Kolkata: One-and-a-half years after she took over as West Bengal chief minister, Mamata Banerjee might have dredged out “serious financial irregularities” with which she could launch a scathing campaign against key leaders of the Communist Party of India (Marxist), or CPI-M, ahead of the crucial panchayat elections to be held in the state next year. She has launched investigations into a number of housing projects undertaken by the previous Left Front government in partnership with local real estate developers. The land for each of these projects was made available by the state government.
The Criminal Investigation Department, or CID, has been tasked with examining if ministers and government officials from the Left Front’s 34-year regime had favoured builders at the cost of the state exchequer. It may take years to conclude these investigations, but from what has already popped out of the closets of Writers’ Buildings it is clear that considerable firepower will be available to Banerjee going forward to take on key CPI-M leaders such as Gautam Deb, Abdur Rezzak Mollah and even Surjya Kanta Mishra—a politburo member and the leader of the opposition in the state’s legislative assembly.
Among all projects currently facing scrutiny, the one that seems to be hit by a tsunami is Urbana—a sprawling 65-acre township being built on the south-eastern fringes of Kolkata by six top real estate developers jointly with the state government. The CID’s initial findings show that the state government made “little or no effort” to maximise its revenues from the project—land for it (around 67 acres) was leased out for a paltry premium of Rs 23.27 crore between 2006 and 2008 at the peak of the real estate boom when it could have fetched thousands of crore, according to state government officials.
Estimates of what the state government could have earned from land lease vary, but officials say the exchequer lost out on thousands of crore of revenue, and that entirely because of the largesse of some key ministers and bureaucrats close to them. Around the same time, the Life Insurance Corporation of India bought around five acres in Urbana’s neighbourhood paying Rs 55.24 crore an acre - going by that valuation, Urbana’s land would be valued at Rs 3,700 crore or thereabouts.
That apart, the Bengal government agreed to keep for itself only 26 per cent stake in the project whereas the established practice is to take 49 per cent, thus allowing the private developers to expand their share of profit from the sale of flats and bungalows at Urbana to 74 per cent.
Firhad Hakim, the state’s urban development minister, says the administration is preparing to initiate legal action against Urbana’s private developers and erstwhile ministers and government officials responsible for leasing out land for the project, but will do so only after it has gathered enough evidence to nail the wrongdoers.
So is this the tobacco moment for Bengal’s CPI-M leaders, some of whom are known to have been close to real estate developers for decades?
Lawyers say it may not be easy to establish “malfeasance causing loss to the state” because it appears that though the government went out of its way to make the venture profitable for the private developers, laws may not have been “brazenly broken”.
Understandably the CID is taking time.
If laws were not broken, the question of wrongdoing does not arise, says Debanjan Mandal, partner at law firm Fox and Mandal, defending his clients—Urbana’s six private partners. The premium paid by them was what the state government had demanded, he adds, thus blaming squarely the previous government for loss to the exchequer, if at all any.
The CPI-M, according to some insiders, has decided not to immediately comment on the controversy. It is currently obtaining legal opinion for the defence of its leaders. After a week of deliberation, Gautam Deb, a state secretariat member and the former urban development minister, said he wouldn’t comment on Urbana.
By then, Mishra, too had indicated that he wouldn’t answer CNN-IBN’s questions on Urbana though the decision to lease out land for the project was taken while he was the minister for land and land reforms.
Mollah, during whose term as the land and land reforms minister the lease agreements were concluded, wasn’t available for comments.
Urbana’s chequered history:
The controversy dates back to 1994, or even earlier—to November 1988 when two Kolkata-based businessmen, Vinay Maloo and Surendra Nahata, bought 200 bighas (roughly 67 acres), a part of which was wetland—tank fisheries in legal parlance—from a landed family for a princely sum of Rs 10,000 a bigha (one-third of an acre).
Only a month before it was sold to Maloo and Nahata, the Calcutta high court had quashed a state government order seizing the land under West Bengal’s Estate Acquisition Act.
