Let us go beyond the colourful adjectives, Dr Swamy

The National Herald case has spiraled out of the court rooms and has derailed the business in parliament. Precious national resources are getting wasted, reforms are rotting. BJP leader Subramanian Swamy has done a splendid job in digging up several corporate filings of The Associated Journals and Young Indian and building a case. The courts have found enough merit in it to summon the people involved, including Congress leaders Sonia Gandhi and Rahul Gandhi.


Since Swamy is not scared of the defamation law, whose constitutional validity he is rightly contesting, he is able to freely hurl adjectives and accusations like ‘corrupt’, ‘fraudulent’ and verbs such as steal and grab. But, in the interests of the country, Swamy must go beyond these epithets and further strengthen critical arguments in his case so that he has chances to win it and achieve his anti-corruption objectives.


These are his three principal points:


Real Estate worth Rs 2,000 crore


This is by far the strongest point of Swamy’s allegations. That for a paltry sum of Rs 90 crore, the Gandhis misappropriated this real estate through the corporate structure is the crux of the case. In some places, the value of Herald House is alone said to be that much, while other assets said to be worth thousands of crores more. Business Standard has published the sizes of these properties in Delhi, Mumbai, and Panchkula. Their location is also available.


The book value given in the Associated Journals’ books is about Rs 1.71 crore. This is clearly not the correct value as Indian businesses usually keep land and buildings at cost on their books.


Then there is an item of Fixed Assets Capital Work in Progress, which accounts for the construction activities going on in some of these locations, which is reported to be Rs 63 crore. Some of it is funded by bank loans. In FY 2014, The Associated Journals took a loan by pledging its assets for construction activities. The loan, which stood at Rs 38 crore, was backed by unregistered equitable mortgage (UREM) of land in Panchkula and Mumbai and a negative lien of land and buildings at Herald House, Bahadur Shaha Zafar Marg, New Delhi. In a negative lien, the creator of a charge or mortgage covenants specifies that he would not create any further charge on the property.


So much pledged for a mere Rs 38 crore loan? Did the bank see anything that is not public? What are the usage restrictions on these land plots? Can these be freely transferred? Does this affect their valuation?


Yet another number available in the financial statements is the amount of rent earned from the properties. The Associated Journals reported rental earnings of Rs 9.4 crore during FY14. According to this Knight Frank report, prime office rental yield in Delhi stood at 9.5 per cent. The "yield" of a property tells you how much of an annual return you are likely to get on your investment. It is calculated by expressing a year’s rental income as a percentage of how much the property cost. While not a perfect rule of thumb, it is a reasonable way to estimate the cost of a property. Going by this, the value of property rented comes out to Rs 98 crore. Is this then the right number?


Though Swamy is the closest we have got to an Antaryami, for the benefit of the courts, the valuation of realty assets he has been claiming has to be from an independent valuation expert.


Why can’t he back up his case by getting these independently valued? There are professionals available in the market who can do a proper study of the assets taking into account the various factors including location, rental prospects, curbs on usage, transferability etc. The case would be a lot stronger with these.


A fraud on The Associated Journal shareholders


Another important argument Swamy makes is that the minority shareholders have been deprived off their due share. Shareholders of companies have the right to express themselves at the general meeting. They get a vote. As on September 29, 2010, just before the restructuring exercise began, the AJL had 931,923 equity shares outstanding. There were 1057 shareholders. Priyanka Vadra and Congressman Rameshwar Thakur as representatives of Janhit Nidhi were the largest shareholders with 262,411 shares (28.1 per cent). Then come Rahul Gandhi and Thakur, who as trustees of Rattandeep Trust held 47,513 shares. That is another five per cent. Thakur in his personal capacity held 26510 shares. Punjab Pradesh Congress committee had 15000 shares, while leaders like Ghulam Nabi Azad, Vishwa Bandhu Gupta and Oscar Fernandes held a few shares each taking the shareholding of people directly linked to Congress to about 40 per cent. That is often enough to carry any vote even in a widely held listed firm. In most of listed companies, it is common to see people controlling the largest block of shares and control of the management get the resolutions passed. Minority shareholders are allowed to express their dissent by voting against. Swamy and his team should find out how many voted against the resolutions in the Extraordinary general meeting of January 2011.


Some of the largest non- Gandhi family shareholders, who the Gandhis are said to have defrauded, included Abhimat Investments (P) Ltd, which owned 100,000 shares. Its address is simply listed as Bombay. But, this company could not be traced on the MCA21 website.


In the next year’s annual return, filed after Associated Journals' take over by Young Indian, there is no Abhimat Investments. However, There is Abhim Investments (p) holding the same 100,000. Though even this company was untraceable, its given address was “Pratiksha, Plot No. 14, 10th Road, Juhu Scheme, Bombay-400049.” Pratiksha, movie buffs would know, is famously the Bungalow of Bollywood superstar Amitabh Bachchan. That is over 10 per cent.


Late Lalit Suri (50,000 shares), his widow Jyotsna Suri (50,000) and another Suri family entity Deeksha Holding owned 1 lakh shares. Thus, the Suris own 21 per cent of the company.


Swamy should check with these shareholders, who might be familiar with the responsibilities and benefits of holding these shares, whether the said extraordinary general meeting was conducted as per procedure.


It would be an even better boost to Swamy’s case if he is able to get the Suris and the people who are running Abhim Investments from Amitabh Bachchan’s bungalow to support his case.


Fraud on the Congress party


This is another key argument. There are allegations on Swamy’s favourite social media platform Twitter that the whole case is a concocted story made by mixing Gandhis, Congress and Young Indian. The logic is that if you say the Congress party is a Gandhi family controlled party, then why would the family defraud the party?


Another possibility is that the Congress party, through its decision making bodies had authorized its senior leaders the Gandhis, Motilal Vora and Fernandes to do exactly these things to ensure that its substantial interests in the Associated Journals are protected?


Vora, the grand old man in the eye of this National Herald storm, should be able to pull a letter/document that says so out from under his pillow, even in his sleep.


Swamy should prepare himself for counter-attacks -- or make history by proving the adjectives he has so liberally used.

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