Real estate at core of Associated Journals controversy

New Delhi/Bangalore: At the core of the controversy about Associated Journals Ltd (AJL), which published now defunct publications including the National Herald, Navjivan and Quami Awaz newspapers and the International Weekly magazine, is the considerable real estate the company owns, which could run into several hundred crore rupees.

add_main_imageTo be sure, the shareholders of Young Indian, founded in November 2010, and which acquired AJL a month later, cannot withdraw any of the profit generated because the company has been founded as a not-for-profit organization.

Congress president Sonia Gandhi, and her son and party general secretary Rahul Gandhi together hold a 76% stake in Young Indian. The rest is held by Congress politicians Moti Lal Vora and Oscar Fernandes (12% each).NextMAds

Documents filed by Young Indian in March 2012 with the Registrar of Companies (RoC) and AJL in the years between 2004-05 and 2009-10 show that it owns buildings and plots of land in at least four cities: Delhi, Mumbai, Patna and Panchkula (near Chandigarh) in Haryana.

Janata Party president Subramanian Swamy, who raised issues about the transaction this month, has put the value of Herald House in New Delhi at ₹ 1,600 crore; a New Delhi-based real estate expert said land in the area where Herald House is located would be valued at ₹ 200 crore per acre, but could not provide a precise estimate for the value of the property given the absence of details such as area.

The 3,500 sq. m of land in Sector 6 in Panchkula is worth about ₹ 1 lakh per sq. m, the same person said on condition that he would not be named.

A Mumbai-based real estate expert, who also didn’t want to be named, said the market value of the plot in Bandra, Mumbai is around ₹ 60-70 crore. Mint couldn’t ascertain the nature or value of property owned by Young Indian in Patna.

Mint couldn’t conclusively confirm these figures.

The RoC filings show that Young Indian has moved quickly to upgrade the real estate assets, presumably to generate higher revenue. sixthMAds

“The company is engaged in activities to inculcate in the mind of India’s youth commitment to the ideal of a democratic and secular society and provides for application of its profits or income in pursuit thereof,” is how the company defines its objectives.

It isn’t clear if these objectives include reviving the publications of AJL.

Young Indian’s notes on account show that AJL would actually align its objectives with those of the parent company.

“The entire gamut of transaction pertaining to AJL and Young Indian is completely transparent and is in compliance with all the statutory and legal requirements,” said Manish Tewari, Congress leader and information and broadcasting minister, in response to a Mint query.

An email query sent to Rahul Gandhi’s office on 6 November remained unanswered.

The controversy

On 21 December 2010, less than a month after its incorporation, AJL’s board approved the assignment of ₹ 90.21 crore in accumulated loans taken from the All India Congress Committee (AICC), to Young Indian. This debt was then retired for a consideration of ₹ 50 lakh, which Young Indian paid to AICC. On AJL’s books it was converted into equity.

AJL thus became a subsidiary of Young Indian, which now owns nearly 99% of the company.

“What inference can be drawn (from this exercise)? Was this (new company, Young Indian) established to transfer loan? Why did AICC need to transfer loan to Young Indian? What benefit did it expect? If it was a bad loan with AJL and was bad with Young Indian as well, what was the need (for doing all this)?” asks an accounting expert who didn’t want to be identified.

The transaction involving AJL was raised at a 1 November press conference by Janata Party president Swamy.

“The deal is a sham, bogus, and a violation of several laws. It is a fraud committed in order to grab the Herald House in Delhi, that is located in a hub and which is valued at about ₹ 1,600 crore,” he said.

The Congress party has denied wrongdoing. “The Indian National Congress has done its duty in supporting Associated Journals Ltd to help initiate a process to bring the newspaper back to health in compliance with the laws of the land. This support was extended by the Indian National Congress in the form of interest free loans from which no commercial profit has accrued to the Indian National Congress,” the party had said in a 2 November press release.

Congress support

Documents reviewed by Mint show that the Congress party may have begun bailing out loss-making AJL as far back as 2005.

The company’s balance sheets show that in 2004-05, it had accumulated losses to the tune of a little over ₹ 20 crore and was extended an unsecured loan of ₹ 18.74 crore by unspecified lenders simply marked as “others”.

By 2005-06, the company’s total accumulated losses had risen to ₹ 29.44 crore, and it was extended unsecured loans by “others” to the tune of ₹ 31.87 crore.

The corresponding figures for the following year were ₹ 30.45 crore and ₹ 35.59 crore, respectively.

By 2007-08, while the publisher’s accumulated losses stood at ₹ 36.42 crore, it had an unsecured loan of ₹ 39.22 crore, again from “others”.

Interestingly, by the following year, the figures had nearly doubled. While accumulated losses stood at ₹ 70.20 crore, the extended unsecured loan was ₹ 78.20 crore.

Finally, in 2009-10, the figures stood at ₹ 72.10 crore and ₹ 89.67 crore, respectively.

Although, the balance sheets do not specify AICC as the lender, the party admitted in a 2 November release that AICC did extend unsecured loans to the company. The release, however, did not give details of the timeline during which the loans were extended.

“In effect, therefore, it appears that AICC had been loaning the company money since 2004-05,” said the accounting expert mentioned in the first instance, who has seen the documents.

AJL was founded on 20 November 1937 and was subsequently listed as a section 25 company under the Companies Act of 1956.

Companies under section 25 are those that are formed for promoting commerce, art, science, religion or charity. The government typically grants such companies a licence. These are typically not-for-profit entities.

Young Indian was been established on 23 November 2010 as a section 25 company. AJL is now a subsidiary of Young Indian.

Development drive

AJL’s filings show that between June and July this year, it took loans against its Delhi property from Syndicate Bank on at least two occasions. In the first instance, New Delhi-based IP Estate branch of the bank loaned the company ₹ 14.6 crore to construct a building at Panchkula, an industrial hub in Haryana. The company pledged its New Delhi-based Herald House building as collateral for the loan. Documents show that the company wanted to use the loan to develop a 3,500 sq. m plot of land in Panchkula.

AJL also took a ₹ 2.5 crore loan from the same branch against Herald House to “pay off statutory liabilities”. The company intends to repay the loan by 7 December.

AJL’s balance sheets also show that it may have an ongoing dispute with the Maharashtra government regarding its land in Mumbai. “... in 1991, the Govt of Maharashtra on representation by the company had agreed to convert the said land from free hold to lease hold. Fresh representation has been made to Govt of Maharashtra for reversing this decision, converting this land to Freehold, which is pending,” the balance sheet for 2010 said.

Leasehold is the right to use of a property for a fixed duration, after which the property reverts to its owner. Freehold confers ownership of the land and the buildings on the site to the buyer of the property.