How a grand five-star hotel worth Rs 250 crore was sold for just ₹ 7.5 crore by the NDA govt

The Laxmi Vilas Palace, a spectacular heritage five-star hotel on the banks of lake Fateh Sagar, is a massive draw for tourists and one of the most popular tourist destinations in India

How a grand five-star hotel worth Rs 250 crore was sold for just ₹ 7.5 crore by the NDA govt
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V Venkateswara Rao

Rs 7.52 crore was not a very big amount of money for the Government of India, even in the year 2002. But that was the amount for which the grand Laxmi Vilas Palace hotel in Udaipur was sold to hotelier Lalit Suri's Bharat Hotels through 'strategic disinvestment' during the then PM Atal Bihari Vajpayee's regime.

The Laxmi Vilas Palace, a spectacular heritage five-star hotel on the banks of lake Fateh Sagar, is a massive draw for tourists and one of the most popular tourist destinations in India. Laxmi Vilas Palace belonged to the former royal family of Udaipur. During the accession of princely states, the massive property was handed over to the government.

After independence, the government ran it as a hotel under the public sector company ITDC. It is a premium heritage hotel just 1 kilometre away from Bharatpur Bird Sanctuary. The hotel offers accommodation in two wings with 75 rooms divided into two categories- Classic Rooms and Royal suites. It also has over 23,000 square feet of conference and banqueting space. The total freehold area of the land was found to be 9,30,204 square feet.

For almost a hundred years, the Laxmi Vilas Palace has been a prime witness to, and a participant in, almost every eventful happening that took in the princely state of Bharatpur - royal weddings, affairs of the court and the royal duck shoots. It has played host to such dignitaries as the Duke of Edinburgh, Shah of Iran, King of Nepal and Shah of Afghanistan.

Generally, in such strategic sale processes, a few key factors related to the asset are considered: the land value; the market value of the asset; and the future business potential. In the Laxmi Vilas Palace hotel disinvestment, these key rules seem to have been ignored and asset value mysteriously undervalued. The Special CBI Court in Jodhpur noted that the property, which commanded a market value of over Rs 250 crore was undervalued and sold at Rs 7.52 crore to the private hotel company. Taking a strong view, the court ordered the District Collector to take over the hotel from the Lalit Suri Group with immediate effect.

The CBI had filed a closure report in late 2019 saying, “It is concluded that evidence worth launching prosecution was not found in the entire process of disinvestment of M/s Laxmi Vilas Palace Hotel, Udaipur”.

However, according to the investigating company’s report, as reported in the media, the disinvestment of the government-run luxury hotel “resulted in wrongful loss of about Rs 143.48 crore to the government and corresponding wrongful gain to the accused persons individually / jointly”.


During investigation, CBI found that the valuation report of the property in question was prepared by Kantilal Karamsey Vikamsey, proprietor of M/s Kanti Karamsey and Co. after inspecting the property on October 10, 2001. The valuation was submitted to M/s Lazard India, the financial adviser, who analysed and submitted it to the Secretary, Department of Disinvestment, while the process of inviting bids was still underway. The valuer said that though the land rate as per the government varied from Rs 500 to Rs 1,000, it was being considered at Rs 45 per sq foot for freehold land. The reasons cited by the valuer for the undervaluation were that the land fell under Red Zone, i.e., no development zone; it was within 500 m of the lake; and a high transmission line passed through the northern and western ends of the property.

The conclusion reached by the asset valuer, that no construction could be done on the land as it fell in the Red Zone, was based on oral information. Considering all these factors, the valuer concluded that the fair depreciated market value of the said property was Rs 7.85 crore as on the date of valuation, October 8, 2001.

On the valuation of the hotel, the Jodhpur court said: “The unknown officers and private persons indulged in this conspiracy from 1999 to 2002 to cause loss of money to the government. The land was valued at Rs 45 per square yard. Even a spoon in the hotel would be costlier than that.”

The then savvy Disinvestment Minister, Arun Shourie and the then shrewd Disinvestment Secretary, Pradip Baijal have accepted the gross under-valuation done by the private firm M/s Kanti Karamsey and Co, without any questions. Based on that faulty valuation, the reserve price for the sale of hotel was fixed at Rs 6.12 crore. The court has ordered that a criminal case be registered against Shourie, Baijal and others.

(V Venkateswara Rao is a retired corporate professional and a freelance writer)


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