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A Hotel’s Dirty Linen

Monday 19 July 2004, by BHAUMIK*Saba Naqvi

Why did Shourie’s disinvesment ministry show indecent haste in selling off the Juhu Centaur to Ajit Kerkar’s Tulip for a song? And then, help Tulip raise the money too?

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Abhijit Bhatlekar

Dirty little secrets have begun to tumble out of the NDA’s cupboard. New facts accessed by Outlook on the disinvestment of the Centaur Hotel Juhu Beach, Mumbai, clearly establish that the sale to Ajit Kerkar’s Tulip Hospitality Services Ltd (THSL) was a highly questionable sellout. Not only was the six-acre, 371-room five-star facility sold for a song (Rs 153 crore) but Kerkar was also a member of the board of the subcommittee on disinvestment of Hotel Corporation of India (HCI), a subsidiary of Air India, the original owners of the Centaur. In a manner of speaking, he was both the seller, and later, the buyer of the prime property. (When contacted, Kerkar was unavailable for comment).

Moreover, Outlook has learnt from highly-placed sources that Kerkar (former MD of the Taj group) now wants to hawk the hotel. Ernst and Young has been "mandated by the Tulip Star Hotels Ltd to assist them in divesting equity stake in the company to financial and strategic investors."

The Tulip group has denied any move to sell the hotel but the Ernst and Young report submitted in May this year shows their intentions. According to market sources, the price demanded by Tulip for Juhu Centaur is is Rs 350 crore and a French hospitality major, the Accor Group, is reportedly interested. That would mean a cool profit of nearly Rs 200 crore in just two years! An incredible 133% profit for a group whose authorised share capital was a mere Rs 5.05 crore when it bought the hotel.

But it may not be easy going for Kerkar since moves will soon begin in the Congress-led UPA government to re-examine the sale. There is even talk of the termination of the sale agreement. Outlook has acquired detailed minutes of meetings and correspondence to establish that at every stage the disinvestment was dubious. Here’s why:

- According to the minutes of the Air India board meeting on November 3, 1998, at Airlines House, New Delhi, Ajit Kerkar became part of the subcommittee on disinvestment in HCI, which then owned the Juhu Centaur. He later strongly recommended disinvestment in HCI saying "its main objective was to meet Air India’s requirements as early as possible."

- At the time of the financial bidding for the Juhu Centaur, Kerkar’s Tulip Hospitality Services Pvt Ltd was the sole bidder. The bid submitted on November 6, 2001, was accepted and this was communicated through a confidential letter to Kerkar (hq/12-103(17)a/5734) by Amod Sharma, secretary and officiating director of corporate affairs, Air India, on November 21, 2001. Sharma’s note made it clear that the Rs 153 crore was to be paid within 30 days. Tulip failed to do so but got extension after extension from the disinvestment ministry. The money was finally paid in March 2002.

- Extensions were sought and given because Tulip’s authorised share capital was only Rs 5.05 crore and the company needed bank loans. And to get a bank loan, a sale agreement was necessary. In a letter to financial consultants J.P. Morgan on December 31, 2001, a copy of which was sent to the then disinvestment ministry, Tulip notes: "The agreement to sell is awaiting clearance by our equity co-investors and the bankers who have insisted that the agreement be cleared before any commitments are made which have financial implications." In simple terms, the sale agreement was the security the banks required to clear the loan. Tulip had no other security to offer.

- The transaction document for the sale of the hotel which was approved by the central government was categoric that Tulip deposit 10 per cent of the bid amount-Rs 15.

- 30 crore-immediately and the rest of the 90 per cent by December 20, 2001.But Tulip paid the 10 per cent only on December 31. Yet the bank guarantee of Rs 5 crore was not encashed and nor were any new bidders invited.The disinvestment ministry seemed determined to see that Kerkar alone acquired the property.

- On December 28, 2001, the then Union minister of disinvestment, Arun Shourie, wrote to the Union civil aviation minister, Shahnawaz Hussain (D.O.No. 7/37/2001-MODI (Vol. II PART)/160/VIP): "We are trying to conclude the transactions at the earliest possible". (See below)

- He then stated that since the validity of the bank guarantees was up to March 31, 2002, "we hope to resolve the issues before that and would be taking appropriate action under intimation to you".

