Byju's CEO Raveendran's removal is not justified in absence of forensic audit: Amarjit Chopra

Amarjit Chopra, former President of the Institute of the Chartered Accountants of India (ICAI), discussed his views with ETCFO on the ongoing tussle between Byju’s CEO and the group of some investors.

Byju’s, an educational technology company, was embroiled in controversy when its CEO, Raveendran, faced pressure for resignation amid allegations of financial misconduct. A group of investors unanimously voted to oust him as the CEO of the online education platform. Investors accused the company of hiding funds in a hedge fund, raising serious governance concerns.

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In response, Raveendran, founder of troubled edtech firm Byju's, told employees the very next day that he remains the chief executive (CEO) and there are no changes at the company.

Edited excerpts from Chopra’s interaction.

Q. What do you make of the ongoing tussle between Byju’s CEO and the group of some investors from a governance standpoint? How do you look at the attempt of investors to remove Raveendran and his relatives from their positions?

Amarjit Chopra: It is really unfortunate to have this kind of standoff between investors and the CEO of an enterprise. In simple words, this is a lack of mutual trust which has led to this situation and to my mind both parties are responsible for this situation.

And in this kind of ongoing tussle between the CEO and investors, governance always suffers as there is an attempt to find faults with each other rather than attempting to find solutions to problems with objectivity and a balanced approach. In any organisation there can be differences of opinion but when there is no trust in each other, these differences of opinion take the shape of irreversible dissent and that harms the interests of each stakeholder.

In this case, investors have been accusing the Indian tech firm Think & Learn was helped by William C Morton to hide $533 million by transferring the same to his hedge fund in the US. It is reported that based on Byju’s statement in court in the US, he could be arrested and jailed for three years. Fearing this Morton has fled the US. In case a forensic audit in India comes to the same conclusions, Raveendran and his relatives should be removed and the sternest of punishment be awarded to him by the regulators. However, pending these findings on a conclusive basis, in my opinion, the removal of Raveendran and his relatives at this stage would not be justified and would serve no useful purpose.

Q. In July last year, Byju’s had formed an advisory council bringing in Ex Infosys CFO TV Mohandas Pai and ex-SBI Chairman Rajnish Kumar to shore up governance. In your mind, has the company been able to move the needle on the governance framework?

Amarjit Chopra: Both Rajnish Kumar and Mohandas Pai are veterans in their respective fields and are highly respected in the financial and corporate world. But one must appreciate that they have been inducted into the Advisory Council of Byju’s and not on the Board. I am not privy to the powers of the Advisory Council. But in common parlance an Advisory Council can at the best advice but cannot enforce its advice. Accordingly at the best advice they can advise the Board members as to what is in the best interests of the organisation and various stakeholders. It is up to the Board members either to accept the recommendations of the Advisory Council or not.

To the best of my information, the Advisory Council has advised on the need of more funds to be infused by all the parties including investors by way of the rights issue, to get the forensic audit conducted to meet the apprehensions of the investors, to get the statutory audit completed up to financial year ended March 31, 2023, and to arrange for the term loans to meet company’s fund requirements.

However, it appears that the stubborn attitude of investors as well as the CEO group is becoming an impediment in resolution of the issues.

Q. What do you think the Board of Byju’s should do from here to shore up governance systems and allay such concerns among investors? What should the management do to control damage here?

Amarjit Chopra: There is a need for all parties to sit together and listen to the advice of the Advisory Council with an open mind. It is imperative that both parties understand that a lot of damage has already been done to the reputation of Byju’s and continuity of uncertainty with regard to its proper functioning would lead to further erosion in the value of investors as well as the CEO group’s investments.

In my opinion the ongoing case in NCLT does not help the issue. NCLT has pronounced that rights issue can be gone ahead subject to rights issue proceeds being banked in a separate bank account and no allotment of shares to take place till the disposal of cases filed by investors with regard to the oppression of minority. Whose purpose such a judgement would serve?Amarjit Chopra, former President of the Institute of the Chartered Accountants of India (ICAI)

Money remaining in a separate bank account, probably not earning even interest thereon would continue to lie idle. And who knows when the case for minority oppression would be decided. In case the entity genuinely requires funds, how the need for the same would be met as no one would be willing to loan funds to an entity with this kind of uncertainty in operations and promoters being restrained to pump in their funds till the disposal of the case.

Investors need to appreciate that in case Byju’s is to be kept running, the rights issue has to go on and in case they do not subscribe to the issue( in case such issue is allowed by NCLT)their percentage shareholding would come down from 24.5percent to less than 3 percent which would further harm their interest.

Based on findings in the forensic audit accountability be fixed and the loopholes in the control systems pointed out in the report be plugged. In case the investors feel that they require more information on various issues, the investors would be well advised to furnish the same on a periodic basis, MIS may also be improved to meet their requirements.

Q. How do you assess the role of regulators so far in monitoring this episode, again from a corporate governance standpoint? The MCA started its inspection back in July last year and it’s still ongoing while the ICAI, the accounting regulator for such private companies, is also looking into the financials with its Directorate Discipline yet to conclude its investigation…

Amarjit Chopra: For decades we have suffered due to slackness on the part of regulators to resolve the issues at the appropriate and critical point of time and this could be another case in that direction. The responsibility lies with MCA and NCLT to resolve the issue speedily.

As regards ICAI, any finding of theirs would only fix the accountability of the auditors particularly on the issue of aggressive accounting policies followed, if any.

I am afraid that in case there is a delay on their part, NFRA may be able to take it up based upon government complaint. But even NFRA would only be able to look into the role of auditors alone.

The issue as I stated earlier is a matter of distrust amongst the CEO group and the investors and responsibility for resolution of various issues lies on them.

In case the investors feel that aggressive accounting policies were followed, the Advisory Council and investors can seek the opinion of a mutually agreed upon professional with regard thereto and remedial measures can be taken for future reporting....

Q. Do you have any advice for Byju’s current auditors BDO considering that the company is surrounded by governance as well as certain financial issues? The company’s past auditors Deloitte had cited a delay in the submission of FY21 results while quitting the firm last year.

Amarjit Chopra: Firstly BDO is not recognised as an auditing entity in India. Auditors are MSKA & Associates (A member firm of BDO network). Accepting an assignment of audit under such circumstances is a tricky issue and is an extremely onerous task. I am sure that MSKA might have done proper due diligence of Byju’s as expected of them before engaging with the client, particularly in an abnormal situation. My only advice to the current auditors would be to be objective and fair in the assessment of the situation and expression of their opinion.