National Herald scam: Strong case against Sonia, Rahul-By Sandhya Jain
(source Niti Central_
New Delhi district metropolitan magistrate Gomati Manocha’s decision on June 26 to summon Congress party president Sonia Gandhi and vice president Rahul Gandhi in the case of questionable takeover of the real estate of National Herald and allied newspapers owned by The Associated Journals Ltd (AJL), calls for matching probes by the Income Tax authorities and Election Commission into the alleged misappropriation.
On a cursory reading, both the Income Tax Act and the Representation of the People Act (RPA) which governs the conduct of political parties have been breached. Section 13A of the Income-Tax Act read with Section 29 of the Representation of the People Act demands complete transparency in accounting for political donations and their use for activities connected with that of a political party. Political parties are exempt from income tax because they serve a fundamental public purpose in a democracy.
Anyone passing by Herald House on the Capital’s Bahadur Shah Zafar Marg can see that a building erected on leased land for printing a newspaper(s), has been put on rent, which is collected by a private firm whose majority stakeholders are Sonia Gandhi and Rahul Gandhi. This is, prima facie, a fit case for action under Section 276CC of the Income-Tax Act.
As is well known, senior Congress leaders Sonia Gandhi, MP; Rahul Gandhi, MP; Motilal Vora, MP; and Oscar Fernandes, MP, set up a private limited company Young Indian and became its directors. Simultaneously, Motilal Vora held the post of Chairman of the Board of Directors of Associated Journals Pvt. Ltd (publishers and printers of National Herald, etc), while Oscar Fernandes was a director in AJL. At some stage, and in a questionable manner, Rahul Gandhi became a large shareholder in AJL.
In 2011, the Congress gave a loan of Rs 90.25 crore to Associated Journals Pvt Ltd in order to write off its accumulated debt and facilitate restarting the printing of National Herald which had shut down in 2008. The loan was advanced by Motilal Vora in his capacity as party treasurer. This action is not commensurate with the legitimate activity of a political party, and violates the RPA and Congress constitution.
Soon thereafter, instead of making efforts to recover the amount, the Congress wrote off the loan as unrecoverable (read gift). By a peculiar sleight of hand, Young Indian, incorporated in November 2010 with a paid up capital of Rs 5 lakh, stepped forward and declared it would ‘own’ the AJL debt of Rs 90.25 crores – not by paying it off – but in lieu of 99.1 per cent of its shares transferred to Young Indian. Accordingly, AJL allotted 9 crore shares of Rs 10 each to Young Indian. In this manner, Young Indian, where Sonia Gandhi and Rahul Gandhi jointly own a controlling 76 per cent shares, became beneficiaries of the loan write-off by Congress, became owners of AJL and its immovable property worth over Rs 5000 crore. The balance 24 per cent shares in Young Indian are held by Motilal Vora and Oscar Fernandes.
BJP leader Subramanian Swamy took the matter to court in 2013, accusing Congress president Sonia Gandhi; vice president Rahul Gandhi; treasurer Motilal Vora; general secretary Oscar Fernandes; Suman Dubey, Sam Pitroda and Young Indian of criminal conspiracy to take over the assets and properties of AJL in an illegal manner. The complaint centres round the fact that AJL, founded under the chairmanship of Jawahar Lal Nehru, formally ceased to print the National Herald, Navjivan and Qaumi Awaz in 2008. It had an unpaid debt of Rs 90.25 crore (mostly employees’ dues). The Congress gave AJL an unsecured zero interest loan to liquidate this debt. AJL held huge assets on land leased from the Government for purposes of bringing out a newspaper. Congress wrote off the loan and handed over AJL assets to Young Indian which put them to commercial use, and neither paid back the loan of Rs 90.25 crore nor made attempts to resume publication of the newspaper.
All these actions were managed at the level of the AJL board, without reference to and approval of the surviving shareholders. In this process, Young Indian paid AJL a mere Rs 50 lakh for the transfer of share equity. The whole farce was possible as the funds of the Congress are entrusted and controlled wholly by the party president and treasurer.
The balance sheet of AJL shows huge real estate assets which include a multi-storied building in the prime area of Bahadur Shah Zafar Marg in New Delhi, besides real estate in Lucknow, Bhopal, Indore, Mumbai, Panchkula (Chandigarh), Patna and other places, the conservative value of which would be in the region of Rs 5000 crore.
After taking possession of this huge real estate, Young Indian declared that as per its objectives for obtaining registration under Section 25 of the Companies Act 1956, it would not engage in publishing any newspaper, including the National Herald. Instead, it leased the prime property at New Delhi for commercial purposes, garnering rent to the tune of at least Rs 50 lakh per month.
Subramanian Swamy alleged that this was criminal breach of trust and criminal misappropriation of Congress funds. Since AJL owned property which had commercial value, and had few liabilities, it could easily have paid off the loan. More pertinently, the real estate of AJL legally vests in the 1000-plus shareholders who had contributed nearly Rs 89 lakh to the company’s capital at different times when the Rupee was valued over 100 times its present value.
During the course of the hearing, Subramanian Swamy affirmed his allegations and added that AJL’s Memorandum of Association forbids it from entering into any transaction which is not for furthering its objective to publish newspapers. Chartered accountant MR Venkatesh testified that the balance sheet of M/s Associated Journals Limited (filed with Registrar of Companies and available on the Ministry of Company Affairs website) shows that the All Indian Congress Committee (AICC) lent Rs 90.25 crores to Young Indian, which loan was later ‘extinguished’ and all benefits transferred to Young Indian.
