Independent India’s First Big Financial Scam: Mundhra Scandal
March 19th, 2016
Today, we see scams worth thousands crores of rupees happening in India. But exactly 59 years ago in 1957, took place Independent India’s first big financial scam. It was called the Mundhra Scandal.
Haridas Mundhra, a Calcutta-based industrialist and stock speculator got the government owned Life Insurance Corporation (LIC) to invest a sum of Rs 1,26,86,100 (one crore, twenty-six lakh, eighty-six thousand and hundred) in the shares of six of his troubled companies. This investment was done under governmental pressure and without consulting LIC’s investment committee.
Meanwhile, Feroze Gandhi, son-in-law to the then Prime Minister Jawaharlal Nehru, and a Member of Parliament from Indian National Congress, demanded an explanation for LIC’s decision. There was a well-known rift between Mr Gandhi and his father-in-law, which sensationalized the matter when Feroze Gandhi raised the issue in the Parliament and charged the principal Finance Secretary, H.M. Patel and Finance Minister, T.T. Krishnamachari of pressurizing LIC’s investment. He also claimed that he had possession of confidential letters between Mr. Patel and Mr. Krishnamachari regarding this investment. Seeing such allegations, Mr. Nehru appointed former chief justice M.C. Chagla as a one-man commission of inquiry.
In one of the most transparent investigations ever, Mr. Chagla worked remarkably fast and submitted his report in just 24 days. The hearings of the Chagla commission were conducted in public. Several leading stockbrokers who were in 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. They also stated that had the LIC consulted the Investment Committee, they would have pointed out Mundhra’s forged shares episode from 1956.
After Mr. Chagla filed his report Mr. Krishnamachari resigned from his post of Finance Minister on February 18, 1958. Mr. Mundhra was also arrested and he went to jail for 22 years.
The Logical Indian applauds the speed with which the enquiry was conducted in a transparent manner, leading to nabbing of the culprits. In contemporary India, such a case goes on for years, with the culprits moving freely at large. We wish the same transparency and speed would be seen in the matter of all such present day scandals!