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Corporate Oct 11, 2012

Explained: How Vadra gained from DLF’s benevolence

By Vivek Kaul

The Arvind Kejriwal-led India Against Corruption (IAC) unleashed its second round of attacks on the relationship between Robert Vadra, son-in-law of Sonia Gandhi, and DLF, India's largest listed real estate company, yesterday (9 October).

So what has IAC alleged, and how much of it holds water?

But we will give the bottomline first: how and what did Vadra gain? Business Standard estimates that Vadra's gains from all the sweetheart deals involving DLF could be in the vicinity of Rs 200 crore. And not much of it can be attributed to Vadra's business acumen. It was largely DLF's help that did it. Now, to answer the questions raised by IAC.

First, what was Vadra doing owning a DLF subsidiary company?

Northern India IT Parks Pvt 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 percent of the company.

Both Robert and his mother Maureen were appointed as directors of the company on 19 June 2008. The balance-sheet of the company as on 31 March 2009 shows an investment of Rs 2,50,000. This investment was made to buy a 50 percent stake in DLF SEZ Ltd on 13 October 2008. This investment does not appear on the balance-sheet of the company as on 31 March 2010. DLF bought back the stake from the Vadra-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.

The Arvind Kejriwal-led India Against Corruption (IAC) unleashed its second round of attacks on the relationship between Robert Vadra and DLF.AFP

DLF issued a statement on 9 October explaining the same."In DLF SEZ Holdings Pvt Ltd, 50 percent of shareholding was acquired by North India IT Parks Pvt Ltd in October 2008 at the face value of Rs 2.50 lakh. The said 50 percent shareholding was subsequently bought back from North India IT Parks Pvt Ltd in September 2009 fully at face value of Rs 2.50 lakh, 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 percent of DLF SEZ. But that does not mean he did not gain anything at all. He used the 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 Pvt Ltd is another company owned by 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 Vadra owns 49,900 shares and his mother Maureen 100 shares.
Some time between 1 April 2008 and 31 March 2009, the company bought a plot of land of 3.5 acres in Manesar, Haryana. This can be said because the balance-sheet of the company as on 31 March 2009, shows this entry. But the balance-sheet as on 31 March 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 an advance of Rs 50 crore by valuing the land at Rs 58 crore. As the company said in a statement on 6 October "Skylight Hospitality Pvt Ltd approached us in FY 2008-09 (i.e. the period between 1 April 2008 and 31 March 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 crore. 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 crore 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 acres of land it had bought at Rs 15.38 crore. DLF valued this land at Rs 58 crore and gave Vadra's Sky Light an advance of Rs 50 crore against this land. The point that arises here is this. Sky Light Hospitality bought the land between 1 April 2008 and 31 March 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 is that the value of the land went up by 3.8 times between the period Sky Light Hospitality bought it and approached DLF - all within a period of one year. One should remind readers that this was also the period during which the global financial crisis was starting. Lehman Brothers went bust on 14 September 2008 and so those were tough days for all markets. The deep 2009 recession that DLF talks about in its 9 October statement was starting.

Where did Vadra raise the initial Rs15.38 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 this writer could not independently establish where this money came from, a story in 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 31 March 2008.

As 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 part of the funding for 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 an issued capital of Rs 1 lakh regularly?

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by Vivek Kaul

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