Supreme Court Dismisses BYJU'S Plea, Allowing Aakash Educational Services to Proceed with Rights Issue

In a significant development, the Supreme Court of India has dismissed petitions filed by the edtech company BYJU'S and its lender Glas Trust. These petitions aimed to prevent Aakash Educational Services, in which BYJU'S holds a substantial stake, from proceeding with a planned rights issue. The court's decision clears the path for Aakash to raise INR 200 Crore, which the company states is crucial for its operational sustenance. This move will drastically reduce BYJU'S equity in Aakash, bringing its shareholding down from 25.75% to less than 5%. BYJU'S and Glas Trust had previously sought stays from the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) but were unsuccessful. Aakash's shareholders had already approved an increase in the company's authorized share capital to facilitate the rights issue. Glas Trust, representing BYJU'S US lenders, argued that the rights issue was an orchestrated move to strip value from BYJU'S and circumvent legal orders, rather than a genuine business necessity. However, Aakash chairman Shailesh Vishnubhai Haribhakti defended the move as essential for keeping Aakash operational and protecting BYJU'S investment. BYJU'S current financial difficulties and ongoing insolvency proceedings prevent it from participating in the rights issue. The NCLT had previously noted that a shareholder's inability to participate does not inherently make a rights issue unfair.

Impact This ruling represents a major setback for BYJU'S, further diminishing its control and stake in a key subsidiary. It highlights the escalating financial and legal challenges faced by BYJU'S and could impact investor confidence in the broader edtech sector in India. The dilution of its stake in Aakash, a significant acquisition for BYJU'S, marks another step in the company's challenging financial restructuring. Rating: 6/10

Difficult Terms: Rights Issue: An offer by a company to its existing shareholders to buy additional shares in proportion to their current holdings, usually at a discount. Dilute: To reduce the ownership percentage of existing shareholders by issuing new shares. NCLT (National Company Law Tribunal): A quasi-judicial body in India established to handle corporate disputes and insolvency proceedings. NCLAT (National Company Law Appellate Tribunal): An appellate body that hears appeals against orders of the NCLT. Insolvency Proceedings: Legal processes undertaken when a company is unable to pay its debts. Term Loan B (TLB): A type of business loan, typically unsecured, provided by institutional investors over a longer term than traditional bank loans.