Supreme Court Overturns NCLAT Order in Byju’s Insolvency

The Hon’ble Supreme Court of India (“Supreme Court”) on October 23, 2024 delivered the much awaited judgement in the case of Glas Trust Company LLC vs. Byju Raveendran and Ors, 2024 INSC 811 and set aside the order of the Hon’ble National Company Appellate Tribunal (“NCLAT”), Chennai dated August 02, 2024. 

Brief Facts: Insolvency proceedings were initiated against Think & Learn Private Limited i.e., the parent company of BYJU’s (“Corporate Debtor”) by the Board of Controllers of Cricket in India (“BCCI”) and the same were admitted by the National Company Law Tribunal (“NCLT”). Subsequently, the decision of the NCLT to initiate insolvency proceedings was challenged by Mr. Byju Raveendran, the suspended director, promoter, and shareholder of the Corporate Debtor.

In the appeal before the NCLAT, the parties to the case contended that they had arrived at a settlement. However, the said settlement was disputed by Glas Trust Company LLC (“Financial Creditor”).  The NCLAT dismissed the plea of the Financial Creditor and accepted the settlement between the parties. Aggrieved by the order of the NCLAT, the Financial Creditor moved the Supreme Court.

Decision of the Supreme Court:  The Supreme Court decided to set aside the decision of the NCLAT on the following grounds:

Inherent powers’ cannot be used to subvert legal provisions, which exhaustively provide for a procedure: The Supreme Court held that they cannot permit the NCLAT to circumvent a detailed procedure by invoking its inherent powers under Rule 11 of the NCLAT Rules, 2016. It was observed that the correct course of action by the NCLAT would have been to stay the constitution of the Committee of Creditors (“CoC”) and direct the parties to follow the course of action in relation to withdrawal of  application enumerated under  Section 12A of the Insolvency and Bankruptcy Code read with Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Summarily dismissal of objection raised by Financial Creditor by NCLAT:

• The Financial Creditor raised detailed objections before the NCLAT to the source of the funds for the settlement and a reasonable apprehension that there was round tripping of funds, in violation of the order passed by the Delaware Court on 18 March 2024. However, these objections were summarily dismissed by the NCLAT.
• Alleged facts such as the fraudulent transfer of USD 533 million (United States Dollar Five Hundred and Thirty-Three Million) to a hedge fund in the United States; the orders of the US Court restraining the Byju brothers from transferring or dissipating the amount; the ongoing investigation by the Enforcement Directorate against the Corporate Debtor; and other attempts by the Corporate Debtor to dissipate assets, were not adequately addressed by the NCLAT.

The Supreme Court while dismissing the impugned order of the NCLAT has allowed the parties to invoke their remedies, to seek a withdrawal or settlement of claims, in compliance with the legal framework governing the withdrawal of CIRP.

Further, it was directed that the disputed amount of Rs 158 crore (Indian Rupees One Hundred and Fifty-Eight Crores), along with accrued interest, if any, which has been maintained in a separate escrow account pursuant to the earlier order of the Supreme Court, is to be deposited with the CoC. The CoC has been ordered to maintain this amount in an escrow account until further developments and to abide by the further directions of the NCLT.