Byju's Had Lapses, But Won't Refer To Fraud Unit, Says MCA

Beleaguered edtech Byju's had governance lapses as it expanded unprecedently, but allegations of siphoning of funds are unsustainable, according to findings of a probe by the Ministry of Corporate Affairs.

The allegations regarding manipulation of accounts and siphoning of funds against Byju's are unsustainable and as such are not recommended to be referred to the Serious Fraud Investigation Office or any other ministries, departments, and authorities, according to a sourced document.

The ministry said that the company has been "slow to recognise the need for strengthening the core principles of good governance by hiring expert professionals for its expanding business horizon."

"This has led to certain lapses which have been disclosed by the company itself and upon which appropriate penalties/fines have been paid. Even though Byju's was not obligated to follow these principles, on account of being a private limited company, it could still have set an example by doing so," the report said.

The report did not address the allegations of Byju's harboring a toxic work environment, where sales executives resorted to forced selling to meet unrealistic targets. It also did not hold Byju Raveendran, or any family member, individually accountable for any wrongdoing.

Further, the Ministry found no issue with the change in the accounting policy for revenue recognition, which has been alleged as a way for the startup to inflate revenues.

As for Byju's repeated delay in preparing the financial statements for fiscal 2022 and in calling the AGM, the Ministry found that the delay was plausible because of global expansion, a lack of finance and accounting professionals with adequate experience to handle the scope of Byju's operations due to rapid growth seen due to high demand.

On the issue of Deloitte's resignation, MCA said that it was due to Deloitte's failure to depute a larger team within the agreed audit fee to cater to the requirements of many acquisitions of Byju's.

The Ministry said it is possible that the promoters and directors of Byju's could have been more transparent with their actions, referring to the matter of the resignation of crucial investor representatives such as those of Peak XV Partners, Chan Zuckerberg and Prosus.

"Byju's is a startup which right from its inception, expanded unprecedently, the potential of which was aimed to exploited to its fullest extent. Efforts to stabilize and become profitable came second to efforts of establishing the company as the country’s first edtech startup," it added.

The relief brought by the findings won't last long for Byju's, as the company's myriad legal challenges continue, firstly with its $200 million rights issue, which is being held at a valuation of only $20–25 million, a 99% dip from its previous valuation of $22 billion.

The Bengaluru bench of the National Company Law Tribunal has directed the startup to maintain status quo with regard to existing shareholders and their shareholding and has restrained from using the proceeds of the rights issue.