Byju's wants to fire its founder

The troubles for Byju’s seem never ending.

As per report, on Monday, the Ministry of Corporate Affairs increased its scrutiny on BYJU'S and has instructed its field officers to expedite the inspection of the company's books.

The ministry, as the authority responsible for enforcing companies law, will decide the next steps based on the report from its regional office regarding Think & Learn Pvt Ltd. 

In July 2023 as well, the ministry had instructed its regional office in Hyderabad to inspect the company.

The urgency by the government in completing this inspection shows that the government is quite concerned of BYJU'S financial standing and its regulatory conformity. 

The results from the inspection could have a huge impact on the government’s decision regarding BYJU'S. 

You see, all of this happened at a time when the company was going through a challenging time.

Just a few days ago, in an extraordinary general meeting (EGM) of Think & Learn, the parent company of Byju's, key investors decided on a significant shakeup. 

They voted to remove the founder, Byju Raveendran, from his position as the chief executive. They also voted for restructuring the board, which includes his wife and co-founder Divya Gokulnath, and his brother Riju Ravindran.

Now what’s an EGM?

When shareholders of a company pass a resolution, it's like a formal agreement that outlines the decisions and policies the company plans to implement. 

This mechanism provides shareholders with a voice in essential company matters, ensuring accountability. 

Resolutions are typically voted on during annual general meetings (AGMs) or extraordinary general meetings (EGMs), where the outcome determines whether the proposed action is accepted or rejected.

AGMs are obligatory yearly meetings for shareholders, while EGMs are called for urgent decisions that cannot wait until the next AGM. 

EGMs deal with specific business matters requiring immediate attention, such as significant financial decisions, changes to the company's constitution, or sudden shifts in the management structure.

The recent resolutions aimed at addressing governance, financial mismanagement, and compliance issues at Byju's. The investors proposed a new board structure with nine members, including one founder, two executives from group companies, three shareholders, and three independent directors.

Contrary to reports indicating that 60% of investors supported the resolutions, Byju Raveendran, in a letter to employees, claimed that only 35 out of 170 shareholders (representing about 45% of shareholding) voted in favor of the resolutions.

The founder, Byju's countered the resolutions and said that the resolutions passed by the shareholders were invalid because the meeting lacked the necessary quorum that are specified in the company's Articles of Association (AoA). The AoA serves as internal rules governing a company's operations.

Raveendran said that according to the shareholder agreement, the authority to modify the board, management team, and CEO's role is granted exclusively to the board, not to a group of shareholders.

Despite the investor group insisting the EGM was valid, no decisions can be implemented until March 13, pending a hearing in the Karnataka High Court. 

Simultaneously, investors led by Prosus filed a petition in the National Company Law Tribunal (NCLT) to block a $200-million rights issue, alleging a lack of transparency.

Amidst all the controversy surrounding the company, the founder Byju Raveendran is still in his denial era. In an address to the company employees, he denounced the EGM proceedings as a "farce" and asserted his continued role as CEO. 

The situation adds to the existing financial troubles, losses, and disputes with investors faced by the edtech giant.