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])
Sonia Gandhi
Rahul: Reluctant politician who was once afraid of the dark
When Rahul Gandhi was young he was afraid of the dark. He felt that darkness held ghosts and bad things. His grandmother Indira Gandhi helped him overcome that fear. As Aarthi Ramachandran writes in Decoding Rahul Gandhi “Speaking to young children at the opening of a science fair at a Delhi school in November 201 he(i.e. Rahul) told them how he was scared of darkness when he was young as he felt it held “ghosts” and “bad things”. Then, he said, one day his grandmother had asked him why he didn’t go and see himself what was inside the darkness. So, he had walked into the garden in the dark and he had kept walking and then realised suddenly that ‘there was nothing there in the darkness to be scared of’.” And thus Rahul overcame the fear of darkness and ghosts.
The life of Rahul Gandhi has largely been a mystery for India and Indians. Where was he educated? Where did he work before joining politic full time? What are his views on various things? What does he think about the current state of the Indian economy? What does he think of the government which his mother Sonia runs through the remote control? Does he have a girl friend? When does he plan to marry? Why hasn’t he given any interviews to the media since 2005?
These are questions both personal and professional that Indians would love to have answers for. Aarthi Ramachandran answers some of these questions in her new book Decoding Rahul Gandhi.
After the assassination of Indira Gandhi, both Rahul and his sister Priyanka were largely taught at home. Ramachandran quotes out of Sonia Gandhi’s book Rajiv: ““The day of my mother-in-law’s assassination was the last day Rahul and Priyanka ever attended school…For the next five years the children remained at home, studying with tutors, virtually imprisoned. The only space outside our four walls where they could step without cordon of security was our garden,” Sonia wrote.”
Rahul is a year and a half older to his sister Priyanka and was a student of the St Columba’s school before the assassination of his grandmother. But both Rahul and Priyanka ended up in the same class despite their age difference. “Rahul’s education was disrupted due to that incident (Indira Gandhi’s assassination) and he dropped a year of school, possibly the same year that Indira died. Rajiv was asked how both Rahul and Priyanka were in the same class during an interview in 1988. “Only one year separates them. And with all the shifting, they came to be in the same class. But that has one advantage: they can be taught each subject by the same tutor. Now, we can’t possibly keep separate tutors for each of them, that would be too expensive,” he quipped – both children were being home tutored,” writes Ramachandran.
Rahul joined Delhi’s St Stephens College in 1989 to study history. He got admission under the sports quota. And there was a lot of controversy surrounding his admission. As Ramachandran points out “When Rahul entered Delhi’s prestigious St. Stephen’s College in 1989 after finishing his schooling, the Bhartiya Janata Party (BJP) claimed his admission, under the sports quota for his skills in rifle shooting, was invalid. The allegation appeared to be that with 61 per cent marks in his school-leaving examinations, Rahul was not academically bright enough to enter the college. The BJP’s Delhi chief at that time, Madam Lal Khurana, claimed that Rahul’s certificates in shooting were fake.” The National Rifle Association came to Rahul’s rescue issuing a statement in his favour about his ability as a rifle shooter. During Rahul’s time at Stephens 20-25 special protection group (SPG) guards would be all over the college with sling bags which supposedly had guns.
After a year at Stephens, Rahul left for Harvard. There is very little clarity on the period he was at Harvard or the subjects he studied there. “It has been widely reported in the Indian media and some foreign publications that Rahul took courses in economics at Harvard,” writes Ramachandran. “Neither Rahul nor Harvard officials have confirmed this. Rahul did not respond to questions about this course of study and the time period he was at Harvard….Harvard too said it could not disclose details about Rahul Gandhi’s time at Harvard.”
Though Harvard did confirm that Rahul was a student without getting into the specifics of the time period or the courses he attended. In May 1991 Rahul’s father, Rajiv Gandhi was assassinated. This compelled him to take a transfer to Rollins College in Florida and from here graduated with a BA in 1994. The website of the college lists him as alumnus who graduated in International Relations.
After this, Rahul went to get an MPhil in developmental studies from the Cambridge University, in the United Kingdom. There has been some controversy surrounding this as well. “In the run up to the 2009 general elections…The New Indian Express alleged that Rahul had not only got the name of his course wrong but also the year. The paper said he had attended the course only in 2004-05. It produced a certificate from the university as evidence of its claim. Rahul…sent a notice to the newspaper….With the notice was a letter issued by Cambridge University…in which its vice chancellor…clarified that Rahul was a student at Trinity College from October 1994 to July 1995. She also said that he was awarded MPhil in developmental studies in 1995,” writes Ramachandran.
