Mr Rahul Gandhi, what about jijaji Robert Vadra and his closeness to DLF?

rahul gandhi
Rahul Gandhi seems to have taken a liking to calling the Narendra Modi government a “
suit boot ki sarkar”. He made that jibe again in the Parliament yesterday where he said: “This government is anti-farmer, anti-poor. This is a suit-book ki sarkar.”
Rahul, as he did in the past, was trying to suggest that the Modi government was essentially batting for the corporates and not for the farmers of this country. But what the Gandhi family scion is forgetting in the process is that only a few years back India’s largest listed real estate company DLF was batting for his brother-in-law Robert Vadra.
Let’s recount what happened in the case of DLF and Vadra. DLF gave a Vadra and advance of Rs 50 crore for more than three years, and this advance was the money used by Vadra to go on a land buying spree in Rajasthan as well as Haryana, with more than a little support from the respective Congress governments in both these states. As we shall see Vadra had very little of his own money in the business and without the money from DLF he wouldn’t have been able to do anything. What does Rahul Gandhi have to say about this link?
In October 2012, the Daily News and Analysis(DNA) reported that between July 2009 and August 2011, Vadra bought at least 20 plots of land with an area of more than 770 hectares in Bikaner district in Rajasthan. In fact Vadra was willing to pay Rs 65,000 per hectare of land when the going rate was not more than Rs 30,000 a hectare
The Gandhi family son-in-law made these purchases through companies which included Real Earth Estates Pvt Ltd, North India IT Park Pvt Ltd, and Skylight Realty Pvt Ltd. As the DNA report pointed out: “A clutch of investors, including Vadra, apparently privy to information on upcoming industrial projects in the vicinity,
reaped huge profits with land values appreciating by up to 40 times since 2009 [the italics are mine]…These companies together invested Rs2.85 crore in barren land here during this period.”
So, Vadra bought land being privy to information that ensured that the value of the land would go up many times in the days to come. And he made a killing in the process. Vadra bought land through his companies just before a memorandum of understanding was signed between the Rajasthan government and private firm for a “Rs45,000-crore project to manufacture silicon chips for the telecom industry.”
Vadra was essentially trading on insider information, which wouldn’t have been difficult to get given that a Congress government led by Ashok Gehlot was in power in the state.
The interesting bit here is how Vadra went about financing the purchase of land. The money for it came essentially came from DLF. One of the Vadra companies which bought land in Rajasthan was Real Earth Estates Private Ltd. The company had an issued capital of Rs 10 lakh as on March 31, 2010.
Nevertheless, as on March 31, 2010, the company had 10 plots of lands listed under fixed assets. These plots were worth were bought for Rs 7.09 crore. Of these three plots were in Bikaner in Rajasthan and had been bought for Rs 1.16 crore. How did a company with an issued capital of Rs 10 lakh manage to buy land which cost Rs 7.09 crore in total?
This is where things get even more interesting. The balance sheet of Real Earth Estates as on March 31, 2010, shows that it had an unsecured loan of Rs 5 crore from DLF. An unsecured loan is a loan in which the lender does not take any 
collateral against the loan and relies on the borrower’s promise to return the loan. Why was DLF being so generous to Vadra? Can Rahul Gandhi give us an answer for that?
Real Earth Estates also had borrowed another Rs 2 crore from Sky Light Hospitality Private Ltd, another Vadra company. The total loan amounted to Real Earth Estates amounted to Rs 7 crore. And this money was used to buy 10 plots of land, of which three plots were in Bikaner.
Where did Sky Light Hospitality get the money to give Real Earth Estates a loan of Rs 2 crore? As on March 31, 2010, Sky Light Hospitality had an issued capital of Rs 5 lakh. How did a company with an issued capital of Rs 5 lakh, manage to give a loan of Rs 2 crore, which was 40 times more.
Enter DLF—the company had given Vadra’s Sky Light Hospitality an advance of Rs 50 crore. When the controversy first broke out DLF had said in a statement: “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.”
The first instalment of the Rs 50 crore advance that DLF gave Vadra was paid on June 3, 2008. An October 2012 report in The Hindu points out that “ the 3.531- acre plot…M/s Sky Light Hospitality,…[was] sold to DLF Universal Ltd on September 18, 2012.”
Hence, the Rs 50 crore advance stayed with Vadra’s Sky Light Hospitality for more than three years.
An advance unlike a loan is made interest free for a short period of time. Further, Vadra had access to a part of the Rs 50 crore advance for more than four years, given that the first instalment was paid by DLF in June 2008 and even though the sale was registered only in September 2012.
DLF in its statement tried telling us that this was par for the course. But how many other such advances did the company make. As The Financial Express wrote in an October 2012 editorial: “DLF has not been able to cite other instances of where interest-free advances have been given, and over such long periods of time.”
So clearly DLF had a soft corner for Robert Vadra, who is the son-in-law of Sonia Gandhi and the brother-in-law of Rahul Gandhi, the president and the vice-president of the Congress party. The Congress led UPA government was in power between 2004 and 2014.
This Rs 50 crore was at the heart of Vadra’s operation and was used by him to buy land as well as flats. Rs 2 crore out of this Rs 50 crore available with Sky Light Hospitality was used to give a loan to Real Earth Estates Private Ltd. Effectively DLF gave money amounting to Rs 7 crore to Real Earth Estates Private Ltd to buy land. Of this Rs 1.16 crore was used to buy land in Bikaner.
What does Rahul Gandhi have to say about this? Now that he has accused the Modi government of being a “suit-boot ki sarkar” and being close to corporates, he could possibly explain this closeness of his brother-in-law Robert with a corporate? After all, Caesar’s wife must be above suspicion.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on May 13, 2015

