Robert Vadra's Midas touch is based on inside info


Vivek Kaul
Robert Vadra is a lucky man. A very lucky man indeed.
People sell land to him and do not demand money in exchange immediately. This is not money running into a few thousands or a few lakhs, but it’s more than a few crore.
In today’s edition of Business Standard N Sundaresha Subramanian explains how it all started for Vadra. How the son-in-law of the first family of Indian politics got into buying and selling land.
Onkareshwar Properties sold 3.5 acres of land in Shikhopur near Manesar to Vadra’s Sky Light Hospitality sometime in February 2008(as an earlier report in The Hindu suggested). Sky Light Hospitality as on March 31, 2008 had an issued capital of Rs 1 lakh. This was the money Vadra and his mother Maureen (who owned 0.2% of the company) had put into the company for business. The company had not taken any loans.
So the question is how did a company with Rs 1 lakh capital buy 3.5 acres of land? The sale deed for this land showed that it was bought by Sky Light Hospitality for Rs 7.5 crore. So how did a company which had Rs 1 lakh capital buy a piece of land which cost Rs 7.5 crore without taking on any loan?
Sky Light Hospitality’s balance sheet as on March 31, 2008 shows a book overdraft of Rs 7.94 crore in Corporation Bank Friends Colony, New Delhi. This basically means that a cheque was issued without enough funds being available in Sky Light Hospitality’s accounts. The cost of the land was Rs 7.5 crore. With a 6% stamp duty, the total would have worked out to Rs 7.95 crore (Rs 7.5 crore + 6% of Rs 7.5crore). And that is more or less the entry that sits on Vadra’s Sky Light Hospitality.
The question is how can a company issue a cheque without there being enough money in its accounts? This can only happen if the individual/company in whose name the cheque is being issued agrees not to deposit the cheque immediately.
And that’s what precisely seems to have happened in this case. As the Business Standard points out “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 7.94 crore book overdraft entered in Sky Light’s books.” So what this means is that Onkarshwar sold the land, accepted the cheque, did not deposit it immediately and also paid for the stamp duty in the meanwhile.
Vadra took this land and sold it to DLF sometime in June 2008. DLF valued this land for Rs 58 crore and gave Vadra an advance of Rs 50 crore against it. Vadra basically used this Rs 50 crore to go on a property buying spree in Haryana and Rajasthan. What this also meant was that Vadra bought land for Rs 7.5 crore and sold it for Rs 58 crore. And in the process made a profit of Rs 50.5 crore. All along he had invested only Rs 1 lakh of his own money in the deal.
Vadra got the advance of Rs 50 crore in three installments an earlier story in The Financial Express pointed out. The first of these instalments was paid on June 3, 2008, The Hindu had pointed out. It was this money that Vadra would have used to pay off Onkareshwar Properties. So what this means that Onkareshwar sold the property to Vadra in February 2008 and waited till June 2008 to be paid. That was a very considerate transaction in this day and age where every real estate company wants the money in advance.
A clear link has also started to emerge that the Haryana Chief Minister Bhupinder Singh Hooda may also have had a role to play in facilitating the deal between Onkareshwar and Vadra’s Sky Light Properties.
Satyanand Yajee owns 98% of Onkareshwar Properties. He is the general secretary of the All India Freedom Fighters Organisation (AIFFO), the Business Standard points out. “Satyanand Yajee, who turned Onkareshwar Properties, a company with capital of Rs 1 lakh, into a Rs 136-crore capital base behemoth, isn’t an obscure figure. He is an office bearer of the Delhi-based All India Freedom Fighters Organisation (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 paper writes.
And the link doesn’t end there. “Both Hooda and Yajee are sons of freedom fighters. While Satyanand’s father, the late Sheel Bhadra Yajee, hailed from Bihar and was said to be close to Subhash Chandra Bose, Ranbir Singh hailed from Rohtak and was irrigation minister of Punjab when the iconic Bhakra Nangal project was implemented. On a website in honour of Sheel Bhadra Yajee, the chief minister, with his father and son, Deepender Hooda, is quoted showering praises. Recently, AIFFO had spent lakhs of rupees in full-page advertisements praising Ranbir Singh’s contributions to the freedom struggle. ,” the Business Standard points out.
