Omit Shah

Amit Shah mortgaged two of his properties for his son Jay Shah’s business venture Kusum Finserve LLP, which has recorded dramatic increase in credit facilities in recent years despite its poor finances. The BJP national president’s contingent liability with respect to this credit facility is, however, missing from his 2017 electoral affidavit. Publicly available documents indicate that in 2016, two of Amit Shah’s properties were mortgaged to the Kalupur Commercial Co-operative Bank, one of Gujarat’s largest cooperative banks, to secure Rs 25 crore in credit for Kusum Finserve. New documents accessed by The Caravan show that since 2016, Kusum Finserve has secured credit facilities amounting to Rs 97.35 crore—in tranches of Rs 10.35 crore, Rs 25 crore, Rs 15 crore, Rs 30 crore, and Rs 17 crore—from two banks, and one government undertaking. The credit extended to Kusum Finserve has gone up by nearly 300 percent in the last year, even while its latest reported balance sheets show a net worth of only Rs 5.83 crore.

Part of the credit facility has been extended to Jay Shah’s firm against three Ahmedabad properties: two plots in Shilaj village of 3,839 square metres and of 459 square metres respectively, and an office space of 186 square metres on the third floor of a building in a commercial complex named Sarthik-II, in Bodakdev.

Amit Shah owns the two Shilaj properties. In a mortgage deed signed between Kalupur Bank and Kusum Finserve in May 2016, he is listed as “Mortgagor no. II,” and an “absolute owner” of the two plots. Jay Shah is listed as the holder of the power of attorney for his father’s mortgaged properties. On being shown the documents, a financial expert said that, when a person mortgages their property for credit, “primarily you are a guarantor—maybe he has no profit share, but he has a stake in this business.”

Amit Shah is a member of parliament in the Rajya Sabha. According to the Representation of People’s Act, the election affidavit of a candidate contesting for assemblies or Parliament should list their assets and liabilities. Under the act, filing false information in an electoral affidavit is liable to be punished with rejection of the nomination.

“An electoral affidavit of a legislator should contain the whole truth and nothing but the truth. If there is prima facie a case of irregularity, then action should be taken against the legislator. The real question here is how harsh should be the punishment that is to be meted out to such politicians,” SY Quraishi, formerly the chief election commissioner of India, told The Caravan when asked what it means for any candidate to omit liabilities from their affidavit.

In the same context, a second former chief election commissioner whom The Caravan spoke to stressed that scrutiny of such false affidavits is not possible at the time nominations are filed since the number of affidavits that the election commission receives is high. “For filing an affidavit with false information, the legislator should be disqualified and action can be taken against him separately under the existing law of the country,” he said.

Jagdeep Chhokar, a founding member of the Association for Democratic Reforms, an NGO active in the field of electoral reforms, said that all candidates contesting elections through parliament and state assemblies are required to file an affidavit as a necessary part of their nomantion papers in which they have to declare their assets and liabilities, including those of their spouse and dependents, in addition to their criminal and educational background. This declaration, he added, has to be furnished in a format prepared by the election commission. “Anyone who files a false affidavit is liable to be disqualified and unseated. He is also liable to face criminal prosecution under the relevant sections of the Indian Penal Code. A common citizen can write to the EC to initiate a complaint against the legislator.”

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In late 2017, the online news platform The Wire, first reported that, based on the firm’s public records, Kusum Finserve had been granted a credit of Rs 25 crore by the Kalupur Bank, and a loan of Rs 10.35 crore from a public-sector undertaking. Since September last year, the credit extended to the firm has nearly tripled. Kalupur Bank, and a private bank, Kotak Mahindra Bank, have both extended credit to the firm, taking an exposure of at least Rs 40 crore and Rs 47 crore respectively. According to the available balance sheets, between the financial years 2012–13 and 2015–16, the firm registered losses in nearly every year, and had negative working capital throughout.

