In Indian Real Estate, It’s Location and Relations

What's not to be envied about the life of the Indian businessman Robert Vadra, a self-made man if ever there was one? Now 43, Vadra emerged from relative insignificance to a position of tremendous wealth, power and influence, especially in the Indian capital, New Delhi, where his name can move mountains.

Of course, it helps that Vadra is married to Priyanka Gandhi, the daughter of former Prime Minister Rajiv Gandhi and granddaughter of former Prime Minister Indira Gandhi. And his mother-in-law is Sonia Gandhi, the president of the Congress Party, the most powerful woman in the land. Vadra could, by his own candid admission, become a member of Parliament any time he liked, but he has chosen to stay out of public life and chart his own path in "business" (an impressive but sometimes vague word covering a gamut of activities).

For years now, there has been talk about the vast tracts of real estate that Vadra has been buying in Faridabad, a suburb of Delhi. Everyone, whether bureaucrats, businessmen or editors, would like to be in his good books. Vadra's range of achievements and privileges is impressive. He is thought of more highly than any other citizen by the government, which has granted him exemption from security checks at all Indian airports, on par with the Dalai Lama. Last year, the Hindustan Times ran a contest to decide the most stylish man in Delhi. The jury went for someone else, but Vadra won "the People's Choice Awards."

Why then, just when everything was going so swimmingly for Vadra, did some people have to come along and play party-pooper? Last week, Arvind Kejriwal and Shanti Bhushan, two leading lights of the group India Against Corruption, which has for the last two years organized a mass movement against graft and hopes soon to become a political party, held a news conference. There, they handed out details of Vadra's recent enormous surge of wealth on the back of sweetheart loans handed out to him by DLF Ltd., India's biggest developer. The press release was titled "Robert Vadra acquires properties worth hundreds of crores from nothing. What is the source of these funds?" It provided evidence to show that Vadra's wealth had multiplied almost 600-fold in a few years, from 50 lakh rupees (about $100,000) to 300 crore (about $57 million) and alleged that this was because he had been sold prime land at knockdown prices by DLF. It asked:

In the last four years, Robert Vadra has gone on a property buying binge and has purchased at least 31 properties mostly in and around New Delhi, which even at the time of their purchase were worth several hundred crores. [A crore is worth approximately $200,000.]

An analysis of the balance sheets and audit reports of 5 companies set up by him (and owned exclusively by him and his mother) on or after 1/11/2007 show that the total share capital of these companies was just Rs 50 lakhs and these companies together had no income from any legitimate business activity (except by way of interest derived from interest free loans obtained from DLF). Yet during 2007-2010 they have acquired properties which were worth well over Rs 300 crores even at their time of acquisition and are worth more than Rs 500 crore as of today.

The ostensible seed money for this acquisition is shown to have come from unsecured interest free loans from DLF Ltd (over 65 crore). ...

This massive property buying spree by the son-in-law of the ruling dynasty in the country gives rise to several important questions:

1. Why should DLF give large unsecured interest free loans to Robert Vadra?

2. Why should DLF sell its properties to Vadra at throwaway prices and on the basis of funds obtained by Vadra from DLF itself?

3. It is well known that DLF has been given 350 acres of land by Haryana govt for the development of Magnolia project in Gurgaon (where Vadra was allocated 7 apartments) and has been given various other properties and benefits by the Congress governments in Haryana and Delhi. Is that the quid pro quo for DLF giving Vadra the seed money for the purchase of these massive properties worth hundreds of crores?

4. It is clear that there is a lot of unaccounted black money invested in these properties of Vadra. What is the source of these funds? Are illicit funds of the Congress party being funnelled into this property buying spree by the son-in-law of the dynasty?

Both DLF and Vadra moved swiftly to rubbish the allegations. DLF said, “We would like to state that the business relationship of DLF with Mr. Vadra or his companies has been in his capacity as an individual entrepreneur, on a completely transparent and at an arm’s length basis.” It said that the figure of 65 crore mentioned by IAC was an interest-free "business advance," a claim met with considerable skepticism by auditors, particularly since the company's debt burden stands at more than 200 billion rupees. DLF's shares fell by more than 7 percent on Oct. 8, the first trading day after the controversy erupted.

Vadra, meanwhile, said the charges leveled against him by Kejriwal and Bhushan were an attempt to "malign my family in order to gain cheap publicity for themselves and for the launch of their political party." He struck a more belligerent note on his Facebook page, calling his detractors "Mango people in banana republic" (sic). The first fruit metaphor was a labored pun on the word "aam," which means both "common" and "mango" in Hindi, and is used often by India Against Corruption when it claims to represent the "aam aadmi," or common man. As for "banana republic," people were quick to point out that the health of the republic lay in good measure in the hands of Vadra's own family by marriage.

Meanwhile, the best journalistic investigation of the claims made by Kejriwal and Bhushan was offered by Shalini Singh in the Hindu. In a piece called "Behind Robert Vadra's fortune, a maze of questions," Singh wrote:

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....

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.

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. ...

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.”

As R. Sukumar remarked in an editorial on Livemint asking both Vadra and DLF to make better clarifications about their partnership, "The Hindu’s description makes the business model of Vadra’s companies sound like a perpetual motion machine, with assets swelling despite no increase in business activity." Meanwhile, the Economic Times reported:

Independent directors of DLF have said the controversial transactions between Robert Vadra and India's largest realty firm were not discussed by the board and if allegations of easy loans and cheap deals are proved, they should be probed.

That would be a start, as the Congress Party doesn't seem to think the matter to be of great concern, and capitalism needs to make everyone play by the same rules if it is not to undermine its own moral claims. Meanwhile, it has become clear to many Indian citizens that their politicians have discovered that, in a liberalizing and expanding economy, there's no faster way to generate wealth than by leveraging both connections and concessions in getting into real-estate investments. (A real-estate scandal in Mumbai recently led to the unseating of the chief minister of Maharashtra.) In a piece on the subject on the website Firstpost, Abhay Vaidya wrote:

India is living in deep denial with its refusal to go deeper into the murky world of politicians and real estate. One clear evidence of this is the ostrich-like approach after The Economic Times broke the DLF-Robert Vadra story a clear 18 months ago in March 2011. Even though all the documents were available openly in the public domain on the Registrar of Companies website, the intensely competitive media did not pick up the story. Partly because large sections of the media are compromised and corrupted and real estate companies are among their biggest advertisers. If one realty firm is hurt, media houses not only risk losing advertising from that group, but also face the larger threat of other realty firms ganging up against any publication or news channel that attacks any one of them. Most real estate scams across the country therefore go unreported or underplayed till there’s an explosion that can’t be ignored at the risk of looking foolish. ...

The opposition also passed on the story because virtually every political party has wealthy politicians with their hand — not just a finger — in the real estate pie.

Depressing news, to be sure, but all the more reason why it should be brought out into the open. Now that someone has done the dangerous work of speaking out, though, many more details are sure to be revealed in the coming weeks about the business acumen -- or funding network -- of India's first son-in-law.

(Chandrahas Choudhury, a novelist, is the New Delhi correspondent for World View. Follow him on Twitter @Hashestweets. The opinions expressed are his own.)

To contact the author of this blog post: Chandrahas Choudhury at Chandrahas.choudhury@gmail.com

To contact the editor responsible for this post: Max Berley at mberley@bloomberg.net

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