On September 23, 2024, the Delaware Supreme Court affirmed a lower court's ruling that Byju's Alpha, Inc. was in default under the terms of a credit agreement for a $1.2 billion loan and that the lenders had authority under the credit agreement to install new directors. The lawsuit was brought by Plaintiffs GLAS Trust Company LLC, one of Byju's Alpha's lenders, and Timothy R. Pohl, whom GLAS installed as the sole director and officer of Byju's Alpha, under Section 225 of the Delaware General Corporation Law. Section 225 allows the Court of Chancery to determine the validity of any election, appointment, removal or resignation of any director or officer of any corporation. Plaintiffs sought a declaration that GLAS had validly replaced the company's prior CEO with Pohl.
On appeal, the Delaware Supreme Court considered three issues: (1) whether the applicability of the credit agreement's forum selection clause was properly before the court, (2) whether GLAS was justified in exercising its default rights under the credit agreement, and (3) whether the defendants could properly assert an impossibility defense.
As a threshold matter, the Delaware Supreme Court first ruled that the forum selection clause in the credit agreement—which required that any litigation arising out of the agreement be brought in New York, not Delaware—was waived because Byju's Alpha failed to raise the issue in the trial court. The Delaware Supreme Court remarked that it was "difficult to see how judicial economy and finality can square with requiring the parties to retry the case, merely because Appellants failed to address an issue which they now claim is vital to this case."
Setting that aside, the Delaware Supreme Court affirmed the Chancery Court's ruling that GLAS was justified in exercising its default rights under the credit agreement. The Court reasoned that, read together, certain amendments to the credit agreement made clear that the failure of Whitehat (a Byju's Alpha affiliate) to accede as a guarantor was an explicit breach of the credit agreement, thus entitling GLAS to enforce its remedies.
Finally, the Delaware Supreme Court held that Defendants could not maintain an impossibility defense, which was based on the apparent foreseeability of Whitehat's failure to obtain the Reserve Bank of India's approval to become a guarantor. The Court reasoned that, under New York law, a party may be freed of its contractual obligations under an impossibility defense only in "narrow" and "extreme" circumstances—i.e., the destruction of the subject matter of the contract or the means of performance. Because that did not occur here, and because Whitehat's failure to obtain approval was foreseeable, the Court held the defense did not apply.
The case is Ravindran v. Glas Trust Co., No. 463 2023 (Del. Sept. 23, 2024). The plaintiffs are represented by Richards, Layton & Finger, P.A., Morris, Nichols, Arsht & Tunnell LLP, and Kirkland & Ellis LLP. The defendants are represented by Chipman Brown Cicero & Cole, LLP and Kasowitz Benson Torres LLP. The opinion is available here.
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