltd.) seeking to restrain Aakash from proceeding with a proposed rights issue that could dilute its shareholding in the test-prep subsidiary.

The right's issue which was approved by the shareholder's in an Extra-Ordinary General Meeting (EGM) on Wednesday is scheduled to close on November 17. 

A bench comprising Judicial Member Justice N Seshasayee and Technical Member Jatindranath Swain directed all respondents who wish to oppose the plea to file their replies by November 4 and listed the matter for further hearing on November 6.

The appeal has been filed by Byju's resolution professional (RP) against an October 17 order of the National Company Law Tribunal (NCLT), Bengaluru, which refused to grant interim relief to Byju's in its bid to stop Aakash's proposed rights issue. The NCLT, while refusing to stay an Aakash's EGM to approve the rights issue had held that the proposed fund infusion could not be termed “unequitable” merely because Byju's, which is under insolvency proceedings, was unable to participate in the issue.

The Bengaluru bench of the insolvency court, observed that a shareholder's inability to subscribe to a rights issue due to its own financial position cannot be a ground to invalidate the company's decision to raise funds. It also noted that while Byju's may seek financial information as a shareholder, that right does not extend to obstructing the company's business decisions.

Byju's, which holds about 25.5% in Aakash, has argued that the proposed issue was designed to reduce its shareholding below 5%, thereby eroding the value of one of its key assets and violating earlier tribunal directions and the company's Articles of Association.

Earlier this week, on October 28, the same NCLAT Bench had dismissed a separate plea filed by US-based lender GLAS Trust Company LLC, which sought to block Aakash's Extraordinary General Meeting (EGM) scheduled for October 29. The appellate tribunal observed that restraining Aakash from raising funds would harm its commercial prospects and, in turn, reduce the value of Byju's investment.

In that order, the NCLAT noted that Aakash's proposed rights issue and amendment of its Articles of Association were linked to obligations under a Debenture Trust Deed (DTD) executed in April 2023, long before Byju's entered insolvency. The tribunal held that the rights issue appeared to be a “direct sequel” to the DTD, and not a move intended solely to dilute Byju's shareholding.

Following the NCLAT's October 28 order, Aakash's shareholders approved the rights issue at the EGM on Wednesday, and offer documents were served to all shareholders, including Byju's, on Thursday afternoon. 

The matter will be heard next on November 6.