Introduction:

The Karnataka High Court recently issued an order restraining Byju’s and its executives from proceeding with the allotment of shares pending proceedings before the National Company Law Tribunal (NCLT). This decision stemmed from an appeal filed by investors seeking to prevent Byju’s from launching a second rights issue, which they feared would dilute their existing shareholding.

Arguments of Both Sides:

The investors, represented by Senior Advocate Udaya Holla, argued before the High Court that allowing Byju’s to proceed with the rights issue could potentially diminish their holdings and adversely affect their interests. They contended that any further allotment of shares by Byju’s during the pendency of proceedings at the NCLT would create complexities and unfair advantages.

On the other side, Senior Advocate Gaurav Chopra, representing Byju’s, countered that the company’s decision to issue additional shares was essential for its growth and strategic plans. They emphasized that the rights issue was a legitimate corporate action aimed at expanding operations and enhancing market position.

Court’s Judgment:

The division bench of Chief Justice NV Anjaria and Justice KV Aravind upheld the interim order of the NCLT restraining Byju’s from allotting shares pending final adjudication. The High Court found merit in the investors’ apprehensions regarding potential dilution of their shareholding and the need to maintain the status quo until the NCLT issues a final ruling.

The court directed that any share allotments made by Byju’s subsequent to the single judge’s order (from July 2) would remain subject to the NCLT’s final decision on the matter. Additionally, the NCLT was instructed to expedite its consideration of the investors’ application related to the second rights issue by July 31.