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Inconsistencies in Copal Art’s story spur big questions

Inconsistencies in Copal Art’s story spur big questions
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First Published: Thu, May 10 2007. 04 13 PM IST
Updated: Thu, May 10 2007. 04 13 PM IST
New Delhi: Ajay Seth said he wanted to pioneer a different kind of art fund.
His New Delhi gallery, Copal Art, launched two funds last year and Seth said he raised Rs20 crore with a simple premise: investors could actually take home the paintings bought by the fund.
Copal Art fund would thus be different from other art funds cropping up in India with regularity, funds that bought works on behalf of investors, stored them in warehouses where, presumably, they would appreciate in value and eventually get sold to the highest bidder without any of the investors really getting to enjoy their appreciating investments.
To potential investors, Seth promoted his idea as a way to pool money, build economies of scale and thus beat inflated gallery prices and their fat, built-in commissions, while getting to hang art at home.
“Most art funds that people invest in don’t get to see the art they invest in at all,” said Seth. “In our case, buyers get to keep the art as well.”
Copal fund also differed from others in many ways. For one, a buyer’s relationship with Copal could end once a work was paid for. However, as part of the price, Seth said he also offered art consulting services so investors could continue buying and selling works.
To artists, Seth plugged the concept as a way of selling works without giving up a lot in commissions to galleries and, in some cases, getting firm ‘buy’ orders before even putting brush to canvas. Whereas galleries usually charge a 40% commission, Seth offered artists the chance to sell their works with Copal taking a 15-20% cut—savings Seth said were also passed on to the buyer.
Selling a yet-to-be-completed work is one area where Seth now says that demand has been much higher than he had anticipated, resulting in orders for art that doesn’t yet exist. Sometimes, Seth says, he simply “pre-sells” art—and then turns around and tries to get the artist to create a painting.
There is nothing illegal or wrong in what Seth said he was doing. Indeed, India has seen this pre-selling tactic before, perhaps most infamously by progressive painter M.F. Husain, who was commissioned to paint 100 works for Rs101 crore.
But, in multiple interviews with Mint over the past few months, Seth claimed Copal’s portfolio—which has a long list of artists—specifically included Harshvardhan, Jagannath Panda, G.R. Iranna and Neeraj Goswami. When independently contacted by Mint, all four painters denied selling works to Copal. Asked again by Mint about their participation, Seth still insists their works will be a part of the next fund he plans to launch.
There have also been other inconsistencies in Seth’s statements. He said noted artist Gopi Gajwani is a member of Copal fund’s selection committee. When contacted by Mint, Gajwani denied it, saying, “Seth had initially mentioned this to me. But I have not agreed.”
Copal Art Gallery, operating out of a now sealed building in the R block of Greater Kailash, was one of 30 locations of eight gallery owners across the Capital, and in Mumbai, that were raided by the income-tax department last week, according to a tax department official who did not want to be named because of government policy and the ongoing investigation.
Late last week, Seth also confirmed that he was among those raided. “The motive is good, but the actions were wrong,” Seth said referring to the department. “Art galleries should form an association. They (the I-T department) could have sent circulars first if they wanted to know about financial statements.”
Mint has been unable to ascertain what prompted the I-T department to specifically target Copal or, for that matter, any other gallery. Unnamed department officials have been quoted in news reports as saying they were looking for evidence of people using cash to buy art works and not providing required paperwork, something that Mint can’t independently verify.
But the deep inconsistencies in Seth’s statements come amid growing concerns over the lack of transparency in Indian art investments—an issue that has also stunted the growth of the so-called art funds in other countries.
“We have knowledge about how art functions in the marketplace, but no knowledge of how funds work,” says art economist David Kusin, a former curator with the Metropolitan Museum of Art in New York, noting that the US saw an art fund boom a few years ago—but most have not lasted. Kusin was speaking in general about art funds and not specifically about Copal.
Meanwhile, in India, art funds have been steadily gaining in popularity. At least five art funds worth a total of Rs250 crore have been launched over the last two years, based on statements by their principals. They range from large players, such as the Rs102 crore Osian’s art fund, to smaller ones, such as Crayon Capital’s planned Rs20 crore fund, which, the promoters said, was oversubscribed to the tune of Rs60 crore. Some of these funds have reported returns of 25% or more per year, but investors generally have to wait for at least three years before cashing out. Each fund has its own strategy and niche, and none of them are associated with Copal or are known to follow a similar model. Mint has not examined other Indian art funds as part of its reporting on Copal.
There has also been a steady drumbeat of how works of Indian artists have been appreciating and reaping rich rewards for investors and collectors alike, irrespective of the ‘quality’ of the art itself. There is enough anecdotal evidence, especially from reputed auctions, to support this trend, and the runaway prices of Indian art in various galleries also indicate that prices are generally heading north. However, there is very little empirical evidence yet in India of the true extent of the market or valuations, and voices of caution are starting to emerge, both among financial planners as well as the government.
