Janata Party President Dr Subramanian Swamy charged ,in a media Conference ,last week that All India Congress Committee (AICC) paid Rs. 90 Crore to a company ,which is violation of ethics for a political party.
Dr Swamy would certainly take the legal action against the Election Commission's decision to dismiss his plea to de-recognise Congress.
Media is however not silenced as the investigating journalists are coming out with more facts by the day.
The leading business daily Business standard published more details on the transaction from AICC to Young Indian . This is reproduced here:
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Did Congress pay Rs 89.5 cr to Sonia and
Rahul through Young Indian?
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Mother and son own 76% of company which got Associated
Journal's shares worth Rs 90 cr for Rs 50 lakh
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N Sundaresha Subramanian & Kavita Chowdhury / New
Delhi Nov 05, 2012, 00:37 IST ( BUSINESS Standard)
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The
All India Congress Committee (AICC) has, in effect, paid Rs 89.5 crore to Young
Indian, a Section 25 company (meaning a not-for-profit one) controlled by party
president
Sonia
Gandhi and her son, party general secretary Rahul Gandhi.
From the notes of accounts, it appears this sum has effectively given the
mother-son duo control over real estate assets running into several hundred
crores of rupees.
Sonia
and Rahul own 38 per cent each in Young Indian; party seniors Motilal Vora and
Oscar Fernandes own 12 per cent each.
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FAMILY PARTY
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- Associated
Journals is a limited company, having shareholders. Motilal Vora,
treasurer of the All India Congress Committee, is chairman;
- Firm is
formally in the business of publishing newspapers;
- AICC had
loaned Rs 90 crore to Associated, without interest. When it did so isn’t
clear;
- Young Indian
was established as Sec 25 firm on November 23, 2010. Motilal Vora is
also a board member of Young Indian, holding 12%
- Associated’s
board approved assignment of loan given by AICC on December 12, less
than a month after Young
Indian was registered, and by shareholders on January 21,
2011, a month after board approval and two months after Young India was
incorporated;
- It appears
the shareholders, at the same EGM (Jan 21, 2011) had approved allottment
of 90.2 million shares at Rs 10/share;
- Board of AJ
allotted 90.2 million shares to Young Indian on Feb 26, 2011. Resolution
dated Feb 26 shows shareholders approved transfer of loan, as also issue
of shares by extinguishment of loan, on same day;
- Notes to
accounts of Young Indian states objective of Young Indian. This does not
include publishing a newspaper. Also, it says AJ is in the process of
altering its object to align with the objects of Young Indian;
- Shares worth
Rs 5 lakh issued by Young Indian in 2011-12;
- AICC accepted
compromise for loan at Rs 50 lakh against the Rs 90 crore given, an
effective writeoff of Rs 89.5 crore, but it seems AICC was not lucky
even to get Rs 50 lakh cash from Young Indian, as latter is shown as
having capital of Rs 5 lakh and loans of Rs 1 crore. Was there some
benefactor who gave loan of Rs 1 crore or did AICC give loan to Young
Indian to help pay off its own loan?
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The notes to accounts for the year ended March 31, 2012, filed by Young
Indian auditor
Pradeep
Shah and signed by directors Suman Dubey and Motilal Vora this
April, give some clues on the actual structure of the transaction. “In pursuit
of its objects, the company has acquired loan owed of Rs 90,21,68,980 by the
Associated Journals, presently engaged in achieving a recast of its activities
so as to have its main object congruent to the main object of the company, for
a consideration of Rs 50 lakh,” the note said.
Thus, this transaction effectively has the effect of cleaning up the books
of The Associated Journals (publishers of the now defunct National Herald
daily, founded by Jawaharlal Nehru), wherein the entire liability is taken over
by Young Indian.
Explanations
When asked, party general secretary
Janardan
Dwivedi (also the party spokesman) said, “Congress gave a loan to
revive National Herald; it was launched in the fight against the British. It
was the nation’s paper. The loan was not given to earn profit. Reviving the
paper was an emotional issue for the Congress.”
