Lodhi Hotel, New Delhi: Whose land is it on anyway?

In the first part of this series, we saw how withholding information, and in some cases, absolute disinformation, was a tool used by some bureaucrats to derail the valuation of ITDC assets, the first phase of its disinvestment process. And when the information concerned was detrimental to disinvestment, ITDC officials went on a proactive spree, trying to scare away potential bidders about the ''dangers lurking ahead''. The entire experience brought to light the scant regard that senior ITDC personnel had towards a decision taken by the Union Cabinet. Now, in the concluding part of this series, let's see what happened once the ITDC disinvestment wagon finally started to roll.

That bit about "why should we pay for the two architects?" is typical of what administration has become: anyone can raise any "issue", and thereby secure a delay for weeks and months at a time, often he can derail the Government completely from implementing its decision. At turn after turn, our Ministry has had to contend with this feature.

ITDC had 31 properties. No one would want to buy all the 31. But to sell each separately, the properties had to be "demerged". In such steps one is obliged to protect the interests of shareholders. ITDC was owned overwhelmingly by Government. Tatas held 10 per cent of the shares, but they said they would go along with whatever Government decided. But still the demerger plans must be approved by shareholders, a joint secretary held.

And then, "What about the interests of creditors?" he demanded. They may feel that change of management will jeopardise the loans they had given to ITDC. It so happens that the courts have already settled how the interests of creditors are to be protected. The crux of their judgments is that, while the interests of creditors should be protected, they do not have the right to veto a demerger or amalgamation scheme. In any case, we were building the necessary clauses into the sale agreements. But, "No, each sale must be approved by creditors in a separate meeting that must be held at the site of each hotel." That gave every chicken supplier who had not yet been paid by ITDC a say in the matter: for the Companies Act provides that such schemes must be approved by 75 per cent of the creditors present and voting. But, the moving finger having writ, there was no way round the meetings. He insisted that the approval could be obtained only by convening the meetings, that it could not be obtained by circulating the resolution among shareholders and creditors.

All right, meetings. But who has to be called to them? ITDC said that they did not have the list of creditors handy, preparing it would naturally take time....

The result was what had been predicted: a few small creditors attended the meetings, and in three cases they defeated the demerger resolutions. In the end, the powers that be agreed to dispense with this farce of holding meetings, and settled instead for the alternative that was obvious and flowed from the court judgments themselves: that is, ITDC would provide corporate guarantees to protect the interest of the creditors. Even that proved insufficient. Governmental bodies-the Municipal Corporation of Delhi, the NDMC, the Land and Development Office, and the National Buildings Construction Corporation-would not be satisfied with guarantees of a body that had defaulted so blatantly on dues to them: we, therefore, provided that the successful bidder would defray the dues. We had also to provide severe penalty clauses: that if the purchaser failed to discharge dues to the creditors within specified periods, Government would be entitled to buy back the shares at one-half the price that the bidder had paid to Government....

Any one at any level at any stage

The scheme for demerger was prepared by the legal advisors for the transaction. It had then to be put to the Inter-ministerial Group for approval. Then it had to be filed with the Department of Company Affairs. And then to the Board of Directors of ITDC.

And everyone at every level was free to question everything. The Cabinet Committee had approved the demerger scheme. Eventually, the Board of ITDC met. It approved the demerger of 22 properties, but not of the four properties that were to be given on lease-cum-management contract. The Board maintained that it had yet to understand the advisability of demerging these properties, and, pending such understanding breaking out, it naturally withheld approval from the scheme.

And at every step esoteric issues got raised. Shall the shell companies that would be formed to "own" the individual hotels for the few weeks before privatisation be public limited companies or private limited companies?... Why the word "Ashok" cannot be used in the names of the shell companies.... The manner in which accumulated losses of ITDC must be shared between the new shell companies.... The affidavit about the schemes contained the declaration that "the information is true and correct". This should have read, said the authorities concerned, "the information is complete, true and correct." And there should have been a separate affidavit for each property, not a portmanteau one covering all of them.

The result of this was that the demerger process that had been commenced in October 2000, did not get completed till the end of 2001: the matter had to go up for the approval of the President of India, it had to be considered by the Cabinet Committee on Disinvestment thrice. By mid-November 2001, the Cabinet Committee on Disinvestment had approved the bids for the hotels at Bangalore, Madurai, Bodhgaya, Hassan, Mamallapuram and Agra. But we could not complete the transactions as motions regarding the demerger scheme were still being executed.

