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]
Robert Vadra
Will Vadragate turn out to be Sonia’s Bofors?
Vivek Kaul
“Roti tawa par, janta party hawa main” was one of the slogans going around in the Lok Sabha elections that happened after the assassination of Indira Gandhi. Riding on the honest image of Rajiv Gandhi (Indira’s son and a former Indian Airlines pilot) and a sympathy wave due to the assassination of Indira Gandhi by her bodyguards, the Congress party won more than 400 seats in the lower house of Indian parliament.
This was an unprecedented majority for the Congress party, something it had not managed to achieve even under the leadership of Jawahar Lal Nehru, Rajiv’s grandfather and India’s first Prime Minister. Neither had it managed such a huge mandate from the people of India under the leadership of Indira Gandhi.
But Rajiv would soon squander away these gains. As Aarthi Ramachandran writes in Decoding Rahul Gandhi “The Rajiv Gandhi government was bogged down by allegations of kickbacks to the tune of Rs 64 crore paid to middlemen in the purchase of Swedish Bofors guns. The government’s ‘stonewalling’ of demands to bring guilty to book in the Bofors case and other corruption scandals destroyed Rajiv’s image as Mr Clean. Ramchandra Guha in India After Gandhi says the ‘stonewalling prompted speculation that the middlemen were somehow linked to the prime minister himself’.”
The impact of this on the Congress party was huge. It lost the 1989 election to an alliance of Janata Dal and the Bhartiya Janta Party (BJP). Rajiv Gandhi had to become the leader of the opposition. A party which had more than three fourths of the seats in the Lok Sabha was thrown out of power.
It is often said that ‘perception is reality’. Rajiv Gandhi losing the 1989 Lok Sabha election because people ‘thought’ he was involved in the Bofors scandal and may have received a part of the kickbacks. And this perception was formed after his government stonewalled all attempts of bringing the guilty to book.
A similar situation seems to be now brewing up in the Robert Vadra-DLF case. A string of lawyer ministers from the Congress have jumped into the ring in order to defend Robert Vadra and would like the world at large to believe that there is no truth in accusations being hurled at Vadra (and indirectly Sonia Gandhi) by Arvind Kejriwal and his associates.
Let us sample some of the statements that have been made by these lawyer ministers. Kapil Sibal, one the country’s top practicing lawyers before he became a full time politician and currently the Minister of Human Resource Development and Minister of Communications and Information Technology recently came to the defence of Vadra. “Allegations are happening 24×7. It is a daily phenomena just like 24×7 television news channels,” he said.
On television Vadra has been defended by Jayanthi Natrajan who other than being the Union Minister for Environment and Forests also happens to be a lawyer having got her law degree from the Madras Law College. Vadra has also been defended by Manish Tewari, a Congress spokesperson, and a lawyer. Tewari felt that prima facie the charges made by Kejriwal and company were found to be ‘untruth, innuendos and lies’.
HR Bhardwaj, currently the governor of Karnataka, and a former law minister also came to the indirect defence of Robert Vadra. “Many allegations were levelled against the Gandhi family even in the past. Indira Gandhi was also attacked. But she had a towering personality and fought back. Morarji Bhai (late Prime Minister Morarji Desai) made so many cases against her but they fell like nine pins,” he told reporters,” he recently told the media. And I thought governors were meant to be above politics and political parties.
Rashid Alvi, one of the spokespersons of the Congress Party on one occasion brushed aside the accusations hurdled at Vadra by Arvind Kejriwal and company as a “part of a well-planned conspiracy not against an individual but against the Congress and its leadership.”
On another occasion on live television he dubbed Kejriwal’s accusation as a publicity stunt and questioned the veracity of the documents put out by Kejriwal by saying “who will decide that the documents shown by Kejriwal are genuine or fake.”The website of the Parliament of India lists his profession as an advocate in the Supreme Court.
P Chidambaram, the Union Finance Minister who also happens to be a lawyer said “All I can say is at this moment these allegations pertain to transactions between two private persons or entities…. The individual (Vadra, son-in-law of Sonia Gandhi) has disclosed all these transactions in his income tax and other returns, and perhaps in the returns of the company.”
Veerapa Moily, another Lawyer and who is the Union Minister for Corporate Affairs as well as Power, jumped to Vadra’s defence by saying “ I have already verified these allegations and no wrongdoings have been found in any of the six Robert Vadra-owned companies.”
