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The case is Glas Trust Company vs Riju Ravindran, 2023-0488, Delaware Chancery Court (Wilmington). Image Credit: Bloomberg

(Bloomberg) - Lenders to one of India's hottest tech startups, Byju's, created bogus default claims tied to $1.2 billion in loans as part of a scheme to gain control of the education-technology provider, the firm's lawyer told a judge.

The distressed-debt lenders are "playing hardball" to create leverage in negotiations to restructure the loans and causing problems for Byju's executives, Sheron Korpus, a lawyer for the Bengaluru-base company, said at a hearing in state-court in Delaware Friday.

Lenders, including US investment firms Redwood Investments LLC and Silver Point Capital LP, are "making extortionate demands" of Byju's, putting the ed-tech firm "under a lot of pressure," Korpus told Delaware Chancery Court Judge Morgan Zurn. Byju's wants the judge to rebuff the lenders' default claims. Zurn said she'd rule later on the case.

An attorney for the lenders Friday waved away Korpus's claims, noting Byju's had repeatedly violated the loan agreement's terms and acknowledged the defaults. Filing suit over the loans "is not predatory behavior," Brock Czeschin, the creditors' lawyer, told Zurn.

The dispute is another complication for the high-flying startup founded by Byju Raveendran in 2011. Byju's had already been working to appease creditors trying to restructure $1.2 billion in loans when government investigators searched company offices in April. The fight also has prompted some investors write down their stakes in the firm.

Also Friday, Aakash Educational Services "- Byju's tutoring business unit "- agreed to add two independent directors to its board at the behest of creditor Davidson Kempner Capital Management LP, Bloomberg News reported. Davidson Kempner, which manages more than $38 billion, forced the changes in Aaksah's board as the borrower was in breach of some covenants on a $250 million loan, according to people familiar with the deal.

Byju's officials are in ongoing talks with lenders to amend terms of the $1.2 billion in loans and Korpus said the firm "still wants to make a deal" to resolve the dispute. But lenders are trying to use the bogus default claims to wrongfully "seize control" of Byju's from its founder, Korpus added.

The case is Glas Trust Company vs Riju Ravindran, 2023-0488, Delaware Chancery Court (Wilmington).