Chocks: Life Insurance Corporation of India

Life Insurance Corporation of India - LIC

Synopsis

Life Insurance Corporation Act, 1956
First "1 Crore" Financial Scam
Conclusion
Tit-Bits
Reference

Life Insurance Corporation Act, 1956

Oriental Life Insurance Company was the first pre-Independent Indian company to offer insurance services. Later, in 1907, Surendranath Tagore (of the Tagore Family) established the Hindustan Insurance Society, leading to the growth of various insurance companies in the sector. Until 1956, the insurance sector was not regulated by the government.

Later, on 6th December 1955, in Parliament, Feroze Gandhi demonstrated that Ramkrishna Dalmia (of the Dalmia-Jain group), serving as the chairman of a bank and insurance company, had exploited his position to embezzle Rs. 22 Lakhs for the acquisition of Bennett and Colem (Times of India Newspaper) in 1947. Ramkrishna Dalmia was found guilty and sentenced to two years in jail. Following Feroze Gandhi's compelling speech on the Dalmia-Jain group scam, the Government of India enacted the “Life Insurance Corporation Act, 1956” on 19th June 1956, nationalizing various insurance firms under one umbrella as LIC.

Sixty-four years ago, the act laid the foundation for LIC on 1st September 1956, with the tagline "Your welfare is our responsibility." Indians are renowned for saving from their earnings, with insurance being their preferred choice. There are different types of insurance plans, including Life, Term, Endowment, Retirement, and more. It is essential to note that the insurance sector was nationalised in 1956, even before the nationalisation of the banking sector in 1969.

First "1 Crore" Financial Scam

India’s first major financial scam was termed the 'Mundhra Scandal,' which involved Haridas Mundhra and LIC. Haridas Mundhra, an industrialist from Kolkata with a Rs. 4 Crore empire, was discovered to be selling forged shares. He was indicted by the Bombay Stock Exchange in 1956. However, in 1957, Haridas Mundhra persuaded the Government of India-owned LIC to invest Rs. 1.24 Crores in six of his troubled companies: Richardson Cruddas, Jessops & Company, Smith Stanistreet, Osler Lamps, Agnelo Brothers, and British India Corporation. These investments circumvented the LIC Investment Board due to pressure from the Government of India.

On 16th December 1957, Feroze Gandhi, the son-in-law of Prime Minister Nehru and a Member of Parliament from the INC, raised this issue in Parliament. He accused the Finance Ministry of pressuring LIC’s investments and claimed to possess evidence related to the matter. Feroze Gandhi questioned the use of premium payments from 55 lakh shareholders by LIC to invest in Haridas Mundhra’s troubled companies, purchasing shares at above-market rates. In return, Haridas Mundhra allegedly donated money to the INC party members on multiple occasions. Following these statements, Prime Minister Nehru established a one-man commission of inquiry, managed by BMC Chief Justice M.C. Chagla.

The hearings of the commission were conducted in public. Members of the LIC Investment Board confirmed that the investment could not have been made if the Finance Ministry had consulted the Investment Board, as they would have pointed out Haridas Mundhra’s forged shares event from 1956. After all the hearings, M.C. Chagla filed his report within 24 days, accusing Haridas Mundhra and Finance Secretary H.M. Patel of roles in the scam. The commission's report compelled T.T. Krishnamachari to resign from his post as Finance Minister on 18th February 1958. Haridas Mundhra was also arrested and sentenced to 22 years in jail.

Conclusion

It is crucial to acknowledge the role of Prime Minister Nehru in allowing transparency and speed in the commission's proceedings, facilitating the imprisonment of the guilty. In modern India, many political cases linger for years, with the accused moving freely. I express the hope that the same transparency and speed witnessed in the Mundhra Scandal will be evident in present and future scandals.

Readers might contemplate the use of the word 'future.' I posit that civilizations are inevitably marked by both 'good and bad' aspects, potentially giving rise to shameful scandals. However, it is equally imperative for the government to take legal actions swiftly and transparently in response to such scandals. The government and the courts play a crucial role in bolstering people's trust in the justice system, ensuring that justice prevails—meaning the guilty will be punished, and the innocent will be freed.

Tit-Bits

The Dalmia-Jain group initiated the establishment of a cement factory in the Tamil Nadu region, leading to the renaming of the township Kallakudi to Dalmiapuram after the construction of the cement factory. On 15th July 1953, DMK Leader Kalaignar, at the age of 29, along with several colleagues, launched a vehement protest against the renaming of Kallakudi to Dalmiapuram. Kalaignar and his colleagues lay down on the tracks, blocking the trains. They successfully removed the name Dalmiapuram from the railway station, restoring it to Kallakudi. The Kallakudi agitation propelled Kalaignar's political career to new heights, accompanied by the iconic song "Kallakudi Konda Karunanidhi Valgave" by Nagoor Hanifa.