DLF and Vadra may have misled us on the ‘advance’

Vivek Kaul
Skylight Hospitality Private Limited is a company majorly owned by Robert Vadra. His mother Maureen holds 0.2% of the company. Hence the remaining 99.8% are owned by Vadra. The latest balance sheet of the company filed with the Registrar of Companies throws up some very interesting information. The balance sheet is dated March 31, 2011. The balance sheet used by Arvind Kejriwal and Prashant Bhushan to make the charges that they did against Vadra was dated as on March 31, 2010.
Skylight has a total paid up capital of Rs 5 lakh. Fifty thousand shares of Rs 10 each have been issued. Robert Vadra owns 49,900 shares and his mother Maureen owns the remaining 100 shares. The company claims to have raised no secured loans or unsecured loans for that matter. This means that the owners of the company have put Rs 5 lakh of their own money into the business.
The company has total assets of Rs 48.53 crore. Of this the company has fixed assets worth Rs 16.18 crore. Other than this the company has investments worth Rs 24.37 crore. It has cash and bank balances amounting to Rs 4.77 crore. And it has given loans and advances amounting to Rs 3.21 crore to others.
But the question is how can a company which has a paid up capital of Rs 5 lakh fund assets worth Rs 48.53 crore? This implies an asset to shareholder capital ratio of a humongous 971 times. The question is how did a company in which the owners have invested just Rs 5 lakh end up with assets of Rs 48.53crore?
One answer could be that the company borrowed money and used a part of this money to buy assets and a part of this money was lying in the bank account and had been lent to others. But as I mentioned earlier Skylight has no secured or unsecured loans.
So where did this money come from? For this one has to look at the liability side of the balance sheet. The company has a liability of Rs 58.05 crore. The balance sheet that I managed to download from the ministry of corporate affairs does not have schedules attached to it. Hence one really doesn’t know what these liabilities comprise of prima facie.
But some educated guesses can be made from the statement issued by DLF and the balance sheet of Skylight as on March 31, 2010. Lets first start with the DLF statement “M/s Skylight Hospitality Pvt Ltd approached us in FY 2008-09 to sell a piece of land measuring approximately 3.5 acres just off NH 8 in Village Sikohpur, Dist Gurgaon…DLF agreed to buy the said plot, given its licensing status and its attractiveness as a business proposition for a total consideration of Rs 58 crores. As per normal commercial practice, the possession of the said plot was taken over by DLF in FY 2008-09 itself and a total sum of Rs 50 crores given as advance in instalments against the Purchase consideration.”
So DLF gave an advance of Rs 50 crore to Vadra’s Skylight against a plot worth Rs 58 crore. What the company does not clarify what does it mean by normal commercial practice? Does the company give advances worth Rs 50 crore amounting to nearly 86.3% of the value of the property, to other individuals who have no prior experience in real estate as well?
Also how is an advance different from a loan? An advance is typically made to someone known, which is true in this case. Vadra has claimed to be friends with people who run DLF. The other interesting thing is that an advance is typically short term. So in this case DLF advanced Rs 50 crore to Vadra in 2008-2009. That advance of Rs 50 crore was on the balance sheet of Vadra’s Skylight as on March 31, 2010. This means an advance of Rs 50 crore was with Vadra for a period of between one to two years.
An advance for a period as long as that is not an advance but basically an interest free loan. An advance is typically given when the company expects the deal to be completed within a few months.
Now let’s back to the balance sheet as on March 31, 2011. The fixed assets of Skylight as on this date were valued to be at Rs 16.18 crore. This is exactly the same as the fixed assets of Skylight as on March 31, 2010. Hence, it’s safe to say that the balance sheet is referring to the same fixed assets. The scheduled to the balance sheet as on March 31, 2010, point out that these fixed assets are land plots. One land plot is shown to be worth Rs 15.38 crore.
In fact this is the same plot which DLF is talking about. The balance sheet of Skylight as on March 31, 2010, shows an advance of Rs 50 crore from DLF against this land.
