Property empire was built on soft loans handed out in unusual circumstances, documents show
In February, as rumours of the ambitions of Congress president Sonia
Gandhi’s son-in-law swirled amidst the heat and dust of the election
campaign in Uttar Pradesh, her daughter Priyanka moved to scotch
speculation about Robert Vadra’s possible political future.
“He’s a successful businessman,” the younger Ms. Gandhi said of her
husband, “who is not interested in changing his occupation.”
Even though Mr. Vadra has increasingly emerged in the public eye, there
has been little information on just how successful a businessman he is —
and how his empire was built.
Last year, The Economic Times first wrote about his “low-key
entry into the real estate business” with the help of DLF Ltd, India’s
largest commercial property developer. And on Friday, Arvind Kejriwal
and Prashant Bhushan of India Against Corruption (IAC) released
documents which showed how Mr. Vadra has acquired land assets in and
around the National Capital Region worth hundreds of crores of rupees,
sometimes at prices below market value — funded by interest-free loans
disbursed to him by DLF and other companies for no apparent reason.
Though the documents reveal no illegality or impropriety on the part of
Mr. Vadra, they do raise the question of why DLF — which is a publicly
traded company — would enter into multiple business transactions with him on terms that appear highly preferential. The company on Saturday issued a lengthy press release
setting out its side of the story but questions of corporate governance
remain and minority shareholders are likely to ask the company for the
rationale behind its arrangement with Ms. Sonia Gandhi’s son-in-law and
whether similar soft loans (or “advances” as DLF prefers to call them)
and deals have been transacted with companies owned by other prominent
individuals. The answer to the second question may help explain why a
normally feisty Opposition has been remarkably silent on the DLF-Vadra
connection since the story first broke in 2011.
In 1997, the year Mr. Vadra married Priyanka Gandhi, he incorporated his
first, modest business — Artex, which dealt with brass handicrafts and
fashion accessories. From 2007, there was a surge in his activities.
Inside of a year, he founded five other ventures, spanning the real
estate, hospitality and trading sectors.
Ms. Gandhi maintained a distance from these companies: in 2008, she
dissociated herself from the sole business in which she was involved,
aircraft charter firm Blue Breeze Trading.
From balance sheets and directors’ reports released by IAC and additional papers obtained by The Hindu,
which relate to six group companies, it is clear that Mr. Vadra’s rise
was meteoric. In 2007-2008, his companies started out with promoter
funds of just Rs. 50 lakh.
However, the companies succeeded in acquiring 29 high-value properties
by 2010, armed with loans and advances of Rs. 80 crore from DLF,… as
well as Bedarwals Infra Projects, Nikhil International and VRS
Infrastructure. These included a Rs. 31.7 crore acquisition of a 50 per
cent share of Saket Courtyard by 2010, armed with loans and advances of
Rs. 80 crore from DLF, as well as Bedarwals Infra Projects, Nikhil
International and VRS Infrastructure.
These included a Rs. 31.7 crore acquisition of a 50 per cent share of
Saket Courtyard Hospitality, which owns the 114-bed Hilton Garden Hotel in
New Delhi; a 10,000 square foot penthouse, number B1115, at the DLF
Aralias complex for Rs 89.41 lakh; 7 apartments in DLF Magnolia for Rs.
5.2 crore; apartments for Rs. 5.06 crore at DLF Capital Greens; and a
DLF-owned plot in Delhi’s ultra-posh Greater Kailash II area for Rs.
1.21 crore. Though DLF’s press release said some of these prices were
“completely incorrect,” the investment numbers are all stated in the
balance sheets filed by Mr. Vadra’s companies with the Registrar of
Companies.
