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REPORT
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OF THE

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COMMISSION OF INQUIRY
ON

MARUTI AFFAIRS
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MAY 31, 1979 NEW DELHI

CO~IESTS

I STROllUCTION

(iii)

Otcnh I ar'\d :! nf Tcrnb of Reference)


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l1111i;itit111, pi 1)\.'.t.''"ini; and clearing of r-.taruti C<1r Projecl : Te!iotins: and clcaran1.:c of lhc prototype car
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1-25

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Acqui .. nion anJ allo11nent of land lo ~1.aruti Lin1itcJ: location of ~faruli 'on1p.Jex of buildings at hs JHC\C'll( )itc
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R:ti,ins nf capital, '~1)rking carii1al and other financial re~ouroc) anJ their utili:o,ation by 1'ifaruti Lin1i1cd, ~Liruli Ttd111ic;1I Senk.'-'.~ Privalc l.i1niled, and ~1aru1i tlc;l\y Vchicks Private Limited
{ltc1n 5)

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Appoinllncnl vf de:ilcn, collection of dealc:r~hir n1oncy .and ib i:u~toi.1} aJH,I u1ili:-a1icn by the f\1aruti
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68-75
(Item 6J

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A&reocn1C,Jlt5 entered 111to by and bct\\Cen !he

~1aruti

concerns

76-82

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(Itcni" 7, 8 and 9)
CllAPff:K VI

fr.1ns.,...-:tion!> regarding !>ale of 1nountcd t.rane:, 1 truck tractors, road roJicr!i and building of bu:, bodic!i between f\{arutJ concerns and \'arious State Go\ernmcnts, public sector undertakings, Slatutory
cor~orations,

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local bodio~ etc.

83--106

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C11,APre1l VII
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lllcm 10) 1\llotmcnt of controlled conunoditics like cement, steel and coal to Manui Limilcd and their utilisation/d isposa I
(Item 11)
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107-114

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Securing of loan~ by ~faruti concern:, from nationalbcd banks (Item 12)

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CHAPTER

IX

Foreign collaboration agreements entered into by Maruti Limited and jmport licences is~ucd to Maruti Tt.."Chnical Services Pri\'ate Limited Conclu:,ion

130-140

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l:\TRODCCTIO:\ Ill' notilication No. S.0. 375(E) dated the 30th I 977 the Central Government appointed a Commission of Inquiry for tlw purpo>c of looking into the affairs of the following Man11i concerns :
(i) Messrs :-.,. Jaruli Li1nitcd. a co1npany fonncd

The Anncxurc to the notification lists thirteen matter<, I lw thirlc'cnth item reads : "All matters in relation lo items 1 to 12 pertaining to the role and part of any Director or Managing Director of the said Maruti concerns, or any friend or associate of such Dirr.ctor or Managing Director, and all the fa:ts and the circumstances relating to cases where any C:iroct or indiro.!ct advantage was taken of any relationship or connection of any such Director or Managing Director with any Minister or other public servant as well as the role of any person who directly or indirectly aided or assistell in the taking of such an advantage".
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and n.:istc1\:U under the (~oJnpanics 1\i:t. 1956 (I of 1956) and hul'ing its regi>lc'red
otl1cc at P1.1lam-Gurgao11 Road,
Gurg~1on,

(Haryana); (ii) Messrs Maruti Hca\'y \'chicks ( l'ri\'atc I Limited, a company formed and registered under the Companies Act. 1956 (I ol i9:"61 ;1nd having its n:gi..;tc..n:d otlicc at 138-B, New Colony, Gurgaon (formerly, J>alamGurgaqn Road, Gurgaon) ; (iii) Messrs Maruti Technical Services ( Privat~) Liznitcd. a con1puny forn1ccJ and n.:blt.:rcd under thc Compnnb Act. I '15<> (I of 19~6) anU having it\. ri:gi~h:n.:d llllicl! ;it 1::-49, Kirti Nagar, Nc\v Dc..lhi.
'[he lcrnt:, of rcfcrcncl.! of the
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No. 13 is th..:rcforc not a

~cparat~ 111attcr for

inquiry, it really amplifies the scope of the preceding twelve items. In August 1977, after the Commission was allottc\I an office accom.modation, it issued a notification as required by rule 5(2J (b) of the Commissions of Inquiry (Central) Rules, 1972 inviting individuals, companies, corporations, societies and other persons acquainted with the subject matter of the Inquiry to furnish to the Commission a statement of facts s~pportcd by an. allidavit. Subsequently the Commission issued nouccs to the shareholders of Maruti to Limited to .furnish relevant information in reard 0 their holdings or points mentioned in the notice. Notices seeking_ ii!formation Qn specified points were also sent to certam Government Departments/ofliC<'s/ Organisations in respect of certain contracts and trun sections entered into by them with the Maruti concerns. The Commiion framod rules to regulate its procedure and also. t<> regulate inspection vf docun1cnts. by th< parties. The <;ommission of Inquiry on Marutr Affall"< CRcgulauon o! Procedure) Order 1977 and the .Commission of. Inquiry on Maruti A(fairs (Regulutton of lnsp~ctmn of Documems) Order 1977 were published incorporating these rules. ' The Commission heU 11 I public dttings between Decef:llber 16, 1.977 and February 16, 1979 and

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frame<) as follows :
" ( u J to inquire into tht! 1110.Ht~rs sp..:;..!fJ;.;d in the Anncxurc to this notification in relation to th\! co1Upi.11li\!s ind lirn1s spcciJi..:d in the foregoing paragraph to asc...:rtain \Yh1.:thcr.

in order to show any undue favour, or to cause any undue pecuniary or other benefit to accrue,. to one or more Maruti concerns, there was any abusl! of po\ver or position or contrHvcntion of l:i\v or lh.1n11iil o/Jh.!:11 procccJurc. by, or on the part of, any person in authont.y,_ or any other person 1datcd to, or. associated \vith, such person in auth~:mty, or "!'Y othsr high oJlicial or public sl!rvant 111 rt:-h111on to ~ill nr nn\ llf the n1att.crs sp~cifkll in the 1\nncxurc 10 thi" notlflcut1011, and ii l<iO, the facts and L:irl.!u1nabuse uf p<HVl.!r, po . . ili~Hl or co1ltrU\'!.!iltion, the c.~tcm. llf involl'cmrnt of, or impropa ~ccu!1.'.ary bcnelit derived by, any person ,1forcsatu, .inu the extent of undue fa1"11ur sho\Vil. by ~uch pcr:o>on to one or 111orc of the sa.u.l companies or firms and the undue financial. or otl_H!r benefit accruing to such
con1pa111cs or !Inns bv fl.'i.l~on qucncc. nf ~.uch fi1\oi.1r; and '
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(b) to. i11yuir1.: inlll any 11lhi.:r n1at!l.r \1liich <tri,c ... frun.1 nr i. . 1..on1h:1.11.:d "ith 111 incilh.:ntal to an~ ai:t. on1i~~ion t)f 1ran . . a1. :tio 11
referred to i11 th~ 1\1111c.xurc aft'l"l..'~aid.

examined 0 -~8 \\'Hncsses,. s?mc of who.n1 ca1uc n1 ore than one~. ~ h~ Con1n11~~1on ~tI~o pt4rusc<J about 711 afltdarns fikd by different persons and ;drogcth_cr about 2.UUO files of the Central and tiJ, S~at( C10\'('r111.nents. ~ll~ \'arious other institutions and "'':ltuto!Y. bod1c~. ;\<?tices under ~..:ction SB of th~ lou11n1ss1on, ol Inquiry r\Ct, 1952 \\'Cr~ issued 10 JC1 ptrsons. In l'l.'SJHHl~1... 29 of lhl'lll fih:d ~li.11('/lJC!ll:'
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supported by affidavits, and one replied by a telegram; some of these statements however came late, after the public sittings of the Commission had ended.

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Copies of some of the documens referred to in the rep.m and a list of the names of the witncssos and those who filed affidavits are included in an appendix (in four parts).

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Of the first two items in the lisl of mailers f~r inquiry specified in the .terms of reference of tlu' Commission, the second is really a part of the first. The first item covers :

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"All matters pertaining to the initiat!on, prc:cessing and clearing of the Marut1 small car project includini: :
(a) the comparative merit of the Maruti c.ar

The idea of a low cost passenger car, sometimes described as the "peopl~'s car" or "small. car", had been under consideration of the Central Government for a Jong time before Shri Sanjay Gandhi came on the scene. For years the Oovern.ment bad, been trying to decide on a de~nitc pohcy reg::irdmg the automobile industry. A brief survey of this prc;ito,ng<'<I exercise will be useful for a proper. apprec1ahon of the circumstances relating to the clearing of the Miiruti small car project. In 1959 the Government set up a committee .u.nder the Chairmanship of Sbri L. K. Jba, then Add1t1onal Secretary Ministry of Commerce and Industry, to examine,' among other things, the feasibility of pre;> ducing in this country a low cost passenger car wuhm the price range of R;;. 5,000-Rs. 7,000. There were then three existing manufacturers of passenger cars : Hindustan Motors Limited of Calcultll, Pr~mier Automobiles Limited of Bombay, and Standard Motors Products of India Limited of Madras. The Jha Committee submiued its report on January 25, 1960. The main conclusions of the Com:mittee on this topic, which the Government accepted, were that there would be sWJicient demand to sustain the economic production of a low-cost car but there was little pros pect of the price of any of the passenger cars then being produced coming down to the level o! Rs. 5,000-Rs. 7,000 and that, to have a cheaper car, a more modest vehicle would have to be chosen. To consider whether it was feasible to !llllnufacture a low cost car,. available for about Rs. 6,500 inclusive of all charges, Government decided to appoint an Expert Committee that would examine the matter at technical levels. It was also decided that in case the Expert Committee considered it feasible, the project would be undertaken in the public sector. An Expert Committee under the Chairmanship .:if Shri .G. Pande, Vice-Chancellor, Roorkee University, was appointed in October 1960. On the bast~ of the proposals received by the Jha Committee and the data collected subsequently by the Ministry of Commerce and Industry, the Pande Committee wrote 10 thirteen foreign manufacturers and Hindustan Aircraft Limited, Bangalore, asking them to indicate whether they were interested in collaborating with the Government of India in setting up a production unit in the- country. On an overall assessment of the detailed proposals received from some of . these manufacturers, the Committee concluded that if the Renault "Dauphine" model of M/s Regie Nationale des Usines Renault of France was selected "the objective which the Government have in view 'will be achieved". On, the proposal of Hindustan Aircraft Limit~d. Bangalore. who were trying to. develop an '.'indigeno~~ car", the Committee was "greatly impressed by the attempt but thought that ."the development of a new design o( passenger car is,

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project vis-a-vis other claimants for a licence to manufacture a 'm~ll car, (b) the preference, ~ any, sho~n to the said Maruti car proiect and, in case there was any such preference, the reasons for the preference shown and its justifiability". The Maruti car project was cleared . whe~ a liecnc~ to manufacture cars w~s giyen to Shr1 s:uiiay. Gandhi who had applied !or 11. The second. item mcludes "all matters relating to the pro))"r tesung and clearmce, by the appropriate authority, of ,!h~ pro!otype Maruti car and its parts and components Obv1ously, it was only after proper testing of the prototype that the Maruti small car project could be clear:<' The second item thus relates to an aspecl of the wider c~n 1ent of the first. I therefore propose to deal with these two' matfors together in this chapter. On December 11, 1968 Shri Sanjay Gandhi applied for a licence under the Industries (Development and Regulation) Act, i 951 for the establishment of a new industrial undertaking to manufacture motor cars. He named the undertaking, which was to be a public limited company, Maruti Limited. From a letter written by the Assistan' Secretary, Rolls Royce Mot= of England in answer to a query made by this Commission; it appears that Sanjay Gandhi had been in the employ of Rolls Royce Motors as special student apprentice for about three years from August 31, 1964. The special student apprenticeship was of four years dration. Following the "normal practicc for student apprentices", . Shri Gandhi "attended the local Technical College on a day-release basis (I day each week) throughout the three years he was with the company" and "received an ordinary National Certificate in Mechanical Engineering" on passing an examination in June 1967. This was "a relatively minor qualification and two years further study would have been necessary for him to obtain a significant academic qualific,ation, which would have been a Higher National Certificate". Howe,er, Shri Gandhi did not complete the special student apptcnticeship. His apprenticeship ended in July 1967, and be finally left the company's employment in September 1967.

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however, of necessity a lengthy process" and that "it would he wholly inadvisable 10 consider the establishment of a plmll for the production nf such a car" hccuu~c "110 one can \Vith any cartainty. predict the 1i1uc tluH nHty be ncccs~ary befnrc !he de:i,ign is fully ::nd Siltisf,u:tnrily estahlish1..d for 1nass production".
Pandc (\Hnrnittcc's n:porl \\'as considered hy an Ad hoc Committee qf Secretaries and. it was decided to hring 1he matter before 1he Cabinet. The Planning Commission and the Ministry of Finance (Department of Economic Affairs) who \\WC asked io comment objected to the project mainly on the ground of the foreign exchange position at the time. The Note prepared for ll~e Cabinet sought directions as to whether the low cost car project should lie taken up for implementation and negotiations with Renault resumed having regard to the views expressed by the Planning Commission and the Ministry of Finance. Consideration of the note was however postponed by the Cabinet in view of the "foreign exchange situation". Shri C. Subramaniam, then Minister of Steel and Heavy Industries, made a statement in the Lok Sabha on August 9, 1962 that "th~ small car project could not he moved up in the list of priorities and for some tim~ to come the priority in the field of automobiles should he definitely and overwhelmingly in favour of the manufacture of commercial vehicles for 1he transport of goods and public passenger transpon and tha1 Government have to defer consideration of the 'mall car project till more propitious conditions".

thought of in this context. a cons!deration o~ the different issues, the Sub-Committee ultimately decided that a rnmprchcn~i\'c paper scttin,; Oll all t~e rcfovant point' ,huuld be placed bdorc the. Cabmct. Tbc1 Cahinct met on July 28, 1%6 to ~ons1der !h_e summary pul up h)' the Ministry of lndu>ry. Whd: a dcfi!lt!C decision in the matter was defcrr,d, th<; Cabinet destr!!d that the possibility of .setting up in.d1gcnous _capaci~y in the private sector might be exammed provided this could be done without any import requirement or requeM for foreign exchange. fhc subject of small car came up lor Half-an-Hou~ discussion in the Lok Sabha on August 5, 1966. S~n H. C. Unga Reddy (Chikballapur) made a scathing attack on the Government for their indecision : he criticized the Government for not allowing the State Governments to proceed with the small car project and appealed to the Government to decide between taking up the project in the public sector or allowing the State Government of Mysore to start the manufacture of small cars within the price range ot Rs. 7,000-Rs. J0,000. The member was referring 10 a proposal from the Mysore Government based on u protot)pc car developed by the Hin~ustan ~eronau tics Limned. Another member. Shrt Joachim Alva ( Kanara) questioned the wisdo1!1 of entrusting th.e production of small car to a pnvate party. In hts reply. Sliri D. Sanjivayya, Minister of Industry, made a categorical statement that if the Government was .not able to take up the project "in the Central sphere", i! would "certainly consider the Mysore case" and "then only we will consider, the private sector".

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Criticism ho1V1.""Ver grew in Parliament and outside about the inadequate supply of pasesngcr cars in rcla tion to demand and their inferior quality and high prices. One aspect of the criticism was that the Government was "helping in this manner the monopolist in1ercsts to grow in the automobile industry and leaving it entirely in their hands". (Shri Bhupcsh G1ip:a's speech in Rajya Sabha on August 27, 1962). While in the third five year plan, the target fixed was 30,000 cars per annum, the production w~s well below that level and the demand was estimated to be inuch In excess of 30,000. The Working Group on Transport Equipment had estimated that the demand would be about 80,000 cars per annum by 1970-71. Consultutions ht'ld by the Ministry of Industry with the existing manufacturers failed to find a solution to the problem-how the increasing demand could be met consistently with the public expectation as to prices nnd quality within the limitations of the prevailing conditions. Jn the meantime the Ministry maintained touch with some of the foreign parties who had shown interest in the small car project in India but it was not possible to go beyond the stage of preliminary diS'-1lS sions in the absence of a definite policy. The advice of the Sub-Committee of the Economic Committee of the Cabinet on Key and Basic Industries was sought in this matter. The Sub-Committee met on August 25, 1965. The meeting was attended among others by Shri T. T. Krishnamachari, Minister of Finance, and Shri T. N. Smgh, Minister of Industry. A proposal for exploring tho possibility of locating a small car, that is, a low cost passenger car, project in the private sector was discussed in the meeting. This appears to be the first time when the private sector was seriously

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s. R. Kapur, Under Secretary in the , Miiilstry, elaborated the i!llplications of the Cabinet dec~ion of Juh' 28, 1966 in his note dated August 17, 1966. According to this note, the scheme as approved J>y the Cabinet implied that it should be based c<impletely on indigenous efforts involving no import of papital goods, components or n1w material. The note, sald that even if some parties were prepared to make ' their own arrangements to meet the foreign ~itchange C'Xpendit.ure involved in the import of any r~uin:d item, sueh a scheme should not be entertained . ' All .the SCbCllles In hand at that time including th1' Ollll fnlm' tho Mysore Government ond another from Mysore State lndtilll:rial Investment nnd Development CorpOratioii' Lll!lited envisaged foreign exchange expenditutefo,ritjie iril,P0'1 of capital goods as well as compo11ents' a11d , raw matertals. The note added : ' ,,',_ " , . - --_:_. '!",hi.';.-!-~n; ,;-,;.,: -~ '"It is inconceivable that at the: present Istage of our industrial developmeot;.:'aJ!"indigeni>us' industry would be in a position'toisupply all the special purpose mcbinc&tquirecin'fcir the automi>bile indiJslrY~r:r:Similarly: wci arc not yet sclf-sullicicnt either in' regard :to components.or raw matcrials,t.wilh, the result that even car inanufacturing: units,;: which had bcCn functioaillg for .the: last several years arc still dcpc:ndant on im~ccim poncnts/raw materials, the value cof, Which. is
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It was doubted whether any useful pwposc would be served by the M"misuy in exploring the possibility of

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selling rp such completely indigenous capacity eilher in the State sector or in the private sector. The note however sugtcstccj that the parties who had alroady shown intere-i might he wrillcn 10 on the basis of tho
decision and tlHLt if a worlh\1/hilc schanc fron1

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the Mysore Government was forthcoming, it might be t!i\'l'll lirst consideration as as~urcd bv the Minister of Industry in lhc Lok Sahha en August\ 1966. Orders were sought as to whcll!or the Ministry's appr,,ach lwuld be confined to these parties and the cxlstin~ cnr manufacturers or whether a fair chance should b~ giv~n lo cvi;ryone. in the .~ountry by issuing a publk notice on tlus subiccl. Shn R. V. Suhrahmanian, then Joint Secretary in the Ministry, expressed the view lhat proposals from the Staie Government organisations >houkl b~ considered firs1, then those from the private 'ector un11s, and lastly the proposals of the cxisthJ" automobile manufacturers. Shri N. N. Wanchoo, wh~ was then Secretary, disagreed with the Joint Secretarv us regar~s entertaining any proposal from the existing auto!11ob1lc. manu(acturers. He was afao against issuing pubhc notlc~ which he thought would only invite "wild cat schemes". The procedure of invitin~ ap(>licution~ is ~ontemplatcd in rule 14 of the Reg1strat1on und L1ccnsmg of lncjuslrial U?dcrtakings Rules, 1952, ftamec,i . under the lndustnes (Development and Regulal1on) Act, 1951. The rele-vant rule is as follows : "14. /11vitatio11 of app/icatio11s.-(1) The Ministry of C?mmerce .a~<l In.<lustry or the authority app".mtcd hy 1t 111 this behalf may, whcr~ it con.s1dcrs n~cessary. invite, by means of a notice published 111 the Gazette of India applic.nlions for the grant of Licences for th~ ~stabhshmcnt of ~cw industrial undertakings 111 any scheduled mdustry. (2) An application rc-ceived under rnbrulc (I) shall be dealt with in the manner laid down in rules IO to 13", Rules. JO !O 12 lo which rcforcncc will be necessary latct 111. this chuptet, ate not relevant in this context. S. R. Kapur:s note h_ owcvcr made it quite plain 1hat 1ry any case it w,as to be an exercise in futility. The Vic~ expressed m Kapur's note was echoed by Shri Sa111lvayya, Minister of Industry, in Rajya Sabha on Augu~t 25, I 966. Replying to Rajya Sabha Starred Oucsl!~n No. 666, the Miniskr said that while effort was berng made to ma~imisc the indigenous contents of the car manufacture m the country, it was difficult to say when a car with cent per cent indi"enous content could be manufactured in India and at"what price. On Scptc,n1b~r I, 1966 Shri S. R. Kapur wrote t0 all .the parties 111 the country who had earlier sent in thc1~ proposals i:equiring them to submit revised detailed schemes to show that they were in a position 0 ! undertake manufacture of low cost car without any 1 ~1ports. whats~cvcr or request for foreign cxehancc. either lor. capital_ eql'.ipmcnt or for components and raw matcnnls. 1 o this letter there was no reply from many of lhC'Sc parties including the Government of Mysore, lndustncs and Col!lmerce Department, and Mich proposals. as were received from a few of them
5/8 HA/79-2

did not conform to the requirements of a totally indigenous car. In this connection the Dir~torate General, Technical Development, DGTD for short, a11 establishment under the Ministry of Industry, pointed out that there was little possibility of any firm in India at that time being in a position to ma.nufacture cars without imponing special purpose machines or without involving foreign exchange expenditure on the import of various categories of special steel and nonferrous metals. Jn their opinion foreign exchange "ould be needed not only on capital account but also for maintenance r.eeds( 1). The scepticism expressed by Shri S. R. Kapur in bis note of Au11ust 17, 1966 hardened to a definite stand for rejection of the proposal to establish a new unit in his subsequent note recorded on January 21, 1967. Herc his suggestion was for allowing the existing manufacturers to expand. The Fourth Fivr. Year Plan capacity and production target for passenger car industry was then fixed at 50,000 cars per annum. and the capacity already installed in the three existing car tnanufacturing units in the country was 30,COO cars a year. It was contended in the note of January 21, 1967 that the gap of only 20,000 cars per annum was not enough to justify the establishment of a new unit and therefore the idea should be abandoned and proposals for the expansion of the existing .car manufacturers considered. Shri R. V. Subrahmanian endorsed the suggestion for allowing thet existing manufacturers to expand to the extent their resources would permit. He also saw little scope for the establishment of a new unit for the manwacture of cars, whether in the public sector, Central or State, or in the private sector. Shri N. Subrahmanyam, Special Sccre1ary in the Ministry of Industry, -also accepted the suggestion. A draft summary was then made for the Cabinet which was more or less a replica of the notes prcpar.:d by S. R. Kapur. From the notings in the file it appears that the file had gone to Sbri Fakbaruddin Ali Ahmed, who was the Minister of Industry at the rime, and had rcmained with him till May 19, 1967 when it was returned with the noting : "This may be returned. I have discussed with Joint Secretary". After this, the draft summary was not heard of again ; why .it was withdrawn before it reached the Cabinet
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In the meantime several parties came forward with their small car schemes none 'f which, however, satisfied the conditions laid down !Jy the Cabinet, namely, that the scheme in the privt.te sector should not be based on any imports or involve request for foreign exchange. The note prepared by S. R. Kapur on . May 4, 1967 on these proposals stated that unless the Cabinet took a final decision in the matter, it was not possible to pursue the proposals. One of the proposals rcceiYc<l was from Shri P. M. Reddy, sponsored by the Mysore State, for the manufacture of Japanese Mazda car in India. Ultimately, after deliberatiom a questionnaire was prepared and sent to all the parties who had come with proposals both foreign and Indian. A reading of the questionnaire discloses that it was not meant for exploring the feasibility of manufacturing low-cost car in the private sector without involvement
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of foreign r.xc:1ange expenditure._ or i~port of capi_tal goocjs, components or ra~ matenals ; it sought.specific infonnation on the techrucal aspect of the pr?iect and also on such matters as foreign collaboration, t~port.cd machinery, raw materi?!s ct<;. The quest1onna1re sought details as to how the proicct s~ould b~ finance;I for foreign exchange, details of foreign capt!a! p~rt1cipation, if any, and. the extent of. s!1ch part1c1pattc;n . Shri Fakharuddin Ah Ahmed, Minister o( lndustnal Development and Company Affairs, answering ;: question in the Rajya Sabha on July 27, 1967 said that while the Govcrnment was anxious to explore all the possibilities of manufactuf\ng a cheap car, i~ wo:ild be their endeavour to have tt as far as possible in the. public sector. The replies to the questionnaire received from thC' various parties were examined by a departmental committee. The committee found only two of the schemes worthy of detailed consideration, one ~ubmitted by Renault of France for manufacture of their R-4 or R-1 model, and the other, proposed by the Mysore State Industrial Investment Development Corporation, for Mu;.da 800 in collaboration with M/s. Toyo Kogyo of Japan. The committee preferred the Renault proposal. The Tariff Commission instituted an inquiry under section 11 (e) read witli secti'?n 13 of the i:arift'. ~om mission Act, 1951 and considered the desirability of a new unit for manufacturing passenger cars. From its report, submitted on March 16, 1968, it appears that the Tariff Commission did not consider it advisable or desirable to set up a new unit in addition to those already in existence. The Commission was of opinion that "there is no possibility that such a new unit can be set up with entirely indigenous resources based on indigenous standards and spe<:ification". One ot the members, Shri K. T. Merchant took a different view and in his note ot dissent observed : "The proposed project for a new unit for small car (in private or public sector), if rightly and carefully selected, might provide the i ntcrnal competition tho' seems to be so badly needed". However, Shri Mcrchallt also thought that a purely indigenous car was "yet a distant dream". On the two prima fade rea,iblc offers approved by the Departmental Committee, Shri R. V. Subrth manian, Joint Secretary, prepared a. self-contained note which reveals the departmental committee's preference for Renault over Mazda, and sent it'to Shri K. 13. Rao, Adviser (Industry and Minerals), Planning Commission. It appears that en July 2, 1968 Shri K. B. Rao forwarded to R. V. Subrahmanian a detailed report on the expansion of car production in India prepared by the Premier Automobiles Limited. fhJs report came up with a new proposition for manufacture of Fiat 600D model which, according to the report, would cost only Rs. 9,000 C'X-factory at the current level of produclion. This price was expec1ed to be progressively reduced to Rs. 8, l 00 when the production level reached 40.000 cars per annum. In a note sent to K. B. Rao on July 12. 1968 Shri R. V. Subrahmanian conveyed the view of the Ministry of Industrial Development that there was reasonable ground to assume that the demand at the end of the Fifth Plan would increase hctwc"n 80,000 to 85,000 c~rs per year. which was ~dcquate to sustain a new umt,. and that 1t was hardly possible to achieve a total capacity of 80,00~ ~o 85,000 cars per year by fuller utilisation of the eXJSting c;ap~ city or by marginal expansion of all the thre~ umts .m the country. The note added that a~ expansion o~ Me existing units was not likely to result m any apprec1ahle reduction in the prices of the cars. While the policy was still undecided between the public sector and the private ~~tor, v.:hether a new unit was to be set up or the ~XtSttng uruts wer~ to be expal'.ded Sbri Sanjay Gandhi returned to India after his apprdnticesbip with the Rolls R~yce M~tors . of England bad ended. On his return S~n Gandhi ~us1cd himself trying to build a small car in a shack ID the Gulabi Bagh area of Delhi. Sometime in August 1968 Sltri R. V. Subrahmaoian, Joint Secretary In the Ministry of Industrial Develop~nt hand~ over a preliminary project report of Shri Gandhi s small car venture to DGTD for scruthty. DeJ?Osing before the Commission Shri R. V. Subrahmaman could not remember how the project report which be made o.ver to DGTD came to him. Another COP,Y of the P.roiect report was made over to the ~laonmg C01111D1ss1on. 11tere is a note on the proposal m the Planlllng Commission file No. I & M 4(3)/10/66, (Note file pages 49 to 56) recorded by Shri R. Venkataraman, Member (Industry), Plar.ning Commission on ~tember 9, 1968 which reads : "Herc is a proposal for a cma1 1 car manufacture. This may be analysed and put up. I understand that a similar p: per has been presented to the Minister for T ndustrial Development and Company Law / ,ffairs" From this note, it seems possible that the ~inister vf Industrial Development and Company Aft'al1'S at the time, Shri Fakharuddin (\Ii Ahmed, !DW.~ ov~r . the project report to the J omt Secretary ID bis Ministry. R. V. Subrahmanian who sent it to DGTD for scrutiny. The project report was studied by DGTD. The results of the study were summari.zed by Shri B. S. V. Rao, Development Officer, in his note dated November 11, I 968. The proje~t report envisagC<.\ a ~wo door car fitted with two cylmders and two stroKe a'-cooled rear mounted engine of 14 H.P. The car was to have tyres 400 x 8 in size which was similar to scooter riksbaw tyres. No foreign collaboration or import of macb'me1y, raw material or components was envisaged, upto 80 per cent of the value of the car was to be bought out from indigenous sources. The price of the car was expected to be Rs. 6,000 ex-factory. Shri R~o had a word of praise for the conception of the car but felt that the engine power was inadequatC' considering the size of the car which was to accommodate six persons besides luggage. He also thought that the size of the tyres being small the risk of skidding was ~realer. Shri M. M. Vadi, Senior Industrial Adviser, DGTD, held the view !hat for the large volume of production of 50,000 cars in two shifts envisaged in the project report, the investment on plant and machinery, Rs. 2.26 crores, looked much too low. He agreed with Shri Rao that the engine proposed looked under-powered for the size of the car. Vadi added that at the moment there was not enough supplv of steel sheets and special steel required for the ca"r

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project though these 1uight be available in the long run. l.loth Rao and Vadi were of opiuion that the prototype of the car must l)c examined by an expert comromc.e from the point of view of .perfonn~nce and .roadwort.ht~ ncss. R. V. Subrahmaman whl!e sendmg StnJa) Gandhi's project report for scruuny by DG1:J) had <lcsircd that their commtnl> on the report might be ha~dC(j 0 v..-r to him ; accordingly Shri Rao . Development Ollicer, handed over the file contarnmg the commcnlS to him. 'The project report sent !o, the Planning Commission was cx?mincd by. Shn S. L. Vaswani, Senior Research Ol!iccr. In his note d.atd September I 8, 1968 he found, among other .thmgs, that the investment for the projc-ct was undci; estimated and the proposed two strok" air-cuolcd engme needed thorough field testing ; the small size of the tyres also ultractcd criticisn1. All these exercises wac undcTtukcn by DGTD a,nd the Planning Conunbsio11 months before Saniay Gandhi applied for an industrial licence, which he did qn December 11, l 968. To u question wh~ther an.Y other cntrcprcn~ur could have. h'.ld the mefl!-< of !!IS project c.xamined before he applied ~or U!J mdustn~l licence as was done in the case of Sim Saniay Gandhi, Shri R. V. Subrahmanian s answer was that thou!!!t generally Ilic project report was _annexed to the appl1cation for licence and was examined aft.er the applicaup for scrutiav a project report which might be s~nt before making the apflication. To another question as to what was specia about Sbri Gandhi's case that the Development Otl;icer, DGTD, should come to the Joint Secretary personally to hand over the DGTD comments on Shri Gandhi's project report and whether such treatment would have been extended in other cases Shri Subrahroanian did not really have an answ~r. Shri B. D. Pande, who was then Secretary of the Planning Commission, was also asked whethe.r it was customo.ry for the Plaqning Co~s\on to examine project reports from pnvat;, parties, hts reply was that it was not "totally unusual for the Plannmg Commission to examine a private proposal if it was

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that Sanjay Gandhi applied for a licence months lat.er, on December 11, 1968_. though _DGTJ? and the Plann.mg Commission had considered his proi~ct. report earlier. It is not explained why he made this mcorrect statement and, also, now he ~n~w that thi:re was n.o. other applicant for licence cla1mmg to be m. a pos1t1on IQ manufacture an indigenous car ; ~nd, m fac~, there was none !iU that day. The Hmdustan :nm~-s . C?f October 7 1968 published under the headmg M1mcar Maker'" ii$ repor1er's interview with S.anjay Gandhi : "Waiting for a lic~nce f~r the ,Productto.~ of a small car designed by himself 1s Saniay Gandlil (21), tbe Prime Minister's younger son . . . . H~ .returned. to Delhi a year ago after a three-year .trammg period with Rolls Royce in England. Ever s1m:e then he . .;ios been working on getting together a small car, entirely with indigenous parts ...... San jay made first one prototype mini-car and now has almost completed the second. The first prototype was titte~ with a s~c~nd hand engine and the bod)' had been given no finishi.ng touches. Saajay and his. frien~s r~ it over 1!00() miles in and around Delhi, mamly m rural Delht on kucha roads. They did it to, prov.e t~e car's har~iness ...... Describing the car of his design mg. and makmgeach part made locally to order in Delhi's small worksbops-Sanjay says it looks like a mini station ~agon''. The extracts quoted above have been descnbed by Shri Dharam Y ash Dev, a journalist \Vho deposed before the Commission, as "promotional publicity". After DGTD and the Planning Commissiou bad scrutinized the project report, Shri Gandhi had a meeting with Shri Bhanu Prakash Singh, Deputy Minister, Industrial Development and. CQmpany Affairs, on November 20, 1968 which was attended al~o by the ollicials of the DGTD, namely I?r. B. p. Kalelkar, Director General ; M. M. Vacli, Senior Industrial Adviser; N. T. Gopala Iyengar, Industrial Adviser and B. S. V. Rao, Development Officer. Various 'features of the project were discussed and Sanjay Gandhi made it known that he was planning to modify many of the major components of. the car and the DGlD officials also made a number of suggestions. On December 11, 1968 Sbri Sanjay Gandhi applied for an industrial licence. In the application the proposed investment on land, plant, and machinery was stated as Rs. 3. 72 crores. On January 4, 1969 Shd Gandhi had a discussion with Sbri N. N. Wanchoo, then Secretary, Minisiry of Industrial Development and Company All'airs ; some DGTD officials, M. M. Vadi, N. T. Gopala Iyengar and B. S. V. Rao were present during the discussion. Shri Gandhi suggested be might be given a letter of intent before the prototype of hiS/ car was ready, but he was l9ld that it would be better if the DGTD officials had a look at the prototype which, Shri Gandhi t.S~ured, would be ready in about a month's time. Shri Gandhi continued to have discussions with Shri Bhanu Prakash Singh and the DOTO officials In January and February 1969. Deposing before the Commission R. V. Subrabmanian said that Sbri Fakharuddin Ali Ahmed who was then Minister of Industrial Development had summoned him to his residence tQ inquire as fo

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Near about the time when Shri Sanjay Gandhi's project report was being considered by DGTD and the Planning Commission, some of the Delhi newspapers carried write-ups about Shri Gandhi's small car. This is what the staff reporter of the Statesman wrote unaer the caption "Production of Mini Car : Sanjay's Dream" in the issue of the paper dated September 21, 1968. "When Sanjay Gandlu 21, fresh from a three-year stint at the Rolls Royce Company in Britain, started working a year ago to build a ~mall car in a shack in the motor mechanics' colony in Gulabi Bagh off Roshanara Gardens, many were sceptical. But be went aheac;I, assembled bits and pieces and produced a four-whee] structure powered by a motorcycle engine. He drove it out 100 miles with four of his friends on the Grand Trunk Road". Shri Sanjay Gandhi is r.pur1,d to Irnvc said, "M) application for a licence is already lying with Ill~ Mmistry of Industry, the only application for an indigenous car. If all goes well, the car might be availahle to the public within the next year or two". In fact the ~vailable records show

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"what was being clone" about Saujay Gandhi's application and why they were "taking so much i;mc". Sanjay Gamlhi was present when Subrnhmanian \\a.> \)cing questioned by the Minister. In the meantime at a meeting held on January 16, 1969 the Planning Commission took the view that on account of the constraiJll \ln resources the c;;r project could not be included in the Fourth Fiv~ Y car Plan. However, at the instance o( Shri N. Subrahmanayam, Secretary (Heavy Industries), the Planning Commission agreed to the matter b.:ing held over for further disc<1ssion. On January 25, 1969 the Minister of Industrial Devclcpmcm and Company Affairs, Shri Fakharuddin Ali Ahmed wrote to Prime Minister Shrimati Indira Gandhi pleading for a new unit in t!1e public cctor. In her letter dated .February I 0, 1969 the Prime Minister wrote back l<l say that the public sector car project could not be viewed in isolation having regard to the constraiDL on resources, adding that she had no objection to the matter being considered in the full meeting of the Planning Commission and thereafter in the Cabinet. The Minister also wrote to Shri Morarji Desai, who was then Deputy ?rime Minister, seeking his help for the inclusion of the project in the Fourth Five Ycar Plan. The Deputy Prime Minister in his reply dated April 5, ! 96ll suggested that the oUicials of the Finance Ministry, Planoing Commission, and the Ministry of Heavy Industry could review the position and prepare a note for consideration by the Cabinet.

