Mundra scam 1958-scams Scandals of Neharu Govt.

Mundra scam 1958-scams Scandals of Neharu Govt.

A KolKata-based industrialist and stock speculator Haridas Mundhra was found guilty and imprisoned in the first big financial scandal of free India in the 1950s. Resulting into resignation of India's then finance minister T. T. Krishnamachari.The Mundhra scandal also exposed the rifts between the then Prime Minister Jawaharlal Nehru and his son-in-law Feroze Gandhi, 

Born into a trading business family, Mundhra started life as a salesman, and pyramided his holdings by fast deals and stock juggling However, by the mid-50s, he came to be known for his somewhat questionable ethics. In 1956, he was indicted by the Bombay Stock Exchange for selling forged shares.

In 1957, he got the public sector Life Insurance Corporation (LIC) to invest Rs. 1.24 crores in the shares of ownwd or partenership six troubled firms namely: Richardson Cruddas, Jessops & Company, Smith Stanistreet, Osler Lamps, Agnelo Brothers and British India Corporation. The investment was done bypassing LIC’s investment committee,under governmental pressure and  as a result LIC lost most of the money.

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In in 1958 Feroze Gandhi an Indian National Congress MP from Rae Bareilly and son in law of PM Jawahar Lal Neharu was highlightedThe irregularity though Nehru, being PM and  leader of the ruling Congress party, wished to have the LIC matter handled quietly since it might show the government in a poor light.

However, Feroze Gandhi was the primary force behind an anti-corruption movement that in 1956 resulted in imprisonment of one of India's wealthiest men, Ram Kishan Dalmia, for defrauding his life insurance company. Subsequently, the parliament had passed the Life Insurance of India Act on June 19, 1956, under which 245 firms were nationalized and consolidated under the Life Insurance Corporation. Hence, he looked upon the LIC as a "child of Parliament". He would have no soft pedalling on the matter, and took the case directly to parliament. However, the matter was dramatized further in the public mind by the tense relations between Feroze and his father-in-law.

Feroze Gandhi vs. Nehru

Feroze Gandhi had married Indira over initial objections of Jawaharlal, but Indira had gotten him to agree to the marriage, and relations between the men were cordial. Indira often helped her father in his duties, acting as official hostess, and helping run the huge residence. In 1949, Indira and their two sons Rajiv Gandhi and Sanjay Gandhi moved to Delhi to live with Jawaharlal, while Feroze continued alone in Lucknow. In 1952, after Feroze Gandhi was elected to Parliament (his campaign was managed by Indira), he also moved to Delhi, where he was assigned an MP quarters, but "Indira continued to stay with her father, thus putting the final seal on the separation".This rift was well known and it lent drama to the already sensational matter when Feroze Gandhi raised the Mundhra question on the floor of the parliament. Standing from the treasury benches, he asked the government whether the newly formed Life Insurance Corporation had used premiums from 5.5 million life-insurance policyholders to buy up shares at above-market prices in the companies controlled by a notorious stock speculator named Haridas Mundhra.

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Thus the prime minister was confronted by his own son-in-law. The fierce Finance minister, himself a noted industrialist, initially snapped That is not the fact, but had to admit later that this in fact was the case. Commission of Enquiry: M.C. Chagla Given the public spotlight, the government was forced to appoint a committee to examine the matter. The retired Bombay High Court Justice M. C. Chagla was appointed as a one-man committee. Chagla held that a transparent and public enquiry was a very important safeguard for ensuring that the decision will be fair and impartial. The public is entitled to know on what evidence the decision is based. Consequently, large crowds would attend the hearings which were concluded in just 24 days. Several leading stockbrokers who were on the LIC Investment Committee testified that the investment could not have been made for the purpose of propping up the market, as was claimed by the Finance Ministry, and that had the LIC consulted the Investment Committee, they would have pointed out Mundhra's forged shares episode from 1956. Among those who gave evidence was HT Parekh, then the Deputy General Manager of Industrial Credit & Investment Corporation of India who was also a member of LIC's Investment Committee. HT Parekh's Note to the Investment Committee and his testimony is available in a two volume collection of his writings.


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Justice Chagla determined that the Finance Secretary, Haribhai M. Patel, along with two LIC officials, L S Vaidyanathan, may have colluded on the payment, and should be investigated.Subsequent inquiry committee headed by Retired Justice Vivian Bose cleared the names of two civil servants but passed strictures against finance minister for "lying". The Finance Minister T. T. Krishnamachari, in his testimony tried to distance himself from the LIC decision, implying that it may have been taken by the Finance Secretary, but Justice Chagla held that the Minister is constitutionally responsible for the action taken by his secretary and he disown his actions. Eventually, Krishanamachari had to resign. The Nehru government suffered considerable loss of prestige in the incident.

Haridas Mundhra was arrested from his luxury suite at the Claridge's Hotel in Delhi, and sent to prison. It  turned out that Mundhra’s manipulations were not restricted to LIC. The income tax department had  curiously withdrawn certain notices pending against him having entered into "some understanding" about the payment of arrears.In recent times, Mundhra is often noted as the forerunner of other financial scamsters of modern India, including Harshad Mehta and Abdul Karim Telgi, who also operated with considerable political connivance. However, unlike in the Mundhra case, the government response in appointing an honest and competent judge, and also the judicial investigation (24 days of public hearings) has been far from transparent. This lack of transparency has also been commented upon in the public investigation of the Bofors Scandal, one of India's largest scandals, which involved Feroze Gandhi's son Rajiv Gandhi, the Prime Minister at the time.