Mohammadali Carim Chagla, an extraordinary man who is largely forgotten today.

Chagla was chief justice of the Bombay High Court, was handpicked by India’s first prime minister, Jawaharlal Nehru, to be our ambassador to the United States, was education minister from 1963 to 1966 and then briefly minister for external affairs in Indira Gandhi’s cabinet.

He went on to be a leading voice against the Emergency. Throughout his distinguished career, he stood for certain inalienable principles of liberty, nationalism and secularism.

Chagla saw from close quarters, the like of Muhammad Ali Jinnah to Nehru, John F. Kennedy to Fidel Castro. But lets confine to one episode, again largely forgotten today—the Haridas Mundhra affair, which was the first big financial scandal of independent India.

In 1957, Parliament was rocked by allegations that Life Insurance Corporation (LIC), under pressure from the finance ministry, had bought worthless shares in companies promoted by Calcutta-based businessman Mundhra for ₹1.24 crore—about ₹9,000 crore in current terms.

The finger of suspicion pointed towards then finance minister T.T. Krishnamachari and finance secretary H.M. Patel, both of whom denied any knowledge of the matter. Under fire in Parliament and in the media, Nehru appointed Chagla as a one-man inquiry commission.

Chagla submitted his report within a month, which must still be a record for Indian inquiry commissions. Though no direct guilt could be established, Nehru had no option but to ask Krishnamachari to take responsibility for the LIC scandal and resign. Mundhra went to prison.

The last section of Chagla’s report starts with the words: “If I may say so, without undue presumption, the following principles seemed to be established as a result of a careful consideration of all the material that has been placed before me…“

He then made some recommendations.

• One, the government should not interfere with the working of autonomous statutory corporations.
• Two, the chairman of the corporation should be appointed from among persons who have business and financial experience.
• Three, if executive officers of the corporation are to be appointed from the civil services, it should be impressed upon them that they owe a duty to the corporation, and that they should not permit themselves to be influenced by senior officials of government, or surrender their judgement to them.
• Four, the funds of LIC can only be used for the benefit of its policy holders and not for any extraneous purpose. If they are used for any extraneous purpose, that purpose should be in the larger interests of the country.
• Five, in a parliamentary form of government, Parliament should be taken into confidence by the relevant minister at every stage, and all the relevant material must be placed before it.
• Six, a minister must take full responsibility for the acts of his subordinates, and he cannot be permitted to say that his subordinates did not reflect his policy or acted contrary to his wishes and directions.

These recommendations were made in February 1958. Can anyone argue that they were wrong? And can anyone claim that they have not been extensively ignored by almost every government?

Politicians in power have routinely used the resources—in cash and kind—of public sector units (PSUs) to further their own narrow objectives.

Ability vs Loyalty

• By the 1970s, the heads of some of the largest and wealthiest of these corporations were being appointed for political loyalty rather than ability.
• Bureaucrats with no domain expertise were heading PSUs in sectors that needed specialized knowledge, and they would do the bidding of the bureaucrats they reported to.
• This was in their personal career interests, which may or may not have had anything to do with the company’s.
• LIC has traditionally been the favourite milch cow for governments. Its money has been used to shore up markets, buy useless stock in dead-end PSUs and help out crony capitalists.
• A significant part of the disinvestment figures claimed by governments has been one PSU being forced to buy shares in another PSU, which is nothing other than transferring money from one pocket to another without real economic or financial goals being met.
• On the other hand, several once-valuable PSUs have been sold off at a pittance after they had been systematically run into the ground.

Conclusion

Yes, an LIC public issue is said to be in the works, and a general insurance company is to be privatized. But there is uncertainty about when these could happen. The longer the government waits, the less money it will possibly end up raising. Meanwhile, as we celebrate 30 years of the economic reforms, Chagla’s recommendations remain as valid as they were more than six decades ago.