Six months went over another issue-the appointment of the Asset Valuer. ITDC started the process in January 2001. It prescribed certain conditions and set out the scope of work. It invited offers from 71 parties. Arguments broke out between departments, and with the advisors, as it was felt that the scope of work was being redefined from step to step. Eventually, a valuer was selected. He was asked to reduce his fee. He didn't. In the meanwhile another department ruled that by a provision of Company Law a company could not pay for activities connected with its own privatisation. As the Disinvestment Ministry was to pay the asset valuer, it began the process of selecting one. ITDC said that it had already completed the selection. We inquired, could you then send us the relevant file?. It has been sent higher up, we were told. The whole thing had become so acrimonious that I had no alternative but to cancel everything, and start all over again. It was not till the end of June 2001, that the asset valuer could be appointed.

The same "issues"-who will pay for their services? Can they be selected by limited tender?-were raised in regard to, and thereby dogged the appointment of other intermediate advisors: chartered accountants and lawyers. The process of appointing them began on August 1, 2000, and could not be completed till the end of January 2001.

ITDC officials now raised another "issue". The hotels had been making losses, they began. These losses had been met by other divisions of ITDC. Therefore, before privatising the hotels, the Ministry of Disinvestment must reimburse the other divisions of ITDC! Detailed indents-hotel-wise!-were sent: November 2000 to March 2001-Rs 7.55 crore; April 2001 to September 2001-Rs 10.52 crore. Soon a reminder arrived. The correspondence became more strident with each exchange.

Even as this was going on, the Land and Development Office (LDO) put in its spoke. Officials who had neglected inspecting the hotels properly for decades suddenly went round, spotted a host of violations, and intimated that they would send lists of unauthorised constructions, misuses, illegalities, the works, and issue show-cause notices. Such lists would immediately become parts of the Data Room, and contribute to scaring away bidders....

All this apart, there was a dark overhang to everything: the corporation and these hotels had not been discharging even their statutory liabilities. Provident fund contributions had not been deposited. Property taxes had not been paid. Lease dues had not been cleared. Electricity charges had not been paid. Water charges had not been paid. A rough estimate put these statutory, obligatory dues at around Rs 90 crore. Naturally, the bidders would not proceed till the quantum and status of these liabilities were settled; till they were told conclusively who would be held responsible for the dues not having been discharged in the past-the original managers etc., or the successor company-and who would be responsible for discharging them after privatisation. But to do that required discussions-"negotiations" would be the better word-with a multiplicity of authorities: from the departments of law, company affairs, labour etc., to the Cantonment Board of Agra, the Municipal Corporation of Madurai.

Sorting out an "issue"

Each authority, in turn, had to go through loops entwined in loops. The land for the Ashok Beach Resort at Kovalam had been transferred in six phases-over the previous 30 years. The figures that the advisors were supplied by ITDC added up to 78.61 acres. But the statement from the hotel itself put this figure at 64.5 acres! To sort this single anomaly required the hand of ITDC, of the Ministry of Tourism, of the Department of Tourism, Government of Kerala, of the District Collector, of the Village Officer, Vizhinjam. A single, sample communication will indicate the state in which things were, and what had to be done to get over even such an elementary problem. The communication was sent by the General Manager of the Kovalam Ashok Beach Resort on April 22, 2002. Here it is:

Enclosed please find the Possession Certificate issued from the Village Officer, Vizhinjam, which is self-explanatory. As far as Thandaperu record is concerned, we are in possession of 25 hectares 78 acres [sic.] and 40 sq. Mt. During the due diligence, most of the parties wanted to have clear possession certificate less the encroachment as well as disputed area.

I talked to the District Collector about the same. Mr T. Balakrishnan, IAS, Secretary (Tourism), called a meeting of the Collector as well as Tahasildar etc. Mr Amitab Kant, IAS, Joint Secretary, also followed up from Delhi and asked Mr Balakrishnan to expedite this particular problem. During the meeting, this problem was discussed and it was decided that barring the adverse possession area, a clear possession certificate would be issued for the balance that is with us. Basically, there are two areas that are under dispute.

