Karnataka govt set to lose Rs 600 cr in Bengaluru lease deal

Bengaluru: The Karnataka government flouted the law while leasing out more than one lakh square feet of prime land in the heart of Bengaluru to a private firm at a throwaway price, which is likely to cause an estimated revenue loss of Rs 600 crore over 30 years, according to RTI documents and well-placed sources.

Documents obtained under the Right to Information Act show that the government brushed aside the red flags, including violation of agreement, raised by officials while renewing the lease of 2 acres and 19 guntas (1,07,593 sq ft), adjacent to the Karnataka Golf Association in Domlur, to Royal Orchid Hotels Ltd, which runs star hotels.

The above-mentioned land, which houses Hotel Royal Orchid, was among the several parcels handed over by the government to the Karnataka State Tourism Development Corporation (KSTDC) to develop tourism infrastructure.

Originally, 4 acres and 32 guntas of land in Domlur was leased to Royal Orchids in 1992 at an annual rent of Rs 1.11 lakh per acre for 30 years. The lease expired on January 1, 2022, and the company sought to renew the agreement. Any possibility of renewal was subject to “mutually agreed terms”, according to the agreement.

When the KSTDC officials examined the application for lease renewal, they were shocked to see that the lessee had blatantly violated the terms of the original lease and subletted 25 guntas (27,000 sq ft) to another private company, Golf View Homes, for a sum of Rs 23.5 lakh.

Subsequently, the then MD of KSTDC wrote to the government, seeking to reject the request for lease renewal.

The KSTDC managing director pointed out the company violated the government order of 1992, which said “the lessee should not transfer this land by way of sub-lease, mortgage or otherwise without prior permission”. 

“Since Royal Orchid Hotel subletting government land to Golf View Homes without prior permission is illegal, the request for renewing the lease for 30 years should be rejected. It is hereby requested to invite tender (for the property),” the KSTDC MD wrote to the additional chief secretary of tourism department.

However, no disciplinary action was taken against the company. 

As per provisions of the Karnataka Transparency in Public Procurement Act (KTPP Act), a public property should be leased only through auction. The KSTDC would have benefited from the auction.

However, documents show that in March 2023, the then additional chief secretary, tourism department, held a meeting wherein a decision was made to renew the lease of 2 acres 19 guntas. It was also decided to scrap the lease agreement for the part of the land that was illegally sub-leased by Royal Orchid.

While the lease renewal itself goes against the KTPP Act, the government has committed another imprudent act by giving the land at a throw away price, which is estimated to cause a loss of at least Rs 600 crore (based on current value) over the next 30 years.

According to a source, the lease was renewed at a rate of less than Rs 1 crore per acre. 

“The government will end up getting less than Rs 2 crore per year. Auctioning the land along with the hotel rooms would have helped it to earn Rs 20-25 crore every year. In 30 years, the government will end up losing at least Rs 600 crore,” the source explained.

The renewal agreement was based on the September 2023 government order which fixed the lease amount “along the lines of the agreement with Karnataka Golf Association (KGA)”. However, this overlooked the fact that Royal Orchid is a purely commercial entity whereas KGA is a body with a stated objective of promoting health and fitness through sports.

Notably, the same private firm paid Rs 3.23 crore or about 24% of the gross income (including fixed lease amount and incremental profit sharing) for the lease of space in Mysuru for Royal Orchid Metropole. Similarly, for the Royal Orchid Brindavan Garden Palace, Mysuru, the company paid 24% of the gross income, including a fixed rent of Rs 1.72 crore.

Documents show that in March 2023, the KSDTC MD wrote to the government that the market value of the Domlur land parcel was Rs 16,000/sq ft. He had left the decision of auctioning it to the
government. 

“Considering the importance of optimum utilisation of resources to fund the welfare schemes, the renewal is a loss. The lease should be scrapped immediately and bids should be invited to monetise the land,” an official said.

Officials in KSTDC and the tourism department could not be reached for a comment.

Chander K Baljee, the chairman and MD of Royal Orchid Hotels Ltd, did not respond to a mail seeking response.