Noida land allotment scam: CAG uncovers shady deals, gory details, and shoddy performance of Noida Authority – Part 1

How realtors Logix, 3C and Wave groups became the center of multi-crore scam

In the first Performance Audit Report on the functioning of Noida Authority, the Comptroller and Auditor General (C&AG) of India has highlighted the dismal performance of the authority in the land acquisition and allotment of properties in Noida city submitted to the Government of UP in November 2021. This is the first audit report of the C&AG since the jurisdiction of the audit of Noida and other development authorities was entrusted to the C&AG in July 2017.

In his comprehensive report, the C&AG has invited the attention of the stakeholders to the widespread corruption, undue favoritism to private firms, arbitrariness, and collusion between officials and builders in the functioning of the Authority in the allotment of plots during the period 2005-2018 leading to loss of tens of thousands of crores of rupees to the Authority/ Government, besides causing untold sufferings, distress, and despair among tens of thousands of families of the homebuyers. The C&AG has pointed out rigging in bids by several developers/ builders in collusion with the officials, major irregularities in the processing of applications & allotment, allotment to ineligible parties, leveraging net-worth of an entity for multiple allotments, illegal sub-division of plots/ transfer of ownership of allottees without ensuring payment of outstanding dues/ timely completion of projects, etc.

The period of the audit covered 2005-06 to 2017-18 i.e, the regime of four chief Ministers- Sri Mulayam Singh Yadav (2005-2007), Ms. Mayawati (2007-2012), Sri Akhilesh Yadav (2012-2017), and Sri Yogi Adityanath (2017-2018). There were 24 CEOs of the Noida Authority during this period. Of them, three CEOs – Rama Raman, Mohinder Singh, and Sanjeev Sharan had occupied the CEO position of Noida Authority for more than two years each.

During the period 2005-06 to 2017-18, NOIDA Authority allotted 2,761 properties measuring 188.34 lakh sqm under group housing (GH)- 37.72 percent, commercial-8.94 percent, sports city-17.07 percent, Institutional-8.14 percent, farmhouse (FH)- 9.75 percent and industrial-18.38 percent categories at the premium (cost) of Rs.39,443.41 crore excluding industrial plots cost. The C&AG has stated that during the audit period, the Authority acquired 80 percent of land under the Land Acquisition Act, 1894 applicable up to December 2013, providing a standard justification of industrial development for invoking the urgency clause, which enabled the Collector to dispense with the rights of landowners in respect of hearing on objections to proposed land acquisition.

53.34% plots were allocated on subsidized/ administrative rates

The authority allotted the plots for GH, commercial, and Sports city on a competitive bid basis (63.73% of allotments) to the highest bidders against a fixed Reserve Price (RP). In contrast, Institutional, FH, and Industrial plots were allotted at fixed administrative prices based on the interviews conducted by Plot Allotment Committee (PAC). Further, the RP of plots for Sports city and fixed price for FH, institutional and industrial purposes was kept significantly lower than the RPs kept for GH or commercial plots, i.e., after excluding many types of costs which the authority themselves incur. Thus, the Noida Authority in effect allotted only 46.66% of plots through competitive bidding based on market rates whereas 53.34 % of plots were allocated on subsidized/ administrative rates to private companies/ firms.

Group housing (GH) projects

NOIDA Authority allotted 67 GH plots1 measuring 71.03 lakh sqm primarily during 2005-2018 at the cost of Rs.14,050.73 crore, which was subdivided into 113 plots by the allottees with the approval of the authority. Of these, 71 projects (63%) were either incomplete or partially completed even after ten years of allotment as of 31.3.2020. The outstanding dues of developers/ builders have increased to Rs.18,633.21 crore as of 31st March 2020, including Rs.7281.89 crores of Unitech Ltd, Rs.2276.67 crore from Amrapali group, etc after ten years of allotment of plots.

