The government has sorted out all issues with the Ajit B Kerkar-promoted Tulip Hospitality Services on the sale of Hotel Corporation of India's Juhu Centaur Hotel in Mumbai, paving the way for the hotel's disinvestment.
While the company has furnished an additional bank guarantee of Rs 36 crore (in addition with the Rs 5 crore bank guarantee paid earlier) on January 31 -- the last date to sign the sale agreement for the hotel -- the remaining money will be paid only after the government takes income tax clearance, sources said.
The government has said that it will now sign the final sale agreement with the company within a week, and then seek income tax clearance. Once the clearance is received, the commercial banks funding the deal will deposit the money in an escrow account, following which the company will take possession of the hotel.
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Tulip executives said that around Rs 230 crore has been tied-up with about 15 commercial banks across the country -- including Bank of India, Bank of Baroda and Canara Bank -- to fund the acquisition of the hotel. The present agreement will minimise the interest outgo for the company in case there is a delay in getting the income tax clearance, the executives added.
The development marks an end to the conflict between the three parties involved -- the government, Tulip and the commercial banks with whom the company had tied up the money.
While the Ministry of Divestment (MoD) had suggested that banks first deposit the balance money in an escrow account before the government sought income tax clearance and then signed the deal, the banks had asked for a confirmation that disbursement will be subject to signing of the sale agreement by HCI and Tulip.
The ministry was of the view that, in case the agreement was not signed by January 31, the deal will be considered cancelled and the hotel will be put on the block again. It that in that case the current bid of Rs 153 crore will be made the reserve price for the hotel.
Till late evening on January 31, Bank of India officials -- with whom Tulip has tied up Rs 25 crore -- maintained that, while an in-principle approval was given, the final sanction was subject to certain terms and conditions which had not been complied with by the company. They, however, added that the approval will remain valid for some more time in case the government decided to shift the deadline from January 31.
The company officials insisted that the matter was to be decided between the commercial banks and the government.
The differences of opinion had earlier appeared between the commercial banks and the government over whether the finances would be released before or after the sale agreement is signed.
While the company has already deposited 10 per cent (Rs 15.3 crore) of the bid amount with the government, it was given time till January 31 to submit the balance ninety per cent of the bid amount (Rs 137.7 crore) for purchase of the Juhu Centaur Hotel. Tulip had written to the MoD stating that the matter should be settled between the banks and the ministry.
In two separate letters written by the Bank of India to the company on January 8 and January 11, besides asking for details of various statutory approvals required prior to and after the agreement of sale, the bank asked for a confirmation that disbursement will be made after the sale agreement is signed. The company, in turn, forwarded the letter to the MoD making its position clear that the money has been tied up with various banks but the banks are not willing to release the funds until the agreement is signed.
The MoD then wrote back to the Bank of India chairman KV Krishnamurthy saying that the conditions being imposed by bank are contrary to the terms of agreement approved by the government. The ministry urged the bank chairman to intervene in the matter and facilitate the conclusion of transaction at the earliest. "The transaction is getting delayed in terms of the sale and in case the issue is not sorted out early, the government will have no choice but to encash the security," the letter said.