The Mundhra affair
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Yet some months earlier, the Life Insurance Corporation bought shares of several Mundhra firms located in Kanpur, for Rs. 1, 26, 86, 100 (Rupees one crore, twenty-six lakhs, eighty-six thousand and one hundred). Today when nobody talks of less than several thousand crores of rupees, the amount involved may seem chickenfeed. But by those days' standards, it was huge. In fact, it was then the largest single investment by the LIC since the nationalisation of life insurance less than two years earlier. As Setalvad wrote in his autobiography published in 1970, "From December 1957 to February 1958, the sensational Mundhra scandal was at the centre of the political stage. It led to the resignation of T. T. Krishnamachari and shook the Nehru government". A newspaper that got wind of the tainted transaction made the mistake of describing the "questionable" shares bought as those of "Kanpur-based private firms". In fact, these companies were listed on the stock exchange. So, to a parliamentary question about this press report, the finance ministry gave a written answer that was technically correct but factually disingenuous. Later, at the Chagla Inquiry this dissembling became TTK's undoing. The deliberately misleading answer infuriated Feroze Gandhi, Nehru's son-in-law. After painstakingly investigating the whole affair, he initiated the December 16 debate. So devastating was his exposure of wrongdoing and so voluminous the support to him by other MPs, that Nehru spoke of the "majesty of Parliament" and announced a judicial inquiry.
Chagla, who later became ambassador to the US and external affairs minister, lived up to his high reputation for fair play. However, he was also inclined to play to the gallery. Consequently, the open proceedings of his commission often turned into a cross between a US Congressional inquiry and a Chinese people's court. In any case, nobody could take exception to his findings that the investment was lacking in propriety and contrary to rules of business. Instead of buying the shares at the stock exchange at prevailing prices, the huge transaction was put through in a hurry at "prices negotiated with Mundhra". The commission endorsed Feroze Gandhi's charge that some of the shares Mundhra had passed on to the LIC were forged.
The Chagla Commission held that it was the principal finance secretary, H.M. Patel, who had told the LIC Chairman, K. R. Kamath, to buy the shares. But on the question whether he had acted on his own or with the finance minister's approval, there was contradictory evidence. TTK insisted that at a meeting at the Reserve Bank, he had only said to the principal secretary: "Look into the matter". Patel asserted that the minister had "approved the proposal" Lending greater credence to Patel than to TTK, the commission ruled that, in any case, the minister could not escape the moral and constitutional responsibility for the dubious deal. All the papers relating to the parliamentary question were submitted to the commission, and these nailed TTK. In the draft reply, submitted by the ministry, it was stated that LIC had made no investment in any private firm in Kanpur or elsewhere. "But if the hon'ble member is referring to the BIC (the most important Mundhra-owned company) and other firms, here are the details.". TTK had crossed this out and substituted the answer that rubbished the newspaper report.
Krishnamachari was not the only one to go. So did H. M. Patel and Kamath even though charges against them were dropped on the advice of a board of inquiry headed by a former Supreme Court judge, Vivian Bose. Interestingly, the Bose Board, like the Chagla Commission, stated that there was absolutely no evidence of anyone having made money but a "series of improprieties" had been committed. The Bose Board did point out that Mundhra had donated Rs one lakh to the UP Congress and Rs one and half lakhs to the AICC in 1957 which was an election year.
For months, the Mundhra affair continued to be a subject of heated debate in both political and bureaucratic circles. The preponderant view was that TTK had "let down" Patel. The worst sufferer in the controversy was the then governor of the Reserve Bank, HVR Iyengar. He testified that, as the host, he was too busy looking after the lunch arrangements to hear what Patel was discussing with TTK. He was promptly nicknamed "HVR Lie-angar".
Nehru was most unhappy about TTK's departure. (At the PM's behest, the all-powerful director of the IB, B.N. Mullik, had held a parallel, confidential inquiry and reported that no turpitude was involved.) So Krishnamachari was back in the Nehru cabinet in 1962 and once again made finance minister. In 1977, H. M. Patel became finance minister in the Janata government and occupied the chair TTK had done in the past. Some called it "vindication with a vengeance". There cannot be a better epitaph of the Mundhra scandal than a chilling paragraph in the Bose Board's superbly written report. After giving the long list of the highest officials the Board had examined, it recorded: "We regret that we have not been told the whole truth, and some at least of what we have been told is demonstrably false".
The writer is a Delhi-based political commentator