Commercial properties

During the audit period, NOIDA Authority made 320 allotments in the commercial properties category admeasuring 48,98,440.47 sqm at the cost of Rs.25,264 crore through 41 closed-ended schemes. It includes an allotment of 4 plots for the development of sports cities in prime sectors of 78, 79, 150 & 152 for 33,44,193 sqm (826.34 acres) at the lease premium of Rs.5597.92 crores.

80 percent allotment of commercial plots to three groups

The C&AG has reported that about 80 percent of total allotments in commercial category plots measuring 39,10,376 sqm were made to only three groups viz. Wave group of companies, 3C group of companies, and Logix group of companies during 2008-2015.

Wave (Late Ponty Chadha) group of companies – Wave Infratech Ltd and Flora & Fauna Land Development Pvt Ltd were allotted prime commercial properties/ builders plots of 6,63,104 sqm (42 percent builder plots of all commercial allotments) at the cost of Rs.6570 crores in heart of Noida (Sector 25A/32 sectors) in 2010-2011. However, due to changes in government in March 2012 and the death of Ponty Chadha in November 2012, most of these projects were not completed due to one or the other reasons. and they have either surrendered the land (454131.63 sqm) in December 2016 or the authority has cancelled (108421.13 sqm) the allotment (February 2021) due to non-payment of the dues/ installments. Wave Group of companies had dues of Rs.4425 crore as of 31st March 2020.

Logix Group of companies promoted by Shakti Nath and his family members under the holding company of Logix Soft Tel Pvt Ltd (Turnover- Rs.12.25 crores in 2009-2010) were allotted 2 GH plots, 3 Commercial builders plots, and a Sports city plot (224 acres in sector 150) at the cost Rs.3246.50 crore during 2010-2011. Logix group had outstanding dues of Rs.5840 crores as of 31st March 2020.

Three C (3C) Group of companies promoted by Vidur Bharadwaj, Nirmal Singh, and Surpreet Singh Suri, were allotted 3 GH plots, 4 Commercial builders plots, and 2 Sport city plots (502 acres in Sectors 78, 79 & 150) at the cost Rs.6384.69 crore during 2010-2014.

Rigging of bids through the collusion of the bidders

49 out of 67 allotments (73 percent) of GH plots were made during the period 2008-09 to 2010-11. In 42 out of 49 allotments, only two bids were received, of which in 15 pairs of applicants (for 15 plots valuing Rs.2611.36 crore), the participating bidders were the same or of the same group. In nine of these cases, one allotment was made to each bidder while in the remaining cases the allotments were made to one bidder. The C&AG has found that the bid prices in all cases were very close to the RP and in 12 cases, the winner had bid less than two percent higher than the RP fixed for the plots. The C&AG stated that collusion between the participating bidders could not be ruled out, more so in those cases where alternate allotments were made to each of the participating bidders. Moreover, these allottees did not pay the premium timely and have dues of Rs.1625 crores after ten years of allotment.

The C&AG has further suspected rigging of competition through the use of group companies as competitors by Assotech Limited and Supertech Limited, for three plots (GH-93/137 of 51000sqm, GH-04/78 of 61430 sqm, and GH-01/74 of 249410 sqm and felt that the sanctity of the tender process was vitiated and compromised in these cases and hence liable to be summarily rejected.

Allotments to ineligible companies

The C&AG has observed that allotment of two plots (GH 01 & 02, Sector-143) of more than two lakh sqm worth Rs.471.57 crore was made to Logix group of companies promoted by Shakti Nath in 2011, who failed to even qualify the technical eligibility criteria of a turnover of Rs.200 crore from real estate development and construction activities. In both cases, the bids should have been outright rejected. The authority also failed to examine whether the Logix group consortium had the requisite aggregate net worth to qualify for allotment of multiple plots.