Though the government was restrained from taking possession of the land immediately, the Calcutta High Court said in its October 1988 judgement that the state could take further action in respect of the disputed land under other relevant laws.
Three-and-a-half years after Maloo and Nahata bought the land, the state again launched legal proceedings to seize it, this time under the West Bengal Land Reforms Act. The move was legally challenged and the state was again restrained from snatching the land from its private owners by the current Chief Justice of India, Altamas Kabir, who was then a Calcutta High Court judge.
However, after a brief legal battle of two years or so, the state government in 1994 signed an MOU with Vinsan Properties—a firm owned by Maloo and Nahata—under which it was to seize the disputed land from the builders, but would, in turn, lease it back for 99 years to a joint sector company for the development of an upscale residential complex, primarily for non-resident Indians.
In the envisaged joint sector company, Vinsan Properties and/or its shareholders were to have an equity interest of 25 per cent and the state government, 26 per cent. The remaining 49 per cent was to be widely held by the public and financial institutions, according to the 1994 MOU signed for the government by the then chief secretary, N. Krishnamurthi.
However, when the proposed joint sector company, Bengal NRI Complex, was founded and land leased to it starting in December 2006, it had six private owners, each owning 12.33 per cent or 74 per cent in all—what was to be widely held had become the property of private individuals who were inducted into the venture after 1994.
Mandal claims creating a 49 per cent public holding wasn’t a “pre-inception condition”, while Mahendra Kumar Jalan of MKJ Enterprises, one of the private stakeholders, says people were not interested in buying shares of the joint sector company. So, the stake was distributed among other leading builders.
To be sure, no one would have invested in a company that didn’t immediately have a business or any significant asset—the land was leased to the firm after it was founded.
The Left Front government agreed to an “unviable ownership structure” out of its stated policy of creating wealth for the people—hence the clause mentioning the 49 per cent public holding was introduced, according Arunava Ghosh, a senior lawyer and a Congress leader.
It was an “eyewash”, says Ghosh, adding that the state’s intention was always to make the project disproportionately profitable for the real estate developers. These people, such as Shrawan Kumar Todi and SS Bose, were close to the then chief minister Jyoti Basu, according to Ghosh.
The suspicion arises from an unanswered question: why did the state government, in the first place, agree to lease the land back to the builders? That, according to a section of lawyers, is the first sign that things were not above board.
In the early to mid-1990s, the state government fought many a legal battle to seize ownership of private land under the Land Reforms Act, says a senior lawyer at the Calcutta High Court. It won almost all cases, some even in the Supreme Court.
“Why did the state government agree to lease out land to these builders in return for their agreeing to give up the writ petition?” he asks. The state, according to this lawyer, would have won the case if it fought till the end—the builders would have willy-nilly left and the state could have sold or leased out the land at market rate.
It took over 12 years from the signing of the MOU in 1994 for the government to start leasing out the land for the housing project. Though the first of three lease deeds was signed in December 2006, the lease premium was determined based on the plot’s valuation in 1996. The reason: the lease was made effective from July that year.
Even before a substantial part of the 67-acre plot was freed of squatters, the state government had given possession of the land to the builders. Hence, according to some legal opinions, the state government didn’t have any option but to lease out the land from 1996 and at a premium based on its then market value though the transaction was legally concluded more than 12 years later.
The CID is trying to establish that Bengal NRI Complex is an “illegitimate company”, according to documents made available to CNN-IBN - that it couldn’t have come into being in the first place and that the private developers gained at the cost of the state exchequer.
In the light of the recent Supreme Court judgement in the 2G spectrum allotment controversy, loss to the state exchequer, if legally established, would have serious implications, not only for the CPIM leaders and the private builders behind Urbana, but also the people who have booked flats and bungalows in it.
From being one of Kolkata’s most sought after condominiums, where flats are priced at Rs1 crore and above, Urbana could collapse. The government could train all its might on Urbana and rip it apart and those behind it, or spread its attention to a bunch of other joint sector housing projects to unearth similar irregularities. History suggests Bengal’s populist chief minister is likely going to opt for the latter.