Cerestra Infrastructure Trust, an equity fund much into limelight since past a few years for acquiring school assets has defaulted in its commitment to infuse equity in a structured sale and lease back transaction with the Witty Group of Institutions.
Commenting on the development, Dr. Vinay Jain, promoter of Witty Group of Institutions informed that Cerestra had approached them in 2016 with a proposal to infuse equity by buying 51% stake in their school real estate via a structured sale and lease back deal. 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.
“Our lawyers are aggressively working on filing our claim for buy back of shares, illegally holding control of the school real estate company and against the eviction notice served by them to us. Cerestra has illegally served property eviction notices to us with an intention to pressurize us and the same shall be appropriately challenged and set aside. These private equity firms lure and coax struggling and ambitious school promoters with rosy offers and then entangle them into signing a series of one sided documents with an intention to grab their properties and businesses. School promoters should be very careful while getting into any deal with such fraudulent equity players,” commented Dr. Jain.
COMPLAINT FILED AGAINST CERESTRA WITH SEBI
According to a press release dated March 31, 2021, Mumbai-based Witty Group of Institutions has filed a complaint against Cerestra Infrastructure Trust with SEBI and RBI for criminal breach of trust, default, fraud and cheating and has demanded an in-depth enquiry into various transactions executed by Cerestra in various school assets.
Dr. Vinay Jain, promoter of Witty Group, has alleged that Cerestra misrepresented them and signed various transaction documents to infuse equity into their school real estate at Malad against rental income via a structure sale and lease back arrangement. The press release states that by their own admission Cerestra did not have SEBI permission to infuse the committed equity and hence defaulted in making the committed equity infusion, and that it could not raise funds and “hence according to SEBI guidelines could not invest in Witty as per their commitment in various transaction documents”. Cerestra has been reportedly luring Witty Group to sell their other school assets as well. Witty Group cancelled its deal with Cerestra in December 2020 and has taken legal recourse to claim back its 51 percent stake sold to Cerestra in its real estate company.
SEBI & EDUCATION MINISTRY MUST INVESTIGATE ALL CERESTRA DEALS AMIDST COMPLAINTS OF CHEATING BY SCHOOL PROMOTERS
“There is an immediate need to put a check and curb the sale and lease back model marketed by some education infrastructure funds. In these COVID times, almost all schools are financially stressed and these funds are precariously floating offers to schools to acquire their school building assets and businesses at throw away prices. School owners are being lured and coaxed into selling their schools at throw away prices so that these funds may later list their assets via the REIT model against hefty premiums.
This is indeed a very unfair model. Schools are built out of passion and it takes years of hard work and perseverance in establishing any good school. Amidst financial crisis or cash shortfall during the initial years, schools fall prey to the dubious intentions of these funds,” says Dr. Jain.
“One should be very careful while dealing with these funds. They approach school promoters with an offer to buy 51 percent controlling stake in the asset company. Once the deal is signed, they convince the schools to allow them to borrow money from banks on the very same school asset. They borrow money on lesser interest rates from the bank on the school property and then give the same money to schools at higher rental returns and that too with school’s personal and corporate guarantees. School promoters get trapped unwittingly. The hidden agenda is to initially acquire control over the school asset company and then slowly pressurize and take over the management of the schools. SEBI, education ministry must seriously investigate all deals done by Cerestra,” he adds.
Meanwhile, a Cerestra spokesperson said they have terminated the lease contract with Witty International School as on March 27.