Probe against Byju's finds no evidence of financial fraud: Report

Probe against Byju's finds no evidence of financial fraud: Report

An investigation conducted by the government has cleared Byju's of financial fraud, but found lapses in corporate governance at the embattled online education company, reported Bloomberg News.

The yearlong probe, carried out by the Ministry of Corporate Affairs, has revealed no evidence of fund siphoning or financial account manipulation, according to sources familiar with the matter.

However, the investigation did uncover governance deficiencies that have exacerbated Byju's financial troubles, these sources added while speaking to the publication.

This outcome offers relief to Byju Raveendran, the company's founder, who has faced allegations of mismanagement from discontented investors.

Last year, three major shareholders—Prosus Ventures, Peak XV Partners (formerly Sequoia Capital India), and another unnamed investor—resigned from the board over disagreements with Raveendran concerning business processes and internal controls.

The report's conclusions suggest that, for now, the company may avoid further scrutiny from authorities on previously examined issues.

It may be noted that neither the Ministry of Corporate Affairs nor representatives from Byju's, Peak XV, and Prosus have issued any comments on the fresh development.

The report does not specify whether Raveendran is responsible for the governance issues or if he remains suitable to lead the company. Investors have called for his removal, citing lapses in management and compliance.

Despite the absence of fraud, Byju's continues to face significant challenges.

The startup's rapid growth has led to a cash crunch and a sharp decline in its valuation, alongside ongoing legal battles in India and the US.

Investigators identified poor corporate governance and compliance practices, coupled with changing funding conditions, as key factors in Byju's mounting losses. They noted that the startup failed to hire professionals to oversee finances and compliance, contributing to its financial difficulties.

The probe also found that Byju's did not fully disclose details of acquisitions to all directors and often scheduled meetings to approve such deals at short notice.

However, it acknowledged the founders' argument that some directors were also investors in rival companies.

At its peak, Byju's was valued at $22 billion.

The business saw significant growth during the Covid-19 pandemic, but as restrictions eased and classrooms reopened, its cash reserves dwindled.

The company is now dealing with multiple bankruptcy cases both domestically and internationally.

Although Byju's secured over $100 million from existing investors through a new share issuance, an Indian court has prohibited it from using those funds.

As founder Byju Raveendran works to stabilise Byju's core operations, he is also exploring generative artificial intelligence for hyper-personalized learning to stay ahead in the education sector.

He has been making considerable efforts to keep the company afloat, including taking on personal debt to ease financial pressures.