Source: https://www.ibef.org/industry/real-estate-india.

aspx

The real estate sector is one of the most globally recognized sectors. It consists of four sub
sectors - housing, retail, hospitality, and commercial. The growth of this sector is well
complemented by the growth of the corporate environment and the demand for office space
as well as urban and semi-urban accommodations. The real estate industry encompasses the
many facets of property, including development, appraisal, marketing, selling, leasing, and
management of commercial, industrial, residential, and agricultural properties.
However, over the last few years real estate sector has often faced criticism for poor
corporate governance standards and lack of transparency.
 DLF India
DLF (Delhi Land and Finance) was founded in the year 1946 by Chaudhary Raghvendra
Singh. It started with the creation of 22 urban colonies in Delhi. In the year 1985, the
company expanded into the then-unknown Gurugram, creating exceptional living and
working spaces for the new Indian global professionals.

DLF Scandals: What went wrong?

 SEBI had received complaints from one Kimsuk Krishna Sinha, who alleged that
DLF group entity Sudipti Estates and other persons had duped him of Rs 34 crore in a
land deal. He had alleged that the only two shareholders of Sudipti Estates were DLF
Estate Developers and DLF Home Developers-both wholly owned subsidiaries of
DLF. In the show cause notice sent by SEBI to DLF, the regulator contends DLF
failed to notify SEBI about their shareholdings in Sudipti and two other companies -
Shalika Estate Developers and Felicite Builders & Construction - in the IPO
documents and the case filed in the matter was material information that should have
been disclosed to investors at the time of the IPO.

PROBLEM: Non-disclosure of data to the shareholders.

 The biggest blow for DLF has been the Supreme Court order in August directing it to
pay Rs 630 crore fine in a case related to abuse of market dominance. The penalty is a
little less than the company's annual net profit of Rs 646.21 crore in 2013-14
Following a petition by flat buyer associations of two DLF projects in Gurgaon - DLF
Park Palace and The Belaire – Competition commission of India (CCI) had in 2011
found DLF abusing its dominant position. The competition watchdog had imposed a
penalty on the company and asked it to modify apartment buyers' agreement. The
buyers had alleged delays in project completion and claimed there was an increase in
the number of floors over what was planned earlier. CCI said the construction of
additional floors without intimating the buyers was abusive of its dominant position
and needed to be curbed. The penalty was a huge blow to DLF's balance sheet as the
company has been selling its non-core assets to reduce its debt, which stood at over
Rs 19,000 crore at the end of June this year.

PROBLEM:
Abuse of its dominant position.
Illegal building of floors without prior approval.

 Credit Suisse claims that there is "no transparency in the land acquisition process.
Promoters have privately controlled entities from which DLF buys land. Also, its
landbank disclosure in annual reports is inadequate."
They further noted that "DLF's dealings with the promoter entity have been
questioned by investors. In FY'08, DLF sold assets/real estate projects amounting to
Rs 5,560 crore to a promoter-controlled entity, DLF Assets. It also cancelled an
earlier sale of assets worth Rs 1,890 crore."

Previously, DLF has settled with minority shareholders who complained that they
were denied participation in the company's right.
PROBLEM: Lack of proxy advisory body
Shareholder value: Why did the stocks see an erosion?
DLF is one of the stocks which saw an erosion of 90.04% in its market value since January
2008, with the stock price declining from ₹ 1,150.60 to ₹ 114.65 in 2015.
The reasons for the decline of stock price could be attributed to both industry and economic
scenarios as well as lack of a proper corporate governance structure.
 The rising interest rates did lead to plunging share values.
 High debt.
 However the major reason for loss of shareholder confidence was unfair fraudulent
practices of DLF. For eg: 15 Oct 2014 - Shares of DLF Ltd plunged 30% to a record
th

low, a day after the Securities and Exchange Board of India (Sebi) banned the real
estate developer and its chairman K.P. Singh from accessing the capital markets for
three years on finding them guilty of engaging in fraud and unfair trade practices. As
of June 2014, the company has a debt of ₹ 19,000 crore.
 Sebi has penalized the entities on account of three key violations: non-disclosure of
related-party transactions, non-disclosure of financial details related to subsidiaries,
and inadequate disclosure of outstanding litigation.
This is an indication that no matter how big a company is, fraudulent practices will lead to the
downfall. Shareholder and stakeholders have the rights to fight for their rights and claims.
This is a god trend to see as we notice a rise in shareholder activism.

