Friday, 27 June 2014

50 lakhs to 1600 crore: The magic of Rahul and Sonia Gandhi!

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The National Herald case in is the news because a Delhi court has summoned Rahul and Sonia Gandhi in connection to a petition.

That it is not strange, guilt is decided after a trial, not at initial step of even deciding if a trial is necessary.

However, this is a unique case no matter how one looks at it. Indeed, the facts make the events seem almost magical. And they are certainly long and full of twists. Let us have a look.

On the face of it, or at least according to the Congress party's version of events, it was an act of charity - helping out someone who was in favor to the party.

However, as per the allegations made by BJP's Subramanian Swamy in his case against Rahul and Sonia Gandhi, matters take a strange turn once you dig deeper.

Here are the facts of the case -

Associated Journals is a limited company, having shareholders. Motilal Vora, treasurer of the All India Congress Committee, was a chairman in the company..

The company was in the business of printing newspapers - the National Herald and sister publications Navjivan (Hindi) and Qaumi Awaz (Urdu).

Point to note: The National Herald was a newspaper that Jawaharlal Nehru started in 1938, so basically that paper, and the company that publishes it, has a deep link to the Congress party.

Associated Journals had accumulated huge debts and was basically bankrupt. At some unspecified time, they received a loan of Rs 90 crore from the Congress Party - interest-free – to clear all their debts.

When questioned on this 'loan' by a political party (using its funds) to a non-political entity (something they are not supposed to use their funds for), Congress spokesperson Janardan Dwivedi had the following to say -

"This support was extended by the Indian National Congress in the form of interest-free loans from which no commercial profit has accrued to INC...

In furtherance of its object and its political activities, it is a matter of pride for the Indian National Congress that it has supported The Associated Journals Limited, publisher of the National Herald and other newspapers, founded by Pandit Jawaharlal Nehru in 1937, which have played a role in our freedom movement.

The Indian National Congress has done its duty in supporting The Associated Journals to help initiate a process to bring the newspaper back to health in compliance with the laws of the land,"

So the Congress Party gave a massive loan to Associated Journals to pay off all of their debts, because of sentimental reasons and historic connections.  Even though there is little proof the money was used to pay salaries or other debts. In fact it is difficult to find what the money was used for exactly.

However if that was all that had occurred, obviously a Delhi court would not have said - "The chain of circumstance appears to give rise to a conclusive or irresistible inference of an agreement between the accused to commit the offences as alleged in a pre-planned manner,"

That is where the second half of this tale comes in.

As per a Business Standard report, Young Indian is a non-profit company under section 25 of the Companies Act. It was created for the following object -

“The company is engaged in activities to inculcate in the mind of India’s youth commitment to the ideal of a democratic and secular society and provides for application of its profits or income in pursuit thereof.”

You can read in detail what a section 25 company is at the end of this article here

In 2010, just one month after Young Indian was incorporated, the board of Associated Journals decided that they would transfer 90.2 million shares at Rs 10/share to it.

The same was completed just two months after Young Indian was formed.

By virtue of this shareholding, Associated Journals becomes a subsidiary of Young Indian, with all of its liabilities paid out by the 'loan' from the Congress Party.  In return for this consideration, Associated Journals accepted a payment of Rs 50 lakhs from Young Indian.

To quote the accounts filed by Young Indian auditor Pradeep Shah in 2012,

"In pursuit of its objects, the company has acquired loan owed of Rs 90,21,68,980 by the Associated Journals, presently engaged in achieving a recast of its activities so as to have its main object congruent to the main object of the company, for a consideration of Rs 50 lakh,"

So Associated Journal agreed to transfer their loan to Young Indian for Rs 50 lakhs. The Congress Party, to whom this loan has to be paid out, is losing Rs 89.5 crore.

Actually, as per the Business Standard report, the Congress party is not even going to get that Rs 50 lakhs since Young Indian has "capital of Rs 5 lakh (got through the issuance of shares) and loans of Rs 1 crore".  They have not objected to this loss, at least publicly.

What did Young Indian get for its Rs 50 lakhs?

As per this Firstpost report, the properties of Associated Journals, which now effectively belong to Young Indian and which include Delhi’s Herald House on Bahadur Shah Zafar Marg, is estimated to be worth Rs 1600 crore.

A profit of 99.96 percent! Quite a steal for Rs 50 lakhs.

Now, many companies are sold cheaply once they are bankrupt and under huge debts.  But the tale is not ended yet – because here at last, is where the Gandhis enter.

As per another Firstpost report, Young Indian has just 5000 shares. Rahul Gandhi and Sonia Gandhi owned 1,900 shares each. Motilal Vora, Congress Treasurer, and Oscar Fernandes, party General Secretary, own 600 shares each.

Motilal Vora, it should be remembered was also a chairman of Associated Journals.

So through this long and complicated route, Rahul and Sonia Gandhi are now proud owners of property worth Rs 1600 crore (at least), in the heart of Delhi.

While is plenty more to the story - complicated and vague accounts that are practically impossible to understand, strange book entries, unusual transfers, lack of transparency etc., this is where the crux of Swamy's complaint lies.

He alleges that the Congress Party used its political fund, meant for political activities only, to buy the Gandhis Rs 1600 crore worth of property, in exchange for Rs 50 lakhs, losing Rs 89.5 crores in the process.

If proven, then the allegations he makes contain several instances of fraud, insider trading and generally bad business and political processes.

The main questions raised are –
  • Why did Associated Journals, which could have easily made several hundred crores just by the sale of their properties, take the loan from the Congress Party? 
  • Why did Associated Journals sell itself for just Rs 50 lakhs?
  • Why did Associated Journals sell itself to a vaguely-defined, unknown and brand new non-profit company, instead of approaching other publishers or companies engaged in similar activities as its own?
  • The Congress Party initially claimed the money was to revive the National Herald paper. Are there any plans, or have any steps been taken since 2011, to achieve this?
  • The Congress Party also claims their money was used to pay salaries of 700 employees, but there is no clear proof that this money was used for this purpose at all. So where did the money go?
  • Is the Congress Party now going to get its money back from Young Indian, or is that money gone forever?
  • Since Young Indian is essentially owned by the Gandhis and other Congress Party office bearers, does the Congress Party intend to recover its money from them?
  • While the Congress Party may end up losing Rs 90 crores, isn't it amazing how the Gandhis seem to have made Rs 1600 crores from just Rs 50 lakhs?
  • Doesn't the Congress Party want its money back?
  • What exactly is Young Indian, supposedly promoting "India’s youth commitment to the ideal of a democratic and secular society", plan on doing with Associated Journals?
  • What happens now to Associated Journals vast properties?

Quite possibly more questions will emerge as the days go on.

In the end, it may emerge that technically no major laws have been broken, and on the surface it certainly seems so.

While no one can be surprised the Congress Party is willing to take a huge loss for the first family, it is difficult to image Rahul and Sonia Gandhi emerging from this mess without a major political scandal.

The case is ongoing.

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