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Broke Air India mortgaged land worth Rs 3,775 crore — land that belonged to someone else

The land, two prime plots in New Delhi, was loaned to Air India by the housing ministry. It is now locked with a consortium of 19 banks led by SBI.

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New Delhi: Air India has been in dire financial straits for years. That’s not news.

But the state-run flag-carrier was so desperate for funds that it allegedly mortgaged land worth Rs 3,775 crore that had been leased to it by another government entity in violation of the lease terms and without even informing that entity for five full years, investigation by ThePrint has found.

It is a bizarre story that involves not only Air India, the union housing and urban affairs ministry and the consortium of banks led by state-run banking leader State Bank of India, but also the union ministries of civil aviation, finance and law, and the Prime Minister’s Office.

The land — two prime plots in the national capital — is now locked with a consortium of 19 banks led by SBI, also a public sector giant.

The Narendra Modi government has been trying to monetise the plots and use the proceeds to pay off some of Air India’s outstanding debts. But for that to happen, Air India, living off government largesse, or the union housing ministry, which had leased the two plots to the airline, has to first repay the consortium of banks.

The consortium of banks had valued the land at more than Rs 6,000 crore. And Air India, with its debt of Rs 55,000 crore, is obviously in no position to repay the banks to free the land.

It is now being hoped that another public sector giant, NBCC India Ltd, will clean up the mess and monetise the plots.

Mess began in 1983

The first of the two plots at the centre of the tussle between the housing ministry and Air India is in the upscale South Delhi locality of Vasant Vihar.

The 30-acre plot was allotted to Air India in 1967 for Rs 65 lakh (cost of land) and an annual ground rent of Rs 1.64 lakh to use the land to build staff quarters for the airline.

The second is a 3.5-acre plot on Baba Kharak Singh Marg near Connaught Place — the heart of the business district — allotted to Air India in 1983 at a subsidised rate of Rs 15 crore to build offices.

The housing ministry is the custodian of all central government land in the country, including the two plots.

The friction began way back in 1983 when the ministry cancelled the lease of the Vasant Vihar plot over non-payment of dues amounting to Rs 70 lakh, but Air India stayed on. It built its staff colony comprising 810 flats, guesthouses, a club and a shopping complex on the plot.

Documents reviewed by ThePrint show that Air India also failed to use the Baba Kharak Singh Marg land for the purpose stated, which resulted in the plot lying unutilised all these years.

Besides, Air India failed to pay the Rs 372 crore penalty levied by the ministry in 2014, which included non-payment of dues amounting to Rs 70 lakh and unauthorised occupation charges of Rs 302 crore for the Vasant Vihar land. The penalty, including the interest as of April 2019, has increased to Rs 632 crore.

Civil Aviation Secretary Pradeep Singh Kharola, who is also the Air India chief, did not respond to calls or email from ThePrint.

An Air India spokesperson told ThePrint the airline could not comment on the case as “the matter is dealt at ministry of civil aviation level”.

Questions sent to Civil Aviation Minister Suresh Prabhu also remained unanswered. This report will be updated when the officials respond.


Also read: Air India & Indigo fly without extra fuel for diversions, risky experiment say experts


The disagreement

In 2016, the union civil aviation ministry proposed to the housing ministry that the plots be monetised as part of a larger plan to leverage the airline’s assets to reduce its debt.

To monetise an asset means to generate income from it – monetising land, for example, may mean selling or leasing it.

The housing ministry did not agree, saying it allots land to government organisations for specific purposes, and if the receiver fails to use it for that purpose within two years, the land should be returned so it can be offered to other government departments.

On 1 June 2017, at a meeting chaired by Finance Minister Arun Jaitley, it was decided that Air India should hand over the possession of the two plots to the housing ministry so the latter could monetise them partly, if not fully.

It was also decided that the money generated from the two plots would be used to pay off some of Air India’s debt, one senior government official said.

It was during the course of these negotiations in 2017 that it was discovered Air India had mortgaged the two plots to the SBI-led consortium of banks way back in 2012 without the consent of the urban affairs ministry, three government officials told ThePrint.

Ownership conundrum

Following these negotiations, the ownership of the plots was transferred to the housing ministry’s Land & Development Office in August 2017, but the ministry cited two hurdles to pursuing the monetisation plan.

Firstly, it argued, the ownership of the two plots vested with the President of India and that the ministry was mandated to deposit any revenue from them in the Consolidated Fund of India.

“If the civil aviation ministry wants the proceeds from monetisation to be given to Air India, it has to take the approval of the competent authority,” said a third government official familiar with the matter.

Secondly, the ministry said, the two plots had been mortgaged. “How can you monetise land that has been mortgaged?” the official said. “This can result in the lender having the first right on sale proceeds.”

“Besides, the lender may not clear the sale if the sale yields less money than the valuation of properties at the time they were mortgaged,” the official added.

Senior government officials privy to the development told ThePrint that it was to avoid such a scenario that the PMO called a meeting last month and the housing ministry was told to draft a cabinet proposal to monetise the two plots.

NBCC to the rescue

The housing ministry, one top government official said, has drafted a cabinet note where it has proposed taking the help of NBCC India Ltd to monetise the plots.

According to the proposal, NBCC will develop retail and office space on Baba Kharak Singh Marg while apartments will be built on the Vasant Vihar plot. Both will be auctioned by NBCC. “The proceeds would then be transferred to a Special Purpose Vehicle (SPV) to pay off Air India’s debts,” the official said.

NBCC, according to the proposal, expects to raise about Rs 7,000 crore by selling residential apartments in Vasant Vihar and more than Rs 600 crore from selling office and retail space on Baba Kharak Singh Marg.

“To ensure that NBCC gets encumbrance-free land, it was also decided that the SPV will raise money from the market to pay off the mortgage. The government will stand guarantor for the loans that the SPV raises,” a second government official said.

On 1 March, the union cabinet gave “ex-post facto” approval for creating a SPV, set up in January 2018, for the disinvestment of Air India and its subsidiaries. The government also decided to transfer Rs 29,464 crore debt of Air India Ltd to the SPV along with non-operational assets of Air India.

The housing ministry has already sent the proposal for inter-ministerial consultations to stake-holder ministries.

“However, a decision on the cabinet proposal will now be taken by the new government,” the official added.


Also read: From 1 June, Air India to increase flights from Mumbai & Delhi to Dubai


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