In a landmark judgment on Wednesday, the Supreme Court of India, headed by Chief Justice DY Chandrachud, overturned the National Company Law Appellate Tribunal's (NCLAT) decision, which had earlier closed insolvency proceedings against the edtech giant Byju's. The NCLAT had approved a settlement amounting to Rs 158.9 crore between Byju's and the Board of Control for Cricket in India (BCCI), which was meant to resolve outstanding dues. However, the apex court deemed the NCLAT’s actions improper, stating that the tribunal had failed to follow legal procedure by approving the settlement without a formal application for withdrawal of the insolvency proceedings.
The bench, also comprising Justices JB Pardiwala and Manoj Misra, sharply criticized the NCLAT's approach, stating that it had acted beyond its mandate by approving the settlement without considering the broader legal implications. The court emphasized that the NCLAT "cannot act as a post-office" by merely stamping withdrawal applications without proper scrutiny. The ruling underscored that the NCLAT should have first stayed the composition of the Committee of Creditors (CoC) instead of hastily approving the settlement.
The Supreme Court’s verdict came in response to a plea filed by Glas Trust Company LLC, a US-based creditor, which argued that the NCLAT had not followed proper legal procedure. The bench ruled in favor of Glas Trust and nullified the NCLAT's decision, ordering that the settlement amount, which had been maintained in a separate escrow account during the stay, should now be transferred to the CoC’s escrow account.Â
In delivering the judgment, the court allowed Glas Trust's appeal, marking a significant legal victory for the creditor. The court also ordered fresh adjudication in the case, calling for a comprehensive review of the insolvency proceedings. The bench pointed out that the NCLAT had not "applied its mind" when approving the settlement, and that such proceedings must adhere to established legal norms. This decision effectively reinstates the insolvency process, reversing the relief granted to Byju’s in the earlier ruling.
This ruling has far-reaching implications for Byju's, which had been granted significant leeway by the NCLAT’s decision in August 2023. The NCLAT had set aside the insolvency proceedings against the embattled edtech company after it reached a settlement with BCCI, a move that put Byju Raveendran, the company's founder, back in control of its financial operations. The Supreme Court’s intervention, however, now reopens the case, bringing uncertainty to Byju's future operations and its ability to resolve its financial obligations.
The verdict follows months of legal scrutiny. In August 2023, the Supreme Court had already expressed concerns over the NCLAT’s handling of the case, calling its order "unconscionable" and staying its execution while notices were issued to Byju and other parties involved. During hearings held in August, the court had stayed the NCLAT’s order and questioned the tribunal's rationale for approving the settlement without a proper legal basis.
The case, which revolves around Byju’s financial woes and its relationship with key creditors like Glas Trust Company LLC, has now been returned to the legal drawing board. The Supreme Court's decision has reinstated the need for a thorough examination of the company's finances and its dealings with creditors, with the CoC playing a central role in managing the resolution of Byju's debts.
The implications of the Supreme Court's decision are significant, not only for Byju's but also for future insolvency cases in India. It sends a clear message that tribunals like the NCLAT must rigorously follow legal procedures and ensure that all parties, particularly creditors, are given a fair and just hearing. The court's judgment highlights the importance of upholding the integrity of insolvency proceedings and protecting the interests of creditors, while also preventing undue haste in approving settlements that bypass established legal processes.
As Byju’s faces fresh legal scrutiny, the company's financial future remains uncertain, and the outcome of the fresh adjudication ordered by the Supreme Court will be critical in determining how the company manages its obligations to creditors, employees, and stakeholders. This ruling also signals the judiciary's strong stance on ensuring that insolvency proceedings are conducted with full adherence to legal protocols, ensuring that corporate debtors and creditors alike are treated equitably.
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