NCLAT approved Byju's settlement with BCCI and confirmed Rule 11 of NCLT Rules, 2016 Application for Pre-CoC settlement and fund verification.
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Jatindranath Swain (Technical Member) upheld that Rule 11 of the NCLT Rules, 2016 permits the approval of settlements before the constitution of the Committee of Creditors (CoC), provided the settlement is genuine, the source of funds is verified, and any breach could lead to the revival of insolvency proceedings. The NCLAT Bench confirmed that Byju's settlement of ₹158 crore, initiated in response to a petition by the BCCI, was reviewed and found satisfactory by the CoC, with transparent funding and preserved interests for all parties, including the Glas Trust, which retains the option to revive the case if necessary.
On September 23, 2023, the Board of Control for Cricket in India (BCCI) filed Company Petition (IB) No. 149/BB/2023 under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) against Think and Learn Pvt. Ltd. (the Corporate Debtor) before the National Company Law Tribunal (NCLT), Bengaluru Bench. The petition sought resolution of a claim amounting to Rs. 1,58,90,92,400/-. The NCLT admitted the petition on July 16, 2024, imposing a moratorium under Section 14 of the IBC and appointing Pankaj Srivastava as the Interim Resolution Professional (IRP).
The order was contested by the Suspended Director of the Corporate Debtor. Glas Trust Company LLC, serving as the administrative and collateral agent for secured parties under a credit agreement with Byju’s Alpha, Inc., sought to be impleaded as a respondent through an application (I.A. No. 727 of 2024). Prior to this, on January 22, 2024, an Applicant had filed Company Petition (IB) No. 55/BB/2024 under Section 7 of the IBC, which was disposed of on July 16, 2024. The Adjudicating Authority directed the Applicant to present their claim to the IRP in the context of C.P. (IB) No. 149/BB/2023 and permitted a revival request based on appellate developments.
The Applicant also filed an appeal (CA (AT) (CH) (Ins) No. 274 of 2024) challenging the July 16, 2024 order. The IRP made a public announcement on July 17, 2024, and the Applicant submitted their claim on July 25, 2024.
During proceedings, it was noted that Rs. 50 crore was transferred to Respondent No. 2 on July 30, 2024, with additional payments scheduled for August 2, 2024, and August 9, 2024. Riju Raveendran, the Ex-Promoter and largest shareholder of the Corporate Debtor, provided an undertaking detailing the source of these funds, asserting they were from personal funds generated through the sale of shares, not related to ongoing U.S. litigation. The Applicant contested this, suggesting the payments might favour operational creditors and questioned the origin of the funds.
The IRP confirmed the funds came from Raveendran’s personal sources, including share sales and liquidation of personal assets, and were not linked to the disputed funds in Delaware Bankruptcy Court. The appeal was adjourned to August 1, 2024, for further evidence regarding the settlement funds.
Mr. Krishnendu Datta, counsel for the R-2, argued against invoking Rule 11, citing issues with the Corporate Debtor’s management and financial statements. He referenced past court decisions favouring Section 12A settlements and highlighted that the Code aims to resolve corporate debtors’ issues timely. Mr. Arvindh Pandian, counsel for the Intervenor highlighted the high threshold for creditor approval under Section 12A and criticized the use of Rule 11, noting recent changes in law and Supreme Court rulings. He contended that the settlement funds did not originate from the Corporate Debtor or U.S. creditors. Mr. Arun Kathpalia, counsel for the Appellant argued that the Delaware court’s prohibitory injunction did not impact the Indian settlement and supported using Rule 11 for settlements before the CoC’s constitution, citing Supreme Court precedents.
In Kamal K. Singh v. Dinesh Gupta and Another, REEDLAW 2021 SC 08586, the Supreme Court reviewed an appeal related to an NCLT order rejecting a withdrawal request under Rule 11. The Court affirmed that the withdrawal or settlement of a petition could be addressed by the NCLT before the CoC's formation, especially if a settlement is reached. The Court approved the withdrawal and emphasized that any breach of undertakings could lead to the revival of the initial order.
The NCLAT, aligning with past Supreme Court rulings, accepted the settlement proposed before the CoC's constitution. The Court confirmed the legitimacy of the funds and allowed the settlement while cautioning that any breach of the undertaking would result in the revival of the initial order.
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