Haridas Mundhra
Encyclopedia
Haridas Mundhra was a Calcutta
-based industrialist and stock speculator who was found guilty and imprisoned in the first big financial scandal of free India
in the 1950s. The Mundhra scandal exposed the rifts between the then Prime Minister
Jawaharlal Nehru
and his son-in-law
Feroze Gandhi
, and also led to the resignation of India's then finance minister T. T. Krishnamachari
.
for selling forged shares.
In 1957, Mundhra got the government-owned Life Insurance Corporation (LIC) to invest Rs. 1.24 crores (about USD 3.2 million at the time) in the shares of six troubled companies belonging to Mundhra: Richardson Cruddas, Jessops & Company, Smith Stanistreet,
Osler Lamps, Agnelo Brothers and British India Corporation. The investment was done under governmental pressure and bypassed the LIC’s investment committee, which was informed of this decision only after the deal had gone through. In the event, LIC lost most of the money.
of the Indian National Congress
party, who represented the Rae Bareli seat in the Parliament of India
. Jawaharlal Nehru
was Prime Minister at the time, and Feroze was married to his daughter Indira Gandhi
. Nehru, as the leader of the ruling Congress party, wished to have the LIC matter handled quietly since it might show the government in a poor light.
However, Feroze Gandhi was the primary force behind an anti-corruption movement that in 1956 resulted in imprisonment of one of India's wealthiest men, Ram Kishan Dalmia, for defrauding his life insurance company. Subsequently, the parliament had passed the Life Insurance of India Act on June 19, 1956, under which 245 firms were nationalized and consolidated under the Life Insurance Corporation. Hence, he looked upon the LIC as a "child of Parliament". He would have no softpedalling on the matter, and took the case directly to parliament:
However, the matter was dramatized further in the public mind by the tense relations between Feroze and his father-in-law.
and Sanjay Gandhi
moved to Delhi to live with Jawaharlal, while Feroze continued alone in Lucknow
. In 1952, after Feroze Gandhi was elected to Parliament (his campaign was managed by Indira), he also moved to Delhi, where he was assigned an MP quarters, but "Indira continued to stay with her father, thus putting the final seal on the separation".
This rift was well known and it lent drama to the already sensational matter when Feroze Gandhi raised the Mundhra question on the floor of the parliament. Standing from the treasury benches, he asked the government whether the newly formed Life Insurance Corporation had used premiums from 5.5 million life-insurance policyholders to buy up shares at above-market prices in companies controlled by the notorious stock speculator named Haridas Mundhra.
Thus the prime minister was confronted by his own son-in-law. The fiery Finance minister, himself a noted industrialist, initially snapped "That is not the fact," but had to admit later that this was the case.
Justice Chagla determined that the Finance Secretary, Haribhai M. Patel
, along with two LIC officials, L S Vaidyanathan, may have colluded on the payment, and should be investigated.Subsequent inquiry committee headed by Retired Justice Vivian Bose cleared the names of two civil servants but passed strictures against finance minister for "lying". The Finance Minister T. T. Krishnamachari
, in his testimony tried to distance himself from the LIC decision, implying that it may have been taken by the Finance Secretary, but Justice Chagla held that the Minister is constitutionally responsible for the action taken by his secretary and he disown his actions. Eventually, Krishanamachari had to resign. The Nehru government suffered considerable loss of prestige in the incident.
Haridas Mundhra was arrested from his luxury suite at the Claridge's Hotel in Delhi, and sent to prison.
It turned out that Mundhra’s manipulations were not restricted to LIC. The income tax department
had curiously withdrawn certain notices pending against him having entered
into "some understanding" about the payment of arrears.
In recent times, Mundhra is often noted as the forerunner of other financial scamsters of modern India, including Harshad Mehta
and Abdul Karim Telgi
, who also operated with considerable political connivance. However, unlike in the Mundhra case, the government response in appointing an honest and competent judge, and also the judicial investigation (24 days of public hearings) has been far from transparent.
This lack of transparency has also been commented upon in the public investigation of the Bofors Scandal
, one of India's largest scandals, which involved Feroze Gandhi's son Rajiv Gandhi
, the Prime Minister at the time.
Kolkata
Kolkata , formerly known as Calcutta, is the capital of the Indian state of West Bengal. Located on the east bank of the Hooghly River, it was the commercial capital of East India...
-based industrialist and stock speculator who was found guilty and imprisoned in the first big financial scandal of free India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
in the 1950s. The Mundhra scandal exposed the rifts between the then Prime Minister
Prime Minister of India
The Prime Minister of India , as addressed to in the Constitution of India — Prime Minister for the Union, is the chief of government, head of the Council of Ministers and the leader of the majority party in parliament...
