The founder of Byju’s, a once high-flying Indian education company that defaulted on its US debts, denied that he orchestrated a scheme to fraudulently transfer $533 million away from lenders.

On the day a judge considered the lenders’ fraudulent transfer claims against his company, Byju Raveendran outlined for the first time in court his explanation for what happened to the money, which lenders have been trying to track down for more than a year.

The company got the $1.2 billion loan nearly three years ago as it planned to use most of the proceeds on an international expansion, Raveendran claimed. More than $200 million raised with the loans was spent for marketing, including sponsoring soccer’s FIFA World Cup in Qatar in 2022 and to secure star player Lionel Messi as brand ambassador. Almost $300 million was spent to fund losses for Tangible Play businesses.

“However, just as we were poised to see the returns on these strategic investments, we were hit by a liquidity crunch,” he said in a filing Wednesday morning in US Bankruptcy Court in Wilmington, Delaware.

Commercial Purpose

The $533 million — that lenders allege was transfered offshore to entities linked to the founder — was used for a “legitimate commercial purpose,” Raveendran argued in his filing.

In court on Wednesday, lenders represented by their agent, Glas Trust Company, argued that Byju’s, Raveendran’s brother and a Miami hedge fund that once handled the company’s cash should all be held responsible for transferring the money out of reach of creditors. Should US Bankruptcy Judge John Dorsey side with lenders, he could order the company, the hedge fund and the brother — Riju Ravindran — to repay the cash.

Dorsey told lawyers Wednesday that he was “likely” to rule against the hedge fund. He did not say how he would rule with regard to Byju’s or Ravindran. The judge criticized Ravindran for moving at least part of the $533 million in late March 2023, even though Ravindran had allegedly lost the authority to do so.

“That seems like pretty much straight up fraud to me,” Dorsey said. 

Dorsey also dismissed Raveendran’s court filing, saying the Byju’s founder had months when he could have explained what happened to the money, but refused.

Lawyers for Byju’s, Ravindran and the hedge fund all argued that the judge should withhold any ruling because their clients had not had a chance to collect information they needed to defend themselves. Dorsey appeared to reject that request by saying he planned to issue a written ruling. 

Raveendran’s claims were disputed by lenders, who allege that Byju’s manipulated its accounts. “The Raveendran brothers engaged in a game of charades,” in order to conceal where the money went, Glas attorney Ravi Subramanian Shankar said in court.

Lenders have long considered the so-called Alpha Funds their best shot at getting back some of the $1.2 billion they loaned the company when covid-era lockdowns turned the online-education company into one of India’s most valuable startups. 

The two sides have been fighting in state and federal courts for more than a year about what happened to the money. The founder told lender advisers in a meeting that “the money is someplace the lenders will never find it,” creditors said in a court filing.

In the Wednesday declaration, Raveendran claimed he never used those words. 

The entire case of fraud and siphoning of money “is based on one statement that their representative wrote on a paper napkin and attributed to me,” he said. During the meeting with the advisers, he wanted to explain to the lenders that the funds “would be utilized for their intended purpose.”

International Expansion

Raveendran said that after raising the loan, Byju’s needed to use the funds for its international expansion as quickly as possible and entered into agreements with a OCI Ltd., a UK-incorporated logistics firm that provided procurement services for IT equipment and advertising.

When Byju’s was unable to reimburse what it owed, OCI exercised its “right of set-off” against the Alpha Funds. 

“Neither I, nor any of the founders of T&L (the borrowing unit of Byju’s) has personally received any portion of the Alpha Funds or any of the funds disbursed under the credit agreement,” he said in the filing.

The lender attorney instead alleged that Byju’s first sent the $533 million to a small hedge fund in Miami that had less than $10 million in assets under management at the time. The hedge fund then sent the money to OCI in exchange for unsecured promissory notes, he said.

OCI then allegedly spent the cash, which reduced the promissory notes by the same amount, Shankar said. The point of the financial structure was to record the $533 million as an asset instead of a debt, he said.

The US bankruptcy case is BYJU’s Alpha Inc., 24-10140, US Bankruptcy Court District of Delaware (Wilmington).