The Delhi High Court ruling in the Herald case will make political parties accountable for fund spending. All eyes will be on December 19 when the accused will appear before the trial court.
The Delhi High Court’s verdict in Rahul Gandhi vs Dr Subramanian Swamy, deli-vered by Justice Sunil Ga-ur, on December 7, set off a huge political storm both inside and outside Parlia-ment. The ruling dismissed the challenges to the issue of summons by a lower court to Congress officials in connection with a complaint of misappropriation of party funds. The judgment provoked the Congress to alle-ge that NDA was encouraging proxy litigation to harass political rivals.
In his judgment, Justice Gaur began by saying that the probity of a legendary national political party was under the scanner in these petitions, which had challenged the issue of summons by a lower court to Cong-ress president Sonia Gandhi, vice-president Rahul Gandhi, party officials Motilal Vora, Oscar Fernandes and Sam Pitroda, journalist, Suman Dubey and the company, Young Indian Private Company (YI), floated by the party.
In this case, which has its origins in the trial court, the maverick BJP leader Swamy sought to expose cheating, fraud, criminal misappropriation, etc., by office bearers of the Congress, who also happen to be directors and shareholders of YI and Associated Journals Private Limited (AJL). AJL was engaged in publishing National Herald, which had a historical association with the Congress during the freedom struggle and even after Independence.
On June 26, 2014, the trial court, after recording the evidence of Swamy; a chartered accountant, MR Venka-tesh; an official from the Registrar of Com-panies, Gulab Chand; and journalist J Gopi-krishnan summoned the seven accused for offences under Sections 403, 406 and 420 read with Section 120-B of the IPC. Section 403 deals with dishonest misappropriation of property, Section 406 with punishment for criminal breach of trust and Section 420 with cheating and dishonesty inducing delivery of property. Section 120-B deals with punishment for criminal conspiracy.
When AJL had closed the printing and publication of National Herald in 2008, it owed a huge debt of `90 crore to the Congress. Although this debt had accumulated over a period of time, this was the outcome of interest-free loans extended by the Congress to AJL from time to time.
AJL was a public limited company with immovable assets of crores of rupees. The Congress had assigned the debt of `90 crore to YI on receiving a paltry amount of `50 lakh only.
Both Sonia Gandhi and Rahul Gandhi owned 38 percent each of shares of YI. The debt which AJL owed to the Congress then stood transferred to YI, which was formed in November 2010.
In December 2010, AJL increased its share equity by allotting large chunk of its shares to YI in lieu of the debt owed to the Congress which now stood assigned to YI. Thus, AJL became a wholly-owned company of YI by merely paying `50 lakh and thus, YI acquired complete control of AJL which had real estate assets of at least `2,000 crore, that too in prime areas of New Delhi, Luck-now, Bhopal, Mumbai, Indore, Patna, Pan-chkula and other places. According to Swa-my, the conservative real estate worth of AJL is `5,000 crore.
Swamy alleged that Sonia and Rahul Gandhi had hatched a criminal conspiracy with the other accused to defraud the Congress and AJL by dubiously forming YI to misappropriate the huge assets of AJL. They thus committed a criminal breach of trust reposed in the Congress and the AJL and its shareholders. He alleged that the rights of shareholders of AJL and its properties had been dishonestly misappropriated by the accused by conversion of a loan of `90 crore into equity shares in favor of YI.
Curiously, while the Memorandum of Association of the AJL bars the company from entering into any transaction which is not for furthering its objective to publish newspapers, YI declared, after having possession of the vast real estate of AJL, that it would not engage in publishing a newspaper as it was against the declared objective submitted for obtaining registration under Section 25 of the Companies Act.
The National Herald House is a prime property on Bahadur Shah Zafar Marg in Delhi and was given by the government for the purpose of publishing a newspaper at concessional rates. Yet, YI, the current owner of National Herald House, has rented out this property to MNCs and to the Ministry of External Affairs for its Passport Seva Kendra. Such commercial use of property is considered illegal.
“It is a matter of serious concern as allegations of fraud, etc are leveled against the Congress Party, who has ruled the nation for many decades” — Justice Sunil Gaur, Delhi High Court
In August 2014, the trial court prima facie concluded that YI was created as a sham or a cloak to convert public money to personal use or as a “special purpose vehicle” for acquiring control over `2,000 crore worth of assets of AJL. As all the accused had allegedly acted in consortium with each other to achieve the nefarious purpose or design, there were sufficient grounds for proceedings against all of them, it said.
It was asserted by the accused before the High Court that due to historical and emotive relations, money was advanced by the Congress to AJL from time to time and the party’s objective was to uphold the legacy and tradition of secularism and non-alignment.
The accused also strongly argued that there was no legal bar on disbursement of money to a newspaper, which was closely linked to the Congress.
They cited Section 13A of the Income Tax Act which contemplates “income from other sources” in respect of political parties, which are run on donations and contended that other political parties have also invested money in mutual funds. They made a pointed reference to the BJP investing in Canstar Fund.
