The albatross around the Gandhis' neck: what's the National Herald case?

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The transactions

• The Congress party gave an interest-free loan of Rs 90.21 crore to AJL, which ran National Herald

• A company called Young Indian Pvt Ltd bought the bad loan off the Congress for Rs 50 lakh
• AJL couldn\'t cough up the loan amount, so it gave all its shares to Young Indian

The accusations

• AJL owned assets worth between Rs 2,500-5,000 crore in many cities. These are now owned by Young Indian

• According to the Registrar of Companies, Sonia and Rahul Gandhi own 76% of Young Indian
• Therefore, they seem to have benefitted financially from these transactions
• The Gandhis\' company also gets all the rent from these prime properties

More in the story

• Why the Congress is in hot water - all the rules the party seems to have violated

• Which senior Congress leader was the key player in this game?

The Congress party is currently facing one of the biggest controversies in its 130-year-long history.

The top leadership of the party stands accused of swindling huge amounts of money in acquiring the ownership of the defunct National Herald newspaper and its assets around the country. This has dragged the party and its leaders to the doorstep of the Indian justice system.

After many adjournments, on 7 December, the Delhi High Court refused to exempt party president Sonia Gandhi and vice-president Rahul Gandhi from appearing in court. The Patiala House court in Delhi, which is hearing the petition against them, has told both the leaders to be present for the next hearing on 19 December.

What's the case?

BJP leader Subramanian Swamy who filed the original petition in the Patiala House court. The petition states that all the assets related to National Herald are now under the ownership of a company called Young Indian Private Limited. According to the Registrar of Companies, Young Indian is owned by Sonia and Rahul.

The assets, including the Herald House on Bahadurshah Zafar Marg, New Delhi, could total up to anywhere between Rs 2,500-5,000 crore in property value alone. Swamy alleges that this was the main reason for the entire chain of transactions.

On top of that, there's the question of rent from these properties.

For example, the Herald House is now home to a passport office run by the Ministry of External Affairs (two floors), and IT major Tata Consultancy Services (two floors). While the passport office pays a rent of about Rs 60 lakh a month, according to media reports, TCS pays Rs 27 lakh a month. This means an annual rent of over Rs 10 crore. And that's just in Delhi - Herald had properties in Lucknow, Jabalpur and many other centres.

Swamy alleges that the transfer of ownership from the original company, Associated Journals Limited (AJL), to Young Indian in 2011 was, prima facie, highly questionable. And it's not just Sonia and Rahul - many other top Congress leaders as well as the party itself are in the dock.

In this case, the Income Tax Department has also sent a notice to the Congress, since the party's funds have been allegedly misused. The Congress, meanwhile, says it has enough evidence to prove its innocence in court.

What was National Herald?

During the independence movement, many freedom fighters felt the need for the Indian perspective to be presented strongly to the British administration and the world. For this, the primary requirement was to have a fully Indian-owned media organisation.

It was for this purpose that Pandit Jawaharlal Nehru founded the National Herald newspaper.

A trust was put in place to run the paper, with the support of about 5,000 freedom fighters - they were all shareholders of AJL. And while National Herald was the brainchild of Nehru, it was never his personal property.

Nehru founded AJL on 9 September 1938. Its primary job was to publish the National Herald; later on, it started publishing Qaumi Awaz (Urdu), Navjeevan (Hindi) and the Herald Weekly as well.

The company's capital value was Rs 5 lakh, divided into 2,000 preferential shares worth Rs 100 each and 30,000 normal shares worth Rs 10 each.

Apart from Nehru, AJL's Memorandum of Association was signed by stalwarts like Purushottam Das Tandon, J Narendra Dev, Kailash Nath Katju, Rafi Ahmad Kidwai, Krishna Dutt Paliwal and Govind Ballabh Pant. It can be safely said that the company didn't belong to any particular person, nor did it want to be associated with any business except news.

The original memorandum states that AJL's purpose was to publish newspapers and magazines, establish a news agency and printing presses and all other associated businesses in the United Provinces (now Uttar Pradesh) and other parts of the country, and run them in the company's interest.

The first question Swamy's petition raises is on this itself. The petition states that Young Indian, which has acquired National Herald, has no goals even remotely related to newspapers, magazines or printing presses. Then why has this transaction taken place?

Death, 'rebirth' and shady transactions

For decades after independence, National Herald continued to exist, propped up by the crutch of the Congress party. By 2008, the situation was so dire that it wasn't possible to publish it anymore, so AJL decided to shut it down. For three years, National Herald was nothing but a distant memory for the public.

In the meantime, certain developments took place which have landed the Congress and its first family under the scanner. In early 2011, a company called Young Indian was founded, in which Sonia and Rahul own a 76% stake, according to the Registrar of Companies. The other 24% is shared between journalist Suman Dubey, technocrat Sam Pitroda, and senior Congress leaders Motilal Vora and Oscar Fernandes.

Technically speaking, any person who controls over 74% of a company is classified as the 'owner'. This person has the right to take all the decisions of the company, and also holds the veto power.

The company was founded under Section 25 of the Companies Act, 1956. A company founded under this section is a 'non-profit organisation', which means that it can't take part in any commercial activity. In addition, it can only use its income, from any source, to promote and pursue its basic purpose only. In this case, this purpose was the publication of a newspaper.

On 26 February 2011, the Board of Directors of AJL passed a resolution, which can be summed up as follows:

• AJL took Rs 90,21,68,980 (90.21 crore) on an interest-free loan from the Congress party.

• The Congress then transferred this loan to Young Indian, which meant that AJL now owed Young Indian this money.

• Unable to pay off the loan, AJL gave Young Indian 9,02,16,898 (9.02 crore) shares worth Rs 10 each. In this way, the entire ownership passed from AJL to Young Indian.

• On the other hand, in order to compensate the Congress for the transfer of the bad loan, Young Indian paid the party Rs 50 lakh. This entire transaction is mentioned in the resolution passed by the AJL on 26 February 2011.

The curious case of Motilal Vora

The AJL resolution bears the signature of its then-chairman, Motilal Vora. Vora is a director of Young Indian, as well as the treasurer of the Congress party.

It's interesting to note the sheer magnitude of the conflict of interest here.

Motilal Vora, the director of Young India, places a proposal in front of the chairman of AJL, Motilal Vora, that he will ask the treasurer of the Congress, Motilal Vora, to transfer the rights to the Rs 90.21 crore loan to Young Indian.

After this agreement is reached, the same Motilal Vora then calls an extraordinary meeting of the AJL Board of Directors, at which the proposal to transfer all of AJL's shares to Young Indian is passed.

In two of these bodies - the Congress and Young Indian, Vora works directly under Sonia and Rahul Gandhi. Incidentally, these are the two people who seem to benefit the most from these financial transactions.

Questions to the Congress

Swamy's petition states that a political party, which receives donations, cannot use its funds for commercial purposes, because donations are tax-free.

Section 13A of the IT Act and Sections 29 A and 29 C of the Representation of the People Act expound on this matter in great detail - that political parties cannot take part in any commercial activity, nor can they use their funds for any such undertaking.

So how did the Congress give a private company Rs 90.21 crore on an interest-free loan?

On what basis did it transfer the rights to this loan to a private company?

And why did it strike a deal for just Rs 50 lakh to write off the bad loan, from a company owned by its first family?

Apart from invoking tax laws, Swamy's petition also raises the question of violating the Election Commission's rules. He wants the EC to withdraw the Congress's recognition, and for Sonia and Rahul to be punished by law.