Shri Saojay Gandhi informed the Ministry that the modifications suggested by the DGTD officials were being carried out and the prototype was expected 10 be ready by the middle of April. However, the oOieials did not have a glimpse of the prototype before October 1969. It appears from a note recorded by B. S. V. Rao that on October 3, 1969 Sbri SanJay Gandhi showed the prototype to the DGTD officials at the residence of Dcpu!~ Minister Shri Bhanu Prakash Singh, where, besides the Deputy Minister and R. V. Subrahmaniao, Dr. B. D. Kalelkar, Director General ; M. M. Vadi, Senior Industrial Adviser; N. T. Gopala Iyengar, Industrial Adviser; and B. S. V. Rao, Development Officer, of the DGTD were pre sent. Shri Sanjay Gandhi told them that the prototype which was being shown to them was an improved version of the earlier ones he claimed to have made. He further stated that the prototype hail a 24 H.P. engine, rear m;iunted, with non-synchromcsh gear box and centrifugal clutch .. It bad two doors. Shri Gandhi took out. the DGTD officials in the prototype for a short run of about a mile in the vicinity. B. S. V. Rao's nott; says that the vehicle "as driven ~s noisy" and records the improvcmelll$ aod modifications that Shri Gandhi proposed to make. The not<: also records the advice given by the Dirccfor General to Shri Siiiijay Gandhi to study the availability and the prices of some of the ancillaries which the latter proposed to 11$C. The Statesman and the Hindustan TID!cs of Octo- ber 4, 1969 devoted considerable space on tho-.Ma,ruti car. The stall'. reporter :if the Statesman wrote : "Its shape and tiny tyres at once make it look like the first cousin of the Austin Mini . . 'But it is a very different car ; it is a car made entirely in India, all the parts were made here', explains the maker of the car, Mr. Sanjay Gandhi.. , The rci}e<rters saw the green ooloured car on the lawns of the Prime Mit\iter's house on Friday morning. The lid in the rear that hides the engine had been opened to reveal the sleek and compact arrangement of the machine. Mr. Gandhi is quite frank about one thing : the car will take another two years to be perfected". The Hindustan Times correspondent in bis report said : "Her name is Maruti-and she may as \\ell be India's first small car.. . . It was Maruti's first introduction to the officials of the Ministry of Industrial Development and Company Alfalis. To w;itch Maruti in her true colours and form, the. officials from the Ministry were taken for a spin. They seemed pretty pleased with her. ll all goes well arid Maruti fits the bill, India's first small car Diight be on the road in two y~ars". The correspondent could not possibly have been awarr of Shri B. S. V. Rao's note when be thought that the ollicial.< were pretty pleased with the car in which they ~re 'taken for a spin. Shri R. V. Subrdhmanian in his deposition admits that this k;nd .of special lml!mcnt was not given to the other applicants for licence. Shri Sanjay Gandhi had further discussions with 1h" 00 TD oflicial' on the 4rh, 6th auJ Sib October 1969 during which he was adviSJ to undertake ; detailed survey or th~ availabil'ty and the prices of many of the ancill3! ic'< wh:ch he propo<cd to use.

A meeting of the officials as suggested by the Deputy Prime Minister was held on April 30, 19(!9. As there was no unanimity in the meeting, it was 'agreed that the matter ~hould be rlaced before the Cabinet. A draft summary for the Cabinet was accordingly prepared in the Ministry of lndustriul Development, Internal Trade and Company Affairs GD~ partment of Industrial Development) on the subject of the establishment of additional capacity for the manufacture of passenger cars which was fonvardcd to the Ministry of Finance and Planning Commission for their comments. Shri Fakharuddin Ali Ahmed forwarded on October 8, 1969 a copy of the draft <ummary to Prime Minister Shrimati Indira Gandhi wiio was holding the Finance portfolio at the time. Shri Ahmed wrote to her that considering the importance of the matter, he thought her personal attention should be drawn to it and that he would be glad to discuss the matter with her after she had seen the papers.
11. may be ~ecalled that on January 4, 1969 Shri Saniay Gandhi had .old the DGTD officials that the prototype of his car would be ready in a month. When more than two months passed and the prototype was .stiJI not ready, Shri S. R. K"pur, Under Sc~r~tary 111 lhc Department of Heavy Indu,trv. Mm1s1~y of Steel and Heavy Industry, w1ote to Shri Gandh! ?II March 26, I 969 requesting him to inform the Mmi>try about the progress made in the manufacture of the prototype which, he said would b" in>pectcd by the ollicials of the :\linistry. In hb '"'Pl;

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As a result of all these deliberations . Shri San jay Gandhi came up with a revised proposal towards the end of October I 969. The revised project report was scrutinized by B. S. V. Rao who prepared a summary for the L.icensing Committee on November 20, I 969. It would appear from this summary that Shri Gandhi had raised the propos"c) invc,tmcnt on plant and machinery from Rs. 3.72 crores to Rs. 4.63 erores. The recommendation of the Technical Adviser annexed to the summary mentions that the proposed car was of ~l two cylinder tlc.,)1511, the engine fitted in the prototype was an air-cooled one dc\'eloping 24 H.P., the car was to have ultimately a synchromesh gear box instead of the crash type which the prototype hac), an<J that the centrifugal clutch was to give way to a plate clu.tch in the final m<)del. The investment was still considered too low. Jt was noted that the production was to be on u phased programme of I 0,000 cars in three years going up to 50,000 during a further period of four years. Doubt w"s raised on the feasibility of producing the car at the price indicated, Rs. 6693. Shri M. M. Vadi, Senior Industrial Adviser also emphasized the ppint that the investment was considerably umkr-cstimated. He was . Curther aprrehensive of the use of two stroke engine which according to him was more an exception fhan cncral practice _a1nong the sniall car 1nanufacturers of the world. There is a note on the file recorded by S. R. Kapur on December 10, 1969 enumernting the main features of Sanjay Gandhi's car project and describing the scheme as compl~tcly indigenous in know-how, personnel and ma.term!. The note reproduced the main shortcomings in the chcmc found by DGTD but ad~cd that the conception and design of the car a> ultimately thought of by Shri Gandhi could be considered satisfactory. The note mentioned that there wer.e. I 7 schemes before 1hc Ministry and that a dects1011 on the schemes which were based on indigenous design and materials would hac to be taken together., The note referred to the draft summary for !he. Cabm~t already in circuliltion aild ended hy s11ymg : "It 1s now for consideration whether we may await the decisi?n of the Cabinet on the paper to b~ p!a~cd befo~e JI shortly or whether, acting on the carher dcc1s!on of the Cabinet of July 1966, the s~hemes which do not 1~volve any foreign eollaborat1on. or rcqu~sts for foreign exchange for the import of either cap~tal s.oods or C<?mponents may be placed befo.re the ~1censmg Comn111tee for approval ?" The awaited decision of the Cabinet was on the question whet.her it was possible to set up a new :mit in the public sector for manufacturincr passenger cars On Jul): ,28, 1966 the Cabinet did ~ot tai<" any dcftnite dcci~101~ and only desired that the possibility of selling .up mdtgcnol!S capacity in the private sector should .1lso ..he exammed. Thereafter in August 1966 Shri D San11vayya's statement in Rajya Sabha gave first pre~ ference to t~e ~ublic sector. In this context the keenness 1ppean~g m Kapur's note to place the proposals fr'?m th~ private . sector before the Liccnsin Committee without waiting for the Cabinet decisio~ seems unus.ual. At the end of Kapur's note R. V. Subrah~ maman, Jomt Secretary, added in his own hand that ~cforc the proposal to manufacture passenger cars. ln

the public sector was considered by th~ Cabinet, t~~ Minister of Industrial Development Shrt Fakharudd111 Ali Ahmed proposed to discus the subject w.th the Prime Minister.
in finalizing the summary for the Cabinet, the Ministry of Industrial Development disagrcecJ with the suggestion of the Finance Ministry to delete a paragraph proposing to seek approval of the Cabinet wr toe issue of lett~rs of intent to parties who camo forward with proposals based completely on indigenous design and with no request for import or allocation of foreign exchange, but accepted the suggestion of the Planning Commission that the letter of intent should be issued to a party only aft r a prototype had been produced and tested for roa<lworthiness. Shri Dinesh Singh, who was then the Minister of Industrial Devc lopment and Internal Trade, modified this condition by requiring it IO be appt~d before an industrial licence was issued and not at the stage o[ issue of the letter of intent. On August 7, 1970 a meeting of the Cabinet was held presided over by Prime Minister Shrimati Indira Gandhi to consider the proposals put up by the Ministry of Industrial Development. The Cabinet approved the prof>csals and directed the Ministry to initiate detailed studies on the most economic way of establishing the additional production capacity as well as the ways and means of financing the same. The Ministry was also given a free hand to select a suitable model for the purpose and to initiate discussions with all interested parties, foreign or Indian. The Cabinet also decided to permit the manufacture of passenger cars by parties in the private sector whose ptoposals were based on completely in digenous designs without requiring imports or allocation of foreign exchange. This however was to be without prejudice to the establishment of additional cap!lcity for ~0,000 cars .in the public sector. Shrimati lndtra Gandhi who presided over the deliberations must have known. ?hat her son Shri Sanjay Gandhi had applied for an industrial licence to manufacture ~s and t)lat his proposal claimed to fulfil the cond1t1ons which the Cabmct prescribed. Shri Sanjay Gandhi was Jiving with his mother at 1, Safdarjang Road. Apart from that .the Lok Sabha was informed of the nature of Shrl Gandhi's proposal more than once: ~n Novembe~ 12, 1968 Shri Raghunath Reddy, Minister of State m the l>fillistry of Industrial Devel~ment and Company Affairs, told the Lok Sabha ut reply to a question whether Shri Smjay Gll.\)dhi had submitted a proposal to Governme~t for a licence to manufacture small car that " ... this is !he. only pro~sa~ which is based on a completely mdtg"11~US utilisation of all the available equipment her<'. Witho'!t any ..foreign exchange component or toreign equipment.. _About a week later, on N'ovemer 20, l ~68 Shri Fakltaruddin Ali. Ahmed Mini<ter of Indus~al pevelopmel,lt, informed the Lok Sabha tha~ Shri Saniay Gandhi had submitted "a scrt r pro1ect reeor~ to the Government" in which it W~s t0d1cated t!uit he can manufacture a car without ini port of foreign componems from outside" and th 1 h Government was considering this proposal. a t e On August 10, 1970 Shri Dinesh Sin h M' . of Indust!ial Development and Internal g Tr- d imstcr nounced t0 both Houses of Parliament the adc,. ~n cc1S1Qn

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taken by the Government. He stated that the Government had decided "in principle, to the creation of the additional capacity of 50,000 cars per annum in the publi\: sector based 011 a proven foreign d~hign, that the ministry "will now initi!lte the necessary ~etaile_d studies 011 the most cconomac way of establishing this additional production capacity in the public sector, as also the ways and means of financing the project". After giving some more details as kl how the Government proposed to proceed so far as the public sector prajcct was concerned, the Minister referred to U1e proposals from the private parties. "Govcrwncnt have also recdved", he said, "a number of proposals from the private panics for Laking up the manufacture of passenger cars in the private s~ctor. Some of these pa,rtics claim that they a(C in a position to manufacture cars based oil compklely indigenous ources'.'. In fact till theu there was only one party, Shri Sanjay Gandhi, who had made this claim ; there was another, Shri M. Madan Mohan Rao, but his claim was somewhat ambiguous. Shri Dinesh Singh concluded his statement with these words : "With a view to encouraging the growth of indigenous taknt and resources, Government have decided to issuz Letters nf Intent to such of the parties in the private sector ~s arc prepared to take up the manufacture of cars based on completely indigenous designs and without requiring imports of or alloca' tion or foreign exchange". Whal Government meant by "i11digenous" whrn it insisted that the car proposed to be ntanufacturcd in the private sector must be wholly indigenous, was made clear by different Ministers who had to deal with this question at difierent times. To u quer} made in Rajya Sabha on July 28, 1966 as to whether an automobile engineer from Kerala had manufactured a small ca.r entirely with indigenous material, Shri D. S~!vayya, Minister 'lf Industry, said : "It is not !Cnown wher.ber all the locally pur~based component.> are indigenous. It is therefore difficult to assert 1ha1 the car has been made entirely wiU1 indigenous mate rials", Shri C. Subramaniam, Minister of Industrial Pevelopment, in the course of a debate in Lok Sabha ?n [)ecember 22, 1972 Oil the policy of Gowrnmcnt m regard to manufacture of car indicated that an ind.igenous car should be one fabricated from the male rials in the co~ntry. Shri Dinesh Singh in bis evidence before the Commission agreed with the views expr_essed by Shri Sanjivayya and Shri C. Subra mamam. He added th:11 indigenous machinery com ponents and materials "would mean those i.i~t arc actua.lly prod~ee~ in India", that it would be wrong 1o describe as 111d1~enous imported materials a\'aiJablc from the est:1blish;<J importers in the counLry and it was n?l the [llC~t1011 of the Gowrnmcnt to treat such materials ~s md1genous. Shri B. D. Pandc, who was Secretary ~n the Pl~nping Commission in 1969 and Secretary m the M1111stry of Industrial Dcvclopmll! and. Heavy Industry from February 10, J 970 to Apnl 2~, 19? I . has also explained in his statcn1eut !<? !he .Coll1111Jss1on that he considered a "complctclv '?d1genous ca,r as. '"!C based on indigenous technical know-how usmg md1gcnous machine tools and com poncnts". '

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statement in :Parl,ia!QC!Jl>iJbe Qllj~~~l\,~~Qi Industrial De,,elo~-put ul('lAAi~~ for the-I iceasing ~ite01f9,:.a~x11J-.ii,IJ.is,.~ote1: "We have. severaJ..,,appliqtlionaJ!tlif1'8fa.~fi;it~Jii:e~ .ear ~;p~l:~ ~- pn for manufactu~<,oi. siJ1aU1 ge'hous, 11lijllely frc>m'!Shri .SaJljayir;Qai;idhiland, M. Madan Mohan Rao.Adraft SWllJllill:ytfor.the Ucensil:g Committee proposing to granG.,l~.' of, intent to these patties and rejectfl:lg applicatiQus since they arc not indigenous is put. up .for approval", . As;.. already stated, M. Madan Mohan Rao's: scbeme.1 was a little ambiguous. In the Jetter forwardinit his application h~ confirmed that "no foreig1,1 collaboration,. import of capital equipment. . . arc involved .for promoting this undertaking", but his feasibility report. disclosed that be wanted .his car .designs 10 be examined by an American auto design expert. It appears tbat before he formally applied for industrial ltc.:r.ce on September 15, 1969, M: Madan Mohan Rao wrote a Jetter to Shri Fakharuddin AU Ahmed, Mitlister of ludustrial Development, on August 30; 1969 setting out the salicn~ ~ealures o~ his car project -enclosing copy of a prehm111ary proJ.:<.1 report. In tbcdetti:r to the Minister it was claimed that . "th~' project envisage> utilization. of indige~ous knO'v-h!>W and. no. foreign cxchang~ ts needed either for capital cqu1pmeot, product and process design, phnt layout or raw and manufactured matcriar', in tte prcliminaiy project re port it was ~d : "since there is DO autbQdt.y in India who can approve basi.c design. the same wben fortnulatcd would be sent to var!~, noii~prolit automotive rcscar~h cen'!es ip U~.A,,'an!f .lheir general approval obtained bcior~ adopting the same for mass production". The existence of the LicellSing Committee is .trace able to sec!ion 14 uf the J~dustrial ~iDevelopment and Regulation) Act, I 95 l which says, mtu alia that before granti~. any licence enabling any pers~n to "'tabllsh a new industrial undertaking, ih~ Central Government may appoint an authodt.y to make a fuil and . comeJcte . investigatlon in respect of applicatiollS received m this behalf and report to it the -result of su~h investigation. The autl1ority so appointee! is reqwrcd to follow the prescribed procedure The procedure is laid down in rules 10, 11 and 1" of the Registrll;tion and Licensing Rules, 1952. Rule 1 :i deals with the constitution of the l,ic:ensing Com.mi .. Ice. Rule 11 provides that after such investigai'9n m!IY be necessary the Licensing Committee shalf sub nut a report to the. concerned Ministry. RQJe 12 states that the report hould contaiii, 'among c other mltters, rccomn:cndations regarding 'capital .and its str_u!=turc. capa~1ty. of the_ 11lant to;.lJC; iJUialled_ avail ~bth~y of tccbmcal .and .other we4c~cJ 'required, ~nd col.laboration 1C any wll)1 Joreil!li" manufacturc1s. ;i ._,-'.'!:::. <-;~;?,.. ~, .,-,;;

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ncction with his scheme. According to Subralunanian, Rao was summoned to explain the discrepancy between his application. and bis project report. Rao also indicated in the report that it would not be ~d visable to bring out a prototype vf the proposed ~~r. nor it was possible for him to do so. In his deposition he explains this by saying that before the "basic de. sign drawing" was developed, it was impossible for anyone to come out wi:h a prototype of a car which could be subsequently successfully manufactured. Rao's project report also disclosed a sch~me of Joi/it venture with Malaysia for tyre~ and tubes, and with U.A.R. for ball ~ml roiicr pcarings as these items were likely to be in shQrt supply. M. Madan Mohan Rao came to New Delhi from Madras on the 17th and met R. V. Sub~ahmanian at his office in Udyog Bhawan. S. R. Kapur, Under Secretary in the Ministry, B. S. V. Rao, :Oevelopment Officer, DGTD, and N. T. Gopala Iyengar, Industrial Adviser, DGTD were present at the time. According to M. Madan Mohan Rao, Shn Subralunanian pressuri,zed him to drop the three conditions meutionca in his teehno-eeonom1c feasibility report, viz. joint venture with Malaysia and JJ.A.R., noi!produclion of prototypc'uand having his car design approved by on expert m .S.A. Rao says that he was made to address a let.ter to the Joint Secretary waiving the conditions. A1 regards the third condition lie stated In the letter that If foreign exchange was not permitted for the purpose, Ile would get his design <:becked by nn indi gcnous Institution. Rao says that during the entire discussion no indication wns given that the capacity of 75,000 cars a year proposed by him in his application was likely to b~ reduced. Subrahmanian denies pressurizing Rao. His version is that the "whole idea . was to ensure" that Rao was not "excluded because of \be discrepancy between tint proposal and the project; report", In hl$ deposition Rao has said that he QOiCrlbed his scheme Pl lndlllCD0\1$ beeauac he did not ll0!1$lder oxamlniltlon by a torclan cxJiert of the design drawings develo~d by him ns amounting to foreign ~Ofl6111tanoy, He has also plllnted out thlit the pres ~rlh~d form In which ho ntnde his ai;pllcmicm bad nn

9. Kerala Stare Industrial Development Corporation, Trivandrum. ' 10. M. Madan Mohan Rao, Madril$: ' '' :: Referring to the schemes of the parties 11,'."2, 3, and 6 which involved foreig11 collaboration and those <>f the parties 4, 7 and 9 which 'hlvOlved 'import of either capital goods or compo11ents and raw materials, it was pointed out in the summary that these 8 schemes did not qualify according .to the guidelines. The two remaining schemes, those of Shri Sanjay Gandhi and Shri Madan Mohan !ho, based completely on lndi genous know-how .anil materials wer~' the only twr proposals that satisfied the conditions. The .summary also mentioned the recent discussions. held' witb these two parties. It was stated that Sanjay qandl).\ c;la.irned to have developed a prototype o[. the C!lt.>exceJ)t the engine, that he was working on :the. pr61(!typc of nn engine of his own design and he ~hopecl'to'evolve the finill prototype shortly and that by 'the '\:efd of the third year from the date of approval of 'bis: scheme he would be able to 'achieve the productiqn tatgei o{ 7500 cars per annum reaching the"optimum production target of S0,000 cars per annum w1tbi1i'the next two years. To a suggestion that it .wo.:.Jd \le more realistic to plan for a capacity lower ''tlian ,, what he had applied for and for a slower build:_up:::or the production volume, Sonjay Gandhi, itwa' mited,'clnimed that he would be installing from the ' v~1y' peginning equipment and machinery capable of lhe'' maximum production, and as such he wanted the full capacity applied for to be allowed. From Rao it was gathered that he would require six months,fqr producing a suitable design, about. a year for prejiiiring the working designs which he wanted to be approved by a design institution in India or abroad before starting on the prototype, that with initial prciduct'on of 24,000 cars pet annum he expected to reae)l'the opt.imum production of 75,000 cars per annum by the end of the sixth year. He made it clear that he meant to produce a car suitable for rural area~. which would not be very sophisticated in design. It was observed in the summary that Rao's plan to prciduce 75,000 cars P"t imnum WllS. overambitious and tbal It. would
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It Is not disputed that 'Uiuolly iluoh 1ummftrlOM ror Commltt~c include comments by, .the varioliil scrutinizing @gencles like IDGTD and others. In the field of smallcar project the main scrutinizing agency was tho PGTD. l have 11lreac1 referred to their comments on Shri Gandhi's proposal. The summary prepared in this case however dld not incor poratc comments o[ any o[ the serutJnizlng 11ge11cies. The ex11tanation offered by. s. R. Kapur; Under Sec toilll}', Ml11istry of Industrial Development, which wllS dlidorscd by M. M. Vadi1 SenlClt. lndusirlal A~ vlscr, DGTD and T. Swaminaman, Secretary, Ministry o[ Industrial Development, is that the whole matter WI!$ being viewed only in the context of the totully indigenous nature of the proposals and as such the

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10 con)menlS of the OGTD and other scrutinizing agencies were not required to be forwarded to the Licensing Committee. The Licensing Committee. met on August 31, 1970 under the Chairmanship of Shri T. S.wwuinathan, Secretary, Ministry or Industrial Development ll)ld Int~1nal Trade. Among other members who attended the meeting were R. V. Subrahmaniau, N. Radhakrisbnan, :Deputy Secreta.ry, S. R. Kapur and M. M. Vadi of D.GTD. The Licensing Committee accepted fully the recommendations o( the Ministry except for raising the capacity in the cas.: of Madan Mohan Rao to 2S,000 cars per annum outright ; the Ministry bad sugges.ted 10,000 cars per annum initially going upto 25,000 ultimately. . Sbri Dinesb Singh, Minister of Industrial Development, gave bis approval to the recommendations of the Licensing Committee on September 18. Lette111 of intent were issued to these two parties oii September 30, 1970 for the establililunent of new industrial undertakings for the manulacturo of passenger cars, in the case of Sanjay Gandhi for the annual capacity of ~o.ooo cars at Faridabad in Haryana, in the case of Madan Mohan Rao for an annual capacity or 2S,OOO cars at Nagpur in Maharashtra. Jn \be meanllme Prime Minister Shrimati Indira Gandhi in a speech made in Ahmedabad on September 23, referred to her son's car project. A sum111.11ry of the speech appeared in the Hindustan Times next day under the caption "Mother's Praise". lt is as follows ; "Prime Minister, Mrs. Indira Gandhi, today commended the enterprising spirit of her son, Mr. Sanjay Gandhi, in putting forward a proposal for a small car, completely Indian. Mrs. Gandhi said sh~ could not say whether a licence would be granted to him. She had been asking all young men 'to be enterprisinll even before her son had taken to dcslgnmg a car. Her son was a delicate young man and with whatever money and energy he had, he modelled a car, not a posh one, but fairly comfortable and suitable to Indian conditions. It would suit the middle class, she added". , The letter of intent issued imposed four conditi.ons: ( l ) No foreign collaboration or foreign consultancy arrangements will be permitted. (2) No import of capital goods will be allowed. (3) No jmport of components/raw materials will be allowed. ( 4) Bcf?re the letter of intent is converted into a I"'ence, prototype( s) will be developed and got tested and approved for roadworthincs< by an authority appointed for the purpose- by Government. The letlers of intent were valid for six months. Jt . may be stated here that sometime after the letters of

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Jeitdr tif intent; t! .,'!1 'K ' y "ea~ '' "'""S''1 . 'dbl pr~tosen1p.~: . apw .ece.'v... ,!!!Ir";'". 'Ir' . .I\. '' .... ..;; ~ Fandal>!id as 'stnlei! ln'~~ ' ' ' ' rcquest'was allOwe<k On;; ... Gandhi again wrO!e to'. ~p clarification of the condilicili ' material and ask.in,11 for extOIJ$ion .letter o! int~t io\J!.}i;robJ!W';i~ cessed m' less than a week'IBtid' agreeing to the relilxations ,.. sOt! Gaodhi. Jn his' note Kapiir eirip the 11ormal policy ofthe'Govenunent" tmj>on o( raw materials'Producecl'ln'the~ )bey:were in short ~upply. . ~. V."Sub:-aniU.al!;f J , ."f,~9!'1itary, agr"!1 wnh this view but h.e tb.od.of*'t'b './'ai:ceptanec .. of this request would mean m . .. on .of. a condition impos.!d by the Licensing CODii!iif.tCC; r:swamiuathan, ~; Industrial . ~~l\!en.t.' tl:ic\fll that the lllalter sbollld. be "brouglat~ofl:)be. UCCl)sing Committee. ,. The Licensi#g coiiuitj1~ ':@q$i\1.rchhe matter on October 26, .1970. ~\f ~1'~!l"dI , . an amendment of the condition as l!Sllc:d ~ 1>y.. 'Sanjay Gandhi. Therecommenc!aiiim 1 ~~~ W the Mi~ and on Novemller 7/l'nP.'i~i~Y. tJaildhi was mformed that his request had ~~.:.Along with the intima.tion . sent '.jo" San~y'!~dJii;1 ''Madan Mohan Rao was ~ informed that f9!1owiii,g the normal Government Policy. an ..y 1'.!!S. .n ilest for 'Iii).part o.f. raw materials like steel, 'i!omiJ\lly 'l!:yJ!illi'ble "j.n ", the country bot temporarily in;shoft 'S!IJ>~m:;;~li.ltld. ,.be considered. at the proper tiinc ~. !!!II. . ~ rl.\'l11!1.. ework
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On Nc;ivember 6, 1970, ,the day bi:fi:ln.Hhe Ministry commumcated to Sanja)' ., Gandhi ihat bis request for relaxa.tioo of the condition ,prohib.i~::Oport of raw materials had been accepted, M. M . Mohan Rao wro.te to qovernment .~g-~nitJo'~get 1the dest)!ll of his car ex&l!lJnec;I by M.!i~.il!J ,E, Witzkv South West Reseuch loStil'l:.~~;io '.us A' In this letter Rao h8i:! drl-<~~ .".. "''='"''/~;. ' Mini&!ry to his 1!Brlier 1ettiilu ' n;;,;.i...~..29 ~i ~:z wherem. also ed . he h. had lettasked for .slich~' .. t.:P,Clm151ilon' .which was waiv in IS.. er of A"!lli!Dt~17;'<1970:""'Mother request that Rao made was in ~'PffUIC'capacity of 2S,OOO cars per annwn'sa~iiiitiliHcase he wanted the capacity to 'be ~ 10 '1< l'lll'n ' annum as originallyen~. '"''hf;f'~~ . Jcars ~r letter was received by:R: W~m%an;'Jo: This ~ctaxy, ol!- !'lovernber J 2, 1970 abci:ii)W. Pr~. t 8:~ 1n the Ministry. Tho ~ on ~; ' after nearly two months. '0n.., Jan . ~'! .:. .J"'waa put up 97 mending rejection of die .. . , "'' . , I recom11 was POinted out that ba~:rs ~ }If ~ .It U.S.A involved fllll:i ~Y..t.a...:..: "'"~d m 811 -~ and as regards the

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request Uir expansion of the capacity, it was said that this could be considered only after Rao. had achieved the capacity of 25,000 car> per.annum. R. V. Sub rahmanian who saw the not~ on January 23, '!971 expressed the opinion that release of foreign exchange for having drawings and designs checked abroad, would amount to agreeing to foreign consultancy arrangements which was con\fary to the Government policy. As regards the ~rmission sought for expanding the production capacity, Subrahmanian thought that this could be considered only after a substantial portion of the B. D. capacity approved earlier had been achieved. Pande, then Secretary in the Ministry, approved 'the recommendations and so did Shri Dincsh Singh, M!nis ter of Industry. Shri Dinesh Singh had earlier given Rao. th~ impression that his case would be favourably considered when Rao met the Minister in Madras' sometime in January l 971. The Ministry of Industrv wrote to Rao on March 15, 1971 that his requests could not be accepted. Rao says that '1n view of the attitude of the Ministry" he "asked for permission to impo!'f 4 foreign small cars to study and standardise certam components and mechanism" and this request was also turned down. Rao could. not therefore pro~eed further .~han p~eparation of the drawings. Accordmg to Rao the M1mstry of Industry was more parti cular on the production of a hand made prototype" "the very idea" with which he was "in. disagreem~nt from the beglDDing". In Rao's opinion "at the Initial stage evaluation of my design drawings ....... was more valuable than the ~ting of a hand ~ w~"
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. A!ter the re!~ation of the condition relating to the restrictlo!1 !JD IDlport of raw materials, and the grant of perm1ss1on to change the location of his facto!}' from Faridabad to Gurgaon ana extension of the vali~ dity.of the period of the_Ietter of iote~ from.sh: m0nths . to eighteen months, Saniay Gandhi wrote .to the Deputy Co',ltroller, Exchange Control Deptt , R~serv~ Bank of li;i~1a, on March 29, 1972 stating that"he proposed to vmt some of the European countries to inspect various car manufacturing units. Jt was said that this would be a.study tour to C'll~ble him to produce the prototypes of his car and submit a complete project report to the Government. Next day he made an application to the Reserve Bank of India for release of foreign ex-' change for his visit .to Czechoslovakia, West German{ and U:K for a penod of one week in each of these countries for the purpose of studying the car. plants ' and the manufacturing technique. The date of his proposed departure was April 3, 1972. On the ~e ~ay he. made the application, March 30, 1972, Sanj~ andh1 was allowed 126 for two weekS' stay in West' Germany and. U.K. and Rs. 1134 for one week in C~e~hoslovakia .. Shri "! B. Chavan, then. Finance Mm1stc~, stated m Pn~bament on May 15, 1973 that the foreign exchaqge was released to Sanjay Gandhi for a ~tudy tour-cum-training in .motor car maoufacturin ~nils, that !h~ release of foreign exchange was to faci~ htate sub!111s~1on !Jf prototypes to the Governmtnt and ~as not m v1ol:it1on of any of the. conditions Imposed m the letter of mtent. . . ..

