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India's most ambitious airport city project in a limbo

February 18, 2015 18:47 IST
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Dispute between the promoters of the Rs 12,000-crore airport city project has been simmering for four years. 

Seven years on, however, the project is awaiting clearances from the Directorate General of Civil Aviation and the Airports Authority of India.

"An airport, an industrial park, a logistics hub, an infotech park and a supporting township - all just at a 15-minute drive from Durgapur. This aerotropolis promises to champion urban growth through intelligent planning and flawless execution," says an early project brochure. 

India's air travel revolution has seen some cities getting new airports and others sprucing up their old ones. But no airport in India has a city built around it.

That credit was to go to a defunct World War II airstrip near Andal, a four-hour drive from Kolkata. Bengal Aerotropolis Projects is a Special Purpose Vehicle (SPV) to build the aerotropolis, an airport city, over 2,300 acres.

It will have an airport on 650 acres, an infotech and industrial park on 550 acres, a housing project on 650 acres and a hospital, schools, shopping areas and other structures on 450 acres. 

The project is prized by West Bengal Chief Minister Mamata Banerjee. Relatives of former Union aviation minister Praful Patel hold significant stakes. A reputed international partner, Changi Airports International, has provided technical support and investment.


Seven years on, however, the project is awaiting clearances from the Directorate General of Civil Aviation and the Airports Authority of India. Several deadlines have lapsed, the latest one in January. 

On February 6, Raj Shekhar Agrawal, estranged co-promoter and former chief executive of the project, said a newly reconstituted board had taken charge of Pragati47, promoter company for Bengal Aerotropolis Projects, and held its first meeting in Kolkata. 

The board was reconstituted to replace directors who disqualified themselves after the company did not file financial statements for three years from 2010-11.

"We appeal to Changi and IL&FS to cooperate so that the project can be put back on track and achieve its potential," Agrawal said after the meeting. In response, Partha Ghosh, MD, BAPL and now the face of the project, called this move: "Unauthorised representation on behalf of the company" in a letter issued last week to Agrawal's lawyers. He said the meeting was not valid, and threatened legal action. 

Dispute between the promoters of the Rs 12,000-crore airport city project has been simmering for four years.

"It is my company. Others are squatting on it," Agrawal told Business Standard last month about the holding company of the SPV, Pragati Social Infrastructure and Development, and its parent, Pragati 47 Development (Pragati47).

Agrawal claims the aerotropolis was his brainchild, inspired by an article he read in The Economist magazine. He has made submissions to enforcement agencies, regulators and government offices.


The project needs clearances from several central ministries such as civil aviation, home and urban development. And being a corporate dispute, the corporate affairs ministry and the Company Law Board (CLB) are involved as well. Some have initiated inquiries. 

In his submissions, reviewed by Business Standard, Agrawal cites a January 2008 agreement between Bengal Aerotropolis Projects and the West Bengal Industrial Development Corporation (WBIDC), according to which, Pragati Social Infrastructure and Development, a joint venture between Pragati47 and Housing & Urban Development Corporation (Hudco), was promoter of the airport city project.

"I am the promoter-shareholder of Pragati47 with 23.1 per cent equity, along with my wife Vandana. We have an unassailable claim to an additional 47.5 per cent equity being pursued in court," Agrawal said. He has even taken his plea to Prime Minister Narendra Modi's office. In November, the PMO forwarded the complaint to the chief secretary of the West Bengal government. 

The "others" whom Agrawal claims are squatting on his firm are a group led by Ghosh. Ghosh and Agrawal go back a long way. In 2002, they worked on a project called Shrishti, promoted by Srei group founder Hemant Kanoria. Ghosh was chairman and Agrawal the chief executive officer.

They got along and floated Pragati47 in July 2003. Ghosh says he controlled 70 per cent of Pragati47 from day one. "At inception, Ghosh held 70 per cent shares. The balance was held by R K Banerjee and R S Agrawal. 

In April 2007, Och-Ziff, a large US-based hedge fund, through its investment arm, AMIF I Limited, invested substantial sums in Pragati47 against 47.5 per cent equity in the company," Ghosh said in an email response to Business Standard


Problems between the promoters started in December 2009, when Changi was about to disburse a second tranche of investment. Agrawal, as Pragati47's nominee director on the Bengal Aerotropolis Projects board, wrote a mail to Changi alleging irregularities on the part of Bengal Aerotropolis Projects in obtaining land from WBIDC. 

