Separately, all three external directors of Think & Learn submitted their resignations earlier this month, two people aware of the development said. The directors represent Peak XV (formerly Sequoia Capital), Chan Zuckerberg Initiative (CZI), and Prosus Ventures. Peak XV owns around 6% in Think & Learn, while CZI owns 2.5-3%, and Prosus 9%. The resignations were discussed at a shareholders’ discussion on Sunday, the people cited above added.
“The company has 30 days legally before it needs to tell the Registrar of Companies about the resignations,” one of the two people said.
Think & Learn on Thursday named BDO (MSKA & Associates) as the statutory auditor of the company and all its subsidiaries. However, it termed the news of the directors’ exits as “speculative”, adding it “firmly denies these claims”.
A Prosus spokesperson declined to comment, directing queries to Byju’s. Peak XV also declined to comment, while CZI did not respond to a request for comment.
“The board members had been wanting to resign for several months, but the company was keen they stay on till the funding round was stitched,” the second person said.
Deloitte’s resignation note cited five letters it wrote to founder and managing director Byju Raveendran and board members on 30 September, 5 November, 12 November, and 24 December last year, and a final one to Raveendran on 29 March this year, regarding the statutory audit for FY22.
“We have not received any communication on the resolution of the audit report modifications in respect of the year ended 31 March 2021, the status of the audit readiness of the Financial Statements and underlying books and records for the financial year ended 31 March 2022, and we have not been able to commence the audit as on date,” Deloitte said in its resignation letter.
Byju’s filed the report for FY22 after an 18-month delay in September 2022.
“The starting point of any audit is to check if the modifications from the previous year have been resolved. The company needs to close the books and submit the financial statements to an auditor before the audit can begin,” an industry expert said by way of interpreting the Deloitte resignation letter.
Deloitte submitted an adverse opinion on Byju’s Internal Financial Controls in its audit report for FY21 and offered an “emphasis of opinion” on the company’s revenue recognition practices.
Internal financial controls refer to the policies and procedures adopted by any company for its business, including regulatory compliance, and the company’s ability to prevent and detect fraud and errors in reporting its statements. Byju’s appointed a chief financial officer Ajay Goel only in April.
“Audit resignations are rare. Typically, it is an iterative process and auditors usually explain the process and the implications well before they formally resign,” the industry expert cited above added.
“The resignation of the auditors for not receiving information and not being able to audit in a timely manner also seems to suggest a lack of transparency in the manner in which business operations are being conducted,” said Yashojit Mitra, partner at Economic Laws Practice.
On the exit of board members, Mitra said the resignation of non-executive directors arises when there is a difference of views between them and the promoters. “The resigning directors (usually take) the decision so as not to be henceforth held liable for any of the actions being undertaken by the company, which is not a good sign for any company,” Mitra said.
The resignations come amid Byju’s ongoing spat with bondholders, with the company declaring on 5 June that it was stopping repayment of interest over its $1.2-billion loan and sued Redwood Capital Management and other lenders in the New York Supreme Court challenging the decision to accelerate the company’s $1.2 billion loan. The company said it would not make any more interest payments until the legal dispute was resolved, marking a default. In its petition, Byju’s categorized its TLB lenders led by Redwood as “predatory” and moved to disqualify Redwood as a lender.
Previously, the lenders sued the company in the US over what they claimed was $500 million missing from its US entity Byju’s Alpha. The lenders sought to take control of the US subsidiary. The origin of that dispute, too, was the delay in Byju’s financial statements.
Several investors, such as Blackrock and T Rowe Price, have written down the value of their investment in Byju’s. In November 2022, Prosus valued Byju’s at $6 billion, the same valuation at which it initially invested.
Last month, Byju’s raised $250 million in debt funding from New York-based investment manager Davidson Kempner Capital Management. The company has separately been trying to raise equity funding from investors.
