The Supreme Court set aside on Wednesday an order of the National Company Law Appellate Tribunal that put an end to the ed-tech firm's insolvency process. In essence, the insolvency process of the embattled firm is set to continue.
A three-judge bench, led by Chief Justice of India DY Chandrachud, said the NCLAT did not provide adequate reasoning while approving Byju's settlement with the Board of Control for Cricket in India and iterated that due process of law was not followed.
As a result, the apex court has directed that the settlement amount of Rs 158 crore, along with interest, is to be deposited with the committee of creditors and kept in an escrow account.
The bench refused to comment on the merits of the case and said that the CoC is to maintain the settlement amount until further developments in the case, which has been sent back to the National Company Law Tribunal for fresh consideration.
Due Process Of Law
The court stated that the law with respect to settlements and withdrawal of an insolvency application is very clearly established.
It said that in cases where the insolvency application is admitted but the CoC has not been constituted, the application for withdrawal can only be moved through the interim resolution professional. This application, the court said, has to be moved before the NCLT.
However, no formal application was instituted in this case to seek the withdrawal of the corporate insolvency resolution process, and the settlement agreement was taken on record and approved by the NCLAT based on the submissions and assurances of the counsel before it.
The corporate debtor (Byju's) did not move the application through the IRP and instead approached the NCLAT directly. Finally, the request to approve the settlement was moved before the NCLAT during appellate proceedings, instead of being placed before the NCLT.Supreme Court of India
The top court remarked that despite these grave deviations, the NCLAT still proceeded with approving the settlement and setting aside the insolvency resolution process.
The Story So Far
On Aug. 14, the top court ordered a stay on the NCLAT approval of Byju's settlement with the BCCI over dues to the tune of Rs 158 crore. In effect, the apex court’s order meant that the insolvency process, which was brought to a halt by the NCLAT, stood revived.
On Aug. 2, the NCLAT approved Byju's settlement with the BCCI, putting an end to its insolvency process. According to the settlement, Byju's committed to settling its dues with the BCCI, with payments scheduled for Aug. 2 and Aug. 9.
Approving the settlement, the NCLAT said that if payments are not made according to schedule, the insolvency process will be resumed.
This prompted the US-based lenders, represented by Glas Trust LLC, to move the apex court against the NCLAT-approved settlement, based on the allegation that the money used for the said settlement was syphoned from them and its sources are questionable.
In addition, it is Glas' contention that Byju's owes its lenders over Rs 8,000 crore and that the NCLAT ended the insolvency process following a small settlement of Rs 158 crore between Byju's and the BCCI.
Post the revival of the insolvency process and the subsequent formation of the committee of creditors, the US-based lenders were removed from the committee even after establishing that their voting share in the CoC by value is 99.41%.
Crucially, the Delaware Supreme Court has backed the US-based lenders over a $1.2 billion loan default by the ed-tech firm.
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