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12 (iii) Repeat performan.ce trials. (iv) Continue reliability by an!'Lhcr 10,000 Kills. anu ropcat p ...-rormance trials. (v) Complete the reliability for 10,000 Kms. anu repeat performaooe tests. . (vi) Dyna111ometer test the engine on romplchon of first I 0,000 Kms. (vii) Strip ei.amine the en::ine, the .11ear box and differential and note down the wear pattern on completion of 30,000 Kms. The dilierence between the pcrfonnance test and the reliability test was explained by Sh(i A. S. Jayaraman, Oirector. of Vehicles (Resear~h and ~vc!~pme~t). Ministry of Defence : "The obiect [of r~liabiJ!tY mile a,ge test) is to brin~ out th,e defects wht~h W\11 only come to hght after. It has picked up certain. mil~a~ to hii:Jilight the defects, the performance test will h1ghhght the 'performance characteristics of the vehicle. 'fhat can -be found in a short time. Later on we continue 1unning the car wider varying con.ditions lo see whether the various components built ID stand up to the ri11ours or the test. Do they yield or fail etc, which will highlight the reliabilit~ .. We repeat the performance test once in I 0,000 Kms. to verily whcthe~ there is any drop in pcrfo1mance". He added that 11 w~ not possible to come to a conclusion as to roadworth1ness m:rely on the performance tests. On June ~6. 1972, A. S. Jayaraman wrote to Shri 8. S. V. Rao, Development Officer, DGTD, saying 1hat Maruti's complaints were only an attempt. to find an excuse to send their p1ototypc to an altemallvc 1csting agency. fn spite of the clarification &!ve~ ~y VRDE in their Jetter dated Jwie 7. 1972 MarutJ L1m1td continued writing to them for details of the tesl schedul: and data. In tueir letter of July 24, 1972 10 Maru1i Limited, VRDE listed in detail the lesl$ they proposed 10 adopt. A copy of the letter was sent by VRDE to Ministry of Industrial De\'elopmeot. Howcvel', on August I, 1972 Maruti Limited asked for more delr.lils regarding the methodology of !he tests. Over the controversy on the method Qf ~estmg a meeting was held on September 28, 1972 ID thP. office of 8. S. V. Rao, Development Officer, DGTD, bclween him and the representatives of Maruti Limit~d. Sanjay Gandhi who was present at the meeting expressed concem over the delay that would be caused if the prototype was sent to VRDE for performance and reliability tests and wanted from VRDE the methodology of the proposed tests in writing. Shri Gandhi suggested that the trials might be held by his company in Delhi in the presence of an observer chosen by the Ministry of Industrial Development for the purpose. A series of meetings with the representatives of Mauti Ltd., followed in October in the room of K. B. R.~o. Oirector General, Technical Developm~nt. The first of them, held on October 3, was attended by R. V. Subruhmanian. now Additio.~al Secretary in the Ministry nf Industrial Development. It was agreed that the lrials should be held by VRDE. Another mee1ing was held on October 5, where R. V. Subrahmanian and A. S. Jayaraman, Director of Vehicles <Research and Development) were pre~nl. Follo1Ying th e 4-:d 0u~u~g sion taken at this meeting, the methodS of ro~. 1he various tests were communica1C9. to M~ruuh~dmut od on October 10, 1972. The next pieeting e on October 11, was attended among ot~ers ~.)' .R. V ~ub rahmanian, N. T. Gopala Iyengar, J.1_1d~\J'1al Adv1>er. Automobile Division, A. S. J:r~~ a!I~ Brig. R. S. Chawla, Director. VRDb. h,~,.Nil!':~nT and Sanjay Gandhi. R: V,'Su. ra qia!l\~ ,.Ina. e a request that a report might be se11t _t? th.~.-.~..~tr)'. !IS . 1 ~oon each perfonnance test Was CO_l!f,~~''''"''",

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On October 18, 1972 the minute$ <?f the meeting.' were forwarded by S. S. Khosla, AsstS!aQt .iPevelopment Officer (Auto), DGTD, to A, S.,J11y~man. It appears from the minutes of the meetings.; ~eid' on OcfuliCr 3, 4 and 5, 197~ that th~, l'.ollo~1~~ conclusions which were described as . tentaP,ve.1 were reached in those m:etiogs : "." ." ( 1) VRDE should lndicate the manner in which tlie various tests. were proposed to be conducted to Maruti Limited. (2) It was necessary that these icsbi should be completed in the shortest possible, time. ( 3) Result of the perfonnance test made within two weekS after the delivery of the prototype would constitute the first instab~cnt of VRDE's report. : "' ',

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The reliabQi!y Jc:i~ 09n~lDPlllle~;;:~ ;qr, 30,000 Kms; aiid' test readiJlil& ta....n at the end of every 10,000 Kms. A.:corP.l~,,, to VRDB, taking thO avera$C''niiTea$e'for the test at ~Kms. per""dliy it'WQ\lld take about l~ to .~.2 weeb,~~;~1 ;~~i!le~. (5) "As a means of reducing the time.dactor, after rec.=ipt of the report, on the #fsr. 10,000 Kms., a .vie)V could be taJcen on the reliability of the vehicle,-with reference to the condition No. 4 of tbe letter of iotent to M/s. 1' famti Limited, at. . same ti me further running could qmti.nue ..and repo11s submitted at the appropriate time". .

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The i:ninutes co~udo with a proposal for a ~iher meeting" to be held on October 11, 1972 in tlii: office of K. B. Rao, Director General, Technical Development. The final conclusions reacbcd in the meeting of October 11, as.incorporated in. the notr dated October 21, 1972 of N. T. GopaJa_ JycnBat, shows that the question whether a view' cculd be taken on the reliability of the vehicle after the completion of first 10,000 Kms. was not touch.ed on, and only a time schedule for carrying out the tests wa~ laid down. , '

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Maruti Limited did not send the prototype car for tesls to VRDE by the end of October 1972 which they had earlier agrctd to do. On December. 14 and 16, 1972 Sanjay Gandhi made representations to the Ministzy of Industrial <Development that the condition r~uiriog the testing of. rite protutypc by \'ROE be Wl.lhdrawn. V. P. Gupta, Under Secretary, dealing with the said representations ir1 bis note dated

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January 6, 1973 rcierred to the history of the dispute between Maruti Lio1iced and VRDE including the decisions taken in the mcetin!(S held in October 1972 and observed that if Maruti were granted un industrial licence bdorc completion of the tests "other holders of letter of intent who have yet to dcvdop prototype would ,dso press for immediate grant of an industrial licence to them ...... ". His r<commencja1ion was : "In view of these likely repercussmw., we may not perhapi; waive the conditions regarding testing of prototype in any one case, particularly as the basic objective in the stipulation has been to avoid the attendant danger to human life if defective vehicles arc allowed to ply on the roads. It is, therefore, suggested that we may Worm M/s. Maru1i Limited that their letter of int<:nt wilJ be converted inti:' an industrial licence only alter their prototype has l)ccn approved by the VRDE, Ahmcdnagar, and lhat they should take ueccssary action to get these prototype tested as early as possible". V. P. Gupta's rccon.mendation was signed by N. Radhakrishnan, Deputy Secretary, S. M. Ghosh, Joint Secretary, R. V. Subrahmanian, Additional Secretaty, and was finally cpprovcd by Shri C. Su!mnuaniam, Minister of JmJustrial Development, on January 10, 1973. On January 19, 1973 .~i!1is~ry o( Indu~trial Development informed Marut1 L1autcd d1i;t theu request for conversion of the letter of .intent into an industrial licence pending approval of their prototype car by VRDE for roadworthiness could liot be accepted. called "to arrive at liD... d~~..'n ~~ $.)ayaramall liays that YR.DE ba~ never a~ed to auy ch.aug~ in the stand taken by them. ifti.t .roadworlh1n<ss certificate would be given only ~ CQmplctioo of ;he reliability milcai;e or 30,000 kilometres,, Accord mg to him the Ministry could take !'DY .'view' th.~y. likeu but VRDE was not a pa.rty to 11;: h9l!'evc:r, 11 1s not explained why VRD~ allowed ~uch,. a decision, may be tentative, to be rccordc;ij .i.JJ !l!e min11te~ with~ut having their own stand . olso,;;,1~rl\ed: ciearly Shri V. P. Gup~, Under ~retary,, wh9 :~ )l!6 note, dated Januazy 6, 1973 .recommended rcJcct1on ol Maruti's request !or an intlustri,al .lic;ence before thci1 prototype car was approv..;d by. VRPE, was :1lsp under the impre;sicn, as would . 11ppear from the note itself, that "the expe~tation was !hat the ro~ults of the performjl4ce tests .vould be .available by the end o( November 1972 or. the b;u:is of wbich Government could lake a decision regarding the grant (lf an industrial licence to Mb. Maruti Ltd. pending com pletion of the reliability tests".. On the minutes ho\\'. ever, it is difticult to hold that the 'view' cont~mplate<I could be taken by the Ministry. The minu1~s speak of "a view" which "could be taken on the reliahili1y of the vehicle with reierencc to the, condition No. 4", and the ~iew', if .it is to be in accordance with condition No. 4, had to be of the histing agency nominated by the Gov.:rnment, 1.e. VRDE. It JS possible that VRDE officials who had stooci tirrn on reliability mileage of 30,000 Kms. being completed, did not attach too much importance to the "tentative" conclusion as recorded in the minute\ and did not gil c 11 :1 serious thought. R. V. Subrahmanian, Additional Secretary, in his evidence has said that it was VROE who could take the view. The Minister of Industrial Development at the lime, Shr1 C. Subraruaniam, also says that the " ...... decision was clear that the 1\)ad wort.hiness certificate from the testing. authority W-& essentil!l for . the ~.ant.. o( licence; . The quc;tion whether the trial run should be . l 0,000 Kms. or 30,000 Kms. is only relevant to the extent of the issue of roadworthtn'SS certificate by VROE. If VRDE had issued a certificate after 10,000 Krus. he matter is closed, bu~ ii VRDE did not con~~cr it appropriate to issue a certificate at this tage, it is not for t~e licence i$suing authority to presume 1he roadwortJ:imess of the. prototype. The only point from which the question should be looked into is whether roadWQI~~s certificate ))ad been i~succ,l by the VRDE or not ' The undisputed fact is thar VRDE hl!<l not cleared the Maruti .prottJtypc tor roadworthiness. -

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Io the meanliruc on January 17, 1973 Maruti Limited had addressed another letter to ~ V. Sub_rahmanian, with copy to the Mmistt:r, trymg to. avoid .the tests by saying that it was not stipulated m the letter of intent that the vehick would be. tested by VRDE, ;Ahmednagar. Sbri S. M. Ghosh, Jo;nt . Secretary, deahng with the letter recommended reiection of the request. R. V. Subrahmanian, Addi ~onal Secretary, having seen Ghosh's note marked It to the Minister who signed it in token of his Accordingly on approval on January 29, 1973. February 2, 1973 th~ Ministry of Industrial Ocvelopment wrote to Maruti Limited pointing out that VR~E, Ahmed.nagar, had been designated as the testmg agenc:i: m .iccordance with condition No. 4 of the letter of 1qtent and the letter of intent could not be converted mto :tn industrial licence pending approval of the prot(type car for its roadworthiness by. VRDE. On April 16, 1973 the Ministry of Heavy In.dustry while extending the period of the letter of mte,1t up to December 31 1973 anain informed Maruti Limited that they "~ould be ;cquired to fulfil all . the condttions of .the letter of intent includmg gettmg,, the prut.>typ~ o~ their vehicle cleared by the VRDE . A copy of this communication wai. sent by the Ministry to VRDE.
The 'tentative' decision that "a l'iew couJcl i, taken on t~e. reliabilit{, of the vehicle with rcfcrcne~ lo the cond1t10n No. 4 on receipt of the first interim rcpurt from VROE see~ a little ambiguous it did n'!t state ~!early ~~o woiild take the view. H~wever this tentative dec1s100 does not appear to have bee~ finaU)'. accepted.. It did not figure in the discussions beld m the meeting of October 11, 1972 which was

t1ons for t~tmg tl>c proto~ 'and .. asking them to supply details of the assemblies and .. component, man~act~ at their factory. or "bought out from trade or unported. . Maruti l.imited . in, their replJ dat~ .November lo, 197~ did .not agree to certain cond1ttons,, nainely, payment of the.. charges tor thr tests, se~dmg the protitype to VRDE, and submittin~ ~e C!JJP.lle for dynamo~etcr .J~t According to arutt It was for the Ministry , of Heavy lncli;s1ry to g~ the pro:o)Y~ tested at their.. cost. A of this letter was marked to the Minjstry of Hcopy Industry. The Minil!try's decision was communi~~;J

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VkDE, Alml:dnagar, wrote to Maruu Limited

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to M;iruti Li.o;lited ii) a letter dated December 21, 1973. signed by S. l'fi. Ghosh,- Joint Sr.crctary. l'ho lcitcr stated /mer a/ia : "'the relevant condition of the letter of intent is that the prototype will be developed a.nd got t.;sted and approved for roadworthincs~. It is not the Minislry of Heavy Industry that will develop the prototype and, therefore, it is not for ihc ~try of HeJVV Industry to get it tcs1ed and approved for roadwortbiness. The s1ipulation is that the Government ol India will convert the leuer of intent into a.n industrial licence only after the applioont bas developed a prototyp~ and got it approved ; in other words, he shoutd not only develop a protot) po but should proJu:c a certificate of roadworthim:ss of the prototype by the appointed authority i.e. VRDE. Ablllednagar''. Pos~ibly this led Maruti to write '" VRDE on December 31, 1973 accepting VRDl:'s terms and conditioas for testisg the prototype. In a meeting i)eld in the oOice of A. S. Jayaramun, Director of Vehicles (Researcb and Development), New Delhi, on January 24, 1974 which was auencled on behalf of MaiUti Limited by retired Wir.g Cc1nma.o.der R. H. Chawdhry, Maruti Limilcd agreed t<supply Uie pcrfoiman~e claims and information re lating to the .;ouro:s of manufaclure and procuremenl of. the variou.~ ilems of the car. They also agreed to submit the prototype to reliability trials ~n com pletion of th performance trials but declincci to . supply an exlla engine for dynamometcr trn. fhc DirectOrate of Vehicles brought this to lhc nuticc of the Ministty of Heavy Industry who were told that if !1 spar~ cngiac was not ~upplied, it would not be feasible to comment on the engine chara~teri,tics. The Ministry of Heavy Industry on January 30, 1974 again extended the validity of the Jetter of im,nt up 10 June 30, 197.+ to enable Maruti Limited to' fullil 1:1c cooditio~ laid down in Lne letter of iotenl. They were agam told that a)! the con<litioos ol the Mter of . mtellt including getting the protlllypc cleared by VRDE, Ahmednagar, , would have to be 'fullille<l within that pzrioi.I. On l'ebruarji 6, 1974 Maruti Limited sub1.Utted performance claims to VRDE and a few days la1t:1, 011 February I 0, 1974 the Maruti prototype car ~rrivcd at Ahmednagar. The' prolotyp.: car lhilt'' was sent fur test~ 10 Ah!nedoagar had one unexpected feature. The car which was sup;>us~u to be .wholly indigenous haci .in illlported engine fitted c:in 1t, w!}ich W&.$ one of the two German N.S.U. engines brought into this country by W.!;i.F. Mnll;o:,, a West German natkna.I and an ~xpert 10 spo:-wel4mg of car budies. Before des.;rib uig how and w1 1y. ~u.ller imported the two engines from Germany, 11 1s. necessary to state how Mu.lier canie t.o be ar.sochtcd "ith the Maru1i concern>. At a meeting of the Boord ot Directors of Maruti Limited ~.~Id on June ~.9, 1972'.a..resolutioo was passed that rJte companv , do . ava,d of the sen le,~ nl Mr. W.H.F. Muller subJect to continuation from the proper Go:ct!Jment authurity t~e posi.il>ility (sic.) of su<:!J an ~PV mtment . as !echmcal comultant ~nd e1;1ter 1.nto an agre~ment With him ... ". Shri sa 11 av Gb andht was arthor1scd to execute 1hc aprrcn;cnt 0 ,1 cb.alf of the Cf?mpany. The Directors p: cs' nt were Shr1 hJl:f. A. Ch!JambarJm (Chairman), Siu i Sanjay Gand 1 and Shri Raunaq Singh. Oil July 29 , 1972

1.

Mi!.llcr addrci: ..:d a leuer to the Foreiglleri keGil-oal 'k'gistration Ofliccr, New Delhi, saying : "I wish to inform yo~ that 1 have left the firm cif Rahoul Siemssen F.n~. Pvt. Lt<!. to whom I was ddt.ga:ed by Sicmssen and Co. of Hambnrg/Gennany, on the 30th J unc, 1972 and entered into a" conlract with Maruti Ltd., Ghg:.0:1 Road, on ht July 'a~ ~ technical adv~r. The contract is to. ~ registered with the Min:,r,v of Tradr. and lndu~fry at the earliest possible oy J\faruti Ltd". File No:6C51/72AEl(l) of the M;nistry of Industrial D<vel<'pmcnt contains cxtrar.: of notes taken fnm file No. I '. 85) I 68-AEI (I) on the subject of Muller's appointment with Maruli Ltd. The relevant portion of a note signed by Scctiun Officer D. C. Majumciar and Under Secretary V. P. Gupta on September 4, J972 and Deputy S.:c;:etacy S. Radhakrishnan on the next day reads : ''The Ministry of Home Affairs bavn forwarded a copy Jf the letter dated 29th July, l 972, from Mr. W. Muller, Geiman National, and ha~ desired that we may inform them as soon as Mr. Mu.lier's contract with M/s. Maruti Ltd. 1s approved ... The letter of intent granted to the party on 30th September, 1970 provjdes inter alia that na> foreign collaboration or foreign consultancy arrlll\l!C mcnts will be permitted. As such it is for consideratioo whether we ~all approve !be appointment of a foreign technician as t~cbcical adviser by M./s, Maruti Ltd . We may perhaps inform the Minil.try of Home Affairs that w: have not received a.ny pra:posal from M/s. Ma,ruti Ltd. for the appointment of Mr. ~fuller as their technical adviser". Joint Sccretarv S. M. Ghosh approwd the suggestion contained in the note on September S, sayin~ "As we have not received any 'lroposll, the questiOJl.,if it;shouJd be approved d<>".s not arise'!. ID an allidavit a,ijirmed on December 16, 1977 Muller says tbatht wu first asked by Shri San jay Gandhi to olfer technical: advice to Maruti Untited "for Ille developQICJ!.t.aod,productfon of small car for which the said,; company "had been issued a lct1c1" 9( intent by the Clovci.'mnentl', a.nd that it w.111 on Shrl Gandhi's' advk:e>that>J he wrote to tl!e Foreigne.-s Regional Registration' Officer, New Delhi, ,;in July 29, 19'72 sadng: lbathe had entered into a contraa with 111anuL Limited ; with clfect from July l, 1972 as technical adviser.' But subsequently Shrl Gandhi told him that the contract would be exoc'utcd with Maruti 'Tcch11lcal Services Private Limited and tlterefore be wrote a.notherktter to the Foreigners Regional Registration Officer on October 8, 1972 which &a}S that he' WB.$ '"free to negotiate servke cvntracts as an individual entrepreneur" and tha1 ''on this basis . a coouact is being conclud_ed with Maruti Technical Serviceir '(J>) Ltd". Th?" JS no reference here to his earJiCr: ..letter (Ji w!Jich he ha:f slated that he had entertd into q. conitaCt with Maruu !fd Shri Sanjay. G11odhi'sJdeclsion to change: MuUer.s cmplo~; was obviously a subterfuge to atoid the d1fficul!y hin:ed in rhe file of the Ministry of lrid\15trial D iyeJ..rment in the way of Maruti Ltd. employing a foreigner as technical adviser." Thereafter on Decell!ber 7, 1972 Shri Sanjay Gandhi as Direaor of MarulJ 7hnkal Services Private I JIJliU,d WIOIC ro the Addiur.nal Secreia~. Ministry. of. lnd~lrial ~v~lop!.cnt, thar Maruo Technical Services Private Limned bas a~velopcd a small passenger and the company .,.ii! also undertake l'CSCal.ch and expc

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rimentnl work", that it "will QJso provide to Maruti Ltd., a public limit~d company, the technole>gy re quired for setting \1 0 and operating the car manufac turing plant undertakc11 by the said company" and therefore the company was "desirous of engaging the services of Mr. Willv H. F. Muller, a technical expert", "as suc1 trcliuidans lire not <:asily available in India at present". Shri R. V. Subralimanian was the Additional Secretary lo whom the letter was addressed. Two aspecls appear clearly from Shri Gandhi's .lcttor. th~t
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( b) Mullet' specialised knowledge was to benefit Maruti Limited through Maruti Technical Servic~' In reply the Ministry of Industrial Development in formed Maruti Technical Services that the Ministry had no objoctiun to the company cmploving Muller "oi; the basis that his ~alary will be paid in rupees and that no part or his salary will be rcpatri<.l<d out side India"; !t dqo> not appear to have been considered whether Muller's uppointmcnt would indirecily violate the condition of the lctkr of intent granted to Maruti Limite<}.

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How Muller imported the lwo NSU engines from Germany has been described by retired Wing Commander R. H. Chawdhry. Chief Executive of Maruli ~imited, and Mulkr hi"!self. Chawdhry ~ay> : Mr. Muller had entered mto a yearly contract with M/s. Maruti Tc:hnic;il Servi~s Pvt. Ltd. which was also situated ia the . same prcn1h~s of Maruti Ltd. for givi!Jg technical advice for the development and production of the small car 'Maruti'. He was to be paid a sum of Rs. 4,000 per month to start with in Indian currency and no part of the same was 10 be repatriated to any .f<;ireigi; co~ntry . ... . . . Lon11 after M!: Muller, haJ JOmcd, Shn San1ay Gandh11 on fai)mg to ~evelop a proper engine,. decided to obtain a better tried up propel' car engine to be developed, sue!' as . German matte NSU. For this purpose Sbr1 S.an1a~ Gandhi sen! Mr. Muller to West Uermany sometune m ~cptcmbcr 1973 Mr. Muller brought two NSU elljlmcs from West Germany as his pc!:!Q~al baggage. Customs duty/penalty etc. had to lie. paid .at Palan1 Airport for their clearance as the said engmes were ?lherwi~e banned items for import .. ..The~c engmcs were kept in the Maruti Ltd. facto~ at Gurgao~. One .of the two engines was fitted m the prototyp' which was sent to VRDE Ahmcdnagar for roadworthiness tests. The othe~ was used fo~ co~ctucting tests in the fa<tory it'Clf". Mu!ler explams 111 more 1ktail how the N.S.U. enguJes were brought to India in his allldavit alllrmed on December 16, I 97i : "When. I.Joined this Company in Julv l'i7 2, the ~n2m3J design of the engine which 'h'as 11~g d~velupcd by Shri Sanjav Gandhi ~elf was a 2 stroke one. oil its failure Shn S3nJay Gandhi wanted tc develop

on to a 4 stroke engine, .... For the s~id purpose he was shown. a catalogue which con:ainod all ~ of engines available i.n the world. Shri Sanjay . Gandhi approved had lllso impressed of the NSU engine. upon tiim about its suitability to Jndian conwuon. I bad tw<> ~uch engii;es. with me in iVest Germany. I ha<l.\pQrcAAi;ed them long bactc i,n the sixt1e8: ' On this Sbri Sanjay Gandhi wai;i,ted me . to go , to West Germany and bring ',the twc:J,"en~s. l had to visit West Germany to at.lend to some of lllY personal problems also. I went to W. G~rmaoy in September 1973 .. Nq foreign exchange was obt;liocd. by me. Sbri Sanjay Gandhi hac; assured. me that be would mak.e arrangements for their easy passage intl this country. 1. bad .Paid air fare in India itself. Before returning to lndJ11 1 had sent the two iibove ..said NSU internal petrol combustion engines along with some other articl~ also to India as unaccompanied baggage. I arrived 'at New Delhi on 30th September, .1973. On my return I had Wo1me<1. Shri ~anjay !Jandbi about having brought the two .NSU engine~ which were lying with Ctistoms autl,toritie~ at Palam Airport. Shri Saojay . Gandhi advised me to get them cleared myself. I had problems with die Customs authorities in clearing of the said engines along with some other personal items as these two engil\l!S were banned items for being brought to India. And further I llad not obtained licence to import them in view of Sanjay's assurance to get these things .cleared without any difficulty. . . The total of Rs. 13,447.70 1.P. . Rs. 9,447.70 being Customs Duty plus ks. '+,000 as fine on ail items including engii1es was deposited by me througb Sbri G. L. Kalra an employee of M/s Maruti Ltd. 011 17th October, 1973 in the Rcsetve Bank of India, New Delhi, and the Treasury Challa11 was produced befon the Customs authorities. Engines were cleared fro[ll Customs on I 7th October 1973 by Shri G. L. Kalra who wa; author!sed to do so and ~rougbt by him to Mll!Uti Ltd. F:actoi')'.. Smee I was e;>,periencmg some d1fficulues at the customs for the clearance of my unaccompanied luggage I ~ad approached Shri Sanjay Gandhi for ass1~tan~ . . . I had borrowed money from Shn Saniay Gandhi for maldng payment towards Customs Duty/penalty etc. for the clearance of the above-t}l~ntioned two ,.ngine> from Customs authorities. Subsequently, I had .returned the !Doney to Shri Sanjay G<if1dh1. These cngmcs were actually requ~red by M~ruti Ltd. <?nly for the developmcnt/product1on of thctl' small car project. No ~csearch or development work was being c?rncd out by .M/s. Maruti Technical Services Pvt .Ltd. and they had no laboratory of their own,

16
When pressure mounted for production of a prototype for the VRDE for testing one such NSU engine was fined ;~ the prototype which was sent' to VRDE. Ahmcdnagar for test . . , , The second engine was used for various tests in the factory itself'. Thus the Maruti prototype car which was l'cqui1cd to be wholly indigenous had an imported engine. One of the reasons th<it contributed to the iung del'ay in making the prototype car available for examination hy VRDE was the rductancc of Maruti LiMitcd to submit to the test propo,cd, especially the reliability mileage. The dogged resistance put up by Maruti Limited is evident from the numerous letters exchanged between them and VRDE,' and the rcprcscntati<>ll> made hy them to the Minbt r; seeking to change the condition in the Jetter of intent requiring VRDE's approval of the prototype as roadworthy. S. M. Ghosh who was then Joint Sccr.:tary in tho Ministry of Hcaw Industry has admitted that in his expcricnc" "so muoh correspondence all round has not been exchanged for tcstii1g of any other prototyc car". The arrival of th.: Maruti prototype qr at Ahmednagar seemed to murk the end of a phase, but net quite. In a meeting held in the office of the Diroctor, VRDE, Ahrnednagar, on February 14, 1974, Sanjay Gandhi again indicated that he had reservations regarding the reliability test though loss than a month ago, on January 24, J974 Sh1i R. N. Chawdhry on behalf of M"ruti Limited had agreed to the reliability trials. Shri Gandhi said that he would take up the matter with th~ Ministry of Heavy Industry. Shri Chawdhry, Chief Executive of Manni Limited from Octobc1' I. 1971 It> .March 3, 1974, whu was examined by the Commission, in reply to a question why Maruti \Vas objecting so vehemently to the reliability test, said : "that car was not capable . of going through the test". The tests on thl' Maruti prototype car began w1tn an initial inspection conducted on February 11, 1974. On February 22, Maruti Limited fo1warded to VRDE the details of procurcmrnt of components for the prohJtypc in response to VRDE's query. 111c information supplied discloses that som~ parts were brought out from the motor market anc! some from other parties. Several components were shown as "presumed to be Imported" but "original supplier not traceable". Some parts were admitted as import<d with a rider that the 1mP9rtcd components would be replaced by indigenous ones. It cannot be said that VRDE did not know that the prototype they were to examine was required to be wholly indigenous. It can therefore be asked . why, when VRDE learned that some of the comp:i n~nts were imported or presumed to be im11ortcd, they did not suspend the trials and seek fu1ther instruction> from the Government 'I It is also inexplicable how YRDE failed .to notice at that stage that the enp)ne Shri titted on the prototype wa; an imported one. R: H. Cha~dhry ~as asked, "supposing a car is fixed wtth a foreign engine, al what stage you can find that a foreign engine had been fixed?" Shri Chawdhry's answer was that one could "find out by havin" a look at the car". Shd Jayaraman's evidence st~ggcsting that VROE would have taken note of this fact at the

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the strip examiriat!on of th.~. CJ!&iii~,~oes itot therefore seem quite convincin~. lf'it "wlii(' ,!"~own at 1he very begiuning that the engwe y.r~ not ,J,lldige;i:JllS, then all the subsequent trials we~.. tisele~ ~!CC~1ses, and if this information was disclqsc<l'at th~ llllti!il ~tag~ much time and trouble could possibly ,h~ve ~n ~pved, at lca~t the kind of trouble VRDl'tllad. ~' ,.,CC:..latcr in this case. : . __, jv.L jJ;.;: u;li ..r,.:f .ir;.>.. : < The first interim tnal report was . sul>n:iJtted . oy VRDE on March 29, 1974 on the initial performance t'st after the prototype had completed a;.~ of 17,8,UO Kms. excluding 2,500 Kms. covered by .Jt m reaching Ahmcdnagar from Delhi. In this trial repo1t !he v~hiclc evaluation team had brought out tl)e foUowmg defects : (I) cracking of trailiJlg, li11k;"(2) vefilcle pulling 10 the right, ( 3 J leakage oxelectrolyte fr!>m the ba1tcry (4) brake failure, (5), breakage of silencer, (6) br~akage of propeller shafL bush bearings .nud ( 7 J steering was stiff. All these defects were rectified oither by repair m rcpiacemeht. It was found that 'self-centering' was poor. Vivration and rattling in the body and at rear bonnet v.ere noticed at 2,700 to 3,000 engine 1 Junds per minute in the fourth gear. Water seepage during the water proof test in the passenger compartment, engine comJ?artment and the dickey was also reported. This intcrun report was. forwarded to the MinSlIY by A. S. Jayaraman, n1rect<1! of Vehicles (Research and Development), New Delhi on April I 7, 1974. The forwarding letter rcferted to !he verbal instructions given by the Secretary, Heavy Industry, .and promised that in accordance with the instructions VRDE would submit , a report after the prototype completed 10,000 Kms. run. The letter s1id that reliability trials wi;iu[d be carried out after the completion of I 0,000 Kms. run .. Events took an unexpected tum after the first interim n:port was received in the Ministry. 'On April 25, 1974 Shri M. Sondbi, Secretary, Mimstry of Heavv Industry, marked the report to the Deputy Secreta,ry after it came back from the Minister to whom it ha.! been mal'ked earlier for P.rusa!. Shri T. A. Pai was then Minister of Heavy Industry. According to N. Radhakrishnan, Deputy Secretary, Shri Sondhi asked him to ci:amine two points, (!) whether on the basis of the interim report received fro111 VRDE the letter of intent could be converted into an industrial lic,ncc and (2) whether, while issuing the licence, it was possible to reduce the capacity from:: 50,000 cars to a lower figure. Shri Radhakrisbnan recorded a note on May 3, 1974 in which after referring to A~ S. Jayaraman's promise to submit a report oo. completion of I 0,000 Kms. run, h~ said, "apparently the report that will be submitted after completion of 10,000. Knjs, will say whether the prototype is approved for roadworthiness or not. We should perhaps await that. repori. . before taking action for the conversion of the letter of intent into industrial licence". But. VRDE bad riiade it plain time and again that they would not approve the prototype for 1vadworthiness until c0mpleti<1n of the reliability test up to 30,000 Kms.' 1md.tbe Ministry had rejected finally Maruti's attempt to obtain an industrfal licence before complcting:rc)iabilify 'mileage or 30,000 Kms. There was no apparentrcason why the Deputy Secretary should ignol'e the long history of

