The Life Insurance Corporation of India was barely a year old when it faced what was perhaps independent India’s first financial scandal.
It involved the finance ministry and a canny industrialist, and details were eventually brought into the limelight by Jawaharlal Nehru’s crusading son-in-law.
Feroze Gandhi had married Indira after a proposal in Europe accepted as she later wrote, ‘on the steps of the (Basilica) of Sacré-Coeur’ at the end of summer while ‘Paris bathed in soft sunshine.’ The relationship with his father-in-law was said to be less than pleasant. The marriage too was fated to be an unhappy one. But he had spent time in jail during the freedom struggle just like his wife, was a formidable parliamentarian, not the least when he was taking on his father-in-law’s government.
“Mr. Speaker, there is going to be some sharp shooting and hard hitting in the House today, because when I hit, I hit hard and expect to be hit harder,” he began his expose in the Lok Sabha in 1957.
He added, “I am fully conscious that the other side is also equipped with plentiful supplies of TNT.” A member who remains unnamed in the Parliament minutes quipped a correction -“TT”-perhaps a reference to Finance Minister T. T. Krishnamachari.
Krishnamachari was to bear the brunt of the questioning about LIC’s impropriety that day.
Feroze Gandhi said that LIC had bought shares in the companies of a Calcutta-based industrialist, Haridas Mundhra, to bail him out of his financial difficulties.
Mundhra was to be described by a later commission of inquiry as a financial adventurer. But his rise had been meteoric. He bought F.&C. Osler (India), the Indian subsidiary of a famous British lamp manufacturer. He also bought controlling stakes in engineering companies Richardson and Cruddas and Jessop and Co, both of which were under European management. All of this in the span of a few years in the 1950s. Other mergers and acquisitions followed building up a formidable conglomerate.
He financed his operations through bank credit which was advanced against company shares whose prices he manipulated. The higher the price, the more money he could get from banks. Mundhra’s house of cards had begun to teeter around 1956 exactly around the time that the LIC was being formed, though he wouldn’t tap its funds just yet.
Instead, he began to buy back his own shares from the market to limit the fall. The shares continued to drop. Stretched for funds, he even began to raise bank funds against fake share certificates. The cascading impact of the fall and political donations were all said to have been attributed as possible reasons for what happened next.
The LIC began to buy shares in his companies to bail him out of his financial difficulties. Many firms were said to be on the verge of failure at the time of LIC’s timely and generous assistance.
“This is not an investment. This is a conspiracy to beguile the Corporation of its funds,” said Feroze Gandhi in parliament. The shares were bought while bypassing LIC’s own investment committee.
The Finance Minister TT Krishnamachari resigned on February 18, 1958 after being indicted by the Justice M C Chagla Commission. He was later exonerated and brought back as finance minister.
Feroze Gandhi died in his forties after a series of heart attacks.
Mundhra was sentenced to 22 years in jail.