Aakash Puts TLPL's ₹25-Cr Share Allotment In Right Issue On Hold; Alleges Violations

Aakash Educational Services has withheld the allotment of shares to Think & Learn Pvt Ltd (TLPL), the Byju's parent that holds roughly a quarter of the test-preparatory firm, citing concerns that the ₹25 crore deposited by TLPL may have violated FEMA and other rules.

Aakash Educational Services Ltd (AESL) had launched a ₹100-crore rights issue to raise funds to meet working capital needs and sustain operations.

AESL, in a statement, said its board approved share allotments to the Manipal Group and Beeaar Investco Pte Ltd, which invested ₹58 crore and Rs 16 crore, respectively, in proportion to their 58.8% and 16% shareholdings. But allotment to TLPL, which holds about 25.7% in AESL, has been put on hold pending adjudication by the National Company Law Tribunal (NCLT), Bengaluru.

This is because the firm felt the TLPL's ₹25-crore subscription money may be in violation of FEMA rules, External Commercial Borrowing (ECB) guidelines, and the Companies Act.

"...the board has put Think & Learn Pvt Ltd (TLPL)’s share allotment on hold, stating that the ₹25 crore it remitted does not comply with FEMA, the Companies Act, 2013, or the ECB guidelines," AESL statement said.

Think & Learn (Byju's parent company) had acquired AESL in 2021 in a deal valued at around USD 1 billion - the blockbuster buy marked one of the largest acquisitions in the Indian startup ecosystem at that time.

With Byju's business running into rough weather post-pandemic, a series of transactions led to the Manipal Group acquiring a majority stake in AESL. TLPL, however, continued to hold 25.7% in AESL.

Its share would have gone down to below 5% in case it did not subscribe to the rights issue.

TLPL, currently under corporate insolvency resolution, had unsuccessfully opposed the rights issue before the NCLT, NCLAT and the Supreme Court.

The Supreme Court, earlier this month, dismissed a plea filed by Glas Trust, the US-based largest creditor of Think & Learn Pvt Ltd, challenging an order of the NCLAT that allowed AESL to hold its Extraordinary General Meeting (EGM) for a rights issue. The move paved the way for the planned fundraiser.

"TLPL, the parent company of BYJU’S, is currently undergoing a corporate insolvency resolution process (CIRP). Resolution Professional of TLPL had unsuccessfully opposed the rights issue before the NCLT, NCLAT and the Supreme Court. Yet, TLPL tried to subscribe by depositing ₹25 crore," AESL said in its statement.

AESL further said that Riju Ravindran, a former promoter of TLPL, has filed an application before the NCLT, Bengaluru, alleging that TLPL raised the money for its ₹25-crore rights issue subscription by issuing ₹100 crore of debentures in a structure that may violate FEMA, the ECB guidelines and the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.

"The National Company Law Tribunal (NCLT) is examining these allegations," AESL added.

It said that when it sought clarity on the compliance status of the funds, the TLPL Resolution Professional submitted a Debenture Subscription Agreement between TLPL and Byju's Alpha Inc., a Delaware entity, along with a legal opinion asserting compliance.

AESL said it then obtained independent opinions of a former Supreme Court justice and a retired RBI general manager, who indicated that the debenture issuance and the inflow of funds allegedly did not comply with FEMA, ECB Guidelines, or the Companies Act.

It further claimed that a senior advocate also confirmed that the structure of the debenture investment did not meet FEMA requirements, the master direction on foreign investment in India, and the ECB guidelines.

"It is clear the money received by TLPL is in the nature of a loan/debenture in the framework of external commercial borrowing and cannot be used for the purpose of acquisition of equity, that is, shares in Aakash," Sanjay Garg, Head–Legal of AESL, said.

Garg added: "If any inquiry was undertaken by a regulatory authority, Aakash could be accused of having allowed a rights issue, thereby enabling an ECB to be used for the purposes of investment into equity".

AESL said that, on considering all legal opinions, the board deferred allotment of shares to TLPL until the pending issues are adjudicated by the NCLT, Bengaluru.

"The ₹25 crore deposited by TLPL is likely to be kept in a separate interest-bearing account pending final decision," it added.

AESL also indicated that the company may initiate another ₹140-crore rights issue shortly.

TLPL could not be reached for comment till the filing of the story.