Congress blitzkrieg at ED offices over Centre's 'egregious' breach

The ED has issued summons against the Gandhis in a money-laundering case linked to the National Herald- Associated Journals deal

The Congress party has promised a blitzkrieg at the offices of the Enforcement Directorate (ED) later on Monday when party leader Rahul Gandhi appears before the body. Sonia Gandhi is expected to testify later.

Rahul and his lawyers believe that the case is politically motivated and has no merit. They further point to the egregious conduct of the government in the use of the ED against political opponents and cite circumstances of the extension given to the chief of the investigative body, so that the institution is compliant with the wishes of the government.

The ED says there is enough evidence to warrant an investigation.

Here are the plain, unvarnished facts:

In 1937, Jawaharlal Nehru started a company, Associated Journals (AJL), with 5,000 other freedom fighters as its shareholders. The company did not belong to any person in particular. Leaders like Kailash Nath Katju were shareholders.

In 2010, the company had 1,057 shareholders. Actually, this number is a matter of dispute, because as Business Standard reported in 2016, senior lawyers, including Kapil Sibal and P Chidambaram, claimed the number of shareholders was 761. The number of shareholders is crucial as later events show.

Business Standard’s research showed the largest minority shareholders of the company included hoteliers (the Lalit Suri family) and Abhim Investment, an entity operating out of Amitabh Bachchan’s Pratiksha bungalow in Mumbai.

AJL published the National Herald newspaper in English, Qaumi Awaz in Urdu, and Navjivan in Hindi until 2008. It had dues amounting to Rs 90 crore and was closed down. But it owned valuable real estate in Delhi, Mumbai, Lucknow, Patna, and Panchkula.

In 2010, Young Indian (YIL) was set up, with Rahul, then a general secretary of the Congress, as director. While Rahul and his mother Sonia held 76 per cent of the company’s shares, the remaining 24 per cent were held by Congress leaders Motilal Vora and Oscar Fernandes, both dead. The company was said to have no commercial operations.

Soon after its formation, YIL took over AJL. Heirs of some of the shareholders said they had no information on AJL being taken over. This could be a violation of the Companies Act, 1956.

The number of shareholders is central to the extraordinary general meeting that allowed a non-profit company like YIL to take a majority shareholding in AJL.

In 2012, Bharatiya Janata Party leader and advocate Subramanian Swamy filed a complaint before a trial court, alleging that some Congress leaders were involved in cheating and breach of trust in the acquisition of AJL by YIL. He alleged that YIL had ‘taken over’ the assets of the National Herald in a ‘malicious’ way. The charge was that the directors had violated the provisions of the Companies Act, 1956.

“After having considered the entire case in its proper perspective, this court finds no hesitation to put it on record that the modus operandi adopted by petitioners in taking control of AJL via special purpose vehicle, i.e., YIL, particularly, when the main persons in the Congress party, AJL, and YIL are the same, evidences a criminal intent. Questionable conduct of petitioners needs to be properly examined at the charge stage to find out the truth,” observed the Delhi High Court in its judgment.

While dismissing the petition of the Gandhis, the judge added he was not taking a call on the merits of the case. “Without casting any reflection on the merits of this case and while leaving the larger questions raised in these petitions open, to be considered at the charge stage, these petitions and the pending applications are dismissed with aforenoted clarification,” he noted.

The lawyers for YIL argue that the transaction was a simple conversion of debt into equity. But the ED came into the picture after the Gandhi family was found to be owing taxes amounting to around Rs 250 crore.

The income-tax (I-T) department, which passed an order in October 2017 under Section 12AA(3) of the I-T Act, said the company needed to pay tax on a transaction amounting to Rs 413 crore. The last appeal by the family against the order was dismissed on March 31.

According to the ED investigation into the matter, the objective of the takeover was twofold: ‘to obtain valuable benefits embodied in the business assets of AJL; and not pay any tax on the business income from them’.

They say the takeover included a ‘fraudulent transaction involving the purchase of a non-existent loan of Rs 90.21 crore by the Congress party for Rs 50 lakh’.

The loan was actually a book entry, designed to transfer 99 per cent of the shares of AJL to YIL (held by the Gandhi family), for which ‘the assessee company had taken accommodation entries of Rs 1 crore from a hawala entry operator located in Kolkata called Messrs Dotex Merchandise’. A commission of Rs 1 lakh was paid by cheque for the hawala entry of Rs 1 crore by the Gandhis, says the ED.

Lawyers for the Congress and the Gandhi family say this is simply not correct.

“There is no money. There is no transfer of property. There is no transfer of money. Yet a charge of money laundering is made out,” says Abhishek Manu Singhvi, adding, “YIL cannot use money in any form which it gets, because it can neither pay dividend nor accumulate profit by which it can give out the money.”

This is the issue that Rahul – and later Sonia – will have to hammer out with the ED in a case that begins on Monday.