In his July 2017 electoral affidavit, Amit Shah listed the larger of the Shilaj properties, stating its value as Rs 5 crore. At the prevailing market rate, the smaller plot is valued at Rs 55 lakh, and the Bodakdev office space at Rs 2 crore. Kusum Finserve used these properties, in addition to the hypothecation of stock and book debt, to secure a credit of Rs 25 crore from Kalupur Commerical Co-Operative Bank, in May 2016. In September 2017, the same bank enhanced the credit to the firm by Rs 15 crore. That same month, the firm secured an additional credit of Rs 30 crore from the private bank, against goods and book debts. In July 2017, the firm was leased a land of 15,754.83 square metres in the Sanand Industrial Estate, by the Gujarat Industrial Development Corporation, or GIDC. By mortgaging this property, Kusum Finserve secured an additional credit of Rs 17 crore from the private bank in April 2018, one month after the lease was signed. Currently, a factory stands on the mortgaged land in Sanand.

Despite questions raised by news reports and in parliament about credit extended to firms owned by Jay Shah, Kusum Finserve has not filed its statement of accounts for the financial year 2016–17, even nine months after the deadline has passed. An LLP is required to file its statement of accounts by 30 October each year—failing to do so is an offence under the Limited Liability Partnership Act, punishable by a fine of upto Rs 5 lakh. With the firm not having filed statements for the financial year 2016–17, The Caravan has not been able to ascertain whether the current credit burden on Kusum Finserve is more than Rs 97.35 crore.

Amit Shah and the cooperative bank are yet to answer questions sent to them by The Caravan. Jay Shah responded through his manager, “We may point out that we are doing a lawful business in a lawful manner. Every transaction of our business is duly accounted for in the books of accounts and is placed before tax authorities. We strongly feel that our business details may not be relevant for any journalistic purpose as the same cannot be a subject matter of any public debate or publication.” He also sought a period of seven to ten days to take legal advice and respond accordingly. The report will be updated when additional responses are received. Kotak Bank responded, “The Bank follows stringent processes and due diligence on credit decisions. The regulator does not permit to share customer confidential information to third parties.”

Curiously, in the deed of hypothecation entered into between Kalupur Bank and Kusum Finserve, the schedules pertaining to the firm’s stock, book debts and machinery have been left empty. Columns that should specify the stock inventory, the nature or kinds of goods, and the value of these stocks and goods are left blank. In the sanction letter issued by the private bank, calculations concerning the Tangible Base Capital and Total Outside Liability—two parameters that would clearly indicate the financial health of the firm—have not been stated.

Established in 1970, Kalupur Commercial Co-operative Bank has in recent years emerged as one of the strongest players among Gujarat’s cooperative banks. In a report released in October last year, the Gujarat Urban Cooperative Banks Federation named Kalupur Bank as the top bank in the state, for holding deposits over Rs 6,249 crore and advances touching Rs 4,221 crore across 55 branches.

Cooperatives in Gujarat have a strong and vibrant presence in villages that often subsumes the role of public and private sector banks. The cooperative banks’ network—directly or indirectly—reaches close to a third of Gujarat’s population, ensuring that political parties vie for control over them. In Gujarat, the scales of power are tipped in the BJP’s favour—the party controls 16 of the 18 district cooperative banks in the state. Kalupur Bank, an urban cooperative bank, is no exception.

Ambubhai Maganbhai Patel, the managing trustee of Nirma’s Education & Research Foundation, is the chairman emeritus of the bank. According to an election affidavit filed in 2017 by Gujarat’s deputy chief minister Nitinbhai Patel, he and his wife are shareholders of the Kalupur Bank.

A few days after Kalupur Bank cleared the second tranche of the credit facility, on 27 September, the private bank extended a letter of credit to Kusum Finserve, of Rs 30 crore. The private bank gave this facility by creating a pari-passu charge with Kalupur Bank against the hypothecation of all “existing and future receivables/current assets/movable /moveable fixed assets of the Borrower, in favour of KMBL”—effectively, the firm’s book debt, stock and machineries. Jay Shah also gave a personal guarantee to the private bank for the credit facility taken by the firm.

