Auditors too think DLF and Vadra may have lied about the 'advance'
DLF claims it gave an advance to Robert Vadra but the latter's balance-sheets for 2010-11 tell us a different story. It was more like an interest-free loan.
The nexus between realty major DLF and Sonia-Gandhi's son-in-law Robert Vadra is apparent with the so-called business advance the real estate company gave to the latter. A report in the Business Standard says auditors too have now raised questions over this DLF dealing, arguing that if accounting rules do not even permit companies to give interest-free loans to their own subsidiaries, why would DLF give such an advance to an outsider without any prior linkages between the two. Moreover, if the advance amount was refunded without any business maturing, there is always a doubt about the transaction, auditors told the paper.
Refering to Skylight Hospitality Pvt Ltd, a company majorly owned by Robert Vadra, Firstpost columnist, Vivek Kaul had argued yesterday that how can a company which has a paid-up capital of Rs 5 lakh fund assets be worth Rs 48.53 crore?
Vadra's mother Maureen holds 0.2 percent of the company. Hence, the remaining 99.8 percent are owned by Vadra.
The latest balance-sheet of the company filed with the Registrar of Companies throws up some very interesting information. The balance-sheet is dated 31 March 2011. But the one used by Arvind Kejriwal and Prashant Bhushan to make the charges that they did against Vadra was dated 31 March 2010.
Skylight, as we all know from Kejriwal's charges, has a total paid-up capital of Rs 5 lakh. Fifty thousand shares of Rs 10 each have been issued. Robert Vadra owns 49,900 shares and his mother Maureen owns the remaining 100 shares. The company claims to have raised no secured loans or unsecured loans for that matter. This means that the owners of the company have put Rs 5 lakh of their own money into the business.
The company has total assets of Rs 48.53 crore. Of this, the company has fixed assets worth Rs 16.18 crore. Other than this, the company has investments worth Rs 24.37 crore. It has cash and bank balances amounting to Rs 4.77 crore. And it has given loans and advances amounting to Rs 3.21 crore to others.
But the question everyone has asked is: how can a company which has a paid-up capital of Rs 5 lakh fund assets be worth Rs 48.53 crore? This implies an asset to shareholder capital ratio of a humongous 971 times. The question is how did a company in which the owners have invested just Rs 5 lakh end up with assets of Rs 48.53crore?
One answer could be that the company borrowed money, and used a part of this money to buy assets and a part of this money was lying in the bank account and had been lent to others. But as I mentioned earlier, Skylight has no secured or unsecured loans.
So where did this money come from? For this, one has to look at the liabilities side of the balance-sheet. The company has a liability of Rs 58.05 crore. The balance-sheet that I managed to download from the ministry of corporate affairs does not have schedules attached to it. Hence one really doesn't know what these liabilities comprise of prima facie.
But some educated guesses can be made from the statement issued by DLF and the balance-sheet of Skylight as on 31 March 2010. Let's first start with the DLF statement: "M/s Skylight Hospitality Pvt Ltd approached us in FY 2008-09 to sell a piece of land measuring approximately 3.5 acres just off NH 8 in Village Sikohpur, Dist Gurgaon...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 DLF gave an advance of Rs 50 crore to Vadra's Skylight against a plot worth Rs 58 crore. What the company does not clarify is what it means by normal commercial practice? Does the company give advances worth Rs 50 crore amounting to nearly 86.3 percent of the value of the property to other individuals who have no prior experience in real estate as well?
Also, how is an advance different from a loan? An advance is typically made to someone known, which is true in this case. Vadra has claimed to be friends with people who run DLF. The other interesting thing is that an advance is typically short-term. So in this case DLF advanced Rs 50 crore to Vadra in 2008-2009.
That advance of Rs 50 crore was on the balance-sheet of Vadra's Skylight as on 31 March 2010. This means an advance of Rs 50 crore was with Vadra for a period of between one to two years.
An advance for a period as long as that is not an advance but basically an interest-free loan. An advance is typically given when the company expects the deal to be completed within a few months.
Now let's get back to the balance-sheet as on 31 March 2011. The fixed assets of Skylight as on this date were valued at Rs 16.18 crore. This is exactly the same as the fixed assets of Skylight as on 31 March 2010. Hence, it's safe to say that the balance-sheet is referring to the same fixed assets. The schedules to the balance-sheet as on 31 March 2010 point out that these fixed assets are land plots. One land plot is shown to be worth Rs 15.38 crore.
