Supreme Court overturns NCLAT's approval of BYJU'S-BCCI settlement: Here's why
What's the story
The Supreme Court of India has overturned the National Company Law Appellate Tribunal's (NCLAT) decision that approved a ₹158 crore settlement between edtech firm BYJU'S and the Board of Control for Cricket in India (BCCI).
The apex court ruled that the NCLAT had failed to follow proper procedures as per the Insolvency and Bankruptcy Code (IBC), thus, wrongly approving the settlement.
The bench, led by CJI DY Chandrachud, comprised Justices JB Pardiwala and Manoj Misra.
Misuse of power
NCLAT wrongly invoked powers to approve insolvency case withdrawal: SC
The SC held that the NCLAT had wrongly exercised its inherent powers under Rule 11 of the NCLAT Rules, 2016, to allow the withdrawal of the insolvency case.
The court stressed that there is a specific procedure for retracting insolvency applications and it should be followed in letter and spirit.
It further clarified that once a Corporate Insolvency Resolution Process (CIRP) is admitted, the debtor's affairs are controlled by the Insolvency Resolution Process.
Overreach
NCLAT overstepped its role by approving settlement, says SC
The Supreme Court said the NCLT, which deals with insolvency cases, isn't a "post office" that approves withdrawals automatically.
It ruled the NCLAT overstepped its role by permitting the settlement between BYJU'S and BCCI.
The apex court also observed there was no formal application for withdrawal in this case, and instead of approving the settlement, the NCLAT should have paused Committee of Creditors (CoC) formation and asked parties to follow proper legal procedure under Section 12A of IBC.
Legal challenges
BYJU'S legal woes and the BCCI case
The saga began in June 2023 when BYJU'S failed to meet an interest payment on a $1.2 billion term loan, igniting a dispute with its US-based lenders, headed by Glas Trust.
The lenders accused BYJU'S of defaulting on the loan and demanded immediate repayment, while BYJU'S countered that the loan terms were being unfairly manipulated.
Simultaneously, another lender, the BCCI, initiated insolvency proceedings against BYJU'S before the NCLT due to a default of ₹158 crore.
NCLAT order
On August 2, NCLAT approved settlement with BCCI
The NCLT ordered the commencement of corporate insolvency resolution and appointed an interim resolution professional to oversee the company's financial management during this process.
On August 2, 2024, the NCLAT approved the ₹158 crore settlement with the BCCI and halted the insolvency proceedings against BYJU'S.
This decision paved the way for founder Byju Raveendran to regain control of the firm.
However, Glas Trust, the US lender, objected to the settlement and challenged the NCLAT's order in the Supreme Court.