What is surprising is that so many Congress lawyers have jumped to the defence of a “supposedly” private individual, Robert Vadra, and ruled out any wrong doing on the part of Sonia Gandhi’s son in law. The only thing that this ‘stonewalling’ has done is that it has built the perception among people that something must be wrong otherwise why are so many lawyer ministers and Congressmen jumping to Vadra’s defence.
In some cases the defence has looked very shaky. Let’s look at Alvi’s insinuation that the documents might be fake. And this comes from a man whose profession is listed as a Supreme Court lawyer. It is very easy to download balance sheets of even unlisted companies these days. This writer spent the whole of last week doing that by logging on to www.mca.gov.in and paying a Rs 50 charge for every Vadra company for which details were needed. So all one needs to know is the name of the company and it’s possible to get the details of that company. And in Vadra’s case it was pretty well known that he operated through Sky Light Hospitality Private Ltd a company in which he owned 99.8%.
Also Alvi should remember that Kejriwal is being advised by Shanti and Prashant Bhushan, two of the best lawyers in the country. Shanti Bhushan was even the law minister of the country at a certain point of time. Other than this Kejriwal himself must understand a thing or two about balance sheets having been an Indian Revenue Service officer till a few years back. He is also an IIT Kharagpur passout from the pre coaching schools era and that definitely means he is smart. And more than anything else why would anyone who is raising a serious banner of revolt against the incumbent government choose to do so on “fake” documents?
P Chidambaram wanted us to believe that the dealings were between a private company and a private individual. If that is the case why are so many lawyer ministers coming to the defence of Vadra?
Veerapa Moily jumped to Vadra’s defence by saying that there was nothing wrong in any of Vadra’s six companies. If he had read through the memorandum of association of Vadra’s Sky Light Hospitality carefully enough he would have realised that the company claims that it will carry out business as hotels, restaurants, lodges, ice-cream merchants, sweet meat merchants, milk manufactures, bakers, wine and spirit merchants etc.
But instead of doing all that Sky Light Hospitality primarily seems to be in the business of real estate having accumulated a slew of properties on the basis of a so called Rs 50 crore advance it got from a plot of land from DLF. As has been repeatedly pointed out Firstpost and other places in the media the dealings between DLF and Vadra appear murky. (You can read about it completely here, here and here). Sky Light Hospitality owns a 50% stake in Saket Courtyard Hospitality Ltd through which it runs one hotel in Saket, New Delhi, in parternship with DLF.
Vadra’s Sky Light Hospitality bought 3.5acres of land sometime in 2008-2009 (period between April 1, 2008 and March 31, 2009) at Rs 15.38 crore. In the same period DLF bought this land from Vadra for Rs 58 crore. The question is how did the value of the land go up nearly 3.7 times in such a short period of time?
Against this sale DLF gave Vadra an advance of Rs 50 crore. An advance is typically given for the short term and needs to be returned within a year. But this advance was sitting on Vadra’s balance sheet even as on March 31, 2011. So the advance given by DLF to Vadra was with Vadra for a period of greater than two years. This doesn’t sound like an advance at all. It seems more like an interest free loan being passed off as an advance.
DLF also said in its 6 October statement that “we wish to categorically state that DLF has given no unsecured loans to Mr Vadra or any of his companies.” The balance-sheet (dated 31 March 2010) of Real Earth Estates Pvt Ltd, another company owned by Vadra, shows a clear entry of Rs 5 crore as a loan from DLF.
Vadra used all these loans from Vadra to go on a property buying spree. Estimates made now suggest that the value of this property now runs into hundreds of crores. He also benefitted from parking this largely interest free money in fixed deposits and earning an interest from them.
Congress Party’s over defence of Vadra has not helped it at all. It has built the perception among people that there must be some hanky panky involved in the entire business. That being the case no other response could have been expected from a party that doesn’t really stand for anything except the Nehru-Gandhi family. Kejriwal has hit the Congress party where it hurts the most.
As Ramachandran writes “the Nehru-Gandhi family remained relevant within the Congress. In fact, it became more powerful as it was only the centre around which the entire Congress edifice could hold together. It was now an amalgam of pressure groups which were interested in power, and their one-way ticket to it was through proximity to the Nehru-Gandhi family.”
And it’s in times like these Congress leaders have to go through their agni parkiskha and show their loyalty to the Nehru Gandhi family. That’s precisely what they are doing. Their reactions are a clear case of Catch 22. They are dammed if they try to come to the defence of Vadra and they are dammed if they don’t. However, in the process Vadragate may turn out to be Sonia Gandhi’s Bofors.
