Paul Antony, IAS, Chairman, Cochin Port Trust, writes:

On April 13, 2013, The Hindu carried a news item headlined “Port gets just Rs. 71 crore for a deal to build flats worth Rs. 1,000 crore,” which indicated a shady deal in allotting land to a private developer. The factual position and chronology are as follows:

As the Cochin Port Trust (CPT) was facing a financial crisis, it was decided to seek the approval of the Ministry of Shipping to tender out eight plots of land belonging to the CPT that cannot be used for port development activity. This included 10 ha of land in Bolgatty Island. This, along with another piece of 8 acres on the Marine Drive, was tendered as per the Land Policy Guidelines issued by Ministry of Shipping, and after obtaining the specific approval of the Ministry of Shipping.

Before this, the CPT attempted to allot small pieces of land on tender basis as per the Land Policy Guidelines. But the response was poor, mainly due to the fact that huge investments were involved and the lease period was only 30 years. Hence, special permission was sought from the Ministry to lease out the land for 99 years, to ensure a good response.

Approval from the Ministry of Shipping was sought to lease out various areas, including the said land at Bolgatty, for 99 years for commercial and other non port-related activity, vide letter No.EM2/212/land/2009 dated October 28, 2009. Sanction was obtained from the Ministry as under: “That the land may be leased for 30 years with an option for renewal after 30 years at the then prevailing rates. There is no need to approach CCEA in this regard” (Letter No.PO-28015/19/2008-DRG dated June 4, 2010). Accordingly, the Port management decided to tender out 10 ha of the land at Bolgatty.

Tenders were invited under the two-cover system on June 23, 2010, with the due fixed date as August 12, 2010 after giving wide publicity to attract bidders. The Notice Inviting Tender (NIT) was published in The Times of India and Malayala Manorama. The NIT was on the CPT website, the government tender website and the notice boards of the CPT. The NIT was sent to 90 potential investors by post. Officers telephonically contacted investors. In response, 40 parties downloaded the NIT, four firms attended the pre-bid meeting and three firms purchased the tender documents. The last date for bids was extended from July 23, 2010 to August 12, 2010. This information was published again in the two newspapers and two websites.

However, the only tender received was from Mr. Yusuff Ali M.A, EMKE Mansion 1, Nattika P.O, Thrissur. No bids were received for the eight acres of land similarly tendered for commercial purposes on the Marine Drive under similar bid conditions. The price bid was opened on August 21, 2010. The upfront premium quoted was Rs.674 lakh per ha, which was against the departmental basic price of Rs.548 lakh per ha — which worked out 22.99 per cent above the departmental base rate.

The CPT’s Tender Committee observed that Mr. Yusuff Ali had quoted at the rate of Rs. 674 lakh per ha, which worked out to Rs.6,740 lakh for 10 ha. In accordance with the prevailing Scale of Rate notified by the Tariff Authority for Major Ports for the Bolgatty area, the upfront premium calculated based on the Net Present Value (NPV), in accordance with the Land Policy Guidelines, is Rs.54,80,18,811 for 10 ha. The offer worked out 22.99 per cent higher than the base upfront premium calculated based on the Scale of Rates. The committee observed that in accordance with the Land Policy Guidelines dated March 8, 2004, the lease rent as per the Scale of Rates shall be arrived at, taking 6 per cent of market value as annual rent. The market value assessed by the approved valuer appointed for the purpose and approved by the TAMP for the land at Bolgatty Island is Rs.210 lakh an acre and 6 per cent of the market value, that is, the lease rent per annum is Rs.12.60 lakh. Accordingly, base upfront premium calculated as the NPV in accordance with the Land Policy Guidelines, giving 6 per cent discount and 2 per cent annual escalation, worked out to Rs.54,80,18,811 for 10 ha (24.7 acre). The value quoted by Mr. Yusuff Ali was Rs.6,740 lakh, which was Rs.1,260 lakh (22.99 per cent) higher than the base upfront premium calculated as per the Land Policy Guidelines. The Tender Committee observed that the bidder’s offer was Rs. 674 lakh per ha. As per the valuer’s report, the land value assessed in the Bolgatty area was Rs.518.7 lakh per ha. The offer was Rs.155.3 lakh (per ha) higher than the assessed land value. The Tender Committee concluded that the bid was a competitive one. The committee met on August 26, 2010 and noted that only one bidder had qualified. The Chairman approved the recommendation of the Tender Committee to consider the bid submitted by Mr.Yusuff Ali.

