Insolvency court admits bankruptcy petition against Byju’s

The Bengaluru Bench of the NCLT has admitted the insolvency application filed by Board of control for Cricket in India (BCCI) against edtech company Byju’s. The BCCI has filed the insolvency petition against Byju’s after it defaulted on a payment of Rs 158 crore. The NCLT has appointed Pankaj Srivastava as the interim resolution professional (IRP).

The Operational Creditor – BCCI – has been asked to deposit a sum of Rs 2 lakh with the IRP to meet the expenses arising out of issuing public notice and inviting claims. These expenses are subject to approval by the Committee of Creditors.

According to the petition filed by BCCI, it entered into a team sponsor agreement with Byju’s on 25 July 2019. As per the said agreement, BCCI provided the Corporate Debtor the exclusive right to marketing related services by way of the exclusive right to be the team sponsor of the Indian cricket teams and to display its trademarks / brand names on the specified portion of the team kit worn by the Indian cricket teams; advertising related services by way of a platform to display its brand through the use of video footage from cricket series and events organized and administered by the Petitioner;) promotional services by way of the network to engage with players of the Indian cricket teams for and in connection with advertising campaigns of the Respondent; the permission to use the intellectual property of the Petitioner such as its logo and other official trademarks in its marketing materials; and hospitality and non-hospitality tickets for every ticketed match organized by the Petitioner.

As consideration, the Corporate Debtor was required to pay a fee to the Operational Creditor. The Corporate Debtor was the Sponsor of the Indian cricket team as per the above arrangements and availed the Services for a period up until 31 March 2023. Byju’s was required to pay a sum equivalent to 50% of aggregate Fee pertaining to a series, not later than 30 days prior to the first scheduled match of such series; and the balance 50% was to be paid within a period of 5 days of the last match of such series.

After 31 March 2022, the Corporate Debtor has made payment in full only against one invoice for the year 2022-2023 — for India – South Africa cricket series held in June 2022 amounting to Rs 25.35 crore. However, it failed to make payments against the remaining invoices raised by BCCI for the financial year 2022-23. Later, Byju’s gave its consent to the Petitioner to encash the Bank Guarantee of Rs 143 crore for dues till ICC’WC 2022 which was encashed subsequently. However, the amount was not sufficient to cover the entire amount. Therefore, even after encashment of the Bank Guarantee, the following invoices aggregating to an amount of Rs 158 crore remained unpaid.

Byju’s in its argument in the NCLT disputed the amount due as operational debt. It said that in its argument that BCCI merely granted certain ‘Rights’ and no ‘services’ were ever provided to BYJU’S under the Agreement. “Since no service has been provided by the BCCI, it cannot be termed as a service provider and further does not fall under the definition of Operational Creditor,” contended the Bengaluru-based Edtech company.

The corporate debtor has also contended that there was a pre-existing dispute on the debt.

However, the NCLT noted that as per the sponsorship agreement, the payment of the fees was liable to levying of GST, hence it is implied that the Sponsor Agreement licensed is in respect of the ‘services’, and the ‘rights fee’ for which the Operational Creditor is liable to be paid by the Corporate Debtor does fall within the definition of ‘Operational Debt’ within the meaning of Section 5(21) of the Code.

“Accordingly, the Respondent’s arguments in this regard are not legally tenable,” observed the tribunal.

The NCLT also rejected Byju’s allegation that there is no formal contract between the parties.

“Accordingly, this Adjudicating Authority is of the considered opinion that there is no reason to deny the petition filed under section 9 of the IBC, 2016 by the Operational Creditor to initiate CIRP against the Corporate Debtor, since the existence of a debt and a default in the payment of debt is clearly established,” said the NCLT.

Meanwhile, Byju’s is planning to challenge the order at National Company Law Appellate Tribunal NCLAT (NCLAT).  “As we have always maintained, we wish to reach an amicable settlement with the BCCI and we are confident that, despite this order, a settlement can be reached. In the meantime, our lawyers are reviewing the order and will take necessary steps to protect the Company’s interests,” a spokesperson from Byju’s said.

Also See: Median recovery for operational creditors only 6% under IBC: Report