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CBI charges Emaar with financial irregularities

Firm refutes allegation that it has undervalued the cost of its properties

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Delhi-based real estate developer MGF has been accused by the Central Bureau of Investigation () for allegedly committing financial irregularities through stated sale of plots at grossly undervalued price in the 358.36-acre joint venture (EHTPL) in Hyderabad.

While the accusations center around the sale of villa plots covering 36 acres, the CBI says that the larger scam involves the reduction of the equity stake of the state-owned (APIIC) to 6.5 per cent from the original 26 per cent in the project.

The CBI yesterday arrested AP government's principal home secretary for his role as vice-chairman and managing director of APIIC in facilitating both.

The investigating agency had already arrested top official and ex-CEO of EHTPL GV Vijayaraghavan last week. He was named as an accused.

The CBI is going to file a charge-sheet in the case tomorrow. A senior CBI official said, “All aspects of the case are being looked into. There is a case of conspiracy between the company and the government. There has been exchange of favours between the two parties.”

According to the CBI officials, Emaar was made a conduit by government officials for providing favours to certain parties. “Emaar was given land at a nominal rate and a blind eye was turned at them when they were giving bungalows and villa plots in an unfair way,” a CBI official said.

A spokesperson for Emaar MGF said, “the project is being developed within the defined parameters and regulations and in accordance with the joint venture and collaboration agreements entered with APIIC and in furtherance of various state government orders. Emaar is a developer of global repute and high ethical standards. We have already completed the prestigious HICC (convention-centre-cum-five star hotel) and an 18-hole golf course in Hyderabad. We have full faith in the laws of the land and investigating agencies. We have fully cooperated in any investigation/ inquiry till date and will continue to do so.”

The CBI maintains that apparently the company has been the biggest beneficiary of the alleged scam that was going on between 2005 and 2010 untill new VC and MD of APIIC, BR Meena, served legal notices and notices for termination of agreement on the company starting June, 2010. The AP High Court, acting on a letter written by a state minister and a public interest litigation filed by Opposition , had ordered a CBI probe into the whole case in August last year.

Beginnings
It all started with EHTPL roping in Emaar MGF as the developer of the project comprising township with villas and plots as well as an IT park. Emaar MGF has so far invested about Rs 400 crore in the project.

EHTPL was one of the three joint venture special purpose vehicles (SPVs) set up by Emaar Holdings, incorporated in Mauritius by Emaar PJSC, Dubai, the original signatory of the MoU with the state government. EHTPL has so far invested about Rs 400 crore in the project.

The other two SPVs were responsible for developing an international convention centre and an 18-hole golf course, golf club with resorts and hotels respectively. The total land allotted to all the three SPVs was 525.5 acres in prime areas abutting the campuses of top IT companies in Hyderabad.

The entry of Emaar MGF apparently triggered the decline of APIIC equity to 6.5 per cent as the former was given 75 per cent stake in the township project without the consent of APIIC board. EHTPL was then left with 25 per cent stake. With Emaar Holdings having 74 per cent equity in the SPV, APIIC share came down to 6.5 per cent.

Emaar MGF told the High Court during the hearing process that its entry was mainly necessitated because the SPV partners were not in a position to infuse additional capital to maintain the existing equity shareholding in EHTPL. APIIC, on the other hand, had rejected this stating that the original understanding was that its equity remains at 26 per cent in exchange for land allotted by the government at the rate of Rs 29 lakh per acre.

The CBI said selection of the developer and subsequent reduction in equity were not brought to the notice of the board of directors of APIIC though Acharya endorsed these changes without informing or seeking the approval from the board.

The plot thickens
Through Stylish Homes the company decided to sell villa plots at Rs 5,000 per square yard as a ‘promotional gesture’ as against the open market price of between Rs 40,000 and Rs 60,000 per square yard, according to a report submitted by the AP government's Vigilance and Enforcement wing. The company availed of a Rs 150-crore loan from Axis Bank by mortgaging just 14-acre land at a valuation of Rs 22 crore per acre.

At the average price of Rs 50,000 per square yard, the total income from the sale of 136 plots could have been Rs 905 crore as compared with Rs 88 crore shown in the books of EHTPL, it said.

According to the remand report filed by the CBI, Emaar MGF had directly sold 34 of the total 136 plots covering 171,000 square yards area of which 18 villa plots were sold to 10 different companies registered under the names of Emaar MGF employees.

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