NCLAT Refuses to Stall Aakash EGM: Insolvency of Byju’s No Ground to Restrict Subsidiary’s Independent Fundraising

NCLAT Refuses to Stall Aakash EGM: Insolvency of Byju’s No Ground to Restrict Subsidiary’s Independent Fundraising

Introduction

The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, refused to stay the Extraordinary General Meeting (EGM) of Aakash Educational Services Limited (AESL) scheduled for October 29, 2025, rejecting the plea of GLAS Trust Company LLC, the U.S.-based lender representing the creditors of crisis-hit ed-tech company Byju’s (Think & Learn Pvt. Ltd.). The EGM sought approval for a rights issue which could potentially reduce Byju’s 25.75% stake in Aakash to approximately 5%, as Byju’s—currently undergoing insolvency—would be unable to subscribe to new shares.

Factual Background

Byju’s, once India’s leading ed-tech company, entered corporate insolvency resolution proceedings under the Insolvency and Bankruptcy Code, 2016. Its subsidiary, Aakash Educational Services Ltd. (AESL), continues to operate as a financially solvent company. GLAS Trust Company LLC, acting on behalf of Byju’s overseas lenders and holding over 90% of the voting rights in the Committee of Creditors (CoC), approached the NCLAT to stay Aakash’s proposed rights issue. GLAS claimed that the move would severely dilute Byju’s stake and devalue one of its most critical assets.

Procedural Background

The case stems from a sequence of events involving changes to Aakash’s Articles of Association (AoA) and share capital structure. According to GLAS Trust, Aakash’s board meeting on October 21, 2024, attended by Byju Raveendran without the Resolution Professional’s (RP) consent, amended protective clauses in the AoA that previously granted veto powers and board representation to Think & Learn Pvt. Ltd. The National Company Law Tribunal (NCLT) had earlier, by its order dated November 19, 2024, restrained Aakash from implementing such amendments. However, Aakash subsequently increased its authorized share capital from ₹57 crore to ₹297 crore, prompting allegations of deliberate dilution of Byju’s shareholding. GLAS Trust then filed the present appeal before the NCLAT to prevent Aakash from proceeding with the EGM scheduled for October 29, 2025, arguing that the rights issue violated the NCLT’s interim order and undermined the CoC’s interests.

Issues

1. Whether Aakash Educational Services Ltd., a solvent subsidiary, can proceed with a rights issue while its parent company, Think & Learn Pvt. Ltd. (Byju’s), is under insolvency proceedings.

2. Whether the rights issue and amendment of Articles of Association amount to a violation of the NCLT’s restraint order dated November 19, 2024.

3. To what extent the Insolvency and Bankruptcy Code (IBC) empowers the CoC or the RP of a corporate debtor to control the affairs of a solvent subsidiary.

Contentions of the Parties

Appellant: Argued that Aakash’s Articles of Association grant overriding rights to Byju’s, including veto powers and a requirement that at least one Byju’s nominee director be present for valid board decisions. Alleged that Aakash’s board unlawfully amended these clauses and increased share capital without prior notice or consent from the Resolution Professional (RP). Claimed that the rights issue was intended to dilute TLPL’s stake in violation of the NCLT’s order dated November 19, 2024. Asserted that Aakash’s failure to file FY 2023–24 financials undermined its justification for urgent fundraising.

Respondent: Aakash argued it is a separate legal entity unaffected by Byju’s insolvency proceedings. Contended that the rights issue was a lawful and necessary business decision to meet urgent operational funding needs, serving over 3.5 lakh students and employing 10,000 staff. Submitted that all shareholders, including Byju’s, had equal rights to subscribe under the Companies Act. Maintained that the NCLT’s earlier order had lapsed after the related oppression and mismanagement petitions were withdrawn in February 2025. Accused the Appellant of forum shopping through multiple legal proceedings to delay Aakash’s financial restructuring.

Reasoning and Analysis

The NCLAT bench comprising Justice N. Seshasayee (Judicial Member) and Technical Member Jatindranath Swain emphasized that the IBC cannot be used to restrict the commercial freedom of a solvent subsidiary. The tribunal observed that Aakash’s decision to issue shares was grounded in legitimate business needs, not an attempt to harm the interests of Byju’s creditors. The Bench notably remarked that “the matter appears to be an octopus with several tentacles”, reflecting the multiplicity of parallel proceedings and overlapping claims involving Byju’s, its lenders, and its subsidiaries. The tribunal questioned whether the CoC’s powers could extend to interfering with the governance of a solvent company merely because the corporate debtor holds shares in it. It held that such interference would undermine the separate corporate personality of subsidiaries, contrary to established company law principles.

Implications

This decision reinforces a key corporate law principle: insolvency proceedings against a parent company do not automatically fetter the commercial independence of its solvent subsidiaries. The judgment also signals judicial restraint in using the IBC as a tool to extend the moratorium or control over non-insolvent entities. For lenders and resolution professionals, it underscores the need to distinguish between protecting the debtor’s assets and overreaching into the operations of other legally distinct entities. The NCLAT’s refusal to intervene preserves Aakash’s operational autonomy, allowing it to pursue necessary capital infusion and sustain business continuity — ultimately benefiting even the value of Byju’s residual shareholding.

In this case Aakash was represented by Mr. Gopal Subramanium, Sr Advocate.