Rs 500-cr loan for Hyderabad's Fab City: What is the controversy and what did HC say?

Hyderabad’s Fab City SEZ land dispute has now triggered a major controversy in Telangana. The Congress government is seeking to take back the land even as the SBI considers the land as security against the loan it extended.

Amid this, the Telangana High Court has raised a crucial question. "How was a loan of nearly Rs 500 crore sanctioned for a project worth only Rs 200 crore?"

With this single question, the entire Fab City issue has once again come into the spotlight.

What is Fab City?

Back in 2006-07, India had virtually no semiconductor manufacturing industry. The world's leading chip manufacturers were concentrated in countries such as the United States, Taiwan and South Korea.

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At that time, the Central government introduced special policies to promote the semiconductor industry in the country. State governments, too, announced attractive incentives to draw large-scale foreign investments.

It was in this backdrop that the then Andhra Pradesh government announced the Fab City project near Hyderabad.

The objective was simple: To establish a world-class semiconductor manufacturing hub in Hyderabad.

Why govt extended special incentives to SEM India Fab?

The then government wanted SEM India Fab to serve as the principal or anchor industry in Fab City.

Accordingly, it allotted 100 acres of land on a 66-year lease on April 28, 2007. The lease agreement came into effect on June 25, 2007. Possession of the land was also handed over on the same day.

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The lease rent was fixed at just Rs 1 per acre per year. It was assured of power subsidies and water supply. And, also offered tax incentives such as VAT and CST reimbursements besides extending SEZ benefits.

The government's thinking was clear. "Even if the land is allotted at a nominal cost today, it will eventually attract investments worth thousands of crores, create thousands of jobs and bring in ancillary industries."

What did company promise?

SEM India Fab stated that it would initially establish an assembly, testing, marking and packaging unit. It later announced plans to build a full-fledged semiconductor fabrication facility.

The company claimed that total investments would eventually reach the billion-dollar level. The government also expected the project to create a large industrial ecosystem.

What happened next?

Between 2007 and 2010, several major announcements were made regarding the project. It was projected to generate thousands of jobs and attract significant investments. However, the project did not progress as expected.

The plant was not constructed. Commercial production never commenced. That is where the dispute began.

Did govt seek to reclaim land?

According to the government, the company failed to fully comply with the conditions agreed upon at the time of land allotment. As a result, it initiated steps around 2010-11 to resume possession of the land.

However, the company opposed the move. The lenders also objected. This led to a series of legal disputes.

What is main dispute now?

At present, three different parties are claiming rights over the same land. However, the government's stand is, "The project was not implemented. Therefore, we are entitled to take back the land."

State Bank of India (SBI), said, "This land serves as security for our loan. Therefore, our rights must be considered first."

The company said, "We acquired the land legally and have valid rights over it."

As a result, a full-fledged legal battle is now between the government, the bank and the company. The most critical aspect of the case now revolves around the loan.

HC's question

This is why the High Court has raised the question: "How was a loan of nearly Rs 500 crore sanctioned for a project worth only Rs 200 crore?"

Normally, banks do not sanction loans solely based on project cost. They assess several factors, including land value, future asset value, and others.

If the project cost was only Rs 200 crore, what justified a loan of nearly Rs 500 crore without substantial additional security? This is what the High Court is seeking to understand.

As the controversy continues over the Fab City, several key questions remain: Did the bank comply with all prescribed norms? Was the land legally accepted as security? Does the government have the right to reclaim the land?

Only after these questions are answered will the complete picture of the Fab City case become clear.

(This article was originally published in The Federal Telangana)