New Delhi/Bengaluru/Mumbai: Congress Sandesh, a mouthpiece of India’s oldest political party, has an interesting anecdote to narrate about the National Herald.

Jawaharlal Nehru, who founded the newspaper in 1938 as the voice of India’s freedom movement, once swore he would rather sell his ancestral home in Allahabad than let the Herald shut, the Sandesh website says.

“I will not let the National Herald close down even if I have to sell Anand Bhavan", is the quote attributed to Nehru about the newspaper, which was banned by the British from 1942 to 1945.

The website reproduces the quote to illustrate how The Associated Journals Ltd (AJL), the Herald’s publisher, had been in poor financial health from its early days; often it didn’t have the money to pay salaries, taxes and other dues and had to be bailed out by the Congress with loans, it says.

“The Congress Party supported AJL over these years because it believed that National Herald, a part of the rich and vibrant legacy of the freedom struggle, had to be preserved," says the website.

The newspaper did eventually cease publication, in 2008. But the close fiduciary relationship between the Congress and AJL, which also published Navjeevan and Qaumi Awaz, has shadowed the party and its top leadership for more than three years since Subramanian Swamy, a Bharatiya Janata Party (BJP) politician, filed a criminal complaint against Congress president Sonia Gandhi and her son and vice-president Rahul Gandhi in a lower court.

Swamy, who has also named Oscar Fernandes, Suman Dubey, Sam Pitroda and Congress treasurer Motilal Vora in the case, has alleged financial wrongdoing to the tune of 2,000 crore through a transfer of assets from AJL.

At the heart of the allegation is a 2010 transaction under which the Congress assigned the 90 crore in debt owed to it by AJL, and AJL’s assets, to Young Indian, a non-profit company that had been created a few months earlier, in return for 50 lakh.

This, according to Swamy, amounted to breach of trust, cheating, fraud and misappropriation of funds. He says that the Gandhis, through the transaction, effectively acquired AJL assets worth 2,000 crore through Young Indian for 50 lakh.

There are subsidiary allegations about mismanagement, the legality of a political party loaning money, and so on. In December, the Delhi high court cleared the way for the trial of the Gandhis and the four others.

As the case winds its way through the legal system, an investigation by Mint shows that the value of the assets involved in the AJL case is likely to be far lower than the 2,000 crore alleged by Swamy, although the structure through which the assets, including real estate in five cities, were transferred to a company in which the Gandhis are the majority shareholders is unusual and odd.

Swamy declined to comment for this story. He has said in the past that he hadn’t arrived at the valuation scientifically, but based it on conversations with real estate agents.

The valuation would appear to be on the basis of the development potential of the properties, although many of them are held under leases with restrictive conditions on their use.

To be sure, such clauses can be changed—and several publishers have done so—but any valuation needs to take them into account.

It’s common for owners to have the end-use of their properties altered and sell them at a higher valuation in the open market, according to Pankaj Kapoor, managing director of real estate research firm Liases Foras.

“This is a form of abuse of land usage, where potential of the land asset for commercial utilization is much higher," said Kapoor. He was speaking generically and not in the specific context of the AJL case.

AJL has five properties currently—in Delhi, Mumbai, Lucknow, Patna and Panchkula, near Chandigarh.

Liases Foras looked at the market data in 2010 when AJL’s assets were transferred to Young Indian to gauge how valuations had changed since.

AJL’s Delhi property (including its development potential) is spread over 63,750 square feet in Bahadur Shah Zafar Marg, known as the Fleet Street of Delhi. Property prices in the area have risen from 4,500-5,500 per sq. ft of land in 2010 to 9,000-10,000 per sq. ft in 2016.

This land would have commanded a valuation of approximately 28.69 crore in 2010 and now is worth 57.38 crore, according to Liases Foras.

The Lucknow property is spread across 69,610 square feet. Prices in the Lucknow area where it is located have doubled from 500-600 per sq ft to 1,000-1,200 per sq ft. At the lower end of the range, this property would have been worth 3.48 crore in 2010 and is now valued at 6.96 crore.

The Panchkula property is spread over 37,660 sq. ft and was valued at about 2,000-2,200 per sq. ft in 2010; this has since shot up to 3,500-4,000 per sq. ft. This land, valued then at 7.53 crore, is now worth 13.18 crore.

In Mumbai, AJL’s property is spread over 26,508.605 sq. ft in the suburb of Bandra. Land prices have increased in the neighbourhood from 11,000-12,000 per sq ft in 2010 to 17,000-19,000 per sq ft. The land, which would have been valued at 29.16 crore in 2010, is currently expected to fetch 45.06 crore.

Liases Foras could not arrive at a valuation of the Patna property of AJL because of lack of data on prices of the property, located in a remote area.

