The Comptroller & Auditor General of India has said the Maharashtra government's City and Industrial Development Corporation extended undue benefits of about Rs 464 crore (Rs 4.64 billion) to Larsen & Toubro on incomplete projects on the development of an integrated complex at the Seawood railway station in Navi Mumbai.
L&T has denied the charge and said the delay was entirely due to a dispute between Cidco and the railways.
In fact, the company has petitioned the high court in Mumbai against the state government, for recovery of stamp duty of Rs 64 crore (Rs 640 million) paid on the same project.
CAG says despite no progress on the work, Cidco's board of directors had accepted L&T's request in August 2009, without approval of the state government, for an extension of three years on delayed payment charges.
The CAG made its scathing remarks in its report tabled for the year ended March 31, 2011.
The developer agreement for the Seawood project was signed on April 21, 2008.
L&T paid a lease premium of Rs 724 crore (Rs 7.24 billion) of the total amount due of Rs 1,809 crore (Rs 18.09 billion).
The balance lease premium was to be paid in instalments due on April 2009, 2010 and 2011.
However, Cidco, after considering the delay in handing over of the site to the developer, extended the due date of payment from April 21 to June 24 every year, said CAG.
An L&T official, who did not want to be identified, said: "For three years, the project was hanging in the balance due to a dispute between Cidco and Central Railway, due to which the
latter did not accord permission to commence the project.
Tendering for the project without the reconciling the land issues with CR was the major default on Cidco's part."
He said CR granted its approval only in August last year and L&T had started the work right after.
L&T, he added, had been ready with all the approvals to commence the project at the committed time, including environment clearance and commencement certificate.
Since 2008, L&T had spent Rs 1,000 crore (Rs 10 billion) on the project.
On the other hand, CAG says L&T did not furnish the stipulated bank guarantee of Rs 1,085 crore (Rs 10.85 billion).
Cidco's managing director had accepted this was a deviation of the terms, contrary to the principle of transparency and not in Cidco's best financial interest.
There was no security available with Cidco in case of a default by L&T.
As for the HC petition on stamp duty (a government official said the next hearing was on April 24), the company said it would not comment, since the issue was already before the court.
It appears the stamps and registration department had treated the agreement as a lease but L&T had argued otherwise and said it could not have attracted the stamp duty.
Reportedly, the state government had said it would charge only Rs 100 on the ultimate lease deed if L&T paid the disputed amount of stamp duty.
L&T has said it would not, given the uncertainty on whether and when the lease deed would be executed.
A government official, who did not want to be identified, told
Business Standard: "There is no provision for giving a setoff of the stamp duty, particularly on documents pertaining to a lease."