In defending the Centre’s decision to award a Padma Bhushan to Sant Singh Chatwal, the Ministry of Home Affairs said last week that the Indian-American hotelier was a “tireless advocate of India’s interests in the U.S.” and had been “an active member of the NRI community in the U.S. in securing support for the nuclear deal among the members of the Congress of the United States.”

But in 2008, the Indian Embassy in Washington DC, which had first-hand knowledge of the NRI community’s advocacy, declined to nominate Mr. Chatwal when asked by the Prime Minister’s Office to do so.

Speaking to The Hindu on condition of anonymity, a highly placed source familiar with the exchange said India’s Ambassador at the time, Ronen Sen, had told the PMO it would not be appropriate to bestow a Padma award on Mr. Chatwal because of the controversy surrounding his financial dealings in India and America.

Ironically, Mr. Chatwal was being considered for the Padma Shri, a lower category of award than the Padma Bhushan he was given last week. And the compulsion then, according to sources, was the desire to do a favour to the Samajwadi Party, which was supporting the United Progressive Alliance government in New Delhi on the nuclear deal. The SP leaders, in turn, were grateful to Mr. Chatwal for bringing Bill Clinton to Lucknow for a function in 2005.

Asked whether a case could be made to honour Mr. Chatwal for his work on the nuclear deal, Mr. Sen told the PMO in 2008 that his contribution, though positive, was much less than that of other Indian-Americans. Awarding him would demoralise the others who had done much more, the PMO was told, besides creating the impression that India did not regard lack of transparency in financial dealings as a disqualification for its highest honours.

The hotelier is close to Bill and Hillary Clinton and had funded the latter’s campaign during the Democratic primary. He came out in support of Barack Obama’s presidential bid after the Clintons endorsed the Democratic winner.

When the Federal Deposit Insurance Corporation (FDIC) in the U.S. sued him for recovery of $12 million he borrowed from First New York, a bank of which he was a director and which subsequently went bankrupt, Mr. Chatwal testified that he had assets of only $2,600 and a cash balance of $100. He said the multi-million dollar luxury penthouse he lived in belonged to his brother, to whom he paid a monthly rent of $5,000, “pursuant to an oral sub-lease,” out of the $6,700 he and his wife earned every month as employees of a hotel and restaurant respectively.

In sum, the FDIC wryly noted, Mr. Chatwal “has managed to continue living in luxurious style in the same penthouse apartment he resided in at a time he claimed a net worth of tens of millions of dollars without adequate explanation of how his family’s limited income is able to support such a lifestyle.”

The FDIC, a government agency which guarantees the safety of deposits in banks and is a key part of the regulatory machinery for the U.S. banking system, said Mr. Chatwal, as a director of First New York, “participated and knowingly engaged in the practice of … extending poorly underwritten loans to Bank directors and their related entities which involved more than the normal risk of repayment, resulted in unsafe concentrations of credit for the bank and violated the bank’s internal lending policies.”

Despite taking the stand in 1997 that the $12 million debt Mr. Chatwal owed was “non-dischargable,” the FDIC changed tack in December 2000, one month before Bill Clinton demitted office, agreeing to a settlement of $125,000.

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