School of Management and Entrepreneurship (SME)

Course: Legal Aspects of Business

Course Code: MGT 540

Submitted To: Dr. Rashmi Agarwal

Dated: 21.02.2021

SUBMISSION BY: GROUP 1

LAVASA CASE STUDY

NAME EMAIL ROLL NUMBER

Aadhishri
ap835@snu.edu.in 2010120001
Padmajaa

Bhupendra Mehra bm413@snu.edu.in 2010120009

Kartik Aggarwal ka643@snu.edu.in 2010120017

Kartikey
kb218@snu.edu.in 2010121054
Bharadwaj

Pragati Goel pr492@snu.edu.in 2010120024

Shreya
sk556@snu.edu.in 2010120037
Khilariwal

1
 Contents
Contents
LAVASA CASE STUDY...................................................................................................................................3
Introduction...............................................................................................................................................3
Background................................................................................................................................................3
HCC............................................................................................................................................................4
Lavasa City’s Glimpse..............................................................................................................................5
Project Financing......................................................................................................................................7
Rocky Road to Lavasa...............................................................................................................................9
Environmental damage.............................................................................................................................9
Starting of construction...........................................................................................................................10
All the Standards bypassed.....................................................................................................................11
EIA notifications flouted.........................................................................................................................12
Changes in the laws.................................................................................................................................12
The Cover-Up..........................................................................................................................................13
The Way Ahead.......................................................................................................................................13

References……...…………………….….....……………………………………………............13

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 LAVASA CASE STUDY

Introduction

It’s good to have ambition. The bigger you dream, the bigger are the challenges you come across
while fulfilling them. "Lavasa City" is about a person who dreamed of building the first-ever
human-made city in India from scratch. This is also a story of how a large-scale infrastructure
project can go wrong? How ignoring things can turn a heavenly place into hell? How a billion-
dollar project can lead to bankruptcy? How the dream place of so many people can become
desolate?

Background

Two decades past, then-billionaire Ajit Gulabchand who was Managing Director of HCC
Company went to Italy, where he visited a city named Portofino. He was so fascinated by the
city that he decided to build India's 1st planned hill city and 1st privately managed city, which
would have no government interference. The city known as Lavasa, modeled on the cotton-
candy harbor of Italy’s Portofino, was planned. He also wanted to incorporate world-class
standards in India such as luxury hotels, top universities, stadiums, etc. After coming back to
India he started his search for a location where he can establish a township. Portofino is
popularly known as a jewel of the Italian Riviera and is famous for its beautiful harbor, clear
waters, and spectacular coastal scenery. Mr. Gulabchand wanted a city in a hilly region that has
water bodies surrounding it similar to Portofino. Finally, his search of the location came to an
end with the place named Mulshi, in the Western Ghats of India.

Mr. Ajit Gulabchand's Company HCC in 2000 incorporated Pearl Blue Lake Resorts, later its
name was changed to Lake city corporation. Later in 2000, it was again renamed Lavasa
Corporation. To turn his dream into reality, architects were hired at HOK. He hired creators of
LaGuardia’s Airport (Central Terminal B) in New York as well as the Barclays world
headquarters in London. It would be India’s 1st privately designed and managed town, absorbing
settlers from the hinterlands trying to find opportunities in urban areas. No additional
government bureaucracy. The total cost of the project will be in Billions of dollars.

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HCC 

Hindustan Construction Company Limited or HCC Limited was known as a construction

company that had its headquarters in Mumbai, India. The businesses include the sectors of
Engineering & Construction, Real Estate, Infrastructure, Urban development & Management.
The HCC group of companies comprises HCC Ltd. and its subsidiaries which include HCC Real
Estate Ltd., HCC Infrastructure Co. Ltd., Lavasa Corporation Ltd., Steiner AG in Switzerland,
and Highbar Technologies Ltd.