K.V.S. Manian, group head of retail liabilities and branch banking at Kotak Mahindra Bank Ltd, points out that art investments still operate in a relatively non-transparent space: art sales are over-the-counter and not monitored or regulated. “For retail investors, it’s not a preferred asset class as it’s not easy to value works of art, unlike prices in a stock market,” says Manian. He too was speaking in general and not about Copal.
Copal’s Seth is a recent convert to art, opening Copal Art Gallery in the Capital on 22 October 2005.
Seth said he was an auditor for Godrej Soaps between 1979 and 1984. He said he later worked as a financial controller of Haryana Beverages Ltd, between 1984 and 1987, before turning an independent marketing and brand consultant through 2004. Seth said he then started a tissue manufacturing company, Glenn Maurier, in 2004, but said in an interview that he is selling the company this year. The phone number listed for the company on a website elicited no response.
Seth, who says he only started collecting both abstract and figurative art slightly before that, also said he wanted to help discover and support fledgling artists.
The gallery’s website (www.copalart.com) describes Copal, which, in Hindi, means a flowering bud, as an “entity with a social cause”. Seth said his intent was to focus on new talent, “to promote this segment of the artists whose poor social conditions often surpass their creativity and talent.”
In March 2006, Seth launched his first fund, Copal Art Fund Series I, and said he collected Rs10 crore. The preview, held in his gallery, featured 50 works on display, but he already fell 150 works short of what he said was needed to satisfy the 200 initial investors in the fund.
Seth says he invested nearly Rs5 crore of his own money for the first fund, including expenses such as storage, transport and insurance. Because of art bought previously and newer art values increasing—a work of Thota Vaikuntam, for instance, appreciated from Rs40,000 to Rs21 lakh in 11 months, he said—Seth said he made a Rs2.5 crore profit.
Because of the apparent success of the first fund, Seth then planned Copal Art Fund Series II, according to him, again a Rs10 crore fund.
On 21 July, 2006, The Times of India’s Hyderabad edition carried a report on the upcoming Copal art fund launch. “Through these schemes, people can invest in paintings of their choice. They can avail our recommendations based on their budget, preference and target,” Seth was quoted as saying. Seth also said that after a story on Copal ran in The Economic Times, he received 300 emails including many enquiries from Hyderabad, a city he described as a “virgin” market, but growing wealthier and hungrier for art investments nonetheless.
In October, Seth held a launch party at a business center in Hyderabad’s Taj Banjara hotel with a few “good friends who invested in large numbers.”
Artists whose works were pre-sold there included Hukum Lal, Kuldeep Singh and Vaikuntam—and several collectors interviewed by Mint confirmed later that they did get works by those artists. Once again, Seth said later, he was not prepared for the overwhelming response. “The response was big but our art supply was limited,” said Seth. “The fund was sold but the artworks were not there.”
The second fund drew 170 investors, many repeat customers from the first time around, Seth said in a February interview. “We made less money in the second one as art prices had appreciated and the acquisition costs were high.”
On 27 November, the Reuters news service published an article saying Copal had raised Rs10 crore. “Copal has a ready fund and bank of around 200 artists,” Seth was quoted as saying. The article ends with: “Seth said CAL would also launch a Rs1.5 billion art fund in December.”
In a January interview with Mint, Seth had said he planned to launch a third fund of Rs150 crore but he had postponed it to early March to first continue collecting the art. Several private-equity investors and high net-worth individuals want to buy equity in his company, Seth said. A few artists in Baroda also want to invest his third fund—Copal Art Series III—to acquire art, he said. Seth said he could not disclose their names yet.
Contacted in March, Seth had said the fund would now now launched in May, adding: “Since ours is a delivery-linked fund, we have to complete the acquisition process (of paintings) as we have token money from investors.”
Some artists credit Seth with bringing them into the big leagues. Even before he launched the first fund, Seth began pushing Hukum Lal and Kuldeep Singh, two artists he met at an exhibition in New Delhi.
Both have studied Fine Arts in Indira Kala Sangeet University in Khairagarh, Chhattisgarh. Singh says he has delivered 100 paintings in the past two years—that’s one painting per week—and has committed to make many more for Copal. Lal said he has done at least 75 works in the past year for Copal and is committed to providing another 50 works over the next two years. Seth said prices for Lal’s art has risen 40% over the last year. The payment is done upfront, Seth said. “We pay immediately, unlike galleries which take works on consignment.”
“Most amateur artists are like penny stocks, but some of these artists, such as Kuldeep Singh and Hukum Lal, have shown maturity,” insists Shantanu Bhowmick, who runs the information technology consulting firm Consus Ltd. Of the several art works he bought from Copal, Bhowmick said he has already sold five works of Singh for a 30-40% return. Adds Bhowmick: “Gallery commissions are atrocious, but the advantage of going through Copal is that he’s getting them cheaper.”