The article originally appeared on www.firstpost.com on October 16, 2012. http://www.firstpost.com/india/will-vadragate-turn-out-to-be-sonias-bofors-492019.html
(Vivek Kaul is a writer. He can be reached at [email protected])
Did Vadra pay Rs 14 cr tax on his gains, or did FM jump the gun?
A few days back finance minister P Chidambaram gave a clean chit to Robert Vadra and his dealings with DLF. “All I can say is at this moment these allegations pertain to transactions between two private persons or entities…. The individual (Vadra, son-in-law of Sonia Gandhi) has disclosed all these transactions in his income tax and other returns, and perhaps in the returns of the company,” Chidambaram said.
Firstpost has already explained how Vadra gained in various ways from his dealings with DLF. (You can read it here). A close reading of the Income Tax Act, balance sheets of Sky Light Hospitality Private Ltd, a company owned by Vadra and a statement issued by DLF suggest that Chidambaram might have jumped the gun in trying to give Vadra a clean chit. These documents suggest that Vadra’s Sky Light Hospitality may not have paid tax amounting to Rs 14.1 crore.
The Rs 50 crore advance
Sky Light Hospitality Private Ltd is a company owned by Robert Vadra. It has issued 50,000 shares with a face value of Rs 10 each and so has an issued capital of Rs 5 lakh. Of this Robert Vadra owns 49,900 shares and his mother Maureen owns 100 shares.
Sometime between April 1, 2008 and March 31, 2009, the company bought a plot of land of 3.5acres. This can be said because the balance sheet of the company as on March 31, 2009, shows this entry. But the balance sheet as on March 31, 2008, does not show this entry.
The cost of this plot of land is stated to be at Rs 15.38 crore in the balance sheet of Sky Light Hospitality. Against this plot of land DLF gave Sky Light Hospitality an advance of Rs 50 crore by valuing the land at Rs 58 crore. As the company said in a statement on October 6 “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 does this mean in simple English? It means that Vadra’s Sky Light Hospitality approached DLF to sell the 3.5 acre of land it had bought at Rs 15.38 crore. DLF valued this land at Rs 58 crore and gave Vadra’s Sky Light Hospitality an advance of Rs 50 crore against this land. (To read Why DLF’s claim of an ‘advance’ to Vadra doesn’t hold up, click here).
The capital gain made by Sky Light Hospitality
DLF clearly points out in its statement that it took possession of the 3.5acre land from Sky Light Hospitality in 2008-2009. The statement further points out that “After receipt of all requisite approvals, the said property was conveyanced in favour of DLF.” From this statement it is not clear when the land was conveyance in favour of DLF. In legal terms conveyance 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. In this case the 3.5acre land which was owned by Sky Light Hospitality was transferred to DLF after it was conveyanced.
This essentially means that Vadra’s Sky Light Hospitality would have made a capital gain on the transfer of the land to DLF. Sky Light Hospitality bought the land at Rs 15.38 crore and sold it at Rs 58 crore and thus made a profit of Rs 42.62 crore in the process.
On this capital gain Sky Light Hospitality would have to pay a long term capital gains tax or a short term capital gains tax depending on its period of holding. A capital gain made on selling land is categorized as long term only if the land is sold after three years of owning it. In this case the capital gain is taxed at the rate of 20% indexed for inflation. Otherwise the gain is categorized short term and added to the income for that particular year and taxed at the rate of 33% (30% tax + 10% surcharge on tax).
Since DLF’s statement does not tell us when exactly the 3.5 acre land was conveyanced in its favour from Sky Light, we cannot determine whether the gain is a short term capital gain or a long term capital gain. Also balance sheets of Sky Light Hospitality do not show an entry for advance tax paid of Rs 14.1 crore or provision for tax of Rs 14.1 crore in the financial years ending March 31, 2009, March 31, 2010 and March 31, 2011. If a company has already paid a tax it shows it as an advance tax on the asset side of the balance sheet. If it hasn’t it needs to show it as provision for tax on the liability side.
One interpretation that can be made is that the conveyance of the 3.5 acres of land must have happened in the financial year 2011-2012(i.e. the period between April 1, 2011 and March 31, 2012). This means the tax entry should be available in the balance sheet of Sky Light Hospitality for the year ending March 31, 2012. This is not currently available in the public domain. What buttresses the point further is the fact that this land is shown as a fixed asset worth Rs 15.38 crore on the balance sheet of Sky Light Hospitality as on March 31, 2011. If the land had been conveyanced in favour of DLF it couldn’t have been asset on the balance sheet of Sky Light Hospitality.
But there is a twist in the tale here. The Income Tax Act suggests that a piece of land can be “deemed” to be transferred without the execution of the transfer deed subject to certain conditions.
