New Delhi: The Enforcement Directorate’s fresh FIR with the Economic Offences Wing (EOW) of the Delhi police in the National Herald case, Congress leader and leading lawyer Abhishek Manu Singhvi pointed out, was “belated” and an outcome of his arguments made before the trial judge that no predicate offence existed in the case.

The FIR, registered on October 3 by ED official Shiv Kumar Gupta, accused Sonia and Rahul Gandhi, Suman Dubey, Sam Pitroda, Young Indian, Dotex Merchandise Pvt Ltd, Sunil Bhandari, Associated Journals Ltd and unknown people under Indian Penal Code Sections 420 (cheating), 406 (criminal breach of trust), 403 (dishonest misappropriation of property) and 120-B (criminal conspiracy).

The FIR alleges that government properties which were allotted to National Herald at subsidised rates for larger public purposes were “usurped” by the Gandhis and other Congress leaders for personal gain, representing a serious form of criminal conspiracy and financial fraud.

However, Manu Singhvi responded, “The new FIR in NH [National Herald] case is also an unintended and inadvertent tribute to my arguments before the trial judge pointing out that no predicate offence existed.”

He added: “I also said that if there is no predicate offence, there cannot be a PMLA [Prevention of Money Laundering Act] offence. Possibly to take care of that huge jurisdictional gap, the present new FIR, with a minor change, has been filed. Overzealous prosecutor and over-clever prosecution. Please remember, this is criminal law, not supposed to be adversarial or malicious.”

Does all of this sound confusing? Let’s unpack this complex maze of accusations and counter-accusations.

Abhishek Manu Singhvi, while rejecting the FIR against Gandhis as fraudulent, effectively meant that by filing a new FIR, the central investigation agency was trying to retrofit a “scheduled offence” that previously didn’t exist and which made the ED’s case weak in the courts. The new FIR is sort of a corrective measure by the ED to be able to stand before the court without being reprimanded by judges.

We know that both Sonia and Rahul Gandhi have been summoned by the ED and the Income Tax department for questioning a number of times. All such instances have snowballed into political storms and have become the biggest flashpoints between the Bharatiya Janata Party (BJP) and the Congress.

But how much do we know about the case itself, which the BJP claims is demonstrative of the Gandhi family’s malpractices, but which the Congress has been dismissing as bogus and vindictive.

Is it a case of political vendetta? Or have the Gandhis actually done something that can trouble them in the future?

Here, The Wire unpacks all the big components of the National Herald case that have emerged at various points as one of the most hotly-debated and politically-contested episodes of the last decade.

Case history

The National Herald newspaper was founded in Lucknow in 1938 by eminent freedom fighters from the then United Provinces (which is now Uttar Pradesh), Acharya Narendra Dev, Rafi Ahmed Kidwai, Purushottam Das Tandon, Kailash Nath Katju and Jawaharlal Nehru. The parent company of The National Herald was The Associated Journals Limited, or AJL.

AJL’s stated policy was that any publication issued by the company shall generally be in accordance with the policies and principles of the Indian National Congress, which was the primary political force uniting people against the British Raj at the time.

Also read: 'Why Are You Being Used For Political Battles?': CJI Gavai Asks ED

The National Herald was also founded to create an alternative media space to disseminate anti-colonial views when a large number of news dailies were advancing the colonial point of view or were being censored by the British.

In that sense, the National Herald was and remains ideologically beholden to the Congress party, very much like AJL’s other vernacular publications, Qaumi Awaz or Navjivan.

However, as the AJL didn’t view its publications as commercial enterprises, National Herald fell on hard times after independence.

After having suffered huge losses through the 1980s and 1990s, AJL became financially unviable by the late 1990s. The National Herald struggled to pay salaries to its journalists and staff.

It was then that AJL approached its ideological fountainhead, the Congress, for financial support, as no bank was willing to support a company with a negative net worth. The All India Congress Committee (AICC) provided, by cheque, nearly a hundred small loans to AJL from 2002 to 2010.

By 2011, the loans totalled Rs 90.21 crores, all of which the AJL claims to have spent on paying salaries, gratuity, provident fund dues, taxes and other government dues. The printing of the National Herald had been temporarily suspended in 2008.

At this time, the treasurer of the Congress, Motilal Vora, after seeking legal and financial advice from experts, designed a plan to restructure AJL as part of its revival plan, as AJL was far from being in a position to repay its debts to the Congress.