The CPT’s Board of Trustees approved the proposal to allot the land in favour of Mr. Yusuff Ali, vide Resolution No.63 dated September 6, 2010. As per the Board’s approval, the purposes for which the land could be used are: setting up of hotels, resorts, convention centres, shopping malls, commercial/office complexes and allied facilities as provided in the tender conditions and detailed in the Board Note. Accordingly, an allotment order was issued to lease out an area of 10.59 ha at Bolgatty to Mr. Yusuff Ali, vide letter No.EM8/Lease/Bolghatty/2010, dated November 26, 2010.

Whenever a big project with substantial investment is proposed, some vested interests would interfere in the process for obvious reasons. Though the CPT had adopted a transparent tendering process giving sufficient opportunity and time to bidders, two casual letters were received from two parties offering a higher amount than the bid submitted by Mr. Yusuff Ali. These were from KENT Constructions Pvt. Ltd. and Thomson, who had not participated in the tendering process. Later, KENT Constructions Pvt. Ltd. and Thomson submitted offers at the rate of Rs.91 crore and Rs.87 crore respectively. Later they withdrew these letters. One petitioner, Dijo Kappen, filed W.P (C) No.36882 dated December 7, 2010, before the High Court of Kerala, praying for a stay of proceedings including execution of the lease and handing over of the site. During the hearing of the petition for admission, the court asked the petitioner whether he was willing to submit an undertaking that there would be a higher quote in case the CPT re-tendered the land. The petitioner did not commit to submit a bid at a price higher than the one received in case of a re-tender. The court dismissed the petition without admission. The same petitioner filed complaints with the Central Vigilance Commission and the Central Bureau of Investigation. Both made enquiries. It is understood that they have not found any irregularities in the tendering process and allotment.

LuLu Convention & Exhibition Centre Pvt. Ltd. submitted the project drawings for the CPT’s approval on August 23, 2012, and approval was granted on October 4, 2012. As per the approved drawings, the project comprised a hotel in 12 floors with a plinth area of 36,930 sq m; three hotel villas (ground floor and first floor) in 387 sq m; a convention centre in three floors running to 35,536 sq m; a shopping arcade to the extent of 713 sq m; an electrical sub station extending across 96 sq m; four security rooms to an extent of 36 sq m and two sewage treatment plants occupying an area of 330 sq m, besides a rain water harvesting system.

As per tender conditions, it is the responsibility of the successful bidder to comply with the statutory obligations.

On April 17, 2013, The Hindu carried another news item headlined “Developer can pledge Kochi Port’s land for loans, says lease deed”. The headline and text are factually incorrect and unfounded. The Land Policy Guidelines issued by Ministry of Shipping on January 13, 2012 provide for issuing no objection certificates (NOC) for mortgage of leasehold rights (not land) along with structures erected by the lessee. Such NOC is issued after an examination by and recommendation of the Land Committee and with the approval of Board of Trustee. This is mentioned in the document. Issue of NOC for mortgaging leasehold right (not port land as reported) is a routine matter in Major Ports when lessees seek such NOCs. Probably the Reporter misunderstood the provision for mortgaging leasehold rights as “pledging of Cochin Port land for loans”.

The news item said the security deposit would not be available for adjustment if the lessee defaulted payment of lease rentals to the CPT. This is unfounded; the lessee has already made upfront payment of lease rentals for 30 years. These issues are not relevant to this allotment.

The Hindu’s reporter had a telephonic conversation with the Secretary of the CPT on April 12, and the Secretary had clarified the points. When specific queries referring to certain documents were made, he was informed that those would be clarified after verifying the records. The Reporter had agreed to discuss the matter further on April 15 or 16, but the first news item appeared on April 13.

There was a specific query from the bidder during the pre-bid meeting whether “residential units can be set up in part of the complex.” The CPT replied in writing that the “purpose of [the] tender is not [a] residential complex. However, residential accommodation can be provided to the essential staff.” From this, you may appreciate that the reference in the headline to building “flats worth Rs.1000 crore” is unfounded.

You can see from these facts and details that the CPT followed a transparent tendering process as per rules and procedures, with the approval of the Ministry of Shipping. Therefore, the news items do not have a factual basis or reference. The land was not allotted for constructing flats, as mentioned in the headline.

Lease rentals of land in a Major Port are fixed by the Tariff Authority for Major Ports, and land allotment is made under the Land Policy Guidelines. After due allotment, once an allottee has complied with the tender conditions and clears all dues, if the allottee makes substantial investment as per the purpose of allotment and makes profits, it does not have any direct relevance to the port. This is quite a normal scenario in all Major Ports. Many projects with huge investments have come up on land allotted by Major Ports. In Cochin, BPCL-KR, DP World, Petronet LNG and so on have made huge investments on land allotted to them, and their profits do not have any direct relevance to the CPT as long as they have complied with the allotment conditions and cleared the dues.

