NCLAT sends Aakash-Byju dispute back to NCLT amid tensions between minority shareholders

The National Company Law Appellate Tribunal (NCLAT) on Friday refused to stay an order issued by the National Company Law Tribunal (NCLT) restraining Aakash Educational Services, a subsidiary of embattled edtech major Byju’s, from amending its Articles of Association (AoA). The amendments triggered legal action with minority shareholders, led by Blackstone Group, alleging their rights were violated.

The proposed changes to the AoA are said to be aimed at diluting the rights of minority shareholders, including Blackstone-owned entity Singapore VII Topco I Pte Ltd, which holds a 6.97% stake in Aakash. Blackstone alleged that Aakash violated its rights under the previous Merger Framework Agreement (MFA).

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In its ruling, NCLAT directed Aakash and its largest shareholder Manipal Health Systems to approach NCLT to withdraw the restriction on the amendment. The tribunal asked Aakash to file the application within a week and the NCLT Bengaluru bench to decide on the matter within three weeks.

The Appellate Tribunal’s decision follows the Supreme Court’s November 29 order, which directed Aakash to approach NCLAT for a solution while barring any modifications in the AoA until the issue is resolved.

Blackstone appealed the November 25 Karnataka High Court ruling, followed by the Supreme Court’s intervention, which allowed Aakash to proceed with the amendment despite opposition from minority shareholders.

The Supreme Court clarified that the high court order will not affect the decision-making process of NCLAT.

Case background

The controversy dates back to the proposed amendments that were tabled during an extraordinary general meeting (EGM) of Aakash. Minority shareholders, including Blackstone, submitted a petition to the NCLT alleging mismanagement and oppression and argued that the changes would dilute their stake in Aakash, the profitable entity acquired by Byju for $1 billion in 2021.

Investors believe Byju’s is relying heavily on Aakash to maintain valuation stability as it grapples with rising debt and operational challenges. Concerns were also raised over Byju Raveendran, founder of Byju, being allowed to represent Think & Learn Pvt. Ltd. (Byju’s parent company) handles Aakash’s affairs.

Akash refuted these claims, claiming that the MFA, which forms the basis of shareholders’ equity, failed to materialize as planned, resulting in minority investors losing substantial rights in the company. Aakash also revealed that Think & Learn has initiated arbitration proceedings with the Singapore International Arbitration Center (SIAC) over the matter.

In November, NCLT restrained Aakash from implementing the amendments citing possible prejudice to minority shareholders. Akash later challenged the order in the Karnataka High Court, which overturned the NCLT decision and allowed the amendment to proceed. Blackstone and other minority shareholders later escalated the matter to the Supreme Court.

On Friday, NCLAT sent the case back to NCLT for a final decision.

Share Exchange and Governance Issues

Aakash’s governance issues stem from its acquisition by Byju’s in April 2021, a deal involving 70% cash and 30% equity. As per the agreement, the Chaudhry family and Blackstone, promoters of Aakash, will acquire shares in Think & Learn.

However, the share exchange faced hurdles as the Chaudhry family refused to exchange its remaining shares, citing governance issues. Byju’s then issued a legal notice to the family.

To add insult to injury, Ranjan Pai, chairman of Manipal Education and Healthcare Group, became the largest shareholder of Aakash in 2023 after converting a $300 million investment into equity. Pai’s total investment between 2022 and 2023 is US$500 million, aiming to help Byju clean up debt and fund operations.

Pai currently holds 39% stake in Aakash, Think & Learn 26%, Byju Raveendran 17%, Chaudhry family and Blackstone 10% and 8% respectively.

In March this year, Think & Learn and Aakash withdrew their merger applications from NCLT, further casting a pall on the governance and ownership dynamics of the company.

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For Byju’s, Aakash represents a key source of valuation and operational stability at a time when edtech companies face financial headwinds. But Aakash’s minority shareholders believe Byju’s governance decisions, including the proposed amendments, put its survival ahead of shareholder rights.