Born into a family of traders, Haridas Mundhra is an interesting subject to study today, given that money has never been more important than now. Considered to be the first stock fraudster in India, he laid the foundation for several stock market deceptions which have interesting back-stories. Haridas was the eldest of the three kids born to his parents. Tulsidas and Manmohandas are his siblings.
He started as a light-bulb salesman, and in a set of quick moves, he cracked fast deals and did stock juggling to make it big. He bought shares of small companies and hiked their prices up through circular trading and rumour-mongering to build a 40 million (US$10 million) empire. In the 1950s, his business empire came under the scanner and his ethics were questioned. In 1956, he was indicted by the Bombay Stock Exchange for selling forged shares.
What was the case?
In June 1957, the public-sector holding, Life Insurance Corporation (LIC) had bought Rs 1.24 crore worth of stocks in six companies — Richardson Cruddas, Jessops & Company, Smith Stanistreet, Osler Lamps, Agnelo Brothers and British India Corporation – all of them owned by Haridas Mundhra, a Calcutta-based businessman. It was LIC’s largest investment by far.
Light of the day
Jawaharlal Nehru, like a true Congressman, wanted to handle the matter quietly, as it would have brought a bad name to his government at the centre. A congressman who didn’t favour this was the then MP of Rai Bareli, Firoz Gandhi.
Firoz, a just leader, had founded the anti-corruption movement which had landed Ramkrishna Dalmia, the founder of Bennet Colman & Company, in jail, for defrauding his insurance company and the formation of LIC of India in 1956 under which 245 firms were nationalised and consolidated under one title. He always saw LIC as a “child of the Parliament”. He would have no soft-pedalling on the matter and took the case directly to parliament. Firoz brought the scam to the floor of the Lok Sabha in 1957.
Despite Nehru’s best efforts to push the matter under the carpet, Firoz put the spotlight where it deserved to be put. He highlighted the issue and managed to bring public attention to it. Left with no choice, Nehru was forced to appoint a committee to examine the matter. The retired Bombay High Court Justice M. C. Chagla was appointed as a one-man committee in the matter.
Justice Chagla determined that the Finance Secretary, Haribhai M Patel, along with two LIC officials may have colluded on the payment and should be investigated. Subsequently, an inquiry committee headed by Retired Justice Vivian Bose cleared the names of the two civil servants but passed strictures against the finance minister for lying. Finance Minister T. T. Krishnamachari, in his testimony, tried to distance himself from the LIC decision, implying that it may have been taken by the Finance Secretary, but Justice Chagla held that the Minister is constitutionally responsible for the action taken by his secretary and he disown his actions. Eventually, Krishanamachari had to resign. The Nehru the government suffered considerable loss of prestige.
Haridas Mundhra was arrested from his luxury suite at Claridge’s Hotel in Delhi, and was sent to prison. In recent times, Mundhra is often noted as the forefather of financial fraudsters in modern India, including Harshad Mehta and Abdul Karim Telgi, who all operated under alleged political support.
PS: Jawaharlal Nehru, it’s said, had tried to bring Krishnamachari back in the reckoning as a minister. He was offered every cabinet except finance back in the 1960s. What Krishnamachari said to him in return is a story for another day.
Watch this space.