A pari-passu charge is one in which two banks or a consortium of banks creates a charge over the same assets. In case of dissolution of an entity, its charged assets are distributed in accordance with the banks’ individual lendings. Simply put, this means that if Kusum Finserve were unable to pay its dues, the private and the cooperative bank would be left fighting over the same corpus of assets, against which the firm received credit from them.

The Wire’s story focused primarily on the financial affairs of Temple Enterprise Private Limited, another business owned by Jay Shah, which saw a meteoric 16,000-fold rise in its turnover. After a few years of showing either negligible profits or losses, in the financial year 2014–15, Temple Enterprise reported Rs 50,000 in revenue. The following year, its turnover skyrocketed to Rs 80.5 crore. In October 2016, however, the same company ostensibly stopped business altogether and declared in its director’s report that the net worth of the company had “fully eroded.” The Caravan’s subsequent investigation reveals that Jay Shah’s business focus simply moved from Temple Enterprises to Kusum Finserve.

Five days after The Wire’s story was published, Amit Shah spoke at a conclave organised by the India Today group. He told the audience that his son’s firm Temple Enterprises, had not “conducted business of a single rupee with the government, had not acquired government land worth a single rupee, had not taken a government contract worth a single rupee.” The BJP chief was right—Temple Enterprises does not, in fact, appear to have done any of those things. What he listed was instead done by his son’s other business venture, Kusum Finserve—the firm took a loan from IREDA, a PSU unit under the central government; it was allotted land of over 15,000 square metres from the government-run GIDC; and then entered into a contract with it.

The GIDC is a state-owned undertaking that develops industrial estates and parks in the state of Gujarat. In 2010, Tata Motors inaugurated a plant for its vehicle Tata Nano in Sanand. Soon after, the GIDC began to develop the area as an industrial estate. Tata was followed closely by Ford. Today, the 5,000-acre Sanand Industrial Estate also houses Coca-Cola, Nestle, Bosch, Hitachi, and Colgate-Palmolive, among others.

Kusum Finserve—which shares its name with Amit Shah’s mother, Kusumben Shah—submitted an application for land allotment to the GIDC on 16 May 2017. A little over two months later, the industrial corporation allotted the firm land with an area of 15,754.83 square metres. As per the offer-cum-allotment letter issued in July 2017, the net allotment price of the land was calculated to be Rs 6.33 crore.

Eight months later, in March 2018, the GIDC signed a lease deed with Kusum Finserve. A month later, the private bank approved a loan of Rs 17 crore against this land as well as shares pledged, increasing their total lending to Kusum Finserve to Rs 47 crore.

The GIDC’s website lists its evaluation criteria for land-allotment applications, which scores every application out of 100 marks. According to the GIDC’s criteria, the “financial base of starting a new unit” accounts for 20 marks. While The Caravan has not been able to ascertain how Kusum Finserve faired in the GIDC’s assessment, the unhealthy financial history until 2015–16, which is reflected in its publicly available balance sheets, raises questions regarding GIDC’s decision to subsequently grant it a large plot of land.

The Caravan’s efforts to get a copy of the lease deed or to obtain answers to questions regarding the land allotment to Kusum Finserve were unsuccessful. Dipti Maratha, the GIDC’s regional manager for Sanand, declined to give me a copy of the lease deed or answer my questions, saying that she “will have to take permission from the concerned company.”

When I visited the GIDC office in Bol village in Sanand to inquire about the allotment, an official from the land department asked me to wait for another official, one “Jhala” saheb. Instead, two men arrived, one after the other. One of the men began by asking if I were the person seeking information on plot numbers 55, 56 and 57—the plots allotted to Kusum Finserve. I nodded.

“You know who the owners of the plot are, right?”

“Yes, I know,” I said.

The second person was Maulik Sukhadia, who was formerly employed at Kusum Finserve, and who had also signed as a witness on the private bank’s mortgage deed for the GIDC land. Both men refused to answer any of my questions, and repeatedly discouraged me from inquiring further.