The income tax angle
It is important to look at what Section 2(47) which includes the following points (this might sound pretty complicated but hold on for the explanation that follows):
(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or
(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property (the italics are mine).
Thus the definition of “transfer” in Section 2(47) of the Act is inclusive, and therefore, extends to events and transactions which may not otherwise be “transfer” according to its ordinary, popular and natural sense.
What this means in simple English is that a property might deemed to have been transferred from the buyer to the seller even though the actual transfer of the “title deed” may not have been executed. The statement issued by DLF clearly says that the possession of 3.5 acres of land was taken over by DLF in FY 2008-09(i.e. anytime between April 1, 2008 and March 31, 2009) itself, which means it was enjoying the benefits of the 3.5 acre land, even though the title deed of the land may not have been executed.
Also DLF gave Sky Light Hospitality a total sum of Rs 50 crore given as advance in installments against the purchase consideration. The judicial interpretations made by the Division Bench of Bombay High Court in Chatrabhuj Kapadia v CIT (2003)case and Authority of Advance Ruling, New Delhi in 2007 (AAR No 724 of 2006), have held that the receipt of a substantial consideration and handing over possession, amounts to transfer liable to capital gain tax.
DLF paid Vadra’s Sky Light Hospitality an advance of Rs 50 crore in installments and took possession of the land even thought the title deed may not have been executed. Rs 50 crore was advanced against a total value of the land of Rs 58 crore and can be construed to be a substantial consideration. Hence, the 3.5acre piece of land was deemed to be transferred to DLF from Vadra’s Sky Light Hospitality.
But for this, if two parties do not execute sale deed/conveyance, they may be able to postpone tax liability indefinitely. To plug such a loophole, this provision was inserted. It provides that even when transfer of title deed is not executed, if the possession is handed over and if consideration is paid in part/substantial/total, it is a transaction liable to taxation.
So what does this imply?
This implies that Vadra’s Sky Light Hospitality would have to pay a tax on the capital gain it had made in the process. The capital gain for Sky Light Hospitality is Rs 42.68 crore (Rs 58 crore, the price at which DLF bought the land – Rs 15.38 crore, the price at which the company bought the land). This capital gain will be categorized as a short term capital gain as the land was sold within three years of having been bought. As mentioned earlier Sky Light Hospitality bought the land in 2008-2009 and as per the Income Tax Act it is deemed to have transferred the land to DLF within the same financial year.
This means the short term capital gain of Rs 42.68 crore will be taxed at 33% (30% tax + 10% surcharge). This works out to a tax of Rs 14.1 crore (33% of Rs 42.68 crore).
Did Sky Light Hospitality pay this tax?
This is where things get very interesting. The advance of Rs 50 crore from DLF is visible as a current liability in the balance sheet of Sky Light as on March 31, 2010 and so is the 3.5 acre land valued at Rs 15.38 crore. If the tax of Rs 14.08 crore was paid it would be visible as advance tax on the asset side of the balance sheet. The advance tax in the balance sheet is at Rs 6.93 lakh. If the tax had not been paid it should have been visible on the liability side under the head provision for tax. The provision for income tax is Rs 11.41 lakh. So the tax wasn’t paid in the financial year 2009-2010(period between April 1, 2009 and March 31, 2010).
What about the balance sheet as on March 31, 2011? The provision for income tax is Rs 24.57 lakh. I couldn’t find the exact number for the advance tax paid. But the total amount of loans and advances under the head current assets stood at around Rs 32.1lakh, which is a lot lesser than Rs 14.08 crore. So there is no question of the tax having been paid in the financial year 2010-2011(the period between April 1, 2010 and Mach 31, 2011) either.
The same stands true for the balance sheet as on March 31, 2009. The advance tax is at Rs 69,257. And the provision for income tax is at Rs 75,000. So the income tax wasn’t paid in the financial year 2008-2009(period between April 1, 2008 and March 31, 2009).
Hence Vadra’s Sky Light Hospitality may not have paid the Income Tax it was required to pay as per the provisions of the Income Tax, statement issued by DLF and balance sheets of Sky Light Hospitality available in the public domain. That’s why I said at the beginning that Chidambaram had jumped the gun while giving Vadra a clean chit.