DLF shares in debt spiral: Decoding why the stock fell 28% after Sebi ban

DLFVivek Kaul

The share price of DLF crashed today by 28.5% to close at Rs 104.95. In the process Rs 7439.5 crore of investor wealth was destroyed. Given that promoters own close to 75% of the company they had to bear a bulk of this fall.
In a landmark order, the Securities and Exchange Board of India(Sebi), barred DLF, KP Singh, the chairman and founder of the company, along with five other company executives from “buying, selling or otherwise dealing in securities, directly or indirectly, in any manner, whatsoever, for the period of three years.”
DLF failed to provide information on various subsidiaries as well as FIRs that were pending against it, when it re-listed in the stock market in 2007. (
This blog explains the entire order in a very simple way).
Back then, the company had raised close to $2.3 billion through what was the biggest initial public offering until then. The Sebi order pointed out that “Noticees suppressed several material information in the RHP/Prospectus of DLF and actively concealed the fact about filing of FIR against Sudipti [a DLF subsidary] and others.”
The stock crashed today by 28.5% as investors sold out enmasse. The question is why did the investors abandon DLF today?
As on June 30, 2014, the company had a total debt of Rs 19,064 crore on its balance sheet. In the annual report for 2013-2014, the company points out that the “average cost of debt has continued to range between 12.5% and 13%.” This rate of interest couldn’t have changed much since then.
At 12.5%, the total amount of interest that the company needs to pay per year on an outstanding debt of more than Rs 19,000 crore, works close to Rs 2,400 crore per year or around Rs 600 crore per quarter. This is huge for a company which had sales of Rs 1,851 crore for the period between April and June 2014.
With the company paying huge interest on its outstanding debt, the finance charges stood at 30% of the total revenue during April to June 2014. This number has gone up over the years as the sales of the company have plummeted.
For the period between April and June 2012, the finance charges were at 20% of the total revenue. The net sales for the period had stood at Rs 2,503 crore. The sales since then have fallen by around 26% to Rs 1,851 crore for the period between April to June 2014. The hope was that DLF would be able to bring down the value of its debts by listing a real estate investment trust (REIT), the rules for which were finalized last month. The company has close to 26 million square feet of leased assets. With the Sebi barring the company and its promoters from accessing capital markets, the company will now not be allowed to list a REIT in the next 36 months.
This means that the company will continue with a massive amount of debt on its balance sheet. This explains why the stock price fell by more than 28% today. It was simply adjusting to the new reality.
How did the company end up with so much debt on its balance sheet?
The company essentially borrowed a lot after it got relisted in the stock market in 2007. As on December 31, 2007, the total debt of the company had stood at Rs 3,702 crore. This jumped to Rs 7,066 crore by December 31, 2008, to Rs 12,830 crore by December 31, 2009 and Rs 22,758 crore by December 31, 2011. In a period of four years, the debt of the company jumped by more than six times.
The company borrowed a lot of money during this period to build a land bank and to diversify itself into other businesses which ranged from wind power to insurance and mutual fund to the luxury hospitality business. Since then, the company has been trying to come out of these businesses. During the last financial year, the company sold off its stake in the insurance business as well as DLF Global Hospitality Ltd.
This has helped the company to bring down its total debt marginally. The total debt of the company as on March 31, 2013, had stood at Rs 21,731 crore. This came down to Rs 18,526 crore by March 31, 2014. But has since then again shot up to Rs 19,064 crore.
The company will challenge the Sebi order. As it said in a release today “DLF will defend itself to the fullest extent against any adverse findings and measures contained in the order passed by SEBI. DLF has full faith in the judicial process and is confident of vindication of its stand in the near future.” Nonetheless, a close reading of the order suggests that the company is clearly on a weak wicket here. In fact, earlier this year, the Supreme Court had upheld a Rs 630 crore fine imposed on DLF by the Competition Commission of India. The Sebi order has made the situation worse for DLF.
To conclude, the mistakes made by DLF in the era of “easy money” seem to be catching up with it.