It was further noted that the authority had already earlier been allotted 3 commercial builder’s plots (A-1/124, C-03/105, and CC-04/32) of 143250 sqm to ineligible Logix group consortiums at the cost of Rs.1680.93 crore a few months ago in 2010-2011 even when they failed to meet the mandatory technical eligibility criterion of a minimum turnover of Rs.200 crore from real estate development and construction activities and aggregated net worth required for the plots. In addition, the authority allotted another much bigger plot of Sports city of 224 acres (907988 sqm) in Sector 150 in May 2011 to the ineligible Logix group consortium at the cost of Rs.1094 crores, overlooking the mandatory technical eligibility criterion of a minimum turnover of Rs.200 crores from real estate activities during the previous three years (2007-2010). The lead member of each Logix group consortium was a software development company namely Logix Soft Tel Pvt Ltd. It has paid-up capital of Rs.14 crores and a turnover of Rs.9.70 crores in 2009-10. Thus, the authority allowed the Logix group consortiums led by a small software company to grab six large plots aggregating more than 300 acres valuing Rs.3246 crores in 2010-11.

Multiple Allotments Made to Logix Group during 2010-11

Note : *The Company had a paid-up capital of Rs.1.00 lakh.** None of the participants in any consortiums had a turnover in real estate development and construction activities.

The filings of Logix Soft Tel Pvt Ltd with MCA/ GOI claimed that they became the holding company of 22 newly incorporated subsidiaries in 2010-2011. As per the audit report, the modus operandi followed by the Logix group was to submit bids for each plot through a consortium (of 5-10 subsidiary/ associate companies) and after allotment of the plot, the key members of the consortium would exit and plots would be divided into sub-plots and allotted to subsidiaries, who in turn would sell/ transfer the sub-plots to third parties. Mr. Shakti Nath had constituted more than 50 subsidiary companies during 2009-12 in which Meena Nath and/ or Vikram Nath were also directors. Shakti Nath is presently director in 33 companies, Meena Nath in 43 companies, and Vikram Nath in 16 companies.

Three C (3C) group of companies on the strength of Three C Universal Developers Pvt Ltd, incorporated in March 2007, were allotted 3 GH plots of 3,84,295 sqm of Rs.860.66 crore, 4 Commercial builder’s plots of 138286 sqm at the cost of Rs.1548.27 crore and two sport city plots of 20,32,747.72 sqm (502.29 acres) at the cost of Rs.3428.58 crore. If this was not enough, a national newspaper has reported that the directors of the 3C group of companies and their family members – Nirmal Singh, Surpreet Singh Suri, Vidur Bhardwaj, and wife Richa Bhardwaj were also allotted 8 farm houses plots of 10,000 sqm each in prime sectors of the Noida city at throw-away prices in 2010-11. The 3C group had outstanding dues of Rs.4694 crores as of 31st March 2020.

In all biddings, 3C Group used the parameters of Three C Universal Developers Pvt Ltd (DOI-7th March 2007, turnover- Rs.155.6 cr & net-profit-Rs.8.92 cr in 2009-10) to meet the technical eligibility criterion to grab multiple plots. The 3C group of companies also followed the same route of bidding through a consortium of subsidiary companies in grabbing the plots. The Directors – Vidur Bhardwaj, Supreet Singh Suri, and Nirmal Singh had constituted a large number of subsidiaries /associate companies during the period 2008-2012, bid through consortiums led by different subsidiaries, and have since resigned from most of them. As per MCA records, Vidur Bharadwaj is presently a director in 4 active companies only but from 2008 to 2012, he was the director in more than 100 companies. Supreet Singh Suri and Nirmal Singh were also directors in more than 100 companies during this period.

Undue favour to builders by using net worth for multiple allotments

In course of processing the bids, Noida Authority evaluated the net worth of the applicant companies individually case-wise, overlooking the fact that the builders had applied for many plots in different schemes during the audit period. As a result, the authority failed to determine the requirement of the net worth in aggregate in the case of multiple applications of an applicant company/ builder. Resultantly, several allottees/ companies obtained more than one allotment of the plot by leveraging their net worth multiple times. In a test check of GH plots, the C&AG found that 10 applicants were allowed to use their net worth more than once to garner 26 (subdivided into 43 plots) allotments worth Rs.4,293.35 crore. The beneficiaries were: Supertech Ltd and Gaursons Ltd obtained 4 plots each, Ultra Homes and Gulshan HomZ got 3 plots each, Prateek Buildtech, Amrapali Homes, Unitech Ltd, Ajnara India, Agrawal Associates, and Bihariji Ispat one each.

