BYJU'S is a classic case of a mismanaged company! A group of four investors of the edtech giant filed an oppression and mismanagement suit against the management of the company before the Bengaluru bench of the NCLT (National Company Law Tribunal), demanding that the founders, including CEO Byju Raveendran, be declared unfit to run the company and seeking the appointment of a new board.
Besides, the suit sought to declare the just-concluded rights issue as void. Things look extremely challenging for its founder Raveendran as during the extraordinary general meeting (EGM) on Friday, he was accused of mismanagement and failures by the investors and shareholders. The fact that Raveendran and his family failed to attend the EGM is a testimony that things are in bad shape.
Unfortunately, the entire edtech industry appears to be bearing the brunt of the crisis at BYJU'S. “If there was an intent to save the company, the founder would have attended the EGM and come to an amicable settlement to save the company, but here is a case where he is trying to find a legal loophole to push forward his agenda. I see this case going on for a long time and all the investors who glorified an individual going down. There will be huge repercussions here and thankfully it is not public money directly. This is a lesson to all who glorify an individual and turn a blind eye to governance. Unfortunately, this one incident has tarnished the startup segment in the country and it will need a lot of effort to bring the sector back up. The other worry is how badly has their crown jewels Akash and Great Learning been squeezed,” Sathya Pramod, CEO, Kayess Square Consulting Private Limited told THE WEEK.
Pramod feels that the forensic audit should have happened long ago and not as an afterthought. “When the definitive agreements typically give power to the investor to inspect books, why did they allow it to come to this extent is the question. I will relate this again to greed and idolizing the founder. Everyone wants the best return for his investment and everyone stayed on thinking that the valuation was going up but never checked within to see if there was any value. Even now, I see investors wanting to skip the diligence step or make it toothless. There was writing on the wall when financials were not filed and everyone chose to ignore it. A lesson learnt, albeit a costly one, for the whole country,” added Pramod.
The company has faced a sharp decline in its valuation over the last year. The decline was attributed to a combination of factors such as investor pullouts, the resignation of its auditor Deloitte, and a legal battle over a $1.2 billion loan. Adding to the company's woes, BYJU'S is now under investigation by the Enforcement Directorate for alleged FEMA violations, with its founder Raveendran having a lookout circular issued against him to ensure he remains in India during the probe. The investigation signifies the gravity of the situation confronting BYJU'S.
In response to the challenges faced by the company, investors including Prosus, GA, Sofina, and Peak XV, backed by Tiger and Owl Ventures, are seeking the removal of Byju Raveendran and his family from the board. Citing financial mismanagement and governance issues, they have filed a suit at the Bengaluru NCLT for Raveendran's ouster, along with a call for a forensic audit and the appointment of a new board. Additionally, they aim to declare a recent $200 million rights issue void, highlighting concerns over corporate actions and regulatory noncompliance.
“Despite efforts to boost its brand by securing high-profile sponsorships and naming Lionel Messi as a global ambassador, BYJU'S faced criticism over allegations of a toxic work environment and aggressive marketing tactics. This backlash led major shareholder Prosus to slash BYJU'S valuation by 75 per cent resulting in a chain of negative outcomes including mass layoffs, financial losses, and legal challenges. BYJU'S is currently facing a turbulent period marked by significant setbacks and challenges that threaten its reputation and stability. The company's efforts to address these issues and regain confidence from investors and stakeholders will be crucial in determining its future trajectory,” pointed out Girish Linganna, an aerospace expert who has also been following the edtech industry in India.