Given this it is not surprising that the Haryana government was in a hurry to give Vadra a clean chit on his property dealings in the state. Vadra’s real estate empire started with more than a little help from Hooda.
A part of the money that Vadra’s Sky Light Hospitality got from DLF was also used to buy plots of lands in Bikaner, as a DNA story reported a few days back. “In a flurry of deals between June 2009 and August 2011, Robert Vadra purchased at least 20 plots of land collectively measuring more than 770 hectares in Rajasthan’s Bikaner district, in a region that would see prices spiraling soon after. A clutch of investors, including Vadra, apparently privy to information on upcoming industrial projects (the Vavasi silicon chip project and the solar parks policy) in the vicinity, reaped huge profits with land values appreciating by up to 40 times since 2009,” the story pointed out.
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. As the DNA wrote “Bikaner businessman and land investor Vineet Asopa, who sold among the largest plots to Vadra, was so surprised at the ease with which he demanded and received Rs65,000 a hectare when local prices were no more than Rs30,000 a hectare that he summoned contractors for an overnight survey of whether the land was rich in minerals.They dug 80 feet deep, found only rocky surface, and Asopa went ahead with the deal. He found out only two months later that the purchaser was Vadra, whose signature was on the cheques.”
This would not have happened unless Vadra was privy to information about the industrial projects coming up on the aird land he had been buying up. And this needed more than a little help from the government.
Ashutosh Varshney in a column in The Indian Express equates Vadra’s strategy of buying up land before anyone else does, to an honest graft. He quotes George W Plunkitt, a US state senator in the state of New York, in the late 1800s. “In a famous passage, George W. Plunkitt…said the following: “Everybody is talking these days about Tammany men growing rich on graft, but nobody thinks of drawing the distinction between honest graft and dishonest graft… Yes, many of our men have grown rich in politics. I have myself, but I’ve not gone in for dishonest graft — blackmailing gamblers, saloonkeepers, disorderly people, etc… There’s an honest graft… Let me explain by examples. My party’s in power in the city, and it’s going to undertake a lot of public improvements. Well, I’m tipped off, say, that they’re going to lay out a new park at a certain place. I see my opportunity and I take it. I go to that place and I buy up all the land I can in the neighbourhood. Then the board of this or that makes its plan public, and there is a rush to get my land, which nobody cared particularly for before… Or supposing it’s a new bridge they’re going to build. I get tipped off and I buy as much property as I can that has to be taken for approaches. I sell at my own price later on and drop some more money in the bank… Wouldn’t you?” (William L. Riordan, Plunkitt of Tammany Hall).”
That’s what Vadra is doing as well. His mother in law’s party is in power. He is tipped off about a new project coming up in states the Congress party rules. He just happens to be buy land before anyone else does being privy to information. And once the information is made public the price of the land goes up many times over in the months and years to come, and he sells out. Wouldn’t you, dear reader, be doing the same thing, assuming you were privy to  information like Vadra is?
The article originally appeared on www.firstpost.com on October 27,2012. http://www.firstpost.com/economy/robert-vadras-midas-touch-is-based-on-inside-info-504707.html
(Vivek Kaul is a writer. He can be reached at [email protected])

Gadkari cannot say “mere paas saasu ma hai”


Vivek Kaul
So the tables seem to have turned. The story has moved on from Robert Vadra to Nitin Gadkari. Veerapa Moily, the Union Corporate Affairs Minister, had been quick to jump to Vadra’s defence and had said “I have already verified these allegations and no wrongdoings have been found in any of the six Robert Vadra-owned companies.”
Now with allegations against Gadkari coming out thick and fast, Moily has jumped in at the same quick speed and ordered an inquiry against Gadkari. “I have told our ministry to make some discreet inquiry to find out what exactly is the matter… are there any violations of the Companies Act?” said Moily. He also added the ministry would probe it as the matter was in the public domain. “It is all coming in the newspapers,” he said.
What is interesting here is that Vadra’s dealings with DLF are also in the public domain and the news was all coming in the newspapers, as Moily put it in Gadkari’s context. That being the case shouldn’t Moily have ordered a “discreet inquiry” against Vadra as well?