- But as Tulip continued to renege on the payment, on February 4, 2002, Air India’s Amod Sharma sent an official letter to Sanat Kaul, joint secretary in the ministry of civil aviation. In it he clearly stated that "a view needs to be taken with regard to encashment of the bank guarantee to avoid any complications at a later stage. It is therefore requested that you may take up the matter with the ministry of disinvestment for obtaining the original bank guarantees so that necessary action can be taken by Air India".

On February 22, 2002, S. Venkat, deputy secretary, Air India, G.S. Swarup, regional finance manager, Air India, and R.C. Aggarwal, managing director, HCI, went to Delhi to serve notice on the Bank of Rajasthan towards encashment of the Rs 5 crore bank guarantee provided by Tulip Hospitality Services. In an official memo signed by all three, it is noted that "the manager require(s) the original of the bank guarantees." The officials then went to the department of disinvestment to meet K.K. Gupta, joint secretary. They then wrote: "Gupta was away in a meeting ...Shri Chattopadhya, under secretary, DoD, suggested we call back at 2.30 pm. We therefore proceeded to the ministry of civil aviation to apprise the joint secretaries of the status. Meanwhile a call was received from Shri Chattopadhya that presently no action needs to be taken further on the encashment and serving of notice to the Bank of Rajasthan."

The very next day, on February 23, a remarkable meeting took place. Shourie himself met representatives of the Tulip Group along with several bankers. Outlook has the minutes of the meeting, held at 1 pm in the ministry, in which several nationalised banks agreed to give the loans. It was decided that the loans would be disbursed on March 9, 2002, the same day the agreement to sell would be signed. At the meeting the banks which agreed to give loans were: Bank of India, Union Bank of India, Canara Bank, Punjab National Bank, Lord Krishna Bank, LIC and UTI Bank. The bulk of the funding came from nationalised banks and the LIC. In other words, public funds were being used to effect the sale of public assets.

Immediately after takeover, the Juhu Centaur was renamed the Tulip Star. It wound up three restaurants and brought down the classification from five-star deluxe to three star. Just eight days after the sale, the foreign liquor registration of the hotel was suspended for non-payment of taxes to the tune of Rs 53 lakh. The outstanding supplier bills have touched Rs 4 crore. Provident fund, life insurance and tax deductions worth Rs 1.71 crore deducted from staff salaries have not been deposited with the concerned authorities. Taxes worth Rs 2.25 crore collected from guests have also not been deposited.

Still, the only silver lining for the employees is that there are grounds to terminate the agreement. For, the agreement to sell had several clauses which the Tulip group has failed to meet.There are many conditions relating to employees: one of the clauses in the document is that the "purchaser shall be bound to offer each of the employees a voluntary retirement scheme".It is also categorically stated that, "This agreement may be terminated automatically in the event that the vendor is not in a position to perform its obligations under this agreement".

As per the agreement, vrs was payable by March 31, 2003, to every employee.In spite of a high court order issued on June 8, 2003, to implement the vrs in six weeks, 600 employees’ vrs remains unpaid. The total outstanding amount for vrs stands at Rs 35 crore. Even as hundreds of employees too are denied their dues, attempts are on to terminate the services of others on flimsy grounds.

It is a shocking saga of a handful of influential men bending the rules to further their interests. Tulip’s motives are obvious. If it is allowed to retain the prime property, it will make a huge profit. The motives of the disinvestment ministry are more obscure. The argument, of course, is that the Juhu Centaur was piling up losses. But is that sufficient cause to sell off a public asset at a throwaway price and effect the sale in a manner that is nothing short of downright scandalous? And what of Arun Shourie, a man who built his reputation as a public crusader? As many believe that his integrity is above board, the question is whether he was working under instructions? The ball in your court, Mr Shourie.

Saba Naqvi Bhaumik


in Outlook India, Monday, July 19, 2004.

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