What comes across here is a reluctance on part of Rahul to be open about his educational qualifications. As the author explains “Rahul’s unwillingness to be open about his educational background is similar to Gandhi family’s secrecy over Sonia Gandhi’s illness. Sonia and her family have been resolute in their silence on her medical condition despite speculation…that she is suffering from some kind of cancer…It can be argued that her health is a matter of public interest given that she is the de factor head of the Congress-led coalition government…In the same way Rahul Gandhi’s educational qualifications are of the importance to the public at large as he is perceived to be a future prime ministerial candidate of the Congress and is a Member of Parliament.”
After Cambridge, Rahul Gandhi worked for three years with consulting firm Monitor in London. Strategy guru Michael Porter was one of the co-founders of the firm. Rahul was with Monitor from June 1996 to early March 1999. As Ramachandran writes “According to sources, who have known Rahul from his time at Monitor, there were no problems with his performance at the firm. He worked there under an assumed name and his colleagues did not know of his real identity, said a Monitor employee who was at the firm around the same time as Rahul. ‘His looks gave it away to those of us who knew who he could be,’ the source said.” But beyond this nothing is known about his key result areas or the sectors Rahul specialised in during his time at Monitor.
After quitting Monitor, Rahul came back to India to help his mother Sonia with the 1999 general election campaign. Once the elections were over Rahul disappeared from the political firmament. “There is no exact information about any other job Rahul might have taken up in the intervening years after he left Monitor in March 1999 and returned to India for good in late 2002,” writes Ramachandran.
During the time Rahul spent at London the media also discovered his girl friend Veronique (though they kept calling her Juanita). He was spotted with her watching an India-England cricket match at Edgbaston and holidaying with her in the Andamans at the end of 1999, and again in Kerala and Lakshdweep in 2003, for a year end family vacation.
Rahul finally cleared the mystery himself in an interview to Vrinda Gopinath of the The Indian Express during the run up to the 2004 Lok Sabha elections. As Ramachandran writes “’My girlfriend’s name is Veronique not Juanita…she is Spainish and not Venezuelan or Columbian. She is an architect not a waitress, thought I wouldn’t have had a problem with that. She is also my best friend,’ he told her…After he won from Amethi, he held a rare informal interaction with journalists in his constituency. They asked about his girlfriend’s nationality to which he replied she had been living in Venezuela for a long time although her parents were Spanish. He also said that he was not planning on getting married anytime soon.” Nothing has been heard of Veronique since 2004.
His years in consulting seem to have had a great impact on Rahul and since coming back to India in late 2002, Rahul has been trying to apply The Toyota Way on the functioning of the Congress party. The Toyota way is a series of best practices used by the Toyota Motor Company of Japan. As Ramachandran explains “The Toyota Way spoke of making decisions slowly by consensus, thoroughly considering all options and then implementing decisions rapidly…The consensus process, though time-consuming, helps broaden the search for solutions and once a decision is made, the stage is set for rapid implementation.”
Such strategic ideas are being used for the revamp and promotion of internal democracy within the Indian Youth Congress and the National Students Union of India. Processes are being built to ensure ending the role of family connections in appointments and promotions in the two organisations.
But the big question on everybody’s lips has been when will Rahul Gandhi join the government? In a controversial interview to the Tehalka magazine in September 2005, Rahul Gandhi is reported to have said that he could have become the Prime Minister at twenty-five. Abhishek Manu Singhvi the then Congress spokesperson later specifically mentioned that Rahul wanted to state that he had not said ‘I could have been prime minister at the age of twenty-five if I wanted to’. Rahul hasn’t given any interview since then.
On another occasion Rahul said that “Please do not take it as any kind of arrogance, but having seen enough prime ministers in the family…it is not such a big deal. In fact, I often wonder why should you need a post to serve the nation”.
Rumors of Rahul Gandhi joining the cabinet in the next reshuffle have been doing the rounds lately. But as and when that happens Rahul Gandhi will have to let go of what seems like an unwillingness to be open.
People will analyse what he says. He may still not give interviews but as a minister he will surely have to make speeches, address meetings etc. His decisions will be closely watched. And the files he signs on will be open to RTI filings. In short, the mystery surrounding him will come down.
Things as they are currently will have to change. As Ramachandran puts it “In situations where he is required to speak, whether it is the Parliament or his elections speeches, he is uncomfortable. He is only now beginning to find his public speaking voice. For the most part, however, he has tended to avoid speaking in the public or to the press on issues. He comes across as a politician who is reluctant to share his views on issues of national importance or worse as someone who does not have views at all.”
The article originally appeared on www.firstpost.com on Ocotber 19,2012.
http://www.firstpost.com/india/rahul-reluctant-politician-who-was-once-afraid-of-the-dark-495947.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]
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])