1. Kerala State Tourism Development Corporation (KTDC)

2. Udaya Samudra

As far as Palace and land surrounding the same are concerned, there is no record of transfer of land and payment from the State Government to ITDC. Even the State Government does not have the record of the same. This land was not acquired land and this particular piece of land was owned by Kerala Government and has been transferred to ITDC at some point of time. We are not able to trace out the record of the transfer nor Kerala Government also [sic.] does not have any record of this particular transaction. However, mutation has been done in the record and the palace and surrounding areas are our property. Even the taxes have been paid for the complete land in spite of adverse possession.

Since Government of Kerala is not very sure with regard to the mode of transfer, they also marked this area as adverse. Hence, after working out the complete adverse area, 16 hectares 47 acres [sic.] 95 sq. mt. of land has been given as clear possession and the balance land i.e., 9 hectares 30 acres 45 sq. mt. has been given as adverse possession.

Submitted please.

But getting the extent of land sorted out was just the beginning. There was a long-standing dispute between ITDC and the KTDC over 5.8 acres. And there was an equally ancient dispute about a structure right in the middle of the property-the Halcyon Castle. At long last, ITDC proposed a quid pro quo: ITDC would hand over the disputed land in the northern corner of the property and requested that the State Government cede its claim to the castle. Fine, said the state Tourism Department. But, it said, as this was a major decision involving transfer of land, it had to be referred to the state Cabinet....

Property-specific loops

Vaulting over such walls did not mean that we were now free to proceed. It just got us as far as the next wall. Each property had impediments of its own.

Bidders naturally must know the court cases in which the property is entangled. But there was no central list, to say nothing of any estimate of what the financial liability was liable to be in the event of the judgment going against the hotel.

Collating even the basic information-just the case, and the point in question-took a good bit of time. It turned out that the hotel establishments were embroiled in 339 cases.

Several of these involved other governmental agencies: the state electricity boards-about billing, about dues not having been discharged; several involved disputes with local municipal and zonal authorities-about property taxes, about illegal constructions; several involved disputes with tax authorities. There were numerous cases that employees had filed against the hotels-for wrongful termination of services, for ignoring seniority, for denying promotion on grounds that employees thought were unjustified; several that hotel managements had filed against employees-for absenteeism, theft, molesting a guest, drunkenness, negligence, habitual unpunctuality, allowing credit that was as good as writing off the amounts to guests/suppliers/contractors. There were a host of cases against contractors, suppliers, tour operators-about unpaid bills, about leasing of restaurants, travel counters and other facilities. Similarly, ITDC had agreed to refer some of the disputes to arbitration, and then filed appeals against the awards of the arbitrators. There were appeals against verdicts of labour courts. There were cases against the local community: about cremation and burial grounds, about dwellings that had been set up illegally on the premises of the hotel....

The cases were in high courts, in local courts, in labour courts, before arbitrators. The problem was not just that the information had to be collected. The problem was that in many instances, the legal department did not know where the case stood at the time.

But gathering and compiling the information was but the first step. It soon became evident that whoever won the bids would have to contend with this heap of litigation for an indefinite future, and to uncertain liabilities. The Hotel Temple Beach Bay at Mamallapuram, to take one instance, was involved in a dispute with the local fishermen. They had set up cremation and burial grounds at three different places encompassing 2.36 acres, as well as their dwellings on the property that notionally belonged to the hotel. True, the Sub-collector, Chengalpattu, had given an order-in 1998-permitting ITDC to construct the compound wall that it had proposed. But the people of the area had prevented it from doing so. The order of the Sub-collector too had been a conditional one: ITDC may construct the wall, he had decreed, but if the religious people of any community object to locating the cremation and burial ground as it had proposed, ITDC will have to shift back one of the cremation and burial grounds to the eastern side without any protest.

When contacted, the management at the site explained that land for the new cremation and burial ground had not been handed over, that the fishermen had refused to stop bringing dead bodies for cremation and burial "in front of our guest cottages". ITDC put the onus on the revenue authorities who, it said, were not able to convince the fishermen. The authorities said they were not able to do so because ITDC had not filed the necessary written commitment. On top of this, we learnt that the new lobby, kitchen, a new block of 12 rooms, another set of seven duplex rooms, all fell within the prohibited "200 metres from the high tide line" zone, and ITDC had, in fact, received demolition notices in regard to these from the Mamallapuram New Town Development Authority.... Two kilometres from the site, ITDC operated a restaurant. It was located over 4.5 acres. But it was not clear who owned the land. The advisor had to first persuade ITDC to locate the actual owner of the land, and execute a transfer deed with him.... In fact, inspection disclosed that the hotel owned yet another 7.05 acres-for which too the transfer deeds were not available. Here too ITDC had to first determine who the actual owner was, and execute the deeds.

