Dr. Syama Prasad Mookerjee Research Foundation

The Curious Case of National Herald

Ayush Anand and Sai Krishna Kumar

All of us know that delaying tactics are part and parcel of criminal trial and this week the National Herald case hit the news because of another such dilatory tactic going down the drain. Is the law now catching up with the so-called most powerful first family of our country? From the inception, National Herald was a white elephant. The Newspaper had a history of being a financial failure since its initial years. Associated Journals Limited (AJL) which is an unlisted public company limited by shares and the Company which prints National Herald, was incorporated on 20 November 1937, with its registered office at Herald House, 5-A, Bahadur Shah Zafar Marg, New Delhi. Wherein AJL was incorporated with the support of about 5,000 freedom fighters who later became shareholders of AJL, Pt. Nehru always had a closer calling towards this venture, till the extent that once he went on to say, “I will not let the National Herald close down even if I have to sell Anand Bhavan”, and this was while he was Prime Minister of India. Little did he know that his future generations would be alleged of usurping the assets of National Herald for their own personal gains. As it did in the past as well, National Herald couldn’t sell much copies, as a result of which the newspaper this accumulated a total consolidated debt of Ninety Crores. Although it is important to point out that Associated Journals Limited (AJL) which published National Herald had properties worth thousands of Crore in Delhi, Indore, Lucknow and Mumbai.

That is when another newly floated company namely Young Indian came into picture. Young Indian is a private company limited by guarantee, incorporated on 23 November 2010 with a capital of ₹5 lakh and with its registered office at 5A, Herald House, Bahadur Shah Zafar Marg, Delhi. It is noteworthy that on 13 December 2010, Mr. Rahul Gandhi was appointed director of Young Indian while Mrs. Sonia Gandhi joined the board of directors on 22 January 2011. Furthermore, 76 percent of the shares are jointly held by Mrs. Sonia Gandhi and Mr. Rahul Gandhi, and the remaining 24 percent are held by Congress leaders Mr. Motilal Vora and Oscar Fernandes equally.

In 2013 noted economist and former Union Minister Dr. Subramaniam Swamy filed a complaint against Rahul Gandhi, Sonia Gandhi and many others alleging conspiracy to cheat and misappropriation of funds.

According to  Dr. Swamy it was in 2011 that AJL approved the transfer of an unsecured loan of Rs. 90 Crores from the All India Congress Committee at zero interest with all Rs. 9 Crores of the Company’s shares of Rs. 10 each to above named Company Young Indian. Now if one may have a look at Section 29A to C of  the Representation of the People Act, 1951, and Section 13A of Income-tax Act, 1961 it will be clear that it is illegal for a political party to lend money for commercial purposes. It is rightly and very logically put by Dr. Swamy that, had the Gandhi’s wanted they could’ve easily paid off the outstanding loan amount of Rs. 90 Crores, keeping in mind against the aforesaid liability the total net assets of AJL amounted to Rs. 2,000 Crores. One also has to notice, that the entire transaction at the outset is illegal since a political party which is a non-profit entity, it cannot engage in any commercial transactions such as giving and receiving loans. Not only that, AJL which as illegally given an interest free loan, never paid it back, which is in violation of Section 269 of Income Tax Act.

Furthermore, Dr. Swamy alleges that when the acquisition of the AJL by Young Indian was staged, none of the other shareholders (more than 1,050) were consulted, which as per him is violation of various provisions of the Companies Act. Among the aforesaid allegations, it is also strongly argued by Dr. Swamy that the head office of AJL was being wrongly used for commercial purposes.

The Metropolitan Magistrate opined that a prima facie case was established and while issuing notice in favor of Mrs. Sonia Gandhi, Mr. Rahul Gandhi and others, in her order of 2014 noted that “Young Indian was in fact created as a special purpose vehicle for acquiring control over Rs 2,000 Crores worth of assets of the AJL and since all the accused have allegedly acted in consortium with each other to achieve the said nefarious purpose/design, there are sufficient ground for proceeding against all of them”

Against the aforesaid order, the accused moved to the Delhi HC, the application filed was dismissed in by the Hon’ble High Court. Furthermore, even the Hon’ble Supreme Court refused to quash the proceedings against the accused, only granting them an exemption from personal appearance.

While all these litigations were going on, another litigation was initiated by the Income Tax department, the Assessing Officer (AO) vide office memoranda dated 29.02.2016 and 31.01.2017 issued a demand of Rs. 249 Crores against Young Indian. Challenging the method of valuation adopted by AO, Young Indian filed a petition before the Hon’ble Delhi High Court, wherein the bench of Justice R. Bhat and Justice AK Chawla instructed Young Indian to deposit a sum of Rs. 10 Crores with the revenue. Expanding the tax aspect of this case, on 31st March this year, the Income Tax Department re-opened the assessment of Mr. Rahul Gandhi, for the assessment year of 2011-12, Mr. Gandhi has allegedly concealed information about him being the director of Young Indian. As per the Revenue Department, Mr. Gandhi’s shares in Young Indian allegedly might result in an income of Rs 154 crore, however as per is account statement and previous assessment it was Rs 68 lakh. Similar notices have also been issued to Mrs Gandhi Mr. Fernandes for allegedly not disclosing income arising as Young Indian shareholders for 2011-12. Against this move of the Income Tax department, the Gandhi’s and Mr. Fernandes moved to the Delhi High Court, for quashing order of reassessment and pleading exemption under Section 12AA of the Income Tax Act, 1961.

However in its recent order the Hon’ble Delhi High Court dismissed the petition observing “… it cannot be said that the effect of the exemption notification was to relieve the assesses from their obligation to disclose about the acquisition of the shares, which appears to be the taxing event (on account of the differential between the acquisition cost and the fair market value)”. It added: “The entire premise of the reassessment notices in this case is that the nondisclosure of the taxing event, ie allotment of shares (and the absence of any declaration as to value) deprived the Assessing Officer (AO) of the opportunity to look into the records.”

Who had ever thought that the so called first family of our country will have to face the wrath of law for all their illicit activities. It is well said and national herald is the tailor fit example for the same ‘when law begins to catch up even the best of legal representation cannot be of help’.


(This article is jointly written, Research Associate, SPMRF &  Law graduate from IP University and Research Intern at SPMRF)