Venkatesh testified there is no evidence on record to show that the Congress made any efforts to recover the loan, though it was made to a body corporate which had certain assets. Having lent the money, the Congress could have written it off in its books subject to provisions of the Representation of People Act, 1951 and the Income Tax Act. But a copy of the Congress’s income tax returns showed that while the loan was written off, the beneficiary of this grand write off was not the borrower (AJL) but a third party named Young Indian, which was allotted shares aggregating to Rs. 90-odd crores in AJL. This indicates a conspiracy.
The chartered accountant said that under the RPA, no loans can be made by any political party. Young Indian recorded the allotment of shares in its books vide schedule 4 of its balance sheet dated March 31, 2012. In the process, Young Indian became the de facto owner of the huge land bank and immovable properties of AJL.
Gulab Chand, UDC from Office of Registrar of Companies, NCT of Delhi and Haryana, testified that as per the record available with the MCA portal, Motilal Vora is Managing Director of AJL, Oscar Fernandes, Suman Dubey and Satyan (Sam) Pitroda are Directors. He further testified that Rahul Gandhi was appointed Director of Young Indian in December 2010, and Sonia Gandhi, Motilal Vora and Oscar Fernandes in January 2011. As per Schedule 7 para 3 (I) Key Management Personnel-Managing Committee Members of Young Indian are Sonia Gandhi, Rahul Gandhi, Motilal Vora, Suman Dubey, Satyan G. Pitroda, and Oscar Fernandes. They are all also on the Board of Directors of AJL.
Senior journalist J Gopikrishnan deposed that on seeing the documents of Young Indian and AJL, he wrote an email to Rahul Gandhi on October 8, 2012 at his official email id (firstname.lastname@example.org) regarding the objective of Young Indian. His main question was whether they were planning to start a newspaper. On October 10, he received a reply, “Young India is a company registered and holding a license under Section 25 of the Companies Act. 1956. As a Section 25 company, Young Indian is a not-for-profit company and does not have commercial operations. The activities of the company are in the public domain. Anyone who chooses to can inspect the Objects of the Company. The company has no intention of starting any newspaper.”
Complainant Subramanian Swamy deposed that he had filed an RTI application with the Election Commission of India asking if, under section 29 of the RPA, a political party can receive donations and funds subject to section 13A of Income Tax Act, and if there is any provision in the IT Act for investing party funds in equity, debentures or any other commercial activities. He also asked if the Election Commission is proposing that Parliament amend the Act to bar or to permit such commercial activities. The reply to both questions was negative.
The Constitution of the Congress has no provision for giving loans, but the party leadership extended a loan to AJL. Then, by becoming Directors of Young Indian, the accused persons unduly enriched themselves as the properties of AJL have been given on rent. Young Indian is thus a special purpose vehicle for acquiring control over the assets of AJL, and the directors are deriving emoluments/ benefits originating from the assets of AJL as Young Indian is not doing any activity or generating income.
The magistrate found sufficient prima facie evidence that the accused persons (Sonia Gandhi, Rahul Gandhi, Motilal Vora and Oscar Fernandes) were key office bearers of the Congress and trustees of the party funds. The party funds were not the personal property of these accused persons, but were to be utilised to advance the purposes for which the Congress party was formed. These funds could not have been advanced in the form of an interest free loan to a Public Ltd. Co (AJL) as there is no provision in The Representation of People’s Act or the Constitution of the Congress party permitting grant of any such loan to a body engaged in commercial activities. The act of the accused persons in not recovering the said loan from AJL but in writing it off and transferring the loan facility to Young Indian for a paltry sum of Rs 50 lakh clearly establishes that the trust has not been properly discharged.
Motilal Vora was Chairman and Managing Director of the Board of Directors of AJL and controlled its affairs as a fiduciary of the share holders and of the company. He fraudulently misrepresented that AJL had no net worth and was unable to repay the debt to the Congress when AJL had huge real estate worth thousands of crores and very little liabilities. But the accused passed resolutions to convert the loan of Rs 90-odd crores into equity shares and vested in Young Indian control and indirect ownership of around 99 per cent of real estate worth thousands of crores of rupees. Motilal Vora, along with the other accused, is a director in Young Indian as well. There is prima facie criminal breach of trust involved against the existing share holders of AJL as well as against the company.
The Indian National Congress induced public persons to contribute to the party by way of donations/ membership fees /funds et al and got exemption from tax as it was formed with the objective of advancement of the process of democracy. But the office bearers of the Congress, by advancing an interest free loan to AJL, which is a company involved in commercial activity, appear to have defrauded the exchequer by claiming tax exemptions on false premises.
Further, the accused seem to have formed Young Indian Company to acquire control over the assets of AJL. Young Indian is not involved in any business activity and the rent/ revenue generated by properties belonging to AJL are being dishonestly misappropriated by the Directors of Young Indian who enjoy absolute control over the properties of AJL without having substantially invested in AJL. This thus appears to be a clear case of dishonest misappropriation of property by the share-holders of Young Indian.
The magistrate concluded that the chain of circumstances suggests there was an agreement between the accused persons to commit the alleged offences in a pre-planned manner. She accordingly summoned the accused (who may appear through counsel) on August 7, 2014.