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Law Tryst 2018 – National Moot Court Competition

1. Indiva is a Democratic Sovereign Republic with a Quasi-Federal system of

Governance with laws which are identical to the laws of India. Bambai, is the

financial capital of Indiva with laws which are identical to Mumbai where many

big Corporate Houses have their Headquarters established.

2. Naresh Agarwal is the Executive Chairman and his wife is the director of Axcel

Group of Companies, which has been incorporated as per Companies Act of

2013, and is among the leading lights of the Indian Industries who has

revolutionized the Television industry by launching the country’s first private

satellite Hindi Channel Axcel TV in 1992 and later the first private news

Channel, Axcel News.

3. Kamlesh Bhatia is the Managing Director of Leaf House Education and

Accessories Limited (“LEHEAL”) and his wife is the whole-time director.

LEHEAL is carrying on the business of running pre-schools in India. The shares

of LEHEAL are listed on Bombay Stock Exchange (BSE), National Stock

Exchange (NSE) and MCX, and LEHEAL is incorporated as per Companies Act

of 2013.

4. Kamlesh Bhatia with his wife jointly and severally held 30% preference

shareholding in LEHEAL.

5. Axcel Learn Ltd (“ALL”) relying upon the representation made by Kamlesh

Bhatia’s audited/ limited reviewed financial statements made available by

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Kamlesh Bhatia and the general information on LEHEAL activities available,

agreed to the idea of merger of LEHEAL and ALL.

6. LEHEAL included the fact that the limited reviewed Balance Sheet dated

September, 2015 showed (a) cash of around Rs.150 Crores; (b) excellent

business results during the first half (April-September) of the Financial year

2015-16. The results made available by Kamlesh Bhatia looked consistent with

the past results of LEHEAL and the same were showing a growth trajectory for

the 6 months period ending on September, 2015 of the financial year ending on

March, 2016. The said quarterly financials for the quarters ending April’15 –

June’15, July’15 to September’15, October’15 to December’15 and January’16

to March’16 for the FY 15-16.

7. Thereafter, in 2016, ALL and LEHEAL jointly announced about their merger.

The Draft Scheme of Amalgamation inter alia provided that all liabilities

including all secured and unsecured debts, sundry, creditors, duties, obligations

and undertakings of LEHEAL would be transferred to and borne by ALL.

Further all loans raised and used, liabilities and obligations incurred or which

arose or accrued to LEHEAL on or after the appointed date till the effective date

shall be deemed to be and shall become debts, loans raised, duties, liabilities and

obligations incurred by ALL. Naresh Agarwal and his wife and Kamlesh Bhatia

and his wife became the directors of the amalgamated Company.

8. On February 2016, after the filing of documents and making requisite disclosures

with the Stock Exchanges, LEHEAL announced their third quarterly results in

Financial Year 2016. To the utter shock of ALL, the said results showed

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downward trend on profits for the first time in the history of the amalgamating

Company.

9. In subsequent general body meeting ALL was informed by the Kamlesh Bhatia

and his wife that during the period of October, 2015 to February, 2016 the cash

balance of LEHEAL declined drastically from Rs.150 crores to around Rs.25

crores which completely shocked ALL. ALL was taken aback by this and

moreover of the fact that they were kept in the dark regarding this by LEHEAL

and Kamlesh Bhatia and his wife for about 2 months. A complaint with SEBI

was filed by a whistle - blower working with ALL stating that the directors were

aware of the fraud in securities and the Financials of the amalgamated company

were fudged to cheat the ordinary shareholders. The CBI initiated an

investigation against the amalgamated company.

10. When the fourth quarterly results were announced, it was found that the revenues

of LEHEAL were showing shocking and further drastic downfall (approximately

half in comparison to the comparative quarter of the earlier year 2015) and

announced losses amounting to Rs.30 Crores for the quarter. Upon being

questioned, Kamlesh Bhatia informed the CBI and ALL that from 720 pre-

school centres held by LEHEAL in December, 2015 only about 650 pre-schools

were functioning during February, 2016 which subsequently became 636 by end

of March, 2016. The CBI intensified its investigations and came to following

conclusions:-

i. Kamlesh Bhatia had also through the share market to raised funds to the

tune of Rs. 400 Crores using valuations based upon the dubious financial

statements.

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ii. ALL became victim of the fraudulent scheme devised and employed by

the directors wherein Kamlesh Bhatia borrowed cash just for building

the amalgamated company and kept them as fixed deposit receipts

(FDRs).

iii. Assets were siphoned off from the balance sheet of LEHEAL and sold

with the approval of the board without any reduction on the liability side,

coupled with the closure of number of schools thereby reducing its

revenue generating capabilities, the intrinsic value of LEHEAL’s equity

shares eroded considerably. This was done under the instructions of the

board members.

iv. Kamlesh Bhatia had provided various interest free loans/ deposits/

receivables to the tune of approximately Rs.225 Crores to various Trusts/

Societies.

v. Accounts of the Company had shown capital expenditure at pre-school

cent, on account of interiors / furniture & fixture/ play school

equipment’s in the books of LEHEAL, at almost Rs.50 lakhs per centres,

whereas the actual cost was not more than Rs.10-15 lakhs per centre.

vi. Information by market sources led to the search for monies lying with

Kamlesh Bhatia which he would pocket which was approximately 80%

of this extra money by taking cash back from various vendors. There

were around 500 pre-schools that had been created and the total amount

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at stake here could easily be Rs.200 crores that was being siphoned off.