The interview originally appeared on www.firstpost.com on October 12, 2012. http://www.firstpost.com/business/did-vadra-pay-rs-14-cr-tax-on-his-gains-or-did-fm-jump-the-gun-488309.html
(Vivek Kaul is a writer. He can be reached at [email protected])
All you wanted to know about the DLF-Vadra deal: Part 2
Vivek Kaul
Several leaders of the Congress party have termed the accusations being made by Arvind Kejriwal led India Against Corruption(IAC) against Robert Vadra as cheap publicity. Rashid Alvi yesterday even questioned the veracity of the documents put out by Kejriwal and company. But a detailed look at the balance sheets of the companies owned by Vadra and statements made by DLF throw up several questions. Vadra is the son-in-law of Sonia Gandhi, the president of the Congress party, and chairperson of the United Progressive Alliance which governs this country. DLF is India’s largest listed real estate company.
How does DLF justify giving Vadra an advance of Rs 50 crore?
Robert Vadra owns 99.8% of Sky Light Hospitality Private Ltd. The balance sheet of the company as on March 31, 2009, shows an entry of a plot of land in Manesar, Haryana, valued at Rs 15.38 crore. This means that somewhere during the period April 1, 2008, to March 31, 2009, the company must have bought this piece of land for Rs 15.38 crore. This can be concluded because the balance sheet for March 31, 2008, does not show this entry.
Vadra’s Sky Light Hospitality got an advance of Rs 50 crore against this land from DLF. The company says this in a statement released on October 6. “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.”
This statement tells us that Vadra’s Sky Light Hospitality approached DLF to sell a piece of land of 3.5acres sometime during the period April 1, 2008 and March 31,2009. DLF agreed to buy this land and valued it at Rs 58 crore. Against this valuation it gave Sky Light Hospitality an advance of Rs 50 crore.
What is interesting is that Sky Light bought a piece of land for Rs 15.38 crore anytime between April 1, 2008 and March 31, 2009. They approached DLF to buy it during the same period. And DLF agreed to buy it for Rs 58 crore. So in a period of less than one year the value of the land went up by Rs 42.62 crore (Rs 58 crore – Rs 15.38 crore) or 277%. This doesn’t really sound right given that it was precisely at that point of time the international financial crisis was starting and both real estate as well as stock markets were weak.
Did DLF really complete this deal in the financial year 2008-2009 (the period between April 1, 2008 and March 31, 2009)?
DLF’s statement says very clearly that it took over the possession of the land in 2008-2009 from Sky Light Hospitality. If that is the case why does this land show up as a fixed asset in the balance sheet of Vadra’s Sky Light Hospitality as on March 31, 2011? Even the advance of Rs 50 crore given by DLF shows up as a current liability on the balance sheet of Sky Light Hospitality. How could the land be with both Vadra and DLF at the same time? This is something that DLF needs to throw light on.
Was DLF’s advance to Vadra’s Sky Light Hospitality really an interest free loan?
DLF’s statement says very clearly that the company started giving the advance amounting to a total of Rs 50 crore to Vadra starting in the year 2008-2009. This advance was still on the books of Sky Light Hospitality as on March 31, 2011, listed as a current liability. A current liability is a debt or an obligation which is to be repaid within a period of less than one year. Interestingly there is another entry of an advance of Rs 10 crore from DLF which is there on the balance sheets of Sky Light Hospitality dated March 31, 2010 and March 21, 2009. This is again an advance which was given for a period of greater than one year.
DLF in its statement also claimed not to have given any loans to Vadra. Real Earth Estates Private Ltd, another company owned by Vadra shows an entry of Rs 5 crore as a loan from DLF as on March 31, 2010. The IAC media release points out that the company in a filing with Registrar of Companies had specified that this was 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.
There are two conclusions that one can draw here. One is that what DLF thinks is an advance looks more like an interest free loan to Vadra. And two, its claim of not having given any loans to Vadra don’t hold good.
What did Vadra do with these so called advances and real loans?
Sky Light Hospitality had a Rs 25 crore advance from DLF on its books as on March 31, 2009. A small portion of this was used to pick up a stake of 50% in a hotel joint venture with DLF. This company called Saket Courtyard Hospitaliy runs one hotel in Saket, New Delhi, which is reported to be on the block.
Sky Light Hospitality shows an advance received of Rs 50 crore from DLF as on March 31, 2010. During the course of the year April 1, 2009 to March 31, 2010, the company paid a total tax deducted source of Rs 4.95 lakh on the interest earned on its fixed deposits. TDS is cut at the rate of 10.3% when the interest earned on fixed deposits with a bank during the course of one year crosses Rs 10,000. What this tells us is that Sky Light Hospitality earned Rs 48.3 lakh (Rs 4.95 lakh/10.3%) as total interest. This interest obviously was earned out of investing a part of Rs 50 crore which the company received as an advance from DLF during the financial year 2009-2010 into bank fixed deposits.
