Taxpayer-controlled Royal Bank of Scotland has sold Grosvenor House, the luxury Mayfair hotel built on the site of the former London residence of the dukes of Westminster, to an Indian billionaire for £470m.

The 494-room property, one of London’s largest five-star hotels, has been acquired by Sahara India Pariwar, a media conglomerate controlled by colourful industrialist Subrata Roy, who describes himself as “chief guardian, managing worker and chairman” of the Sahara group “family”.

The sale process was completed today as it emerged that a banking consortium led by RBS was likely to take a controlling interest in one of Britain’s largest provincial hotel groups, Jarvis Hotels. Attempts to find a buyer for the business, which has breached its banking covenants, have failed.

Jarvis was founded in 1990 by veteran hotel entrepreneur John Jarvis, a former head of Hilton International, when he bought 41 properties from drinks group Allied-Lyons. After about a year listed on the stock market, Jarvis took the business private, after a sale and leaseback deal. The £230m buyout was backed by private equity house Lioncourt Capital and a group of Irish investors.

The company has been in breach of its banking covenants for more than two years. Accounts for Jarvis’s parent group, Kayterm Limited, show that in March last year the group had more than £130m of liabilities and was being kept alive by covenant waivers from its banks. “The directors recognise that the company is dependent upon the agreement of its lenders to a restructuring in order for it to continue as a going concern,” it states.

Other lenders to Jarvis are believed to include HSBC and Bank of Ireland.

With hopes of a sale now dashed, possible moves left open to Jarvis include a debt-for-equity swap or some form of administration, potentially a pre-packaged deal that would jettison certain onerous lease commitments.

Meanwhile, though Grosvenor House did not fetch the £500m-plus price that RBS was reputedly seeking, the sale does underline the relatively strong market for ultra-premium London properties. Grosvenor House has undergone a multimillion-pound refurbishment in recent years and is now managed by Marriott International. It is the last of about a dozen hotel properties acquired by the RBS consortium in a sale and leaseback deal with Le Meridien after the hotel operator was acquired in a £1.9bn buyout by Guy Hands’ Terra Firma. Terra Firma ultimately handed the keys over to its bankers, Lehman Brothers, in 2003.