Then, at the end of 2010, Mr. Vadra’s companies also picked up a bouquet
of rural properties: 160.62 acres of agricultural land in Bikaner for
Rs. 1.02 crore, and Rs. 2.43 crore for an additional 5 parcels of land
of unknown acreage; land at Manesar, on Delhi’s fringes, for Rs. 15.38
crore; land at Palwal for Rs. 42 lakh, land at Hayyatpur, in Gurgaon,
for roughly Rs. 4 crore; land at Hasanpur for Rs. 76.07 lakh; land at
Mewat for Rs. 95.42 lakh; unidentified agricultural land for Rs. 69.09
lakh; and two ‘other real estate bookings’ worth Rs. 9 lakh.
From just Rs. 7.95 crore in fiscal 2008, Vadra’s fixed assets and
investments grew to Rs 17.18 crore in fiscal 2009, jumping a staggering
350 per cent in a single year to Rs 60.53 crore in fiscal 2010, the year
in which most of these properties were acquired with promoter funds of
just Rs. 50 lakh along with interest of Rs. 255.46 lakh earned on
advances and loans and zero group activity or profitability.
Despite the high market value of these listed assets (properties),
though, the declared investment portfolio in Mr. Vadra’s balance sheets
remained a meagre Rs. 71 crore at the end of fiscal 2010 with
accumulated group losses of Rs. 3 crore.
Mr. Vadra’s companies did not respond to e-mails sent by The Hindu
seeking clarifications on the details of these transactions. In
particular, it remains unclear why DLF and other major corporations
would have made him large loans, since this is not in the nature of
their business. Nor did Mr. Vadra’s companies have any apparent prior
specialisation in real estate business.
Financial wizardry
The financial information available from the balance sheets and
directors’ reports of Mr. Vadra’s companies — Sky Light Hospitality, Sky
Light Realty, Blue Breeze Trading, Artex, Real Earth Estates and North
India IT Parks — raise hard questions about what business it is they
actually do, and how this business is conducted.
Each of the companies has 268, Sukhdev Vihar, New Delhi, as its common
address, and Mr. Vadra and his mother Maureen Vadra as directors. Mr.
Vadra, the documents show, receives remuneration of Rs. 60 lakh per
annum from just one company, Sky Light Realty. The payment, the
company’s auditor states is “remuneration in excess of the limit
prescribed under section 217 (2A) of the Companies Act, 1956 read with
the Companies (Particulars of Employees) Rules 1975.”
There are no other employee costs in the books, either to his mother or
to others. However, in the documents, both directors “place on record
their deep sense of appreciation for the committed services of
executives, staff and workers of the company.”
Strangely, while assets balloon in each subsequent balance sheet, there
is no account of the corresponding enhancement of visible business
activity. For example, the balance sheets raise a current liability of
Rs. 50 crore against the Manesar land, though it was registered for just
Rs.15.38 crore in the same financial year, defying all commercial and
financial prudence and raising doubts about whether this was an income
rather than a current liability.
A senior chartered accountant told The Hindu on condition of anonymity,
given the individuals involved, that masking incomes as loans/current
liabilities in this manner is an unorthodox accounting device. “Using
short term funding of this kind to create long-term assets defies
financial prudence as it constitutes a high business risk, unless they
are not really ‘current liabilities’ and are not payable in the short
term, which means they are nothing but incomes which have been
disguised,” he said. Vadra’s auditors consistently overlook this in all
six firms, while accounting firm Khurana & Khurana in its Auditors
Report for Real Earth Estates Pvt. Ltd. for the year 2010, actually opts
to gloss over this by stating: “Based on the information and
explanation given to and on an overall examination of the balance sheet
of the company, in our opinion, there are no funds raised on short term
basis which have been used for long term investment.”
The auditor’s accounting rigor comes into further question with its
statement that according to the information and explanations given to
us, the company has, during the year, not granted any loans, secured or
unsecured to companies, firm or other parties covered in the register
maintained under section 31 of the Companies Act 1956, excepting the
advances under business obligation accordingly paragraphs 4 (iii) (a)
(b) (c) and (d) of the order are not applicable. However, the balance
sheet shows loans and advances of Rs 2.89 crore for the company in 2010.
