Byju's Controversy Explained: Why Has US Court Ordered Founder To Pay Over One Billion US Dollars

Byju's was an Indian multinational educational technology company based in Bengaluru. It was founded by Byji Raveendran and Divya Gokulnath in 2011. At its peak, the company became the world's most valuable ed-tech startup. However, now the company's valuation has allegedly dropped to zero, but why? Billionaire CEO, Byju Raveendran's Byju's was the poster child of India's startup ecosystem and was expected to be the face of a change in pedagogy at schools and colleges.

At its peak, the ed-tech company reached a valuation of USD 22 billion in 2022, driven by its popularity for offering online and offline education courses. However, over the last year, the company's popularity and valuation have declined sharply, with several of its investors now calling for leadership change at the ed-tech firm. And now, with another USD 1 billion controversy breathing down its neck, let us take a look at what the legal row really is about.

Why has the US court asked Byju's to pay USD 1 billion?

A US bankruptcy court has ordered Byju's founder, Byju Raveendran, to pay over USD 1.07 billion. This has come after the US court has found him personally liable for the movement and concealment of funds from Byju's Alpha. For the unversed, Byju's Alpha is the company's US-based financing arm. Now, a default judgment has been issued by Judge Brendan Shannon of the Delaware Bankruptcy Court, which is making headlines online.

According to reports, Byju's CEO and founder, Byju Raveendran, was directed to appear before the court and provide documents in his case. However, the CEO failed to comply with the directions on several occasions, leading to a default judgment against the ed-tech firm.

What is a default ruling?

As per several media reports, a default judgment is a ruling issued when a party fails to participate in the litigation or ignores court orders. This allows the court to decide the case without a trial. The same happened with Byju's after its CEO and founder, Byju Raveendran, failed to meet the court's requirements and didn't appear on any given dates.

Byju Raveendran has denied all allegations

While the USD 1 billion ruling has shaken the internet, Byju Raveendran has denied every allegation made against him and his firm, Byju's. The founder has claimed that he will appeal the US court judgment. Raveendra said that the US Court issued a default judgment on an expedited basis, precluding him from presenting a defense. The CEO has issued a statement sharing his side of the story. The release could be read as:

"The Court, in our view, ignored relevant facts. Byju Raveendran must be allowed to present a defence and has been denied the right to do so by expediting the trial. The Delaware Court Judgement also does not address the fact that GLAS Trust has been aware that the monies from the Alpha loans were not used by Byju Raveendran or any Founder of BYJU's for their personal gain but were used for the benefit of Think & Learn Private Limited (TLPL)."

More about Byju's legal troubles

Byju's Alpha, incorporated in Delaware in 2021, was established as a special-purpose vehicle to manage a USD 1.2 billion term loan from a consortium of global lenders. For the unversed, a consortium is a group of companies that work together for a particular purpose. The subsidiary had no operating business and functioned primarily as a holding entity for the loan proceeds.

However, a massive sum of USD 533 million was transferred from Alpha to Camshaft Capital, a small hedge fund in Miami. While at first the movement of funds went unnoticed, it raised alarms when it was then moved through affiliated entities such as Inspilearn and, later, to an offshore trust. The court filings showed that this fund transfer was made without any consideration returning to Byju's Alpha. 

As the Byju's case gains pace, it will be interesting to see how Byju Raveendran will defend his company in the future, or will he have no other choice but to pay the massive USD 1 billion?

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