The Enforcement Directorate’s (ED) investigation has revealed that the Ambience Group had not made the obligatory contribution of Rs 462 crore for the construction of Rs 1,272 crore luxury hotel project at Shahdara in the national capital, violating the loan conditions of a consortium of banks, led by the Jammu & Kashmir Bank.
The observation came to light during the recent hearing of the bail plea of Raj Singh Gehlot, Chairman of the Ambience Group of Companies, who was arrested by the ED on charges of allegedly defrauding the banks which granted Rs 810 crore loan.
Denying bail to Gehlot, the court also noted that the loan amount disbursed by the bank was siphoned off through certain entities, which have been found to exist only on papers.
Aman Hospitality Pvt Ltd (AHPL), a group entity of Ambience Group, purchased a plot of commercial land at Shahdara in an open auction held by the Delhi Development Authority on March 3, 2006 for the purpose of construction and development of a hotel.
Upon technical evaluation, the cost of the hotel project was estimated as Rs 867 crore, in which promoters’ contribution was fixed at Rs 287 crore and the loan at Rs 580 crore.
Based on this estimate, the group approached J&K Bank’s Ansal Plaza Branch with a proposal in 2009 for sanction of loan of Rs 75 crore and bank guarantee of Rs 15 crore towards financial closure.
Later, the development strategy was changed and it was decided that a luxury hotel would be constructed, instead of two hotels of lower categories. The step resulted in cost escalation, and the feasibility of the project, the cost, and the source of finance were re-assessed by PNB Investment Services Ltd., and the loan amount was worked out at Rs 810 crore and the promoter’s contribution was fixed at Rs 462 crore.
Thus, the total project cost was estimated as Rs 1,272 crore. In due course, a loan of Rs 810 crore was sanctioned and disbursed in favor of the group by a consortium of banks, led by J&K Bank.
When the company turned defaulter, the consortium of banks sanctioned a funded interest term loan of Rs 165.82 crore to restructure its loan. However, AHPL still failed to discharge its obligations, and as a result, J&K Bank declared the company’s loan account an NPA on June 30, 2018.
As per the ED, it was found during their investigation that out of the bank loan of Rs 810 crore, Rs 781 crore were routed by the accused through an escrow account of J&K bank, in which the loan amount was disbursed.
The amounts received by the 25 non-contracting parties were transferred to two companies which further transferred the funds to Ambience Group companies, wherefore the money was used to settle loans of Ambience Group companies and for meeting expenses of the applicant, his family and his friends.
On the other hand, the group argued that the transactions were part of a turnkey contract, terming the prosecution complaint as “baseless allegations”.
Even prior to the disbursal of the loan amount, the promoters had invested Rs 267.33 crore, and this was utilised in the construction of the hotel, which has 480 rooms with 10 lakh square feet covering area with 30,000 square feet banquet area, and is completely functional since its inauguration.
The completion of the hotel project and it’s being completely functional indicate that there has been no diversion of funds, and least of all, any generation of “proceeds of crime”, the group argued.
The court noted that the lender banks did not take recourse under SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) and chose to opt initially for a one-time settlement.
It was in the opinion that conversion of a part of the debt into equity, pursuant to the Strategic Debt Restructuring Scheme, was an outcome of the criminal misuse of the loan amount by the applicant and the same does not wipe off the criminality relating to the underlying transaction, whereby public money under the garb of the loan was diverted and siphoned off.
“Considering the parameters of Section 45(1) PMLA, I find no reasonable ground for believing that the applicant is not guilty of the alleged offence. From a prima facie view of the material placed on record and in light of the gravity of the alleged offences, it cannot be said either that the applicant is not likely to commit any such offence while on bail,” the court said while dismissing Ambience promoter’s bail plea.
(Jaison Wilson can be reached at firstname.lastname@example.org)