Judicial Review: Supreme Court Reinstates Insolvency Proceedings Against Byju’s Amid BCCI Settlement Controversy
Mulanshu Vora
Final year, LL.B., KC Law College, Mumbai
Brief Background of the Case:
Think and Learn Pvt Ltd, a company engaged in providing online educational services, is the Corporate Debtor in the present case. The former directors of the CD are Byju Raveendran and his brother, Riju Raveendran, Respondent No 1 herein. The Board of Control for Cricket in India (BCCI) is an Operational Creditor, having executed a ‘Team Sponsor Agreement’ with the Corporate Debtor on 25 July 2019, for the sponsorship of the Indian National Cricket Team. Additionally, the Corporate Debtor has a wholly-owned subsidiary, Byju’s Alpha Inc., incorporated in the United States. This subsidiary availed a loan facility totalling approximately USD 1.2 billion under a credit and guarantee agreement dated 24 November 2021. GLAS Trust Company LLC, the Appellant herein, was the Administrative Agent for all lenders under this agreement and served as the Collateral Agent for the secured parties. Under the terms of the credit agreement, Think and Learn Pvt Ltd acted as a guarantor and issued a guarantee deed in favor of GLAS Trust on the same date. Byju’s Alpha defaulted on repayment of the aforementioned loan. Thereafter, the guarantor i.e. Think and Learn Private Limited also defaulted on repayment of the said loan.
Insolvency Proceedings against the CD:
On 23 September 2023, the Board of Control for Cricket in India (BCCI) filed a petition under Section 9 of the Insolvency and Bankruptcy Code (IBC) concerning an operational debt of approximately INR 158 crore owed by the Corporate Debtor under the Team Sponsor Agreement. The National Company Law Tribunal (NCLT) admitted the petition on 16July 2024, thereby initiating the Corporate Insolvency Resolution Process (CIRP). A moratorium was imposed under Section 14 of the IBC, and an Interim Resolution Professional was appointed.
Simultaneously, the Appellant filed a petition under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016 on 22 January 2024 to recover its dues from Byju’s Alpha and Think and Learn Private Limited. The Hon’ble NCLT disposed of the Section 7 petition, in view of the order passed on the same day admitting the Section 9 petition filed by the BCCI. The said disposal order recorded that the Appellant had the liberty to file its claim before the IRP appointed for CIRP of the Corporate Debtor initiated under Section 9 petition of the BCCI. Further liberty was also granted to the Appellant for revival of its Section 9 petition depending on the subsequent developments at the appellate level, if any.
Thereafter, the Respondent No. 1 preferred an appeal before the Hon’ble NCLAT, Chennai challenging the admission of the Section 9 petition filed by the BCCI. Subsequently the Appellant also impleaded before the Hon’ble NCLAT that it be made a party in appeal filed by the Respondent No. 1. The Respondent No. 1 contended that they have arranged a settlement with the BCCI to pay dues owed to them amounting to INR 150 Crores, out of which INR 50 Crores was already paid and the rest would be paid within stipulated time. The Appellant raised several objections, one that the payment made to BCCI would constitute to a preferential treatment to an Operational Creditor. It was further contended by the Appellants that the money used for the said settlement was from the coffers of Byju’s Alpha Inc. which were offered to settle dues in India violating the order of Delaware Court in a separate recovery proceeding. Thereafter Riju Raveendran affirmed before the Hon’ble NCLAT that the funds used for paying the Settlement amount was out of his own pocket, generated in India and not from the coffers of Byju’s Alpha Inc.
The Appellant had raised the contentions that (i) Section 12A of the IBC and Regulation 30A of the CIRP Regulations 2016 govern the settlement of claims after the initiation of the Corporate Insolvency Resolution Process (CIRP), applicable both before and after the Committee of Creditors (CoC) is formed. Therefore, the first respondent should have approached the NCLT as required by Rule 30A, rather than invoking the inherent powers of the NCLAT under Rule 11. (ii) The NCLAT should refrain from exercising its discretionary power under Rule 11 of its Rules because the directors of the Corporate Debtor and its associated entities are fugitives residing abroad, have defaulted on government dues, are facing ongoing Enforcement Directorate investigations, and have been subject to lookout notices. Additionally, there has been a significant decline in the valuation of the Corporate Debtor. (iii) When considering a settlement, it is essential to take into account the interests of all creditors, including the appellant, who has a substantial stake in the Corporate Debtor.
On basis of these developments the Hon’ble NCLAT stayed the constitution of CoC vide its order dated 01 August 2024 disregarding all the contentions of the Appellant. On the very next day the Hon’ble NCLAT passed an order in favour of the CD withdrawing the CIRP initiated against it. The Hon’ble NCLAT stating that the funds used for the settlement were clean and that the Hon’ble NCLAT and Hon’ble Supreme Court had in previous instances invoked its inherent power under Rule 11 of the NCLAT Rules to allow the withdrawal of CIRP. Thereafter, the Hon’ble NCLAT disregarding the abovementioned contentions of the Appellants, passed the Impugned Order and the CIRP initiated against the CD was withdrawn.
Supreme Court’s Order dated 23 October 2024
The Hon’ble Supreme Court observed that in the present case the application for initiation of CIRP was admitted, IRP was appointed but the CoC was not constituted. The instances where the NCALT/The Supreme Court had previously allowed the withdrawal application of the Applicant in such cases was prior to the insertion of amendment 30A in the CIRP Regulations. The Relevant portion of Regulation 30A of the CIRP Regulations applicable to the present case reads as follows:
[30A. (1) An application for withdrawal under section 12A may be made to the Adjudicating Authority –
(a) before the constitution of the committee, by the applicant through the interim resolution professional;
The Supreme Court in its order recorded that the Inherent powers granted to NCLAT under Rule 11 cannot be exercised in contravention of, conflict with or in ignorance of express provisions of law. Thus, the Hon’ble Supreme Court overturned the decision of Hon’ble NCLAT which had allowed the settlement between BCCI and Byju’s and further ordered that the settlement amount of INR 158 Crore was to be deposited with the CoC.
Conculsion
The bench, comprising Chief Justice Dr. Dhananjaya Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra, clarified that ‘inherent powers’ should not be exercised to undermine legal provisions that clearly outline a procedure. They emphasized that allowing the NCLAT to bypass this established procedure by invoking its inherent powers under Rule 11 would contradict the meticulously designed framework for withdrawal.