The sale deed for the land on which Khajuraho stands had not been registered. Internal correspondence disclosed that, in fact, in the local land records the property still stood in the name of the original owner-Maharaja Bhawani Singh. In addition, it turned out that there was a dispute in regard to the land on which 16 of the rooms, the chef's residence and a portion of the swimming pool of the hotel stood. A private party claimed that this land belonged to it, and that ITDC had usurped it. The Additional Commissioner had ruled against ITDC. On the other hand, the private party had encroached upon the southern portion of the plot belonging to ITDC....

The hotel at Udaipur, the Laxmi Vilas Palace, had leased 7.78 acres of land to Hindustan Zinc Ltd for 99 years, at around Rs 1 lakh a year. HZL had constructed houses for its staff on this land. In turn, HZL had constructed 12 staff quarters at its cost for ITDC, and leased them to ITDC at Rs 25,000 a year.... Talk of cross-holdings!

Calcutta: For 30 years a dispute had been raging between ITDC and the Airports Authority of India (AAI)-for the lease rent to be charged. It was now lying with the Ministry of Law. For 22 years another dispute had been raging between ITDC and AAI- the lease rent to be paid for the restaurant ITDC was operating at the airport. The matter was now lying for arbitration with the Joint Secretary and Financial Advisor, Ministry of Civil Aviation. Because of these disputes, the lease and licence agreements had not been signed either for the hotel or the restaurant....

We could not proceed with the Hotel at Aurangabad for quite a different sort of reason. ITDC had purchased land from Southern Railways in 1980, and had paid Rs 9.94 lakh to the latter. That much was established. But for 21 years since then there had been a dispute about the extent of land for which this payment had been made: ITDC maintained that the amount had been paid for 24.72 acres; the Railways maintained that the amount had been paid for only 12.44 acres. ITDC had taken Southern Railways to court. The Railways claimed first that ITDC must pay another Rs 4.13 crore to it for the extra land. Soon, they upped the amount to Rs 5.94 crore. Pradip Baijal, Secretary, Disinvestment, devised a formula for an out-of-court settlement: two bids would be invited-one for 12.44 acres, and another one for the entire land; in case Government finally accepted the bid for just 12.44 acres, Railways would get Rs 1 crore; in case it accepted the bid encompassing the entire area, Railways would get the entire incremental amount. But at the last moment another complication erupted: with just three weeks to go for the financial bids, an advertisement appeared in The Economic Times-a lady claimed that the entire land was part of the estate she had inherited....

The Department of Tourism and the Land and Development Office under the Ministry of Urban Development were engaged in a long and vigorous battle about the ownership of the land on which Delhi's Lodhi Hotel stood-and had stood for 37 years! The Department of Tourism insisted that the LDO, Ministry of Urban Development, had transferred the land to it. LDO insisted that the ownership continued, on behalf of the President of India, to vest with the Ministry of Urban Development. The shastras were brought out-by each side. One claimed that the land had been transferred by the Under Secretary, Ministry of Urban Development, to the Department of Tourism at cost for its use. The other claimed that the latter had acquired it at a premium....

Almost all properties had constructed unauthorised structures. These had not been regularised. The amounts that would have to be paid to compound the violations-assuming that the local authorities would condescend to regularise them and not press the show cause notices that they were now issuing-were anybody's guess....

And that is just one enterprise

Problems-equally frustrating, equally silly, problems just as divorced from the tasks that the enterprise had been set up to execute-have dogged every single transaction.

In fact, the hotels have in many ways been transactions that it has been possible to complete in record time!

Jessop and Co had become sick by the early 1970s. With the delusions of those days, to save it from extinction, the firm was nationalised in 1973. Its losses mounted. It was given reliefs upon reliefs-by January 2002, it had been given reliefs of Rs 466 crore. But its losses continued to mount. Its net worth became negative-hugely negative. It was referred to the Bureau of Industrial Finance and Reconstruction (bifr) in 1995. While the bureau considered scheme after scheme for putting it on its feet, the net worth of the company fell to minus Rs 290 crore. Its accumulated losses rose to Rs 372 crore. The bureau kept on deliberating.