"This email, casting aspersions on all members of the Bengal Aerotropolis Projects board, stalled the project, with Changi expressing serious misgivings," Ghosh says. Changi's misgivings were resolved after Ghosh travelled to Singapore "and demonstrated there were no such alleged irregularities in terms of land acquisition. Changi was convinced and continued its support." 

Agrawal says he wrote the mail because he was worried that moving ahead on investments without achieving the milestones for the first tranche would amount to defrauding a foreign investor.

Changi Airports International spokesperson See Ngee Muoy said it did not want to comment on questions relating to legal proceedings that did not involve it or Bengal Aerotropolis Projects.

However, Muoy added, "The board of Bengal Aerotropolis Projects had investigated the allegations of fraud and forgery. The board had also obtained independent professional and legal advice on the legality and procedural propriety of the transactions involved in the alleged dispute and is satisfied that there is no impropriety involved. Changi Airports International's representative is a member of the board." 

Another area of dispute is the existence or otherwise of an arbitration agreement. For investing in the shares of Bengal Aerotropolis Projects, Pragati Social Infrastructure and Development borrowed Rs 20.25 crore from Citystar, secured by pledged shares of Bengal Aerotropolis Projects.

"Agrawal, as managing director of Pragati Social Infrastructure and Development, was responsible for its financial affairs and for creating the pledge of shares in favour of Citystar. He, however, failed to do so for almost two years from the time of disbursement, leading to Citystar seeking arbitration," says Ghosh.


The arbitrator, in its interim award, directed Pragati Social Infrastructure and Development to create a pledge in favour of Citystar. Which it did, but it also appealed against the award. The plea was rejected at the first instance. "The transactions contemplated here have all been ratified by Hudco's nominee director," Ghosh says. 

Agrawal's contention is the arbitration agreement is a forged one as the existence of such an agreement was not known to any board member till the dispute broke out in 2009. He says Ghosh himself made conflicting submissions in this regard in different correspondence.

Separately, Hudco has filed a petition with the CLB, alleging mismanagement by Ghosh and his associates. "The shares have been transferred in purported compliance with the award passed in an arbitration proceeding allegedly owes its origin to an arbitration agreement which itself does not exist and is not enforceable," Hudco's petition reviewed by Business Standard says. Hudco officials who dealt with the matter declined to comment. 

"There is no question of any conflicting submissions having been made concerning any arbitration agreement or letter of 2007," Ghosh said in his email response. Responding to Agrawal's contention that Ghosh and other board members were in control of Pragati47 and Pragati Social Infrastructure and Development illegally, for not having held annual general meetings for five years, Ghosh said, "The holding of the annual general meeting of Pragati47 is injuncted by an order of court.

The petitioners have made out a case that warrants an injunction in respect of holding AGM's of Pragati47. Any affected party is at liberty to institute proceedings for vacating an order of injunction." 

Ram Rattan Modi of Citystar did not respond to Agrawal's allegations. Utsav Parekh of Lend Lease, another shareholder and related to former aviation minister Praful Patel, referred to the company's response. He did not respond to questions about possible conflict of interest in his shareholding in a project regulated by a close relative's ministry. Mails sent to AMIF did not elicit any response. 


According to V P Agarwal, a former chairman of Airports Authority of India, small non-metro airport projects in India generally make losses unless they have a sustainable non-aeronautical revenue stream.

"Small airports need to have at least 16 flights a day to make operations viable. Without a real estate play, such airports are unviable," says Agarwal. Sixteen flights seem a long haul for Bengal Aerotropolis Projects that recently announced it was in discussions with a solitary budget airline, GoAir. Although it has a few additional sops like being declared an industrial city by the state government, old problems bedevil the project. One is the shifting of high-tension electricity lines that criss-cross the project site. 

Changi Airports International's Muoy says the issue has made steady progress "with 100 per cent right-of-way secured for all towers to be erected for the new high-tension lines". The state government has been extremely helpful in resolving the right-of-way issue, Muoy adds.

However Agrawal disagrees. "High-tension wires were a problem five years back, too. They are a problem even today. Where is the progress?" he says.

Amid claims and counter-claims by the feuding promoters, the stakes have become higher, with several investors buying land parcels in the project. A new March 2015 deadline will test the management's ability to get the country's most ambitious airport city project going.

Photographs, courtesy: Bengal Aerotropolis

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