The Industrialist Seth Walchand Hirachand was founded in 1926. HCC Ltd. executes large-scale
civil engineering and infrastructure projects such as hydel power plants, nuclear power plants,
etc. HCC is found to currently serve the infrastructure sectors of transportation, power, and
water. HCC holds the pride of being the first construction company in India to be certified ISO
9001, ISO 14001, and OHSAS 18001 for its quality, environmental, occupational health, and
safety management systems. The company is guided by Mr. Ajit Gulabchand chairman &
managing director (CMD) and Arjun Dhawan (CEO)

Project Description

Lavasa City was planning to spread township across the 7 hills of Mulshi valley. It is just 65kms
from Pune and 200kms from Mumbai. The city was designed on the principles of new urbanism
and was said to have world-class infrastructure, industries, and international education
institutions, exciting avenues of leisure and tourism, and homes for comfortable living. The
beautiful environment will help you live, work, learn and play in harmony with nature. About
25,000 lakeside apartments and villas with about 50,000 employment opportunities should be
available in Lavasa. It also provides some wonderful housing options for permanent residents.

Planned economic drivers of the city were-

· Research centers
· Hospitality and tourism
· Education
· Residential properties
· Healthcare

The city was tied up with various names in the respective sectors to develop the required hard
and soft infrastructure. These include- Apollo Hospitals, Accor Developers, Christ University,
Symbiosis, Mercure Hotels, ITC Ltd, Novotel, Starwood, National Institute of Hotel
Management, Manchester City, Hockey Australia, Sir Steve Redgrave, etc. Jobs were to be
provided under various initiatives which should make the best use of local expertise and
potentials. The project also aimed to open avenues in terms of employment, schooling,
transportation, etc. which would lead to the overall development of the population of nearby
villages. Lavasa had only access by road from Pune or Mumbai. Being hilly region roads

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developed have steep inclines in some places. Also as per publicly available data, no air
connectivity was planned for the city.

Lavasa City was planned to be built in four stages. The initial part of the project, viz.
development of Dasve village, was to be made available by 2010-11. The actual work of Lavasa
town started in 2004. By 2009, the road network, water, and sewage material treatment plant
were completed. The planned dam was designed and built and also the water pipeline network
within the town was laid down. The electricity distribution system and sub-stations were in situ.
LCL was able to tap electricity from the Maharashtra State Electricity Board (MSEB)
transmission line that passes through the neighboring areas. The corporate has additionally
entered into a power purchase contract with Tata Power for the availability of electricity. The
Dasve village was currently below the final stages of development, whereas the second village of
Mugaon was launched in 2012.

Lavasa City’s Glimpse

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Project Financing

Lavasa was one of the biggest residential projects in India. It was promoted by the Hindustan
Construction Company (HCC) and consortium under the subsidiary registered as Lavasa
Corporation (hence the name Lavasa for the city and the project). With an investment projected
at Rs. 30,000 Crores, the consortium planned to generate a revenue stream of Rs. 147,000 Crores
by 2020.

HCC was the major stakeholder in the project (i.e. Lavasa Corp.) with a 65% stake, while
Thapar Group and Venkateshwara Hatcheries were the other big partners with 15% and 12.5 %
stakes respectively in the project. The remaining 7.5% stakes were held by two smaller entities.
The corporation had raised funds for development through a mix of equity options (from
promoters), debt, private equity, and joint ventures. The banks and financial institutions hold
over 11% of the shares through convertible debentures. Lavasa Corp. planned to make the
project financially self-sustainable once Phase I is complete.

The revenues from the sale of the property (developed during Phase I) and the Rs. 2000 Crores
raised through IPO (Initial Public Offer) were the options available with the corporation.
Exposure of the Financial Institutions. HCC was the biggest equity stakeholder in the Lavasa
Corp. Besides HCC, nine Indian banks and one foreign bank were involved in this project.
Among these, a minimum of 8 banks subscribed to deep discount convertible debentures of
Lavasa Corp. Notable among them are ICICI bank’s exposure of Rs. 250 Crores, Axis bank’s Rs.
225 Crores and Bank of India’s Rs. 150 Crores. The equity pattern and the share of banks in the
project are depicted in the graph displayed below. 

