Spirit of IBC Lies in Growth, Not Stagnation — NCLAT Upholds Aakash’s Right to Prosper Amid Byju’s Turmoil

Spirit of IBC Lies in Growth, Not Stagnation — NCLAT Upholds Aakash’s Right to Prosper Amid Byju’s Turmoil

Introduction

The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, delivered a significant ruling in GLAS Trust Company LLC vs. Shailendra Ajmera, RP of Think & Learn Pvt. Ltd. & Ors., clarifying that the insolvency of a parent company cannot be used to impede the commercial independence of a solvent subsidiary. The decision underscores that protecting the value of a corporate debtor’s shareholding does not justify “commercially killing” a subsidiary, and that the Insolvency and Bankruptcy Code (IBC) must not be invoked to stifle legitimate corporate governance actions.

Factual Background

Byju’s (Think and Learn Pvt. Ltd.), currently undergoing insolvency proceedings, holds approximately 25.41% equity in its subsidiary, Aakash Educational Services Ltd. (AESL). AESL had issued debentures under a Debenture Trust Deed (DTD) dated 25 April 2023, which mandated amending its Articles of Association (AoA) to safeguard the interests of debenture holders. Pursuant to this, AESL’s board proposed a rights issue to raise funds and scheduled an Extraordinary General Meeting (EGM) on 29 October 2025 to approve the same.

GLAS Trust Company LLC, the US-based lender and majority voting member (99.41%) of Byju’s Committee of Creditors (CoC), approached the NCLAT seeking to restrain Aakash from conducting the EGM, alleging that the rights issue would unlawfully dilute Byju’s shareholding and violate a prior status quo order passed by the NCLT on 27 March 2025.

Procedural Background

The NCLT had earlier directed that Aakash should not dilute the shareholding structure of Byju’s without maintaining the status quo. GLAS Trust, invoking this order, filed an interim application (I.A. No.1514 of 2025) in Company Appeal (AT) (CH) (Ins) No.139 of 2025 before the NCLAT, seeking a stay on Aakash’s proposed EGM and rights issue. The NCLAT Bench comprising Justice N. Seshasayee (Judicial Member) and Mr. Jatindranath Swain (Technical Member) heard arguments from both sides and reserved judgment.

Issues

1. Whether the rights issue proposed by Aakash Educational Services Ltd. violates the NCLT’s status quo order regarding Byju’s shareholding.

2. Whether insolvency proceedings against Byju’s can be used to restrain a solvent subsidiary’s commercial and financial decisions.

3. Whether GLAS Trust had satisfied the requirements for an interim injunction—prima facie case, irreparable injury, and balance of convenience.

Contentions of the Parties

Appellant (GLAS Trust Company LLC): Argued that the rights issue was designed to dilute Byju’s stake and contravened the NCLT’s status quo order of 27 March 2025. Moreover, the appellant alleged collusion between Aakash’s management and Byju’s promoters to strip value from the insolvent parent company’s holdings. The appellant also contended that Aakash’s actions were in bad faith, aimed at undermining the CoC’s control over Byju’s and its assets. The appellant also claimed that the rights issue was not an independent commercial necessity but a tactic to erode the corporate debtor’s value.

Respondents (RP and Aakash Educational Services Ltd.): The respondent countered that the rights issue was an “existential compulsion” arising from the Debenture Trust Deed (DTD) of April 2023, predating Byju’s insolvency. The respondent submitted that the DTD required Aakash to amend its AoA and restructure its capital to protect debenture holders’ interests. Furthermore, the respondent emphasized that Byju’s could choose to subscribe to the rights issue and thus prevent any dilution of its shareholding. The respondent asserted that commercial autonomy of Aakash was crucial for its survival and, by extension, for preserving the overall value of Byju’s investment.

Reasoning and Analysis

The NCLAT dismissed GLAS Trust’s plea, holding that the spirit of the IBC is to preserve and maximize value, not to paralyze viable subsidiaries of insolvent companies.

Key findings included:

The Tribunal noted that Aakash’s rights issue was not an independent or mala fide act but a “direct sequel” to its obligations under the DTD executed prior to Byju’s insolvency.

It emphasized that preserving the value of Byju’s shareholding cannot be achieved by “commercially killing” Aakash, a solvent and operational company. The Bench observed that none of the three criteria for interim relief—prima facie case, irreparable injury, or balance of convenience had been satisfied by GLAS Trust. Importantly, it clarified that IBC does not authorize interference with the operational independence of subsidiaries merely because the parent is under CIRP.

The Tribunal reasoned: “While it is true that IBC aims to maximise the asset value of the corporate debtor, it has not sanctioned the idea that every company in which the CD has a shareholding should sacrifice its own interest to stay, grow and sustain itself commercially for the benefit of the CD.” The Bench also held that Byju’s retained the choice to participate in the rights issue, meaning any dilution of its stake would occur only by its own inaction, not by Aakash’s unilateral conduct.

Implications

The judgment reaffirms that subsidiary companies maintain their commercial autonomy despite the parent company’s insolvency. It establishes that IBC proceedings cannot be weaponized to halt legitimate business actions of solvent subsidiaries. The ruling protects market confidence and creditor rights by balancing the interests of both debtors and solvent affiliate entities. It signals judicial intent to prevent misuse of insolvency proceedings as a means to control or obstruct independent corporate governance decisions.

In this case the appellant was represented by Mr. C. Aryama Sundaram, Senior Advocate Mr. Krishnendu Datta, Senior Advocate, Mr. Prateek Kumar, Ms. Raveena Rai, Mr. Siddhant Grover and Ms. Moha Paranjpe, Mr. Abhi Udai Singh Gautam, Mr. Abhishek P., Advocate Ms. Niharika Sharma and Mr. Kevin Joseph, Advocates.