In an unexpected turn of events, Byju’s, the prominent edtech company, found itself at the center of a shareholder uprising during an emergency Annual General Meeting (AGM). The meeting, which convened on Friday, witnessed a consortium of major investors, including Prosus, General Atlantic, Sofina, and Peak XV Partners, voting for the removal of Byju’s founder and CEO, Byju Raveendran, and a significant overhaul of the company’s board. However, Byju’s swiftly dismissed the resolutions as invalid, sparking a legal and corporate showdown.
The turmoil at Byju’s began when a group of investors, backed by Tiger Global and Owl Ventures, filed a petition with the National Company Law Tribunal (NCLT) against Byju’s $200-million rights issue.
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The investors cited concerns about the alleged suppression of investor rights and mismanagement within the company. The rights issue, if implemented, stood to dilute the shareholding of non-participating investors by a staggering 99%, further fueling the dissatisfaction among shareholders.
What happened at the EGM?
The emergency AGM, attended by at least two dozen investors, unfolded with chaos and tension. The resolutions put forward included the removal of Byju Raveendran as CEO, a reconstitution of the board, and addressing outstanding governance and financial mismanagement issues at Byju’s. Despite the chaos and disruptions at the beginning of the meeting, shareholders unanimously voted in favor of these resolutions, signaling a clear vote of no confidence in the current leadership.
In response to the shareholder decisions, Byju’s promptly declared the resolutions invalid and not binding on the company. The company argued that the resolutions were mere requests for the board to “consider” the recommendations from the AGM and lacked the necessary authority to impose obligations on Byju’s or its directors.
Additionally, Byju’s pointed to its Articles of Association, claiming that the presence of at least one founder-director was mandated for the resolutions to be valid. As the founders did not participate in the meeting, Byju’s contended that the quorum was never legitimately established, rendering the resolutions null and void.
Major investors, including Prosus, expressed confidence in the validity of the AGM and its decisive outcome. The consortium of investors affirmed that they would present the results to the Karnataka High Court in adherence to due process.
This development sets the stage for potential legal battles between Byju’s and its dissatisfied investors. The legal maneuvering will likely revolve around the interpretation of the validity of the resolutions passed during the AGM.
Fake Investors and Phishing Attack
The AGM was not without its share of challenges, with reports of disruptions caused by Byju’s employees joining the meeting link. Some employees pleaded with the investor consortium not to move against Byju Raveendran, adding a unique dimension to the already tense proceedings.
Moreover, a phishing attack was reported on Thursday, attempting to access the meeting, adding a cybersecurity layer to the unfolding saga.
The crux of the shareholder discontent revolves around Byju’s $200-million rights issue, with investors alleging that the management failed to share relevant financial information. The investors decried the “oppressive nature” of the rights offer and accused the management of deliberate opacity and withholding information. The rights issue, scheduled at a pre-money valuation of $20 million, represents a significant deviation from Byju’s peak valuation of $22 billion a few years ago.
As the legal battles unfold, Byju’s investors seek relief from the NCLT, aiming to declare the rights issue void and label the founders and management as unfit to run the company. The investors are also pushing for a forensic audit of the company and a court directive to prevent any corporate actions that could prejudice investor rights. Byju’s, in response, maintains that it has not received formal notice of the NCLT petition, emphasizing the importance of adhering to due process.
More uncertainty for Byjus
The Byju’s AGM has thrust the edtech giant into a state of uncertainty, marked by shareholder discontent, legal wrangling, and questions about the company’s governance and financial practices. The coming weeks will likely see intense legal battles unfold, determining the future leadership and direction of Byju’s.
The outcome of these proceedings will not only impact the stakeholders directly involved but may also set a precedent for corporate governance and shareholder activism in the Indian startup landscape.