Explaining the second and crucial leg of the transaction, the note added,
“As part of the restructuring exercise of the said company (Associated
Journals), the said loan was converted into 9,02,16,898 ordinary shares of Rs
10 each, fully paid up.”
Thus, effectively, Young Indian got shares worth Rs 90.2 crore by paying a
meagre Rs 50 lakh.
By virtue of this shareholding, Associated Journals becomes a subsidiary of
Young Indian.
The liabilities were paid out as an “interest-free loan” from the AICC.
On Sunday, Dwivedi claimed 700 employees had got their pay arrears due to
the loan. By Janata Party president Subramanian Swamy’s estimates, even a
firesale of Associated’s real estate assets would have covered the Rs 90 crore
liability in the books several times over, settled all employees and still have
given the shareholders of Associated handsome returns.
But, the directors of Associated thought it fit to use these resources for
development of the objects of Young Indian.
Dwivedi’s reiterated defence on the “interest-free loan” to Associated
Journals was: “It is an emotional issue for us...only Congress will decide what
is political activity for it and no other party.”
While helping employees and getting emotional is permissible, the accounting
treatment of the transactions is a little unusual, said experts. Ideally, both
the liability acquired and the value of the shares would reflect in the books
of Young Indian. This treatment is a bit different.
The books of Young Indian show the 90.2 million shares it owns in Associated
Journals under the investments column. But it does not show any value against
this. There is just a dash in the value column.
The notes to accounts explains this treatment as follows: “Since the said
acquisition is treated as application on the objects of the company(and
accordingly, treated in the financial statements of the company), the same has
not been as an investment in shares.”
The note goes on to add: “Besides, even if these shares were to be treated
as an asset (investment), having regard to the fact that the net worth of the
said company is negative, recognising the entire cost as diminution in value
would result in an equivalent charge in income and expenditure account.”
Elsewhere, the note says, “Any outflow designed to fulfill the objects of
the company, whether or not represented by an asset, is treated as application
on the objects of the company.”
Issues
What are these “objects” of Young Indian that the notes refers to again and
again? There is an answer to this, too.
“The company is engaged in activities to inculcate in the mind of India’s
youth commitment to the ideal of a democratic and secular society and provides
for application of its profits or income in pursuit thereof.”
But somehow the objects skips the original object of Associated Journals —
that of publishing newspapers. Was that intentional? Or was it just an
emotional slip?
What’s a Section 25
company?
A Section 25 company is a not-for-profit entity registered with a specific
objective. These are companies formed with the only purpose of promoting
commerce, art, science, religion, charity or any other useful objective.
The ministry of corporate affairs’ website maintains a list of Section 25
companies, which at present are estimated at 3,350.
A Section 25 company has to be granted a licence by the Registrar of
Companies. It does not have to pay any dividend to its shareholders. Any
surplus from its operations is ploughed back into the company and deployed
towards achievement of stated objectives.
Some of the common Section 25 companies are non-government organisations
(NGOs) and entities engaged in CSR activities.
Section 25 companies cannot be listed on exchanges, as there is no profit or
dividend.
Section 25 companies also enjoy several exemptions. Unlike the minimum
capital requirement of Rs 1 lakh for private companies and Rs 5 lakh for public
companies, a Section 25 company does not have to meet any minimum capital
requirement. It also pays lower registration fees. Nor does it pay stamp duty
and a company can be a member of a Section 25 company.
Section 25 companies are also exempted either fully or partially from the
requirement of voting methods for resolutions, retirement of directors by
rotation and government approval for increasing the number of directors
beyond12.
Such companies cannot obtain foreign contributions without seeking a
certificate of registration under the Foreign Contribution (Regulation) Act
(FCRA) from the Home Ministry. They are required to use foreign contributions
only for the purpose for which they are received. Norms for foreign investment
in Section 25 companies are governed under the Foreign Exchange Management Act
and FCRA.
The income of a Section 25 company is taxable and it generally enjoys all
the advantages of a limited company under the Companies Act
(This article is reproduced from BUSINESS Standard)