Digivijay Singh, the chief muck raiser and one of the General Secretaries of the Congress party, has written a letter to the Prime Minister Manmohan Singh. “Gadkari has also said he is open to a free and fair investigation. [He] being the national president of the BJP, it is in the fitness of things that his case is properly investigated and he gets a fair opportunity to prove his innocence and clear his name,” wrote Digvijay Singh in his letter to the Prime Minister. “A prime facie case does exist,” added Singh, and requested the Prime Minister to ask the Corporate Affairs Ministry to initiate an inquiry by the Serious Fraud Investigation Office.
There are two things that come out of this statement. In the Congress’ world view of things Robert Vadra remains a private individual. Though he must be the only private individual in the country who is being defended by some of the top Congress leaders (you can read a more detailed argument on this here). But Gadkari is not a private individual and hence he needs to be investigated. The second point is that Digvijay Singh sees a prima facie case existing for an investigation in case of Gadkari. I agree. But it also exists in the case of the Vadra-DLF dealings. I am sure Diggi Raja would have a different view on that.

Before I get into some other points let us try and understand what the Gadkari case is all about. Gadkari calls himself a social entrepreneur. He was the Chairman of Purti Sugar Ltd till about fourteen months ago. “Purti Sugar Ltd. is a sort of cooperative that is owned by the farmers it was meant to benefit. It’s true that the list of shareholders is long, about 10,000 names, that carry the flavour of rural Maharashtra. But farmers (if they are, indeed, farmers) own only 10% of Purti. Mr Gadkari himself owns only 200 shares. The bulk of Purti is owned by just 18 companies. These companies invested about Rs 2-4 crore each, to form the bulk of Purti’s paid up capital of Rs 68 crore. This, essentially, was Purti’s start up money,” Sreenivasan Jain recently wrote in DNA. Purti Sugar is located at Khursapar (Bela) village near about 60 KM from Nagpur.
So far so good. What makes things interesting is the fact that some of the companies that invested in Purti Sugar were not found to be operating at their registered addresses. “When our reporters paid them a visit at their registered addresses, they (surprise, surprise) hit a dead end.Two of the firms — Swiftsol India and Earnwell Traders — are registered at a chawl in the Mumbai suburb of Malad, surprising for companies which have invested about Rs 4 crore in Purti. None of the residents at the given addresses had heard of Swiftsol or Earnwell. The same dead end at the addresses of Chariot Investrade, Regency Equifin, Leverage Fintrade, etc scattered across suburban Mumbai and Kolkata,” wrote Jain.
This is something that a report in The Times of India said as well. “According to records with the Registrar of Companies, five private limited companies with shareholdings in Purti Group—Nivita Trades, Swiftsol (India), Rigma Fintrade, Ashwami Sales and Marketing and Earnwell Trades—are registered in and supposedly operating from a room in Dube Chawl on Andheri-Kurla Road (seen at left). Four other shareholders—Jasika Mercantile, Leverage Fintrade, Regency Equifin and Chariot Investrade—are registered in an under-construction building meant to house slum-dwellers under the SRA scheme.”
What complicates matters further is the fact that Manohar Panse, who used to be Gadkari’s driver, was also a director in many of these companies. A couple of employees of Purti and even Gadkari’s accountant were directors in these firms.
It is well known that businesses tend to operate through a web of companies when they want to hide the real owner’s identity. Also it is easier to channelise ill gotten wealth through a maze of companies. Prima facie that is what seems to be happening in the case of Purti Sugar as well. So the accusation against Nitin Gadkari is pretty strong and hence an investigation is called for.
Robert Vadra was smart on this account. He also operates through several companies (Sky Light Hospitality, Sky Light Reality, Real Earth Estates, North India IT Parks, Blue Breeze Trading etc). But the ownership in each and every case can be easily traced back to him and his mother Maureen.