Repeated relaxations given to builders of no avail

Over the years, Noida Authority relaxed many important terms and conditions like financial qualifications criterion of net worth, solvency and total turnover, provisions of the escrow account, bank guarantee, etc. The authority also kept on reducing the payment of upfront allotment money from 40 percent of the land premium in 2006-07 in phases to as low as 10 percent in 2009-10. In 2009, Noida Authority took further steps viz. re-shedulement of eight-year repayment term with the two-year moratorium, sub-division of plots (above 40,000 sqm), transfer of sub-plots, the deposit of 10 percent of lease premium till the execution of lease deed, etc., to provide relief to the allottees ostensibly to combat the 2008 recession/ economic conditions. The authority however continued these rebates/ relaxations indefinitely. As a result, the allottees were required to make the payment of the lease premium/ cost of the plots over a period of ten years from the date of allotment. This reduction substantially reduced the financial commitment of the developers and enabled them to garner more or bigger plots and launch more and more projects without completing the existing ones. Further, these plots were sub-divided and illegally transferred/ sold to third parties on premium through changes in the share-holding of the subsidiary companies.

The C&AG has found that in 12 cases the allotted plots had been sub-divided into 32 sub-plots. Of these sub-plots, in only eight cases the value of the plot was commensurate to the net worth of the sub-lessee and in 24 cases the value of the sub-divided plot exceeded the net worth of the sub-lessee. In these 24 cases, the sub-lessee obtained plots ranging from 1.16 to 14 times their net worth. In eight of these cases, the net worth of the sub-lessee was less than Rupees one crore and yet they were permitted sub-lease of plots worth Rs.501.62 crore in aggregate. It is thus, evident that Noida’s decision to allow sub-division without any regulatory mechanism in place served effectively as a backdoor entry for the transfer of valuable property into the hands of ineligible builders.

Payment schedule of plots not kept in sync with completion schedule of a project

The decision of the Noida Authority to increase the payment schedule of the plots to ten years from the date of allotment was also not in sync with the tenure of completion of the projects by the promoters. Thus, the promoters obtained the significant (75-80 percent) cost of the flats including the plot cost from the homebuyers within 2/3 years of the launch of the projects while they were required to pay the land cost to the Authority over 10 years. Resultantly, they diverted the funds elsewhere, leading to consequential delays in the completion of the projects. The builders in turn garnered more allotments as they enjoyed greater leverage to obtain bigger plots and to take loans from banks on the back of deposits of the smaller amounts of down-payment.

The authority also did not follow up the relaxations by having close monitoring of the progress of the projects on the allotted plots or payment of premium/ cost of the plots by the allottees. Instead, the authority kept on granting further re-schedulements to the developers, which made the matter worse as there was no incentive for timely payment of installments, causing havoc among the home-buyers.

Thus, these rebates and relaxations didn’t help homebuyers finally as small firms like Logix group, 3C group, Supertech, etc., took advantage of the relaxations and garnered multiple/ bigger plots and sub-divided them through their subsidiaries and sold the plots on premium to the companies which had not participated in the bidding and didn’t meet the even the relaxed technical eligibility criterion. There was therefore the complete collapse of the governance in the authority/ government as on one hand, the authority kept on relaxing the terms and conditions of allotment of plots on the plea of severe economic crisis while on the other, they kept on increasing the size of plots from 50,000 sqm to 13,00,000 sqm and created a new class of neo-Zamindars who in turn divided and sub-divided those plots through their newly created subsidiaries and sold/transferred them to third parties.

To be continued…

Note:
1. Text in Blue points to additional data on the topic.
2. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.

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• Author
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R B Sinha

The author is a retired DG of the C&AG
of India, He was a member of RERA,
Bihar during April 2018-December, 2021.

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