The article originally appeared on www.FirstBiz.com on Oct 14, 2014

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

Was Haryana CM Hooda, Robert Vadra’s political stooge?

Vadra3 (1) 
Vivek Kaul 
Crony capitalism has been alive and kicking in India for a very long time.
One of the original crony capitalists in this country was Sanjay Gandhi, son of the then Prime Minister Indira Gandhi. Sanjay was a Doon school drop-out and had apprenticed as a motor mechanic at Rolls Royce in Great Britain in the 1960s.
He wanted to build a low priced people’s car called Maruti. His mother was the Prime Minister of the country and her colleagues in the government and the Congress party went out of their way to fulfil Sanjay’s dream.
In November 1970, a letter of intent was handed over to Sanjay Gandhi by Dinesh Singh, the then minister for industries. As Vinod Mehta writes in The Sanjay Story “The letter of intent was granted ‘on the basis of a paper proposal with no tenders called for and no impartial study’ for the mass production of 50,000 ‘low-priced’ cars per year made entirely of indigenous materials. In short, Maruti was licensed to match the total output of the other three domestic car manufacturers.”
But just a letter of intent wasn’t enough to get the project going. Land was needed to build the factory where cars would be manufactured and before that money was needed to buy that land. In stepped Bansi Lal, the chief minister of Haryana. “To his credit it must be said that Bansi Lal was the first to spot Sanjay Gandhi as a man of the future, as a man to hitch your bandwagon to,” writes Mehta.
Bansi Lal offered land to Sanjay Gandhi for the Maruti factory and at the same time gave him a loan to buy that land. As Kuldip Nayar writes in Emergency Retold about Bansi Lal “He was unscrupulous; means never mattered to him, only ends did. From being a briefless lawyer he had risen to be chief minister in less than a decade, and he wanted to go still higher. It was he who gave Sanjay, a 290 acre plot for the Maruti factory at a throwaway price along with a government loan to cover the amount.”
Despite all the help from Bansi Lal and the union government, Sanjay Gandhi’s people’s car never got going till he was alive. Production started only when Japanese car manufacturer Suzuki was roped in after Sanjay’s death in 1980.
Something similar has played out in Haryana where the current chief minister Bhupinder Singh Hooda seems to have gone out of his way to help Robert Vadra, the son-in-law of Sonia Gandhi, the chairperson of the United Progressive Alliance (UPA).
The IAS officer Ashok Khema brings out this nexus in a 105 page reply to the report of the committee constituted by the Haryana state government (dated October 19, 2012) to inquire into the issues raised by Khemka when he was the director general of land records.
This is how the story goes. Sky Light Hospitality Private Ltd bought 3.531 acres (or 5 bighas 12 biswas) of land from Onkareshwar Properties Private Ltd for a consideration of Rs 7.5 crore. This sale was registered on February 12, 2008.
Publicly available data on the MCA 21 portal of Ministry of Corporate Affairs, shows that Sky Light Hospitality is a company that was incorporated on November 1, 2007. As on March 31, 2008, the company had a paid up share capital of Rs 1 lakh. Upto September 30, 2011, its total paid up share capital was Rs 5 lakh. Robert Vadra owned 99.8% of the company and the remaining 0.2% was owned by his mother Maureen.
The company selling the land i.e. Onkareshwar Properties was incorporated as a company on September, 28, 2004. Its paid up capital as on September 30, 2011, stood at Rs 25 lakh. Of this 98% was owned by one Satyanand Yajee and the balance 2% by Godavari Yajee.
Paid up capital is the total amount of the company’s capital that is funded by its shareholders.
Various media reports have clearly established the link between Yajee and Hooda. A report published in The Economic Times today points out that “Satyanand Yajee, director of Onkareshwar Properties, which sold 3.5 acre in Shikohpur village to Vadra’s Skylight Properties, is general secretary of the All India Freedom Fighters Organisation(AIFFO) and is in charge of constructing and maintaining a memorial in the name of Hooda’s father Chaudhary Ranbir Singh in Rohtak.”
A report published in the Business Standard in October 2012, goes into even greater detail about the relationship between Hooda and Yajee. It points out the strong ties that Hooda has with the All India Freedom Fighters Organisation i.e. AIFFO. “Haryana Chief Minister Bhupinder Singh Hooda, too, has strong ties to this organisation. Before his death in 2009, Ranbir Singh, Hooda’s father, was working president of AIFFO. And, Hooda is a founder-member and working president of AIFFO’s sister body, All India Freedom Fighters’ Successors’ Organisation(AIFFSO), according to his profile in the Haryana Vidhan Sabha website.”
