Shimla: Comptroller and Auditor General of India is to probe the accounts of Hotel Wildflower Hall on the request of the Himachal Pradesh government, top officials here disclosed.
Principal Accountant General (HP), Rita Mitra said that they had got a nod from the head office to go ahead with an audit of Mashobra Resorts Ltd, the joint venture company of HP government and East India Hotels Ltd (EIH) which operates Hotel Wildflower Hall.
Mitra said, “a request for a special audit of Mashobra Resorts was made by the state government and after having received the permission from CAG headquarters in Delhi, we will be undertaking the task soon.”
Unable to settle the dispute about evaluations and ownership rights over the premier property for over a decade, EIH, an Oberoi group company, has challenged a 2005 arbitration award in HP High Court that had recommended turning the joint venture agreement into a leasehold one because of irreconcilable differences between the partners.
Differences surfaced when projects costs which were estimated at Rs 40 Cr at the time of agreement in 1995 rose to Rs 100 crore in 2002, when the hotel became functional.
Cost escalations reduced the state equity from 35% percent at the time of agreement to 21% on completion, which was not accepted by the government.
Unilaterally terminating the agreement, the state government paid back EIH’s equity and forcibly attempted to take back the heritage property in 2002.
Company Law Board and the courts restrained the governments’ action and asked for a status quo about possession.
The matter went into arbitration and the arbitrator in his award in 2005 recommended termination of the joint-venture agreement and suggested for it being converted into a leasehold one.
EIH was asked to pay a lease amount of Rs 94 Crore over a 40 year period for operating the high end hotel by the arbitrator that has not been accepted by Oberoi’s, who have taken the matter to court.
As the hotel accounts are reported to have run up losses of over Rs 100 crores that have been shown as loans from promoter company EIH, the board dominated by directors from Oberoi group have proposed to further dilute the state equity in the project.
In response to a government petition, the courts in September 2010 restrained the promoter group from converting debt into equity.
Not satisfied with the company’s accounting, the state government approached CAG in April for auditing the hotels accounts.
Wildflower Hall, 13 Kms from Shimla, in 1902 was the summer residence of Lord Kitchener, a Commander in Chief of the Indian Army.
After Kitchener became British War Secretary towards the end of World War I, the property passed onto Mr Hotz who turned into a hotel. After Independence, the hotel became a state property.
The old wooden structure burnt down in 1993 and the government after overriding competitive bids from Taj group and others for resurrecting the hotel entered into a joint-venture agreement with Oberoi group in 1995.
The secluded premier hotel amidst thickly wooded cedar forests is frequented by many high profile businessmen, celebrities and politicians.
Among its niche clientele, the hotel regularly plays host to congress president Sonia Gandhi and her daughter Priyanka.