Getting back to Gadkari, one of the invetors in Purti was Ideal Road Builders(IRB). As Jain writes “Ideal Road Builders purchased shares worth Rs 1.85 crore in Purti in 2001, just over a year after Mr Gadkari demitted office as Maharashtra’s public works department minister. During his tenure, Ideal was awarded a number of contracts by the PWD department, which eventually led to it becoming one of Maharashtra’s leading toll road companies. DP Mhaiskar, founder of Ideal Road Builders, also bought shares worth about Rs 2 crore in Purti. Together, IRB and Mr Mhaiskar control about 8% of Purti Group… In 2010, Purti Group received a secure loan of Rs 165 crore from a company called Global Safety Vision, which has DP Mhaiskar as its director. With this one loan, Purti was able to repay all its outstanding debt.”
So the question being asked here is did Mhaiskar and IRB invest in Purti because Gadkari as the PWD minister awarded contracts to IRB? Gadkari was the PWD minister in the Shiv Sena-BJP government that ruled Maharashtra in the mid and late nineties. Hence, a case for a quid pro quo seems to exist and can be established if a proper investigation is carried out.
In case of Robert Vadra and DLF, things were a little different. DLF gave Vadra an advance of Rs 50 crore against a piece of land of 3.5 acres that Vadra sold to DLF. This advance was paid in installments starting in the year 2008—2009(the period between April 1, 2008 and March 31, 2009). The advance stayed on the books of Vadra for a period of between three to four years. An advance is typically given short term. DLF explained this to be a normal commercial transaction but has been unable to tell us about other cases in which it carried out a similar transaction. The advance was essentially an interest free loan to Vadra. Other than this DLF gave Vadra’s companies other advances as well. It also gave an unsecured loan of Rs 5 crore to Real Earth Estates Private Ltd, a Vadra company.
Vadra used this money to go on a property and flat buying spree in Rajasthan and Haryana. (You can read about it here and here). But what is difficult to establish is how did DLF benefit from all this? Allegations are being made that the Congress government in Haryana went out of its way to favour DLF. Was this because DLF was being nice to Vadra? This business-politics nexus is not easy to establish as it is in the case of Gadkari and IRB.
Other than the government breathing down Gadkari’s neck, the Rashtriya Swayamsevak Sangh (RSS) which installed him as the president of the Bhartiya Janata Party seems to have asked him to come clean on all the allegations by the end of this month. Vadra on the other hand has the full support of his mother-in-law’s party.
At the heart of both the Vadra and Gadkari issues is the nexus between businessmen and politicians. The basic difference is that Vadra is Sonia Gandhi’s son in law and Gadkari is not. To conclude, the smartest thing that Vadra ever did was to marry Priyanka Gandhi. “Mere paas Saasu Ma Hai,” Vadra can say proudly. Gadkari meanwhile needs to consult a good astrologer and figure out when his stars will turn around.
The article originally appeared with a different headline on www.firstpost.com on October 24, 2012. http://www.firstpost.com/politics/why-sonias-son-in-law-is-better-off-than-rsss-favourite-son-501065.html
(Vivek Kaul is a writer. He can be reached at [email protected])
 

Guess who paid for Vadra’s Bikaner land? DLF again

Vivek Kaul
The floodgates seem to have opened when it comes to news reporting on Robert Vadra and his real estate dealings. The Daily News and Analysis today reported that “In a flurry of deals between June 2009 and August 2011, Robert Vadra purchased at least 20 plots of land collectively measuring more than 770 hectares in Rajasthan’s Bikaner district, in a region that would see prices spiraling soon after. 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…These companies together invested Rs2.85 crore in barren land here during this period.”
The story suggests that “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.”
Vadra bought these plots of land through his companies Sky Light Hospitality Private Ltd, Sky Light Realty Private Ltd, Real Earth Estates Private Ltd, North India IT Park Private Ltd and Blue Breeze Trading Private Ltd.
The question is where did these companies get the money to buy this land? The one word answer is DLF. Let’s try and understand this in a little more detail. Take the case of Real Earth Estates Private Ltd. As on March 31, 2010, the company had an issued capital of Rs 10 lakh. This is the money that the owners of the company (Robert and his mother Maureen) had put into the business.
Here is where things get interesting. As on March 31, 2010, the company had 10 plots of lands listed under fixed assets. These plots were bought at a total cost of Rs 7.09 crore. Of these plots three plots were in Bikaner. These plots were bought at a total cost of Rs 1.16 crore.
