ANNEXURE

LOVELY PROFESSIONAL UNIVERSITY

Course Code: BSL308 Course Title: LEGAL ASPECTS OF BUSINESS

Course Instructor: Dr. Shallu Section: Q2015

Academic Task No: 3 Academic Task Title: Online Assignment 3

Date of Allotment: 18.04.2022 Date of Submission: 24.04.2022

Student Roll No: RQ2015B46 Student Reg. No: 12006214

Evaluation Parameters:

Declaration:
I declare that this assignment is my individual work. I have not copied it from
any other students’ work or from any other source except where due
acknowledgement is made explicitly in the text, nor has any part been written
for me by any other person.

Student’s Signature: Sushanth George Suresh

Evaluator’s Comments (For Instructor’s use only)

General Observations Suggestions for Improvement Best part of assignment

Evaluator’s Signature and Date:

Max Marks: 30 Marks Obtained: ……………

 CRIMINAL BREACH OF TRUST
(WITTY GROUP OF INSTITUTIONS vs CERESTRA INFRASTRUCTURE TRUST)

INTRODUCTION:
Cerestra Infrastructure Trust, a private equity firm that has gained notoriety in recent years
for acquiring school properties, has failed to meet its pledge to invest in a structured sale
and leaseback agreement with the Witty Group of Institutions. Dr. Vinay Jain, Promoter of
Witty Group of Institutions, commented on the development, saying that Cerestra
approached them in 2016 with a proposal to invest equity by purchasing a 51 percent part
in their school real estate via a structured sale and lease back arrangement. Cerestra failed
to infuse the committed equity even after four years of the deal and thus defaulted in its
obligations forcing the Witty Group Promoters to cancel all transaction documents and
the lease obligations and raise a claim against Cerestra for buy back of their 51% shares sold
to Cerestra.

ISSUE:
The Bombay High Court has granted temporary relief to a Mumbai-based school's trust in its
dispute with its investors.

Synopsis:

Both sides accused each other of "criminal breach of trust" in their petitions, which sought relief
from the high court until the arbitration tribunal's final verdict was handed down.

Witty Group of Institutions, based in Mumbai, has filed a complaint with SEBI and RBI
alleging criminal breach of trust, default, fraud, and cheating against Cerestra Infrastructure
Trust, and has asked an in-depth investigation into Cerestra's transactions in various
educational assets.

In a recent move, the Witty Group of Institutions, based in Mumbai, has cancelled all of its
sale and leaseback agreements with Cerestra Infrastructure Fund for its Malad and Udaipur
schools. Cerestra had pledged to putting money into their school's real estate company in
exchange for lease rentals. Cerestra, on the other hand, defaulted on its commitments and
was unable to acquire funds for an equity injection even after four years, prompting Witty
promoters to terminate their agreement with Cerestra. Cerestra is also accused of enticing
Witty Group to sell its other educational holdings as well. However, Witty Group continued
to reject their offers since Cerestra had previously failed to meet its financial obligations.

VJTF Infraschool Services, a Cerestra Infrastructure-owned firm, was seeking court

intervention on the grounds that the school trust only paid a fraction of the collected into
the escrow account (escrow is a third-party account where funds are held before being
delivered to the final recipient after the completion of deal, trade or agreement), and that
Jains should be required to pay in the deficit sums until the disagreements are resolved.

Dr. Vinay Jain, on the other hand, argued that Cerestra had no intentions in the first place to
infuse 51% equity into the institution and that there was an ulterior motive to lure the
institution into getting the equity in exchange for controlling interest and through that,
further expands Cerestra’s own line of educational institutions under the aegis of CRIMSON,
without honouring the initial agreement of infusing 51% equity. It was also alleged that after
signing the agreement, Cerestra even went to the extent of asking the institution to allow
them to approach the banks for the issue of loans against the very same school’s asset.

The agreement for the controlling interest in exchange for equity was signed in the year
2016 and the four-year long delay was a cause of concern for Witty Group of Institutions
and the institution, in its due diligence, decided to withhold from paying the due amount to
Cerestra Infrastructure.

Cerestra Infrastructure also issued illegal eviction notices with the intention of pressurizing
the Witty Group to fold to their demands and honour the unfair agreement. Cerestra
Infrastructure has been accused of Criminal Breach of Trust, Default, Fraud and Cheating.
Witty Group approached RBI and SEBI for a thorough investigation into this issue as a need
for intervention was obvious.

