BYJU’s Insolvency: A Case Study in Corporate Governance and Financial Turmoil

Introduction

BYJU’s, once a leading name in India’s ed-tech revolution, has now become the center of a major insolvency battle. From securing multi-billion-dollar investments to defaulting on key financial obligations, its fall from grace has been swift and complex. The insolvency proceedings have triggered legal debates, regulatory concerns, and financial disruptions.

This article takes a detailed look at the timeline of events, key legal principles, and the impact of the insolvency case on corporate governance and financial regulations in India.

1. The Origins: How BYJU’s Landed in Insolvency Proceedings

The case began when the Board of Control for Cricket in India (BCCI), an operational creditor, filed an insolvency petition against BYJU’s for unpaid dues amounting to ?158 crore under a Team Sponsor Agreement.

When insolvency proceedings begin under the IBC, a moratorium is imposed to protect the debtor from further claims while a resolution plan is sought. In BYJU’s case, this process was disrupted multiple times due to conflicting claims between operational and financial creditors, raising questions about preferential payments and procedural violations.

A fundamental issue was the attempt by BYJU’s management to settle its dues to BCCI outside the formal insolvency process. The ?158 crore payment made by co-founder Riju Raveendran was deemed problematic as it was done without consulting the CoC, which goes against the principles of the IBC. The Glas Trust, as a financial creditor, contended that this move undermined the collective nature of insolvency proceedings.

Another major contention was the role of the IRP, Pankaj Srivastava, who reconstituted the CoC in a manner that excluded key creditors. This action was challenged in court, leading to the Supreme Court’s intervention to ensure fairness in the composition of the CoC. The IRP’s improper handling of creditor claims ultimately led to his removal.

Glas Trust acted as a financial creditor, representing lenders who had extended significant loans to the company. Its role became central in the insolvency proceedings as it sought recognition in the Committee of Creditors (CoC). For the uninitiated, Glas Trust is a trustee entity responsible for managing secured financial instruments on behalf of bondholders.

2. Key Events:

3. Key Legal Concepts and Case Laws Referenced

1.??? Swiss Ribbons Pvt Ltd v. Union of India – This landmark case held that once a petition is admitted under the IBC, the insolvency process becomes a collective proceeding involving all creditors, not just the petitioner. The Supreme Court in the BYJU’s case reiterated that the CoC must be involved in any settlement once CIRP has commenced.

2.??? Lokhandwala Kataria Construction v. Nisus Finance – This case underscored the importance of adhering to the formal withdrawal process under Section 12A of the IBC, preventing unilateral settlements. The court in BYJU’s case criticized NCLAT’s improper use of inherent powers under Rule 11, which bypassed this established framework.

3.??? Kamal K Singh v. Dinesh Gupta – The Supreme Court previously ruled that before a CoC is constituted, the NCLT may use inherent powers under Rule 11. However, in BYJU’s case, the Supreme Court clarified that since Regulation 30A now provides a structured withdrawal process, reliance on Rule 11 was improper.

4.??? Brilliant Alloy Pvt Ltd v. S Rajagopal – This ruling emphasized the necessity of hearing all stakeholders in an insolvency matter. The Supreme Court in BYJU’s case found that Glas Trust’s objections were dismissed without due consideration, reinforcing the need for procedural fairness.

By emphasizing these precedents, the Supreme Court reaffirmed the integrity of insolvency proceedings, ensuring that settlements follow a transparent and legally sound framework

4. Supreme Court’s Judgment and Reinstatement of Creditors

On January 29, 2025, the Supreme Court ruled in favor of Glas Trust and Aditya Birla Finance, ordering their reinstatement in the CoC and removing IRP Pankaj Srivastava. The ruling found Srivastava unfit to oversee the insolvency proceedings and directed the Insolvency and Bankruptcy Board of India (IBBI) to take disciplinary action against him.

The Court also set aside resolutions passed by the reconstituted CoC and directed that the previously constituted CoC reconvene to appoint a new Resolution Professional (RP). On February 17, 2025, Shailendra Ajmera was appointed as the new RP. The ruling underscored the importance of due process in insolvency proceedings and reinforced that insolvency professionals must act in an impartial manner.

Additionally, the Supreme Court ruled that the funds held in escrow must be retained until further orders from the NCLT. This prevented BYJU’s management from using the settlement as a way to bypass the CIRP framework.

5. U.S. Proceedings & International Ramifications

Adding to BYJU’s legal troubles, U.S. courts found company officials in contempt:

• Vinay Ravindra & Rajendran Vellapalath were fined $25,000 per day for failing to disclose $533 million in loan proceeds.
• This marked the third contempt ruling against BYJU’s associates in U.S. courts.
• The English High Court rejected a Delaware bankruptcy judge’s request for assistance in obtaining evidence for the BYJU’s Alpha fraud case.

The case has international dimensions, impacting investor confidence and corporate transparency.

6. Current Situation and Future Outlook

Despite its legal troubles, BYJU’s continues to operate, though its financial position remains precarious. The Supreme Court has reinforced that insolvency laws must be strictly followed, and BYJU’s battle to contest creditor claims continues.

The international scrutiny from U.S. and UK courts, combined with its domestic insolvency proceedings, has shaken investor confidence. Whether BYJU’s can recover through restructuring or face liquidation remains to be seen.

7. Implications for India’s Insolvency Framework

The BYJU’s case has broader implications for India’s insolvency regime:

1.??? Ensuring Transparency in the Insolvency Process – The Supreme Court’s ruling reinforces that insolvency proceedings must be conducted with strict adherence to legal procedures, preventing any creditor from obtaining preferential treatment.

2.??? Strengthening the Role of the CoC – The ruling reaffirms that the CoC plays a decisive role in insolvency proceedings and cannot be circumvented through side settlements.

3.??? Accountability of Insolvency Professionals – The removal of IRP Pankaj Srivastava sets a precedent that professionals who misuse their authority will face disciplinary action.

4.??? Judicial Oversight in Corporate Disputes – The Supreme Court’s intervention showcases the judiciary’s role in ensuring that insolvency laws are followed in both letter and spirit.

8. Conclusion: Lessons from BYJU’s Insolvency

The BYJU’s insolvency case is a landmark event in India’s corporate and legal history, underscoring the importance of financial discipline, regulatory compliance, and governance transparency. The Case underscores the complexity of insolvency proceedings in India, highlighting both strengths and weaknesses in the IBC framework. While the law provides clear mechanisms for insolvency resolution, its execution requires vigilance to prevent misuse and ensure fair treatment of all stakeholders. The Supreme Court's intervention in this case reinforces the collective nature of insolvency proceedings, prioritizes due process, and sets a precedent for future corporate insolvency cases in India.

This case will likely influence future insolvency resolutions, creditor rights, and investor confidence in Indian startups.

Source:https://api.sci.gov.in/supremecourt/2024/35406/35406_2024_1_1502_56620_Judgement_23-Oct-2024.pdf

What are your thoughts on this case? Does India need further IBC reforms? Let’s discuss in the comments!