The Comptroller and Auditor General (CAG) of India has, in its latest report, brought to light glaring irregularities in land deals involving SEZ properties in Chengalpattu and Cheyyur in Kancheepuram district.

In both SEZ properties, the CAG audit found that vacant land or land with constructed residential units were “sold” to private individuals under the guise of “lease” thereby helping the developers pocket an undue gain in the form of exemption of stamp duty and registration fees to the tune of Rs. 8.68 crores apart from other benefits such as exemption of VAT, CENVAT, Service Tax, Customs Duty and Income tax.

The CAG report for the year ending March 2012 which was tabled in the Assembly on Wednesday has also recommended to the government to take steps to set right the irregularities that resulted in violation of SEZ rules and to recover the undue benefits passed on to developers/co-developers of these properties.

In Cheyyur, where the Commerce Ministry granted permission in 2007 for development and operation of an SEZ to The New Chennai Township (P) Ltd, the CAG audit found that the developer through 612 lease deeds had leased the lands in favour of individuals, transferring residential units along with undivided share of land in the non-processing area. The stamp duty exemption on this count was Rs. 7.71 crore.

Scrutiny of documents in the Sub Registrar’s Office revealed that the lease was in the name of individuals in 610 cases and two in the name of companies not connected with the SEZ. In all the cases, the lease was a period of 99 years and a one-time lease amount was collected, the report states.

In all cases, the deeds entitled the lessees to mortgage the properties with financial institutions for availing loans, and in 324 cases the properties were under mortgage. This implied that in the event of default by lessees, the financial institutions could auction the property to any person or entity not authorised for operation within the SEZ. If the residential units were intended to be used as support infrastructure for the processing zone, the leases would have been in the name of companies rather than individuals. “The terms of the registered documents clearly indicate that the housing units have been sold to individuals in the guise of lease,” the report stated.

In the Chengalpattu SEZ operated by M/s Mahindra World City Developers Ltd; the CAG audit noticed that the developer had transferred on lease an extent of 21.15 acres of land to one of the co-developers - M/s Mahindra Lifespace Developers Ltd.

Subsequently, the co-developer transferred the SEZ land with completed residential unit infrastructure to 10 individuals between January 2010 and November 2011 benefitting from stamp duty exemption to the tune of Rs. 96.84 lakh.

The CAG’s scrutiny of 104 documents registered with the SRO Chengalpattu revealed that while all the leases were on “perpetual” basis, 90 lease documents pertained to transfer of vacant land in the form of undivided share to individuals in contravention of the provisions of SEZ Rules, 2006. In 10 cases, land with residential units (villas and semi bungalows) were leased to individuals. The CAG noted that not only did the lessees enjoy mortgage rights under the deeds. The government’s response to the issue is awaited.

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