The question is how did a company with an issued capital of Rs 10 lakh buy plots which cost Rs 7.09 crore in total?
The answer is that the company borrowed money. As on March 31, 2010, Real Earth Estates Private Ltd had a loan of Rs 5 crore on its books from DLF. Arvind Kejriwal in his exposure of links between Vadra and DLF had categorised this to be an unsecured loan.  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. Over and above this Rs 2 crore loan came from Sky Light Hospitality Private Ltd another Vadra company.
So this money was used to buy ten land plots in total and three in Bikaner. Let’s dig a little more on how Sky Light Hospitality managed to give a Rs 2 crore loan to Real Earth Estates. As on March 31, 2010, Sky Light Hospitality had an issued capital of Rs 5 lakh.  So how did company with a capital of Rs 5 lakh manage to give a loan of Rs 2 crore to another company?
This is where DLF again comes into the picture. The company had given Vadra’s Sky Light Hospitality an advance of Rs 50 crore.
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.”
The first instalment of the advance was paid to Vadra in was paid on June 3,2008, but the sale deed of this land for was registered only on September 18, 2012,  The Hindu pointed out a a few days back. What this meant was that the 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.
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 greater than three years, given that the sale deed was registerd only last month.
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,” wrote the Financial Express a few days back.
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.
Sky Light Hospitality bought land in Bikaner on its own account as well. The balance sheet of the company as on March 31, 2010, shows a plot of agricultural land worth Rs 79.56 lakh in Bikaner. It need not be said this was financed from the Rs 50 crore so called advance received from DLF.
Now let’s turn our attention to North India IT Parks Private Ltd. The balance sheet of the company as on March 31, 2010, shows two entries under fixed assets. The first entry is 85.62 acres of agricultural land bought at Rs 48.78 lakh. Another entry is for 75 acres of land in Bikaner bought at Rs 53.32 lakh. This means the total cost of land bought by the company in Bikaner was around Rs 1.02 crore. Interestingly the company has an issued capital of Rs 25 lakh. So how did a company with an issued capital of Rs 25 lakh manage to buy land which cost over Rs 1 crore?
It got loans from other Vadra companies. There is a loan of Rs 10 lakh that was made by Sky Light Hospitality Private Ltd. This of course came out of the Rs 50 crore advance that DLF gave Sky Light. Then there is a loan of Rs 55 lakh that came from Real Earth Estates Pvt Ltd, which in turn had a loan of Rs 89.5 lakh from Blue Breeze Trading Private Ltd, another Vadra company. Where did Blue Breeze which has an issued capital of Rs 5 lakh get Rs 89 lakh to loan, this writer has been unable to establish. North India IT Parks Private Ltd had another direct loan of Rs 38 lakh from Blue Breeze Trading Private Ltd. Blue Breeze Trading Private Ltd as on March 31, 2010, had total current liabilities amounting to Rs 2.86 crore.
So all in all this makes it clear that unless DLF had given Vadra a so called Rs 50 crore advance he wouldn’t have been able to go on his property buying spree in Bikaner.
The article originally appeared on www.firstpost.com on October 19,2012. http://www.firstpost.com/business/guess-who-paid-for-vadras-bikaner-land-dlf-again-496475.html
(Vivek Kaul is a writer. He can be reached at [email protected])

We need to give Kejriwal time: he is testing the waters

 


Vivek Kaul
We are a funny country. We kept voting the Congress party back to power time and time again for a period of more than 65 years without asking any questions. The party made a mess, turning India into one of the most corrupt countries in the world, where governance has more or less collapsed.
And then comes a man, a former bureaucrat, an IITian, who promises to turn the system around. Arvind Kejriwal is his name. And he is—at least in terms of intentions—our best hope. But, ironically, we want him to be battle ready and give us answers for all that has been wrong with the country right-away.