The financial restructuring plan was supposed to clean AJL books and pay all the unpaid taxes accumulated over the years, so that it could approach banks for fresh loans for its revival. The revival plan also included creating new assets in the properties that the AJL owned to drive up its revenues. The plan was to subsequently hire a competent editorial team to begin National Herald’s digital publication.

Under the financial restructuring plan, a not-for-profit organisation called Young Indian was established in November 2010 under Section 25 of the Companies Act, 1956 (which is now Section 8 of the Companies Act, 2013). Sonia Gandhi, Rahul Gandhi, Motilal Vora, Oscar Fernandes, Suman Dubey and Sam Pitroda and some other Congress leaders became shareholders in the new company.

The Congress received Rs 50 lakh from Young Indian and gave the newly-established company the right to recover AJL’s loans.

Subsequently, AJL offered Young Indian a proposal to convert its loans into equity for the latter – a common practice under the Insolvency and Bankruptcy Code for corporate entities (such as companies) to clean a loss-making unit’s books. Multiple times, governments, too, convert the debt of a company into equity through this process in the National Company Law Tribunal.

The financial restructuring, in which Young Indian became AJL’s majority shareholder, gave the dying newspaper an opportunity to begin with a clean slate and enabled it to raise loans from banking channels.

By November 2016, all the three publications of AJL – the National Herald, Qaumi Awaz, and Navjivan, were relaunched as digital media platforms.

So what’s the fuss about?

Well, the controversy began in February 2013 when Hindutva-supporting politician Dr Subramanian Swamy filed a private criminal complaint at a Metropolitan Magistrate's court in New Delhi. Swamy, who formally joined the BJP in August the same year, alleged that shareholders of Young India – Sonia and Rahul Gandhi, Motilal Vora, Sam Pitroda, Oscar Fernandes and Suman Dubey – diverted Congress funds to a private company, i.e., Young Indian, for personal gains of the Gandhi family.

Although he didn’t provide any evidence to back his allegations, Swamy claimed that the Gandhi family, by becoming shareholders in AJL through Young Indian, had usurped AJL’s real estate assets, thus committing “fraud, breach of trust and cheating on the Congress party”.

The allegations made Swamy look like a well-wisher of the Congress party, although he had been one of the most vocal opponents of the Congress in all his public life.

In any case, the court allowed the complaint and summoned the Gandhis and others. The trial court hearings began in 2016 and went on till early 2021. During the course of the hearings, Swamy was questioned and cross-examined multiple times but he could not back his allegations of embezzlement with evidence.

In fact, he remained absent in most hearings. His lack of interest showed when he himself moved the Delhi High Court in February 2021 to pause his own case.

Swamy’s private complaint is still pending trial, because of which every time the ED launches fresh summons for the accused persons, the National Herald case becomes an easy excuse for the BJP and a pliant media to attack the Congress with.

It is when the case was losing steam that the ED stepped in and used Swamy’s complaint to begin its own investigation under the Prevention of Money Laundering Act, a most handy tool to use against opposition leaders at the moment.

Interestingly, the then ED director Rajan Katoch objected to the view that a private complaint could be the basis of an ED investigation, and said that an ECIR (Enforcement Case Information Report, equivalent of an FIR in ordinary criminal law) should follow legal rules –something the Supreme Court, too, had observed in various cases under PMLA. This was probably the first time that the ED had started its investigation on the basis of a private complaint, not an FIR.

Katoch was immediately transferred, and the ED under a new leadership launched a formal investigation in June 2021. In subsequent years, Sonia and Rahul Gandhi, Congress president Malllikarjun Kharge and other accused were repeatedly called by the ED for prolonged questioning.

All this while, the leaders kept saying that AJL and Young Indian were separate entities and no transfer of funds – not even a rupee – ever took place between the two. The revival of AJL has only been possible because of its rental incomes, and that Young Indian was floated only to enable AJL’s revival.

The ED has still pursued a PMLA case, although it hasn’t substantiated its charge of money laundering. In fact, it hasn’t even yet officially briefed the media about the basis on which it has levelled allegations of money laundering against Young Indian shareholders.

ED alleges, Congress retorts

Around six months ago, the ED filed a chargesheet in the case, accusing the Gandhis and others of financial fraud and money laundering. Let us take a look at it point by point.