Jawaharlal Nehru
Jawaharlal Nehru
Jawaharlal Nehru , often referred to with the epithet of Panditji, was an Indian statesman who became the first Prime Minister of independent India and became noted for his “neutralist” policies in foreign affairs. He was also one of the principal leaders of India’s independence movement in the...
and his son-in-law
Affinity (law)
In law and in cultural anthropology, affinity, as distinguished from consanguinity, is kinship by marriage. It is the relation which each party to a marriage bears to the kindred of the other. In English, affinity is usually signified by adding "-in-law" to the degree of kinship...
Feroze Gandhi
Feroze Gandhi
Feroze Jehangir Gandhi was an Indian politician and journalist, and publisher of the The National Herald and The Navjivan newspapers from Lucknow....
, and also led to the resignation of India's then finance minister T. T. Krishnamachari
T. T. Krishnamachari
- References :...
.
Life
Born into a trading family, Mundhra started life as a light-bulb salesman, and pyramided his holdings by "fast deals and stock juggling" into a Rs. 4 crore (USD 10 million) empire. However, by the mid-50s, his business empire was unravelling, and he came to be known for his somewhat questionable ethics. In 1956, he was indicted by the Bombay Stock ExchangeBombay Stock Exchange
The Bombay Stock Exchange is a stock exchange located on Dalal Street, Mumbai and is the oldest stock exchange in Asia. The equity market capitalization of the companies listed on the BSE was 1.63 trillion as of December 2010, making it the 4th largest stock exchange in Asia and the 8th largest...
for selling forged shares.
In 1957, Mundhra got the government-owned Life Insurance Corporation (LIC) to invest Rs. 1.24 crores (about USD 3.2 million at the time) in the shares of six troubled companies belonging to Mundhra: Richardson Cruddas, Jessops & Company, Smith Stanistreet,
Osler Lamps, Agnelo Brothers and British India Corporation. The investment was done under governmental pressure and bypassed the LIC’s investment committee, which was informed of this decision only after the deal had gone through. In the event, LIC lost most of the money.
The Mundhra Scandal
The irregularity was highlighted in 1958 by Feroze GandhiFeroze Gandhi
Feroze Jehangir Gandhi was an Indian politician and journalist, and publisher of the The National Herald and The Navjivan newspapers from Lucknow....
of the Indian National Congress
Indian National Congress
The Indian National Congress is one of the two major political parties in India, the other being the Bharatiya Janata Party. It is the largest and one of the oldest democratic political parties in the world. The party's modern liberal platform is largely considered center-left in the Indian...
party, who represented the Rae Bareli seat in the Parliament of India
Parliament of India
The Parliament of India is the supreme legislative body in India. Founded in 1919, the Parliament alone possesses legislative supremacy and thereby ultimate power over all political bodies in India. The Parliament of India comprises the President and the two Houses, Lok Sabha and Rajya Sabha...
. Jawaharlal Nehru
Jawaharlal Nehru
Jawaharlal Nehru , often referred to with the epithet of Panditji, was an Indian statesman who became the first Prime Minister of independent India and became noted for his “neutralist” policies in foreign affairs. He was also one of the principal leaders of India’s independence movement in the...
was Prime Minister at the time, and Feroze was married to his daughter Indira Gandhi
Indira Gandhi
Indira Priyadarshini Gandhara was an Indian politician who served as the third Prime Minister of India for three consecutive terms and a fourth term . She was assassinated by Sikh extremists...
. Nehru, as the leader of the ruling Congress party, wished to have the LIC matter handled quietly since it might show the government in a poor light.
However, Feroze Gandhi was the primary force behind an anti-corruption movement that in 1956 resulted in imprisonment of one of India's wealthiest men, Ram Kishan Dalmia, for defrauding his life insurance company. Subsequently, the parliament had passed the Life Insurance of India Act on June 19, 1956, under which 245 firms were nationalized and consolidated under the Life Insurance Corporation. Hence, he looked upon the LIC as a "child of Parliament". He would have no softpedalling on the matter, and took the case directly to parliament:
- "Parliament must exercise vigilance and control over the biggest and most powerful financial institution it has created, the Life Insurance Corporation of India, whose misapplication of public funds we shall scrutinise today." Feroze Gandhi, Speech in Parliament, 1957-12-16.
However, the matter was dramatized further in the public mind by the tense relations between Feroze and his father-in-law.
Feroze Gandhi vs. Nehru
Feroze Gandhi had married Indira over initial objections of Jawaharlal, but Indira had gotten him to agree to the marriage, and relations between the men were cordial. Indira often helped her father in his duties, acting as official hostess, and helping run the huge residence. In 1949, Indira and their two sons Rajiv GandhiRajiv
Rajeev is a popular Indian male name, also spelt as Rajiv or Rajib. In Sanskrit Rajiv means "striped". This is used to refer to the blue lotus in Hindu texts. In Ramayana, Lord Rama is also referred as "Rajiv Lochan", meaning "one whose eyes are like lotus flowers"...
and Sanjay Gandhi
Sanjay Gandhi
Sanjay Gandhi was an Indian politician. The younger son of Prime Minister Indira Gandhi and Feroze Gandhi, he was a member of the Nehru-Gandhi family...
moved to Delhi to live with Jawaharlal, while Feroze continued alone in Lucknow
Lucknow
Lucknow is the capital city of Uttar Pradesh in India. Lucknow is the administrative headquarters of Lucknow District and Lucknow Division....
