NCLT Bengaluru Holds FEMA Compliance In Aakash–Byju’s Rights Issue Beyond Section 60(5) IBC Jurisdiction

NCLT Bengaluru Holds FEMA Compliance In Aakash–Byju’s Rights Issue Beyond Section 60(5) IBC Jurisdiction

Introduction

The Bengaluru Bench of the National Company Law Tribunal (NCLT), comprising Judicial Member Shri Sunil Kumar Aggarwal and Technical Member Shri Radhakrishna Sreepada, dismissed an application filed by Aakash Educational Services Limited in the ongoing CIRP of Think & Learn Pvt. Ltd. (Byju’s). The Tribunal held that questions concerning FEMA compliance, the legal character of debenture proceeds, and the permissibility of deployment of foreign funds in a rights issue do not fall within its jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code, 2016. It clarified that such issues must be examined by the competent regulatory authorities functioning under the FEMA framework.

Factual Background

The dispute arose out of a ₹240 crore rights issue undertaken by Aakash Educational Services Limited, in which Think & Learn Pvt. Ltd., presently undergoing CIRP, sought to participate as an existing shareholder. Towards its subscription, Think & Learn remitted approximately ₹25 crore. These funds had been raised by the corporate debtor pursuant to a Debenture Subscription Agreement dated 7 November 2025 executed with GLAS Trust Company LLC, a US-based entity.

Aakash expressed concerns regarding the nature of the debenture instrument and contended that certain clauses suggested that the securities may not qualify as compulsorily convertible debentures. According to Aakash, if the instrument were in substance debt, the funds might fall within the External Commercial Borrowings regime under FEMA, which could legally restrict their use for equity participation in a domestic rights issue. Owing to this apprehension, Aakash withheld allotment of shares and placed the received amount in a separate account pending legal clarification.

Procedural Background

Aakash approached the NCLT by filing an application under Section 60(5) of the IBC seeking directions, including a clarification from the Reserve Bank of India regarding the legality, classification, and permissibility of the funds infused by Think & Learn. The Resolution Professional opposed the plea on the ground of maintainability, arguing that the relief sought required adjudication of FEMA compliance, a subject reserved for specialised statutory authorities. The RBI also informed the Tribunal that the applicability of FEMA provisions would depend upon complete transactional details and therefore no conclusive opinion could be offered in the present proceedings.

Issues

1. Whether the NCLT can exercise jurisdiction under Section 60(5) IBC to adjudicate FEMA compliance issues arising out of a rights issue during CIRP.

2. Whether the RP’s participation in the rights issue, having CoC approval, brings all regulatory aspects of the transaction within insolvency jurisdiction.

3. Whether Aakash was entitled to seek directions requiring RBI clarification on the legal character and permissible use of the subscription funds.

Contentions of Parties

Aakash contended that because the subscription amount originated from funds raised by the corporate debtor during CIRP, the legality of the funds directly affected the insolvency process and therefore fell within the NCLT’s supervisory powers under Section 60(5). It argued that unless the regulatory status of the debenture proceeds was clarified, allotment of shares could potentially violate FEMA and ECB norms.

The Resolution Professional, on the other hand, submitted that while the decision to participate in the rights issue was indeed taken during CIRP and approved by the Committee of Creditors, the adjudication of FEMA compliance remained outside the statutory scheme of the IBC. It was argued that the Tribunal cannot transform itself into a regulatory forum for foreign exchange law merely because the transaction bears some connection to the CIRP.

Reasoning and Analysis

The Tribunal undertook a careful examination of the scope of Section 60(5) and accepted that the rights issue subscription had a clear nexus with the CIRP, since the RP had acted with CoC approval. However, it held that the existence of such a nexus is not by itself sufficient to confer jurisdiction over all legal issues touching the transaction.

The Bench reasoned that Section 60(5) is intended to confer residuary jurisdiction only in relation to questions intrinsically arising from insolvency resolution. Matters involving the classification of foreign funds, permissibility of external commercial borrowings, compliance with FEMA, and interpretation of RBI regulations are issues governed by a specialised statutory framework and entrusted to designated regulatory authorities. The Tribunal expressly observed that it cannot assume the role of the RBI or any other FEMA regulator by determining the legality or “colour” of funds.

The NCLT further clarified that while the actions of the RP and CoC are amenable to judicial supervision under the IBC, such supervisory review cannot be expanded into adjudication of independent statutory compliances under other enactments. To do so would impermissibly enlarge insolvency jurisdiction into fields reserved for sector-specific regulators.

Decision

The application was dismissed as not maintainable. The Tribunal held that questions concerning FEMA compliance, regulatory classification of the debenture proceeds, and the permissibility of using such funds in the rights issue must be addressed before the competent authorities under the FEMA regime. Liberty was granted to Aakash Educational Services Limited to seek appropriate remedies before such authorities in accordance with law.

In this case the appellant was represented by Advocate H.V Shyam Sunder.