Source:https://economictimes.indiatimes.com/news/company/corporate-trends/dlf-unitech-
lack-in-transparency-key-disclosures-
report/articleshow/4052567.cms?utm_source=contentofinterest&utm_medium=text&utm_ca
mpaign=cppst
 OBEROI

INTRODUCTION:

 Oberoi Realty is a real estate development company operating in Mumbai, focused on

premium developments.
 The company has established a strong brand and a successful track record in the real
estate industry by developing innovative projects through its emphasis on
contemporary architecture, strong project execution and quality construction.
 While its focus is on residential projects, it has a diversified portfolio of projects
covering key segments of the real estate market, which target the upper end of the
respective income or market segment.
 It develops residential, office space, retail, hospitality and social infrastructure
projects in mixed–use and single–segment developments.
 Oberoi Realty currently follows a sale model for its residential projects and a lease
model for a portion of its office space and retail projects as it believes this provides
the company with stable cash flows.
 In hospitality projects, it currently follows an operating agreement model, whereby
the hotel is owned by the company and operated by a hotel chain.

CORPORATE GOVERNANCE ISSUES:

1. Suspicion transactions and price manipulations:

 The Income Tax (I-T) Department on Tuesday carried out searches at Oberoi Realty
group and its biggest vendor Capacity Infra projects for suspicious transactions,
including alleged purchase from dubious entities, receipt of ‘on-money’ and price
manipulation and cash deposits during demonetisation period.
 Searches were carried out at over 30 locations in Mumbai, Delhi and Hyderabad by I-
T sleuths.
 Oberoi, which has developed over 40 projects in Mumbai, is also being probed on
allegations of receipt of ‘on-money’ and price manipulation.
 There is information that at least eight prime projects of the realtor in Mumbai and its
suburbs in which there is suspicion of difference between sale prices shown in books
and those of registered prices vis-a-vis payment received.

2. Oberoi Realty accused of fraud worth Rs 142.56 crore

 One of the residents of the project had lodged an FIR against Vikas Oberoi.
 Accused the head of the Oberoi Realty of duping flat owners by delivering smaller
flats than what was promised.
 Filed by Mohit Bhardwaj, a resident of Oberoi Splendour, a luxury project on
Jogeshwari-Vikhroli Link Road.
 He claimed to represent several other flat owners, who have been fighting against the
developer for the last couple of years.
 Not only the size of the flats was smaller, but the height of the ceiling was also lesser
than what was promised, among other things.
  Amenities such as club house, swimming pool squash court, spa, party hall, jogging
park, tennis court, amphitheatre, camping site, plaza, landscaped garden, etc were
promised which were not given.
Buyers found out that the number of flats on each floor was much higher.

Reaction by Vivek Oberoi

 Allegations are factually incorrect.

 All legal obligations have been fulfilled.
 Complainant has got no relief till date from any of the legal forums that he has
approached.
 Oberoi Realty is a law-abiding corporate and adheres to the highest principles of
corporate governance and ethical business practices.

3. Lowest paid leadership teams

 Oberoi Realty’s management emerged as one of the lowest-paid leadership teams—

the total compensation on average for the last three years was 0.5% of net profit
 Oberoi Realty poorly on compensation paid to management, trading in own stock and
financial stability, respectively according to the report by BNP Paribas.