Here are some doubts that I have seen appearing across the conventional as well as social media:
a) Kejriwal and India Against Corruption(IAC) are too obsessed with politics. It could be a movement if they dug up facts against municipalities, industries and others. (A status of a Facebook friend)
b) They don’t have the organisational strength to propose a viable alternative
c) If Kejriwal is starting a party I’d like to know his economic policy too. Shouldn’t just begin and end in catching thieves? (Another status of a Facebook friend)
d) What is new about all that he has pointed out? It’s just a rehash. (A favourite with newspaper editors. And something which The Economic Times suggests in its lead story today. And even if it is a rehash, does that necessarily make the issues being brought into the public domain by Kejriwal and IAC less important?)
e) What interest groups does the movement represent? What are its priorities, apart from radical transparency and a maximalist Lokpal bill? Where does it stand on religious minorities? What compromises would be unacceptable? (As an editorial in today’s edition ofThe Indian Express asks.)
While these are important questions that Kejriwal and IAC need to answer, but expecting them to answer them immediately and all at once is a tad unfair. If we Indians could give the Congress party 65 years, and still not get many answers from them, we can surely give Kejriwal and his team 65 weeks, if not months, to come up with the answers.
Let me paraphrase lines written by my favourite economist John Kenneth Galbraith (borrowed from his book The Affluent Society) to capture this cynicism against Kejriwal and what he is trying to do. “When Indians see someone agitating for change they enquire almost automatically: ‘What is there (in it) for him?’ They suspect that the moral crusades of reformers, do-gooders, liberal politicians, and public servants, all their noble protestations notwithstanding, are based ultimately on self-interest. ‘What’, they enquire, ‘is their gimmick?’” At the same time we Indians tend to ignore the absolute power enjoyed by the Congress party which has now led to a situation where the Congress leaders are simply not used to answering questions that are asked. As Salman Khurshid, the Union Law Minister, said a couple of days back “Wo (Kejriwal) kahte hain ki hum sawal poochenge tum jawab dena. Hum kehte hain tum jawab suno aur sawal poochna bhool jao.
Getting back to Kejriwal in an earlier piece, I had equated Kejriwal’s decision (then Team Anna) to form a political party to a disruptive innovation. Clayton Christensen, a professor of strategy at Harvard Business School is the man who coined this phrase. He defines it “innovations that transform an existing market or create a new one by introducing simplicity, convenience, accessibility and affordability. It is initially formed in a narrow foothold market that appears unattractive or inconsequential to industry incumbents.”
The point being made here is that a disruptive innovation always starts small and appeals to a small segment of the market. It cannot be everything for everybody from day one simply because the resources are limited.
An excellent example of a disruptive innovation in an Indian context is the Nirma detergent which was created in 1969 by Karsanbhai Patel, a chemist with the Gujarat government’s department of mining and geology. Patel started making the detergent in a room in his house. On his way to office, which was some 15 km away, he sold 15-20 packets every day. Thus, started the great journey which within a decade would give sleepless nights to the top management at Hindustan Lever Ltd (now Hindustan Unilever Ltd).
But the point is that Nirma started small. Patel sold a few packets everyday and his area of operation was limited given the limited resources available to him. The focus was on making a detergent which was much cheaper than the Surf from Hindustan Lever, which dominated the market back then.
Amul, another disruptive innovation, started small in Anand in the Kaira district of Gujarat. But soon it would become very successful and move to other districts in the state as well. In the end it would also be responsible for making India a largely milk sufficient nation that it is today.
Another great example is that of Apple, which brought about a revolution in the personal computer market. Again Apple started small and focused on one section of the market.  As Clayton Christensen told me in an interview I did for DNA, “Apple made a wise decision and first sold the personal computer as a toy for children. Children had been non-consumers of computers and did not care that the product was not as good as the existing mainframe and minicomputers. Over time Apple and the other PC companies improved the PC so it could handle more complicated tasks. And ultimately the PC has transformed the market by allowing many people to benefit from its simplicity, affordability, and convenience relative to the minicomputer.”
Another example is Sony. “In 1955, Sony introduced the first battery-powered, pocket transistor radio. In comparison with the big RCA tabletop radios, the Sony pocket radio was tiny and static laced. But Sony chose to sell its transistor radio to non-consumers – teenagers who could not afford big tabletop radio. It allowed teenagers to listen to music out of earshot of their parents because it was portable. And although the reception and fidelity weren’t great, it was far better than their alternative, which was no radio at all,” write Clayton Christensen, Michael B Horn and Curtis W Johnson in Disrupting Class — How Disruptive Innovation Will Change the Way the World Learns.
