Vadragate: Stench of funny business gets stronger

Vivek Kaul
Salman Khurshid must be a relieved man today. Robert Vadra is back in the news. And this has happened thanks to three good stories that have appeared today in The Hindu, Business Standard and Financial Express. Read together these stories throw up some several interesting questions that need to be answered.
a) How did a land bought at Rs 7.5 crore rise in value to Rs 58 crore in a very short period of 65 days? At the heart of the DLF-Vadra controversy is 3.5 acres of land which was bought by Sky Light Hospitality Private Ltd a company in which Vadra owns 99.8% stake. Sky Light Hospitality bought this piece of land in Manesar, Gurgaon for Rs 15.38 crore (as per its balance sheet) and sold it to DLF for Rs 58 crore pretty soon. DLF gave an advance of Rs 50 crore to Vadra’s Sky Light Hospitality against this sale. Sky Light Hospitality used this money received from DLF to buy a slew of flats from DLF and land plots in Haryana and Rajasthan. The company also parked a part of this interest free money in bank fixed deposits and earned an interest on it. And it also gave loans and advances to other Vadra owned companies.
The Hindu points out that this plot of land was bought by Vadra’s Sky Light Hospitality as on February 12, 2008, and mutated in its favour the very next day. Mutation refers to the recording in the revenue record of transfer of title of the property from one person to other.
“A little more than a month later, on March 28, 2008, the Town and Country Planning Department issued Mr. Vadra’s company a licence to develop 2.701 acres of the land into a housing colony. ….the enquiry found that Mr. Vadra had “entered into an agreement to sell within 65 days of the issue of the first licence.” By October 2009, he had received Rs. 50 crore out of the total sale consideration, the first instalment of which was made on June 3, 2008,” The Hindu points out.
So what this means is that Vadra went to DLF within 65 days of having got the necessary clearances from the Town and Country Planning Department of the Haryana government. What is interesting that The Hindu says that “the sale deed of this land shows that it was bought by Sky Light Hospitality for Rs. 7.5 crore”.
The balance sheets of Sky Light Hospitality as on March 31, 2009, March 31, 2010 and March 31, 2011, put the cost of this land at Rs 15.38 crore.
DLF valued this 3.5 acres of land at Rs 58 crore. What had changed in a period of 65 days that led to the company giving the land such high value vis a vis the price Vadra’s Sky Light had bought it at? “Haryana officials familiar with the deal say that the sequence of transactions — in which the land’s value went up from Rs. 7.5 crore to Rs. 58 crore in just 65 days because of the licence given to it — raises questions about whether DLF had entered into business with Mr. Vadra in order to get clearances for land that may not have been forthcoming through regular methods,” suggests The Hindu.
Quid pro quo?
b) Does DLF normally give three year interest free advances? DLF gave Vadra an advance of Rs 50 crore against the land it valued at Rs 58 crore. The Financial Express points out that “DLF says that for the…land, which it valued at Rs 58 crore, the advance of Rs 50 crore was paid to Vadra in three instalment of Rs 5 crore, Rs 10 crore and Rs 35crore crore during 2008-09. The first was when Vadra got the letter of intent from the Haryana government, second instalment was paid when Vadra got the actual licence from the state government to develop the land and the final instalment when all the other approvals and clearances were procured.” The first instalment was paid on June 3,2008, but the sale deed of this land for Rs 58 crore to DLF was registered only on September 18, 2012, says The Hindu.
In legal terms the process of registering a sale deed is referred to as conveyance which essentially means, the transfer of ownership or interest in real property from the seller to the buyer by a document, such as a deed, lease, or mortgage.
DLF had said in an earlier statement that “Skylight Hospitality Pvt Ltd approached us in FY 2008-09(i.e. the period between April 1, 2008 and March 31, 2009) to sell a piece of land measuring approximately 3.5 acres…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 what took DLF more than three years to conveyance this property even though they took possession of it in FY 2008-2009? As the Financial Express writes “The delay in getting the land registered has surprised experts who track the sector and have audited the account books of real estate firms. “Normally, conveyancing of land gets done very quickly, especially for big developers. However, if one legally challenges the delay, both sides can cite several reasons for it,” experts Financial Express spoke to said.”
DLF also had an explanation for the delay in getting the land conveyance. “DLF sources say the delay in getting the land registered in its name was deliberate since the market at that time was going through a slowdown. “Had we got the land conveynanced in our name during 2008-09 we would have to pay the balance Rs 8 crore to Vadra immediately, plus another around Rs 4 crore towards registration charges,” DLF officials told Financial Express. Also 2008-2009 was a time of slowdown and the company was not looking to launch any project then, DLF added.
DLF had valued the land at Rs 58 crore. They had already paid Vadra an advance of Rs 50 crore. So they needed to pay him the balance Rs 8 crore after they had conveyanced the property. By delaying the conveyance till September 2012, the company made savings on interest costs, DLF feels.
But what about the Rs 50 crore they had paid as an advance to Vadra in instalments, starting in June 2008? Wasn’t the company losing out on interest on this money? An advance unlike a loan is made interest free for a short period of time. This meant that Vadra had access to a part of the Rs 50 crore advance for a period of more than four years, given that the first instalment was paid in June 2008. And he had access to the entire advance of Rs 50 crore for around three years.
DLF in its statement refers to giving advances as normal commercial practice. But the question that crops up here is whether it is regular practice for the company to give advances for such long periods of time? “DLF has not been able to cite other instances of where interest-free advances have been given, and over such long periods of time,” writes the Financial Express.
c) Where did the initial money to buy land come from? The balance sheet of Sky Light Hospitality as on March 31, 2008 shows that the paidup capital of the company was Rs 1 lakh. The company had no reserves or surplus neither did it have any secured or unsecured loans on its books. So how did a company with Rs 1 lakh of capital available for business by a piece of land worth Rs 7.5 crore(as per the sale deed) or Rs 15.38 crore(as per the balance sheet of Sky Light Hospitality as on March 31, 2009)?
The answer might lie in what Business Standard has to say today. “Chartered accountants say the only other possibility is the company issued cheques far in excess of the money it had in its account,” the paper writes.
What this means is that Vadra’s Sky Light Hospitality issued cheques to pay the seller of the land without having enough money in the bank account. But wouldn’t that lead to the cheques bouncing? “That cheque, if presented, would have been dishonoured for want of funds and it would have been a criminal liability under the Negotiable Instruments Act. This also means that actually the person to whom the cheque(s) was/were issued was not at all paid and there were no arrangements with the bank to pay,” said a senior chartered accountant. He said full scrutiny of the bank accounts could reveal the actual transactions that happened. “My hunch is — it is only a hunch as there is no proof — the agreement would have been executed between the seller and the company and in the agreement they would have mentioned cheque details but those cheque(s) were not deposited with the bank immediately as that would have been agreed,” writes the Business Standard.
So Vadra’s Sky Light bought the land, issued cheques to pay for it and at the same time ensured that the seller did not deposit those cheques. So how as the seller eventually paid? “It is also possible that when money from DLF would have come in during the next financial year, these cheques were presented,” the Business Standard points out.
To conclude, it is well established by now that there are too many inconsistencies in Vadra-DLF deals. It is very clear that Vadra benefitted from his dealings with DLF. What is difficult to establish that there was a quid pro quo involved as well. Hopefully, the newspapers will have more breaking news on this issue in the days to come.
The article originally appeared on on October 16, 2012.
Vivek Kaul is a writer. He can be reached at [email protected]