The Congress party admitted recently that it had extended an interest-free loan to an ailing Associated Journals Limited (AJL). Without going into the furore that surrounded the whole affair, it will be interesting to recall the story of an overdraft that a public sector bank had extended to the same company more than 36 years ago, during the darkest part of the 1975-77 period of the Emergency — a matter that later came under the adverse notice of the Shah Commission of Inquiry.
In March 1976, P.C. Sethi, Minister in the Indira Gandhi government, called T.R. Tuli, Chairman and Managing Director of Punjab National Bank (PNB), to his residence and asked him to help Associated Journals by advancing money to enable it to take delivery of imported machinery in Bombay.
Colonel Bashir Hussain Zaidi, Chairman and Managing Director of AJL, met Tuli and sought an immediate advance that would be repaid from a term loan of Rs.15 lakh from the bank against a second mortgage of its ‘Herald House’ on Bahadur Shah Zafar Marg in New Delhi. After a discussion with Tuli, AJL requested the Parliament Street branch of PNB for a temporary overdraft of Rs.10 lakh. Later, in his testimony before the Shah Commission, Tuli was to admit that he had given his verbal approval to L.D. Adalkha, Manager of the Parliament Street branch.
The Shah Commission (Chapter VII of Report 1) found that AJL did not have any account with PNB until the point it sought the overdraft. On March 20, AJL opened a current account in the bank and deposited Rs.1,70,000. PNB issued, on March 22, a cheque for Rs.10 lakh to enable AJL to take delivery of a consignment of machinery. The net overdraft amounted to Rs.8,30,000.
There was some correspondence between the PNB branch and AJL to ensure that the overdraft be secured. On April 21, 1976, AJL wrote to the bank saying it was not in a position to offer ‘Herald House’ as security and that it was arranging to repay the overdraft amount shortly.
When the Shah Commission took up this transaction as a ‘special case’ in October 1977, the position was that AJL had repaid only Rs.20,000 towards interest. A sum of Rs.10 lakh was outstanding as principal and interest.
During his testimony before the Commission in November 1977, Tuli was asked whether the loan was granted at his insistence by the Parliament Street branch and contrary to the bank’s normal loan granting practices.
He replied that there was a ‘reason’ for doing so as the AJL was in urgent need of money and ultimately it was to get a term loan against mortgage of a building.
Asked why he did not look at the balance sheet of AJL, as he was duty-bound to do, Tuli replied: “That was my omission.” Asked whether he acted thus because a Minister had advised him to do help the company, he replied: “Yes, sir. That is a big consideration for me.” He added: “Naturally, when a Minister says, some consideration has got to be given… and that is why the whole thing was expedited.”
The Commission reminded Tuli of his written statement where he had stated that he had given verbal approval to the branch manager and that since National Herald, published by AJL, was connected with the Prime Minister, it must have weighed a “little in his mind to deal with the case on a priority basis expeditiously.” When Tuli was reminded that it was without security, he replied: “Of course, it was without security.”
The Shah Commission concluded: “There can be no doubt that the decision to allow a temporary overdraft in this case without security, albeit on the understanding which did not materialise that the security will be provided soon thereafter, was solely that of Shri T.R.Tuli.”
The Commission said the following circumstances should have put Tuli on his guard.
(i) AJL did not have an account with PNB till then, whereas it had accounts with Syndicate Bank, United Commercial Bank and Vijaya Bank. Tuli should have, either on his own or through his officers, made confidential enquiries with other banks to ascertain the company’s credit-worthiness. The fact that AJL had approached a bank with which it had no prior dealings, instead of one of its existing banks, was enough reason to suspect that everything was not right with the proposal.
(ii) The machinery in question had arrived in Bombay towards the end of October 1975 and demurrage was mounting at the rate of Rs.4,000 a day. It had added up to over Rs.6 lakh by the time PNB was approached. This should have caused concern to Tuli as the demurrage had added to the cost of the equipment.
(iii) Tuli admitted he had not seen any evaluation report regarding AJL, or its balance sheet, or any statement of its assets and liabilities, before approving the proposal.
The Commission got a report of the Central Intelligence Section of Credit Administration of PNB. It stated that AJL had incurred losses of about Rs. 10 lakh a year in 1973-74 and 1974-75, and the accumulated losses were over Rs. 47 lakh. According to the report, not only were the reserves and surpluses wiped off, but the paid-up capital to the extent of Rs.41 lakh stood eroded.The Commission concluded: “In the present case, however, no precautions which would be normal in advancing money on a clean overdraft account were taken; but solely because of the intervention of Minister Shri P.C. Sethi, loan was advanced, disregarding the canons which would ordinarily govern the advancing of such a loan.” Further, Tuli “has also misused his powers and abused his authority in so doing.”
There was another ‘case’ examined by the Shah Commission that revealed that Tuli’s appointment as Chairman and Managing Director of PNB came about at the insistence of Prime Minister Indira Gandhi.
Under the Rules of the Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1970, the head of a nationalised bank should be appointed by the Union government after consulting the Reserve Bank of India. As the Chairman of PNB was to retire on July 31, 1975, the RBI recommended for that post O.P. Gupta, Deputy General Manager of PNB. This was approved by Finance Minister C. Subramaniam and Home Minister K. Brahmananda Reddy. When the papers were sent to the Prime Minister as the third member of the appointments committee, she mentioned that Tuli’s name should also be considered for the post. Tuli was then Chairman of New Bank of India, in the private sector. However, the recommendation of the Finance Minister was redrafted and Tuli became Chairman and Managing Director of PNB on August 1, 1975.
When the Shah Commission asked C. Subramaniam why O.P. Gupta was not appointed as recommended by the RBI, he said he had not known Tuli earlier, and that PNB was much bigger than New Bank of India. Asked whether the Prime Minister had suggested that Tuli be appointed, Subramaniam replied: ‘Yes.’
This was why Tuli went against all canons of banking to help Associated Journals. It is not known how Punjab National Bank eventually dealt with the unsecured overdraft given to Associated Journals.
(Era Sezhiyan is an eminent writer and a former parliamentarian. He compiled and edited ‘ Shah Commission Report: Lost, and Regained ’.)