The ED claims that Young Indian was floated specifically to grab real estate, which was acquired by the AJL through government subsidies meant to support public service and news dissemination. The ED then said that these assets are worth Rs 2,000 crore, and that Young Indian shareholders took hold of them through a transfer of merely Rs 50 lakh – which Young Indian transferred to the Congress party to get the rights to recover AJL’s loans.

However, the Congress claims that ownership of the properties in question remains with AJL and that not a penny from the rental incomes of the AJL was transferred to Young Indian. Moreover, the Supreme Court, too, has settled this matter. In its judgment in the 2012 Vodafone case, it clearly says that shareholding doesn’t imply ownership of a company or its assets. It is the company itself which owns the properties, the SC said.

The Congress says that no money or property has ever been transferred from AJL to Young Indian directors or shareholders either. No gains were ever made either by the Gandhis or any of the other accused persons.

The case of cheating also doesn’t stand in this view, as no shareholder of AJL or Congress leader has ever complained about this against Young Indian.

Moreover, the Congress has repeatedly said that the ED’s claim that AJL’s properties are worth Rs 2,000 crore is hugely inflated and is being quoted to mislead the public. The Income Tax department, which is following a separate case in the matter, has itself claimed that AJL’s real estate assets were worth Rs 392 crores in 2010-11. Even if prices rose since then, they do not match up to the ED’s estimates.

Two more allegations

The ED has made two other significant allegations against Young Indian.

One, it claims that Young Indian acquired a loan of Rs 1 crore through a shell company.

The Congress has aggressively denied it, and has said that Young Indian took a loan of Rs 1 crore at 14% interest in 2010 (by cheque) from a legitimate company named Dotex, which is an RPG group company registered as a Non-Banking Financial Company by the Reserve Bank of India. So there is no question of any illegitimate financial dealing.

Also read: SC Restrains ED, Says It ‘Can’t Be a Law Unto Itself’, in Chhattisgarh Liquor Scam Case

The Congress has made an even more significant assertion. It has said that the ED lied on paper that Dotex provided a loan to the shareholders of Young Indian before they incorporated the new company. The Congress alleged that the cheque by Dotex was dated December 24, 2010 – after the incorporation of Young Indian – and not on 24 October, 2010 as the ED claimed in its chargesheet. The ED still hasn’t responded to this grave allegation.

So why does the new FIR matter?

After the ED filed its chargesheet in the matter under the PMLA, several experts pointed out that the PMLA required the ED to begin an investigation only on the basis of a scheduled offence – something that the ED director Rajan Katoch (the one who was immediately transferred after pointing out this loophole in ED’s case) had also said.

The ED, until now, had been interpreting the absence of a predicate offence (which should have been registered as an FIR) in the National Herald case as unimportant. It said that it began its investigation after the trial court acknowledged Swamy’s private complaint that showed the occurrence of a scheduled offence.

(A scheduled offence is a list of offences under criminal laws and special laws like the Narcotic Drugs and Psychotropic Substance Act, 1985 and the Unlawful Activities Prevention Act, 1967, which are notified and listed in the PMLA).

Thus, the ED believed that an FIR wasn’t necessary in the matter.

However, the ED appears to have realised now that its argument wouldn’t stand in the courts. Because, according to senior lawyers with whom The Wire spoke, a scheduled offence is a prerequisite for any ED action.

Section 5 of the PMLA clearly states that the ED action must be based on a police FIR or a statutory complaint, and mere court’s cognisance is insufficient.

New Delhi-based senior lawyer Sarim Naved told The Wire:

“The entire idea of the PMLA is that it can kick in only after the crime has happened, some money has moved or [been] laundered. There is no provision in the law that an investigation can be started by an investigation agency without a registered predicate offence.”

In essence, Naved said that no investigation agency can be retrofitted to a predicate offence after the chargesheet is filed. “You need an FIR first, and a retrofitted FIR can be struck down at the court, and can even be the basis to quash the PMLA charges in the National Herald case,” he said.

This is what Abhishek Manu Singhvi, who represented Young Indian at the court, argued.

And that is why the ED, which is already struggling to find evidence to prove its allegations of money laundering against Gandhis, has lodged a fresh FIR with Delhi Police, citing scheduled offences like criminal conspiracy and financial fraud, to cover up its own stark oversight.

The Wire is now on WhatsApp. Follow our channel for sharp analysis and opinions on the latest developments.