BYJU'S breaches loan terms, faces obstacles in small stake sale: Report

BYJU'S crisis: Beleaguered edtech startup BYJU'S has encountered a setback as it breached terms of loans worth $42 million, news agency Reuters reported citing a confidential order revealed recently. The company has been instructed by an arbitrator to refrain from selling certain shares of a group firm, further exacerbating its challenges amidst ongoing allegations of mismanagement, according to the report.

Once hailed as India's first decacorn, with a valuation soaring to $22 billion in 2022, BYJU'S has faced a series of setbacks in recent times, including an auditor's departure, regulatory investigations, and demands from investors to remove CEO Byju Raveendran over alleged mismanagement. Despite its denials of any wrongdoing, the company's valuation has plummeted to approximately $250 million.

In the latest development, MEMG Family Office, led by Indian billionaire doctor Ranjan Pai, initiated arbitration proceedings against BYJU'S in March, alleging non-repayment of loans totaling $42 million, the report said. The loans were intended to be repaid through a pre-agreed transfer of certain shares of a BYJU'S group entity, Aakash Education.

An arbitrator, appointed under Singapore International Arbitration Centre rules, has ruled in favor of MEMG, ordering BYJU'S to refrain from disposing of 4 million shares of Aakash Education. These shares, constituting a 6 per cent stake as per the loan agreement last year, are subject to the order dated April 4.

Ritin Rai, the emergency arbitrator, noted in his order that a "case of breach of the loan agreement" has been established. This order, as reported by Reuters, underscores the intensifying legal challenges confronting BYJU'S.

However, a source close to the company mentioned that the order does not pose a significant threat and that negotiations are underway with MEMG to resolve the dispute amicably, the report said.

In the course of the arbitration proceedings, BYJU'S cited delays in obtaining approvals from certain investors, which were crucial for transferring the shares to MEMG.

Moreover, BYJU'S has faced cash flow issues in recent months, hindering its ability to compensate staff, reportedly due to a legal dispute with some investors, as disclosed by Raveendran in an internal memo last month. In a separate development in February, a US unit of BYJU'S filed for Chapter 11 bankruptcy proceedings in a Delaware court, citing liabilities ranging from $1 billion to $10 billion.

(With Reuters inputs.)