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17 at di>pulc on this point between Maruli and VRDE which 1,he Ministry resolved by firmly telling Maruti that they must get their prototype cleared by VRDE. Before the 0,Jmn1i1\5ioo, Radhakrishnao explains this note as follows : "unless (be VRDE categorically, cei11fie~ l)lat tb9 ,prototype is roadw~r.tby, an incjus\rial)icence i;annot be issued bY the Ministry ... .,, fn. myJ>Qte dated 3rd May, 1974 I did not recommend the issue of an idustrial Jiceni:e Oil the basis of the interim i:eport received f,rom the VRDE ater a 1 un of 7,800 'Kms. only. What I had stated in my above note was that we should await the report after I 0,000 Kms. run because I expected that the report to be submitted on completion of 10,000 Kms. might give a certificate rega:ding the roadworthU1ess OP otherwise of the prol(Jlype and then we could decide whether on the basis of that report lette: of intent could be converted into ao industrial licence. It was clear to me that without such a clear roadworthinrss certificate, it would not be proper to i~sue an industrial licence as it would not be in conformity with the conditions of the Jetter of intent". Trying oo explain what made Mm think that VRDE might give a certificate of roadworthiness on completion of a trial run of 10,000 Kms. only, R.adhakrishoan says that he knew that "a c~rtifkate of roadworthiness can strictly be given only after the full run of 30,000 Kms. !low ever, in view cf the decision taken in Octuber 1972, l thought that in this particular case a certificate o! roadworthiness might be possible to be aiven lw the VRDE after run of J0,000 Kms.". He also add; that as "the October 1972 <lccision to take a view of the case after receiving an interim report after a run of l 0,000 Km; was applicable to this particular ~e and was not meant for gcntral application", he thought that tile VRDE would indude a certificate for road~ortbiness after completion of 10,000 Kms.". Radhakrishnan admits tha: he wa: aware of V. P. Gupt~'s note dater! January 6, 1.973 which was seen hy him, S. M. Ghosh, R. V. Subrahmauian and finally approved by the .Minister, recommending that Go~crnment need. not waive the condition requiring the tcsung of the prototype by .VRDE especially for one case. He could not also have been unaware of the ~rl)l st.and taken by VRDE all along that the rcliabi l!tY nuleage must be covered. Therefore his expccta11011 that VRDE might approve the prototype as roadworthy at that stag~ was without any basis. It is also JJOt clear why Shri Mantosb Sondhi should ask his Deputy Secretary to re-examine a matter. which was settled a!1d closed. On the se.cond point he was asked to exam11!e by the Secretary, Radhakrishnan's findin ~as that 1t was J;l<lSsible to "reduce the capacit ive~ Ill th? le~ter of mtent at the time of issne. ln .. dustrial licence., as Maruti Ltd. are not suppi>sed to Wi:e any effective steps before their profo1>'!'e has bee . n approved for. roadworthiness, and the mdustrial 1 1cence has been issued to them". could easily cortecled. The note added that: "the only condition prescribed" for issue of licence was the "approval of prooot;ipc" .and that "this bas been done". Ghosh was not:mfavourof reducinilth';capacity ane;I suggested that it might be prescribed in Ute licence: that the capacity which remained .ai. 50,00() vehicles wo.uld be "attainabl,e in two stages'~, :in)tiall~', .ttj~~)icenca would be .. endorsed for.125,0QO, .. ()n;\!.l&. ~.day<, May 8, he; also wrote a letter. oo VJ.U)B aftf:r. di~ cussion with the ~tary,"Slni ;MV'.Scll)libi': Ini 1his letter Ghosh stated that the Government would consider the issue of licence after l 0,000 Knu;. of run as had "already been agreed" ; it was not stated who were the parties oo this agreement. Ghosh asked from VRIDE a report after the prototype 1 eompleted 10,000 Kms. run. It may be recalled that it . wab Ghosh WhO bad earlier endorsed V. P. Gupta's note dated January 6, 1973, bad recommended i.n January, 1973 rejection of Matuti'sobjectio1l'lipt c:Onducting of tests by VRDE, and on December 21, 1973 had written to Manni telling them that they must get their proootype tested and approved .for roadworthi ness and the licence would be issued only ou production of a certificat~ of roadworthiness from VRDE The second interim trial report after the prototype had covered l 0,000 Kms. was submitted on May 4, 1974 and it was forwarded to the Ministry by A .S. Jayaramao on !vlay 8, 1974 presumably after Ghosh had recorded his note. In the letter acco1panyi,ng th~ report Jayaraman said that the rdiability trials were bei~g con.tinued. The second interim report dealt mamly with perfonnance trials. VRDE's comments on the trial results indicated that the performance wa' found ge11Crally sllisfactory. S. M. Gho~~ not~ of May 8 was seen by the Secretary, Shri So!1~hi ou ~e same day. He marked the file ro the Mm1ster statmg that the sc.cond trial repon on the prototype mad ! on the cumpletion of 10,000 Kms. had been received. and :the p~~ormanr;e of. t!Je pro_ootype has been quite sat1sfac1ory". The M1ruster signed and returned the me also on the same day. On ..M~y 9, 1974 S. M. Ghosh recorded another note : Discussed with Secrelary, H.l. [Heavy Industry}. Now that We have got rhe roadworthlness repo~ also, we s~ould proceed to take necessary steps ~or u;suc of a licence. A note in draft. ~~ a !ssue to the. M'mistry of. Industrial' Devel'-'"' 'ii)~' ~ue of a licence is submitted". ' Appaflni:i?t sfri: ~osh and Shri Manoosh sondhi took the .second in- . ,was retary saw the _lilil on '.l'jJnc 6/'174~~ ~~~; 11 bac1' oo. the .Jomt .,s~e,tafY,! S;, 1!,9~~;.:
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On rec~iviag Radhakrishnan's note Sbrl S. M g,hosh, J omt .se~retary, recorded bis own no~ 0~ ay 8, 1974 m which he stated that the 1 ~a~ d1tisfactoriJy ~ompJ~t~ the perforn1ance fri~l~ ~~~ 1 a succeeded m all ma1or tests. The onlv mention able defect according to him was the vi'b t' 2700-3000 rounds. per minute which he ratb~~Ji

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breakdown was given to the Ministry of Heavy Ii: Jayarnman in his letter dated, lu?c 29, dustry by A. 1974 which enclosed "photographs of the aamge 10 the car along with copies oi statements of the dnvy of the car and the Maruti Mechanic who w~s trave Ji with it". The Jeuer said that th~ accident ~~ p~ed to be due to th~ failure of steermg mcchani?m and added that the do.foci. was of a nature which needed a proper invcsuganon by the man~facturers of Maruti. The Ministry was ~equested. to as1<: Marull to send their designer to examrne t~e farlure t.h'?roug~1 and find out the ~use of the failure. Marut1, ho\\/ver, wrote to VRDE contending tl!at.. it was not a case of mechanical failure and the 1nc1dent .w:is due to the carelessness of the driver who was driving the vehicle. This contenlio:i was based on the statcmen~ of Maruti's mechanic Issac Ali made to the Marut1 management on June 28, 1974. The same man had earlier on June 26, l 97i told rhe VROE project team a different story and Jayaraman stnt a c<;>PY of that statement with his lcH~r. WhaL he then ,~aid. was lh&I when the vehicle had gone about L n11lcs from Ahmednagar, the driwr on hcarii~r. a sound h~!tcd the vehicle. Issac Ah who was s11lmg 01~ tl1e .co driver's seat" got down and found the vehicle. alright anc) told t.he driver to proceed. The driver re\)lied that the steering was very hard. After pr:>ceedmg some distance, the driver turned back the vehicle to return to Ahmednagar for a thorough check up. Almo~t immediately, when the vehicle was on a causeway, 1t ell!itted a sound the steering "became free" and went out of control a~d the vehicle fell into \!- ditch. Maruti's contention that an inexperienced driver was put 011 the job was incorrect because the driver concerned had "been with VRDE fo; 25 years. The "primary causes of defects" leading to the accident were mentioned in the report of VRDE's Project Manager as: (1) f~il we of welding between the knuc;k)e ann mounting end and the stub axle on the near side, (ii) ~hearing off ol)e of the two mouoting bolts near the welding and (iii) breakage of knucl;!e arm mpunting end. VRDE.'s report dated July 2, 1974 answered the aUegat.ions contained in Maruti'~ letter.

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lelter o~ intent intj lic[''.cf: H'.e mentioned in this note that 1t appeare air ). 1 dear that "continuance of the t~f t~, 30,000 Kms .. w: not considered an intew~I clement of roadworthm~.s wliich the letter <lf intent wa.< to be c<nvcrtcd . lite note referred to the !WO interim trial reports anu said that the prototype. "was passed u~d:r all tc;t>,; name! s eel, acceleration, fuel CO!lS\UDPllO!l, cool.r,~ efficie~cy;gradability, cmcrgenC)' bra~e eff!c1ency and the test results did n<>t show any ma101 hi~tu~ which the manufacturers claim". As regards the. mdJlellQUS character of the prototyp.:, .Ghosh state~ . m his note that a Jetter was addresseu by he Mm!~try to th,; manufacturers of passenger cars to confirm that m the prototype th~y bad sen~ all major components un? assemblies were of indigenous design and th~t this was confirmed by the manufacturers of Maruu cars. Ghosh considered il proper to rely on the assurance of the party inst~ad o! asking VRDE for a report. on this aspect ; obviou,ly he was not. aware of the 1111ported engine fitted on the Maruu prototype. Abo~I the accident which occurred on luJ'.c 24, .Ghosh s~ 'd in his note that it was :t mechamcal failure which could be overcome by suitabl~ mle~ign of .the ~om ponents and by upgrading the matenal spec1ticat1ous. It is diJlicult to ~ wmu induced SbJj S., M. Obos!) to think tliat co11tiqu~ of the:t~tqipt0 30,000 Kms. should not be comidered an integral element of roadworthiness. He did not .refer in l1is noie to the earlier decision of the G!>vetnmc:tt to which he hiO\SClf was a ~. VRDB ooID.idered thC 'reii3bilify lest as es~en tial and, i.n accordance with the: fourth condition of the Jetter of inteut, it could bo oonvc.rte<Hnto an industrial licence ouly after \IR'DE had approved the prototype as roadworthy. The change iii Ghosh's at' tude evident sine May 8, 1974 wl)e1!_ ,both in . his letter to A. S. Jayara11lllll and iu.:J$':no!9l'~ sought, to make out that !b: protqt~;!\lld'i&ll~.~s.~4Jly completed all the r~quu:ed tests, 1s ni>t ea!>Y: tQ,j~philn, but bis attempt to show as i! VRDE ha4 iipproved tlie prototype car as roadworthy was both J:tj\i,\ti6ed and misleading. Shri Sondhi'$ own. notci 'a!Sit1 rCc:orded on July 4, said that Gbosh's note. was,,v~cpafed in con. sl!ltation with him. Stating that the P!lrfuajiance of the prototype had been quite satisfaetory,-Soiidbi remarked that the Government. should_, !l,OW Rr()CCed t~ grant an industrial liCC!lce, ,~dhi's D.oi~k1m','secii by tl1e Minister, T. A. Pal, wllo puthis' sigiiature below it "~ toke!! o~ his approval. Whether Shri S!>ndhi was right in thinking that the performau~ -of !h~ protQtlJ>e up tQ 10,000 Kms. was sulliciellt\'inllicati~ 1 j)f':1ts roadwortbiness is U.Ot relevant, wl1atil~ reii;\lant is the fact that VRDE as the testing aulli()i-ity appointed by the Government had not approved the vehicle for roaclwoi"thiness ; neither the liM 11or the ,second report said that the Maruti protctype roi!dwortby. A. S Jayaraman has said that "a far we arc concuoed the roadworthin~s certificate. would. only be 2iven after completion of the reliability". ' .

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On July 3, 1974 S. M. Ghosh sent a cop~ of Jaya raman's letter to Shri Sanjay Oandhi, Managing Dircc tQr, Maruti Limited. A copy <Jf Ghosh's letter which is on the file shows hi~ anxiety t<J see the dnmaged oar put back on the foad. He said : "l shall be very grateful if you would kindly arrango to send the Chief Designer along with a team of engineers both on the manufacturing and on the design sides to Ahmednagar immediately in order that they can properly investigate into the defect and put lhe car tack on the road after necessary reclification. I hall be grate ful if you would advise me that the Chief Designer and a team of engineers have, in fact, left for Ahmedoagar to remove the defects. I shall also be grateful n I could be kept apprised of the progress made in putting the car back on. th~ road for resuming lhe tests". Politeness in official lerters is welcome but the tiles do not bear out that the tone of the communications addressed to other entrepreneurs at different times had been as humble. Ghosh has el<pre~sed his g~atcrulness to Shri San!ay Gn!Jdhi lhrice expecting lnm to do somethrng whrch Sim Gandhi should have
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and rccoriijug this fxt in his note dated July 20, 1974 Shri M. Sondb,i asked S. M. Ghosh to take 'action to COl)Vert the lctier of intent into an indus' trial licence: On the Jiles one dell3 net find itny justification for the step tak~n by Shri Sondhi which was clearly in disregard of the fourth condition of the letter of intent. The last phase in the progress for the issue of a licence now started. S. M. Ghosh on July 22, 1974 sent a note to R. K. Tikku, Director in the Se~:~ tariate for Industrial Approvals (SIA for ltort), Ministry of Induslnal Dcvclopmen,:, which aid "all conditions laid down in the letter of intent dated 30th September 1970 for manufacture of 50,000 passenger cars a yc~r have since been fully and satisfactori ly complied with. An industrial licence for the manufacture or 50,000 car.i a yea< may, therefore, be issued to Maruti Ltd." Tikku r.as said that as the note wlucll he got Crom S. M. Ghosh "dealt with an important and sensitive case" he thought it was "advisalilc to keep his immediate superior officer Shri Mahadcvan.. informed, and showed the note to Shri Mahadevan. I. Mahadevan was the Joint Secretary in the Ministry or Industrial Dewlopment. He says in his deposition that in normal drcumstnnces there w-as no need for the Director to come to him, but "as it was an imporllUlt and sensitive case, he t.hought it was his duty to bring it to my notice". It appears that Mahadevan himself then took the mattor to the Secretary in the Ministry of Industrial Development and after consultation with him sent a slip to R. K. Tikku which read : "Discussed with secrctal)'. This case can be dealt with under the rule:; following usual procedure and routine in due course". Asked why he considered it a sensitive case, llfahadevai1 ays: "We were aware that this was the case oi Maruti and the applicant in this case was Shri Sanjay Gandhi". R. K. Tikki; sent Mahadevan's note alc>n_; with S, M. Ghosh's note dated July 22, 197.1 to N. Venknte,an, Under Secretary. in ~he SIA. yc11katcsa!1 was then ineharge of th.c L1ccnsmg Comnutlec Section which was entrusted with the tnsk of convening the lcllcrs of intent into industrial licences. Th~ notes were handed over bv ycnkatcsan to Thakkcr, Section Officer of the Licensing C:ommittee Section with in,tructions to proees fo, case m the usual manner. Tlmkkcr asked for the relevant file from. the Department of Heavy Industry but the file was no.t made nvaibble to him. According to Mahadevan, :r1kku ~nd Vcnkatesan crdinarily >.z reco!'lmcndat1on of to~ udminislrativc Ministry for conversmn of the letter of int~nt to a licence used ta go on the fife of :he admi11istretive Ministry and SIA was prov1?ed with the file dealing with the original letters of intent. The main function of STA as r, k explains ~ and l JK u .. , was t,0 " chcck the letter of intent, the eond1t10115 put '.n !her~. W!1cther they had been carrie:J forw~rd m the mdustrr11l licence and whether he ba,-c 1 rcqmrcmcnts were fulfilbl". The STA was , h ever sup cd t 1 h h' . no. owl t' t:i_'!S. ~o ~ md the advice of the adminisra ive in.1stry. 13l~ih Tikku and !\tlahadcvai1 uhiie ~hkn<?wlcdgmg !hat this was 1hc normal practice'aid 3 ~c~d waas ~~so op~n lo the administrative Mini~trv , SC CCl'!tamed llOtr as in the present case mst~ad of the mam file. Vcn~alcsan has said that j,' Section Officer was not given acces" to th m' . 15 S/8 HA/79-4 e 1 e "nd

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on his insistence he .was supplied oDJy with attested cop~ of the JC~. of inteat w]Jjc~:tl!~,$~~~.q.tli~r sub11Utted .to Vena~san on},!)', ~?.;.J~1.~i ,Y;~llkat~ san says tbat !hey hild to act tlierefqr~ 'on the basis of the recom.mendlltion of the.Jiltnf'Se~e.t;iIY.,s. M. Ghosh. Ven)catesan recorded the follo~jlill note . "We have not b~n provided 'with' the main file OU the subject as it i3 the practice before "Ieiier:'of intent is converted into an industrhil licem:c, . ; :!Ii the absenee of this; we have to act on ',the b.as~ of advice given by the Joint Secretary in the administrative Ministry. We may presuine that condition No. 4 of the letter of intent which is very Important in this case bas been fulfilled and administrative Ministry are satisfied with this. On this basis we. i.nay issue the industrial licence.. Director R. K. Tikku may kindly see and approve". Had the mai'c file been made available, the SIA could have .examined whether th<' )>asic ~equir.ements bad been fulfilled .. to justify the ISsue of a licence and come to their own conclusion on the point even if tl1ey could not go behind the ad vice of the administrative Mihistry, Veiikatesan'~ evi deuce ls that be !Jacj been instructed by his Director R. K. Tikku "to dal with this case on priority basis" and "to be careful in handling this file since it was a sensitive case". R. K. Tikku saw Venkatesan's note and approved the suggestion to issue the licence on the basis of S. M. Ghosh's note dated July 22 1974 The draft licence was prepared and shown io Shri S. M: Ghosh and after he had approved it, the Ur.ence was 1ss~ed on July 2S, 1974.

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After the issue of licence Maruthtopped the supply of fuel and oil making it impossible for VRDE to coo tinue the reliability test. Th~ prototype car had then covered only 19,841 Kms. Both Shri Sondhi and Shri Ghosh had sugge~tcd that. : nc issue of licence need 1101. ~e held up until the prototype completed the rchab1!1ty test on the \'iew that reliabUity trials could be contm~ed. e.ven _after. th'} issue of licence. However, Marull Lmutcd m th~1r letter dated December 2 1974 assurc,d the Mini~try that supply of the facilitic-s 'would be resumed. Shri 3. 11. Ghosh forwarded the letter to A., s., !aya~aman to request VRDE to continue the reliabilI.t'. trials, but the assurance proved to be false ~1e.J1i:iJStry then wrote to A. S. Jayaraman, Dirccto; o . eh1~les (Research & Development), a~king fr,, clariJ!cation on the nature of the further trials that rcmamed to be carrfod out and the time they would take to. co,mplete the task. The reply received from VROE mdicated that it would take approximately Co months to complete the following trials : ur
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20
better IQ advise them to return the vehicle. The note of the discussion record~d by S. M. Ghosh on May 21, 1975 which was marked to the Minister stated that the Secretary was .if opinion that as the licence had been issued and the vehicle had ~lready run about 20,000 Kms. further reliability trials were primarily for bringing to the notice of the manufacturer tl1e remedial de~ects which might be noticed in the process and that the purpo$e could be better served if ~ production model was picked up from the a'Sembly hne and tested for durability. The suggestion was in accordance with a new system called "concurrent test" which had been introduced from January 1974 l11Dg '.lfter Shri Sanjay Gandhi haa beeu granted a leiter of mt.en:t. The concurrent test was applicable only to the ex1st1!1g manufacturers. Even Shri S. M. Ghosh admits that 1t had never been the idea that the "test schedule for prototype should be modified in the light of concurrent testing system" introduced later. Ghosh g~s ?~ to .add that "in this particular case as the rehab1hty trials could not be continued and licence had already been issue~!, it was felt t!1at the same purpose could be served m future by ptcking up vehicks from. the ~ssem.~ly fin~ for purported test over suh~ta!1.t1al mtleage . ~ut after licence had been issued, msistencc on any lmJ of test would be pointless unless the manufacturers thought it useful for them. It would appear from Ghosh's statement that the idea of aP,plying the concurrent test as a substitut~ for reliab1hty trials was thought of by Shri Sondhi. Shri T. A. Pai, who wa~ then Minister of Heavy Industry has deposed befoN this Commission and agreed with ~ndhi and Ghosh that reliability trials were not essential. Even Shri Pai in hi:! statement recorded by the Commissii;in on December 24, 1977 said : "Concurrent tests are not we same a~ reliability trials. The two are meant to s:rve different purposes. While the concurrent .tests were meant !o ensure the post manufacture. ~a.mtenance of quahlJ by the manufacturer, t!'e rehab1Jity tests were meant to ~heck the specificauons held out by the maker and to ensure safety ot travelling public". Uut in a subsequent statement madu ?n Ja~~ru;Y. 13, 1978 Shri Pai staled that the word reliability. m the extract quoted above was an madvertcnt trustakc and the word should be replaced by thhc word 'pciformuncc'. In that case the purpose of t e perfo:mancc test as stated by Shri Pai would not be .quite the same as described by Shri Jayar:iman ~ssu:rung that the reforence to the reliability test c Imes quoted .above was a mistake for performance test, what remams uucontradictcd is that concurrent tests were m~ant to ensure the post manufacture maintenance quality. The fourth condition mentioned in the Jetter of Jn!Cnl was .that before the letter of intent was t,0nJert~ mto an mdustrial licence, protot\'pes must b; a~v;:~rltyte~ed, .anddapproved for roadviorthiness ppointe for the purpose by Gover ment. There can be no question of maintai n ll!anufactu~e quality befor<! one got the liccnning .P?st ce givmg him the right to manufacture cars. these trials were meant to be a test of the car's .road- , worthiness. If the reliability test was dispensable, 1t was so. it seems, only for Maruti. Shri Manubl:~i H. Thakkar of .Baroda who was granted a letter of mtent on November 1, 1971, also manufactured a prototype car which he named Maya'. Lilce Maruti, Maya prototype car was also sent to VRDE, Ahmednagar, for testing. On March 24, 1975 Shri Manubhai Thakk~r wrote to the Under Secretary, MiniStry of Industry and Civil Supplies (Department of Heavy Indusuy), say ing that !lie prototype bad gone through all the tests successfully upto 2'?,600 Kms. and requesting the Ministry to convert the Jetter of intent into licence in view of the perfonnance. The request was not acceded to. In reply V. P. Gupta, Under Secretary, Minfatry of Industry and Civil Supplies (Department of Heavy Industry), iuformlld him on April 8, 1,\)75 that "you are required to fulfil all th6 conditions of the letter of intent including getting the prototype\ of, the vehicle cleared by the VRDE, Ahnieclnilgar". It was only after the 'Maya' prototype car had covered successfully the total enduranc~ mileage of 30,000 K.m.s. t,hat VRDE made their final report, on September 26, 1974 that from the performance, reliability and maintainabilio/ point of vi~w, the prototype submittC<) was cons.1dered roadworthy. If the reliability trials were meapt only, for the b~netit of the manufacturer, the awoety shown by Shri Ghosh at Maruti's refusal to go through the test after they got the licence was remarkable. Referring to a Jetter that the Ministrv received from VRDE saying that they were net abfo to carry out the relillbility trials because Maruti had withdrawn the facilities and the representatives of the ~mJl8llY had !11so left, Shri Ghosh .told the Commission : Immediately the matter was taken up with the comp1111y and at my personal level several leticrs were addressed, for instance dated 19-10-1974, 4-11-1974 and 22-1-1975. The letters, evoked formal response fro':ll the firm but VRDE continued to say that the facil!tles have uot been restored. The efforts were contmued up to 20th May, I 975 when VRDE reported that petr<:;>l. account has been closed and they arc not in a pos1.tion to carry out th~ trials. I took up the matter W!th the Sec~etary immediately and discussed the questJ~n of continuance of reliability trials''. Shri T. A. Pai has. also said that he had complained 10 fonner Prime Minister Shrimati Indira Ganc'hi a .out "Mr. Saajay Gandhi failing to fulfil the co~i Thtment to cpmplete the required reliability tests" e talk about Shri Saujay Gandhi's "commitment'; !O complete reliability tests would be somewhat mcongruous if these tests were meant only for the manufacturer's benefit. Shri Pai further stated "W ~e~o~~~~ i~f1~ ~e Party ;ner the tel~phon~ notice of the then Prim as rJfi~ 0 Y brought lo the 1 1

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The ".iew taken by Shri T. A. Pai Shri M . and Shri. S. M. Ghosh was that reli~bil~ trials. Sondhl meant only for the be fi f h were view was not shared bney VRDt o Et eAman . acturer. This ccording to VRDE

e.. ter s111d that. she would advise Mr Sa .a Gandhi to do.so, but nolblngCJUDe oun>f "t 'w 0~.Y not kno~ what penal action could 'be I J e . id Mr._ San1ay Gandhi or. this fll . ,,, ,.; ~gamst Shri Ghosh if the proto"""" ,. was' - ur.e , "'. """rdin.g to -~ , . worthy aftc u .,,,,.... ...-IIOt}hound ~.oadr cencc had been rssuci!; 'tlt ., Jui power to cancel it. This Illas a situationbr ~I.I: .d no by the Ullauthorised ,ou-t about the letter of intent. og withe !117,, ~dition of

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Sh . Pa''s anxiety to sec that Sanjay Gandhi fulfilled his .:,;~itmeut' appear., to have .been i;r?mp~ed also by his concern for the foril!cr Prime M.1mster s re~u tation In answer to a que~t10.1 put to him ~ to ~ .at was the "compelling necessity to go to the Prime M1i:1s tcr and not caU Mr. Sanjay Gand~i to _you~ of!ic~ and tell him to get the things done ' ~hr1 Pat said.. "WeU you see I did not send for him and I did not ~ant to deal wiUt him becau.>c. he was a rude person to deal with and absolutely unreasona~_le, so I had to go lo the Prime Minister and to!d her that this would put her reputation down and failure _would lie taken rather seriously". To a further quesllon as to what The Prime Minister said, his answer wa.s that she said she would advise Shri Sanjay Gandh;. To yet another qu~ry : "Did she not say t~at th!s was no concern of ~inc, ~by did n<;>t r,iu brmg this 10 the notice of Shri SanJ~/ Gan~hi ?. , t}ie an.swer was "she did not say that . Shrt Pat said Utat he also brought 10 her notice that he bad doubts about U1e reasonableness of the licence given t!> Ma!'1Jti .for a capacity. of 50,000 car~ a year, espectaUy m 11ew of the market coodit!ons and the large investments involved in such a bi" venture. He suggested .t~at a lesser capacity woUid have been more realistic. According to bun h3 told Shrlmati Gandhi that he wouW "like his Secretary Sondhi to explain to h;,r the implications of production of 50,000 . cars . Shri Sondhi's e~idence is that when they decided to . convert the letter of intent into industrial licence on i~tting the interim reports from V.RIDE, it struck him ijiatit was very difficulc to achieve the ?0,000 capacity sanctioned to Maruti, the reason bemg that such. a bii; venture needed very heavy investment and also required development of ancillary industry in the country at a high leYel. He also explained to his Minister that apart from the other reasons, production at that scale would require very substantial inpul<ln the meantime Shri Sondhi got several telephone calls from the Prime Minister's Secretariat inquiring about the delay in issuing a licence to Shxi Sanjay Gandhi. Professor Dhar, Secretary in the Prime Minister's Secretariat, tdephoned him more than once wanting to know the cause of the delay. Shri Sondhi got a call also from Shri R. K. Dhawan, Additional Private Secretary to th> Prime Minister, which was mere atbreat than a query. Dhawan said that be "could report to the highesl.'' possibly trying to convey to Sondhi that further delay in issuing a licence to Sbri Sanjay Gandhi would incur the displeasure of the Prime Minister who was obvio;isly the "highest". ; .. , iii I '... After Shri Pai had sp0ken to the former Prime Mliilster, Shri Sondhi was given an opportunity to see l)er. According to Shri Sondhi be explained the whole position to Shrimati Gandhi Who said she would consider what he had told her. However. these meetings did not yield any result Either . Shrimati Gandhi having co11sidercd what Shri Sondhl had told her found that the capacity of 50,000 cars tor which Maruti had been given licence was reasonable. or . on a c_onside~atfon o_f th~ matt:r she agreed with Shn Sondht but dd no; Ima 11 possible to induce Sanjay Gandhi to agree to a reduced capacity, or she did not allow herself to be bothered by wha Shri Sondhi had told her. When it was found that it was not !)ossible to continue the reliability trial; becau~ thti ne5es~~~ facilities bad bee11 withdrawn by uru . 0 th ght that VRDE would be better ad\'!Sed to re~~n the vehicle. Accordingly S. M_. Ghosh sub milted a note to the Minister and oi; his concurrenc~ orders were issued on May 5, 19 15 to VRDE t return the prototype. Tb~ prot'!type was hanJcJ over to the representative of Maruti onJune_ 14, 1975.

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Summary of speeial features.-Tbe special features appearing in the account given L~v~ 9f how the Maruti car project was cleared may now be

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low cost. passenger cars m the C<;>llD\ry, the Central Government .. bad appomted t.yo Committees one in 1959 and the other in 1960. Th~ project was not impleme!lted even after the committees bad submitted their reports as. the for~ign excliange position at the time was wd to be unfavourable. Criticism how~ver grew that the inaction \\lllS in the mtc;rest .of the monopolis'.s in the automobile mduslr .>'. Replyin~ to .i debate in the Lok Sabha on the subject. of small car in . August 1966 Shri D. S:mjivayya, MWster .of Iudus!J'Y, staied that t)Je fcasibilit)' of; !lJe car pxoJe~t would be ,~nsldered . first,.Jn t}ie public sector. ".Shri Fakharuddm Ali Ahmed, MWster of Industrial Develppment aud Company Affair.;, repe\ted iii Rajya s_abha in July 1967 that the endea\Ot:r o' th~ Governm;mt would be to explore the possibility of manufacturing a. c:;lieap car in the public sector. Shri Sanjay Gandhi applied for an industrial licence to manu.facturc passeng~r cars on Oecem.ber 11, 196~. Th~ desire <ixpres;cd by Shn Fakbaruddm Ah Ah.med for a new unit in the public sector led to a summary being prepared in SeptemberiOctober .1969 for consideration by the Cabinet. In the summary the Ministry of Industrial iDevelop1nent included a paragraph proposing to seek apprdval of the Cabinet for rbc isstlc of. letters of intent to parties who came forward with pro posals based on indigenous design and with n!fl'equest for import or allocation of foreign exchange. From this point the public sccto1 . appears to have lost the priority given to ii earlier by Shri Sanjivayya and Shri Fakharuddin Ali Ah.med. The treud became more' prominent in the note recorded on D:cember 10, 1969 by Sbri S. R. I<apur, Under Secretary in tllc Ministry of Industrial Development, which, after des, cribing Shd S:mjay Gandhi's. scheme as Completely indigenot:-5, suggested sending all such indigenous.schemes to the licensing committee for appro :al without waiting for the decision of the Cabinet on the summary prepared for its i:onsideratian. Besides Sanjay Gandhi's proposal there was then only one more, from Madau Mohan Rao,

22
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which clahned to be indigenous. Shri Kapur's anxiety to have the proposals claimed as indig.enous sent to the licensing committee without waiting for the . Cabinet decision is hard to explain unless the object was to hasten the i<sue of a letter of intent to Slui Gandhi. lf one remembers that it was Kapur who in August 1966 had said that a wholly indigenous car was "inconc.eivable" "at the present stage of our industrial development'' and in Janiiary 1967 suggested that the existing manutacturers should be allowed to expand, the change in his view would seem remarkable. The policy announced in Parliament by Shri Dinesh Singh, Minister of Industrial De_velopmcnt and Internal Trade, on August 10, 1970 contemplated setting up an additional production capacity in the publiG :ector of 50,000 cars per annum based on a proven foreign design concurrently with giving an opportunity to private sector to parties in the manufacture cars based on completely indigenous sources. It thus appears that after the initial assertion of priority in favour of the public sector, Government's policy concernmg the manufacture of cars with the arrival of Shri Sanjay Gandhi on the scene was shaped to help Shri Gandhi get ari industrial licence for bis car project.