The report also mentions that AIFFO had spent lakhs of rupees in full page advertisements which praised Ranbir Singh’s contribution to the freedom struggle. As mentioned earlier Ranbir Singh was Hooda’s father.
Of course, just because Hooda and Yajee share a relationship does not mean that Yajee could not have sold land to Vadra.
So let’s get back to the land deal between Yajee and Vadra. Yajee’s Onkareshwar Properties sold 3.531 acres of land to Vadra’s Sky Light Hospitality. The price of the land was worth Rs 7.5 crore and over above this there was a stamp duty cost of Rs 45 lakh, for registering the sale.
As per Khemka’s reply, Vadra’s Sky Light Hospitality issued cheque number 607251 of Corporation Bank on February 9, 2008, to pay Yajee.
The question is how did Vadra’s Sky Light Hospitaliy with a paid up capital of just Rs 1 lakh(as on March 31, 2008) manage to pay an amount of Rs 7.5 crore for the land and Rs 45 lakh as stamp duty?
The answer lies in the fact that Sky Light Hospitality’s balance sheet as on March 31, 2008, shows a book overdraft of Rs 7.944 crore. This is almost equal to the amount of Rs 7.5 crore that needed to paid for the land, plus the Rs 45 lakh that needed to be paid as stamp duty for registering the sale.
What this basically means is that even though Sky Light Hospitality issued a cheque to Onkareshwar Properties, but the latter never got around to encashing it. As a report in the Business Standard dated October 16, 2012 points out “A book overdraft is not an overdraft at a bank but an excess of outstanding cheques on a company’s books over its reported bank balance.”
The notes to the account of Sky Light Hospitality also mention the same. “The overdraft shown in Corporation Bank account is book overdraft due to cheque issued before balance sheet date but not presented up to balance date, which is cleared after balance sheet date,” it is stated in serial no. 6 of the Notes To Accounts.
This can be confirmed from the balance sheet of Onkareshwar Properties as well. “Onkareshwar’s balance sheet as on March 31, 2008, showed an entry of Rs 7.95 crore under ‘sundry debtors’. This corresponds to the entry of Rs 7.944 crore book overdraft entered in Sky Light’s books. The land price was Rs 7.5 crore, and the balance Rs 45 lakh could have been registration and stamp duty costs. It appears Onkareshwar happily footed even these costs,” a report in the Business Standard dated Ocotber 27, 2012 points out.
So not only did Yajee’s Onkareshwar Properties not encash the cheque (it would have bounced if it tried to do so), it also happily paid the Rs 45 lakh stamp duty that needed to be paid to register the transaction.
The question of course is that if money did not change hands can the sale of the land to Vadra’s Sky Light Hospitality by Onkareshwar Properties be considered as a sale at all? This is something that Khemka points out in his reply. “If there was no payment as alleged in the registered deed, can it be said that the registered deed No. 4928 dated 12.02.2008 conferred ownership title over the said land upon M/s Sky Light Hospitality by virtue of the sham sale? Section 54 of The Transfer of Property Act, 1882 defines “sale” as a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. There was no promise to pay in the future in the registered deed. No price was paid as claimed in the registered deed No. 4928 dated 12.2.2008. The “sale” registered in the said deed cannot, therefore, be called a “sale” in the true sense of the term, legal or moral, and it cannot be said that M/s Sky Light Hospitality became owner of the land in question by virtue of the “sale.””
On March 28, 2008, department of town and country planning of the Haryana government issued a letter of intent to Vadra’s Sky Light Hospitality for grant of commercial colony license for 2.701 acres out of the total area of 3.53 acres. This was done within a mere 18 days of application, writes Khemka.
He further points out that “Sub-section (2) of section 3 of the Act of 1975 mandates that an enquiry will be conducted by the Director of Town & Country Planning, particularly with respect to the title to the land and the capacity of the owner-applicant to develop a colony.”
The phrase to mark here is the capacity of the owner-applicant to develop a colony. In order to check this capacity the owner-applicant (in this case Vadra’s Sky Light Hospitality), under Rule 3 of The Haryana Development and Regulation of Urban Areas Rules, 1976, needs to furnish among other things, particulars of experience as colonizer and particulars about financial position as to determine the capacity to develop the colony, Khemka points out.
So what experience did Sky Light Hospitality have in developing colonies? If one looks at the memorandum of association of the company, stamped by the Delhi government as on October 27, 2007, the main objects to be pursued by the company on incorporation were as follows:
skylight