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Rocky Road to Lavasa

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The Lavasa project was envisioned by Ajit Gulabchand after visiting Italy’s Portofino. A four-
hour drive from Mumbai, Lavasa was to be the first privately developed city in India. Going
forward on this Lavasa even got Special Planning Authority (SPA) status around the year 2007,
SPA powers help them to control all aspects of the normal life of everyone - power, water, gas,
security, roads, waste collection, traffic... etc. However, this was revoked in May of 2017
following multiple complaints by the residents regarding the misutilization of powers granted to
Lavasa Corporation.

Environmental damage

An investigation was carried out by the Ministry of Environment and Forests under which it was
found that the city has caused environmental damage since Lavasa is built "in the beautiful hills
of the Western Ghats, which was a UNESCO World heritage site known for its evergreen
tropical forests that shelter 325 species of vulnerable or endangered animals, birds, and fauna."
Resulting on June 10, the Union Environment Ministry had asked the Maharashtra Government
to take necessary action against the Lavasa Corporation, as a part of its construction has been
undertaken without a green nod. Following this, Environment Minister Sanjay Devtale instructed
his ministry to start preparing documents to file a case against Lavasa Corporation for violating
Environment (Protection) Act 1986 which they did on Jun 15th, 2011.

Once the review of the project was done, the ministry provided clearance to Lavasa with specific
conditions, such as a cessation of hill cutting activities, building of a sewage treatment plant, and
anti-poverty CSR measures aimed at the local population on 9 November 2011.

Starting of construction

Lavasa project occupies about 5,000 hectares along the edges of seven hills in the Sahyadri range
of the Western Ghats. Construction work at Lavasa was going on at a rapid rate till November
25, 2010, when the Union Ministry of Environment and Forests (MoEF) intervened and issued
an order to stop work immediately as the project had violated many Environmental laws. With
the increasing population and industrialization, the environment has been adversely affected.
Natural calamities have become so frequent and inevitable that proper care and concern are
needed for every new human intervention in new areas.

In this term paper, we will mainly be focusing on the violation of Environmental laws i.e.
Environment Protection Act 1986, Environment Impact Assessment (EIA) which was in 1994
including the haphazard or unsystematic cutting of hills.

To be convinced by the claim, the first thing readers need to know is about the government and
bureaucracy which normally move at a snail's pace in our country. But contradictory to this, the
speed of the Lavasa project was at its peak. Initially, it was under scrutiny from the Environment
Ministry and construction stayed pending scrutiny of irregularities in sanctions granted to the
project. Within months of its application of purpose, clearance was given, indeed even before the
application was submitted to the concerned departments and ministries.

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The second thing one needs to remember is that according to Lavasa’s environment impact
assessment (EIA) report, prepared by NEERI (National Environmental Engineering Research
Institute), 50% of the area is covered by vegetation, 23.39% by forests. Construction of such a
large lake town, and a population of 200,000 during peak time, will lead to an impact on the
area’s flora and fauna. The report states that 43% of the flora in the study area consists of
medicinal plants. It does not propose any impact mitigation or preservation plan.

Mulshi and Velha valley, where the project was about to start, experiences some of the heaviest
rainfall in the world. The area is rich in tropical vegetation and it is imperative that considering
the fragility of the Western Ghats, it should be left undisturbed. The construction activity world
drastically alters the natural landscape, opening the valley and entire Ghats region leading to
environmental degradation. The rainfall patterns of the area will be impacted by this in the long
term.

Lavasa was found to be violating the rules and regulations by the Ministry of Environment
and Forests under the Environment Protection Act 1986. According to MoEF, LCL (Lavasa
Corporation Ltd) is in violation of
1) The EIA Notification, 1994
2) The EIA Notification, which was amended in 2004
3) The EIA Notification, 2006.

In the past, the Adarsh housing society in Mumbai was ordered to be demolished under Section 5
of the Environment Protection Act. The same law also applies to Lavasa. But, LCL has denied
charges of violating environmental laws.