The mentioned graph depicts the fluctuation in share prices of Oberoi due to the
various events .
Shareholder’s value:
 The Adarsh Housing Society Scam
 Adarsh Housing Society, a 31-storey upscale residential complex in Colaba, Mumbai,
should have originally housed war heroes and war widows who lost their spouses
during the 1999 Kargil War. But the occupants of the apartment complex built on
defense land ended up being bureaucrats and relatives of politicians who were in no
way connected with the Kargil war.
 Media scrutiny over the high-profile list of owners began in 2010, prompting the
Army and CBI to launch separate probes.
 The CAG too submitted a report on the scandal.
 It was found that the Navy had objected to the Maharashtra government according
permission for Occupation Certificates citing “serious security concerns” as the 100-
metre tall building stood next to a planned helipad and military installations.
 It was also found that the society didn’t obtain a NoC from the Ministry of
Environment and Forests, and above all the society had permission to build only six
floors.
 When Benami transactions were unearthed, the Enforcement Directorate joined the
probe. Maharashtra Chief Minister Ashok Chavan’s relatives, including his mother-
in-law, owned three flats, a fact that cost him the post of Chief Minister.
 The probes also revealed that the society was granted permission when Mr. Chavan
was the Revenue Minister. Details obtained through RTI said Mr. Chavan approved
the sale of 40 per cent of the houses to civilians. (Flats given to civilians at Chavan's
behest: lawyer) RTI documents revealed that the children of several bureaucrats
involved in granting permission to the society owned a flat.
 When the case came before the Bombay High Court, a shocked Bench called it “a
clear-cut manipulation by the Collectorate, the Revenue Ministry and the Urban
Development Ministry,” pointing out that “everyone who cleared the file was gifted
with a flat.” Mr. Chavan’s successor, Prithviraj Chavan ordered a judicial inquiry into
the scandal. As the inquiry was underway, several documents and files pertaining to
the scam went missing. This prompted the Bombay High Court’s intervention, which
ordered protection to the files and sought periodical status reports from the CBI.
 Several occupants, including Admiral Madhavendra Singh, former Chief of the Naval
Staff, General Nirmal Chander Vij, former Chief of Army; General Deepak Kapoor,
former Chief of Army, offered to return their flats.
 In 2012, the CBI arrested Pradeep Vyas, Secretary (Expenditure) of the Finance
Department of the Maharashtra government, making him the first serving bureaucrat
to be arrested. Twelve bureaucrats and Mr. Chavan were named in the CBI’s charge
sheet. Nine of them have been arrested so far.
Adarsh to be razed down
 The Adarsh Commission constituted by the Maharashtra government in its report
recommended cancelling memberships of 25 owners who were found ineligible. The
list included current Railway Minister Suresh Prabhu, Mr. Chavan’s relatives and
Indian diplomat Devyani Khobragade.
 The MoEF took serious note of the blatant violations in the high-rise and ordered
demolition of the illegally constructed floors. The Mumbai Metropolitan Region
Development Authority (MMRDA) cancelled the Occupancy Certificate and
eventually the power and water supplies were cut. The Adarsh society residents tried
every way, including seeking divine intervention, to stop the demolition, but in vain.
The Bombay High Court has ordered demolition of the building for violating green
 norms. It has also granted 12-weeks interim stay heeding to the plea of Adarsh
occupants.
Governance Issues and Erosion oh Shareholder Values
 The Comptroller and Auditor General of India (CAG) has said that the Adarsh Co-
operative Housing Society (Adarsh CHS) episode poses serious questions of probity,
integrity and ethics in public life and among public servants, which need to be
addressed by the polity and it also displays failure at all levels of governance.
 It said that the case is particularly alarming as individuals across the governance
system at many levels have participated in this deceit and benefitted from it. The
public has trusted these public servants to safeguard its interests, but there is enough
evidence that they betrayed the fiduciary trust and acted against all norms of public
interest and probity, the report added.
 In February 2000, Ramchandra Sonelal Thakur, a serving sub-divisional officer
(SDO) in the Defence Estates Office (DEO), Mumbai, in his capacity as chief
promoter of Adarsh CHS, wrote a letter to the chief minister of Maharashtra for
allotment of 38,542 square metres of land in Block VI of Backbay Reclamation
Scheme (BBR) at Colaba, for the construction of a residential building, for the
welfare of serving and retired personnel of defence services.
 "The letter of the chief promoter (RS Thakur) would clearly indicate the knowledge
that the land was in the possession of the Army. However, the title of the land was
never transferred to the Ministry of Defence. As subsequent events would prove, this
fact of possession of land by the Army without holding the title of the land was
exploited in full, to misappropriate the land for private benefit," the CAG observed.