So this makes it very clear that building colonies was not among the main objects of Vadra’s Sky Light Hospitality, when it was incorporated. As the Memorandum of Association clearly shows the main object of the company was to be in hospitality business, as was suggested by its name.
Nevertheless that did not mean that the company could not build colonies. Just that it did not have any previous experience in doing so.
As far as the financials of the company go, as I have previously pointed out as on March 31, 2008, the paid-up capital of the company was Rs 1 lakh. The company did not earn any income upto March 31, 2008. It had an expenditure of Rs 43,380 which was met through borrowed money. Hence, the company really did not have any capacity to build a colony.
As Khemka puts it “The “capacity” of the applicant-Company was nothing else other than Mr. Robert Vadra. The man became the measure of everything and the entire statutory apparatus a castle of sand.”
Once Vadra’s Sky Light Hospitality got the letter of intent from the Haryana government for a commercial colony license on 2.701 acres out of total 3.53 acres of land, things got even more interesting. Vadra’s Sky Light Hospitality now had the land title as well as the letter of intent for grant of colony license in its possession. This made it possible for it, to enter into a collaboration agreement with with M/s DLF Retail Developers, on August 5, 2008.
After this Sky Light Hospitality received a huge amount of advance or interest free loan from DLF. The balance sheet of the company as on March 31, 2009, clearly points out entries of Rs 15 crore and Rs 10 crore as advances received from DLF.
And this money paid by DLF was finally used to clear the dues of Onkareshwar Properties. As Khemka points out “this funding from the DLF Group was used to clear the dues of Rs 7.95 crores, i.e., Rs7.5 crores towards cost of land plus Rs 45 lakhs towards stamp duty, to M/s Onkareshwar Properties, the vendor-company in registered deed No. 4928 dated 12.02.2008.”
This is how the transaction was completed. This could not have happened without the Haryana state government granting a commercial colony license within 18 days of application to Vadra’s Sky Light Hospitality, which had no previous experience of developing a colony. The license was renewed on 18th January, 2011 for a further period of two years up to December 14, 2012, Khemka points out.
Vadra’s Sky Light sold off the 3.53 acres of land to DLF for Rs 58 crore on August 18, 2012.
In doing this Bhupinder Singh Hooda turned out to be Robert Vadra’s Bansi Lal. The moral of the story is that behind every successful crony capitalist there is a successful politician.

