Manipal Health Systems Pvt. Ltd., the majority shareholder of Aakash Educational Services Ltd. (AESL), issued a legal notice to Ernst & Young (EY) India on May 21, 2025, alleging a conflict of interest in EY’s dual advisory role in the financial separation of AESL from Byju’s. The dispute stems from EY’s involvement in preparing AESL’s financial statements for the fiscal year ending March 2023, amid Byju’s insolvency proceedings and a complex acquisition fallout. This report provides insights into the legal notice, its context, allegations, and potential implications based on recent developments.
Background
Acquisition Context: Byju’s acquired AESL in 2021 for approximately $950 million in a cash-and-stock deal, marking one of India’s largest edtech acquisitions. The transaction involved AESL’s promoters (the Chaudhry family) and private equity firm Blackstone receiving 70% cash and 30% equity in Byju’s parent company, Think & Learn Pvt. Ltd.
Financial and Legal Challenges: Byju’s has faced significant financial distress, including a $1.2 billion term loan default, regulatory hurdles, and insolvency proceedings initiated by creditors like GLAS Trust and the Board of Control for Cricket in India (BCCI) over unpaid dues.
Manipal’s Stake: In 2023, Ranjan Pai, chairman of Manipal Education and Medical Group, acquired Davidson Kempner’s debt investment in AESL, securing a significant stake and positioning Manipal as a key player in the ongoing dispute.
Details of the Legal Notice
Issuer and Recipient: The legal notice was sent by Manipal Health Systems, AESL’s majority shareholder, to senior EY partners, including India chairman Rajiv Memani, on May 21, 2025.
Allegations:
Conflict of Interest: Manipal and AESL accuse EY of acting in a dual capacity by advising both Byju’s and AESL during the preparation of AESL’s standalone financial statements for FY 2022-23, creating a conflict of interest.
Non-Disclosure of Documents: AESL alleges that EY failed to comply with multiple requests (from January to May 17, 2025) to disclose documents and communications related to transactions between AESL and Byju’s, particularly referencing a January 2024 email that allegedly indicates EY’s knowledge of these transactions.
Violation of Professional Conduct: Manipal claims EY violated professional standards in the insolvency resolution process of Byju’s, particularly as Shailendra Ajmera, Byju’s resolution professional and an EY partner, is implicated in the dual advisory role.
Demands: AESL has demanded that EY withdraw from the insolvency proceedings and preserve all relevant records. Failure to comply could lead to further legal action.
Issues and Context
1. Audit Dispute:
EY was engaged to assist in preparing AESL’s financial statements as part of a potential demerger from Byju’s, a process complicated by Byju’s insolvency and shareholder disputes.
The legal notice highlights tensions over EY’s impartiality, as its dual role raises concerns about biased advice favoring Byju’s over AESL’s interests.
2. Insolvency Proceedings:
Byju’s insolvency, triggered by a $1.2 billion term loan default and a Rs 158 crore dispute with the BCCI, has led to significant control battles. The National Company Law Tribunal (NCLT) granted lenders control over Byju’s financial decisions in June 2024, a ruling contested by Byju Raveendran.
Shailendra Ajmera, the current resolution professional, replaced Pankaj Srivastava, who faced allegations of misconduct. Both are linked to EY, intensifying scrutiny of the firm’s role.
3. Stakeholder Tensions:
The dispute involves multiple parties: Manipal, the Chaudhry family, Blackstone, Byju’s, and creditors like GLAS Trust. Manipal’s legal notice underscores efforts to protect AESL’s interests amid Byju’s financial collapse.
Byju Raveendran has separately filed a First Information Report (FIR) against EY employees, GLAS Trust, and Srivastava, alleging a “criminal conspiracy” to manipulate the insolvency process, further complicating the legal landscape.
Legal and Business Implications
For EY:
The allegations of conflict of interest and professional misconduct could damage EY’s reputation and lead to regulatory scrutiny by bodies like the Insolvency and Bankruptcy Board of India (IBBI) or the Ministry of Corporate Affairs.
EY may face legal action if it fails to comply with document disclosure demands, potentially impacting its role in other high-profile insolvency cases.
For Manipal and AESL:
The legal notice strengthens Manipal’s position as AESL’s majority shareholder, signaling its intent to safeguard AESL’s value amid Byju’s insolvency.
A successful demerger could allow AESL to operate independently, but ongoing legal battles may delay this process and affect its financial stability.
For Byju’s:
The dispute adds to Byju’s mounting legal and financial challenges, including lawsuits from creditors like GLAS Trust for alleged theft of $533 million and regulatory hurdles.
The NCLT’s order to maintain the status quo on AESL’s shareholding structure limits Byju’s ability to leverage AESL as an asset, further constraining its recovery options.
EY’s Dual Role: The accusation of EY advising both Byju’s and AESL raises legitimate concerns about conflicts of interest, especially given Ajmera’s dual role as resolution professional and EY partner. Professional standards in auditing and insolvency require strict impartiality, and EY’s failure to address these concerns transparently could weaken its defense.
Manipal’s Strategy: Manipal’s legal notice appears to be a strategic move to pressure EY and protect AESL’s interests. By escalating the dispute publicly, Manipal may aim to force a resolution or expedite AESL’s separation from Byju’s.
Byju’s Insolvency Context: The broader insolvency proceedings, coupled with Raveendran’s FIR against EY and GLAS Trust, suggest a pattern of aggressive legal tactics to retain control. However, these moves may alienate stakeholders and complicate resolution efforts.
Manipal’s legal notice to EY highlights a critical conflict in the Aakash-Byju’s audit dispute, driven by EY’s alleged dual advisory role and failure to disclose key documents. The notice reflects broader tensions in Byju’s insolvency proceedings, with significant implications for AESL’s future, EY’s reputation, and Byju’s recovery prospects. Ongoing legal battles and regulatory scrutiny will likely shape the resolution, with AESL’s separation from Byju’s hanging in the balance.
Sources:
Times of India, May 22, 2025
The Financial Express, May 21, 2025
Business Standard, April 8, 2025
Zee Business, April 8, 2025
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