Kolkata: West Bengal last month asked the state’s Criminal Investigation Department (CID) to probe the operations of Bengal NRI Complex Ltd—a joint sector firm developing one of the most sought after condominiums in Kolkata spread across 67 acres—for supposed fraud resulting in substantial loss to the exchequer.
Under scrutiny: Urbana, the township that Bengal NRI Complex is developing. The operations of all joint sector firms are being reviewed, according to a state government official. Photo: Indranil Bhoumik/Mint
The administration has the “impression” that the Left Front government, which demitted office last year after a 34-year unbroken rule, had got into an “illegal agreement” with the private owners of Bengal NRI Complex—six top real estate developers of Kolkata, who jointly own 74% in the company, or 12.33% each—according to a home department official, who did not want to be named. The state government owns 26% in the company.
Bengal NRI Complex is not going to be the only joint sector real estate firm to be probed by CID, the state government official said. The operations of almost all others, even “practically defunct” ones, are being reviewed. “But in terms of size of the project and revenue potential, Urbana (the township that Bengal NRI Complex is developing) is the largest so far,” he said.
Though the CID didn’t clearly indicate the offence it was investigating, it said in a letter written last month to Bengal NRI Complex’s management that the administration was prima facie of the view that the previous government had got into an “illegal agreement” that is tantamount to “criminal breach of trust” by “omission and (by) commission”. Mint has reviewed the letter.
The move has caused a great deal of consternation among Kolkata’s real estate developers, some of whom had appealed to the state government a year ago to wind up by mutual consent joint sector real estate firms in view of chief minister Mamata Banerjee’s decision not to acquire land for commercial exploitation.
Joint sector real estate firms weren’t wound up—if the state government had agreed to do so, it would have been difficult for it to launch the probe that CID has been tasked with.
The Left Front government had launched housing firms in partnership with virtually all key real estate developers in the state—most of them now face investigation.
Under current regulations, township projects, such as Urbana, would not have materialized because of restrictions on land ownership. Earlier this year, the state, through an amendment law, removed townships from the list of projects for which exemption could be granted from the threshold on land ownership.
The private developers of Urbana, where flats are currently priced at upwards of Rs 1 crore—steep by Kolkata standards—had got into trouble over land ownership with the previous government as well, but the dispute was settled in 1994 after a brief legal battle.
Two Kolkata-based businessmen, Vinay Maloo and Surendra Nahata, had in 1988 bought 200 bighas, or around 67 acres, from Protiva Chandra Roy on the south-eastern fringes of Kolkata. Three bighas make one acre.
Four years after they bought the land, the state initiated legal proceedings to seize it under land-ceiling laws. For two years, they fought a legal battle in the Calcutta high court, until in 1994, the state government agreed to an out-of-court settlement.
The state seized the plot but agreed to lease it back to a joint sector firm with Maloo and Nahata as shareholders to develop a township largely for non-resident Indians.
The 1994 agreement said the state would own 26% in the envisaged joint sector firm and the private partners together, 25%. The remaining 49% was to be distributed among the public and financial institutions. This, though, wasn’t laid down as a “pre-inception condition”.
However, the import of the agreement, according to land department officials familiar with the issue, was that the economic interest—or share of profit—of the private shareholders in the project was to be capped at 25%. These officials, too, declined to be named.
It took the state and the private developers 12 years to evict squatters. Eventually, in 2006, after the Left Front was voted back to power for the last term, Bengal NRI Complex was founded, and the state leased the 67-acre plot to it in instalments.
However, in “an apparent departure” from the 1994 agreement with the state, the private developers expanded their equity interest in the project to 74% as against the 25% stipulated earlier.
A spokesperson for Bengal NRI Complex had earlier said it wasn’t “immediately viable” in 2006 for the joint sector firm to divest a 49% stake to the public and financial institutions. “We would do so at an appropriate time when there is an opportunity to do so,” he had said in an interview earlier this year. He declined to make any further comment in the wake of the CID probe.
The land department officials cited above also said it isn’t clear whether under the 1994 agreement the original buyers of the 67-acre plot could bring in other partners. The six private shareholders of Bengal NRI Complex are the Emami Group, Todi, Jalan, Bachawat, Sureka and Nahata families. Maloo has exited.
The pact said the state’s stake in the firm couldn’t be diluted from 26%, they said.
“In view of the various restrictions, compliance with the 1994 agreement is difficult at this stage,” said one of the land department officials. “And if the 1994 agreement itself is set aside as illegal by the current government, the project will be in great difficulty.”
Deviation, if any, from the guiding joint venture pact at Bengal NRI Complex is of a different nature from other joint sector real estate firms, according to the land department officials.
Typically, when the state allotted land to joint sector firms at a discount to the market rate, it mandated that a certain portion of the project should be reserved for the economically backward people. But a “pliable” administration, according to the land department officials, allowed departures from this covenant.
To comply, private developers typically offered to build alternative projects at their own cost for people from the low- and middle-income groups, but the state didn’t always enforce that such commitments were eventually honoured, the officials said.
romita.d@livemint.com
Also Read |
Todi, Agarwal quit multiple boards