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(b) The condithm requiring the proposals from parties inthe pnvate sector to be wholly mdigenous was considered im~ssible to satisfy at tblt stage of indusfnal development by many including . Shri Sanjivayya, the DGTD and the Tariff Commission. Kapur's note dated August 17, 1966 bas already been referred to. The auestion theref?re arises_, why such an impoS5ible condition was nnposed ? Even Madan Mohan Rao who claimed his scheme to be indi. ~cnous and who was granted a letter of mtent along with Sanjay Gandhi, felt that he C?uld not proceerl without having his drawm~s approved by a foreign expert. Sbri Gandhi h:id an imported NSU engine fitted on the Maruti prototype that was sent to VRDE for testing wbicl:. was clearly a fraudulent ac!. Many of its components were also adnutted!y imported_ though some of them .were bought out from the local mar. ke.t ;. use of su7!1 component~ was not pernussible acco~dt'!g to the notion of a hundred)er cent ,.nd1genous car as explained by Shri D. Sanuvayya, Sbn C. Subramaniam and S~ri Dine~h Singh. It seems that Sanjay Gandbf wa: aware of the difficulty and he never mtended to comply with the condition }'.et he si;cceeded in obtaining an industrial licence. Oth,rs who were not so bold and re.sourceful and did not expect to get away With fraud were bound to give up leaving the field clear to Shri Sanjay Gandhi.

(e) Sanjay Gandhi's .car project was treated as a special case. Shri R. V. Subrabmanian ad mits that this kind of special treatment was nOt given to any other applicant for industri.al lice!1ce Shri Gan~hi had,,bis preJ.imi,nary pro1eot repo~ cxanuned by the DGTD and the Planning Commission even before be applied for an industrial licence. This was not usual. P. V. Subrabmanian however said that so far as DGTD was concemed it was "not wholly unusual". Shri ,B. D. Pande, then Secretary. of the. Plai:nini; Commission, asked wbethi:;r !t was cust~mary for the Planning C~I!!!l!.l'lS!O:l to exa;;me project reports from pnvate part:cs, rep 1ed that it was not "totally unusual". Even before Shri Gandhi aPJllied for a licence the officials of the DOTI>. had discussions with him reoardiug the yano~ features of bis project. offered ms~tton of the Maruti prototype car to the DGID officials at the residence of the Deputy Minister. Ministry of Industrial Dev~opme~t where Shri R; V. Subrahtl1llDJllD, Jo mt Secretary Jn the Ministry was !1150 prese!'t. In the summary for the liccns~g committee also Sanjay Gandhi's application was trealfd as a special case. Joint Sec~tary R. ' Subrahmaniao considered adan Moh1n Rao's plan to produce 7~.~0 cars a year over-ambitious and at bJS !nstance th.e . ~ummary recommended in ~o s case an m1Ual capacity of.10,000 cars going upto 20,000-25,000 cars a year. The

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capacity of 50,000 cars a year in the case of Sanjay Gandhi was not disturbed. There appears io be no valid reason for the two cases being treated di!Icrently. The licensing committee raised Rae's capacity to 25,000 cars per an11um. According to the declared policy, the cars were required to be ono hundred per cent indigenous which the DGTD, the Tariff Commission and even Shri D. Sanjivayya thought was an impossible condition. I~ was therefore hardly of any practical significance whether , an entrepreneur was permitted to manufacture 25,000 cars or 50,000 cars a year. To the members or the licensing committee, especially to R. \ 1 Subr:;ihnu:nian, it scen1s, no one could be equal to $anjay Gandhi even in a make believe world.
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tests that VRDE, Ahmednagar, proposed to carry out on !he Maruti prototype car, special!y the reliability test. The rea;on was stated by retired Wing Commander R. H. Chawdhry, Chief Executive of Maruti Limited : "that car was not capable of going tbJ;ough tl>e test", Shrl S. M. Ghosh, then JQ!!!t Secretary in the ?.1inistry of Heavy Industry, admits that in his e,_perience "so much correspondence all rbuod has not been excha1iged for testing any other prototype

Shri Mantosh Sondbi led the reopening of ihe matter which seemed closed with V. P. Gupta's note. . For no appreciable reason Radhakrishnan was; askeG by Shri Manto$h Sondhi to re-examine the point whether on the basis of the. interim report received from VRDE ihe letter of intent issued to Maruti Limited could be converted into an industrial licence. ln his note Radhakrishnan said illler a/ia that ihe interim report "will say whether the prototype is approved for roadworthiness or not". Jn his deposition Radhakrishnao admits that it was only VRDE that was entitled to give a certificate of roadwcrthincss but says that in this particular case he thought VRDE might gram a certificate after a run of 10,000 Kms. It is not clear what made him think so, he must have been aware that VRDE had been insistiiig on the completion of the reliability mileage test upto 3.0,000 kms. (h) Maruti 1:imited received c~nsiderable help from ~~1 S. M. Ghosh, Jomt Secretary in the. Mmis~ ?f Hea" Industry in getting an mdustnal lic~l!ce without complying with the fourth cond111on. of ihe J..,tter of intent. On May 8, 1974 he wrote to VRDE that Government would consider ihe issue of licence after 10,000 Kms. run as had "already been agreed" ; it was not stated when anI '!Jetween whom this agreement was entered !> On July. 4, 1974; he recorded a note m consultation with Shri Sondhi recolllDl~nd ~ convenio!} of the letter of iqtent into a li~c.ice saying that continuance of the relia~ility tes.l up to 30,QOQ,,Kms.,,~')Vas not constdeied w:i mtegral1 el~ of .i:oadworthl ness O,n W/lich the lettel'i .06;intent WBs to be converted' In the note' he sent on July 22 197~ to R. K. ~,l.Dlrector;. SIA (Sec-'. retariat for :lnP~lriab..,.pprova~).; he said ~ 1111 lbe cond1t1ons.laid doWI! in the Jetter of mteliednt h~.dth. ...)leen. full;.Y \andi1;satisfactorily comp , . WJ All.~ stateinerits in 'Shri Ghosh s D;Otes are incorrect. He could not _ have possibly forgotten that he had earlier , e.ndors~ V. P. Guplij.:S, note of,January 6 1~?3 . recollJ.!DCnding 'rejection of Maruri'~ 0 iection agamst the tests -that VRDE pro'!Ul, Q/l tbe Pro~typ.e, .that he , ~~n, '1!>1 Mliruti Llllllted 01;1 D ecember 2!, 1973 telling them that t: 1e must get thell' pr!ltotype; tested and approied ~or roadworthin~s l!lld ..the licence would ~ r~ued ~~~ .praj11_1)tio.n of'll' ~ertific;ate wo In recrunmending th v~rsio!1 of the. le~, of Jntellt:illio an ~d:: tria,l licence he sa1q in his note dated-J 1 4 1974 that all ma1'01 components. d u Y ' blies th M . an ,assemiruli m e . aruti J?.(Pt!iltyPC ,car, ,were of on ~C::~f!i~C$JgDd ~!~IAtement ~as based , Maruti car Hrna - e , Y ~{manufacturers of ow, unw1511, h~ - had been t . accept tl!e s!atement without making a proo ~~~;o~ l!e J?rov~ by 1he fact tha~ lll!, !lDPOrt.ed NSU engine.

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(g) One of the tentahve decisions reached in the meeHogs held in October 1972 between the representatives of Maruti Limited and the ollj.cers of th~ DGTD and VR[)E v,ai, that "after receip.t of the report of the first 10?00!>. kms. a \1ew could be taken on the relia~iJity of the vehicle with erence to the condi~on .Nf!. 4 of the letter of. intent t" Maruti L1m1ted" and "at the same time furth~r running could continue and reporl subnutted at the appropriate time" Even ~ a tentative decision it was somewhat ambiguous because it did not state who was , to take the view, However, the matter was con~luded hy the recommendation made b} Shr1 V. P. Gupta, Under Secretary, Ministry ~f Industrial Development, in his note dated anuary ~. 1973 that in view of the "likely rep~rcuss10ns" the condition regarding the !:;sung of prototype should not be waiv~d Ill any 0i:ie case" and Maruti Limited should be mformed that their letter of intent w~uld con~erted into an industxial licei::ce : Yb aft.r then prototype had been approvy VRDE, Ahmednagar. Gupta's note w~s seeSI bl' N. Radhakrishnan, Deputy Sec~'i, a.ryR Vm S. M. Ghosh, Joint Secretary n Subrahmaniar., Additional Sec: reta~Y. and fin.al!Y approved by Sbri C. Subramanam, Mimstcr of Industrial Develop de~ntbyB\!J subsequently another note recordeputy S~cretary N, Radhakrishnan on May 3, 1974 at the instance of Secretary,

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Ghosh did not make over the main file dealiJlg with the Maruti's letter of inten1 to SIA as was the usual practice. It rs remarkable that so many "not wholly unusual" or "not totally unusual" features have com[)inco in one case. Shri V~nkatcsan, Under Secretary in SIA, says that they had to act on the basis o( the recommendation of tbe Joint Secretary Shri S. M. Ghosh. If they had the file the SIA couJd have examined the facts and come to their own conclusion as to whether the condi.tions of the 'letter of intent had been complied with to justify the issue of a licence, tliough they were not entitled to go behind the views of the administrative Ministry. It seems all the steps Shri Ghosh had taken after December 21, 1973 were calculated to help Maruti in getting an industrhl licence without complying with tbe condition of the letter of intent. Ghosh denies that he had been under any pressure. But there musl have been some reason prompting him to act in the manner he did, but it has remained undfaclosed. Whatever t!Jc rea,son was it is clear t~at having kl!Own Sanjay G(lndlu s reluctance to submtt the Marull prototype to the reliability test, Ghosh did all he couJd to spare the trouble for Sbri Gandhi. The evidence given by Sbrl Mamosh Sondhi, Secretary in the Ministry of Aeavy Industry, and Shli T. A. Pai who was Minister of Heavy Industry frOlll F~bruary 5, 1973 till March 1977, is lhat the reliab1hty test upto 30,000 Kms. was not essential in view of the decisio1_1 taken in the. meetings held in October 1972. Accordmg to them as a result of this decision lhe administrative Ministry was entitled to take a view on .the roadworthiness of the prototype on the completion of I 0,000 Kms. run. On the fil1:5 however it does not appear that either of them had taken this stand ~t .any ~ prior to giving evidence before the Com.missto1_1. Neither ~. Radhakrishnao, nor R. V . Subrahmwuan nor Sbr1 C. Subromaniam thought that thC? .October 1972 decision gave the administrative M1rustry a!1y S!1ch power. In any event the controversy on this pomt was set at rest by Shri V. P. Gupta's note dated ~ll!luary 6, 1973 which was approved by tbe then !'Jmtster of Industrial Development Shri C. Subram~am. Of .fourse, there is nothing to Indicate P. ,lhat S1!1'1 T. A. Pll! s attention was drawn to Shri -Ouptas DC!te If 1t .was. decided in October 1972, as -Shi1 Sondh1 an~ Sbn Pa1 seem to think, that the Minis.try would. be competent to take a view as to the 1road'.l"ort1noi:ss of the prototype, the decision was 'in~nsistent w1!h the fourth condition of the Jeiter of mte'!t acccm:ling to which only the testing agency J10IU1Dated ~Y the 9overom~nt could take any such ".;~~ If Sb;i Sondh1 and Shn Pai were right, the con...,tion reqwr~ an amendment which normal! could not be done WJ.thout reference to the licensing ~mmit te!l. Even Shn N. Radhakrishnan who thought that a b1ew to the roadworthiness of the prototype niight Jini~ after a run of I 0,000 Kms. _only, said that . one was cc:>mpetent to take this view. Radhakrishnan .furtb:r said that even if VRDE had taken such a view. it. would not have been a decision of gfn~ app&cat1on but. rest~icted only to the case Javour ~~ M=s the mtenl~on was to. do a special 1 exception only i,; M~ttl~su cas~~t 1tb: b~~sem~~eShrl Manubhai H. Tbakker whose 'Maya' prototype car .was made to go through the reliability test for the entire 30,00Q )Qns. and whose request for a licence after the prototype had run for about 22,600 Kms. was turned down, would prove conclusively that no change in the fourth condition of the letter of intent was in "tended. Shri Sondhi, Se<:retary, Ministry of Heavy lo dustry, was also an automobile engineer. Perhaps he was drawing on his expcr. knowledge wh~ in the course of his deposition be said that feliability test up to 30,000 Kms. was not essential for. a car to be coo_sidered roadworthy. Whether his opioion was right or not is immaterial, it was the opinion of VRDE lhat mattered in i.his case. _,, It will be relevant in thi~ connection to refer to the answets given to two questious asked in the Lok Sabha in 1975.. On February 26, 1!!75.i.ljh~Wer to uustarred quesuon No. 1386 asked by Sllij;,JyqJ;lnnoy Bosu, "whether tile prototype Marliti cilr' senJ: to VRDE at Ahm"flnagar was. approv~ by ,,tbp1 Q11v~ ment and the licence for its man~ JSSUed to Maru\i Ltd." Shri .A. C. George, 1'tiDP!ter of"State in the MinistI:y of Industry and Civil sUpplies, said : "Licence was issued on approval of, the,,prot~ by the VRDE". The facts stated abov~ prove' tllat the reply was incorrect. VRDB never apprqved:tho ,Maruti prototype as roadworthy. The draft reiJJy,.to the question was prepared by Shri S. M. Gh0$Jvaiui it was seen and approved by Shn SondhLTo,,Jliio!her uo starred question No. 7335, as to the iSl:Ope 'ilnd. tbe nature of the tests proposed by the ~;a. for giving a certificate of roadworthiness, "especiii!jy the test to w~h the Mllfl:lil protolYP.C was subjected"; asked by Shn. Madbu Limaye, Shr1 A, C,, Gc;,w-~,1replied on April 23, 1975 : rr~ tesl:S are. !l!JiJPmi!y!applied to all proto~. Technical performance .. trial$ indude tests of maxunum speed, licceleralion, fuetconsum.ption, brake efficiencies coo"-~ elW:iencieS .ilnd -"eability". It ls to be noted thC : - . . '~' ' .,...,.,. n1 th technical_..., .at ,~W,~C!llWlled o Yall toe. the -"-E"'ili" ormanceThtria1$,_~, ..._.. ".@_m_ 11t_ . l#et .at ~.,,...., ty test. e ~ ctepJY: ,was prepared by .shri S. M . Ghosh. w~ to have not!) on the been Jl!odified by Slir1 Sondhi. The file [File No. 10(61)/75-AEI(l), Department of Heavy Industry] de&Ji2!l with this question included f. statement~. the "vJ:UJE b.as yet to subiDit a repon on the reliability tests after running the ,v~ up to 30,000 Kms. ". The draft ,prepared by Shri Ghosh and ~m~11ded by Shri Sondhi withheld reference to the reliability tests, but the question asked is not correctly answered if ~ the tests, including the reliability test are not menuoned. The reply _given . was therefore only 1!alf truth. It ~h!JWS that Sbri Ghosh and Shri t1:s~ were not williD.11: to <lisclose .all the relevaiu

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Shri Sondhi's contribution to Maruti;s ..auccess in getting a licence without going thrOugb ~ reliability test cannot ~ overl<;>aked. There is no apparent rea' son w~y ~!Jri Sont!hl '!as ~o keen on dispensini: with the reliability ~t m violation of the fourth condition of the letter of mtent. However, from the facts it also mpcars that Shri Sondhi was opposed to

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IDbawan, Additiol)al Private Secretary to the Prime Minister, that he (Dhawan) would report Sondbi w the "highest". Shri Sondhi has said in his deposition thatsome of bis "actions were not liked by the authorities" and suggested that the delay in the issue of a licence to Maruti Limited might be one of them. It is a fact that Shri Sondhl was harassed. He says : " .... not only my family and I were kept under police SLl,l'VeiUance, but soon after the declaration of emergency CBI registered a case against me". Another reason why he incurred the displeasure of the "authorities", according to him, was that he tried to protect one of his officers, Shri Krishnaswmy, who was being harassed by the former government. The case registered against Shri Sondhi was dropped in August 1977 because on inquiry no evidence was found to support the allegations made against him. (i) Shri Sondhi and Shri S. M. Ghosh had taken the view that reliability test could con tinue after the llcencc was issued to Maruti Linllted. After the issue of licence Maruti ~IC?PPed !b~ sup1>lY of fuel and oil making 1t 1mposs1ble for VRDE to continue the test. There was nothing that the authorities could ~o to ~ompel Maruti to continue the reliabi lity mileage. This was a situation brouoht about en~~ely by unauthorised meddling ~th the . condmo11s. of the letter of inte.nt, may be m good faith so far as Shri Sondhi was concer1:1ed. One should have expected in such c1rcum.stances the Minister or the Secrz,talJ,' to sununc;in the entrepreneur and insist on. ~!s. completmg the test, but Shri T. A. Pat d!d n<It want to deal with" Sanjay gandlu because Shri Gandhi was "rude" and absol!-!tel~ unr.easonabk'. So he had to go to Shr1mat1 Jnd1ra Gandhi to tell her to make her son agree to let the test continue, (j) Shrimati Indira Gandh: did not tell Shri Pai when he Went to sec her that her son's bu,;.

ness was no concern of hers. She assured Shri Pai that she would advise her son to do what Shri Pai had suggested. Shri Sondhi also saw her to convince her that the capacity of , S0,000 cars a year granted to Maruti Limited was unrealistic and should be reduced. TQ him also she said that she would consider what he had told her. If it was legally permissible to reduce the capacity menuoned in the Jetter of intent, it js,difficult to see why that was not done, and i,f it was l)Ot, it is difficult to appreciate why the entrepreneur's mother ;;hould be approached to induc.e her son to b,e rea~onablc. The speech Shiima"i Indira Gandhi made in Alunedabad oo Sep temher 23, 1970 extolling the entefj)rising spirit of her son Sanjay Gandhi and the virtues of bis Ma.ruti car. may be recalled. She told the gathering that ihe car modelled by her son was "fairly comfortable and suital;>le to Indian condition>' and that "it would suit the middle class". , A few weeks before she made this speech' she presided over the Cabinet meeting which decided to entertain proposals from the private sector for the manufacture of 'indigenous' cars ; she knew at the time that her son was an applicant for an industrial licence to manufacture cars and his proposals claimed to fu!Jil the con?itions whic~ the Cabine~ ?ecided to impose m that meeting. Her pres1dmg over the meet ing in these circumstances attracts criticism It is also difficult to believe that she did not kno"! of the inquiries made from her Secretanat about the cause of d~lay in issuing a licence to h~r son. From all these one gets an impr.!llsion that Shrimati Indira Gandhi !'5 Prime Minister, w,as not quite unconcenied 10 the matter of her son's business enterprise.

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CHAPTER JI
The third item ln the li't of matt~rs for inquiry relates to:"All matters pert~ilting to the propriety and ~e legality cf acquisition or allotment of land in Gurgaon district in the State of Haryana, incluilli.g :
(a) the propr\ety of allowing the lo~at!o~ of

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at Faridabad in Haryana. Sbri Sanja'y 'Gandhi was granted a letter of intent on Septem~' ,'30, . 1970. Before the letter oC-mtent WI!$ ~l .-sl>~~e' ~ ti! second week of August 1970 Sbri S. K. MiSra, Pnnc1pal Secretary to th~ Chie~ Millister of Hary~ infonned Shri L. Gup+.a, Diicctor ofl!id11$\riCS, and Shri R. S. Mann, [)!rector of Town and Country Planning, that the Chief Min!Ster wan~. ~~-II_l to sho~ Shri Sanjay Gandhi some sites at SoDepat'where his e-ar factory could be set up. All three of them, Misra, Mann and Gupta then prOCeeded to New Delhi, calle~ on Sanjay Gandhi at No. 1, SafdarjaJI& 'Road, res1dence of Prime Minister -Sbpmati I11dir;!., Jlandhi, and took him along wilh them. visiting sjtes around Sonepat to enable him to chOOlie one suitable for his purpose. Shri Gan<.llti did not express any ~pinion at the time later Shn L. C. Gupta and Sbri R. S. Manu wer; informed that he did not approve any of the si:-~s he saw at Sonepat 11nd that he preferr~ to set up his factory near Gurgaon.
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In i 971 the Government of Haryana acquire.! 420.54 acres of land in Gurgaor. districf a~d _allottoo about 297 acres of tbis area to Marut1 Limited for its small car project. An inquiry into the above matters will touch besides the different apccts of the lund acquisition' proceeding., several other .topics like the selection of site for Shri Sanjay Gandhi's car factory ; tbe Agreement '!nder whie-'1 the la?~ was allotled to Ma,niti Limited, 1ts terms and cond1tJons, and how far they were complied with ; construction of the Maruti complex of buildlngs, its propriety and legality, and t)le stand of the Central Government on this issue ; and, the role of 1he Haryana Government in all 1hcse l),latters. Each of these topics again has various aspects. Tbe question of adequacy of the comp~nsation paid to the owners .and occupants of t-he land IS pe~d mg in appeal before the Punjab and ?aryana .H!h Court and it would not be proper for this Com1I1Jss1on to examine the sam~ matter. It has not been always possible in the following pages to deal fully and finally with a topic before passing on to another ; sometimes the facts relevant to one extend over a length of timo during which events have occurred which bear upon a different topic. I have lj.ltempted to present a coherent account of the happenings out of a mass of facts and arranged and dealt with these topics accordingly. The narrative may begin with the selection of site for Shri Sanjay Gandhi's car project which preceded the acquisition of land. It will be recalled that Sanjay Gandhi had applied for an ind!lstrial licence to manufacture cars on December 11, 1968. A week later, on Decc01ber 18, Shri Bans.i Lal, then Chief Minister of Haryana, wrote to Shri Fakharuddin Ali Ahmed, Union Minister of Industrial Development and Company Affairs at the time, sponsoring the project and recommending grant of licence to Shri Gandhi; It was mentioned in the letter that the State Government had offered to Shri Gancllu facilities in respect of land water, electricity and finance for selling up the projeci

It appears from a letter written by V. S. Ailawadi; Deputy Commissioner of Gui:gaon, to M. L. Batra, Financial Collllllissioner (Revenue), Government o Haryana, on August 22, 1970 that on August 17, the Chief Minister of Haryana bad directejl' him on telephone to select a suitable site for Sbri Sa.ojay Gandhi's small car project. The letter discloses that .Sanjay Gandhi had indie-ated his preference for. a site somewhere on Delbi-Ourgaon or Gurgaon-Mellrauli Road, that on August 18 he tentatively chose two out of the three sites that he saw with Ailawa'di, and that finally on August 20, he' !!ad selected .ao1site on Gurgaon-Delhi Road in the i;evenue estate p,f>;DwJdahera, It was stated in Ailawadl's letter that the land required for Sanjay Gandhi's car project was 300 acres approximately. Along with the letter'':.O.:miwadi SC11t necessary papers for the acquisition of:291 acres of
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the Defence DepartmeriL AilawadFsii~l in"b)s letter that this area of 157 acres got'released" from the Defence aiitl!Oriti . oiied that a notification UDder sectio1i 4 Of i:Acquisition :Act had already been .issued;, a" Uirin Dundahexa lands for the public ' " ,~J development' and suggested mvom,,; - I ' 'fl7''' Of the :Act to enable the QGVeminent to ~Viirim,.,ljate , possession. of the ~ Section 17. di;Iu'lves persiia.s having an mterest m the land pro~ tO P:a""'uircd of their rigb~ to object to the. acquiSi~Qli''iil: c1iSes of ur;,ency._Sbri M. L. Batra as5ed on.tlu: Jetter_ ... to.Shri R. s. Mann, !Director, Town andco' - ~'A'la As Ailawadi's leUet spoke of' Chief ~ter, Mami tl1ought it proper to discuss the matter infonpally .wjth S. K. MiSr;; I,>r\n~~. Secretary to the Chief Minister. Mann poftt~~:l1~&dilti!lg
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27 the dis~ussion tl1at as Sanjay Gandhi had, made no f<>tlllal application for allotment of .land and the Direc'/, leirate of Town and Country Planning had no idea "f about the proposed car proicct, it was not possible .) . for hil)l to. take any decision. A few days thereafter Mishra.informed Mann that no action need be taken : ; on.Ailawadi's letter. Mann made a note on the file on September 29, 1970 placing on record the fact that Sa!Jjay Gandhi had made . no application a~kiog for land to. be acquired for him ; this note was SfeD by \ Chief Minister Ban;i I.al on October 26, 1970.
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To appreciate the rvents that followed it will be necessary at this stage to refer to some provisions of the Punjab Scheduled Roads and Controlled Areas Restriction of Unregulated Development Act, 1963. This Act which was extended to the State of Haryana, is, as its preamble shows, an "Act to prevent haphni:iml and sub-standard development along scheduled roads and in controlled areas". Section 3 of the Act prohibits, among other things, erection of buildings within 30 meters on either side of the road reservatiCln of any scheduled road. Road reservation in relation to a scheduled road has been defined as .the !and, whether metalled or unmetalled, which vests in the Government or the Central Government or a local authority for the purposes of such road and the boundaries of which are demarcated by pillars, posts or in any other manner. It may be mentioned here that Delhi-Gurgaon road is part of Delhi-Alwar road which is orie of such scheduled roads. Section 3 also mentions certain exceptions where the prohibition would not apply, but these are not relevant for the present purpose. The area around Gurgaon was declared a controlled area under section 3 of the Act. sometime in July 1964. Under section 5, lhe Director of Town and Country Planning is required to prepare plans showing the controlled area and signifying therein the nature of restrictions and conditions proposed to be made applicable to such area and submit .the plans to the Government. The Govcinmcn.t may approve the plans with or without modifications or reject the plans with direction to the Director to propare fresh plans. After the plans are approved by the Government, they are published for the purpose of inviting objections. After objectfons, suggestions and repr~ sentations have been considered, the plans as finally approved, are published in the official gazette and in such other manner as may be prescribed. Section 6 of the Act forbids erection of buildings in a controlled area except in accordance with the plans and the restrictions and conditions referred to in section S and with the previous permission of the Director. According to Mann a number of development plans for the controlled area in Gurgaon were prepared but for various reasons these could not be given a definite shape. One such plan, Plan No. 5, he submitted to th: Government on November 11, 1970. After this, M. L. Batra called him to his room and made enquiries about Sanjay Gandhi's propos~I to set up a car factory on the. qurgaon-Delhi road. Besides beine; Financial Comm1ss1oner (Revenue), Batra was also Secretary of a number of dcoartments including the departments of Town and Country Plannin~ and Urban Estates fn t~e course of discussion Mann pointed out thai - the sit~ where the factory was proposed to be located
S/8 HA/79-5

fell in .the yea shown as.ilif\11 ZOJ,l~:~#); prp~ developmeqt, plan:. To..1B111J"S 'l.U$~.'.~~.~.'l~ . '.'.'~1g~Jd be any difficulty !D ti)e ev!=!lt SiU,!JaY;, , ... , ,,, . , . Y decided to set .up his factory tb~re;.,,, ,, ""'&~~r was that, in that case a portion <>f _tl\!1 ,~~~0'1\'ll}Jl the plan as rural zone. could be convet(~;w'.!R;j.9,d~toal zone. Mann. !so to!d him that ti)~ ~YF~~;;~ad decided not to take any step lo regard to !lie.~ proiect as there was no application trom .~<l*ja,x;,Q,~i for allotment of land t<? him. Accof<!ing.~j~.}3a~a told him to ascertam from the Director,ofJndustnes the latest position as regards Saojay GiiliMi'.s project and also asked him to take immediate steps to' approach the Defence authorities for release of the 157 acres or land referred to in Ailawadi's letter. . As, desired by Batra, Mano had a letter issued on . .'N()yember . 14, 1970, signed by the chief Minis~/ilf\~a, requesting the Defence Minister Shri Jailjivan'Rairi'to release the afol'esaid 157 acres of land. ' , ' On the same day the letter to the Defe11~ }dioister was issued, November 14, Sanjay Gandhi ~ote to th~ Director of 1!Jdustries, Government oqfll!)'lllJ~,stating that he requ!fed 300 acre~ of l~d fOJ,',biSi,~iJa.~ory and also that he had selec!ed a Site ()n Gllrgaot). highway. Shri Gandhi asked for allotment of the land to him on a lease basis proposing payment in. i.ristalments, the first instalment, as proposed, was .payable . atter five years from the acquisition of land. The site. select~d was in the area marked as rural belt Jn the' .pr,1>!iose..:I development plan No. 5. In this J,etter Shn Gandhi referred to a project report and. a previou .. s application sent by him for the land. Neither of the t\VQ fk>CUments could be traced 1n the files. Shri L. C. Guptii, Director of Industries, on being asked to produce these documents was unable to do so. It was suggested by Counsel assisting the Commission that the reference to these documents in Shri Gandhi's letter of November 14, 1970 v1ds an afterthought to gef over the situation that steps for acquiring land for Saojay Gandhi's car facto1y had been taken even before . he applied for allotment of land. About this time preparation of a new development plan, Plan No. 8, was started in the Directorate of Town and Country Planning. Mann ~dmits. t~at one factor that "weighed heavily" with them 10 dec1dmg to prepare a new plan was the possibility tha~ Sanjay Gandhi might set up his f~ry at the site chosen by him. The new plan . differed from the previous one lo several respects, one was that the major portion of the area to the w !St of Gurgaon-Delhi Ro~d, pro:viously marked as rural zone, 'was shown ~s ll)dustna.I ~ctor. It may be1 mentioned here that m his application made to the Government of Inc'h on December 11, 1968 for gi'ant of an industrial licence Shri Ga11dhi had indicated his requirement of land a~ 30 hectares or 75 acres only.
~eference ~~s been' made in the previous chapter t'> Saniay Gandhi s letter to S. 'R. Kapur Under Secretary Departm~nt of H~avy Engineering, ~eeki,og to chang~ the locatmn of his proposed factory from Faridabad Where ~e f~ctory was earlier intended to be set up, to t?e s1~e m Gu.rgaon. A copy of this letter was received in the Directorat~ of Industries Haryana 0 ~ Novem!>er . 16, 1970. L. C. Gupta,' Director' of Industnes . mfo1med Kapur on that very day that he had no objection to the proposed change of site. Gupla

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in his depositim has said that he had received a telephone call from R. C. Mehtani, Officer on Special Duty to the Chief Minister, telling him that Haryana Government's concurrence to 1hc ch.m~c of Iocntion should be communicated on that very day. Shri Abdul Gafoor Khan who was then the Minister for l'ndustries, Government of Haryana, later questioned the competence' of the Director of Industries to take a decision on his own in the matter of the change of site from Faridabad to Gurgaon. The explanation subniitted to th~ Minister by Gupta to this charge did not refer to the instruction he had received from Mehtar.i ; Gupta was told this Commission that he did not mention Mehtani's name because he thought that Chief Min!ster Bansi Lal would not like it. Soon after the receipt of Sanjay Gandhi's letter dated November 14, 1970 M. L. Batra, Financial Commissioner (Revenue), R. S. Mann, Director of Town and Country Planning, and L. <.:. Guplu, Director of Industries, met in Batra's room to discuss the matter and in the course of discussion Batra disclosed that Chief Minister Bansi Lal had told him that it was almost definite that Sanjay Gandhi would set up his car factory in Haryana at the sile chosed by him on Gurgaon-Delhi Road and that it was the Chief Minister's desire that the Directorate of Town and Country Planning should therefore suitably amend the proposed development plan. It was tentatively decided in that meeting which was held on or about November 19, 1970 to acquire 600 acres of land for industrial purposes including 157 acres in the occupation of the Defence Department which, it was expected, would be. released. . On November 19, 1970 a note was recorded by an Assistant in the office of the Deputy Commlssioner of Gurgaon that the day before, on November 18 he had received a telephone call from Shri R. I<. Dha~ao Personal Assistant to Prime Minister Shrimati Jndir~ Gandhi, as~ing him to s~nd a map ?f the land proposed to be acquired for Saniay Gandhi by the evening of that day. A the Deputy Commissioner was away on tour, the ,District Revenue Account.ant had a map prepared m th7 office of the Executive Engineer, and sent 1t to Shn Dhawan at the Prime Ministr's re~id.ence throu!iJ a special messenger. Deputy c.;mm1ss1oner of Gurgaon, V. S. Ailawadi, wrote to M&nn on Novembcr 21, suggesting that the Director of Town and Country Planning should move the Ministry of D~fence. a.gain. for releasing this area of 157 acres. Allawad1 .1~ his letter referred to an assurance given by the Ministry of Oefence on some previous occasion th~t they would not object to a request for release of this land and suggested that their own commitment should !>" brought to their notice. Mann accepted the .suggest.i~n, and a letter .drafted, on these lines was issued, signed bv the Chief Minister, on . or about J?ecem.her 7. l ?70. In the menntime. following the c!1scuss1on held m the Financial Commissioner's room Gupta wrote to Mann on November 23 and again 0 ~ December 4, 1970, asking him to take steps to acquire 600 acres of land for setting UD nn industrial rstate at G urgaon. '

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In a note rci:Qrded. oi( ~it~;~W.70; R. S.' Mann, Director of Town anlflCotjn~Plaliliing sought orders from the Govem1~1eritt'.1~ J.o''(il :ivhich1.of 1 the plans, Plan No.Sor Plan No,s,:shou\dbc'litlopted; ~nd (ii.> whether ~00 ac~es of Iand'~~iJll;l,~01\s:,qu~~, unmediately for mdusq1al p~.~~by the Director of Industries ilml, if &O;<'!Y~ct)tbe area adjoining the Delhi border whicli' wi!J,: pi~~rrlld by . . .'ish . . . ould. be the Director of Industries for th.e .~. acquired. He marked the file to the ~1 1 Com missioner (Revenue). Mami was ''leavi : from' December 24, 1970 to February 1, 1971 and during his absence Kulwant Singh, Deputy DiJ'ec!Pr, Town and Country Planning. ollichl.:d in his ptace: About the time Kulwant Singh started officiating as Director of Town and Country Planning, M. L. Batra, Financial Gupta0 Director Commissioner (Revenue) told L. of Industries, that the Defence authoriUes, were .not likely to agree to vacate the 157 !ICres of land which, it was thought earlier, would be available for the car project A note recorded by Kulwant Singh on January 5, l 971 states that the ~r of Industries wanted 400 acres of land to be acquired quickly ; the reduction in demand from 600 to 400 acres was obviously due to the non-availability of the expected area of 157 acres. Kulwant Singh's note sought orders, inter alla, for approval of the new development Plan No. 8. The fil: (') discloses a note lo the mlU'gin bearing the date January 18, 197l'saying that the file had been summoned to Delhi by'the'Privil!e Sel;tetary to the Chief Minister, Haryana, "tor reference". 111ere is no indication in the fiJC wbv the Cliief Minister should want it at Delhi In tile .:file of the .Deputy of II letter Commissioner of Gurgaon; the,1e is. 11. dated January 12, 1971 addiesSed:'. tO'''Sbrl R. K. Dhawan by Shri Ailawadi forwardiiig copies of certain correspondence on the subject of the release of 157 acres of land in the occupation of the Defence authorities. Shri Ailawadi in his deposition bas saJd that Dhawan had asked him on telephone to send the copies to him.

