Byjus Shareholders Vote to Remove Founder Amid Mismanagement Claims

In a significant development, shareholders of Byju's, India's once-thriving tech startup, unanimously voted on Friday to remove founder CEO Byju Raveendran and his family from the board. The decision came amid allegations of mismanagement and failures that have plagued the company in recent times. However, Byju's has challenged the validity of the voting, asserting that it was conducted in the absence of the founders and is therefore ineffective.

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Shareholders' Unanimous Vote

The extraordinary general meeting (EGM) was called by a group of six investors who collectively hold over 32% stake in Think & Learn (T&L), the firm that operates the online tuition platform Byju's. Despite the absence of Raveendran, his wife, and brother - the only three members on the company board - the shareholders proceeded with the voting process.

Sources close to the investors revealed that more than 60% of the shareholders voted in favor of all seven resolutions, including the removal of the current management, restructuring of the board, and a third-party forensic investigation into the company's acquisitions. However, Byju's sources disputed this figure, claiming that only 47% of the shareholders supported the resolutions.

Prosus' Statement and Legal Challenges

Prosus, one of the six investors who initiated the EGM, released a statement confirming that shareholders unanimously passed all resolutions put forward for vote. These resolutions aimed to address outstanding governance, financial mismanagement, and compliance issues, reconstitute the board of directors, and change the company's leadership.

Despite the shareholders' vote, the outcome of the EGM remains uncertain until March 13, when the Karnataka High Court will hear Raveendran's plea challenging the legality of the meeting. The High Court had earlier declined to stay the EGM but stipulated that any resolutions passed should not be implemented until the next hearing.

Byju's Response and Legal Action

Byju's responded to the EGM results by declaring that the resolutions passed during the meeting are invalid and ineffective. The company asserted that the resolutions were passed by a select group of shareholders and challenged the rule of law. Ahead of the EGM, four of the six investors filed an oppression and mismanagement suit against Byju's management in the Bengaluru bench of the National Company Law Tribunal (NCLT).

The investors sought to declare the founders, including Raveendran, unfit to run the company, appoint a new board, nullify the recent rights issue, and conduct a forensic audit of the accounts. Byju's spokesperson responded by stating that the company had not received any formal intimation of the petition and criticized the shareholders for creating a media spectacle instead of following due process.

Validity of the EGM and Procedural Irregularities

Byju's questioned the validity of the EGM, citing procedural irregularities and deficiencies. The company argued that the resolutions were passed without a valid quorum, as stipulated in the company's Articles of Association (AoA). According to the AoA, at least one founder-director is required to form a valid quorum. Since the founders did not participate in the meeting, Byju's asserted that the quorum was never legitimately established, rendering the resolutions null and void.

Byju's also highlighted that only around 20% of the shareholders attended the EGM, disputing the number of shareholders rather than the shareholding they hold in the company. The company maintained that the purported EGM was designed to provoke a media trial and lacked merit, as it was initiated by a select few shareholders with a self-serving agenda against Byju's and its founders.

Forensic Audit and Other Demands

In their plea before the NCLT, the investors sought a forensic audit of the company, declaring the present management unfit to run the company, appointing a new CEO and board, and nullifying the recent USD 200 million rights offer. The petition also sought a direction to the management to share information with the investors and prevent any corporate actions that could prejudice their rights.

The petition was signed by four investors - Prosus, GA, Sofina, and Peak XV - along with support from other shareholders, including Tiger and Owl Ventures. Byju's has faced several setbacks in the past year, including the resignation of its auditor, bankruptcy proceedings against a holding company, and a US lawsuit disputing the terms and repayment of a loan. The company's valuation has also declined significantly, from USD 22 billion in 2022 to USD 200 million in the recent rights issue.