RULE/RELEVANT LAW:
With the presented facts and allegations, after an in-depth investigation by SEBI, it was
found out that Cerestra Infrastructure did not SEBI’s permission to commit to infuse equity
and hence failed to make relevant infusions of equity into the plaintiff’s institution. Cerestra
also admitted that they could not raise the necessary funds to initiate and complete the deal
and hence, according to SEBI, is not qualified to invest in Witty as per their commitment in
various documents.
The failure to present the fact that Cerestra did not have the approval of SEBI to indulge in a
commitment to infuse equity proves that the company did not conduct due diligence before
making the deal. This is deal was dealt in bad faith and dishonesty and therefore stands
invalid. The fact that Cerestra approached the banks to borrow money against the school’s
property shows the attempt to defraud the banks and the school. The issue of illegal
eviction notices also comes into light when the ulterior motive of Cerestra comes into play.

“Whoever cheats and thus dishonestly induces the person deceived to deliver any property to
any person, or to make, alter, or destroy the whole or any part of a valuable security, or
anything signed or sealed and capable of being converted into a valuable security, shall be
punished with imprisonment of either description for a term which may extend to seven
years, and shall also be liable to fine, according to Section 420 of the Indian penal code.”

” Whoever, being in any manner entrusted with property, or with any dominion over
property, dishonestly misappropriates or converts to his own use that property, or
dishonestly uses or disposes of that property in violation of any direction of law prescribing
the mode in which such trust is to be discharged, or of any legal contract, express or implied,
which he has made touching the discharge of such trust, or wilfully suffers any other person
so to do, commits criminal breach of trust.”

The actions of Cerestra can be defined as fraudulent and dishonest under Section 420 of the
Indian Penal Code and is punishable through imposing a fine and/or imprisonment of up to
7 years.

It also comes under Section 405 of the Indian Penal Code that any entity or person or
organization that enters into a contractual agreement or deal or trade or legal contract that
discharges trust among the concerned parties, is entitled to criminal breach of trust.

The punishment for Criminal Breach of Trust is stipulated in Section 406 of the Indian Penal
Code. Section 406 of the Indian Penal Code states as follows:

“… any person who commits criminal breach of trust shall be punished with an imprisonment
of a term extendable up to 3 (three) years or fine or both accordingly. The offence of criminal
breach of trust is abnormally tried by the magistrate of the 1st class. Furthermore, it is a
non-compoundable and bailable offence. “
ANALYSIS:
The actions and proceedings of Cerestra from the beginning had an ulterior motive of
defrauding Witty International. This conclusion stems from the fact that Cerestra did not
have enough funds in the first place to finish the deal of Rs.98 crores for 51% equity of the
institution. Witty International, in good faith, was not made aware of this even after 4 years
after the deal was signed. The failure to infuse Rs.51 crores after 4 years led to Witty
International stopping the payment of rent to Cerestra. During this time period, Cerestra
also made an attempt to borrow money from banks using Witty International’s properties as
collateral, without fully acquiring 51% equity.

Cerestra Infrastructure also filed a case against Witty International for the default in the
payment of rent, conveniently concealing the fact that Cerestra did not honour the
agreement to pay Rs.98 crores for 51% controlling equity in Witty International. This proves
the fact that Cerestra maliciously tried to demoralize, defame and pressurize Witty
International into honouring their side of the agreement without paying the full price.

Cerestra also tried to take over other properties and assets of Witty International, namely
the school in Malad, in an attempt to take over various educational institutions to further
expand its own school management company called CRIMSON. This can be labelled as
“wilfull fraud” as per the actions of Cerestra.

CONCLUSION:
The delayed payment of equity coupled with the hidden agenda to forcefully takeover Witty
International for its own benefits played to the favour of Witty International as the
Honourable High Court of Mumbai agreed to Witty’s proposal to terminated the deal and
provide interim relief to Witty International.

According to school trustee Vinay Jain, the company contributed Rs.47 crores after the
agreement but failed to infuse the further stock of Rs.51 crores by March 2020. They
Because the complete investment did not go through, the school management, which had
agreed to pay a fixed lease rental to VJTFI, Cerestra's child business, stopped paying the
rental and alleged force majeure. The court agreed and ordered Cerestra to pay the legal
fees of Rs.10 lakh, which must be paid to Jain within three weeks. The Malad property is in
the name of VJTF Infra as the major ass, necessitating an injunction against Cerestra.