BDO's resignation amid a legal dispute puts Byju's in crisis

Byju Raveendran and Divya Gokulnath, the founders of Byju, have retaliated against BDO's resignation as the company's auditor, accusing the firm of following improper procedures and making an "escapist" action. Byju's questioned the validity of BDO's resignation in a strongly worded statement, citing the company's insolvency and the board's suspension at the time the resignation was delivered.

BDO (MSKA & Associates) was appointed as the auditor of Byju’s and Aakash Educational Services in June 2023 for a period of five years immediately after Deloitte had tendered its resignation citing irregularities.

In July 2024, Byju’s formally entered insolvency proceedings following a legal battle with the Board of Control for Cricket in India (BCCI). As a result, the company's board—comprising its founders—was suspended, and an Insolvency Resolution Professional (IRP) was appointed to oversee the process.

A day later, Byju's claimed that BDO sent an email to the suspended board requesting clarifications regarding historical transactions, particularly in Byju's Middle East business, and warning that failure to respond within 45 days could lead to resignation. On September 6, BDO resigned, citing the board’s inability to respond to the clarifications.

In an official statement, the founders along with the erstwhile board, which only includes them and Riju Raveendran, stressed that BDO’s initial notice requesting clarifications about certain Middle Eastern transactions was sent on July 17, a day after the company entered insolvency. “At that point, the board stood suspended and was therefore neither in a position to accept the resignation by the auditors nor act upon the same; equally, the suspended board cannot appoint a new auditor until the insolvency process is in place,” they stated.

“Blaming the suspended board for not taking action on a notice sent after the insolvency process has started is baseless, escapist, and legally untenable," they said referring to BDO’s criticism that the suspended board failed to provide adequate responses within 45 days, leading to the resignation.

In a letter to Byju's board which only includes the founder's family currently, BDO said the company lacked transparency, a sentiment even previous auditors have highlighted. Even as it finished auditing FY22 results, there was no company support to finish auditing for FY23, BDO said. "Due to the ongoing litigation with the lenders, we are given to understand by the management that the Company has lost control over certain of its subsidiaries and the management would not have access to the books of account of these subsidiaries. This would further hamper the ability of the Company to be able to complete the preparation of its consolidated financial statements," BDO said in its letter.

The founders, however, argued that this is misleading, as the IRP had been responsible for the company’s operations during most of the 45-day period. He further hit back at the firm, alleging blackmail tactics.

Byju’s raised questions about BDO’s decision to bypass the IRP during this period, especially given that the IRP had been in control of the company. During the first Committee of Creditors (CoC) meeting on September 3, 2024, the IRP reportedly confirmed that attempts to contact BDO were met with no response, they said.

BDO’s resignation comes amid broader financial turmoil at Byju’s, including multiple legal battles and delayed payments to creditors and employees. BDO had initially stepped in as the auditor in 2023 after Deloitte resigned, citing irregularities in Byju’s financial reporting.