“Byju Raveendran Labels EGM a Farce, Alleging Deviation from Established Rules in Communication to Employees”

Byju’s founder Byju Raveendran faced removal as CEO in an investor vote, but he dismissed the meeting as a ‘farce’ and deemed the resolutions illegal. Byju’s is considering legal action, and a faction of investors has approached NCLT to appoint a new CEO and board. Raveendran maintained that the decisions made during the EGM on Friday did not adhere to established rules and, consequently, are considered invalid.

In a dramatic turn of events, Byju’s founder, Byju Raveendran, faces a leadership crisis as a majority of investors voted to remove him as CEO and restructure the board, raising concerns about governance, financial mismanagement, and compliance issues. The aftermath has seen Raveendran labeling the extraordinary general meeting (EGM) as a “farce,” asserting that the decisions made did not adhere to established rules.

EGM Dynamics and Founder’s Response:

Byju’s investors, holding over 60% stake, voted in favor of resolutions aimed at reshaping the company’s leadership and governance structure. However, Raveendran, in a letter to employees, criticized the EGM’s legitimacy, emphasizing that only 35 of 170 shareholders, representing 45% of the shareholding, supported the resolution. He contended that the Shareholder Agreement grants exclusive authority to the board for decisions related to the board’s composition, management team, and CEO’s role.

Raveendran expressed determination to challenge what he deems “illegal and prejudicial actions,” assuring employees that he remains the CEO, with the management and board unchanged. He characterized the investor-led move as an attempt by a minority to spread misinformation, emphasizing that, despite the turmoil, it is “business as usual at Byju’s.”

Legal Implications and Governance Structure:

The founder hinted at potential legal actions, stating that the decisions made at the EGM did not conform to established rules, rendering them invalid. Byju’s is reportedly exploring legal options, with a board meeting expected to address the crisis.

In a counterstatement, investor Prosus, holding over 9% stake, claimed unanimous support for all resolutions. The proposed new board structure, outlined in the EGM resolutions, comprises nine members, including one founder, two executives from group companies, three shareholders, and three independents.

Karnataka High Court’s Interim Order:

On February 21, Byju’s obtained a temporary reprieve from the Karnataka High Court, with an interim order preventing the implementation of EGM resolutions until the next hearing scheduled for March 13. This legal development underscores the complexity of the situation and sets the stage for a potential legal battle.

NCLT Petition and Founders’ Fitness:

Simultaneously, a group of four investors, including Prosus, General Atlantic, Sofina, and Peak XV Partners, moved the Bengaluru bench of the National Company Law Tribunal (NCLT). They seek a declaration of the founders as “unfit” to run the entity, citing oppression and mismanagement. The petition urges the NCLT to appoint a new CEO and board while declaring the $200 million rights issue as void. This move intensifies the power struggle and adds a legal dimension to the ongoing dispute.

Byju’s, once hailed as an educational technology success story, finds itself at a crossroads as internal conflicts threaten the stability of its leadership and governance. The outcome of legal proceedings, coupled with the Karnataka High Court’s interim order, will shape the future trajectory of the company. As stakeholders closely monitor developments, the Byju’s saga serves as a cautionary tale about the challenges that high-growth startups may face as they navigate the complexities of corporate governance and investor relations.

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