In fact, this is the same plot which DLF is talking about. The balance-sheet of Skylight as on 31 March 2010 shows an advance of Rs 50 crore from DLF against this land.
It is reasonable to assume that this land plot against which DLF gave an advance was still with Skylight as on 31 March 2011, given that the value of the fixed assets remained the same when compared to 31 March 2010.
So the sale of this land for which DLF had given an advance of Rs 50 crore which sale had not been completed as on 31 March 2011. This means that the advance of Rs 50 crore to Vadra's Skylight remained on its books for a period between two to three years.
Hence, it was this Rs 50 crore received from DLF which is a part of the Rs 58.05 crore liabilities shown by the firm as on 31 March 2011. And this was the money which was basically used to build assets of Rs 48.53 crore.
Given this, DLF's claim of the money being an advance and not an interest-free loan doesn't really hold. An advance is typically made for the short term and not for a period as long as two to three years, as seems to be the case here. What DLF gave Vadra was an interest-free loan.
The Investopedia website defines a current liability as "acompany's debts or obligations that are due within one year." In Vadra's case the current liability of an advance from DLF remained on the books for a period two to three years. And that clearly isn't normal. It certainly looks like a sweetheart deal.
DLF's statement issued over the weekend says "after receipt of all requisite approvals, the said property was conveyanced in favour of DLF." This must have happened only after 31 March 2011. This is something only DLF and Vadra can clarify on. Or it will become clear once Skylight's balance-sheet as on 31 March 2012 comes out in the public domain, which will only happen sometime by the middle of next year.
What is interesting is that the value of the land against which DLF gave an advance to Vadra's Skylight is shown to be at Rs 15.38 crore on the balance sheet of Skylight. DLF values this land at Rs 58 crore. The difference is on account of the fact that Skylight is probably valuing the land at the price at which it bought it whereas DLF is valuing it at the market price.
But then it brings us back to the question: how did a firm which had a paid-up capital of only Rs 5 lakh buy land which is shown to be worth Rs 15.38 crore on its own books? Where did the money come from? DLF only came into the picture after Vadra's Skylight had bought the land and wanted to sell it to DLF.
There is another interesting point that an article in The Hindu points out. Skylight's balance-sheet as on 31 March 2010, has no entries for fixed deposits that it holds or the interest that has accrued on these fixed deposits. But the balance-sheet does show a series of fixed deposits on which tax has been deducted (TDS) at source by banks.
The total tax deducted at source from 19 fixed deposits amounts to Rs 4.95 lakh. TDS at the rate of 10.3 percent is deducted on fixed deposits by banks when the interest paid during the course of the year is greater than Rs 10,000. This means that Vadra's Skylight has earned an interest on fixed deposits amounting to Rs 48.06 lakh (Rs 4.95 lakh/10.3 percent). If we assume a rate of interest of 9 percent then the total fixed deposits amount to Rs 5.34 crore. But there is no mention of these fixed deposits in the schedules to the balance-sheet. The number can be greater also, given that banks do not deduct interest on fixed deposits till the interest accrued during the course of the year amounts to at least Rs 10,000.
Also as on 31 March 2011, Vadra's Skylight made losses of Rs 9.81 crore on a capital of Rs 5 lakh. Given this, can it continued to be categorised as a going concern?
Robert Vadra has accused Arvind Kejriwal of the politics of opportunism. Politics is all about opportunism, this is something that Vadra must understand by now, given that he is married into India's biggest political family.
Vadra, as the son-in-law of Sonia Gandhi, President of the Congress Party, which is India's oldest and currently the biggest party in Parliament, has to above suspicion, like Caesar's wife. He cannot simply get away by trying to strike an emotional cord by putting up status messages on Facebook and not putting out a point-by-point rebuttal to the charge made by Kejriwal and Bhushan.
Vivek Kaul is a writer and can be reached at firstname.lastname@example.org
(The figure on fixed deposits - Rs 5.34 crore - has been corrected in this version of the story. We had earlier erroneously mentioned the figure as Rs 48 lakh).
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