Sky Light Hospitality also gave out advances and loans to other companies owned by Robert Vadra. As on March 31, 2010, Sky Light Hospitality had given a loan of Rs 6.61 crore to Sky Light Reality Private Ltd, another company owned by Vadra. This was used to fund seven flats in DLF’s Magnolias project and which are shown to be worth around Rs 5.23 crore. It was also used to buy a Rs 89 lakh apartment in DLF’s Aralias apartments.
The balance sheet as on March 31, 2009, shows an advance of Rs 3.5 crore to Sky Light Realty Private Ltd. This advance was used by Sky Light Realty to fund agricultural land in Palwal and land at Hayyatpur in Haryana. It also used around Rs 9 lakh to book flats with two builders. Sky Light Reality also earned an interest of around Rs 31 lakh by placing a part of this advance as a fixed deposit with banks.
Vadra’ Real Earth Estates had a total paid up capital of Rs 10 lakh as on March 31, 2010. DLF gave the company a loan of Rs 5 crore. This means the debt equity ratio of the company was 50 (Rs 5 crore/Rs10 lakh) which is humongous. This money was used to part-fund fixed assets worth around Rs 7.1 crore. This includes a plot in the posh GK-II area of Delhi and land in Bikaner, Gurgaon, Hassanpur and Mewat. Whether DLF benefited with its relationship with Vadra we don’t really know. But Vadra clearly benefited from the same.
The article originally appeared in Daily News and Analysis on October 11, 2012. http://www.dnaindia.com/india/report_all-you-wanted-to-know-about-the-dlf-vadra-deal-part-2_1751281
(Vivek Kaul is a writer. He can be reached at [email protected])
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There’s little doubt: Vadra gained from DLF’s benevolence
Vivek Kaul
Arvind Kejriwal led India Against Corruption (IAC) unleashed the second round of its attack on the relationship between Robert Vadra and DLF on October 9,2012. Vadra is the son-in-law of Sonia Gandhi, president of the Congress party, and the Chairperson of the United Progressive Alliance which governs the country. DLF is India’s largest listed real estate company. IAC has raised several issues in its media release, some of which I try and explain here.
What was Vadra doing owning a DLF subsidiary company?
Northern India IT Parks Private Ltd is a company with an issued capital of Rs 25 lakh. The company has issued 2,50,000 shares with a face value of Rs 10 each. Robert Vadra owns 2,47,500 shares of the company. His mother Maureen owns the remaining 2,500 shares. This means Robert Vadra owns 99% of the company.
Both Robert and his mother Maureen were appointed as directors of the company on June 19,2008. The balance sheet of the company as on March 31, 2009, shows an investment of Rs 2,50,000. This investment was made to buy a 50% stake in DLF SEZ Ltd on October 13, 2008. This investment does not appear on the balance sheet of the company as on March 31, 2010. DLF bought back the stake from theVadra owned Northern India IT Parks in September 2009.
In its statement released to the press IAC had asked what role Vadra played in the period of almost one year during which DLF SEZ was in his control.
DLF issued a statement on October 9,2012, explaining the same. “In the DLF SEZ Holdings Pvt. Ltd, 50% of shareholding was acquired by M/s. North India IT Parks Pvt. Ltd. in October 2008 at the face value of Rs 2.50 Lakhs. The said 50% shareholding was subsequently bought back from M/s. North India IT Parks Pvt. Ltd. in September 2009 fully at face value of Rs. 2.50 Lakhs, as the proposal for developing SEZs could not take off due to deep recession in the market in year 2009. No benefit or gain was made by Mr. Vadra or DLF, in this regard.”
So Vadra did not gain any money by owning 50% of DLF SEZ. But that does not mean he did not gain anything at all. He used money he got from DLF to buy apartments, land, plots etc, without having to pay any interest on it.
How did land valued at Rs 15.38 crore suddenly appreciate to Rs 58 crore?
Sky Light Hospitality Private Ltd is another company owned by Robert Vadra. It has issued 50,000 shares with a face value of Rs 10 each and so has an issued capital of Rs 5 lakh. Of this Robert Vadra owns 49,900 shares and his mother Maureen owns 100 shares.
Sometime between April 1, 2008 and March 31, 2009, the company bought a plot of land of 3.5acres in Manesar, Haryana. This can be said because the balance sheet of the company as on March 31, 2009, shows this entry. But the balance sheet as on March 31, 2008, does not show this entry.
