byjus: ED to tap lenders for information on Byju’s loans, transactions

The Directorate of Enforcement (ED) is planning to write to lenders and banks as part of its investigation into Byju’s, seeking details of various transactions and loans, said people aware of the matter.ED, India’s federal financial probe agency, has, since 2011, been looking into the edtech unicorn’s compliance with the Foreign Exchange Management Act (Fema), they said, adding that chief executive Byju Raveendran hasn’t been available to clarify matters. He has been asked to join the investigation four to five times in the past two years, according to sources.

Raveendran told staff that the company has observed all rules.

Several summonses issues: ED

“Byju’s has taken all efforts to fully comply with all applicable foreign exchange laws… All our cross-border transactions have been duly vetted by both (our) professional advisors/counsel and the advisors/counsel of the investment funds, and other sophisticated counter-parties,” the chief executive told employees in a late-night email on Saturday after news broke of ED conducting searches on premises linked to the edtech firm.

Byju’s valuation is $22 billion and it is India’s most-valued privately held tech startup.

ED said it had sought the CEO’s presence. “During investigation, several summonses were issued to founder and CEO Raveendran,” it said in a press statement. “However, he always remained evasive and never appeared during the investigation.”

Sources close to the company told ET that Raveendran had asked to be exempted from appearing before ED due to family emergencies.

One of the persons cited above said, “While searches were undertaken (on) Thursday and Friday, a statement from Byju’s chief financial officer (Ajay Goel) was recorded, but he was not able to clarify details sought from him on multiple transactions.”

Goel is learned to have told the agency that most decisions are taken by Raveendran and, therefore, questioning the chief executive is important for the case. Goel joined the company earlier this month from Vedanta.

“Certain transactions require more clarity, and in order to establish the fund flow and its source, information will be sought from banks and lenders,” said another official.

The edtech firm has also been under the scrutiny of the ministry of corporate affairs (MCA) and the Directorate General of GST Intelligence (DGGI).

In 2022, the MCA sought clarification for the delay in submission of Byju’s returns for FY21 after its auditor, Deloitte, refused to sign off on the results. The financials were reported after an 18-month delay.

During FY21, Byju’s had come under the scanner of the DGGI over alleged evasion, but the matter was settled after the company agreed to pay its goods and services tax (GST) liabilities.

ED may write to the DGGI and MCA to share their findings. “As certain transactions under probe are related to advertising and marketing expenses covered by the GST too, the probe details will be sought to understand the funds flow,” said another official.

Transactions under scanner

The agency is said to be investigating four types of transactions — those related to investments, fees paid by foreign students, sale of gadgets, and advertising and marketing expenses.

“A FEMA probe concentrates on the money coming and going out of the Indian jurisdiction,” said one of the persons cited above. “In order to ascertain the nature of these funds, and if there has been any augmentation and unexplained transaction, multiple transactions incurred by the company come under the probe. The same is the case with Byju’s — the probe is only to ascertain that they are explained. Once the investigation is completed, a show cause notice could be served, depending on its outcome.”

Byju’s is said to have told ED that payments for brand endorsements and holding global events have to be made overseas.

ED is also inquiring into money routed through Cayman Islands-based entities. Byju’s is understood to have told the agency that most investors have accounts based there. It’s typical for them to have several such accounts in the Cayman Islands, Mauritius and similar jurisdiction, it is said to have told ED.

“Byju’s, which was the official sponsor for the Indian cricket team, also inked a global sponsorship deal with the ICC (International Cricket Council). Payments were made for these marketing and sponsorship deals to entities outside India. The same has been told to officials of the agency,” said a person aware of the matter.

Byju’s did not make these clarifications prior to the searches to ED officials investigating the source of the money and how it’s been invested.

All of this comes at a time when Byju’s is in the market to raise $400-600 million for parent company Think & Learn Pvt Ltd and its subsidiary Aakash Educational Services, which it acquired in 2021.

ET earlier reported that the delay in filing financial statements for FY21 and FY22 had prompted Byju’s to offer a higher rate of interest on its $1.2-billion term loan B as part of renegotiating debt financing arrangements. Lenders sought a prepayment of $200 million, in addition to the higher interest rate, as a precondition to restructuring the loan, ET had reported.

In the absence of audited financial results, Big Four accounting firm KPMG has conducted a detailed diligence report for incoming investors, which is being used for financial references and latest performance updates.

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