Supreme Court stops Byju-owned Aakash from diluting minority investors’ stake

The Supreme Court on Friday directed Aakash Educational Services, a subsidiary of embattled edtech company Byju’s, not to implement the resolution passed at its extraordinary general meeting to amend its Articles of Association (AoA).

The proposed amendments are said to be aimed at diluting the rights of minority shareholders, including Blackstone-owned Singapore VII Topco I Pte Ltd, which holds a 6.97% stake in Aakash. Blackstone claimed its rights had been violated.

A two-judge bench of Chief Justice of India Sanjiv Khanna and Justice PV Sanjay Kumar directed Aakash to file a complaint before the National Company Law Appellate Tribunal (NCLAT) within seven days. The suspension of execution of the EGM resolution will remain in effect until the appeal is heard by NCLAT.

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The order follows Blackstone’s appeal against the Karnataka High Court’s November 25 ruling that allowed Aakash to proceed with the amendment despite opposition from minority shareholders. The Supreme Court clarified that the Karnataka High Court order will not interfere with the decision-making process of NCLAT. Akash assured the Supreme Court that no writ will be filed in the Karnataka High Court challenging the earlier order of the National Company Law Tribunal (NCLT).

Medical records

The controversy surrounds the proposed amendment to Aakash’s AoA, which was first proposed at the EGM. Minority shareholders, including Blackstone, filed a mismanagement and oppression petition before the NCLT claiming that the amendments violated their rights under the previous Merger Framework Agreement (MFA).

Investors believe the proposed changes are aimed at diluting their stakes in Aakash, the profitable entity acquired by Byju’s for $1 billion in 2021. They believe that troubled Byju’s is heavily dependent on Aakash for valuation and operational stability. They also expressed concern over the decision to allow Byju founder Byju Raveendran to sit on the Aakash board on behalf of Byju parent company Think & Learn.

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Akash refutes these claims, arguing that the shares received by shareholders as part of the MFA failed to materialize as planned, leaving the investors without any substantive rights in the company. It also said Think & Learn had initiated arbitration proceedings with the Singapore International Arbitration Center (SIAC) over the issue.

On November 20, NCLT restrained Aakash from implementing the proposed amendments citing possible dilution of rights of minority shareholders. However, Akash challenged the order in the Karnataka High Court, which stayed the NCLT order and allowed the amendment to proceed. This prompted minority shareholders to file a lawsuit in the Supreme Court.

While Byju’s is facing financial challenges and is currently in bankruptcy, Aakash has reportedly remained profitable thanks to its extensive network of physical stores.

Share exchange failed

In April 2021, Byju’s acquired Aakash in a 70% cash and 30% equity deal. As per the agreement, the Chaudhry family and Blackstone, promoters of Aakash, will acquire shares in Think & Learn. However, the share swap portion faced hurdles with the Chaudhry family refusing to exchange the remaining shares citing governance issues, prompting Byju’s to issue a legal notice to the Aakash founders.

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In 2023, Ranjan Pai, chairman of Manipal Education and Medical Group, converted his US$300 million investment into equity and became the largest shareholder of Aakash. Pai’s total investment of $500 million between 2022 and 2023 is intended to help Byju’s clear debt and fund its operations. Pai reportedly holds 39% stake in Aakash, Think & Learn 26%, Byju Raveendran 17%, Chaudhry family and Blackstone 10% and 8% respectively. In March 2024, Think & Learn and Aakash withdrew their merger application from NCLT.