. In 1952, after Feroze Gandhi was elected to Parliament (his campaign was managed by Indira), he also moved to Delhi, where he was assigned an MP quarters, but "Indira continued to stay with her father, thus putting the final seal on the separation".
This rift was well known and it lent drama to the already sensational matter when Feroze Gandhi raised the Mundhra question on the floor of the parliament. Standing from the treasury benches, he asked the government whether the newly formed Life Insurance Corporation had used premiums from 5.5 million life-insurance policyholders to buy up shares at above-market prices in companies controlled by the notorious stock speculator named Haridas Mundhra.
Thus the prime minister was confronted by his own son-in-law. The fiery Finance minister, himself a noted industrialist, initially snapped "That is not the fact," but had to admit later that this was the case.
Commission of Enquiry: M.C. Chagla
Given the public spotlight, the government was forced to appoint a committee to examine the matter. The retired Bombay High Court Justice M. C. Chagla was appointed as a one-man committee. Chagla held that a transparent and public enquiry was a "very important safeguard for ensuring that the decision will be fair and impartial. The public is entitled to know on what evidence the decision is based.". Consequently, large crowds would attend the hearings which were concluded in just 24 days. Several leading stockbrokers who were on the LIC Investment Committee testified that the investment could not have been made for the purpose of propping up the market, as was claimed by the Finance Ministry, and that had the LIC consulted the Investment Committee, they would have pointed out Mundhra's forged shares episode from 1956. Among those who gave evidence was HT Parekh, then the Deputy General Manager of Industrial Credit & Investment Corporation of India who was also a member of LIC's Investment Committee. HT Parekh's Note to the Investment Committee and his testimony is available in a two volume collection of his writings.Justice Chagla determined that the Finance Secretary, Haribhai M. Patel
H. M. Patel
Hirubhai Mulljibhai Patel was an Indian civil servant who played a major role in the issues regarding internal and national security in the first years after the independence of India. From 1977 to 1980, served as the Finance Minister and later the Home Minister of India.-Early life:Patel was a...
, along with two LIC officials, L S Vaidyanathan, may have colluded on the payment, and should be investigated.Subsequent inquiry committee headed by Retired Justice Vivian Bose cleared the names of two civil servants but passed strictures against finance minister for "lying". The Finance Minister T. T. Krishnamachari
T. T. Krishnamachari
- References :...
, in his testimony tried to distance himself from the LIC decision, implying that it may have been taken by the Finance Secretary, but Justice Chagla held that the Minister is constitutionally responsible for the action taken by his secretary and he disown his actions. Eventually, Krishanamachari had to resign. The Nehru government suffered considerable loss of prestige in the incident.
Haridas Mundhra was arrested from his luxury suite at the Claridge's Hotel in Delhi, and sent to prison.
It turned out that Mundhra’s manipulations were not restricted to LIC. The income tax department
had curiously withdrawn certain notices pending against him having entered
into "some understanding" about the payment of arrears.
In recent times, Mundhra is often noted as the forerunner of other financial scamsters of modern India, including Harshad Mehta
Harshad Mehta
Harshad Shantila Mehta was an Indian stockbroker. He is alleged to have engineered the rise in the BSE stock exchange in 1992. Exploiting several loopholes in the banking system, Mehta and his associates siphoned off funds from inter-bank transactions and bought shares heavily at a premium across...
and Abdul Karim Telgi
Abdul Karim Telgi
Abdul Karim Telgi is a convicted counterfeiter from India. He earned money by printing counterfeit stamp paper in India.-Early life:...
, who also operated with considerable political connivance. However, unlike in the Mundhra case, the government response in appointing an honest and competent judge, and also the judicial investigation (24 days of public hearings) has been far from transparent.
This lack of transparency has also been commented upon in the public investigation of the Bofors Scandal
Bofors scandal
The Bofors scandal was a major corruption scandal in India in the 1980s; the then Prime Minister Rajiv Gandhi and several others were accused of receiving kickbacks from Bofors AB for winning a bid to supply India's 155 mm field howitzer...
, one of India's largest scandals, which involved Feroze Gandhi's son Rajiv Gandhi
Rajiv Gandhi
Rajiv Ratna Gandhi was the sixth Prime Minister of India . He took office after his mother's assassination on 31 October 1984; he himself was assassinated on 21 May 1991. He became the youngest Prime Minister of India when he took office at the age of 40.Rajiv Gandhi was the elder son of Indira...
, the Prime Minister at the time.