Many such loans, which reflect as total current liability of Rs. 72
crore in the accounts, are invested in long-term assets like land.
Curiously, no one appears to be pressing for the return of these loans —
which are, according to the documents, interest-free.
Additionally, all of Mr. Vadra’s companies show interest income from
fixed deposits, claiming tax deducted at source for this interest
without accounting for the fixed deposits themselves in the balance
sheets. The six companies’ profitability, which grew from zero in 2007-8
to Rs. 20.94 lakh in 2008-9 to Rs. 255.46 lakh in 2009-10, was not from
any business activity in these companies but purely from interest on 23
elusive fixed deposits amounting to roughly Rs. 5 crore.
There are other unexplained gaps in the financial information. As of
March 31, 2010, the group profit and loss account shows that only Sky
Light Realty made a profit, and that too in one single year. Yet, while
the others show losses, they continue to make investments. This profit
of Rs. 244.98 lakh was despite a complete absence of business activity
or liquidation/reduction of fixed assets, investments or other bookings.
However, the accumulated losses of Rs. 3 crore from the other 5 firms
in the RV Group’s 2010 balance sheet wipe out Vadra’s capital and
reserves, raising questions about his ability to buy so many high value
properties with zero capital.
DLF’s fortunes
Perhaps the key to the relationship could lie in DLF’s troubled fortunes
since 2008 — the very time its dealings with Mr. Vadra acquired
significant scale. According to a March 1, 2012 report by the respected
Veritas Investment Research Corporation, DLF Ltd is an organisation
under duress, with its management scrambling to consummate assets sales,
rationalize its land bank and divest non-core operations.
Since a May, 2007 Initial Public Offering, which sold at Rs. 525 per
share, the stock price declined by 46 per cent in March 2012 compared to
a roughly 30 per cent gain in the Sensex over the same period with the
stock presently trading at Rs. 241.80, a steep 54.13 per cent dip.
Veritas points to questionable related-party transactions, aggressive
and conflicting accounting policies, self-enrichment and inability to
deliver on promises, and a balance sheet stretched to the limit, with no
free cash flow and no credible plan to de-lever its balance sheet. “If
your investment decision incorporates management integrity, then
bypassing DLF will be an easy choice,” the Veritas report states.
In addition, Veritas does “not believe the disclosed book equity and
asset base of the company,” stating that via its dealings (merger) with
DLF Assets Ltd (DAL), from FY 2007 to FY 2011, the company inflated
sales by at least Rs. 11,236 crore and its profit before tax by Rs.
7,233 crore.
A slowing real estate market in a high inflation environment and
over-exposure to Gurgaon — among India’s most speculative real estate
markets — is further expected to create tremendous pressure on the
company’s balance sheet. “In the end, we believe DLF will seek
assistance from financial institutions to restructure its loans,” the
report affirms, urging investors not to buy DLF stock. DLF dismissed the
report as “mischievous and presumptive.”
Mr. Vadra himself has attributed his brass-to-gold success story to hard
work—and a little help from “family” friends like K.P. Singh, the
chairman of the DLF Group. However, Mr. Vadra has strongly denied taking
any favours from DLF in the past. “I have a good understanding with
DLF. Our children are friends, we are friends. They are seasoned
businessmen. They are not daft… They don't need me to enhance them.
They’ve existed for years,” he told The Economic Times in March 2011.
Indeed, in January 2002, he made his distaste for favour-seeking
capitalism public, dissociating himself from his brother and father,
alleging that they were promising jobs and favours using his name and
association with the Gandhi family. His father responded by suing him
for defamation.
Hard work Mr. Vadra may well have put into building his property empire.
But the help he received from friends like DLF suggests at least a part
of his success flowed from the willingness of others to bet on the
outcome of his enterprise.
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