This plot of land is valued to be at Rs 15.38 crore in the balance sheet of Sky Light Hospitality. Against this plot of land DLF gave Sky Light Hospitality an advance of Rs 50 crore by valuing the land at Rs 58 crore. As the company said in a statement on October 6 “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 does this mean in simple English? It means that Vadra’s Sky Light Hospitality approached DLF to sell the 3.5 acre of land it had bought at Rs 15.38 crore. DLF valued this land at Rs 58 crore and gave Vadra’s Sky Light Hospitality an advance of Rs 50 crore against this land. The point that arises here is this. Sky Light Hospitality bought the land between April 1, 2008 and March 31, 2009 for Rs 15.38 crore. They also approached DLF during the same period to sell the land. DLF in turn valued the land at Rs 58 crore. This is a little difficult to believe. What this means that the value of the land went up by 3.8 times between the period Sky Light Hospitality bought the land and approached to sell it to DLF, all within a period of one year. Just to remind the readers this was also the period during which the global financial crisis was starting. Lehman Brothers went bust on September 14, 2008 and so those were tough days. The deep 2009 recession that DLF talks about in its October 9 statement was starting.
Also where did Vadra raise the initial Rs 15.38 crore to buy the land from?
DLF came into the picture only later when the company decided to buy the piece of land from Vadra’s Sky Light Hospitality. While I could not independently establish where this money came from, a story in the Business Standard does the necessary explaining. Sky Light Hospitality when it was incorporated had an issued capital of Rs 1 lakh. On this capital of Rs 1 lakh Corporation Bank gave it an overdraft of Rs 7.94 crore. This overdraft is clearly visible as a current liability in the balance sheet of the company as on March 31, 2008. As the Business Standard points out “He(as in Vadra) must also have had excellent relations with Corporation Bank, whose Friends Colony branch (located close to Mr Vadra’s companies’ offices in the capital) gave an overdraft of Rs 7.94 crore to Sky Light Hospitality. The newly incorporated company at the time had total resources of Rs 1 lakh, being its paid-up share capital.” This took care of the part of the funding of the Rs 15.38 crore land. So this brings Corporation Bank in the loop also. Does the bank give overdrafts amounting to Rs 7.94 crore to companies with issued capital of Rs 1 lakh regularly?
Did DLF takeover the Manesar land in FY 2008-09 from Vadra’s Sky Light Hospitality?
DLF in its October 6 statement said that the “plot was taken over by DLF in financial year 2008-09 itself.” If that was really the case why does the land appear on the balance sheet of Sky Light Hospitality dated March 31, 2011, as a fixed asset valued at Rs 15.38 crore? Also, DLF’s statement issued on October 6 says the advance was paid in instalments starting in 2008-2009 (the period between April 1, 2008 and March 31, 2009). This advance has remained on the books of Sky Light Hospitality till March 31, 2011. This means that DLF had given an advance to Vadra’s Sky Light for a period of greater than two years. So if both the land and the advance were on the balance sheet of Vadra’s Sky Light Hospitality at least till March 31, 2011, how did DLF take over the plot in financial year 2008-2009 itself?
IAC raises these questions. It asks whether it is normal business practice for DLF to give an advance as high as it had and on top of that let it remain with the seller of the land (i.e. Vadra) for more than two years without taking possession. Also is it normal business practice to let this advance remain interest free given that DLF borrows money at such a high rate? As on March 31, 2012, DLF had Rs 25,066 crore of debt outstanding. And it was paying an interest of 12.38% on this debt. So basically what DLF wants us to believe is an advance is actually an interest free loan to Vadra. An advance is typically short term and is settled in less than one year. On Sky Light Hospitality’s balance sheet this advance was listed as a current liability. A current liability is essentially a debt or an obligation of a company that needs to be paid up in one year. But this current liability was on the balance sheet for more than two years.
This was not the only advance that DLF gave Vadra
In fact there is another advance of Rs 10 crore from DLF which is visible on the balance sheets of Sky Light Hospitality as on March 31, 2010 and March 31, 2009. Again this implies that DLF gave Vadra’s company an advance for a period of greater than one year. DLF also said in its October 6 statement that “we wish to categorically state that the DLF has given NO unsecured loans to Mr. Vadra or any of his companies.” This doesn’t hold either. The balance sheet (dated March 31, 2010) of Real Earth Estates Private Ltd another company owned by Vadra shows a clear entry of Rs 5 crore as a loan from DLF. IAC points out that Real Earth Estates has specified this loan to be an unsecured loan in a filing with the Registrar of Companies. 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.