The article originally appeared on www.firstpost.com on August 13, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)

Why realty regulatory Bill is not a panacea it’s being out to be

India-Real-Estate-MarketVivek Kaul

The Union Cabinet cleared the Real Estate (Regulation and Development) Bill on June 4, 2013. The passage of this Bill has been heralded as a move in favour of real estate buyers. The Bill has been in the works for more than six years now, that tells us how serious the government has been on making it a law. 
There are several provisions in this Bill that point out towards the same. Real estate developers can launch new projects only once all the relevant permissions are in place. These permissions are to be displayed on the website of the developer 
and only then can construction begin.
If the promised home is not delivered on time, the buyer will be entitled with a full refund of the amount he has paid along with interest. Separate bank accounts are to be maintained for every project. Developers need to ensure that the money taken from buyers is used for that particular project and not diverted elsewhere. While advertising developers will have to use photographs of the actual site. Failure to do so will attract a penalty. 
The Bill also seeks to establish a central appellate tribunal and individual states will be responsible for establishing state level regulators. Further, the Bill does not allow developers to take more than 10% advance from the buyers without a written agreement. This provision it’s felt will help curtail the amount of black money that goes into real estate. 
All these provisions put together will help the buyers, 
seems to the major view coming out. But as the old English saying goes there is a many a slip between the cup and the lip. 
First and foremost the Bill as and when it becomes an Act will be applicable only on new real estate projects. Hence, the real estate projects which have already been launched will not come under the aegis of the Act. This means that buyers of those real estate projects which have been delayed will continue to face problems. 
The recent past has seen real estate developers launching more and more new projects and use the money thus raised to pay off their past loans. This has led to a situation where there is no money left to build the projects which have been launched. In order to get the money required to build these projects, newer projects are launched. So this modus operandi has led to a situation where projects are rarely delivered on time and are endlessly delayed. 
The buyers who are facing trouble because of this will get no relief as and when the Real Estate (Regulation and Development) Bill becomes an Act. (You can read 
a more detailed argument here). 
The Bill also talks about establishing a real estate regulator in every state. This is a very long term process. It calls for the recruitment of a lot of people who understand specific real estate regulation. The question is are there enough such people going around? 
Also, any regulator takes time to become effective. Take the case of the Securities and Exchange Board of India(Sebi), the stock market regulator, which was established in 1988 and given statutory powers in the 1992, after the Harshad Mehta scam. 
Immediately after Sebi was given statutory powers, the stock market had the vanishing companies scam, where companies raised money through initial public offers (IPOs) and disappeared. Sebi could hardly do anything about it and investors lost thousands of crores. 
Towards the turn of the century there was the Ketan Parekh scam, which again caught the stock market and Sebi off-guard. Its only in the last few years that the stock market regulator has come into its own. So its effectively taken Sebi almost twenty years to become somewhat effective. 
But even then Sebi has had huge problems dealing with Sahara. The moral of the story is that even regulators don’t stand much of a chance against big established business groups. So how will the real estate regulators go against real estate developers, who are known to be fronts for politicians? Then there is the question of whether the regulator will act in favour of consumers. The Insurance and Regulatory Development Authority, the insurance regulator, over the years has acted more in favour of insurance companies as an industry lobby than thought about people who buy insurance.
A major point in the Bill is that the developers will have to open separate bank accounts for each project and ensure that the money from the buyers goes into that particular project and not elsewhere, as is the case currently. On paper, this is probably the most important point in the Bill. But money is fungible, as anyone who has handled it will tell you. So the question is who will ensure that the money going out from the a particular project account is going towards that project and is not being used to by the developer to meet other obligations or simply being siphoned off. 
This seems to be the job of the state level real estate regulators that the Bill seeks to establish. But will state level regulators be able to manage things at such a micro level? Will they have the required expertise? I have my doubts. Implementation of laws has never been a strong point with India and Indians. 
Also this provision in the Bill has been significantly diluted over the years. As Dhirendra Kumar of Value Research writes in a column “Compared to the 2009, the government has weakened the anti-fund-diversion provisions of the Bill. In the 2009 draft, all funds collected from the buyers would have to be kept in a separa
te bank account, from which money could be taken out only for direct use of the project.” This has been diluted and the current version of the Bill allows developers to route only 70% of the money raised from buyers into a separate bank account. “This serves no purpose except to make it easier for developers to divert 30 per cent of the funds,” writes Kumar. 