In March 2004, the final clearance was given by the Environmental department of Maharashtra
to LCL under the Maharashtra Hill Station Regulations of 1996. The company didn’t apply to the
Centre through the EIA notification of 1994 mandated clearance from MoEF for tourism-
related projects between 200m and 500m of high tide line and for projects at an elevation of
more than 1,000m from sea level, that involved an investment amount of over Rs 5 crore.

Since a total area of about 58 hectares of Lavasa City was above 1,000m height and the cost of
the project was more than Rs 5 crore, LCL ought to have applied to the Centre for clearance.
Further, the mandatory public hearing and assessment of EIA report and environment
management plan by EAC were bypassed.

The state, in fact, misled the Centre on the applicability of EIA notification on Lavasa. In July
2005, MoEF had written to the Maharashtra environment department saying the project attracts
provisions of EIA notification and asked it to ensure all clearance processes are followed.

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All the Standards bypassed

The regulation didn't permit cutting of mountains; set a ceiling of 2,000 ha for adding to a hill
station city; did not allow construction on slopes more extreme than 1:5 (each five-meter
separation meets one-meter stature) and FSI of private plots was constrained to 30 percentages
with the height of two stories. These were changed at LCL's command. What are a couple of
immaterial guidelines when venture promoters have intense power and support? (Guidelines only
for common and powerless people) Yet again, as on account of Adarsh, principles were changed
over and over and once more, to make the unlawful lawful.

On May 30, 2001, the Maharashtra government canceled the upper limit of 2,000 ha in the hill
station policy, permitting Lavasa to take as much land as it wished. The following day, the state
urban advancement office changed the territorial all-inclusive strategy of Pune to permit the hill
station to be formed in the Sahyadri’s (Pune was one of the first regions to change its local
groundbreaking strategy after the adjustment in hill station approach). Then the Maharashtra
government provided requests that 18 towns in Mulshi and Velhe talukas of Pune would be
announced hill stations. Within three weeks, LCL, which was then called Lake City Corporation,
was allowed on a fundamental level to build up the hill city. In the first regional plan, the range
was reserved for afforestation.

EIA notifications flouted.

The organization guaranteed the changed Environmental Impact Assessment (EIA) Notification
of 2004 also did not make a difference to the project. The notice said, "All new development
ventures", including townships and communities implied for more than 1,000 persons or
including speculation of more than Rs 50 crore, require the Center's environment clearance.
When this necessity was pointed out in court, LCL argued that the task was not "another
undertaking" on the grounds and that it had adequately advanced by 2004 when the notice was
issued. However, the records put together by LCL to the service demonstrate the organization
acquired the first authorization for development only in August 2007.

A letter by Pune's assistant director of town planning, dated November 2008, and illuminated
that Lavasa qualified as a new construction project. The investment made by the organization as
on July 7, 2004, was under 25 percent of the expense, a condition for a modern task to be viewed
as "a new construction project", obliging clearance from the center.

The developer likewise disregarded the procurements of the EIA warning of 2006, which
supersedes the past two notices. The warning said all townships and range advancement tasks,
covering a zone of more than 50 ha, started, or redesigned after September 2006, need
environmental clearance from the individual state EIA authorities. Since Maharashtra's State
Environment Impact Assessment Authority was constituted by MoEF in April 2008, every single
new project should have been evaluated by the center till that time. But the developer decided to
apply to the Maharashtra EIA power in August 2009. This proposition was past the point of no

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return and by then the environment had already been harmed, as MoEF notes in its request dated
January 17.

Changes in the laws

It did not take enough time for the government to change the laws or rather change the laws in
accordance with powerful people.

i. Residential: Laws changed to allow construction on steep slopes. Height of apartment

buildings increased from Ground (G) +1 to G+4, some adjacent to the water body.
ii. Commercial: Laws changed to allow mixed land use—commercial and residential—in
the town center. The height of buildings was increased from G+2 to G+5, which was
illegal in the original hill Station policy.
iii. Water: Check dam at the mouth of Dasve. Construction of Buildings and roads near to
the water body, at a 5-to-15-meter distance. Oil and sludge from vehicles and runoff
could affect the quality of water in the Lake. Land reclaimed to set up the waterfront
commercial area Lavasa’s population density is likely to be 4000 persons/sq km.
iv. With regards to Hospital: There were no plans for disposal of bio-medical waste on-site.
Biomedical waste was to be transported but no studies were done on its impact.