Staff Reporter replies:

Unfortunately, the Cochin Port Trust ignored our queries sent on April 10, 2013. After waiting for three days, the report was published on April 13.

The report did not attribute any motives to the port authorities, but raised questions, in the larger public interest, about the details of the bidding process, the finalisation of the lease amount, the status of the proposed 572 apartments and the details of profit-sharing, if any.

The CPT insists that a single-bidder situation is normal. After elaborating how it arrived at the single-bidder situation, it talks about the base upfront premium: Rs 54.8 crore. Here the port reveals that according to its valuer the market value of land at Bolgatty in 2010 was Rs 2.1 crore per acre. My story quoted market sources to say that the market value of land at Bolgatty in 2010-11 was around Rs 20 crore per acre. I stand by this assertion. This piece of land was undervalued.

In providing the component parts of the project as per the approved drawing, the letter exposes a breach of agreement by the developer. In its application to the Member Secretary, State Environment Impact Assessment Authority, on March 18, 2013, the developer sought CRZ and environmental clearance for 572 service apartments. (Appendix 1, Form 1, item: '’Creation of new land uses? The proposed site is earmarked for the development of commercial activities. It is proposed to construct Hotel (217 rooms), convention centre (3,400 seats), Restaurant (1,046), Service Apartment (572 Nos), Health Club with first aid room.'') Although you indicate that at the pre-bid meeting the port responded to a specific query on residential units in the negative, is it the CPT’s position that seeking environmental clearance to build 572 residential units is tantamount to violation of the lease agreement?

From the documents The Hindu has, it is clear that a prime part of the project is the building of 572 residential units. In the map drawn by its architect and submitted as conceptual plan for environment clearance, the promoter has earmarked the largest portion of the leased land for apartments. Whether serviced or not, an apartment is a dwelling unit and it has a market value if it is for sale or long term sub-lease. An average residential unit near Bolgatty at Marine Drive costs about Rs 1.5 crore to Rs. 2 crore. So, a residential unit at Bolgatty ought to fetch more, according to top real estate dealers, and that it is why we assumed that these 572 would be worth Rs 1,000 crore

Leasehold property can be converted to freehold. This is regularly done in Delhi in the case of DDA flats and even flats in cooperative societies built on leasehold land. The CPT’s lease agreement does not bar the developer from renewing the lease as many times as it wants. There are no clauses in the lease agreement preventing renewal, so practically it is going to be the choice of the lessee alone. It also permits sub-leasing to other parties. In effect, it is a lease in perpetuity.

Incidentally, had the CPT replied to our queries and said that there was no approval for building residential units, the story would have taken been written very differently.

The CPT also refers t our story dated April 17, 2013: ''The Land Policy Guidelines issued by Ministry of Shipping on 13-1-2012 provides for issuing NOC for mortgage of leasehold rights.'. That is what we said: ''Developer can pledge Kochi Port's land for loans, says lease deed'.' Leasehold rights are over a piece of land and in effect it is the piece of land that gets mortgaged with a bank. Suppose the bank loan turns bad, will the bank have the right over the land for the lease period or not? If it has, as it ought to have, then it means the leasehold rights over the land go to the bank and the bank gets custody of the property.

The CPT’s clarification also seems to confuse the security deposit with the upfront payment. The annual lease rent, obviously, is over and above the one-time upfront payment. The lease rent for the Bolgatty property is Rs 1.05 lakh per annum. The security deposit is meant as caution money against default of this lease rent. The lease agreement says that, ''If the Lessee defaults in payment of the rent at any time, necessary adjustments may be made by the Lessor from the amount in deposit and the Lessee shall make up the corresponding deficit in the deposit.'' But this deposit is ''Rs nil'' in the agreement.

You have left out other concerns raised, about unauthorised sub-leasing, permission for sub-lease, the possibility of sub-lease turning into virtual sale of land or structures, and of course the primary issue: Is the port permitted to hand over the land as the developer is not into any port-related activity? According to agenda item no. B2 of the Cochin Port Trust Board of Trustees meeting for 2004-05, the port was permitted to reclaim this land from the Vembanad Lake only on the condition of using it for the International Container Transshipment project and port expansion. Due process was followed for leasing out the land. But this process was used to violate the original plan for reclamation. The port was allowed to reclaim the land only for port expansion, particularly for the International Container Transshipment project.

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