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{I) P~lc or Town and Country Planning Department mark~in th.:::::::;ffi;:;d~av::;it:':fi~l;c:::d~b~y;;Sh;-r7i-;M-;--::;-=-:-:__ __:__ _ __ arcctor, Town and Country Pl ann1ng an d Urban Estates. Government of Haryana. Shankr, I>c:puty Secretary rnd

On January 25, 1971 Batra called Gupta and Kulwant Singh to a meeting in hls room where the situ!"tion aris~g !rom the J?efenc:e Mlnlstry's decisicn agamst releasmg the land lfi their possession was discussed. Excluding 157 acres of Defence land what remained of the ar~a proposed to be acquired did not constitute a compact block which could be dcvCloped as an ln~ustrial zone. It was therefore felt that some change 10 the location of the industrial area would be necessary. It. ap~ from Kulwant Singb's note on the fil.e recordmg tl?e su~tance of the discussion at the meeting that co11s1deration of the proposed deve!opmel!t plan had to re.put off till the location Of the IJ!dusmal area w:is finally fixed. Another matter d1SCUSSed was the acquisition cost. It was decidcid as would appear from 1<14want Singb's note, that tb~ Dep~ent of Town ana .Country Planning would bear. tJ.tis cost, and that, as there was no pro\'ision for 1.t m the ~udge~ for the next year, it should he provided for either m the supplementazy estimates or effor;ts should be made to obtain !he amount from the contingency fund of the State.

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Back from leave Mann. Director of Town and Conntry Planning, wrote to Gupta, pirec.tor of. ll!dustries on Feliruary 9, 1971 requesting him ~o md1cate th~ location of the 400 acres of land which was to be acquired for industrial purposes. Ma,nn. also got in touch with Aflawadi, Deputy Comm1>s10ner, Gurgaon, to find o~t if San)a: Ga11Jh1 had chose~ any new site for h1~ cac proiect. The Deputy Co_m missioner informed him on telephone that San1ay Gandhi had selected a new site which . should be acquired immediately. Subsequently, wnh a letter written on February 17, 1971 Ailawa~i sent _Mann the necessary papers fo; acquiring land m the villages of Inayatpur, Muilallera, Shahpu~, . Sarhaul and IDundahera all situated in Gurgaon district. The total area proposed for acquisitioJt was . 444.51 a~r~s and this comprised the land that Saniay Ganahi h~d earlier selected, excluding of course the 157 acres m the oecupation of the Defence Department. The Director of Industries was satisfied that the area was suitable for industrial purposes. This area was already covered by a notllicaUo:t under section 4 of the Lane! Acquisition Act issued in 1969. In a note recorded on February 19, 1971 Mann suggest~d that .the earlier notification which seemed defective be withdrawn and a fresh notification under section 4 issued. Mann also suggested in his note that the cost. of. 11e9uisition might be provided in the suppleme'!.!ary esUmates. Batra approved both the suggesuons. Aceordingly the earlier notification was withdraw,n _a?n a new notification, under secti!>n 4 of tl!e .Lli'!d Acquisition Act was issued whil:h was published m tho Gazette on February 22 and 24, 1971. ' . The provision of section 17 of the Act was also invoked for taking early possession of the land. Some of those whose land was. proposed to be acquired challenged the notification by filing a writ petition in the Punjab and Haryana High Court. . One. of the grounds llf challen.i:e was that the emergency provision of section 17 had been invoked without there beiag any real urgency. Mann sought the opinion of the Advocate G~t1eral who was of the Yiew that if recour5e to section 17 was not given up, the High Conrt was likely to allow the writ petition. Accorcfing to Mann it was not the intention of the Government to invoke the provisions of section 17. but the draft notification prepared by the Deputy Commissioner, Gurgaon, had referred to section 17 which inadvertently was not c.lelcted when the notification was sent for publication. On legal advice tlti.s notification was also withdrawn on March 23, 1971 and the writ petition was disposed of as infructuous on March 24, 197!. But on the very next day, March 25, a fresh notification under section 4 covering the same land but. without reference to section 17 was published in the Gazette. On April 2, 1971 Mann put up the file for appridng the Public Works Minister of the action taken so far lijld seeking orders on several matters including the subject of funds to meet th~ cost of acquisition. Mann pointed out, as Kulwalll. Singh had done earlier, that tn the Budget for 1971-72 of the Urban Estates Ucpartment there was no provision for acqui~ition of the la.nd in question, adding that if the Government

so desired a provision might be made in the su~ple mentary estimates; this was aho what Kulv:ant Smgl;t had suggested. On Mann's note on the pomt, Batr~, Financial Comml~sioner (Revenue),. rccomn!endc~ that the matter mighl be taken up with the Fm~ncc Department. The Minister saw the file on April 9, 1971. Before traciag the cout~e of the land acquisition proceedings, it will be convenient to r;fer to. twu other matters here : (a) L. C. Guota s experiifi.ence when as Director of Industries he wanted iust cation for the alleged requirement. of .300 acres of land for the car factory; and (b) finalisatt<?n of the development plan for the controlled area tn Gurgaon. Sanjay Gandhi's Jetter dated N?vem.ber 14, 19/0 written to the Director of Industries. did not furmsh the details as to how ~ proposed to maJ:e use of .the 300 acres of land. The project report which he claimed to have sent earlier y."as n0~ ,~~ble. Gupta therefore asked s. K. Misra, Pririaplil Secretary. to the Chief Minister, to bring this deficiel,l,Cr to the ollce of the Chief Minister. A plan w~ -~ubsequen!l? received in the Director;ite oi lndustr!~s v111 the Minister's secretariat showing proposed constructJO'JS sparse)y spread over the entire ar.ea; . p!CSUJW!bly Chief Minlster Bausi Lal apprisi:9 S~jay Gandhi of ~ defic:lency J!Ointed OJI~ byJ~\;l;).1~'%~~~~: tries. This Plan ll1 the Ofl010n '!"'.'." ,.. d tries did not justify the ~~ uireinel:J,!''.9f;~:ir,)(}!Fres, an ed tht ug1is ' Mi""' his"'view to' tbe oTrlicreaiter . 1Y.&.IJ.ll0) _,. . , .,~. . ,,._.;;...' ~~J"'",l- receiv'ta' c,' ed, ag;iin 'thtough. Iba C.hicf '.'. . , .~.JiWi!e" na. sometime in late Deeem&~r 197 "or early !lijluary 1971, which showed that 120 acres.\\'.~ required tor immediate use 100 acres for expansion, l!O acrc:s for tho test track. Accord1!tg .~~.. ~hri., q.~pta !his plan also gave uoly !1 brc;iaci,1u~1s~f!,aplc;if~.r~l!lr<;" ment and not a l)etailed JUStification whiCl:!.-:wa,s. nece,sary to enable him to. examine the case. Gupti!. again eonveyed his difficulty to the Princi11al Secre- , tary to the Chief Minister who 1~!,~~ .il!f!>f~~ Siu! Gupta that the Chief Minister WalltC!l)!jl:lj.;.to:,j:On!l!Ct R . K. Dhawan, P crsonal Ass. - . .to.,,.. is....,. . the" . . Pnme Minister and explain the difficulty 'to him when Gupta next visited Delhi. Accordingly, Gupta when he next came to Delhi on tour rang up R. K. Dhawan and asked him to inform Sanjay Gandhi that a more detailed justifieation of his. requirement should be sent to enable the Directora~ , of Indiistries to assess the requirement of Jand for the :.proposed factory . But nothing was heard fi:om Shri Sanjay Gandhi. Shri Gupta then proposed ta. write il formal Jetter to him and :i dr.llt letter was prepared 11Dd Pill up for .approval beCorc Shri Batra. The draft. letter contained a request to Shri SaJijay .Oi!P~ .to "give a detailed writeup giving the justfJfoation"'for the builtup area indicated in the map furnished" and also included a number of pther top/Cl! igcl\IWog .adequate ,S.Sllfed; .., 'fbe . draft supply of electricity which. added, "we 'would however be. gra~fu);if,,you .let us know the exact quantun1 of pow~ required ,.by yoi; to enable us to do advance pllinning in this xegard". The draft was approved by Chief Minister Shri Bansi Lal but the Jetter was not sent because the Industries

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Minister, when he saw the file on March .81 .1971, raised certain queries relating to the aequ1s111on of land for the car project. According to Shri Gupt.a before these queries involving a "fundamental" issue were answered, iL was not possible to s~n~ the leller, It appears from the file that the Minister wanted . to know why it had take11 so long to reply to Sa!11ay . Gandhi's letter of November 14, I 970. He also obiectted to t.he allotment of land to Sanjay qan~ '?I). the terms proposed l;>y Shrj Gan~hi-paymenl. m 1ns.tal ments and the first instalment payable five ye_ars after the acquisition of land. He express!:d the view that there was a:> .moral or other juspjicalion !or dispossessing the tillers of the la,nd. The letter that was . ultimately issued did not conform to the draft, not however as a result of th" view taken by the Industries Minister, nor was its despatch consequent on hi~ approval; the draft \\'.llS changed and the letter sent exactly as the Chief Mmmer wanted. A note r''~'''d~d by Shri L. C. Gupta on April 21, 197 l shows that Shri S. K. Misra, Principal Secretary to th Chief Mi1>istcr, conveyed to him on that day that the Chief Minister wanted the reply to Sanjay Gandhi's letter of Nove.mber 14, 1970 to be sent on. tha~ very day and complia.n~e reported to him. Gupta was also told that Sanjay Gandhi had cxprc;sed great annoyance to the Chief Minister for the delay in replying to his letter and allotment of land to him. Later on the S3JJ1e day Shri Misra further informed Shrl Gupta that the Chief Minister desired ihat no question of justification for the requirement of 300 acres should be ralcd in the letter to be is.;ued. A reply as desired by Uie Chief Minister was sent to Shn Sanjay Gandhi on the same day and compliance with the Chief Minister's order was reported to his Principal Secretary. The letter issued informed Sanjay Gandhi that "it would be possible"' to give him land "with provislon of roads, wa:~r, power and drainage etc." for his proposed factory, that the price charged was "recoverable in in$talmcnls", and that there "would be M difficulty in issuinJl private carrier permits tor trucks and buses rcquireu by him. As regard; other facilities and concessions available for new industry in 'the State, a note on the current policy was enclosed. The letter ended with the assurance, "we shall be only t90 glad to ~ive any turther clarilkation' which muy be required' . In explainin!l why in the matter of allot ment of land to Sanjay Gandhi, he had to h~ve every action that he proposed to take approved by the Chief Minister, Shr1 Guptd says : ''This was treated as _a sp~ci.al ca;e ao<i at each 8J!d every stage the Chief MID1Ster had to be fully kept m the picture. 1bis was done by me through the Principal Secretary to the Chief .Minis~c~. ~t was considered necessary to secwe Chief Mmistcr s orders before sending any written commun1cation". The development plan for the controlled area in Gurgaon was linalised after Gupta had writteu to Sanjay Gandhi on April 21, 1971. The facts rcl&t ing to the finalisation of the development plan may be stated here. Plan Ne. 8 which was the last of a number of plans prepared by lb! Directorate of Town

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!n his r~rt Yadav. stat~ t~at after hearing the ob Jectors he mspccted the site m their compaoy. Mainly the objections were as follows ;...;.. (i) The land was fert~e arid !lctjilisltion of Sl!ch land would hmder the food production campaign.

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source of livelihood as a result o( the acquisition. (iii) The ac411isition would result in a heavy !Jss to ma\Jy amonJ the interested partks who had invested a lot of money in deveh>ping the land. (iv) Acquisition of the fertile land was not necessary whm fallow lands were available in the vicinity-in villages '"athupur and Chakrapur on the Dclhi-M~hrauli Road. . (v) Near l!Je land proposed to be acquired, an ammunition depot and other air force installations were lccatetl .ind th~ area was a restricted zone as would appear from a letter issued from Air Headquarters, No. AIR-HQj 20851/ll4/0RG/.\'v7l;I/D (Air Force), dated August 13, 1956 and the Ccntrd Government Gazette Notification S.R.O. 6, dated January 11, 1969 which prescrilled a safet: belt of I 000 yards around the ammunition depot.

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suggested by the viUagers as suitable .for iudustrial purposes because the area was hilly and...'also away from the main road. 0. P. Yadav, Land Acquisition Collector, had foun:J the area suitable and the difference of opinion seems to su!!Sest that its unsuill!b:J:ty was not so obvious. Shri Mann however did not c~n sidcr it necessary to have the matter examined further. The alternative site was not on Delhi-Gurgaon Road; as Mann had pointed out, but it was serveq by another road, viz. Gurgaon-Mehrauli Road, and it.may be recalled that Shri Sanjay Gandhi had eariler indicat.~d his preference for a .;\te either on Delhi-G'1J'gaon Rrad or on Gurgaon-Mehrauli Road. Shri.M, L. Batra, Financial Commissioner (Revenue) , , agreed with Shri Mann, and on June 23, 1971 a noti!lcatitm under section 6 of the Land Acquisition Act was published. After the publication of the notit:cation under sec1shanka11 who was tion 6, the file came to Shri M. then the Administrator of Urban Est11tes, 1 Faridabad. Shankar says that Mann told him on telephone that he desired that the acqu!sition proceeding should b~ expedited and completed by July 10, 1971. Shankar marked the file to the Land Acquisirion Collector O. P. Yadav on June 24, 1971 dirocting him to take immediate action. ,\cc,1rding to Yadav, Sha'lkar called h.i'? persona]]}'. and asked him to complete the acquiSJIJOn proceedmgs and take po;scssicn of the land by July JO, 1971 without fail because the Government had given an "und1!rtuking" to Shri Sanjay Gandhi that :possession would be given latest by the 10th July, 1971 . Shankar had als.i tole him that he was only c<'.nvcying the message he received from R. S. Mann, IDtrector, Town and Country Planning. Yadav says that "in fact by the thn~ it was gen~rally lnown that !h~ Governme.nt at the highest level had made up k< m1~d to acquire the land because the major portion of it was intended for allotment to Shri Sanjay Gandhi" and .that he had "no option but to ccmplete the P'<'ccedmgs" by July JO, 1971. Shankar'> evidenee cor . roboratcs what Yau av has said except that he denies having told Yadav that possession was to be dclivlt'd to Sanjay Gandhi. . ' The facts in. t!1~ background which l~nt urgency to the l~nd acqms1t1on proceedings appear froni Shri Mann s statement b~fore the Commission : "That d~ring th~pcriod from 24-2-71 to 23-6-7i Shn R. C. Mehta~': fc:r!u~r Olliccr on Special Duty to the C!W: M1m.ster enquir<d from me .<?n si:vcral occasions to a'ertain if exped;t1~us steps were being taken to acquire ... land m Gurgaon for Shri Sanjay ... ,... Gandhi , . The C.M. rapg m~ up on 24-6-71, probably fro~ Delhi. T.he C.M. mentioned thar' Sh'ri San1ay Gandhi ha<! complained \ ~:~,him a~t,.the delay in the allotment"'Of land for his car factory at Guri:aon. The C.M. wanted. to know the reasons for, the"delay I explamcd t!iat in the matter of allotDieiit or la.nd, Shn Sanjay Gandhi wa8 correspondmg only with Industries, Dep!Utmc t . and as such f?nly the IudustiieS" Pl:P'arinieu, would know the la!est. posfti_qn, :i,n,;J~, gard The C.M. asked for a I!~ date by which land would be: ~n~

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lo his report the Land Acquisitior: Collector agreed tjiat the land sought tc be acquired was of wry good quality and highly productive. He also found that most Qf the interested parties were uneducated small land owners and except 50 all the other interested parties numbering 1086 were entirely dependent on agriculture. Referring 1(1 th~ "semi-hilly" area on Dclhi-Mchrauli Road which the objectors had pointed out as un alternative site, he said that he had visited the place ~nd agreed th?t the Government might acquire land m that. areas 111st7ad. of the fertile land in question. Regarding the ob1ect1on that the fond was within rhe safety belt of 1000 yards around the ammunition depot the Land Acquisition Collector found that the land of villa.!IC ~nayatpur, ~nd perhaps that of village Sarhaul, was ms1de the safety belt but ltc said that as the int~rested partjcs did not produce the relevant notilicat1~n, he was unable, to commr.n: on this objection. He did not try to obtam a copy of the notification from lhe office of the Deputy Commissioner, Gurgaon, <'r l!'om any othc~ sour~e though the objectors had men l\(\Ded the dcta~ls d the notification. The Land AcquiSl\ton Collectors report was considered by R. S. Mann. ~1rect~r~ To.wn ~nd Country Planning, who recorded bis opm1~n m his noto dated June I, 197 J. He was of the view .that t!Je objections were not valid and should be ~ei~cted. As regards the objection that the land was w1thm 1000 yard:; of the ammunition depot Mann stated that the relevant notification had noi ..... , been produce4 before the Land Acquisition Collector and also mentioned that there were many constructions made by private parties in that area and the air force JlCOple took no step to prevent them. Mann suggested that the G~vernment should acquire the land and thereaft~r, if the Defence Ministry objected, or th~ notification was traced, construction wiUtin the safety belt could be prohibited. It appears from his note that Mann was a:vare that ther~ might bio ~ome restriction . on c,onstruct1ons :iround the ammuniation depot but ' hMe did not kJ!OW the precise nature of the restrictions. . 3!111 a!so did not make any atttmpt to find out the notification. He did not consider the alternative site
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possession given to Shri Sanjay Gandhi. I was aware that w~ had recently decided to issue the notification u/s 6 of the Land Acquisition Act but as I could not remember off hand the exact date .-if the publication of the notification u/s 6, I told the C.M. that the notification u/s 6 had been issued and the possession of the land would be taken immediately after completing all the legal formalities including the announcement of the award. Upon this, the C.M. ordered that (a) it may be cn;urcd that lhc acquisition proceedings are completed without a single day'o delay and that the pcssession of the land is delivered to Shri Sanjay Gandhi lat~st bv 10th Julv, 197t and (b) the Dir<ctor o! Industries should be informed that a letter be issued the same day to Shri Sanjay Gandhi mentioning clearly that the State Government had decided to "Ilot him about 300 acres of fond in Gmgaon required by hil!l fer setting up a car factory there and that possession of the same would be handed over to him latest by 10th July, 1971. On receiving these orders from the C.M. I tried to get in touch with the F.C.R. lllld the 'Director of Indi:strie~ who were found to be on tour out of Chandigarh. I finally contacted the F.C.R. at Faridabad on telephone and apprised him of the above mentioned orders of the Chief Minister; The F.C.R. told me that the orders of the C.M. should be complied with immediately and that as directed by the C.M., the Industries Department be asked to issue the required letter the same day. The F.C.R. also said that we may give the option :o Shri Sanjay Gandhi tlf choosing the 300 acres of th~ total land which was being acquired by us. I then got in touch un telephone with Shri V . K. Khanna, T.E. (ME), Industries Department who wa~ dealing with the case of allotment of land to Shri Sanjay Gaudhi for the small car project. I conveyed to him the orders of the C.M. and the F.C.R. It was made clear to him b" me that these orders were to be carded out meticulously. It was also mentione<J "" me that the letter to be sent to Shri San'a} Gandh; may be despatc~ed t~rougb a special messenger and, if poss1_ble, 1~ sh!Juld be shown to the F before. delivermi; the same to Shri Sanjay Gandhi. Accordmgly, Shri Khanna issued a letter dated 24-6-71 to Shri Sanjay Gandhi".

the Land Acquisition Ollie~ lo CO!llplete all acquisition work most expeditiously ... ''. Mann howeve1 adds that although he told Shankar that the "land was proposed to be allotted to Shri Sanjay Gandhi", he instructed Shankar to tell the Land Acquisition Col lector that while completing the acquisitlon proceeding> "al! the legal requirements should be scrupulcu I) adhered to". In view of what Mann says, it see mi likely in- spite of Shaukar's denial that Shank"~r die tell the Land Acquisition Collector that pos&e,sion o the land being acquired was to be given to SanjaJ Gandhi. It does not appear however that tither Manr or Shankar left any instruction for the Land 1\cquisi lion Collector as to what he should do if after adher ing to all the legql requirements he did not find j; possible to conclude th~ proceedings by the targc date. The question is important in view of the wai the proceedings appear to have been conducted. According to Land Acquisition Collector 0. P Y adav, Shallkar told him not to proceed further foi the acquisition of the lands :if village Inayatpur al that stage though these lands were also covered b1 the notification under section 4. In the file there i; a note stating why Inavatpur lands were left out the reason mentioned was that there was "vtry littl. time" for taking steps for the acquisition of tl1tse lands Yadav admits that the average cost of land per acn would have gone up had Inayatpur lands which wer. '?ore valu~ble been acqu.ired simultaneously. Want o time could of COll!'Se be a reason for excluding lnayatpur if the acquisition proceedings were to be com 'pl.llted by the target date, but two other facts whicl may be releyaDit on this aspect are lhat .the land allot ted to Maiut.i Ltd. (the company .was incorporate< on June 4, 19'11) was w,holly cutside Inayatpur anc the c;ost charged from Maruti Limited' was the av~rag1 price per acre of the area acquired')irst: Ther~fore i Inayatpur .Ian~ were acquired simultaneously, th1 average pnce per acre of land payable by Maruti Limi , ted would have been higher.

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Along with the letter wa:> sent a layout of the Gu aon DeveloJ?ment Pl.an indicating therein the land t:iuch 5as. bemg acquired for industrial purposes, and Shri . haaniay Gandhi ~as requested to mark the 300 acres 1 1 he would like to be allotted to him out of this area.
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~hr\ Madnn says that "in accordance with the categonca or ers o_f the Chief Minister and the F '' R " ~~esi:~dopos~;. Shankahr_ on telephone and "expl~ln~d 1 ion to m1 and asked him to direct

In o!der tltat the acquisition of the land of the othe four. villages could be completed by. the target dale public noce under section 9 of.the ;Land Acquisitio1 Act was JSSued on the very clay,S~ had marke< the !iJe to Yadav i-,e .June 24, J.97~?gi.Ving inter~stec parties. fifteen. day~ time I!' .file. ~If. _claims io com pensauon,. which rs the IWntl!J.W)l po.iod . prescribec undc:r s~on 9(2): July 10, was.'the datCfixed for th1 hearing of the claims. It apJIClll'S from the tile tha on ie same da:(, June ~. 553 notices, were also serv ed m the four different villages on.the persons intere<t ed ~er section 9(3) of the A<:ci;Yadav was ask~ how It was possible to re 'i:iind '. . notfces in a clay, his repfy ~~t~lYEo~ ~ Pl!ftlY prepared even beforC'' the' issue cf th: no . cation under section . 6, and liftei ShlinJcar spok to him on June 24, the noticq 'w"'"e;iinPA b ddin' I the other necessary particJatf1i~'t~~-lll.S a for hearing of the clwms't ''""'':$~ ..P.'JJ.1' lll!d placo . t~ notices were served ~thciwtf!flieftion, .f!!!d the1 warrs and ~r~ process servers,!..;111 pi~f ~~eht gat June 24. While !1 rs doubtful whether all these uo/Y could be served JD a day on so many pe. ice over four villages" it appears th t .. . " rsofns scatt~re1 a many o the notice

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IDepartmet obtaiited. He said '.thaL.ifcrU!e;ipartyiwanted any modi~ation, of the tenps anit~qi1l9J1S,~uggest ed, !he matter could~ considcred!Ja~9'";',',A[~t.e'1~or.d ed by Mann on :June '30; '1971\1 <liSc~l:tl!~-J',(JJief Minister Bansi Lal had called him anil:~ t.be case with him. The Chief Minister: app{<>,,~'. Batra's rec.ommendations and wanted a letter,, torbC' 'written to Sanjay Gani:l!tl. !Jll those Jines also,. ,s\;ilhig. what the cost of acqu1sit1~n would be. When: M\ll!l!:PQinted out that the award m the land acquisition proceeding was yet to be made, he wanted Mann to. indicate. the approximate cost in the letter. Mann wrote a letter to Shri Sa.njay ~~dhi on the S<Une:,d!\y,!15:directed by the Chief Mw~ter. In the letter it .was mentioned among other thingS that the cost of acquisitiQn was expected to be roughly Rs. 12,000 per acre. The following is a relevant extract from this ,letter : "It has been the policy o{ the Government regarc! illi the terms of allowent of lanJ to coni~es like yours, to give lan1f 11f)hc price equivalent to the acquisition cost. A con.tr~ between the Government and the party is entered through an agreement, and the possession of the land is given after the agreement has been signed, and the f.ull acquisition cost has ~ paid. ;SJ!~Ueo,t!y. the terms embodied m such an agreement are fonnalised through a registered deed. An agreement concluded by the Government in another case is enclosed for your information and gitidance. . Regarding the cost of acquisition of land in Gurgaon, the final 2:ward is to be announced in a few days tlme, and as such at this stage it is not possible to give a firm idea about the cost. However1 on a pu,ely rough basis, it is exll(.Cted mat the acquisition cost is likely to be in the neighbourhood of Rs. twelve thousand per acre. Since the agreement mentioned above is only a mode.I ~gr~emcnt, you arc requested to Jndic~te :( 11 is acceptable to you in Cull or you wish to suggest any cJ:taoges therein. After hearing from you iu this regard, the agree mel!t )Vould be finalisd and signed. To ex~'.te th) matter, an ,Parly reply is requestTo. a question, on what basis the cost of land was calculated at Rs. 12,000 per acre, Mann replied that he may have .based .his estimate on the. figures supplied by V. S. Ailawad1. What happened was that on June 25, 0. P. Yadav, Land AcquisiUon Collector had requested the office of the Deputy Commissioner ~urgaoo, ~ send him the prevailing market rates different. kinds 'Jf land in the different villages which were. bemg. acqwrcd. On June 30 the rates approved by Ailawad1, Deputy Commissioner, Gurgaon were sent to the Land. At:quisition Collector Mann was appa. xenUy referrmg 10 these rates
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/not served personally. In village Sarhaul, for Ill_ "land ple, out of 117 persons-interested only 12 were ... ilnc!hi". , the other notices were pasted on the walls of io1;1 Col~ I buildi1Jg ; the explanation offered is that the "icdingS. had ref\lsed to accept the notice. It is not dispiilou>IY that a large number of persom holding land in "'seems . e Mullahei;a did not Jive in the village and had '"'iir did 11.0 agents authorized to receive notice on their behalf ; !>l!ion of: <to these persom the notices were sent by post as re"Sanjay .quired under section 9(4) on June 25 and at least 'r Mann some of them who lived outside the State must have -tquisiRecived the .'lOtice a few days later. To the8e persons i'adherthe notice was short of the barest minimum of fifteen ~fjnd il days, but the date of hearing was not postponed. ,)target . hp way On June 25, 1971 Sanjay Gandhi replied to the letter of June 24 from the Director of Industriei indicating the plot he required by marking it in blue ink '0. P.' in the layout sent to him; In his reply Sanjay Gandhi her (c;>r. also wanted immediate possession of the land. Three .Jr ~t days later, on June 28, Mann received a letter from red by tbc Directorate cf Industries requesting hini to ensure ..-.,,"!re is lhat Sanjay Gaodbl was given possessior. of 300 acres ft QUI ; of .land by July 10, 1971 at the latest. It \\as further ., little. suggested in the letter that Mann might indicate the ! Ianc;ls. a,mount payable fot 'the Jarid to be a<;quired as well Bl'., ;Jere as the l)lode of payment. Dealing with this letter Mann . . ~'were recorded a note on the tile on June 29, 1971. The {J!nl of llOtC says that the Director of Jndustries had neither :ayat- scnt the application of Sanjay Gandhi to him, nor ~ com .. lll/lted the basis for allotment of 300 acres of land to ''Yhich hrm. However, the note proceeds, in view of the imrallot- 1 portance of the project, steps had ~!ready been taken "'fa led by lhe Town and Country Planning Directorate to .1-, and B!Xluire an area of 450 acres of land and that, as dP-xerage <:ided by the G_overn~ent in th.e I!1dusiries Depart:.\ 're if ment., out of thrs Saniay Gandhi might be given the --i ; the 300 acres chosen by him. The note suggests allotrne~t '..j ...,,,imiof undeveloped land to Sanjay Gandhi on the same ! terms and conditions on which land was allotted to i ,..... Haryana Steel and Alloys Limited. Jt may be stated .. ,.< that Haryana Steel and Alloys l.lmited was asked to , bther -\fate, ' P.ay the entire ncquisiticin cost includin2 certain addiUonal chari:es before possession of the land was delia~fhion ~ ~ the end Maun sought orders on the foil6wyered. ~ked mg pomw : . tea com- ! (i) Whether Sanjay Gandhi should be allotted ''\bed 300 acres of land as shown in the developthe ment plan? ! :>r -1hat (i'1) lf so. ;in what conditions and at what price -serv.. the !and wa:; to be a~otted, and whether posei;_esr....ked sess1~n was t~. ?e given after obtaining the cost .or acqu1sitro11 or before such cost was these recover~d fro~ the party ? '1ad (tho ''?ke . M. L. Bat;a. Fi!lancial Commissioner (Revenue), in <ling hlS note dealmg with the points raised by Mano aor,ed r>lacc that 3?0 ac;es of land might be allotted to s;n\ .\en Gandhi addrng tint he should be asked to pay jhY patco~t of, the land, ~qua! to the acquisition cost, befor~ --~y. pos~ess1on wns delivered. Bara '51so approved the exe:rices cuUon of an agreement on the same lines as done in the case of Haryana Steel and Alloys Limited H '.":Cd uces sul\ieste4 ~hat the case might be put up befo~e th~ Cbref Mrn1ster nnd thereafter approval of the Finance

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in Sector 10, Circuit House of the Hatyaua Go\:er11ment" at Chandigarh between Sanjay. Gandhi and ~he representatives of the Haryana Government. Jagd1sh Prasad, a dil"..ctor of Maruti Limited, accompanied Sanjay Gandhi ; Haryana Government was repres~nted by the Chief Miniliter, Financial Commissioner t Revenue) M. L. Batra, Finance Secretary .J. K; Sarohia, Director of Industries L. C. Gupta, Chairman of State Electricity Board P. N. Sawhney and, Director of Town and Country Planning R. S. Mann. Before the meeting with Sanjay Gandhi was held, the Chief Minister called the oJlicers to his rcsidenc;dJr a discussion. Mann in his deposition has said that the Chief Minister suggested in this conference that Sanjay Gandhi should be asked to pay not the acquisition cost of the land but a lower sum. Only n few days ago Chief Minister Bansi Lal had approved Batra's rccommcndalion thal Sanjay Gandhi should be asked to pay a sum equal to the acquisitioll cost and Mann conveyed this to Sanjay Ganghi. Both Batra and Mann obj(cted to Bansi Lal's suggestion saying that this would be "un wise" and that the Government should ask Shri Gandhi to pay at least thi: acquisition cost if not certain addi tional charges which had been realised in some cases. The Chief Minister also produced an unsigned letter claimed to be :i copy of a letter written to the Uttar Pradesh Government by Jagdish Prasad, a director of Maruti Limited who accompanied Sanjay Gandhi to Chandigarh. The letter showed that Maruti Limited has asked for a number of concessions from the U.P . Government for its car project. There is however no record that the U.P. Government receivei.I any such !etter or accepted the proposals made ,therein. Later m the day the representatives of the Haryana Government met Sanjay Gandhi in t.he circuit house where Shri .Gandhi was staying. According to Batra the decision to hold the meeting there was Chief Ministds. The minutes' of the meeting show that among others the following d~cisinns were taken. ' I. LAND (a) 30.0 acre~ of undeveloped land was to b~ :ffi~ttcd f!)r putting up the cat manufacturing umt ne:ir Gurgaon. The acquisition proceedings should be expedited so that possession could be hand>d over to the party by lOth/ll!h July, 1971 at the latest. ( b) The prke of acquisition was to be recovered ~y "I 0 per cent ~own payment and rest m 18 equal annual instalments starting two years aicr allotment of the land" ; rate of mtercst payable was 7 % . (c) The la11d was to be utilied ouly for scttino up the car manufacturing unit. ~ JI. FINANCIAL ASSISTANCE (a) The ex.act quantum of assistance was to be d7!ermmed ouly after going into the kaib1l!tY report and the financial needs of the umt. The State Oovernmcn~ was .however preJ2!1red !O underwrite 25 ~r cent of the share _;ap1tal up!o an aggregate sum of Rs. 1....,5 crores m preference shares.

