Builder mortgages Palike property for loan

Claims rent accrued from leased-out complex as primary security

Builder mortgages Palike property for loan

After the Bruhat Bangalore Mahanagara Palike (BBMP) made news by pledging its prime properties - the historic K R Market and the Public Utility building - with the Housing and Urban Development Corporation (HUDCO), a private builder has done a BBMP by mortgaging a Palike property taken on lease.

Documents in possession of Deccan Herald show that Davanam Jewellers, which had entered into a concession agreement with the BBMP to “refurbish, build, operate and transfer” the Madiwala commercial complex, has provided the BBMP property as security for raising a loan of Rs 14.65 crore for its subsidiary company, Kausthubha Projects Pvt Ltd.

As per the company’s loan agreement with the State Bank of India (SBI), Overseas Branch, St Mark’s Road, Kausthubha Projects Pvt Ltd has provided as collateral security “assignment of all rights, titles and interests of the concessionaire / sub licensee in respect of all project agreements, documents and contracts (i.e. concession agreement entered into between Bangalore Mahanagara Palike and M/s Davanam Jewellers Pvt Ltd and further concession agreement entered into between M/s Davanam Jewellers Pvt Ltd and M/s Kausthubha Projects Pvt Ltd)”.

According to BBMP sources, the concession agreement was entered into by the then BMP and Davanam in 2005, during the coalition government headed by the Congress, for a period of 30 years.

“We did sign the agreement with Davanam at a rate of Rs 1.02 crore for every three months, with the rentals and leasing of shops in the complex being taken care of by the party in concern,” said a Palike official. The BBMP officials did not have a clue of Davanam and its subsidiary keeping the Palike property as collateral security with SBI, for raising a loan of Rs 14.65 crore for a period of seven years from September, 2009 till August 2016.
Justifying the collateral, Managing Director for Davanam Jewellers, D V Harish told Deccan Herald that the BBMP property was never pledged and it was only the agreement which was shown by them as the collateral.

“We do not have the right to keep the property as collateral. What we have shown as our primary security to raise the loan is the rent which is accrued from the property leased out to various shopkeepers,” said Harish.

Another violation

Yet another violation which has come to the fore is that Davanam Jewellers has, over the past seven years, sub-leased the property to Kausthubha Projects Pvt Ltd, its subsidiary and has a stakeholder in the form of D K Shivakumar, Congress MLA from Kanakapura.

Shivakumar is the only other stakeholder in Kausthubha Projects Pvt Ltd, with 50,000 shares allotted to him in May 2010. The Congress MLA and former minister has provided personal guarantee along with the BBMP property as collateral to raise the Rs 14.65-crore loan from SBI.

BBMP officials claim that the sub-lease of its property is never approved and is in violation of the concession agreement. “If they have done it then Davanam Jewellers have a serious problem on their head,” said a senior BBMP official.

However, Harish said the concession agreement has in fact given room for them to sub-lease the property.

“Also, it has to be considered that we have in fact repaid our loan to SBI and the agreement has been satisfied,” he argued. The loan was satisfied by Davanam Jewellers in March this year, he claims.

Legal experts say the concession agreement cannot be kept as security, as the property is never in the private developer’s name.

“How can any private party keep a concession agreement between two parties as collateral? It is never their property to utilise for raising funds. The only thing a private party can do is show it as surety for the purpose of getting loan and not as security,” said a legal expert.

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