DLF’s deals with Sky Light need explanation

Explanation is demanded because Vadra is a PEP (Politically Exposed Person).

Business Standard / New Delhi Oct 08, 2012, 00:35 IST

If DLF is right in its assertion that all the flats acquired from it by Robert Vadra’s companies were at the ruling market prices – and the numbers cited with regard to prices per square foot seem to bear out the assertion – then Arvind Kejriwal and company have some explaining to do as to how and where they got their quite different sets of numbers. Additionally, in the case of the hotel project, Mr Kejriwal would appear to have mixed up equity value with enterprise value (which is equity plus loans). Finally, mere allegations do not establish quid pro quo. Even in cases like those involving the BJP president, Nitin Gadkari, who wrote a letter asking a minister to clear payments to a contractor in a problematic project, no quid pro quo has been alleged or established except that the contractor in question is a friend of Mr Gadkari and a BJP MP.

That said, Mr Vadra’s companies’ accounts do seem curious. The filings by Sky Light Hospitality Pvt Ltd show a paid-up capital of Rs 5 lakh, no reserves of accumulated profits, and no loans. In other words, its total “Sources of Funds” in March 2011 were Rs 5 lakh. Yet it had managed to acquire fixed assets worth Rs 16.18 crore and invest Rs 24.37 crore in a partnership. Further, the company had cash and bank balances totalling Rs 4.77 crore, and had given out loans and advances of Rs 3.21 crore. The fixed assets, investments and current assets totalled Rs 48.53 crore. Finally, the company had suffered accumulated losses of Rs 9.82 crore. How did the company fund these assets and losses, totalling Rs 58.35 crore, as shown in the balance sheet of March 31, 2011 (no filings are available for 2011-12)?

There is a simple answer: “advances received” of Rs 58.05 crore. DLF has explained that it gave Sky Light an advance of Rs 50 crore in 2008-09, against the sale of a piece of land valued at Rs 58 crore (a further advance of Rs 15 crore was given for another sale which did not materialise and the money was returned). Sky Light may have entered into other similar transactions, because the outstanding “advance” in March 2011 was more than the DLF figure of Rs 50 crore, and the total of advances received as of March 2010 was even higher, at Rs 61.5 crore — unless of course all of this was a part of the total Rs 65 crore initially “advanced” by DLF.

The following questions arise: is it the usual practice for DLF to give an advance equal to 86 per cent of the sale price on land, before the sale takes place? Further, if such an “advance” given in 2008-09 was still outstanding two years later, it would appear that the sale was not closed by March 2011. If the money was kept by Sky Light for two years and more, and if no interest was paid in the interim, an “advance” equal to 86 per cent of the stated transaction value does take the appearance of an interest-free loan. Quite apart from all this, if Sky Light, apparently incorporated in 2007, had already acquired fixed assets valued at Rs 58 crore by 2008-09, how was the original acquisition funded by a company with total resources of Rs 5 lakh?

Mr Vadra is a private citizen and the company involved is privately limited. So he is not obliged to answer any and all questions from all comers, especially when no malfeasance has been established. However, he does enjoy a position where people might be willing to do him large favours in the hope of benefiting in undefined ways, if nothing else then from perceived proximity to him. DLF is a publicly listed company, answerable on governance standards. For these reasons, the public is entitled to more information than has been divulged so far.


Notes by Sanjeev Nayyar:

Key points made in Business Standard Editorial with respect to Skylights Hospitality Pvt Ltd.

1. Accounts of Skylights Hospitality Pvt Ltd show paid up capital of Rs 5 lakhs in March 2011, no reserves or surplus.
2. In Partnership it managed to acquire assets worth Rs 16.18 crs and 24.37 crs Rs.
3. Total fixed assets, investments and current assets Rs 48.53 crs all on a capital of Rs 5 lakhs. It also had a loss of Rs 9.82 crs.
4. How did the company fund these assets and losses.
5. Advance received Rs 50 crs from DLF in 2008-09 towards sale of a piece of land valued at Rs 58 crs. Additional Rs 15 crs given for a transaction that did not materialise and hence returned.
6. Advance of Rs 50 crs given in 2008-09 still o/s on 31.3.2011 ie two years interest free loan.

My question is –

1. With capital of Rs 5 lakhs how it did it fund purchase of land in the first place, land so valuable that it was receive a consideration of Rs 58 crs.

2. Which is the land in question for which Skylight received advance. Who was the original owner of the land, when was it acquired by Skylight and for what price? How was the purchase price funded.

3. When a company has a loss of Rs 9 crs on a capital of Rs 5 lakhs, in his report, the Auditor has to state whether in his opinion the company is a Going Concern. The Going Concern concept is fundamental to preparation of accounts.

See also:



Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s