The Bill does not allow developers to take more than 10% advance from the buyers without a written agreement. This it is said will help in controlling black money. This to me seems like someone’s idea of a joke. When has any agreement prevented Indians from transacting in black money? Scores of developers across this country continue charging money in black separately for car parking, despite there being a Supreme Court order against the same. 
The Bill also says that buyers will be entitled to a full refund along with interest if the developer does not deliver the project on time. This may not be of much help because even with the compensation, the buyer may not be able to buy a home. Home prices may have risen in the meanwhile. Also, after a project is delayed, you cannot expect the buyer to put money in a fresh project, which again promises to deliver a few years later, like the original developer did. 
Buying a fully ready home may turn out to be expensive and beyond the budget of the buyer, even with the compensation. Given this, the buyer should be compensated either the price of buying a similar home in the open market, as promised by the builder, or refunded his money along with interest, whichever is higher. 
Also, it is one thing to make a law which calls for the developer to pay up in case a project is delayed, and it is totally another thing to expect him to pay up. Take the case of DLF. The company was fined Rs 630 crore for abusing its dominant market position by the Competition Commission of India (CCI). 
As an article in Governance Now magazine points out The CCI pronounced DLF guilty for grossly abusing its dominant market position in the relevant market and imposing unfair conditions in the sale of apartments to home buyers in contravention of the provisions of the Competition Act, 2002. The CCI also imposed a penalty of whopping Rs 630 crore.” 
But there has been no damage to DLF. “Ever since the order came out, DLF has paid zero to CCI. Not only that. They have launched four different projects since then, despite of our continued objections to the CCI,” Amit Jain of the federation of apartment owner’s association (FAOA) told Governance Now. So if DLF can get away without paying a regulator, where is the question of developers paying the 
aam aadmi for delayed projects? 
The politicians have already tweaked the provisions of the Bill in favour of the developers. In fact, in the 2009 version of the Bill only those projects which were less than a 1000 square metres and had less than four dwelling units were exempt from the provisions of the Bill. The current version of the Bill is applicable only to projects over 4000 square metres in size with no limit on the number of dwelling units. Also there is a twist in the tale. As Kumar writes “Even more alarmingly…when a project is executed in phases, then each phase will be considered separately. This means that even very large projects could just be broken up into sub-4000 meters phases and escape much of the regulatory oversight of the Bill and the regulator.” So all we know, the developers might exploit this loophole to the hilt. 
To conclude, India does not have independent regulators. And people who head regulatory bodies report to politicians. Even the real estate regulators will report to politicians. And many politicians have significant interest in real estate, ensuring that developers will do what they want to do. The law of the land be dammed. Or as the old saying from the Hindi heartland goes “jab saiyyan bhaye kotwal to darr kaahe ka?(when my lover is the police inspector, what do I have to fear?). So deep runs the politician-builder nexus. 
And the
 Bill does very little to address this. To be fair, one cannot expect any law to end the nexus. But if the Indian real estate scenario has to improve it is this nexus that needs to be broken. And that is not going happen anytime soon. 
(The article originally appeared on www.firstpost.com on June 6, 2013) 
(Vivek Kaul is a writer. He tweets @kaul_vivek) 

