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Edtech major Byju’s faces ED heat for Rs 9,362 crore ‘forex violation’

The Enforcement Directorate (ED) has issued a show-cause notice of Rs 9,362 crore to Think & Learn, the company behind Byju’s education platform, and its founder Raveendran Byju for alleged violations of forex rules while attracting foreign investments from 2011 to 2023.

The central probe agency has charged them with contravening forex provisions, as per an order issued by the adjudicating authority of the Foreign Exchange Management Act (FEMA). This is the second-biggest show cause to a unicorn, following Rs 10,600 crore notice to Flipkart in 2021 for alleged violation of forex rules.

While concluding the probe, it was found that the edtech firm and Raveendran contravened the forex rules by “failing to submit documents of imports against advance remittances made outside India, by failing to realise proceeds of exports made outside India, by delayed filing of documents against the foreign direct investment (FDI) received into the company, by failing to file documents against the remittances made by the company outside India, and by failing to allot shares against FDI received into the company,” the ED said. Byju’s had received foreign investment of Rs 28,000 crore between 2011 and 2023, according to the probe agency.

Byju’s, on the other hand, refuted reports linking it to FEMA violations. “Byju’s unequivocally denies media reports that insinuate Byju’s of any FEMA violations. The company has not received any such communication from authorities,” an edtech spokesperson said. When contacted after the ED’s statement late in the evening, the startup replied it does not have any new comment at the moment.

The ED had initiated the investigation based on various complaints regarding the company’s foreign funding and business conduct. In April, the federal agency conducted search and seizure actions at three premises related to the edtech firm, including two business centres and Raveendran’s residence.

During the action, the agency seized documents pertaining to all investments received by the company, as well as papers related to the overseas investments made by the company. During the investigation, statements of Raveendran and the CFO of Think and Learn were recorded.

The company, according to the ED, remitted around Rs 9,754 crore to various foreign jurisdictions “in the name of overseas direct investment” between 2011 and 2023.

The company had booked around Rs 944 crore as advertising and marketing expenses, including part of the amount remitted to foreign jurisdictions. These transactions had been cross-checked, the ED said.

Forex rules state that any party found guilty of breaching the forex norms can be slapped with a penalty that’s thrice the contravention or for foreign investments received by the company. However, maximum fines are rarely imposed and are calculated on a case-by-case basis.

ED officials underlined that the company allegedly has not prepared its financial statements since 2020-21 and has not had its accounts audited, and so it suspects the genuineness of the figures provided by the company, and these are now being cross-examined by banks.

 Meanwhile, Byju’s has reached out to its investors and assured them that the firm did not violate any foreign exchange rule. 

“We want to assure you that Byju’s has always been fully compliant with FEMA regulations,” said the letter sent by the company to all its investors, and a copy of which was reviewed by Business Standard. “The news story in question is entirely based on hearsay and lacks any factual basis. As of today (November 21 evening), Byju’s has not received any such notice, as reported in media… We are attaching an email from one of India’s largest and most trusted law firms, which highlights the results of a comprehensive due diligence conducted on Byju’s.” 

“The email confirms that the due diligence found no FEMA violations at Byju’s.” it said.

The letter said that Byju’s has maintained a cooperative stance with the ED. “We have satisfactorily answered all their queries, both verbally and on record,” according to the letter. “We understand that such news can create uncertainty and concern, but we want to assure you that Byju’s continues to operate in full adherence to regulatory frameworks.”

 The company has garnered $5.8 billion in total funding from investors, such as Qatar Investment Authority (QIA), Sumeru Ventures, Vitruvian Partners, BlackRock, Chan Zuckerberg Initiative, Sequoia, Silver Lake, Bond Capital, Tencent, General Atlantic and Tiger Global.

 The ED’s show-cause notice comes at a time when Byju’s is facing a multitude of challenges, including securing fresh capital, delays in financial reporting, and legal disputes with lenders. The firm’s valuation, once pegged at $22 billion, has been plunging with investors marking down their holdings. It is locked in a dispute with lenders in the US over a missed interest payment on a $1.2 billion term loan B (TLB).

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