. ,i(b)'Inter~~wc:s~~P.~~.fM.\:olLraw 'c. 1 materwl .pulch~-.m,:,tb'Cf~J~:to be , . treated as interest-~110,(lltf:q~.M<i>eriod of five years from the da.t!';o( proililction. Thi. loan was. rec0verabl)l, ilfte~'-1!/ipmod of five yea!'.5 and would beJP!!-Y.\lile~; .~ further period of .five year& ff.Ften:c~iilriilil.~~J,lfmo11th!y instalments. "'"l'-'.W~:' : .
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Ill. POWER ' i -_ ."- _<t ~_-;{~f;;:;,:i~~:0:: It was agreed that the power :ieqid,idD.ciiis. of the factory would be3inet9u~11pricirity bilsis; While the site for; installinJt 'thei transformer etc. would be made availilble.by !he unit, it< cost would be borne by the Ha!}'ana State Elec1ricity Board.
ShFi Batra says that in the ui~etiiig Sanjay Gandhi me-nuoned one by one the vari<ius concessions he wanted and decisions on the points .rilised were taken by th.e Chief Minister, the ofijcers present. had no occasion to express any opinio,n..except for pointing out some factual matters. Shri . MaJ:iii. says the same thing, that it was Sanjay G~ndhi who "made his own suggestions and they were readily agreed to by the Chief Minister". Accordir g to Shri Batra so long as he was in the State Gov~rnme11t,..he. did not come acrcss any other~ "'.h.e 1:e.s_u,!l\\_;li~i,:al,terms of paymen~ as 1n Maruti s case wef!l a)l9waj: As regards treating the. pr~ of ~. !111f .~ ,iJ:ltefest.-free loan for five years, Shn Batr;i pomts. out that lb.is wa< a relaxation of the restrictio!'.I~...PHt::b.>(~qi.o.$ta.te Go.vern" men! not to all?w C9ncess1qns. ~ k.ii!d- ip., the cases where the capital investment llXceeded ,is. I crore. L. C. Gupta says that to his .knowl~ethere was "no suc}I instance !lf anv otber unit in, .Har:Yana." where con~s1o~s o~ this scale "were provided and the df!'1~1on ,,m this regard also w11S,;Ullf:e11.by .the Chief MmJSter . Mann's statement on :thii; aspCci is similar "My knowledge is", he says, "that such liberal term.~ of payment of the price of 'the land have not hccn given t~ any ,pther party either before this case or a.fter this case . Mann has further .said that an impres s1on was sought to be conveyed Jn thee meeting that the U.~. Government had accepted the terms suggested by San1ay Gandhi for Marutl Limited and the Haryana Government should. also therefore agree to the said terms: The suggestJon .had really no basis as the only matenal prod.uced in support was the aforesaid unsi~nerl letter. . . ~''~

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The Land Acquisition Collector had announced that the award would be made on July 10 197! July IO, however, was a holiday, When Shri o p. Yadav, Land Acquisition Collector, found that th~ Treasury ~fficer would no_t.~ue cheque books to him on !I . holiday, he approached.. Sbri M. Shankar. Adm1mstrator, Urban Estates, ori July 9, Shanka ~rote to. the Treasury Officer on that veiy day askin; him t?. issue the. cheque ~,., Shankar in his depo~mon .has said th.at he canno(recollect any other case 1n which he had written a similar.Jetter on July 10, i971 tlie, '-' 1 'a';~~:ili.l'' . received in all 191 clahns ~t'J.iolfu(j9!f!S,WaQ!l Coll~ctor 8 AM 10 A.M 12 '.N . ,, ..@l~g~"' .He 11Xed oon a11d 2: 1'.M. for hearino
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the claims f1 om villages Mullahcra, Dundahera. Sarhaul and Shahpur rcspecuvcly. However, according to 0. P. YadaY, Lan\! Acquisition Collector, by l P.M. all the claimants had been heard ; this was possible, Yadav says, because the claims were stereotype. After hearing the claims, Yadav asked the claimants present to come at 5 P.M. when, he said, he would announce the award. He Look the i;ignatur..:s or thumb in1pressions of the claimants on blank sheets of papers, according to Yadav, "just to ensure that they should be present at the time of announcing the award". This was an unusual thing and there is no explanation why Yadav took such a step. He made a separate award for each of the four villages and altogether the awards run into 74 typed pag,,;, Each award deal with the classifica1ion of lands, !heir market price and the valuation of wells, !recs. crops, buildings etc. Yadav started announdng the awards at about 5.20 J>.M. After the
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those who were willing to accept it. AboUI. 35 cheques were prepared and made over to the claimants. Possession of th~ acquired lands was taken immediately thcrcaf1cr by the Land Acquisition Collector proceeding . to the site in a jeep. 111is exercise took about an hour.
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this is almost the same as the average calculated from the figures supplied by Ailawadi to Yadav on JUlle 30, 1971 . ManJJ writing to Sanjay GaJJdhi on the s3.llle day mentioned almost the same figure as the approximate price of the land per acre. Mann calls it a coincidence. Mann also says that the price stated in his Jetter to Sanjay Gandhi may have been gatheretl from the rates conveyed by Ailawadi to Yadav, but he was not categorical that this was so ; if it was not so, then the concurrence would appear to be more than just a coincidence. If again, Mann was relying on the data collected by Ailawadi, the question that remains to be answered is how the information sent by Ailawadi from Gurgaon to Yadav at Faridabad on June 30, was available to Mann at Chandigarh on the sam" day. It appears from a note in the Deputy Commissioner's file (0.R.A. Branch) made by Ailawadi pn June 28 that Man,n. had telephoned him, presu~JllY ~rlicr in the day, "to request Collector's rate "f(!r' 'this land, which should be sent to the L.A.O. Faris!abad within a week's time'". The file does not show .that a copy of the rat.cs approved by Ailawadi Wl!S. ,~~nt ,to Mann, nor does Mann claim that he telephoned Ailawadi , again afte~ June 28 to inquire about the

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Yadav was asked how h_e could hear the :objection> a'!d .Prepare the awards which cove~ 74 pages,:" .all .. within s11ch a short space of time. , Yadav says : that .he had earlier worked out an average price rate 'of the different classes of land and treei;, structures and other relevant items and, after hearing the claimants he finally detennined the rates. Yadav says forth~ that . he also had parts of the awards typed earlier. which did not depend on determination of the claims. Yadav als'? came out with the following details. He had one typist, one stenographer, and dght or nine men of his slafI to help him. Starting with village Mullahera from 8 A.M., wi!hin :in hour or so he heard all the clalm@ts, made _up his mmd as to the rates of compensation for the different classes of lands and other items and ~onvey~ his decision to his staff who <ajculated the !igure.s in case of eac~ claimant and in respect of each ttem 1.n acco~dance wtth the rates determined. It went O? this way 111 resi?Cct of the other vilfages, and before 2 P.M. a!l ca!eulat1ons were. completed. Thereafter he . stru;ted d1ctatmg the operative portions of the awards which took also about an hour. Then the typing of the awards started. M~n of his staff who had made the calculations incorporated the figures in the awards. He read the awards before he signed them, and the awards were announced, as already stated at about 5.20 P.M .. f?oubt was c~pressed by couns~l assisting the ,Comm1ss1on and also by counsel appearing respectively for the Central Government and the Government of Ha.ryana, as to whether it was possible in the span of ~ l1tt.lc over three hours to do all these. exerc1>cs,-<!1ctatmg the operative portions of the awards and havmg the awards typed with. t.hc assistance of one tenographer and one typist, even if part of the awards had be-en prepared earlier, and then reading through 74 typed pages hcfore announcing the awards. Counsel suggested that the awards were completed beforehand and kept_ ready and the hearing of the claims was onlv a formality that had to be gone through A, . connection circumstancc wh'1ch .appears to be relevant in this may be mentioned. The average rate of compensation per acre award\'(! by Yadav was Rs. 11 776 _ 32 ' an d S/8 HA/79-6 '

In apswFr ip a question why in this t;a..., the calculano~slWere ~one aua 'Plirt of' the n\ivitiilf~ fu,ad~c

,':"l)ich admit';C<fiY. was not the ~~JI~.~ .' Y:adav case n.' was treatec! lls a v~,J"-'. .1 case". . H' sa.yS'that"this W: . . tb . . '"r' - g;/,~ 'Ge .,1,.s~ys,t hi\t,h.ii~i.'YllS'.' genl~all._dY,m.acflW!:c.tiJ,~ .the ov.,,~ent a t e i;uest iev~ "a.' . . .Jl l1,P,.1ts mind to acquire the lan.d because the major porti<il) of it was int~nded for allotment 1<! Shri. $anjay '~i!lii~ _ and, ther~fo~;.,,he "ha(! no optmn but to' ~nilii.ete'the proceedmg m the way he had done. '"nie manuer in which. th.e ,ai:qui~iti.'.on of !arid .in th~~ fp#r.'4llages was , hustl.ed i_nay be contrasted with the a'!=Q.ujSition pro. ce~mg. m respect of tbe.Ia~d of -'1!11age :tnayatpur which, 1t may be recalled,, was ci>nlj)Ie~ later . In .the case .o!. IliayatP.r.it 1!1Jldi Shri ~: L; ''l'fait'!lt," 'lalld Acqu1s1tion Officer, 1ssumg nottce under section 9 of the .~nd ,Acquisition. Act on August 30; 1972 gave the. mte~ested pe,.ons twenty da~l,,tiJnc:,Jo .. submit their cl~ and.thC; &Wllld was.anno~c;eit.-jOn Npvem~e~ .;!4, 1972, though the: area .acqwred:;was only . -4.11 acres. It. may~ also stated that if tl)e I.nayatpur la:nd ,w~s acq\red wltfy _the lands:. of the other four villages, the pnce payable by Maruti Limited for the plot allotted to it would have gone ,np, by more than " , Rs. 25,000.

to~! compensatiou paid fo~, land a~uisition in the four villages, Mullahera, Oundahem Shahpur and . Sarhaul came to Rs. 49,52,414.33,; ..'l'he amount was drawn on. the bndget of the Oepartnient of Urban Estates )'ll!hout any reference to the Finance Depanmcnt, Tiiis was contrary to the declsion. taken earlier S. Director of To~ It may be recalled that and Country Planning and Urban had h' If stated ii) ,his"note dated April 2, 1971 the:"~ no provision m the budget of .the Department of U b ~states for !l~uiri~g the aforesaid land and sugg:s:l t a.t a provision llllght be made in the su lemen cstrma~es: The recommendation of the pp Finan~ Comnuss!oner (Revenue) on that note" was that th . rna!Jcr nnght be taken up With the F'man Dep c ~h~~~ the Minister concerned approve': on ~nJ:

The

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The broad terms on which land was to be alloUcd to Maruti Li!l1ited, as decided in the meeting held on July 3, 1971, were approved by the F'lllailce Depart: ment on July 13, 1971. Fmance Secretary Shn J. S. Sarobia who was present in the meeting of July 3 has told the Collllllission that he infOJ'IDed the Financ.: Minister about the meeting on or about July 6. 1be Finance Minister bad not been asked by the Chief Minister to attend the meeting with Sanjay Gandhi held on July 3, nor were the Industries Minister and the Minister for Public Works. Thus nODe of the three Ministers whose departments were vitally concerned in tl1e matter of allounent of land to a new industry was invited to the meeting.
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After the acquisition proceedings were completed, steps were taken to draw up an agreement on thO buis of which land was to be allotted to Sanlay Gl!ndhl. The matter was discussed by Mann with the Assistant Le.1tal Remembrancer R. K. Gupta, and a draft agreement was made ready. On Au~t 9, 1971 these two officers took the draft to Delhi to have 1t approved by Sanjay Gandhi. This they did, according tO Mann, on the direction of Batra. Batra denies this and suggests that the impelling power behind Mann's trip to Delhi was !}le Chief Minister's order that Sanjay Gandhi must be given po&&esiion of tho land before July 10, 1971, and the date had already expired. R. K. Gupta says that he went to Delhi "under orders of the Legal Remembrancer''. '>. C. Goel, who was tlie Legal Remembrancer then, has told the Comm!safon that it was Batra wt.o asked him on telephone to send some law officer to Delhi with Man11 and he seni R. K. Gupta. It seems therefore that the ollicers carried the ilrafi agreemcl)l to Delhi in obedience to Batra's order. The order was Batra's but he must have given the order because the Chief Minister had set a traget date. Later, in an affidavit sworn on September 4, 1978 in response to a notice issued to him under section 8 B of the Commissions of Inquiry Act, 1952 Mann has clarified tbe position. He says : "On the. 6th or 7th of August, 1971, Secretacy Shn Batra told me that the Chief Minister had given orders that I should immediately P!occed to Delhi to h~ve the agreement signed from Shrl Saniay Gandhi and to deliver the possession of land to' him. My Secretary also told me that I should take along with me the Assistant Legal .Remembrancer, Slori R. C. Gupta, so that if there were any minor modifications suggest~ by Shri Gandhi, the same could be studied on spot and a decision taken. He told me that be bad already spoken to the' L. R. (Legal Remembrancer) awi the latter had agreed to depute bis A.L.R., Shri !Jupta, to accompany me to Delhi. Accordingly! S~ri R. K. Gupta, and myself went to Delhi with t.be draft agreement. J had also rung up Shn Shankar, Administrator (Urban Estate) at faridabad and asked him to join me at Delhi on 9th August, 1971 and then to accompany me w !lie Prime Minister's No. 1, Safdarjuog Road on. the morning of August 9. Sanjay Gandhi suggested some minor modifications and the officers left the draft to be finaliud by hlm and came away. They called on him again in the afternoon when they found the agreement typed on stamp paper. Sanjay Gandhi signed the agreemcnt"on behalf of Maruti Limited. and gave a . cheque for Rs. 3,S3,289 which was equivalentto 10 per cent of the total price of land at the rate of Rs. 11,776.32 per acre.. It appears that the stamp paper; .i>n .which the agreement was typed does not,bear1,any endorsement as.to who was the vendorfrOlll':whi>nlit'was'purchased and by whom, wben,and for'wbat'N>utp0sc. The Assistant LeP.] Remembrancer,,R.l(,Gupta, bas said in depo51tion that. he did' noq>ay. any. 11ttention to this feature and thought tbattrt~e-f\il&!'~nt was properly executed; , "" ..c;-c,,,,.... ,., " "

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of the Prime Minister, to the si~ a~.Gurg111>n., Shanlcar and some employees of the ToW!,1 and GQuntry Planning Department were waiting for .them. ,',fbe ilrea which was to be allotted to Maruti Limitedhad ~I.ready been demarcated. The entire party'; \Ven("roliiid tho land, and possession was formally given to Salijay Gandhi. Later a certificate of delivery .of ~ession containing Sanjay Gandhi's signature and :,indicating the area as 296.8 acres was received in the ollieo of the A !minis trator, Urban Estates; Farid11bild; !)Couosel for the Central Government asked bOth Miliiii' and' 'Shanlcar whether it was usual. in Haryana for senior I.A.S. officers to go to the house of an intending purchaser of land for completing the transaction as they dic;I 'in this case : Mann's answer was, "we did"not do ~uch things ..... we did not do that ~ro and aftc:E". .
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About a week after possession of .ihe land was Mehtani, Officer on delivered to Sanjay Gandhi, R. Special Duty to the Chief Minis~~ of Haty;ina, requested Man.n on telcp~one not to p{~t th.e cheque ~1cn by San!aY. Gandhi. for encn<bm~nt" tP,r someume; Mehtani did not d1SClose the reason' foi making such a request. The cheque was drawn on Punjab National Banlc, Parliament Street, New Delhi, No. PGK 605826 dated August 9, 1971. It appears that Maruti Limited opened an account, No. ClA 3371, with Punjab National Bank on August 7, 1971 .by a cash deposit of Rs. 100 only. On August 9, .1971, the day on which Sanjay Gandhi made over,t!Je,cheque to Mann, a further sum of Rs .. 2,00,00Q was de!;ited in the aceonnt. Thus on August 9 M'aruti' Li!l1iled did not the amount have sullicient funds in' the bank to' for which the ch~ue was given. Qn AJigust 14, 1971 another sum of RS. 3,00,0C:> was credited raising the company's cash balance to Rs. 5,00,100. The amount of the cheque appears to have been debited from the company's account.in the b,;.nk on September 2S 1971 47 days after the cheque llllS issued:. . ' '

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Shankar joined them at Delhi as directed. The three of them took the draft agreemen: to Sanjay. Gandhi at

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for the company on August 9, 1971' may now be

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considered. The document is described as an agre&ment for sale. Paragraph 1 of the agreement deallllg with the q uestioo of price states intel' alia that the total cost of the land a.Uotted was Rs. 35,32,896 at the rate of Rs. 11,776.32 p. per acre. The price charged was the actual acquisition cost followi.og the decision taken on July 3, 1971. Paragraph 3 lays down the lIUIIlller of payment of the price and the number of i.ostalments in which it was to be paid. Each instalment was to be paid within thirty days from the date on.which it became due and, if the company failed lo make the payment withi o a period of ooe -year from 1he date on which any amount fell due, "the Government may resume the said site along with any building constructed and machinery installed thereon on terms and conditions mentioned in paragraph 12". Under paragruph 7 the company was prohibited from trans!erring any interest in the land by sale, mortgage, gift or otherwise without prior written permission nf the Government unless the site had been fully utilised for industrial purposes and all payments had been made in full. Pa~agraph S of the agreement required the company to use the site mainly for industrial purpose and proi1ibitcd its use for a materially different purpose without prior written permission of the Government. Paragraph 1:l of tbe agreement states that in the event of failure on the part of the company to c1Jf!h out the terms of the agreement "the site shall be lia le to be resumed 011 refund to the company tbe amount of the award relating to the acquisition of land less 15 per cent of the amount awarded for ci>mpulsory
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As the value of the land allotted to Maruti Limited by the Haryana Government was over Rs. 75,000, clause 13 of the Schedule to Haryana Rules of Business 1963 was attracted requiring approval of tbe Council of Ministers to the transfer. In this case the approval of the Council of Ministers was not taken before the agreement was signed by Sanjay Gandhi. This was pointed ont by the Additional Director Town and Country PJanniJJg, in his note dated December 30, J 971 and a memorandum was put up for approval of the Cabinet. The Cabinet gave ex-post facto approval to the transfer on January IO, 1972. The agreement with Maruti Limited which Sanjay Gandhi had signed on behalf of the company on August 9, 1971 was signed by the Financial Commissioner (Revenue) for the Haryana Government on or about January 20 1972. . .
.

any building on any site oo which a factory was to be situated or for the extension or use as a factory or a part of a factory unless a previous pennission in writing was obtained from the Chief Inspector of FactOries. The. application for such permission was required to be made lo the prescribed form, -form No. 1 with relevant plans and specifications. Rule No. 7 required the occupier of every factory to submit to the Chief Inspector ao apolication in form 2 for the registration of the factory and for the grant of licence. Maruti Limited applied for registration io form No. 2 on March 31, 1.972. Qn certain defects being pointed out in the plans which were sent along with tbe application of the company, the company submitted an amended plan on May 30, 1972 which was ap!!roved on July 12, 1972, In the application Marut1 Limited mentioned the date of construction of the building as sometime in January 1972. Before applying in the prescribed form, Maruti Limited appears to have written two letters to the Chief Inspector of Factories oo January 29, and February 24, 1972 asking for some guidance oo form No. 2. In the earlier letter which was signed by Sanjay Gandhi, it was said that they were io the process of occupying the factory. This would indicate that the factory buijcling -it was the Research and Development Wing as would appear from the deposition of A. D. Kolhatkar who was Manager, Personoel and Factory Administration, -bad been completed, or at least nearly completed, before the company made the application in form 2. There was thus a clear violation of section 6 of the Factories Act, 1948 read with rule 3 of the Punjab Factories Rules, 1952. It is also to be noted that there was no application in form 1.
Insurance building, buildings housing a bank :ind a

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Maruti 1:-iinited built several structures on the land. The more unportant of them, which are also relevant for the present purpose, -are: (i) the Research and D,~veJopmeot Wing, (U) the main factory building, .(w) the ftructures built at Gate Nos. 1 and 2 which h~ve been described as Gates 1 aod 2 complex, and (1v) .the five storcyed Staff Quarters. All these cons.trueuons appear to have heen made either in violation of som~ statutory P.r?yision or ..iu disregard of some other kind of prohibition. The relevant facts ar<> aa follows. Rule 3 pf the Punjab Factory Rule&, 1952 framed und':'r iecuon 6 ot the Factories Act, 1948, which are applicnbk also to Haryana, prohibited construction of

post office and several other structures. Construction of this complex commenced in May 1972 and completed m June 1974. Pradha11 Gbo;h and Associates Consulting Architects, were the designers of Maruti'~ factory, gates complex and the staff quarters According to their Chief Engineer K. M. Pr.ihJad th~ arrangement between his employers and Maruti Limited was that the architects would prepare the drawing.5 and for;yard them !O the "Maruti people" who were to subnut the drawm!!S to the authority for approval. J. N. Bhargava, Assistant Estate Officer Faridabad says that Maruti Limited had submitted two plans fu Septe!Dber 1971 and February 1972 respectively, then a reVISed plan No. 2030 on December 21, 1972 for the Gates 1 and 2 complex and the Staff Quarters. B. J?. Behl who was Assistant Engineer, Town Plannin , Faridabad, from May 1973 to November 1973 to14 the Commission. that two main deficieiicles in the reVISed plan were pomted oat to Maruti Limited. Ooe of them was that the Staff Quartem sboWJi in th J as a. five storeycd building; ~ the,Zo~; ~!~ published under rule 48(2) of the Ha.eyaDa Scheduled Roads and Controlled Areas RestridioriS of Ur late<! Development Rules, 1965 framed ::under irefbe PunJ~b . Scheduled Roads. and Contri>Ue(fc Areas Restrictl~os of Unrogulated Development Act, 1963 Th~ zonmg plan prohibited construction of, buildin haymg more than two storeya and beYond 30 fi f $8 height. to Shri P'-'"'" ~e m A"""""'"" 11~-.....,..., "e w '""'quarters' as origma Y planned, . waa to have tou.r storeys, anJ

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the drawings were prepared accordingly. Then Maruti Limited wanted two more storeys to be added. The architects replied that the load catered for could allow only one more floor, and in the plan that was finally submitted it was shown as a five storeyed building. In the 7.0ning plan an exception was made in the case of administrative buildings, but the staff quarters was not an administrative building. The other deficiency pointed out was that the Gates I and 2 Complex :was within 30 meters from Delhi-Gurgaon road .which was part of DelhiAlwar road and DelhiAlwar road was a "scheduled road" under the Punjab Scheduled Roads and Controlled Areas Restrictions of Un~gu lated Development Act, 1963. Scheduled road has been defined in the Act as a road specified iu the Schedule of tl1e Act. Section 3 of the Act prohibits, among other things, erection of buildings within 30 meters on either side of the road reservation of any scheduled roa<l. For the above reasons, Plan No. 2030 was rejected 6!) February 8, 1973. Behl says that when the deficiencies were brought to the notice of Maruti Limited, it was said on their behalf that thev wouW have the rules relaxed by tl1e Government. rule ~as however relaxed. Though the plan was not sanct10ned by the concerned authority, Maruti Limited started and completed the construction of Gates I and 2 Complex and the Staff Quarters. In spite of this, no step appears to have been taken to prevent comtruction of the five storeyed building described-as>the Staff Quarte.l's. As regards Gates l and 2 Complex Shri R~ Lal, Building Inspector, and,Shri J. N. Bhatgavc, A$sistant Es111te OJlicer, of the Department of' Town an!l Coll!ltl)' Planning, when they found the stiucture5 to be w1thm 30 meters of the DelhH>nrgaon' -roiid made attempts to stop further construction but without success. Gates 1 and 2 Complex and the Staff Quarters were both completed in June' 1974.

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Building ln.<pcctor Ram La! and AsSiii(Mt Estate O{Jicer J, "N. Bhargava have narrated thclr'experienC<: before the Commi~sion. Ou March 27, 1973 Raiti Lal saw some digging. work going on Dear the boundaty wall of, the Maruti factory, apparelltly' for laying the foundation fo~ struc111rcs to !JC raised at the' place. He "'.ante.d to inspect the prenmes and for this pw'pose sent ID Ills name and designation on a i;>iece of" paper to. the company's office inside. He wmtcd fqr about an hoar and n half but was not called in. On"AprU 25 1973 wh~n he next visited the site he.!ounc!';that th~ constructio~ ~ad reached the roof level, again sough! pemuss10~ to enter the premises for insjl4ction but did no( receive any response. . The' saaje' ,'day he reported the matter to . Bhati!lva,' ~is~t' ~tale <?fiicer, who was 3;1so. acting as Estate. Offi&r at !he time. ' '" . .Next . day' A'.pril 26, both 'ot th" emcametot]Je s1te ID a JCCp of the Town and Country' Plann"U1, Departl!le~t and they were allowed to drive ln. The~ stayed ms1de the Manni premises for about a couple of hours, ,Bhai:gava went to Ml!ruti's om,ce and d' closed. hi.s idenmy. Ram Lal took measurement~ ~f buildings under cons,truction and prepared a sketch .P Dhed~eJhe cons~ct~ons Were within 30 meters .of ~f silic P'unja~o~h:J~~ni0the provi~ion of section 3 Restriction of Unregulated o~v:fod ;~:ttr'J!ce:1 63 he prepared and sel'Ved a no'i .!l .h, ' . ice on t. e spot on Shri

S. M. Rcge, Secretary of Ml\l'uti Limited, to sho cause within 15 days why the company should no be ordered to mtorc the land .to its original shape Maruti Limited replied to the notice on May 4, 1973 The reply. was not found satisfactory, and on May 21 I 973 Shri Bhargava issued a demolition notice. 01 J unc 24, 1973 Bhargava and Rain Lal visited tl1e site again when they found construction, 'going on notwith standing the demolition order served on the company In reply to the demolition notice, the comj:lll)y mad a request for compounding the offence, if any, uudc the Punjab Scheduled Roads and Controlled Area: Restriction of Unregulated DevelopmeJlt Act, 1963 Section 14 of the Act deals with composition of offence: made punishable under the Act. No order allowin1 composition was made in respect of the unauthurise< co 11st ructions, yet the demolition order was not curric< out. Wha< Shri Bhargava did was to submit a repor 10 1hc Administrator, Urban Estates, who wrote tc the Director, Town and Country Planning, on th sub1ect. Bhargava says that he knew that the olfcnc1 could not be compounded, but "since the matte related to a high-up" he thought.- it "safe" to see> guidance of his superior officers. It was Bhargava': uuty as Estate Ollicer to carry out the demolition order A>ked why this was not done his explanation was "ldid nQt cai-1y out demolition because.more tbw 5,00() ~in which demolit;i'?Jl orders had been pa= w~e peoillng and no demolitlon had.been carried out ~on<lly, l bad no machinecy to~ out the demoli!i~vThJrdly, l w_as,holdi0g:dua1:9)iai'gc of the pos1 of AsSistant Estate Officer, as. well ilS .Estate Officer T~e m'!nlh was closing and I was ~c" Dra!V)nB anc ~~~11/j!n~~f ~., . lp,~i;~ ~!lon wa' 's , .I! , p~eda .~oujd hJ!VC)li\ to, go ,.l.Qc;PW'8aon anc .~1lcJ: e~ ~~XOJ',lllll9~AAd police heir a ,t".,,,er '{ ..I.p1Jt llP;a,n2!e,~!UY Adglinis91]Fh.)'., ..~~gtJi'~<fe~!lll PQi!1!C< ~/f"'Sliff or.i_ __o,, ... -~" lnarg~~~ th~t. :: d.~""t :~:. <1emcl1tior ,,e~ JlllS...., o....r caaes "? .noJ carried out couktnot, be a justlflcatioii f0r,nof DiVfuo C'lfect to th1 order'' assed_ .. in thiS_. '_ 'aiid.-.'.~'i'" !'. . .

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S!Jdrib,fdritll#l"Si~gh, A<lmiqi~~l\l~r;':"ur~ !states F~n a a lo whom Jlhar , ;,i..tt:nnA 11 s;\Ys !hat hcl'Was' iiSked b . ~v~li''sfilm"c<1.""" ../> his .repor,!he cilfeiice rel".,-g "to' yth l!fl! ~~ -~ compcum ....... e cons. lions within 3( melers of the scheduled road. :- He-'~liincd to th copipany's Public Relations Olj'lwoo; 4im .' t!i1S: cnllll.ection ~wby1<the :'olfeDCCitC<\u1alli&~Y'be:, n ,poUDlfed' ,bu_t the''-.'"--~ "'~o"'""""""'-"'' ., . c<!m_ . ' .: -~ w ... n '"...U011C'<l"8Dd askec Jli111 'to: exp]ajn- the position toASh~P.S'linjay Gandh ~gm~ Duector 'Of the company,,.: Accord in t' .P.!llanr Singh, Sanjay oGandhi told: hilli: "Wh g ' th . . . , .. ' . . en YO\J arc compoun'""" .p, . ':"""' in o er cases why,.notm my case" . il'Itam. SmgI,i thought !t '!as a ''.Ver'J'serious matter . bee;i;us~. SanJay. Gandhi Dllght. :!'CJ)J)JpJafu0, to hi h -authont1es" against.Jlim and" trfud tO "fiqd g e Cases ~here !X>mposition had been allowed A out d!hc ~~ Pntat Smgh, the cases he found we~e a~h~~~ Y sma rooms had been constructed and th ls immediately after. the Punjab Scheduled at a c , Controlled Areas R~gulation oLUure . Roads anc ment Act, 1963 came into force'whe~thc PD~yeloJ?
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law was not very clear. Among these cases again there were only tWQ where Pritam Singh had allowed composition, in one case it was a boundary wall. and in the other u watch and ward room measuring 8' X 10' along with the gate. In these eases a minor penalty had been imposed. There was no precedent for such buildings as were consuucted by Maruti Limited. Pritam Siugh expressed his inability to allow the offence committed by Maruti Limited in raising the aforesaid structures to be cQmpounded. To protect himself he wrote a letter on June 26, 1973 to Shri R. S. Mann. Director. Town and Country Planning, stating all the facts. Mann brought the matter to the notice of Shri S. K. Misra, Principal Secretary to the Chief Minister. Misra spoke to the Chief Minister and informed Mann thut the Chief Minister had spoken to Suujay Gandhi about the matter who assured the Chier Minister that the illegal constructions would be removed. Mann conveyed this information to Pritam Singh on telephone. Mann also felt that because "it was a sensitive issue" the Administrator must have thought it desirable to keep the department informed. "The purpose of the Administrator writing to me'', Mann says "was not that he wanted any action from me in the matter of removal of the structures but he had done so only with a view to ensure that he did not come to harm". Explaining the position Mann adds that the power to take action in the case of violation of the restriction on constructions within 30 meters of the scheduled roads initially vested in the Director, Town and Cnunlry Planning, but these powers had been delegated to the Administrator Urban Estates, Faridabad. by an order of the Go~ernor of Haryana dale<) June 3, I 969 and thut the Administrator was therefore competent to take action in this case. Th~ allc.\le~ assurance give~ by Sanjay Gandhi to the Chief M1111ster was not came<l out, and no acHcn was taken by the authorities on the demolition order pa<0ed.