Public Interest and Citizens’ Issues

 CAG says Adarsh scam shows failure of governance at all levels
 The CAG report reveals how select members from the Services and the civilian
administration, politicians and individuals connected with them, benefitted from the
illegal construction of the 31-storey building in the heart of Mumbai.
 The Adarsh Co-operative Housing Society (Adarsh CHS) episode poses serious
questions of probity, integrity and ethics in public life and among public servants,
which need to be addressed by the polity and it also displays failure at all levels of
governance.
 The entire process of allocation of land to the (Adarsh) society, obtaining no objection
from the Army, obtaining modification to the Mumbai Metropolitan Region
Development Authority (MMRDA) development plan, getting a no-objection
certificate (NOC) for residential development in coastal regulation zone (CRZ),
obtaining NOC from Brihanmumbai Electric Supply & Transport Undertaking
(BEST) for transfer of developmental rights of the adjoining land, getting additional
floor space index (FSI), raising the height of the building, was riddled with instances
of decisions being taken by those who exploited their official capacity for personal
benefit.
 The episode of Adarsh CHS reveals how a group of select officials, placed in key
posts, could subvert rules and regulations in order to grab prime government land-a
public property-for personal benefit. They resorted to falsification of records,
suppression of facts, ruse of welfare of servicemen and their widows and children,
flouting of acts and rules.
 The chronology of the events shows the alacrity with which the varied requests of the
Adarsh CHS were attended to. It illustrates how permissions were sought, and
 granted, on grounds, which do not now stand to public scrutiny. It also indicates how
vague clearances, susceptible to multiple interpretations, were provided to facilitate
the rather dubious intentions of the members and promoters of the Society.
 Crony capitalism, nepotism and opaque processes of governance are turning states
into gravy trains fuelled by embezzlement and fraud. With blatant disregard of an
obvious conflict of interest, a housing minister is a real estate developer in one state.
 The real travesty, however, is that scandals and scams are uncovered when the
damage is already done, and almost always by the media. If the principles of good
governance are in place, inbuilt systems of checks and balances should prevent, or at
the very least detect, corrupt and mala fide practices in their early stages. Alleged
scams like Adarsh Housing Society in Mumbai actually have less to do with
violations of the law than impropriety on the part of public servants who ought to be
above suspicion.
 In a utopian world, governance reform at the state and local levels would bring
governments in line with the principles of transparency, accountability and respect for
human rights and the rule of law. But that simply won’t happen in the absence of
political will and voter awareness. Mumbai’s middle class, for instance, is largely
disinterested in local elections.
 UNITECH CASE
 IIT alumni Ramesh Chandra set up Unitech in 1971 with the aim of offering buyers all
that was premium
 Success story: A golden period for Unitech came in 2007-08, when the company was
valued at Rs 1.43 lakh crore. It made a net profit of Rs 1,669 crore on a total revenue
of Rs 4,280 crore. Its stock hit an all-time high of Rs 547 in January 2008
 When an economic slowdown hit the world in late 2008, India's real estate sector also
took a blow, while trying to recover from the real estate turmoil, a successful venture
in an unrelated field might have proved greener pastures.
 Investment in unrelated business: In March 2009, it closed its deal with Norway's
Telenor to set up a joint venture telecom services company, Uninor, for the India
market. But that venture hardly took off and in fact, added to the pains.
 Corruption in hands of Owners: Unitech was the second largest developer till 2010,
until the 2G telecom spectrum scandal broke and Sanjay Chandra was arrested in
connection with it in April 2011.
 Retaliation by shareholders: Criminal case lodged in 2015 by 158 homebuyers who
had purchased flats in two of Unitech's Gurgaon projects, Wild Flower Country and
Anthea Project.
 Residents of Anthea, a project in Gurugram launched by Unitech in 2011, have fought
its promoters aggressively, until managing directors Sanjay and Ajay Chandra were
arrested in April on charges of money laundering and failing to deliver the project.
 At opening of BSE trading on January 20 this year, Unitech's shares were priced
at Rs 1.15 apiece – what a fall from an all-time high of Rs 547! – and the listed
company had a market value of Rs 1,725.66 crore. Today, the jailed MD is finding
it hard to arrange even the bail money for his release from jail.

