Byju’s hits back at MSKA, says auditor sought “backdated” details after board was suspended

Byju’s said it entered into insolvency proceedings on July 16, 2024, due to a legal dispute with the Board of Control for Cricket in India (BCCI). This triggered the appointment of an IRP, which resulted in the suspension of the company’s board. “Just one day later, on July 17, BDO sent an email to the suspended board of Byju’s seeking certain clarification regarding historical transactions that BYJU’s had undertaken with a partner based in the Middle East,” Byju’s said in a communication on Saturday.

“In the same email of July 17, BDO threatened to resign if they do not receive the requested clarifications within 45 days. BDO failed to mark the IRP in this email, despite being aware that as of that date, the IRP was in control of Byju’s and the board had been suspended,” Byju’s said.

Citing “unethical requests and manipulative tactics”, Byju’s said it has complied with every request made by BDO, except those that would require crossing ethical and legal boundaries. The real reason for BDO’s resignation is Byju’s firm refusal to backdate its reports, while BDO went to the extent of recommending a firm that could facilitate such an illegal activity.”

“Multiple call recordings exist, where BDO representatives explicitly suggest backdating these documents, which Byju’s refused to do. Byju’s strongly believes that this is the main reason for their resignation,” Byju’s alleged.

BDO eventually resigned after the 45-day window expired, citing the suspended board’s failure to provide the requested clarifications. “However, surprisingly, the BDO failed to appreciate that for most of that 45-day period, the IRP was in control of Byju’s and only the IRP could provide the answers they were seeking,” it said.

Citing reasons for the resignation as the statutory auditors of the company, MSKA said in its letter, “the financial statements for the year ended March 31, 2023 are long delayed. In spite of these delays, there has been inadequate support from the management of the company in providing us the books of account, information and explanations sought by us and sufficient appropriate audit evidence to enable us to complete the audit for the FY 2022-23.”

On the dues from the Dubai firm, the auditor said, “we had requested for a detailed forensic review of the transactions with MI due to the various reasons elaborated in our emails. There has been inordinate delay on the part of the management to initiate the forensic review, despite our repeated reminders sent vide various emails.”

“We had requested audit information from the management through multiple communications including emails in this regard. We had received certain management responses vide emails, information shared, etc. which do not either address all the details requested or are inadequate and do not provide us with the sufficient appropriate audit evidence to enable us to complete our audit for financial year 2022- 23,” MSKA said.

In their EGM notice last year, investors questioned “the management’s… failure to exercise the company’s legal rights in order to recover approximately Rs 1,400 crore of billings from and also paying out Rs 300 crore of commission to More Ideas General Trading, the company’s affiliated reseller in Dubai, especially given the startup’s need for funding over the last 12 months”.

Financial statements of Think & Learn Pvt Ltd for 2020-21 show that while revenue from the sale of educational content to customers in Gulf Cooperation Council (GCC) countries was Rs 497 crore, the company paid Rs 237 crore — 47.6% of revenue — as commission. In 2019-20, revenue from sales was Rs 245 crore, while the commission paid was Rs 115 crore (46.9%).

Regarding the transactions with its West Asian partner in respect of which BDO had sought clarifications in its email of July 17, Byju’s said, “the suspended Board and management of Byju’s, had taken the proactive step of arranging a forensic audit, fully transparent and supervised by BDO, to ensure that there were no issues well before their email on July 17.”

However, the forensic (audit) could not be completed due to the initiation of the insolvency proceedings on July 16, 2024. The failure to complete the forensic therefore cannot be attributed to the suspended Board, Byju’s said.

“In the virtual board meeting of FY22, the same foreign transactions were greenlighted resulting in an audit report which was clean,” Byju’s said. A BDO senior partner has also confirmed on video that after conducting thorough due diligence, they have found no evidence of fraud or malpractice in our international transactions, it said.

“During the first meeting of the Committee of Creditors held on September 3, 2024, the IRP explicitly noted that he had repeatedly reached out to BDO for clarification during the last 45 days but had received no response,” Byju’s said.