October 29, 2012
Dear Mr Jaydeep Shah,
I am constrained to write this letter after seeing press reports about what is perceived by the media as a questionable `deal' for over Rs 100 crores involving purchase/lease of a large piece of land at Nagpur from a property developer Luxora. A reading of the media reports itself makes it evident that the said transaction is questionable and, added to that, without the sanction of the Central Council of the ICAI, which is mandatory. The project, I am told, involves a massive construction of about 165,000 sq. ft for a Center of Excellence at Nagpur. The media reports on the intense controversy about the project has caused considerable disquiet among our members.
I also understand that the issue also became the subject of prolonged debate in the Council meeting itself. I am writing this letter on the basis of the information which has been gathered by me from different, but reliable, sources.
It appears that the whole transaction has been carried out in a tearing hurry. This is self-evident from the chronology of events.
The Finance Committee of ICAI appears to have taken decision on 25th July and had mandated that the President or Vice President shall inspect the site, legal clearance be taken etc. before the buy decision was taken.
However, on 13th July itself (before 12 days of that meeting), you, along with the VP seem to have visited the site and given clearance.
Exactly a week after, it is said, you have attended a presentation by the construction contractor along with VP and the Secretary.
The next day after the presentation, I understand, the Secretary & a few others visited some of the other sites developed by the contractor to `satisfy' themselves about the quality of such construction.
Within the next 3 days, I am told, the developers have had a meeting with you, VP, another Council member, where the `deal' was almost concluded.
Exactly on the 4th working day thereafter, I am gather, the Finance committee met on 30th July to formally approve it.
Within the next 48 hours, that is on 1st August, I am told, a legal opinion was obtained from a Nagpur based lawyer.
And on the same day, it is said, payment of Rs. 9.85 crores towards advance and stamp duty was paid.
Two days later, on 3rd August, I am told, the registration formalities were over.
Significantly, the entire Central Council, the real legal authority to consider and sanction the project, seems to have been totally unaware of the prima facie questionable transaction.
While the need for establishing such state of the art Centres of Excellence in Tier Two cities without any due diligence study itself may need deeper consideration, (especially when the already constructed one at Hyderabad I am told is grossly under utilised and while the lands acquired/allotted by State Governments in Bangalore, Mount Abu and Chennai are lying idle), the information that out of the 12 proposals, including Bangalore, Mount Abu and Chennai, only the received for the Nagpur COE, received attention first and that too only that of this developer (Luxora) was `found suitable' make the whole transaction unusual.
I have a few questions which you, despite your tight schedule, may have to find time to answer in the larger interest of the fair name of our institute and our professional image:
Is the Finance Committee which functions under you and consists of a couple of other Council members, or the Central Council the ultimate authority for approving capex projects of such magnitude? (The amount involved in the Nagpur deal works out to nearly Rs. 140 Crores – land cost + lease charges + construction + infrastructure, which, I understand, is nearly one-seventh of ICAI's balance sheet size!)
Why was the whole matter kept so confidential and even the Council and even the central office, I am told, was not informed?
Given the fact that the ICAI is a quasi-state body, why the mandatory Central Vigilance Commission norms on calling for competitive bids were not followed?
Why only Nagpur EOI was chosen and EOIs received in respect of other places were not even considered?
Why was the amount per sq. ft (Rs. 3900/-) mentioned by the developer in EOI accepted, without any negotiations on the pricing and why on top of that additional 10% towards lease charges was voluntarily agreed?
How was that the decision of the pricing on the land taken without any reference to the market price or the guideline value, which I understand is just about one fifteenth of the price agreed by ICAI?
How was that the decision to go for the construction for such a huge state of the art facility with the developer taken by you and a couple of your colleagues without taking any expert civil / electrical / architectural opinions? What kind of engineering or technical background you or those who were with you in the decision making process possess?
Is there any precedent of ICAI going for this kind (composite contract) and magnitude (Rs. 140 Crores) of deal with any private parties in the past?
Was there any budgetary approval for this capex?
When we are pontificating about corporate governance and we are trusted as the watch dog of its compliance, how does the questioned transaction squares with that responsibility of ours in our own affairs?
Besides a Chartered Accountant, as a citizen of India who has striven and also paid high personal and professional cost to uphold basic values in public calling, I am pained at the reputation of the professional body to which I belong being tarnished by such questionable deal which fits the political class of today.
More. The ICAI is mandated to enforce discipline and promote ethics among individual members of the profession. If the leadership of the ICAI itself behaves the way it has in this case, how will the leadership have the moral authority to maintain discipline and ensure ethical behaviour. What I am worried is that the matter in question opens the possibility of criminal investigation by law enforcement agencies. It will then become a matter of disgrace for the whole community of CAs.
I was so disturbed about this development that, last week, I rang up Mr G Ramaswamy the past President of the Institute and asked about how did this shocking transaction take place. He told me that the matter was strongly debated in the Council meeting on 15th Oct and that it has been decided by the Council to suspend any further payments pending receipt of a report from a panel constituted to go in to the details of the deal. He told me that the matter has been discussed in such depth that, 99 percent, as he put it, the transaction would be cancelled. As an indication of it, he said, even the issue of how to recover the amount paid for stamp duty was discussed. He therefore requested me to wait for a month before deciding to take any further action in the public domain.
That the fair name of the profession of CA, which is being undermined by greedy Multinational CA firms operating in our country through our own members already, is being risked by the ICAI itself is very painful. I therefore appeal to you and to the office bearers of the Institute and the members of the Central Council to cancel the deal which, prima facie, smacks of wrong doing.
I am expecting your response by way of effective action.
With regards,
S.Gurumurthy
Chartered Accountant__._,_.___
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