Byju’s Legal Counterattack: Why the $2.5 Billion Lawsuit Could Rewrite India’s Start-Up Drama

India’s start-up ecosystem has long been characterised by high‑stakes funding rounds, rapid growth ambitions and a balance of power between founders and deep‑pocketed investors.

The decision by Byju Raveendran and Divya Gokulnath to launch a sweeping $2.5 billion suit against Glas Trust and other creditors marks an unprecedented escalation in the ongoing standoff between founders and financiers.

Beyond the immediate reputational stakes, this counterattack signals a potential shift in how control disputes are navigated in India’s start-up ecosystem, raising questions about the balance of power, cross‑border enforceability and the personal liability risks that can arise from insolvency and bankruptcy proceedings.

This legal gambit could potentially set a new precedent for how disputes are handled and resolved in India’s high‑pressure start-up arena.

Founders vs Investors

What began as a partnership between Indian entrepreneurs and global investors has turned adversarial, with Byju’s founders announcing on Thursday their intention to sue Glas Trust and other US creditors for at least $2.5 billion in damages, alleging orchestrated reputational harm to them and to Think & Learn.

They contend that the creditors accelerated loan defaults and weaponised rumours, such as illicit payments to government officials, solely to seize control of assets at depressed valuations.

In response, Glas Trust insists that Byju’s Alpha Inc defaulted on its $1.2 billion Term Loan B, breached multiple covenants and improperly repatriated nearly $500 million out of the US. They argue that their enforcement measures, including Chapter 11 proceedings, were fully justified under the underlying credit agreements.

Legal Labyrinth: Where the Battle Is Being Fought

The US and India have emerged as parallel arenas for this high‑stakes drama. Byju’s legal team is handling concurrent actions in multiple jurisdictions.

In India, the founders are challenging the removal of Glas Trust from the Committee of Creditors in insolvency proceedings, a matter currently before the Supreme Court of India. It is in that same court the founders have lodged their “$2.5 billion damages claim.”

Simultaneously, in Delaware’s US Bankruptcy Court, where Byju’s Alpha Inc faces insolvency petitions, the lawsuit targets the trustee for Term Loan B lenders, seeking to reverse judgments authorising the seizure of assets and subsidiary control.

Byju’s US arm filed for Chapter 11 protection in January 2024, the bankruptcy court has overseen asset sales (notably the June 2025 distress sales of Epic! and Tynker) and imposed contempt sanctions (“$10,000 daily fines” on director Riju Ravindran for alleged fraudulent transfers).

Who Really Controls Indian Start-Ups?

In this dispute lies a tug‑of‑war over governance.

On one side, founders claim “founder sovereignty,” the right to steer strategic decisions and protect brand reputation. On the other, investors invoke contractual covenants that allow them to enforce defaults, seize collateral or even pursue personal liability claims against directors.

Byju’s counter‑suit asserts that founders retain sovereignty over strategic direction, even in the face of loan defaults, thereby pushing back against the notion that creditors automatically assume de facto control. Conversely, investors point to strict loan agreements and cross‑border enforcement mechanisms, particularly via US bankruptcy courts, as essential safeguards for their rights.

The cross‑border dimension also adds a layer of complexity: a US court’s finding of default or fraud can empower a trustee like Glas Trust to enforce remedies on assets pledged abroad, raising the spectre of global asset freezes and enforcement actions that Indian courts may find difficult to countermand.

What the Industry Should Worry About?

The outcome of Byju’s counterattack may resonate far beyond one company. If the founders succeed, it could encourage other entrepreneurs to use high‑stakes litigation as leverage against creditors, potentially souring India’s investment climate and driving up the cost of capital. Conversely, a ruling favouring investors might reinforce the tradition of contractual enforcement, compelling start-ups to accept tighter covenants and governance oversight in future funding rounds.

In either scenario, transparency around board composition, debt structures and dispute resolution mechanisms will be scrutinised more intensely, pushing the industry towards stronger governance norms or further legal entanglements.

Byju’s legal counterattack thus stands to rewrite not just the fate of one edtech giant, but the broader script of founder–investor relations in India’s start-up theatre.