So like all other disruptive innovations, Arvind Kejriwal and IAC are small and do not have the necessary organisation to take on heavyweights like the Congress and the Bharatiya Janata Party (BJP). Also, their views on a whole lot of issues that plague India aren’t known.
But what Arvind Kejriwal and IAC have managed to do is focus on one issue – i.e. the nexus between politics and business, and the cosy relationship even between rival political parties. In the case of the Congress party, the nexus between Robert Vadra and DLF has clearly been brought out. And in case of the Bharatiya Janata Party, its businessmen President Nitin Gadkari has been accused of using his political standing to favour his businesses.
This focus has helped Kerjiwal to appeal to the so called “middle-class”. It has also managed to clearly rattle his biggest opponents, the Congress party and now the BJP. The Congress party unleashed a string of lawyer ministers to defend Robert Vadra. The BJP yesterday had both the leaders of opposition in Rajya Sabha and the Lok Sabha (Arun Jaitley and Sushma Swaraj) along with three party spokespersons defending Gadkari in a press conference.
Also right now is the time when Kejriwal and IAC are building their brand. And as marketing guru Al Ries keeps saying, “Focus is the essence of marketing and branding”. They are doing just that. There is no point in spreading their thin resources all over the place. Once the brand is built they can gradually start moving to other issues.
By then, hopefully, more people would have joined them also. Any disruption does not come as an immediate shift. Similarly, the IAC isn’t going to take India by storm overnight. It will need time. In a way Kejriwal and IAC are in a similar position like the Congress party was in 1885 when it was formed. The initial aim of the party was to get a greater share in the government for educated Indians. The party wasn’t opposed to British rule at that point of time. The point being the Congress party wasn’t clear from day one all that it would do in the years to come. As years went by, things evolved and the party led India to its independence and tried to come up with answers to questions that arose along the way.
The challenge for IAC will be to figure out how to hold the interest of the people once they start losing interest in the corruption issue. Also they might appeal only to a section of the voters initially, probably the urban middle class, like Apple PCs had appealed to children and Sony radios to teenagers. So they are likely to start off with a limited appeal. Chances are if they stay true to their cause their popularity might gradually go up over the years, as has been the case with disruptive innovators in business.
Any disruption does not come as an immediate shift. As the authors write, “Disruption rarely arrives as an abrupt shift in reality; for a decade, the personal computer did not affect DEC’s (Digital Equipment Corp’s) growth or profits.” Similarly, Kejriwal and IAC aren’t going to take India by storm overnight.  They will need time. And as time goes by more questions will be asked of them and they will need to come up with answers.
As I had said on an earlier occasion, there are three things that can happen with this disruptive innovation. Kerjiwal’s party tries for a few years and doesn’t go anywhere. That doesn’t harm us in anyway. Kejriwal’s political party fights elections and is able to build a major presence in the country and stays true to its cause. That benefits all of us. Kejriwal’s political party fights elections and its candidates win. But these candidates and the party turn out to be as corrupt as the other political parties that are already there. While this will be disappointing, but then one more corrupt political party is not going to make things more difficult for the citizens of this country in anyway. We are used to it by now.
As far as Arvind Kejriwal and IAC go, they must well remember these famous lines from Majrooh Sultanpuri, the famous Hindi film lyricist and Urdu poet.
Main akela hi chala tha janibe manzil magar,
Log saath aate gaye aur karawan banta gaya.
(Loosely translated, it means this: I had started off alone towards my goal, people began joining and a huge caravan began forming!)
The article originally appeared on www.firstpost.com on October 18,2012. http://www.firstpost.com/politics/we-need-to-give-kejriwal-time-he-is-testing-the-waters-494970.html
Vivek Kaul is a writer. He can be reached at [email protected]

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 www.firstpost.com on October 16, 2012. http://www.firstpost.com/business/vadragate-stench-of-funny-business-gets-stronger-492351.html
Vivek Kaul is a writer. He can be reached at [email protected]