Diptiman Tiwari, Sandeep Singh
The Enforcement Directorate (ED) has been questioning Congress MP Rahul Gandhi for the last three days in a money laundering case related to the National Herald newspaper. Rahul has been called for questioning again on Monday (June 20), while his mother Sonia Gandhi will be questioned on June 23. Earlier, the agency had questioned Congress leaders Mallikarjun Kharge and Pawan Bansal.
What is the matter?
The ED case is based on a trial court order. The court had allowed the Income Tax Department to investigate the cases of the National Herald newspaper and make a tax assessment of Sonia-Rahul. The court’s order was given during the hearing of a petition filed by BJP MP Subramanian Swamy in 2013. Swamy alleges that the Gandhi family has committed fraud and misappropriation of funds. According to Swamy, the Gandhi family formed a company called Young Indian (YI). Rahul Gandhi and Sonia Gandhi have 86 percent stake in this company. Through Young India, the Gandhi family acquired National Herald-owned properties by buying out The Associated Journals Limited (AJL), the former publisher of the newspaper.
In this case, the trial court had granted bail to Sonia and Rahul on 19 December 2015. Swamy’s argument in the lower court was that Young Indian found a way to recover Rs 90.25 crore for just Rs 50 lakh, which is against the rules.
What happened to the National Herald?
Jawaharlal Nehru founded The National Herald in 1938. It was published by Associated Journal Limited (AJL). Later AJL was incorporated as a non-commercial company. Along with this, it was also made tax free under Section 25 of the Companies Act. Apart from the National Herald in English, AJL also published Qaumi Awaaz in Urdu and Navjeevan in Hindi.
The company owns prime real estate in various cities including Delhi, Mumbai, Lucknow, Patna and Panchkula. Due to overcrowding of staff and lack of revenue, AJL ran into losses and ceased publication in April 2008. Thereafter, AJL’s income came mainly from exploitation of various assets held by it. One of its major assets was located at 5A Herald House, Bahadur Shah Zafar Marg, New Delhi. Meanwhile, the All India Congress Committee (AICC), the apex body of the Indian National Congress, granted interest free loans to the company till 2010.
what happened after that?
AJL’s debt had increased to Rs 90.21 crore by the end of 2010. Despite owning immovable property, the value of which is said to be much higher than that of his loan. But it seems that the management of AJL did not make any effort to repay the loan of AICC. According to the Income Tax Department investigation, the fair market value (FMV) of properties owned by AJL was over Rs 413 crore.
On 23 November 2010, a new organization named Young Indian Private Limited (YIL) was formed. The board of directors of the company were Gandhi family loyalists Sam Pitroda and Suman Dubey. The objective of the company was: “To inculcate a commitment among the youth of India to the ideal of a democratic and secular society…”
However, soon after the inception of the company, both the directors transferred their shares to Congress leaders Oscar Fernandes, Sonia Gandhi, Rahul Gandhi and Motilal Vora (now deceased). On 13 December 2010, Rahul Gandhi was appointed as the director of Young Indian and on 22 January 2011, Sonia Gandhi joined the board as director.
By March 2017, Sonia Gandhi and Rahul Gandhi’s stake in the company increased to 38-38 per cent i.e. 76 per cent in total. Vora and Fernandes held 24 per cent stake. Young India had by then registered itself as a charitable organization, making it eligible for 100% tax exemption.
What was the deal between AJL-YI-AICC?
AICC decided to transfer AJL’s Rs 90 crore loan to YI. Young Indian paid just Rs 50 lakh for this acquisition. The loan assigned to YI was converted into shares of AJL. AJL gave 9,02,16,899 equity shares to Young Indian in lieu of the loan amount. In this way about 99.99% shares of AJL were transferred to Young Indian.
The IT department alleges that the majority shareholders of YI wanted to retain 100 per cent stake in AJL. To achieve this objective, Rahul Gandhi and Priyanka Gandhi Vadra bought additional 47,513 and 2,62,411 shares through Ratan Deep Trust and Janhit Nidhi Trust respectively.
The interesting thing is that in the year 2010, Young India was formed for just Rs 5 lakh. Young Indian did not even have Rs 50 lakh when it acquired ALJ. Young India had to take a loan of Rs 1 crore from M/s Dotex Merchandise Pvt Ltd, Kolkata for the acquisition. Dotex was accused by the Income Tax Department of being a company that does hawala work for commission. The Rs 1 crore loan has also been flagged as a “doubtful transaction” by the Financial Intelligence Unit of the Finance Ministry.
AICC transferred its loan to Young India on December 28, 2010, about two months before the payment was made by Young India. In fact, Young India did not even have a bank account at that time. IT investigation has found that Young India started its office in the AJL-owned Herald House in the year 2010 itself. The IT department has also raised doubts over the alleged loan given by the Congress to AJL.
Why were questions raised on the deal?
AICC transferred all its loan to Young India for only Rs 50 lakh, claiming it was not sure that AJL would be in a position to pay back the loan. The IT investigation has established that AJL had assets worth hundreds of crores. This shows that AJL was in a very good position to pay back the loan.
Additionally AJL’s accounts for the financial year 2010-11 show that the manager of the company was confident of a turnaround. Since the same people were office-bearers of both AICC and AJL, it was strange at first to assume that his loan would not be recovered. There is also a question of conflict of interest. Motilal Vora was among the three institutions involved in this deal. Vora had held the position of treasurer in AICC, was CMD in AJL and was a shareholder and director in Young India. According to the Representation of the People Act, 1950, loans are not allowed to a political party.
What is the situation in the Income Tax Department case now?
The IT department had earlier issued a notice to Rahul for concealing information about his position as the director of Young Indian. It said that Rahul’s shares in Young Indian generated an income of Rs 154 crore, as against the earlier valuation of only Rs 68 lakh. Rahul, Sonia and Fernandes challenged this saying that they did not hide anything, everything is in front.
What is Congress cleaning?
The Congress has accused the BJP government of doing vendetta politics to divert attention from issues like inflation, GDP, social unrest and social division in the country. The party says that the money laundering case is strange and the allegations are hollow. Congress leader Abhishek Manu Singhvi has said that AJL was under financial stress for decades, Congress gave it its time as well as Rs 90 crore as financial assistance.
According to Singhvi, AJL did what any debt-ridden company would do. AJL converted its loan into equity and the loan of 90 crores was transferred to Young Indian. But Young Indian is a not-for-profit company. Therefore no dividend can be paid to its shareholders and directors. In such a situation, if there is no transfer of assets, then where did the money laundering come from?