SC sets aside NCLAT order stopping insolvency proceedings against Byju's says US firm has locus

     New Delhi, Oct 23 (PTI) In a major setback to Byju's, the Supreme Court on Wednesday set aside the National Company Law Appellate Tribunal's (NCLAT) verdict that had halted the insolvency proceedings against the embattled ed-tech firm and held US creditor firm Glas Trust Company LLC would have the locus to intervene.
     The top court verdict also came as a jolt for the Board of Control for Cricket in India (BCCI) as it annulled the NCLAT’s order approving Rs 158.9 crore dues settlement of Byju’s with the cricket board.
     A bench comprising Chief Justice of India (CJI) D Y Chandrachud and Justices J B Pardiwala and Manoj Misra directed the cricket board to deposit the settlement amount of Rs 158.9 crore with the committee of creditors (CoC).
     As a result of the verdict, now Byju Raveendran and his brother Riju Raveendran will again lose control over "Think and Learn Pvt Ltd" or Byju’s -- a company engaged in providing online educational services and the insolvency resolution professional (IRP) will be back at the helm.
     The bench held the US firm, being the creditor, had the locus to intervene in matters relating to the corporate insolvency proceedings at NCLT, NCLAT and in the apex court as an affected party.
     Writing a 61-page judgement on the plea of the US firm against the NCLAT verdict, the CJI, on the future course of action, said, “Parties are at liberty to invoke their remedies, to seek a withdrawal or settlement of claims, in compliance with the legal framework governing the withdrawal of CIRP (corporate insolvency resolution process).”
     “We allow the present appeal and set aside the impugned judgement of the NCLAT dated August 2… At this stage, it would not be appropriate for this court to adjudicate on the objections of the appellant to the settlement agreement on merits,” the verdict said.
     It said the issues raised with regard to the insolvency were subject matter of several litigations at different fora, including the Delaware Court in the US, and investigation by various authorities, including the Enforcement Directorate.
     Nothing in this judgement should be construed as a finding on the conduct of any of the parties or other stakeholders involved in the insolvency proceedings, it said.
     “The amount of Rs 158 crore, along with accrued interest, if any, which has been maintained in a separate escrow account pursuant to the order of this court dated August 14, is to be deposited with the CoC. The CoC is directed to maintain this amount in an escrow account until further developments and to abide by the further directions of the NCLT,” it ordered.
     Byju's became the Indian cricket team sponsor in 2019 and the deal was worth Rs 4.61 crore per bilateral match and Rs 1.51 crore per match in an ICC tournament.
     The company, which wins these rights, gets to have its name on the national jersey as the primary sponsor.
     The deal with Byju's was originally till 2022 but was extended till the end of 2023 ODI World Cup but Byju's failed to pay the sponsorship fee after June 2022. This led to a litigation by the BCCI at NCLT Bengaluru.
     The top court rapped the insolvency appellate tribunal, NCLAT, for flouting the established rules in stopping the insolvency proceedings against the ed-tech firm by taking recourse to its inherent powers.
     “The NCLAT cannot be considered a post office that merely puts a stamp on the withdrawal application submitted by the parties to the corporate insolvency resolution process (CIRP),” the bench said, adding that the withdrawal plea should have been moved by the IRP not by the corporate debtor or other parties.
     It said the exercise of discretionary powers by the NCLAT was not warranted in the present circumstances.
     “Inherent powers cannot be used to subvert legal provisions which exhaustively provide for a procedure to permit the NCLAT to circumvent this detailed procedure by invoking its inherent powers,” it said.
     The verdict decided three issues and the first question was “whether the appellant (US firm), who is not a party to the settlement between the second respondent (BCCI) and the corporate debtor (Byju’s), has locus in the proceedings before this court.”
     The second question was whether the NCLAT was right in exercising its special power in allowing withdrawal of CIRP and settlement of claims between parties.
     “Without prejudice to the above, whether the NCLAT adequately addressed the objections raised by the appellant (US firm) while exercising its discretionary power…,” the third issue read.
     The bench dealt with evolution of legal provisions to deal with withdrawal of CIRP after the admission of the corporate insolvency application moved by a creditor.
     It said now there was a detailed procedure to deal with the withdrawal or settlement at both stages post admission, before and after the CoC was constituted.
     “In view of this detailed framework, the requirement to invoke the discretionary power… of the NCLAT rules…or even the power of this (top) court under Article 142 no longer arises,” it held, adding the application ought to be submitted by the IRP instead of the parties themselves.
     It was never fathomed by the IBC that withdrawal of claims would remain a unilateral process, even though the applications had been admitted and CIRP initiated, the bench said.
     On August 2, the NCLAT had granted relief to the ed-tech firm by setting aside the insolvency proceedings against it after approving its Rs 158.9 crore dues settlement with the BCCI. It had put former promoter directors back at the helm.

(This story has not been edited by THE WEEK and is auto-generated from PTI)