The report in
The Washington Post dated 24 October 2025, about the significant investments made by Life Insurance Corporation of India (LIC) in Adani group entities, can cascade into a major controversy or slowly fade from public memory, just as some other event, local or global, overwhelms the public imagination.
Leaving the half-dozen financial publications in circulation and the noisy TV channels to settle the above, this column treks back in time to recount the details of one of the best remembered corporate scandals in the country, that has the unique distinction of being agitated in Parliament by an MP of the ruling party itself and costing the finance minister of the day his job!
In writing anything historical, there is little scope to be original. In fact, any infusion of originality affects the integrity of the narration. This article is based on past accounts, simply collates and summarises for the benefit of those interested in the flashback.
The details of how and why the Mundhra scandal happened are eloquently captured in the report of the Chagla commission, an independent enquiry set up to probe this matter under the chairmanship of one of the most adored jurists of the country, chief justice MC Chagla.
The commission submitted its report in a record time of about a month or so. The hearings were held in the open, attended by a large mass of the general public. Contrast this with the sealed covers that pass from the bar to the bench in many cases in the current times!
Haridas Mundhra, with little to show for pedigree or entrepreneurship, set the template for most other corporate scams that took place in the country in the decades that followed.
He pioneered the formula of raising money on the back of inflated and fake assets to continuously fund acquisitions and parallelly siphon out funds. The hope was that the acquisitions would, at some stage, gain in real value and help to square the debts!
He first acquired F&C Osler (India) Ltd which was the Indian subsidiary of a well-known British lamp manufacturer. Next, bought the controlling stakes in Richardson and Cruddas Ltd followed by Jessop and Co Ltd, both, reputed engineering concerns based in Calcutta.
In those days, the Europeans held their business interests through a managing agency and one such was the British India Corporation. These managing agencies are no different than the present-day conglomerates but operating when the regulatory touch was less than mild!
Next in line was Turner Morrison and Co Ltd which was another cash-rich venture which the British interests, anxious to exit the country, gave away at an attractive valuation.
The acquisition formula that was consistently followed can be exampled with reference to one of his key acquisitions, the British India Corporation. The shares were bought by paying its former owners Rs10 per share. Subsequently, the price of these shares was rigged to nearly Rs14 per share. Placing this as a collateral, banks were made to fund the entire acquisition by taking the value at Rs11 per share which provided the necessary margin in asset cover to fund!
In those days, Lyons Range dictated the market movements more than Dalal street! Mr Mundhra also patented the model of raising finance from multiple sources against the same collateral, share certificates.
He sometimes duplicated and, more often, triplicated the share certificates he held in the companies and offered them as security. In one case, the Chagla commission recorded that the share certificates were quadruplicated!
By the year 1957, Mr Mundhra owed nearly Rs16 crore to the banks, which, according to AI (equating the relative values of the US), would be Rs2,980 crore, today.
While this is not a staggering number, as our senses have been numbed by Reliance (ADAG), DHFL, IL&FS and the like, that took away humongous sums, it is still a sum that would rock the political system, assuming the boot was on the other foot!
The possibility of a default and the threat to the banking system was real.
Among the banks, SBI stood first in the queue, as it continues to, in most IBC insolvencies!
The finance ministry and the Reserve Bank of India (RBI) were alarmed, and searched to find a way out of this mess. The facts also came to light that the banks, in many cases, had lent against fake share certificates which gave them little legal leg to proceed for recovery.
Mr Mundhra’s financial shenanigans did not go unnoticed before it snowballed into an actual crisis. The Chagla commission recorded multiple instances when the finance ministry and RBI exchanged notes on the acquisition spree and the bank funding. The manipulation of the share market was also not lost on other business interests that viewed Mr Mundra as an upstart and his ways up to no good.
While the criminality in the raising of funds from the banks became obvious and was easily actionable, the banks were tardy to initiate any drastic action as that would have brought down the value of the collaterals even further and also exposed the black sheep within their system for collusion. Not very different from what has been happening since then!
To save the banks from the possible impact of a major default and avert a crisis among the depositors, RBI and the finance ministry turned to LIC, which was then the alternative source of funds, the custodian of policyholders’ money.
In 1957, LIC was about a year old, after nationalisation of the industry in 1956. The public sources indicate that LIC may have held about Rs500 crore of investible funds then.
