PNB gave Gandhi family dubious loans even during Emergency, shows Shah report

New Delhi: The seeds of today’s scams were sown in the past. Did you know that the Punjab National Bank (PNB) in 1976 during Emergency lent tens of lakhs (now many crores) to Associated Journal Limited, publishers of the now-embattled National Herald and a closely held company of the Gandhi family, without any surety or collateral?

The loan, extended without collaterals, had been given on the orders of the then Congress government, to be precise the Minister of Chemicals and Fertiliser PC Sethi, who also happened to be the Congress treasurer, the PNB chairman and managing director of that time later testified to the Justice JC Shah Commission of Inquiry. Currently, in another alleged scam involving National Herald, Congress chief Rahul Gandhi and mother Sonia Gandhi are out on bail.

This blast from the past appeared as a post from BJP leader Suresh Nakhua on an upcoming India-made social media platform Gutrgoo. It quotes from the findings of the Shah Commission probe, which was instituted to look into the excesses of Emergency after Mrs Gandhi was drubbed in 1977 elections.

“Worshipping False Gandhis: In 1976, National Herald of Gandhi Family took a loan from PNB and never paid back. PNB gave the loan to the loss-making, badly managed company because it was associated with Indira Gandhi,” Nakhua wrote on Gutrgoo. “PNB’s latest financial muddle in the form of Nirav Modi, who too was extended loans during the UPA regime, indicates that the PSU bank has been an instrument of Congress corruption for a very long time,” he added.

Congress spokesperson Tom Vadakkan rubbished the report. “If this is the same Shah commission that alleged she (Indira Gandhi) had stolen chicken, I don't know how much credible is the report. People of India had given a befitting reply to mechanisation of such committees and commissions."

The ‘associated’ story of National Herald and PNB:

July 25, 1975: Right after the declaration of Emergency then PM Gandhi had appointed T R Tuli as the Chairman and Managing Director (CMD) of PNB against the recommendations of RBI. Another person had been cleared for the post by the Finance Minister and the Home Minister after consulting with the RBI, but PM Gandhi had overridden all these, said the Shah Commission, to “straightaway” appoint Tuli to the position.

“…the Commission is of the view this is yet another instance where the then Finance Minister Shri C Subramaniam was virtually compelled to fall in line with the suggestion made by then Prime Minister, Smt. Gandhi and that such compulsion amounted to the abuse of authority by the former Prime Minister. It clearly resulted in a subversion of well-established conventions,” the inquiry noted. 

March 1976: PC Sethi, the then treasurer of Congress and Minister of Chemicals and Fertilisers called CMD Tuli to his residence and asked Tuli to extend a loan of Rs 8.3 lakh to Associated Journals Limited.

This amount has been pegged by Nakhua at Rs1.83cr today, after adjusting for inflation. This was to be paid to AJL a clean ‘overdraft facility’.

The Shah Commission report noted that Sethi wanted this money from PNB to pay for customs and demurrage charges to “enable them to take delivery of certain items of imported machinery which had arrived at Bombay”.

AJL’s managing director Col. Zaidi proposed that after the clean overdraft of Rs 8.3lakh, PNB should extend a term loan of Rs 15lakh to AJL. This would be used to immediately repay the clean overdraft of Rs 8.3lakh. The term loan of Rs 15lakh was to be secured by mortgaging the ‘Herald House’ at Bahadur Shah Zafar Marg in Delhi. 

March 19-20, 1976: Accordingly, CMD Tuli called the manager of PNB’s Parliament Street branch and told him to extend the loan to AJL, mentioned by Shah Commission as “verbal approval”.

March 20, 1976: AJL made a formal proposal for the overdraft at the Parliament Street branch of PNB.

An overdraft and unsecured loan given by a bank to an esteemed customer whose credit with the bank is impeccable. But, the loan was given to AJL even when it did not have an account with the Parliament Street branch of PNB till then.

March 20, 1976: AJL opened a current account in PNB. 

March 22, 1976: PNB issued a cheque of Rs 10lakh to AJL.

Going by the original arrangement, PNB’s manager approached AJL to get ‘Herald House’ mortgaged so the agreed-upon term loan of Rs 15lakh could be released to AJL so that it could repay the earlier overdraft of Rs 10lakh.

April 1976: AJL conveyed to PNB that ‘Herald House’ could not be given to the bank as security due to some ‘technical difficulties’ and that AJL was making alternative arrangements to repay the overdraft soon. 

Actually, AJL, owned by the Gandhi Family, was trying to give Herald House as collateral to Syndicate Bank to raise another loan.

The commission noted: “It would appear that thereafter Associated Journals were making efforts to raise the sums required to pay the clean overdraft from the Punjab National Bank by offering ‘herald House’ as a security by way of a second mortgage to the Syndicate Bank and for some reason or the other they did not, in fact, succeed in raising the requisite funds and in repaying the Punjab National Bank.” 

Till 1977: By the time the Shah Commission started inquiring into this matter, the overdraft of over Rs 10lakhs was still unpaid to PNB. Tuli gave a written statement and on which the Shah Commission observed that “since National Herald-publisher Associated Journals Limited was connected with the then Prime Minister Indira Gandhi, it must have weighed a little in his mind to deal with the case on a priority basis expeditiously.” 

Tuli testified thus on being asked whether his action was because a Minister had advised him to help the company: “Yes Sir, that is a big consideration for me…Naturally when a Minister says some consideration has got to be given to that and that is why the whole thing was expedited”. Tuli added that there were extra-commercial considerations “to some extent”.

In reality, AJL was just trying to keep itself above water as it had fallen into deep financial problems. AJL needed Rs 8.3lakh to pay customs duty and demurrage charges: customs duty was Rs 2.3lakh and demurrage was Rs 6lakh. It was accumulated at the rate of Rs 4000 per day due to mismanagement within AJL.

The inquiry indicted Tuli for not having done his due diligence as a banker when the loan was given. He had ignored the sick condition of a company which could not pay customs and demurrage, nor did it approach its usual four banks, including Syndicate Bank, United Commercial Bank, and Vijaya Bank, for this loan.

The company’s balance sheets were not seen nor was an evaluation done. The commission noted: “It is also seen from a report of the Central Intelligence Section of the Credit Administration of the Punjab National Bank that Associated Journals Limited had incurred heavy losses of about Rs 10 lakh per year in 1973-74, and 1974-75, that their accumulated losses stood at Rs 47.46 lakhs against a paid-up capital of Rs 51.64 lakhs and some tied up reserve of Rs 6.77 lakhs.

Thus according to the report, not only the whole of the reserves and surplus stood wiped off, but the paid-up capital to the extent of Rs 40.69 lakhs also stood eroded. The company also had substantial liabilities both secured and unsecured.”

Nakhua has alleged that this is a story of “misuse of power for disbursement of loan to sick companies owned by Gandhis through a Public Sector Bank” and that PNB had been serving Congress from 1976 till Nirav Modi”.