The accused told the High Court that the constitution of the Congress permits formation of a trust to hold imm-ovable properties belonging to the party, and that there is no allegation that the accused were the trustees of the funds of the Congress. Secondly, it was argued that there was no entrustment of any money to the Congress. Therefore, there is no question of any misappropriation or breach of trust as the donations received by the Congress could be dealt with in the manner it liked.
Thirdly, it was suggested that AJL had no net worth and was unable to repay the debt to the Congress. Fourth, the accused pointed out that neither the Representation of the Peoples Act nor the Income Tax Act or any other Act prohibits giving of loans by a political party. Reliance was placed upon a decision of the Income Tax Tribunal in the Bharatiya Janata Party vs Deputy Commi-ssioner of Income Tax [CIT (2003) 258 ITR 1] to maintain that a political party could invest in commercial ventures.
The accused also refuted allegations that writing off the loans by the Congress was an illegal act or that there was breach of trust qua the shareholders of AJL. They relied on a Supreme Court decision in the Bacha F. Guzdar, Bombay vs Commissioner of Income Tax, Bombay (1955) 1 SCR 876 to assert that a shareholder is not the owner of the assets belonging to the company.
The High Court, having heard both Swamy and the counsel representing the accused, concluded that in a democratic set up, how a political party of national stature acts is everybody’s concern. “Rather, it is a matter of serious concern as allegations of fraud, etc. are leveled against the Congress Party, who has ruled the nation for many decades,” the High Court held.
The Delhi High Court repelled the challenge that Swamy lacked the locus to make the complaint, as he himself was not a victim of alleged breach of trust. It held that the right of a private citizen to proceed against the corrupt could not be restricted.
Therefore, the Court repelled the challenge that Swamy lacked the locus to make the complaint against alleged breach of trust, as he himself was not a victim of such alleged breach of trust, by holding that the right of a private citizen to proceed against the corrupt could not be restricted.
The High Court also noted with concern the impropriety of extending interest-free loans to a separate legal entity, namely, AJL, by the Congress, particularly when the source of the party’s funds is largely from donations given by the public. “Any citizen can legitimately question the siphoning of funds by a political party,” the High Court held, making it legally possible for any future challenge to misappropriation of funds by any political party. In sum, the High Court found sufficient grounds for summoning the accused by the trial court.
With fresh summons being issued by the trial court to the accused to appear before it on December 19, the likely twists and turns in this case would be of interest to everyone.
Parliament has been plunged into paralysis over the National Herald case with the Congress projecting it as a BJP conspiracy.
By Ajith Pillai
IT is a truism that when parliament’s functioning is derailed, it is democracy itself that suffers. In the last dec-ade or so we have repeatedly been witness to hostilities in the Lok Sa-bha and the Rajya Sabha stalling proceedings and causing needless adjournments. More recently, an aggressive opposition first en-sured that the monsoon session was a washout. It persisted with its non-cooperation in the winter session resulting in precious time—that should ideally have been de-voted to discussing issues of national importance and passage of key bills—being wasted.
Who is responsible for this impasse? It is easy to blame either the opposition or the ruling dispensation. The truth lies somewhere in between. It cannot be denied that the primary task of ensuring the smooth functioning of parliament is the responsibility of the treasury benches. However, the opposition too owes it to people to ensure that the democratic process proceeds without too many hindrances.
Ironically, there was a glimmer of hope that the sabre-rattling would be within permissible limits. Prime Minister Narendra Modi’s meeting with Manmohan Singh and Sonia Gandhi and the placatory noises he made seeking the support of the opposition were seen as positive signals.
But these efforts were drowned out in the flood of controversies that followed. Conten-tious issues like intolerance towards minorities and those who propagated views seen as anti-government and anti-Sangh Parivar remained unresolved.
On the contrary, the fires continued to be stoked at regular intervals by the right-wing fringe and BJP leaders who projected the entire intolerance issue as politically orchestrated by anti-national intellectuals.
Indeed, what we have been seeing in parliament is a reflection of the larger ideological war raging outside. It is a battle between those who believe in the Nehruvian ideal of a secular state and those who repose faith in the principles of a strident Hindu rashtra. It is this widening fissure between them that frequently raises its ugly head and has contributed to several controversies.
It also found reflection in the National Herald misappropriation case. Congress leaders are now projecting it as a BJP conspiracy not only against the Nehru-Gandhi family but also as an attempt to “eliminate” the Congress. This charge may be far-fetched. But it would best be left for the courts to decide whether the Gandhis are guilty or innocent. This, incidentally, is the official stance of the BJP. But its leaders have all too often not suppressed their glee at the Gandhis courting trouble.
Very clearly, much more needs to be done before the forthcoming budget session vis-a-vis conflict management. Perhaps, the ruling dispensation and the opposition should initiate a dialogue while parliament is in recess instead of holding last-minute talks before the house reconvenes.
As for the Congress, it must learn to live with the fact that Sonia and Rahul have a long legal battle ahead. But that should not come in the way of it functioning as a responsible opposition.