The Corporation bought from Mundhra shares in some of the companies like Jessop, Richardson and Cruddas, BIC, for about Rs1.25 crore. It was actually overvalued to not disturb the prices in the market. This also led to further market manipulation, with this being set a benchmark value!
The commission’s report details, date-wise, the exchanges and the parleys that preceded the actual purchase of the shares by LIC.
The finance secretary and the RBI governor were the key actors. Meetings between Mr Mundhra and the finance secretary in the Bombay office of RBI are mentioned. In those days, the finance secretary had a special room to function from in the RBI building!
In terms of the details, LIC’s investment was based on a business plan that Mr Mundhra presented for the revival of the businesses and to repay all the debts.
The investment by the LIC in Mundhra companies constituted then its single biggest investment in any group and was no insignificant portion of its overall portfolio.
LIC’s rescue act triggered a major political debate of the common citizens’ funds being squandered to rescue a foundering businessman.
Cronyism, as mentioned these days, was very much bandied about. Parliament was rocked with members of the ruling party raising the matter which led to forming a commission under justice Chagla, whose credentials for a totally independent enquiry, were beyond any political reproach.
The key actors, the finance minister, the finance secretary and the governor RBI appeared before the commission and were examined for their version of the story. The key question was whether the purchase of the shares by LIC was in the public interest or to favour Mr Mundhra.
The commission came to the conclusion that it was the latter. Mr Mundhra was a donor to the Congress party!
The finance minister resigned in February 1958, once the Chagla report was made public.
The subject did not end there. Another committee was set up under the All-India Services (Discipline and Appeal) Rules, 1955, to specifically examine the roles of the two ICS officers, being the finance secretary and the chairman of the LIC.
The report of the enquiry done by justice Vivian Bose was never published, but it concluded that the finance secretary should be removed from service and the LIC chairman, compulsorily retired.
Both these recommendations were not accepted by the UPSC. It held the FS was not directly responsible and the LIC chairman to be only administered a censure.
Though the RBI governor did not directly come under fire, there was a shadow cast by the report of the Chagla commission on the veracity of the evidence tendered by him, as the attorney general had raised doubts on the same.
Interestingly, the finance minister, who retired to the hill station, Kodaikanal, was in correspondence with the RBI governor at a personal level.
The governor’s reply to his former boss in a letter exchanged (extracted from public source) in August 1958 brought out his dismay and detachment -
“You have asked about the boycott in Bombay. Quite frankly, I have ceased to be interested in it and I have ordered my life in such a way that I could not possibly care less. I do not think I have accepted a single invitation from any business magnate since January and it seems to be generally known that I am averse to accepting such invitations. I feel much happier because I am getting a great deal more time which I devote partly to reading economic literature and partly with my family; the latter is a pleasure which I have unfortunately denied myself for many years.”
While, the resignation of TT Krishnamachari as the finance minister is the most remembered outcome of the Mundhra scandal, the dent to the reputation of two high-profile civil servants is less remembered.
HM Patel, the finance secretary (later FM), and HVR Iyengar, the RBI governor, were clearly exposed by the commission’s findings though a direct indictment did not happen.
Today’s generation knows Mundra as the country’s first private port, the largest container port and the biggest commercial port located on the northern shores of the Gulf of Kutch.
So much has changed and yet so much remains the same in the political culture and the probity in public life in the journey of the 70 years from Mundhra to Mundra!
(Ranganathan V is a CA and CS. He has over 44 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as a senior advisor post-retirement, handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
By your own submission, the stock market was easily manipulated in those times and these companies got 1.25 crore against a "problem debt" of 16 crore. And those values were invested at far above market price - something I conclude by reading your vague article, but it seems to suggest so.
Do a simple comparison with LIC's investments in Adani - how much of it has been losing money v/s earning a profit, was the investment done in stock markets at market price or via a private placement at ridiculous prices, what % of LIC assets or Adani's market cap are we talking about, was Adani so desperate to need money only from LIC when the investment happened that it would have been keen to pay bribes to get that investment or it could have received the same investment elsewhere - I would like to believe there are still enough investors in Adani and they don't need to bribe LIC.... and even if they did, what impact did it have on the share price or on cash balances of Adani group? Nothing I assume.
I would strongly urge that this CA and CS should spend some time doing real research and think before he writes total nonsense most of the time. And even if you want to write nonsense, at least provide proper reasons and facts for your accusations rather than a fun line like "mundhra to mundra"
If there is no Public Accountability,nothing is going to change,it is just another loop going on.