In a significant development, the Indian government has concluded a year-long investigation into the financial operations of Byju's, the embattled edtech firm. The probe, led by the Ministry of Corporate Affairs (MCA), found no evidence of financial fraud or manipulation of accounts. However, it did identify lapses in the company's corporate governance structure.
The investigation was initiated following complaints lodged by the National Commission for Protection of Child Rights (NCPCR) and the Registrar of Companies (ROC). The complaints alleged that Byju's was pressuring customers to continue using its products and services and was not issuing refunds to those who requested them.
The MCA report, which is yet to be made public, found these allegations to be unsustainable. It concluded that there was no need to refer the matter to the Serious Fraud Investigation Office (SFIO). However, the report did note that the promoters and directors of Byju's could have been more transparent in their actions.
Corporate Governance Lapses and Customer Complaints
The report also highlighted that most of the corporate governance issues raised by the directors were related to transparency and independence. It was observed that the Nominee Directors had resigned during the year 2023-24, citing corporate governance issues, including lack of deliberations with them on important financial and business policies.
The report further noted that Byju's has been taking steps to resolve complaints and grievances. Of the 4,390 complaints made to the company, 2,856 have been resolved, and the remaining are under the resolution process. The pending complaints formed 0.02 per cent of the total paid customer base, which stood at 7.5 million students as of January 31.
The company's accounting policy for revenue recognition was also found to be in order. From 2014 to 2022, Byju's used Rs 9,025 crore for M&A, and these acquisitions returned an income of Rs 4,287 crore.
Financial Woes and Legal Battles
Despite these findings, Byju's is currently involved in multiple cases in courts and the National Company Law Tribunal (NCLT). The company is trying to raise $200 million in a rights issue but has been restrained from utilising any funds by the NCLT. It is also exploring out-of-court settlements with some of its creditors.
Once valued at $22 billion, Byju's is now worth zero. Global investment giant Prosus wrote off the value of its shareholding in Byju's, recording a loss of $493 million in its annual report for FY24.
The company's financial troubles have been compounded by working capital issues, with concerns about its ability to keep tuition centres operational. The company shut down 30 out of its 292 centres in March.
Byju's decision to allocate 800,000 shares to Riju Raveendran ahead of a vote to increase its authorised share capital for the initial rights issue caused controversy. However, the company stated that the initial rights issue concluded successfully with an increase in authorised share capital and the allocation of shares to all participating shareholders.
The company's financial woes have led to a majority of its lenders filing for involuntary Chapter 11 bankruptcy against three US-based guarantors for a $1.2 billion loan. The petitions target Byju's subsidiaries Epic! Creations Inc., Neuron Fuel Inc., and Tangible Play Inc.
In conclusion, the saga of Byju's serves as a stark reminder of the risks associated with rapid expansion and aggressive acquisition strategies. It also underscores the importance of robust corporate governance structures and transparency in business operations. As Byju's navigates these challenges, it serves as a cautionary tale for other startups in the edtech sector and beyond.