The Cover-Up

The Maharashtra Pollution Control Board (MPCB) gave Lavasa "approval to build up" in May
2002, much before the venture got environmental clearance. In typical circumstances, the
approval is given after the undertaking gets environmental clearance. A letter by member
secretary of MPCB, to the Union environment service, dated July 15, 2005, says the work on the
venture had begun in January 2003 with a statement to the collector that the undertaking got
environment clearance only in 2004.

The pollution board endeavors to pass over the illegalities at Lavasa which did not have any
significant bearing for environment clearance. The letter says, "Since the task location is situated
beneath the height of 1,000-meter, EIA notice of 1994 was not appropriate to the undertaking
and since work started in 2003, EIA warning of 2004 was not applicable." The letter also
guarantees that the pioneer was "circumspectly looking after the environmental management
plan and completing environmental monitoring as prescribed by NEERI in its EIA. The pollution
board also issued an allowance for stone crushing of 1,500 tons a day in April 2004. This has
brought about large-scale stone quarrying in the fragile regions of Western Ghats.

A 2009 interval report by the People's Commission of Enquiry, a commission of legal advisors
and activists set up by non-benefits to check land dealings and relocation of human population in
the light of the projects in the Sahyadri’s, says different government departments allowed an
aggregate of 31 clearances in a brief time between 2002 and 2003.

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The bureaucracy moves at a very slow pace in India. But the way the government fast-tracked
Lavasa was quite amazing.

The Way Ahead

As of 2018, Lavasa was an incomplete shell providing housing to 10,000 people, a symbol of the
excesses gripping the world’s second-most-populous nation. As India’s central bank forces either
lenders to restructure debts quickly or take defaulters to the bankruptcy court, Lavasa
Corporation maybe is in its final reckoning.

In November of 2020, the Government invited bids to take over this financially stressed project
and return money to the lenders.

Companies like Oberoi Realty, Haldiram Snacks, Pune-based builder Aniruddha Deshpande and
US fund Inter Ups were the primary contenders for the project. However, bidders are in talks
about opting for a joint bid on the project also.

References
● Antony, A and Dhvani, P. , (2018). Billionaire’s Folly Becomes Bankers’ Nightmare.
[online] Bloomberg. Retrieved from https://www.bloomberg.com/news/features/2018-06-
18/in-lavasa-a-billionaire-s-folly-becomes-a-banker-s-nightmare (Accessed 21 February
2021)

● AUEssays, (2018). Lavasa A Case Study Synopsis Environmental Sciences Essay [online]
AUEssays. Retrieved from
https://www.auessays.com/essays/environmental-sciences/lavasa-a-case-study-synopsis-
environmental-sciences-essay.php?vref=1 (Accessed 21 February 2021)

● Financial Express (2018). Lavasa: How a crorepati’s dream has become $610 million-
nightmare for bankers, 1000s of people. [online] financial express. Retrieved from
https://www.financialexpress.com/industry/lavasa-how-a-crorepatis-dream-has-become-
610-million-nightmare-for-bankers-1000s-of-people/1211823/ (Accessed 21 February
2021)

● Mandal,K and Venkataramni, V. (2013, July). Environmental and Social risks in project
Financing: evidence from India. [online] yumpu. Retrieved from
https://www.yumpu.com/en/document/view/38429075/environmental-and-social-risks-
in-project-financing-evidence-from- (Accessed 21 February 2021)

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● Shrivastava,K.S and Datta,A.P (2011). Lavasa exposed. [online] downtoearth. Retrieved
from https://www.downtoearth.org.in/coverage/lavasa-exposed-33282 (Accessed 21
February 2021)

● Macavechezmoncaviste (n.d.). Lavasa Construction status. [online]

Macavechezmoncaviste. Retrieved from
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(Accessed 21 February 2021)

● Wikipedia, (n.d.). Hindustan Construction Company. [online] Wikipedia. Retrieved from

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