The actual existence of these Pre – Schools are still being discovered.

vii. On 14th and 15th December, 2016 various news reports came out that

LEHEAL has shut down more than 100 centres due to non-availability of

funds to pay salaries to the staff, resulting in students being left in the

lurch. This has been also noted by the CBI and arrangements are in

progress to re- direct students to other schools in the area.

viii. The CBI filed a report before the Court of First instance and charge -

sheeted all the 4 directors of the amalgamated company for fraud and

cheating in commodities, securities and real estate in addition to

embezzlement and siphoning of funds, money laundering and fraudulent

fabrication of financial records of the amalgamated company. Further

charges included running a Ponzi scheme by taking monies from

investors and share – holders and promising large returns to the investors

and shareholders.

11. Kamlesh Bhatia has filed a Complaint and has registered the F.I.R. vide Crime

No. 6 of 2017 on 18/05/2017 for the offences punishable Sections 403, 406,415,

120-B and 34 of the Indian Penal Code 2000 r/w Section 3 and 4 of the

Prevention of Money Laundering Act, 2002 along with Section 43 read with

Section 66 of the Information and Technology Act, 2000 against Naresh

Agarwal and his wife under Section 156 (3) of Cr.P.C before the Learned

Magistrate, who had directed the Police to file and FIR against the Naresh

Agarwal and his wife, this complaint was sent to the Economic Offences Wing

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of Bambai Police who after investigation filed a charge sheet against Naresh

Agarwal and his wife accusing them of cheating and money laundering.

12. Naresh Agarwal and his wife has made allegations in the media and in a press

conference that the Kamlesh Bhatia and his wife is a part of a larger conspiracy

and with the malafide intention to falsely implicate the Naresh Agarwal and his

wife and to shift the focus of misappropriation of funds and mismanagement of

the affairs of LEHEAL carried out by Kamlesh Bhatia and his wife, in an

attempt to falsely blame Naresh Agarwal and his wife and with this intention

Kamlesh Bhatia and his wife have filed the above Complaint.

13. Kamlesh Bhatia and his wife on the other hand have in a press conference

revealed that ALL has traded with the them through shell companies one of

them being Hamlet Media Pvt. Ltd and that it acquired 9% of stake in Hamlet

Media Pvt. Ltd through shell companies and furthermore, that when that when

they had refused to show Fixed Deposit Receipts, Naresh Agarwal and his wife

had threatened them. Kamlesh Bhatia further revealed that “ALL” compelled

them to invest in Hamlet Media Pvt Ltd, which became a subsidiary company of

ALL and Kamlesh Bhatia subsequently a guarantee of Rs.100 crores was given

to LEHEAL for transferring liability of Hamlet Media Pvt Ltd onto LEHEAL.

14. Kamlesh Bhatia has informed the CBI and revealed in the said press conference

that in the next 3-4 days after transferring the liability of Hamlet Media Pvt. Ltd

Naresh Agarwal and his wife forcefully took signatures of the Kamlesh Bhatia

and his wife on various bank signature changing forms, resolutions of the

company for change in the signatory of the bank accounts, to open bogus

depository accounts in Stock Holding Corporation of India Ltd., Blank

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Depository receipts, pledge forms etc. Furthermore, that Naresh Agarwal and his

wife had engaged in circular trading in order to inflate the prices of LEHEAL so

that it creates a good image of their company in eyes of the public and later on

crash down their share prices in order to acquire the shares at low price. There

were investigations of SEBI pending against Naresh Agarwal and his wife for

such circular trading.

15. Naresh Agarwal and his wife being unhappy with the progress in the CBI and

EOW investigations have sought to invoke extra ordinary and supervisory writ

jurisdiction of the Honourable Court making the state investigation authorities

respondents for reliefs including quashing of the complaints against them and

for stricter investigation against Kamlesh Bhatia and his wife and that the CBI

and EOW investigations be held under the aegis of the Hon’ble High Court of

Bambai. The Writ Petition was placed before the Bench of the Hon’ble Chief

Justice of Hon’ble High Court of Bambai who issued notice to the CBI and

EOW and to the other Respondents to file their replies. The filing of pleadings

being complete, the petition has now been placed for final arguments at the stage

of Admission.

[Students are supposed to frame relevant issues for the above problem.

Minimum 3 issues and Maximum 5 issues.]