Bonanza for builders in NOIDA

Although NOIDA was mandated to develop industrial estates, in practice it has given priority to residential needs and commercial development.

In the Master Plan of 2031, NOIDA it was planned, would develop 2,806.52 hectares of land as industrial area. But till March end of 2018, NOIDA developed 2,418.90 hectares, but only 1,150.03 hectare (47.54 per cent) could be allotted. Out of the allotted area, only 796.10 hectares were made functional up to March 2020. CAG noticed that 20.73 per cent of the industrial units on the allotted plots were non-functional, thus defeating the objective of industrialisation.

NOIDA was to ensure that industrial units were established on the allotted industrial plots within the prescribed period. Rates of industrial plots were kept lower. NOIDA was to ensure that the benefit of these subsidised rates was passed on to genuine industrialists and not to investors, speculators or land sharks.

However, the objective industrialisation was defeated through a series of decisions taken by the Authority.

*Before 2009, transfer of plots was permitted only after the unit was declared functional. This condition was relaxed in September 2010 when transfer of non-functional plots was also allowed due to the global recession. However, since then NOIDA has not restored the previous order and has continued to allow transfer of non-functional plots, which promoted trading of non-functional plots.

* Allowed change in shareholding from one company to another without paying any fee.

* The allottees of industrial plots were required to make their unit functional within three years from the date of allotment/lease deed whereas the industrial allottees of IT/ITES units were required to make their unit functional within five years from the date of allotment/lease deed.

Completion/functionality period was extendable on payment of extension charges for a maximum period of 10 years. NOIDA revised (November 2008) the rules and the maximum extension period was relaxed. But no limit was fixed for maximum time extension allowed for IT/ITES plots.

Even the reduced maximum time extension period was very high as compared to Greater Noida Industrial Development Authority (GNIDA) where maximum time extension period for industrial plots was only three years.

NOIDA allotted industrial plots without ensuring that the plots were free from all encumbrances, without developing site or without site plan in many cases. So, the lease deed could not be executed- industrial projects could be set up on such plots. Till May 2017, project evaluation for allotment of bigger plots was left to the discretion of the Plot Allotment Committee (PAC) as parameters were not formalised. That increased scope of malpractices due to discretion.

Post allotment, NOIDA did not ensure that allottees gave proper proof of deposits made by them. Records showed only a few challans were in original. In most cases photocopies were furnished. There was no assurance that these were genuine copies of the original.

NOIDA outsourced evaluation of the applications to ‘U.P. Industrial Consultants Ltd.’ (UPICO) and PAC evaluated the projects and made recommendations for allotment. But all the powers pertaining to allotment of properties were vested with the CEO, NOIDA. She overlooked the recommendation of the PAC in several cases without recording reasons and in some other cases disregarded negative recommendations of PAC and reconsidered applications.

The CEO allotted plots on discretionary basis based on interview and presentation. Absence of defined parameters for evaluation of the applications coupled with discretion of the CEO in allotment against the recommendations of PAC made fertile ground for misuse of authority by officials including the CEO. It does not need much imagination to know that discretion does not always come for free for those who benefit from such discretion.

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The NOIDA scam

• Unutilised industrial plots were not taken back

• Industrial plots were allowed to be used for commercial activities

• Recommendations of the Plot Allotment Committee were ignored

• Conversion charges for mixed land use was reduced from 50 percent to 10 percent, resulting in loss of revenue

• Ineligible companies were given plots through the back door by allowing transfer of shares

• NOIDA lost 14,000 Crore between 2006 and 2017 by not taking into account FAR and GC while fixing prices

• Plots auctioned for Group Housing at lower rates were later converted to commercial use without charging any premium or fees to oblige businessmen and builders

• Due to under recovery of rates, NOIDA lost potential revenue of Rs 16,245.44 crore

The industrial projects on allotted lands were not monitored and many of them did not come up or remained incomplete. But NOIDA did not take back such land and reallot them to other willing entrepreneurs.

Post allotment, in many cases industrial plots were irregularly used for commercial purposes while NOIDA’s policy allowed commercial and institutional activities in residential areas and not in industrial area.

But from December 2017, NOIDA regularised commercial activities like auto showroom, art gallery and museum in industrial areas. The wider objective of providing institutional and support facilities was given a go by. Again, many industrial allottees of smaller size plots, mostly situated on narrow roads also started using their plots for commercial purposes. But there was no enforcement to prevent such commercial activity on narrow roads.

The violators of mixed land use policy were rewarded. Conversion charges for mixed land use were reduced from 50 per cent to 25 per cent and subsequently to 10 per cent by the Board in September 2015 on the ground of public demand for reduction. In the process not only misuse of industrial plots proliferated, but NOIDA lost significant amount of revenue. Decisions involving revenue loss was not adequately examined before this was implemented.

NOIDA’s rules allowed abuse of opportunity for the allottees to transfer ownership of companies holding allotted plots without payment of any charges to NOIDA through change in shareholding. Thus, a group of ineligible companies were brought back to own industrial plots through the back door. This caused loss of revenue and facilitated the allottee company to transfer the plot in favour of another set of shareholders for free who otherwise may not have been qualified for the allotment of plot.

Not levying charges also resulted in change of ownership of plot. Change in shareholding free of cost resulted in loss of revenue for NOIDA and encouraged malpractices.

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NOIDA had not developed costing guidelines for costing and fixing of premium (for industrial, institutional and farm houses ) / reserve prices (for commercial plots/shops, group housing/builder plots and plots for sports cities).

Nor did they ever engage a cost accountant. So, the staff were left to learn on the job and in case of wilful mistakes, they could not be held responsible as they had no formal procedures or guidelines to follow.

In the absence of well laid-down procedures for pricing, builders and other allottees benefitted from unprofessional and incorrect fixing of prices.

NOIDA did not consider FAR and GC in fixation of sale price and suffered loss of Rs 13,968.49 crore in respect of 75 allotments under different categories during 2006-2017 for Commercial and Group Housing.

Reserve price is fixed on the basis of category of properties. Lower the category, lower the reserve price based on which bids are finalised in auction. Since commercial properties command greater premium than Group Housing properties, categories were deliberately lowered and once allotment was done, the categories were upgraded. CAG observed that such arbitrary change in classification was deliberate and it translated into benefit for builders at the expense of NOIDA due to loss of potential revenue.

Basic land allotment rate proposed by costing committee was often lowered by the Board that resulted in undue favour to the builders. The Supreme court observed in the case of Amrapali that officials of NOIDA acted in a manner that led to unjust enrichment of builders and that the interest of NOIDA was overlooked.

Pricing decisions were made on the basis of requests from interested parties, NOIDA overlooked the applicable orders in respect of key costing components, cost elements were revised without justification. Audit found that NOIDA lost revenue of Rs 1,026.24 crore, Rs 164.06 crore and Rs 126.21 crore in the Group Housing, Institutional and Industrial categories, respectively.

Due to under recovery of rates, NOIDA lost potential revenue of Rs 16,245.44 crore. It also resulted in short realisation of stamp duty of Rs 812.27 Crore on the allotments that was a loss to the exchequer.

(The author was Director General in the office of CAG)

(This story was first published in National Herald on Sunday)