It is reasonable to assume that this land plot against which DLF gave an advance was still with Skylight as on March 31, 2011, given that the value of the fixed assets remained the same when compared to March 31, 2010.
So the sale of this land for which DLF had given an advance of Rs 50 crore had not been completed as on March 31, 2011. This means that the advance of Rs 50 crore to Vadra’s Skylight remained on its books for a period between two to three years.
Hence, it was this Rs 50 crore received from DLF which is a part of the Rs 58.05 crore liabilities shown by the firm as on March 31, 2011. And this was the money which basically used to build assets of Rs 48.53 crore.
Given this, DLF’s claim of the money being an advance and not an interest free loan, doesn’t really hold. An advance is typically made for the short term not for a period as long as two to three years, as seems to be the case here. What DLF gave Vadra was an interest free loan.
The investopedia website defines a current liability as “a company’s debts or obligations that are due within one year.” In Vadra’s case the current liability of an advance from DLF remained on the books for a period two to three years. And that clearly isn’t normal.
DLF statement issued over the weekend says “after receipt of all requisite approvals, the said property was conveyanced in favour of DLF.” This must have happened only after March 31, 2011. This is something only DLF and Vadra can clarify on. Or it will become clear once Skylight’s balance sheet as on March 31, 2012 comes out in the public domain, which will only happen sometime by the middle of next year.
What is interesting is that the value of the land against which DLF gave an advance to Vadra’s Skylight is shown to be at Rs 15.38 crore on the balance sheet of Skylight. DLF values this land at Rs 58 crore.  The difference is on account of the fact that Skylight is probably valuing the land at the price at which it bought it at whereas DLF is valuing it at the market price.
But then it brings us back to the question how did a firm which had a paid up capital of only Rs 5 lakh buy land which is shown to be worth Rs 15.38 crore on its own books? Where did the money come from? DLF only came into the picture after Vadra’s Skylight had bought the land and wanted to sell it to DLF.
There is another interesting point that an article in The Hindu points out. Skylight’s balance sheet as on March 31, 2010, has no entries for fixed deposits that it holds or the interest that has accrued on these fixed deposits. But the balance sheet does show a series of fixed deposits on which tax has been deducted (TDS) at source by banks.
The total tax deducted at source from 19 fixed deposits amounts to Rs 4.95 lakh. TDS at the rate of 10.3% is deducted on fixed deposits by banks when the interest paid during the course of the year is greater than Rs 10,000. This means that Vadra’s Skylight has earned  an interest on fixed deposits of amounting to Rs 48.06 lakh (Rs 4.95 lakh/10.3%). If we assume a rate of interest of 9% .then the total fixed deposits amount to Rs 5.34 crore (Rs 48.06 lakh/9%). But there is no mention of these fixed deposits in the schedules to the balance sheet. The number can be greater also given that banks do not deduct interest on fixed deposits till the interest during the course of the year amounts to at least Rs 10,000.
Also as on March 31, 2011, Vadra’s Skylight made losses of Rs 9.81 crore on a capital of Rs 5 lakh. Given this, can it continued to be categorized as a going concern?
Robert Vadra has accused Arvind Kejriwal of politics of opportunism. Politics is all about opportunism, this is something that Vadra must understand by now, given that he is married into India’s biggest political family.
Vadra as the son-in-law of Sonia Gandhi, the President of the Congress Party, which is India’s oldest and currently the biggest party in Parliament has to above suspicion, like Caesar’s wife. He cannot simply getaway by trying to strike an emotional cord by putting up status messages on Facebook and not putting out a point by point rebuttal to the charge made by Kejriwal and Bhushan.
The article originally appeared on October 8, 2012 on www.firstpost.com. http://www.firstpost.com/business/dlf-and-vadra-may-have-misled-us-on-the-advance-483293.html
(Vivek Kaul is a writer and can be reached at [email protected])