Two properties in Indore and Bhopal were sold for 30 lakh and 80 lakh, respectively, in the 1990s and they are under litigation, said a Congress functionary who spoke on condition of anonymity.

In short, AJL land assets were worth about 68.15 crore in 2010 before Young Indian was created and are now valued at 122.57 crore. That number is low because of the restrictive clauses on the properties.

The land deeds for these properties, reviewed by Mint, show that almost all the properties except the Lucknow plot—which is freehold—are bound by restrictive clauses.

The Delhi property, which is on a perpetual lease from 1967, carries the rider that “the lessee shall not be entitled to sub-divide the premises or transfer by sale, mortgage, or otherwise the said premises or any building erected thereon or any part thereof without obtaining the prior approval in writing of the lessor."

The Panchkula property, granted in 2012, says the land cannot be used for any purpose other than that for which it has been sold.

Similarly, the Mumbai property deed says the property shall not be transferred/mortgaged except with the prior sanction of the state government.

(Last month, the Maharashtra unit of the Bharatiya Janata Party (BJP) alleged that an 11-storey office complex was coming up on the land given to AJL in 1983 to build a Nehru memorial library and research centre in a violation of the end-use norm. Congress spokesperson and legislator Anant Gadgil said the BJP was engaging in politics of vendetta because his party had protested a plum plot being given to actress Hema Malini in return for “peanuts.")

“Most of the properties they (AJL) have are leased and the lease cannot be transferred as such. It’s a non-profit company. There is no profit-taking by anyone. I don’t know why the controversy arose at all," said P.R. Khanna, a chartered accountant who has served on the board of State Bank of India and advised Reserve Bank of India. “Is there a misuse as Mr. Subraminan Swamy said? I can’t see that."

The Lucknow property on which AJL was previously a tenant was bought for 5 lakh from the Lucknow Diocesan Trust on 13 February 1975 without any restrictive clauses.

“If there are covenants that hinder use or transfer of property then the valuation of those properties goes down substantially," said Sam Chopra, founder and chairman of real estate company RE/MAX India.

To be sure, the properties of a company do not belong to shareholders so they remain with AJL. If Young India wants to, it can sell the shares it holds in AJL to another company, says chartered accountant Khanna, but that also has to be not-for-profit company.

According to experts, conversion of debt to equity is common, but it is rare to create a non-governmental organization structure like Young Indian to route this, as has been done in AJL’s case.

J.N. Gupta, co-founder and managing director of proxy advisory firm Stakeholders Empowerment Services, said the 90 crore lent by the party to AJL belonged to the 1.2 million Congress members. By routing it to Young Indian, the control of the 90 crore moves to only the five shareholders of Young Indian, who in turn (when they transfer the money to AJL) will get access to all the property and assets of the publisher. While you can’t accept rentals and other income as an NGO, nothing prevents you from effecting a share transfer. Effectively, Young India can transfer AJIL shares to anyone else, who can sell it at a premium and make a profit, which Young Indian can’t do as an NGO.

A director of an international audit firm, who asked not to be named, said that by routing the money through an NGO, you also get access to tax exemption under Section 13 (i) of Income Tax Act.

A Congress leader who asked not to be named said the party will battle out the case in the courts. Sure, Young Indian can transfer its shares in AJL to another person or entity, but that’s a purely hypothetical scenario, he said.

“You cannot hang someone for an imaginary crime he may or may not commit in the future," this person said. “If we really wanted to do that, we would have created a straight-out private company and gobbled (up) everything. The reason why we had to opt for this structure is because nobody gains from it and the newspaper can again be revived"

Gupta of Stakeholders Empowerment Services said the Congress could have looked at simply wiping the loans owed by AJL off its books, which would have simplified the transaction.

No one can be convicted of a crime that hasn’t happened yet, Gupta said; and if there’s potential for wrongdoing, it doesn’t mean that will necessarily come to pass. And now that the case has attracted public glare, it’s unlikely any wrongdoing will actually take place.

Still, Gupta sees two issues— ethical and legal.

From an ethical standpoint, why create a structure like Young Indian when you could have simply written off the loans, he asks. From a legal standpoint, he said, the management should have consulted all shareholders of AJL before effecting the transaction.

“Congress looked at all feasible options. The notice for the shareholder meetings were sent to all the shareholders well in advance and voting was done as per the rules," the Congress leader cited above said.

The party, meanwhile, says it will revive the National Herald.

Even after being banned by the British during the Quit India movement, when its assets were frozen by the colonial rulers, the National Herald survived, said Congress spokesperson Randeep Singh Surjewala.

“The new challenge will not deter us from the path of reviving the newspaper."

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