Shareholder’s value significantly was massively affected due to the following triggers:

1. Diversion of Unitech from conservative accounting practices i.e. recognise

revenues on a percentage of completion method even where the cash receipt is yet
to become due and they also capitalise on interest expense during expense during
construction of project.
2. Siphoning of funds and Money Laundering
3. Offences of Cheating
4. 2007-08 Depression
5. Lack of commitment by Unitech is delivering projects
6. Lack of key disclosures in financial decisions of the firm
 This image depicts the mounting debt within Unitech due to their land accusation an investment
in unrelated business

( Source : https://www.businesstoday.in/magazine/features/challenges-for-unitech-
builders/story/13887.html)

Governance Issues

1. The practice of buying land from companies controlled by the promoters of the realty
majors, lack of disclosures on the acquisition process, as well as on the land banks,
which form the bulk of their assets
2. Promoters have privately controlled entities from which Unitech buys land
3. Unitech also does not disclose detailed accounts of all subsidiaries and has invested in
an unrelated business of telecom at a time when real estate business needed funds
4. Lack of review by Auditors
5. Hold of power in corrupt hands I.e. Sanjay and Ajay Chandra (Money laundering )
6. Stability of company financials and outstanding litigation
7. Non-core diversifications, accounting policy and history of promoter-related
transactions
8. Acquisition of land, the way they reported revenues on their books, as well as the large
number of unlisted subsidiaries and related companies, mostly controlled by the
promoters, with which the listed entities had dealings. Land bank disclosure in annual
reports is inadequate and there is no information on areas sold, or unsold areas, or status
of completion
This image depicts the fluctuation in share prices affected by the macro environment and
due to the triggers within the organization

Source:https://www.businesstoday.in/magazine/features/challenges-for-unitech-
builders/story/13887.html
Suggested measures to handle the corporate governance issues revolving in real estate
sector

1. Government should lay protective measures in the interest of homebuyers related

to terms of possession of the land and relief measures in case of a company
defaulting to deliver the projects
2. The development authority should monitor the progress report of projects timely
3. Transparency should be a primary focus in terms of financial and business
decisions.
4. Filing of statutory reports has been greatly enhanced in some countries by electronic
filing and data retrieval systems
5. Material information needs to reach the market and the concerned authorities in a
cost effective, easily accessible, predictable and timely fashion
6. Auditors should be constantly monitored by the authorities
7. All shareholders pay the cost of poor corporate governance in the form of lower
valuations, reduced access to equity finance, and difficulties with respect to
succession planning and accessing outside talent. Moreover, the economy pays
through reduced productivity, as investment funds are allocated less efficiently. To
reduce these costs, some controlling shareholders should take voluntary measures
to improve their own corporate governance and to improve their reputation with
other shareholders
8. The confidence of shareholders and potential investors is enhanced when the legal
system provides mechanisms for shareholders to bring lawsuits at a reasonable cost
and without excessive delay.
9. A balance must be struck between allowing investors to seek remedies for
infringement of ownership rights and avoiding excessive litigation, which may
cause management and boards to become excessively risk averse
10. Companies should fully disclose material related-party transactions to the market,
including whether they have been executed at arm’s-length and on normal market
terms. In discussing the content and coverage of such measures, consideration
should be given to a workable definition of related parties.
11. It is necessary to address the individual’s responsibility for announcing a conflict
of interest and the role of the board of directors in assessing the material
implications of such a conflict