Robert Vadra’s got vision; rest of the world wears bifocals


Vivek Kaul
If ever there ever was a paisa vasool western it was Butch Cassidy and the Sundance Kid which starred Paul Newman and Robert Redford. The film other than having great visuals, a fast paced story line, brilliant background music and excellent performances by its lead cast, also had what is my favourite one liner from an English movie.
In a rather non-descript scene as Butch and Sundance head into the sunset, Butch says “Boy, I got vision, and the rest of the world wears bifocals.”
Nowhere is the statement truer currently than in the case of Robert Vadra, who has earned hundreds of crore without putting much of his own money at risk. As a line from a song in the movie Gol Maal (the original one made by Hrishikesh Mukherjee and not the recent Rohit Shetty series) goes “ke paisa kamane ke liye bhi paisa chahiye”.
Vadra broke the age old wisdom inherent in the phrase. He had the vision of figuring out how to make profits of hundreds of crore by putting very little of his own money into the business. Of course this clarity of vision wouldn’t have been possible to execute if he was not married to Priyanka Gandhi (now Vadra) India’s perennial politician in waiting.
The story started with Sky Light Hospitality, a company in which Vadra owns 99.8% stake, zeroing on 3.5 acres of land in Shikohpur, ten kilometers from Gurgaon, in February 2008. This land was bought from Onkareshwar Properties, then majorly owned by Satyanand Yajee, a man known to be close to Haryana Chief Minister Bhupendra Singh Hooda.
Yajee sold the land to Vadra for Rs 7.5 crore. The balance sheet of Vadra’s Sky Light Hospitality as on March 31,2008, clearly reveals that the company had a capital base of only Rs 1 lakh. Also the company did not have any loans on its books. So how did a company with a capital of Rs 1 lakh buy a piece of land worth Rs 7.5 crore? Over and above this stamp duty also needed to be paid, where did that money come from?
Vadra’s Sky Light Hospitality issued a cheque without having the requisite money in its bank account. Yajee did not deposit the cheque and supposedly also paid up the stamp duty. Soon Vadra sold the piece of land to DLF which valued it at Rs 58 crore. DLF gave an advance of Rs 50 crore on this. The first Rs 5 crore of this advance was paid out in early June 2008.
This money was used by Vadra to pay off Yajee. He also used the money to go on a major property buying spree across Rajasthan and Haryana, two states ruled by the Congress party and made a killing on it.
But some recent revelations made by the Outlook magazine show that Vadra could not have sold the land to DLF in the first place.Documents seen by Outlook reveal that, till recently, the land did not have the required permission to be sold, leased or used for any other purpose (than for which it was sold to the buyer). In short, Vadra’s company (Sky Light Hospitality) could not by law sell the land (as it claims to have done in 2008) to DLF,” the article points out.
The land that Vadra had bought in February 2008 was agricultural land and agriculture land can’t be used for commercial use. The change of land use (CLU) was approved by the Haryana government in late March 2008. As The Hindu had reported earlier “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.”
So Vadra got the permission to develop the land into a housing colony in March 2008. But did that permission allow him to sell the land along with the licence? The answer is no.
As Outlook points out “As per one set of official records of the state government for 2008, 2009 and 2010, the permission the Shikohpur plot had was a ‘CLU’, which makes farmland fit for commercial use. This ‘licence’, officials say, could not have been transferred. Nor could a plot with CLU have been sold, sub-let, sub-divided, broken into plots, or developed in any way other than the CLU was originally meant for. In Skylight’s case, the permission is understood to have been for developing residential properties, though it is not yet known whose name exactly it was taken in. Subsequently, Skylight may indeed have decided to tie up with a builder such as DLF to develop homes—but would the company be permitted an outright sale, along with the licence? That’s something officials say can’t be done.”
What this means is that if Vadra wanted to build homes on the piece of land and sell them, he could do that. He could have even tied up with a builder and built homes. But he couldn’t have sold the land along with the licence to DLF. And that is precisely what he did.
This is proved by the statement issued by DLF on October 6, 2012. “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. This was licensable to develop a Commercial Complex and the LOI from Govt of Haryana to develop it for a Commercial Complex had been received in March 2008 itself. 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 crore.”
So what DLF was paying for was essentially the licence that Vadra had to develop the land for commercial use from the Haryana government. The company has clearly said this.
This admittance by DLF raises another interesting question. The company has practically built a new city Gurgaon, often referred to as the Millennium City, from scratch. Given that why were they so naïve as to not be aware what the law as it stands was? Or was it just an attempt on their part to be nice to the first son-in-law of this country?
Vadra used the Rs 50 crore advance that he got from DLF to build a mini land empire for himself between 2008 and 2011. But all this had only been possible because he had the ‘vision’ to marry Priyanka Gandhi. The rest of us in the meanwhile were caught wearing bifocals.
The article was originally published on www.firstpot.com on November 17,2012.
(Vivek Kaul is a writer. He can be reached at [email protected])