DLF also had advanced Rs 15 crore during the financial year 2008-09(during the period April 1, 2008 and March 31, 2009) to Sky Light Hospitality. As DLF’s October 6 statement says “Skylight Group of companies also offered us in FY 2008-09 an opportunity to purchase a large land parcel in Faridabad and accordingly, DLF agreed to advance Rs 15 crores in instalments simultaneous to the commencement of due diligence of the said land parcel. After concluding that the said land had certain legal infirmities, we decided against its purchase. Accordingly on DLF’s request, the Skylight group refunded the advance of Rs 15 crores in totality.” This entry can be seen in Sky Light’s balance sheet as on March 31, 2009. If one were to add up all this DLF essentially offered Rs 80 crore to Vadra’s companies at various points of time. It is safe to say that a large portion of this was interest free.
So what did Vadra do with this money?
Let’s start with Real Earth Estates. This company as we saw earlier had got an unsecured loan of Rs 5 crore from DLF. This was a part of the balance sheet of Real Earth Estates as on March 31, 2010. What is surprising is that how can a company with an issued capital of Rs 10 lakh be given an unsecured loan of Rs 5 crore? This Rs 5 crore was used to part fund fixed assets of around Rs 7.09 crore. This includes a plot in Greater Kailash II in New Delhi, and land in Bikaner, Gurgaon, Mewat and Hassanpur.
Now let’s take the case of Sky Light Hospitality which shows an advance received of Rs 50 crore from DLF as on March 31, 2010. In the balance sheet as on March 31, 2010, a series of tax deducted at source(TDS) for interest earned on fixed deposits can be seen. There are 19 such entries with a total TDS of Rs 4.95 lakh. TDS is cut at the rate of 10.3% when the interest earned on fixed deposits with a bank during the course of one year crosses Rs 10,000. This means that Vadra earned a total of Rs 48.06 lakh (Rs 4.95 lakh/10.3%) between the period April 1, 2009, to March 31, 2010.
This interest would have been earned on a part of the interest free Rs 50 crore advance from DLF which would have been invested in fixed deposits with banks. So the interest free money from DLF was invested into fixed deposits by Vadra’s Sky Light Hospitality and money was made in the process.
Sky Light Hospitality had a Rs 25 crore advance from DLF on its books as on March 31, 2009. A small portion of this was used to pick up a stake of 50% in a hotel joint venture with DLF. This company called Saket Courtyard Hospitaliy runs one hotel in Saket, New Delhi.
The balance sheets of Sky Light Hospitality also show the company giving advances to other Vadra companies. The balance sheet as on March 31, 2009, shows an advance of Rs 3.5 crore to Sky Light Realty Private Ltd. It also shows an advance of Rs 2.05 crore to Blue Breeze Trading Private Ltd. Both these companies are owned by Robert Vadra. Since they got an advance it was interest free.
This advance was used by Sky Light Realty to fund agricultural land in Palwal and land at Hayyatpur in Haryana. It also used around Rs 9 lakh to book flats with two builders. Sky Light Reality also managed to earn an interest of around Rs 31 lakh (TDS of Rs 3,18,656 divided by 10.3%) on fixed deposits by placing a part of these advance in bank fixed deposits.
As on March 31, 2010, Sky Light Hospitality had given a loan of Rs 6.61 crore to Sky Light Reality Private Ltd. This was used to fund seven flats in DLF’s Magnolias project and which are shown to be worth around Rs 5.23 crore. It was also used to buy a Rs 89 lakh apartment in DLF’s Aralias apartments.
How much did Vadra make in the end?
It is very difficult to estimate one number but some calculations can be made. As a Business Standard story points out “The Aralias and Magnolias flats together would fetch Rs 130 crore or thereabouts, and by DLF’s calculation Mr Vadra’s share in the hotel project would be in excess of Rs 50 crore. His total asset base from the two Sky Light companies — all made by rolling over transactions with DLF, and helped by real estate value appreciation — would be in the vicinity of Rs 200 crore, made in five years.”
That is not a bad going given that Vadra had very little of his own money at stake.
So it is very clear that Robert Vadra benefited from his relationship with DLF. Whether DLF benefited from their relationship with Vadra will be very difficult to establish. But that still raises the question why was DLF so meharban on Vadra? That is the billion dollar question they need to answer.
The article originally appeared in a slightly different form at www.firstpost.com. http://www.firstpost.com/business/theres-little-doubt-vadra-gained-from-dlfs-benevolence-485471.html
(Vivek Kaul is a writer. He can be reached at [email protected])