The land allotted to the firm is not easy to find—it took me two hours to locate the plots in the Sanand complex. There were no signs or boards to indicate the name of the firm. A sizeable factory operated on the land. The guard at the site refused to let me in. According to the bank documents, the factory manufactures PP, HDPE and jumbo bags. At the factory site, there were no indications of what it manufactured.

Kusum Finserve also pledged shares of 14 companies while raising the 17-crore loan from the private bank. According to a bank document, the shares were worth Rs 13.62 crore as of 9 May this year.

Besides credit facilities from banks, Kusum Finserve has also been receiving unsecured loans from KIFS, a company whose promoter is Rajesh Khandwala. KIFS bankrolled Kusum Finserve in the financial years 2014 and 2015, but the quantum of unsecured loans granted by KIFS to Kusum Finserve in subsequent years has not been made public. Khandwala is related to Parimal Nathwani, a member of parliament in the Rajya Sabha, who is the group president of Reliance Industries Limited. Khandwala’s daughter is married to Nathwani’s son. In a reply to a questionnaire sent by The Wire, Jay Shah’s lawyer described Khandwala as a stockbroker for “the family of Mr. Jay Shah for the last several years.”

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Shifting shape appears par for the course for Jay Shah’s companies. While Temple Enterprise suddenly declared a 16,000-times rise in its turnover one year but was reportedly closed down soon after, Kusum Finserve has moved from one business activity to another since its inception.

Going by public documents and statements, it would appear that Kusum Finserve has been involved in a range of activities—trading stocks and shares, consultancy, coke and coal trading, and manufacturing cement bags. Public documents indicate that Jay Shah holds 60 percent of the shares of the firm, while his wife Rishita Shah owns 39 percent. The remaining one percent is held by Pradeepbhai Kantilal Shah.

Jay Shah’s lawyer said in his response to The Wire that Kusum Finserve is “engaged in the business of trading in stocks and shares, import and export activities and distribution and marketing consultancy services.” The firm’s statements for the financial year 2014–15 show that it is also engaged in “agro commodity”— while “consultancy” accounted for over 60 percent of the total turnover of the firm, trading in agro commodities accounted for a little less than 29 percent. A record pertaining to the credit facility extended by the Kalupur Bank includes a reference to “coal and coke trading business.” Even though the firm was first incorporated in 2012 as Kusum Finserve Pvt Ltd, it only filed the turnover from its different business segments for 2014–15. In July 2015, Kusum Finserve chose to convert from a private limited company to an LLP.

In March 2016, the firm received a loan of Rs 10.35 crore from the Indian Renewable Energy Development Agency Limited, or IREDA, a public sector undertaking managed by the Ministry of New and Renewable Energy, for setting up a 2.1 MW wind-energy plant in Ratlam district in Madhya Pradesh, despite having no demonstrable experience in wind-power generation. Further, the loan was extended in violation of IREDA’s own rules and norms, which are specified on its website. The PSU’s website states that it can sanction loans only for plants upto 1 MW, and only for as much as 70 percent of the project’s total cost. The cost of installing a 1 MW wind farm in India typically lies between Rs 4 and 7 crore. Even for the costliest plant, adhering to its own 70-percent cap, the maximum loan that IREDA could grant would be about Rs 4.9 crore. Kusum Finserve received over twice that amount. Jay Shah’s lawyer claimed to The Wire in October 2017 that, as of June that year, the outstanding amount on this loan was Rs 8.52 crore. However this does not yet reflect in the firm’s index of charges on the MCA website.

No further insight into the current state of Kusum Finserve’s affairs is possible, since it has not filed any statement of accounts since the financial year 2015–16. The firm filed an annual return for the financial year 2016–17, but the document does not include any financial details regarding its affairs. It merely states that the turnover of the LLP “exceeds 5 crores.”

Currently, the firm claims to have branched out into manufacturing of plastic bags. Records filed with the Ministry of Corporate Affairs do not document any previous engagement of the firm in this field either.

Note: The text of the paragraph that includes Jagdeep Chhokar's comments to The Caravan has been updated for further clarity on requirements under the Representation of People's Act.