Seth said 90% of Copal investors are lawyers, information technology professionals, doctors, railway officials, and even a sports star from Hyderabad, though he didn’t name the person. His funds allow them to choose a range of investment, from the masters to amateurs. “Maximum number of people have opted for amateur artists because of low entry level of Rs4,000 per sq. ft,” he said, talking about the correlation between the price and a painting’s size.
Another collector, Anita Sakuru from Hyderabad, said she was also attracted to Copal by the concept of “forward booking.” Sakuru, the head of Kenpeople.com, a professional networking site, said she has paid for 60 to 70 paintings, and has 30-40 of them in her new home in Hyderabad. She said the rest will be delivered later. “I am not in it only for the money. There is a certain pleasure in owning art,” she said.
Not having works in hand right away doesn’t seem to bother some of the collectors who say they have bought art through Copal. “My pattern of investment is more investor-oriented than that of a connoisseur of art,” said Gautam Dendukuri, a doctor in Hyderabad. “There is no way to go about it than trust.”
Others say they haven’t taken delivery of the paintings because most are very large and they cannot fit them in the house. “I have no knowledge of art and I started investing in art to diversify my portfolio. I also have no time to focus on art,” said Deepak Singhal, a stock markets investor who heard about Copal through clients and business associates. He invested Rs3 lakh in nine paintings by Kuldeep Singh. “The galleries can now keep them and find a seller.”
Some artists say Seth has made good on his promise that they’d make more money selling to him than a traditional gallery. Artist Siraj Saxena said he sells works to Copal and will continue to do so. “A gallery can take one month to sell the work and they don’t buy all your work directly,” he said. “An art fund is just another way to sell your works, one that has more confidence in your abilities…the main difference between galleries and funds is that funds will make you richer.”
Thota Vaikuntam, who lives in Hyderabad, also confirmed that he has given “several drawings about nine to seven months ago.” But Seth said he has bought at least 50-60 works from him. Similarly, Seth also said he has purchased works of Kishore Shinde, Neeraj Saxena and Veer Munshi.
Shinde, an abstract painter, said he has sold only one work to Copal. Neeraj Goswami said he has been approached and knows Seth very well. But “I have previous commitments. Right now, I cannot make a commitment to him.”
When the Delhi-based Munshi, an artist who paints about his native Kashmir, was first contacted, he said that Seth had approached him but that he had not submitted any work to Copal. But, as Seth sat down for an interview with Mint in February, he called Munshi from his mobile phone and handed the phone to a Mint reporter. Munshi then said he indeed had given some works to Seth, but wouldn’t say how many. “Numbers are not important,’ he said.
Seth also told The Hindu Business Line in an interview in December that 30 artists have directly given works to Copal. He valued the Indian art investment market at Rs1,000 crore and said it has the potential to increase to a Rs5,000 crore industry by 2008.
Seth told Mint that artist Harshvardhan had agreed to paint for Copal though when contacted, the artist denied having agreed to do so. Seth also said artists such as Panda and Iranna have given art works to him in return for payment. But the artists denied they have ever done so.
In an interview with Mint, Panda said he has not given any work to Copal Art. ‘I have asked him to get in touch with my gallery in Mumbai,” said Panda.
Abstract painter Subrata Kundu said that Seth promised to hold an exhibition along with Gajwani. “My work is ready but I don’t know when the show will be held,” Kundu added. For his part, Gajwani said he was told by Seth that he will organize an exhibition for him. Seth told Mint there is no space available in Delhi right now.
It is possible that some artists have agreed to paint specifically for Copal but don’t want that to be widely known as they would be seen as very commercial. It is also possible that Seth bought the art of of some of the artists who deny having sold him art through other galleries, though it is unclear how paying gallery commissions would then allow Copal to sell the same art to its investors at cheaper prices.
Seth’s art gallery was closed last year amid a spate of sealings on buildings that violated zoning codes in the Capital. It was set to open on 12 March, according to Seth, but a visit this week still yielded the building’s storefronts covered in newspapers and signs saying there was no business activity. A notice outside the gallery read “Only Inventory.”
In a meeting with Mint last week, which actually took place inside the sealed building’s gallery, Seth said he was now planning to rent a small space in the Capital’s central business district of Connaught Place, where visitors would be able to view art works on a plasma screen. He said the entire fund business would be operated from there. “Most of the art purchases takes place on exhibitions and through online, rather than gallery visits,” he said.
Seth says he plans to open a gallery in Hyderabad, and is also eyeing Baroda, Mumbai, Bangalore and Kolkata.
Seth said he has been buying art works in bulk for the fund and has a stock of between 500 and 600 works. In early March, Seth said he bought 80 works of artists such as Siraj Saxena, and 200 works of Jyoti Swaroop, whose works have appeared at other recent auctions. “Unlike other art funds, ours is not a speculative business” he said. “The model is completely transparent as we have to win confidence of people.”
Monica Gupta contributed to this story.
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First Published: Thu, May 10 2007. 04 13 PM IST
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