The Government announced that it would turn the enterprise over to a private party: that was on January 30, 1997. BIFR sanctioned a revival scheme in May 1998.

After two years of efforts had not yielded any partner, the Ministry of Heavy Industries transferred the case to the Ministry of Disinvestment-that was in February 2000.

BIFR appointed SBI Caps as the operating agency-to finalise a scheme to enlist private partners for converting the company into a joint venture.

In August 2000, BIFR passed an order that would have hamstrung the efforts at disinvestment.

The operating agency issued advertisements in September 2000, inviting private parties to form a joint venture for running the company. It received no response at all.

Government filed an appeal against the order of BIFR before the Appellate Authority for Industrial Finance and Reconstruction in November 2000.

This authority took till January 2001, to affirm that there was no bar to the Government submitting to BIFR a scheme for disinvestment as a possible way of reviving the company.

The process for disinvestment could be begun only thereafter-in February 2001.

Given the procedures that have been prescribed, the bids could be invited, and finally approved by the Cabinet Committee on Disinvestment only on February 27, 2002.

In other cases, that would have been the end of the road. But this was a BIFR case. So all that could be done was to submit to the BIFR-a body headed by an itinerant IAS officer-a scheme that had been approved by the Cabinet Committee headed by the Prime Minister.

The BIFR thereupon referred the scheme to its operating agency for the case-as a result, sundry employees of a subsidiary of the State Bank of India now commenced sittings on a scheme that had been approved by the Cabinet of India!

The operating agency could not find time to hold a meeting-its first meeting-for a month.

Two months later, BIFR concluded that its operating agency had found that transparent procedures had indeed been followed in inviting and approving the bid!

As the BIFR had still not passed any order, and two and a half months had gone by, our Ministry wrote to BIFR requesting it to come to a decision.

The operating agency now convened yet another meeting.

Eventually, four months after the Cabinet had approved the bid, the operating agency gave its report to BIFR. Ostensibly, it was a scheme that the agency had prepared. In fact, it was just a rewrite of what the Cabinet had approved.

BIFR decided to circulate the scheme of the agency, and gave parties another three weeks to file their objections or comments.

When that hearing was held-by now five months had passed since the Cabinet approved the bid-BIFR directed the Government of West Bengal to give their final views about their proposal that a bank guarantee be sought from the bidder that he would discharge the loan the State Government had given to Jessop to cover its sales tax dues!

But along the way, the company's staff association had filed a writ in the Calcutta High Court against the disinvestment of Jessop.

The court passed an interim order: while BIFR may proceed with hearings about the proposal submitted by Government about inducting a strategic partner, the Government should not act on the orders of BIFR without obtaining leave of the court.

There have been seven hearings of the court since then.

Jessop, of course, continues to haemorrhage.

The writ on Jessop is just one of 31 writs that have been filed against disinvestment by July 2002-right up to the Supreme Court. Each of them has required the help and time of a host of individuals and agencies: from the Attorney General and Solicitor General to local lawyers, from the Departments of Law, Company Affairs, and the Administrative Ministry to the management of the particular enterprise. Thus far we have succeeded in having 15 of the 31 dismissed. Sixteen remain.

The Lessons:

1. What we have been wading through, a glimpse of which I have given above, is not special to disinvestment: on the contrary, disinvestment is but a prism through which we get a glimpse of what has become of administration, of governance in general.

2. At this pace, there is just no way by which we will be able to keep up with the world.

3. The element that is most urgently needed as part of the "second generation reforms" is the reform of processes-and that includes decision-making within the executive, the ambit of cases that the courts will entertain as well as the dispatch with which they will deal with them, and also the loops through which necessary legal changes will have to pass through in legislatures before they become law.

4. As for expediting administrative decision-making, we must learn from the fate that has invariably befallen attempts to speed things up. Remember how many committees were established to expedite import and industrial licensing? Remember the "single windows" that were instituted? The single-point Secretariat for Industrial Clearances? Things reverted to status quo ante within months of each initiative. It is only when the function itself was jettisoned that the improvement came about.