March and May 1973. Shri H: R. Gokhal!; an~ ~i V. C. Shukla who were respectively the Law M1U1ster and the Minister of State_ for Defence Production at the time, both asserted in Parliament that no such restrictions attached to the area in question.

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The nature and th.: sourC<! of the restrictions alleged to have been violated may be stated h~re. The p::ovisious of the Indian Works of Defence Act, 1903 Le which reference is necessacy for the present purpose are these. Sub-section (l) of section 3 of the Act empowers the Central Goverriment to make a declaration whenever it appears to the Government that it is necessary to impose restrictions upon the use and enjoyment of iand in th~ vicinity of any work of defence. Sub-section (2) of section 3 states that the <leclaration which shall be published in tlie Official Gazette shall indicate the place where a sketch plan of th~ land to which the restrictions relate may be insJ?CCle<I. The Collector is requ_ircq .t.ci e~use public nO\!_Ce of the substance of the declarauon .to be given at convenient places in the locality. ~iion 7 enumerates the restr!c.Lions ~nd statenhat they will attach to the areas mentmned m clauses (a), (b) and (c) of the section "From and after the publication of the !1otice" rcforred to in sub-section (2) of section 3. ~t100 7 provides for different forms of restrictions 111 clauses (a), (b) and (c) extending res~ctively to two thousand yards, one thousand yards and five hundred yards from the crest of the outer parapet of the work. The relevant .clause in the case of Maruti constr~c~ious is clause (b) which says inter a/ia th.at no b~, wall, bank or other construction of perma!1CDt IJ!lltenals al>ovJ the grounU shall be erected with 111 a dtstance of one thousand yards from the crest of t,\t~ outer parape! of the wo1K. Apan from Ole pro v1s!cps of the Indian Work~ of Defence Act, the ~Ir}' of ~efence appears to have written two letters on similar lines, one in 1~56 and the other in 1966. It u1ay he recalled that 011c uf th" objections taken addr~ to th~ S~U: Governments on the subject of by tho~c _whose land was acquired was that the land C?IJSt:uetton .of buildings and other structures in the was w1tl~111 the 1.000 yar<ls safety belt around an viellllty of Air Force Installations. The p~ of the an:mu!11t1on depot and very near an airfield. this 1,-;-tt~s. to .quote fr!'m the I 96(i letters,( 1) was that o.b1ect1on wa' based on a notification issued hy the wtth the m.troducthi11 of jet aircraft and the rapid ad. C~n~ul Government, and a Jetter addressed by the vancement m l~e field of electronics, it has b('Come M1111stry of Defence lo the different State Governments. necessary for uo~crnment .to. have effective control fhe number and d~te or the notification and aJ,o of !'Ver tht: ~.nstru~t1'!n of buildings or other struct.ures 111 the v1elll!tY of A1 Force Installations and airfields the letter were mentioned. The objection was however ove11 ulecl on the ground that the objectors had failed b<!th occupied a'!d unoa:upied, in order to meet th~ lo produce the r~levant notification ; the Land AcquisiA'! Force technical requirements with reference ti uo~ CoUecto: d~d not refer to the said Jetter in overfij1g ~ety a';ld th!! ,,effective functioning of modern ruhng the obiect1on which also does not aopear to have .e ectro1!!c eqwpment . The letter mentions a case been produced. The objection that the land was within where a State Government commenced work on ~ the safoty b~J~ around the ammunition depot wa' based tall structure, which being siled within th fl . on the p1:ov1~1ons of the Indian Works of Defe-icc A t funnel of an adjoining airfielq, would constitut~ a c(!i~g' 1_903 which ts au "Act to provide for imposio~ restrlc: hazard and endanger the safoty of the Statt as ;., t?.'.is. upon the use and enjoyment of land in th as !he Central Gcwernmenl-'s property" "I d " v1c1mty of works of defence in order that suh land obviate such instances in the future" ih ~ or er to ~ia~ hhc kept fre. from b!-1ildings and other obstn;-clions" ~ests, "whenever a State Governm;nt/;riv~~~r . {" ~r the constructions made bv Maruti I imited vi~l~ityplaonsf antOAP1.urtFuoprcebwln1ds1ta'ogilst?r structu.res in th~ ;-'~rate any of the restrictions imposed und~ th Ila 10 n tan Works of Defence Act I 903 'was debated ic,, occupied, this Ministry ma~ b . ~ occupied or unParliament in December I 972. and also in F b to confirm that there is no. obj~c:~o or~dthand asked - - . ---- ----- --e ruary. there beioa any ob" " 'n. . e event of (IJLettor No. F.2(9)/65/D(AirI[)dotedJuly4--t9-6 .. 6 ...d_d . . ., iecucn m any parrJcuJar case ofU' T a rcssed1he(b'fS '. nron erritor1es h) \fini~rry of Defcn~ New D II." . . ie ecretaries of difi'ercnr Srates and Chief Co I

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tlic matter may be settled by mutual consultation bf

tween the Central Government and the S~te Govern ment concerned". 'fhe lener concludes wit"!! a r~u~t lP the State Governments to is~u7 instrucli~n.s m this regard particula)'Jy to the "Municipal authonttes, 1?':31 town planning authorities a1,1d _the Stat~ . Electnc1ty Boards in addition to the D1stnct authonues concerned" Shri A. N. Thyagarajan, Oeputy Secretary, Muiistry of Defence, in his statement to the Comnussion has said that the request made in ~ letter ha~ always been ;:omplicd witll and constructions constl tuting filgbt hazard had. be7n stopped ~Y the State Governments iiU "a legislation was available to en force these restrici;ons in the flying funnel''.

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Tue facts relevant to this issu~ arc as follows. Since 1942 lands fr_!?m Gurlli!o, Dundabera_, ~lla hera and some other village; m Gurgaon district of the then State of Punjab were either requisitioned or 'acquired or taken on lease from t!t!l~ to time for defence purposes. Some of the reqms1t1oned lands were also de-requisil ioncd in the course of years. A con siderable part of the land in the possession _of tllc Defence Departm~nt in that are_a, was occupied by 23 Anny Headg_u1rte" Ammumt on Depot and an Explosive Maintenance Unit (EMU) that was set up by the Indian Air Force iu Septen;ber 1948. Attach~d to the Explosive Mamtenance Umt there was aa arrfield On the recommendation cf the Army Headquarters that :he. Defenc~ Works A!1Jlllunition Depot ill Gurgaon distnct should be classified as class B Zone i.e. with restrictions extending to 1000 yards from the crest of the oute: parapet of the work, noti lication No. S.R.O. 315 dated November 30, .1962 was issued by the Miuimy of Defence which was pub lished in the Gazette of India on December 15, 1962. Along with the notification a sketch plan showing the clearance zone around the ammunition depot was forwarded to the otlioe of the Deputy Commissioner, Ourgaon, for publicity us required under section 3 (2) of the Indian Works of Defence Act .. In March 1966 the Army Ammunition Depot moved out of that place and the area vacated by the 11rmy was taken over ~ the Air Force to expand iL< Explosive Maintenance mt which was later renamed as 54 Air Storage Park (ASP). Thus, as Shri Tbyagarajan says, regarding "the use to which the area was put, there was no
change".

use and enjoyment of hi1Jd within l 000 atels of the ammunition depot in Gurgaon and requtsttng the Sta~e Government to take appropriate steps to_ remove t c unauthorised coDStrnctions and prevent future COJ!St!"l'c tions within the clearance i:one. For the re&!nctt'?ns . ted' t, he letter referred to tbe noufi,auon 0 3~s of 1962 as the basis and not S.R.O. 6 of 1969 'Ibis was due to, as would appear fr!lm the letter. a mistakml impression that the i 969 notificat10!1 bad been pnblished. A reminder, followed this letter in April 1969. In May:196;), Haryana '!ovemment wrote back to say that they had n<?t.received the Jetter of January 20, 1969(> The "M1m;1try of Defence sent a copy of the letter of January 20 m September -1969. In the meantime on Feb!1Jary 4, 1969 Squadron Leader M..Ramchandran of Ai!' J'.orce, Gurgaon, b.ad 111Ti1ten to! tho DepU1y Comm1ss1011er, Gurgaon enclosing a copy of tbe fetter of Jan1;1ary 20. The nePuty Commissioner asked the Tehsildar to give wide publicity to the contents of the January letter so that 110 unauthorised constructions wer.e put up in the ar;:a. Tehsildar's repcrt dated- April I 0, 1969 shows that he carried ont what he was asked to do. It was weU known by this till\e that t~e Haryana Qgvemment was proposing to a~mre laud m Gurgaon District for Shri Sanjay Gandhi's car factory. On March 11 1971 Squadron Leader Mohinder Singh wrote to 'the Headquarters maintenance Command saying that they had come to know that the Haryuna Government proposed to acquire land- in the area for the constructiou of a faclr'ry which, if set up, would constitute a security xisk to the Explosive iDepot as well as the air.field. '!he letter enclosed a c1Jpy of a cirCutar letter dated August 13, 1956 from the Ministry of Def~nce which was addressed to the State Governments seeking to !!ave a measure ot control over the constructiou of buildings and 01 her structures in the vicinity of the Air Foree installations. Reference has been made earlier to this letter from tho Ministry of Defence which was followed by a similar letter i11 1966. A copy of'Mohinder Singb's letter was en:lom:d to the Chief Secretary to the Government of Haryana where it apparently failed to produce any reaction because on June 23, 1971 the notification .Under section 6 of t:he- Land Acquisition Act was issued and on July 10, 1971 the Land Acquisition Collector made bis award.; -

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Iu 1998 the Air Hcadqi;artcrs thought that It was necessary to issue a fresh notification declaring the clearance zone around the area comprising the Air Force complex at Gurgaon. It is not eXIJlalned why a,no_ther .notification was considered necessary if there was no change ill the "use to which the area was put". However, a fresh declaration, S.!l.O 6 dated December 30, 1968 was published in the Gazette of Indi:i ton January 11, 1969. It does not appear that public notice of this dccl.uation was given as required "but admitted the omission was not noticed by the authorities until December 1972. On reports received froir. the local Air Force authorities that a number of civilians bad started construcri0ll3 with.in the prohibited zone, tho Ministry of Defence wrote to the Chief Secretary to 1hc .G?vernment of Haryana oo January 20, 1969 p()Jntm~ out the restrictions upon the

On July 27, 1971 Squadron Leader Mobinder Singh wrote a "secret" letter- to Military Estates Q!fice~ Delhi Circle, copies of which were mark.:d tO -oeputy Co~~. Gyr~!I; 1)1!1,\:,Mr Headquarters, New Delhi pc1ntmgout1tbat'acgUJsition by 1 the Rary~ Government ~ 1 ,'!i@i:~q ~~ to the ammUlllllon 'depot -was 'not ~bte fIQl\9; the poin of view of its seci.rity. ' On l~j;t ; 'ot. the _copy "-wadi . wh o .was , '.I"'-~."'-',, 'dnl' '" . Com _ Shri V . S l'UUl wcu <we .....,puty missioner of Gurgaon ask- !he' _TliSitict.-, Revenue Assisw.it "to speak". The Jattci:-:fe&ii(l~ a)iote tha the file may. be kept pei:Jd.iJig''tilfa'-'refererice was receiv~ irom the Military -~t~I!;~ . Q~. This suggestion was, approved _by.)'A-iJ;i~alij qn, Sept.:m bei _ 13, ~971. Iri _the ~tilnc/~A'iigust 9, 1971 Shr1 San1uy Gal!dhi had signed. the ., agrmncnt _with the ~ Oovemmcnt and .t~1 pessesllion of th ~ tfui ~ext day, Though Sbri. Sar1jay Gandhi bad signed the agreement on August 9, 19-11, as al.read

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Force Officers failed to have any effect at the s~d the document was not signed on behalf of 1hc other end. ~aria Government bdore January 20, I ~72. Duong this period the Haryana Government received About a momh later, on December I 0, . 197_1 a nw:nbcr of letters from the Air Force officers, and Shankar wrote to Ailawadi urging hiJn to send his one from the Ministrv or Defence seeking to stop comments immediately on the objections raised by unauthorised constructicns in the area. On the Air Force authorities. It appears from this letter August 19, 1971 Air Vi~ Marshal. Harjind~r Si~gh that the urgency was ,felt because allotment of plots (Retired) who was workmg as Adviser, CIVIi Avrato the industrialists in the remaining portion of the lion, Haryana, being requested by Air Commodore acquired land was held up until Ailawadi's comments A. C. Saigal through Squadron Leader Mohinder were received ancJ not because of the presshlg nature S"mgh to use his good offices, wrote to Shri M. L. of the objections as such. On December ,15, 1971 Batra, Financial Commis~imer (Revenue) and Secrea. Jetter was received in the office qf tbe Director, tarY to the Governme:it or Haryana, pointing out that Urban Estates from the Lane! Acquisition Officer, acquisition of land in close proximity of Gurgac.n apparently in reply to the communicatidn dated Defence Aerodrome involved serious hazards for the September 6, 1971, which said that the facts mentiondefence operations "particularly when the Gurgac:in Defence Aerodrcme is to teed the Northern India ed in the Jetter of the Ministry of Defence could be with the high pot:utial ~xplosivts". The Air Vice 1 verified only after a measurement of the site. The Marshal's letter enclosed copy of another Jetter dated letter does not explain why this was not done in abo~t August 2, 1971 addressed to him by Squadron Leader three months' time that he took to reply to the. letter of September 6, 1971. However, the.Land AcquiSi Mohinder Singh and Mohinder Singh's Jetter again bad as its enclo~ure copy of the letter dated March 11 , tion Officer promised detailed report within' a fortllight. Pursuant to Mall>l's in~truction, a' letter frOD;I 1971 addressed by him to the Headquarters Maintenance Comman:I, Indian Air Force. Shri Batra passed the Directorate or Urban Estates was addressed to .on Air Vice Marshal's letter with its enclosures to Ailawadi on or about Janwir:Y 17, 1972 requesting Sbri R. S. Mann on August 23, 1971. At the instance him to inform the Directorate immediately what of Mann a copy of the Air Vice Marshal's letter was, action had been takeu in the matter. sent on September 6, 1971. to the Land Acquisition Officer and M. Shankar, Administrator, Urban After the agreement with Maruti Limited had been Estates, Faridabad, asking for their comments. On signed on behalf of the Haryana Govenunent by Batra the next day, September 7, 1971, the Chief Secretary, Qn January 20; 1972, ann appears to havc,record .Haryana, received a letter dated August 27, 1971 -ed a note OD J:muary 31 Which: that be bad ba4 'from Shri R. n. Pathak, Under Secretary to the Uova discussion with Ai!awadi on January 25 'abo.ut the ct11111eot of India, Ministry of Defence, in which the objections raised by the Defence authorities and that Govenunent of Haryana was requested not to aC:quire Ai!awadi promised to send him an early reply. land "In the vicini~ of the airfield/explosive area at Finally on January 28, 1972 Ailawadi'wro.te to M~ Gwgaon". By tlu& time however Shri Sanjay Oandhi dealing with the objections. With regard' to the airhad already taken posses.>ion of the. land. The refield, Ailawadi staled that for all intents and purpose . action to this letter was only a note recorded in the lhe airft<:ld seemed to have been "abandoned" and oJlice of the Director of Urhln Estates that cnmriients ''the question of the safety of the' runway or airfield of the Administrator, Urban Estates, were awaited. llei.ng in jCQpardy" did net therefore arise. . In a file More than one reminder was sent to the .. Adminisin the Depnty Commissioner's office the airfield was trator, Urban Estates, asking tor his comments. On in fact described as abandoned. (File No. A,D-1 September 14, 1971 Sha11kar, Administrator, Urban Vol. V) with regard to the objection that a pan of Estates, wrote .to V. S. Ailawadi, Deputy Commisthe acquired lnnd fell within 1,000 yards of1 the '!oner, qurgaon, only to know from him if the objeccrest of the cuter parapet of the 'defence work, tions raL~ed by Squadron Leader Mohinder Singh Ailawadi found that this was so but be added that were valid. priVate stt:uctures had been allowed to be raised within the restricted zone and even the A.it. Force _Squad_i:~ .Leader Mohioder Singh again wrote to Officers mess and certain other offices of the Defence Ailawad1 on Octoo~r 2 J. 1971 referring to the lcuer Minist1y were located in this area. Ailawadi also from the Ministry of Defence dated August 27, -1971 pointed out that a portion of the National Highway addrc.sscd . to th~ ~ief Secretary, Haryana, and reNo. 8, known as Delbi-Ourgaon road, fell within the questrng ~1m to mtJmate the present position. Ailawadi prohibited area. Ailawadi suggested ihat the Defence next received a copy of a letter written by Ministry might be asked to "shift 1heir fencing line" S. V. Kumar, Flying Officer, 54 ASP . on Novemby ~ a corrcspndin~ a~ca at the. back of the ber 11, 1971 to the Military Estates 0.fftce Delhi a_mmurut1on depot. Th~ nndm&'l on which the suggesCircle, asking for a ~te pla.o ind,icating tho p~erers tion was made do not seem to be correct. of the runway and the air strip and the explosive S~i. A. N. Thyagarajan, Deputy Secretary in the areas. It appears that Mohinder Singh himself visited Ministry of . Defence, has explained that "abandonthe area, and round a boundary wall being constructment of an airfield does not tonvey the same meaning ed w1th11~ 200 yards to the outer parapet of the to Defence as it does to a layman" and that "thete Dof~nce mstallation. He informed the Headquarters are dozens of airfields in the country under the Air Maintenance Command of this fact on Force out of which only a fracti0n would be in use N'ovembcr 12 by a Jetter and endorsed a copy of the at any time". and the others a-e ''nctivatecf as and letter to Ailawadi. All these letters frorr. the Air when" the situation demands. . He adds that toe

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"general policy is that where there is an ammunition depot tl)ere is an airfield attached and they form a composite whol~. beciuse without an airfield the question of airlifting the ammunition could not take place". According to Thyagarajan the civil i:uthorities cannot pcssibly doc1dc whether a particular air!ielQ h~ been 'abandoned' in the sense an ordinary man understands the word. Ailawadi did not consult the Defence autl11>rities before concluding that the airfield had been abandoned in the ordinary sense. If some private structures had been raised within the prohibited zon'-, that would certainly not be a justification for others being allowed to be constructed in that area and the series of letters writien by Squadwn Leader Mohindcr Singh and others insisting on the clearance zone being kept free prove that these structures were raised in spite or objection. As for the offie<:rs' mess and other offices of the Defence Ministry, Squadron Leader Mohinder Singh makei; it dear in his deposition that these service buildings arc on the site in accordance with the regulation.~ for service buildings, compiled in Air Publication 2608A, "on the ground of operational efficiency". It is not disputed that :he Dclhi-Gurgaon road had been in existence befor~ the amrliunition depot was set up in that area. About a month after he received Ailawadi's letter, Mann recorded a note that a letter should be immediately written to the Government of India on the basis of the communication from Ailawadi. Three weeks thereafter Mann submitted a draft of the proposed letter to Batra. Batra marked the file to the Chief Minister who approved the draft on March 28. 1972. Another two weeks were gone before th" letter was issued, signed by Mann on April 12. It repeated the statements made in Ailawadi' letter that the land acquired was within 1,000 yards of the outer parapet of the ammunition depot but constructions by private partic-s a> well as the officers' mes and s?nte other. offices of the Defence Ministry un<l a porh?n. of the Delh.i-Gurgaon National Highway also fell w1tlun the restricted 3rea. The J)ef,nce authorities were requested to >hift the fencing line of the ammun1fion d~pot With offer of corresponding area at the back of tho depot. It may be noted that rhe reply avoided the question of flight hazards if struc.. turcs were allowed 10 come up within the llying funnel area.. In L11.c meantim~ Maruti Limited finished constructing the.1r Research and Developlllt'nt Wing within the prol1ibited zone. The Minis(ry of Defence does not appear to have replied to-Mann's letter of April 12, 1972. On Octo!x;r. 31, 1972 Mann wrote again to the Ministrv or !Jefence to say that they ,had not answered his el\rl1~r letter and th~t i~ h~. did not receiw a reply within fifte7~ days 11 woula be presumed that the Defence Mm1stry haJ no abjecti<'n to the acquisition of more Ian~ '.n the are.t for indusu-ial and residential purposes. Mmmry of Defence did not reply to this letter also; the r~ason according to A. N. Thyagarajan Deputy Secretary, ~\nistry of Defence, was !hat wGas not found poimb,e to send a replv to reach the ovemment of Haryana within the time faxed On would have thought that it was at least pos,'iblc 1 ~ write to Mann aski.og fot sqmc m9f~;;t.ime to. send .i detailed reply, ,but this wa5. ncit ;~QAA\:lt,lt,Js, hqwcver surprising that the Government : of 'Haryana sboulc think it proper to fix a timc .. Jimi:. of.fifteen days fo1 an answer to the)ir letter when: more than . sever months bad passed before they found it possible 01 April 12, 1972 to reply to, the fetter JrQID the Ministri of Defence which the Chief Secretary of Haryana hac received on September 7, 1971. The.construction o: Gates l and 2 complex and ,tbedive storeyed Sta~ Quart.ers bad started in :A~~Y:i!l.!:17.Z, .. montru before .tda ~Ol.;e , to the >MiQi$1J:yi::l>i'i~(eru;e or October 31, 1972. This letteragllll)~only said tha1 if no reply was r!)ceived mote Jan4.would ..be acquir ed; there was no reference. to the structures raised b~ Maruti Limited, as if Ma.nil's.Jetter of,April 12 COD eluded the matter. and nothiog.morc.wu-reouired tc be done.
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It is a fact tlwt almost the '\:ntirc .tdaruti complei of buildings except a small portinn of the mab1 factory building and an even ~aller section of the Research and Dcvelopnieut Wing isl.. within 1,000 yards of the crest of the outer parapet of the ammu nition depot. To be. exact, from:the,crest of the outer parapet Gate No. 1 is 634 yards, Gate 'No. 2, 246 yards, lllld the Staff Quarters 410-yards away. The ~-~t c.orner on .tJu: .~ide .:if the main facl911 building fac1!1g the !lmmun1tton 'depot is 848 yard> away, the nuddle pomt 729 yards and the' southernmost face 727 yard~ from the crest c;>f the outer para. pet. of the ammunition depol. . The distance of th< Research al! Development Wing is 891 yards fr.:iu tbai point. The violation by Maruti limited of the resuictiom under the Indian Works of Defenee Aci anc enioined by the letters addressed to the State Gov crnmeuts from the Ministry of Defence was discussee in ParliameU a nwnber of times in 1972 and 1973 Some Members of Parliament also wrote letters ic the Minister of Defence . seeking clarification or certain ma~rs relating !o this'issiie. Shri '13, N Tandon, Jomt Secretary !o the Prbne Minister fron Oc!Ober ,4, 19~9. to Jni:. 22._ 1976, who used t< 3SS)J!t Prime Mln1>1er Shnmat1 Indira Gandhi ir parliamentary work in :.ddition to his otller duties says that he kept the Prime Minister informed oralli and through _not~s about the proceedings in Parlia ment and acttons taken or proposed to be taken or ~b;llf of qt>vemment in th.is matter. Accordin tc ~. follo~g ~e . practice that. had develcii>ed lf'th< van~ 1J!1Stries used to refer questions regardini ~~ L!Jlll~ a"!1 allie_d ~ncerns a..od members Q the Prime Miruster s family to. the Prime Minister fo he~ !1Pproval/clearance"; even the replies of ih; Min1Sters to _die letters addresseq to them 11Y Mcm ~ of P~ent were finalised . only after th1 Pru;iie Min1Ster had seen and approved them Sbri Tandon's "duty was to obtain the Prime Minis !er's orders :in~, to convey them to the concerned founplem~ntation The stand taken by the Govern. d:ent with regiird to these restrictions appears fron e statements made by the Ministers in Parliamen and halso from their replies to the letters addressee to t em on the subject by some Members of ParJia. ment. On December 22, 1972 Shri Jyotirmoy llosi

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mov(ng a motion in !he Lok Sabha regarding the pc;ilicy of Government in regard to the manufacture of cars, referred to the "Defenc~. Departmtnt order which imposes a prohibition" in !he area and said that the land on which the Maruli complex of buildings was situate fell within 1hc prnhibited area, Sbri S. N. Mihra in the course of his speech said : " ...... the Chief Miniskr of Haryana has left nolbing und9ne to place the Prime Minister in a situation of blai;J!:~ail ... He has violated the Defence rules which prohibit the setting up of such faclories or any construction within a particular distance ...... Shri C. Subrama1iiam who was then Minister of Industrial !Development and Science and Technology replying to the pcmls raised gave an assurance to the House that "if any ;rregularitie; arc alleged and proper documentation is given for the purpose, we are prepared to go into it even now and see and find out whether any irregul~rilies have been commiltcd even for Maruti Ltd.". At this stage Shri S. N. l\!ishra asked ''what about the Defence installations 1 How arc they going to take them away from there now ?". To this Shri V. C. Shukla Minister of State (Defence Production) replied ".nothing has to be taken away. There is no objection from them"- "them" in lhe context apparently r~ferred to ~4 ASP. at Gurgaon. Shri C. Subramaruam supportmg Shn Shukla repeated "there is no such infringement as far as their works are concern- ed". This assurance by the two Ministers was made the . subject . matter of a privilege issved by Shri S. N. Mishra on February 23, 1973. Rderring to the letter of March I l, 1971 addressed hy Squadron Leader Mohinder Singh to Headquarters Maintenance Command, copy of which was endorsed ' to !he ~ief Secretary to the Government of Haryan~, which said that the proposed factory would be a . security risk to the ammuntion depot and the airfield at Gurgaon, Shri Mishra contended that the Ministers bad ma~e deliberately wrong statements. It appears that Sbrt Shukla sent a draft of the statement he 'proposed to make in the Lok Sabha in ibis connecllon to the Prime Minister's Secretariat with a note !he last paragraph of which reads as follows :"RUM (Raksha Q!padan Mantril desires to discuss the note at enclosure 23A with Pradhan Mantri tomorrow . " . The s,tatenwnt was seen by the Prime m?r_nmg Mrmster next day, February 26, I 973. [Enclosure No. 27-A in Prime Minister's Secretariat file No. 17 (I 521) 74-PMSJ. Jn his statement, seen and approved by the Prime Minister, Shri Shukla made the following points in Lok Sabha on March J 1973: ' (i) The army ammunition depot was closed down in I 966 ~nd its premises were taken over by the Air Force. Tn I 968 it was decided to derequisition 4 I 5 acres of land in Gurga?~ ~istrict wh!ch was in the Defence Mm1stry s pos;ession. In view of these changes, a fresh declaration under the Indian Works of D~fence Act, I 903 was required t? be made 111 order to continue the restrictions.
(ii) ~ fresh declaration S.R.0.6 was published
S/8 HA/79-7

However, the legal requi,reti1ent as to giving public notice of the substance of the notification was not complied with due to inadvertence ; "no legally enforceable restrictions therefore existed in this area after the Army Ammunition Depot had been closed down in I 966". (iii) The circular letter of the Ministry of Defence suggesting certain restrictions on construction of buildings and other st.ructures in the vicinity of Air Force installations provided for mutual consultations between the Central and the State Governments whenever necessary to settle such matters. The letter had not been followed up by a legislation. On March 7, I 973 the Minister of Law, Justice and Company Affairs, Shri H. R. Gokhale elaborated on what Shri V. C. Shukla had stated. According to him the notification under- section 3 of the Indian Works of Defence Act made in I 962 was a valid notification but the ammunition depot for which the notification was issued was shifted from that site, apd the area which was given to the Air force installations was not exactly the same as occupied by the ammunition depot. It is to be noted that the notification spoke of 'ammunition depot' . and not 'army ammunition depot'. He said that "some part of the area whicli bad been with the ammunition depot haff been deiequiidtic>iicd and had been taken out of the installation whicl) was to be the Air Force installation. Naturally"'ihe result was that the topography of the installation was changed . . . the crest of the outer parapet 'iti;elf 'dia riOt remain the same because certain part of the area hntl been taken out by the derequisition and was not given to the Air Force installations". In. !lie opinion of the Law Minister, whether the notification of 1969 was yali~ or_ invalid, o~rative. or ~opera9v~,,.'liY necessary 11Dphcation the earlier notification stoo<hepell!ed. The ot~r ~int made. by Shri Gokhale, ~.tlult !be 1969 not1ficat1on .was moperati~e becausq' .P!ibAc notice of the declarat10~ ,wlls nC)t giyen as .re.quJre!li under the Jaw: The pnvilege . motion which ,Wlll!,)noved by Shn S. N. Mishra on May 16, 1973 deploring the con due! of the three Ministers, Shri C. Subram,aniam, Shn V. C. Shukla and Shri H. R. Gokbale for misleading the House in their statements made in the House, was ultimately negatived.
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In the meantime on March 5 and 6 Shri Jyotirmoy In Bosu wrote two letters to the :Qefence Minister. the I.otter of March 5, Shri Bosu' wanted to !mow what precise action bad been taken on the' canllllunication dated March 11, 1971 addressed by ..the Commanding Officer, 54 ASP to the Headquarters .Maintenance Command. In the Jetter of Mafch 6 Sbri Bosu asked for information on the following poi\J'\t:'.;,~ ( i) Whether the notification published on IS December 1?62 (S.R.O. No. 315) was ever cancelled, withdrawn or mpi,lj~ 1 (ii) Wh~ther there was any .provision, in the Ind1.an WC?rks of J:?efence; Act for the auto~atic expl!Y or withdrawal .of' the notification or of 1ts ceasing to have effect.
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(iii) whether the :rmy ammunition depot when

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According to Shri B. N. Tandon, Joint Secr:t~ry t? the Prime Minister at the time, the Defence Mmtst;r s reply to Shri Mahavir Tyagi's letter was also !ina!sed after the Prime Minister had seen and approved 1t. From the statements o( Shri V. C. Shukla and Shri

(iv) whether the local people had not pointed 011 the Defence Ministry's restriction' in regard to t)ie land acquired and what action was taken on this.
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The Defence Minister replied to these letter< on "March 29, 1973. His draft reply was shown twice 10 ' Prime Minister Shrimati Indira Gandhi before it was sent. After she had seen the first draft on March 17 it was slightly modified by the Defence Minister, she again saw and approved the revised draft on March 28. Jn his reply the Defence Minister referred to Shri V. C. Shukla's statement made in Lok Sabl1a on March 1, 1973 0n the query based on the letter of the Officer Commanding, 54 ASP dated March 11, I 971, adding that "a decision will be taken in consultation with the Government of Haryana" and that the "Defence requirement" will be fully kept in view. As regards the information asked for about S.R.O. No. 315, the Defence Minister referred to the Law Minister's speech in Lok Sahha on March 7. A' regards the army amrnunition depot, he said that the Air Force took over the premises occupied by the army ammunition depot after it was shifted from the place. but a part of the area was demarcated for derequisi tioning and was subsequently derequisitioned. He did not refer to the fourth point. On April 4, 1973 Shri Mahavir Tyagi, M.P. wrote to the Defence Minister wanting to know, among other things,

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(ii) assuming the notification of January 11, 1969 (S.R.O. No. 6) was defective as stated by the Law Minister, "whether Government have alreacjy removed the deficiencies in the noti fication; when were rhe d:ficienci:s discovered and when did the Government Y,e~in taking steps to remove them". The Defence Minister replied to this letter on April 25, 1973 saying that (i) the derequisitioned
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(ii) the deficiencies in the notification of 1969 came to light only in December, 197:? when no corrective action was possible in view of the time limit prescribed in section 9 of the Indian Works of Defence Act, 1903. Section 9. however, does not appear to have any relevance in the present context ; that section proviJes that public notice inviting claims to compensation should be given within the period of time mentioned in the section.

(S.R.O. No. 315) .i,mp1jedly repeale~th, bet!cause. a part of the land "wJ!i~l! had been WI ie ammunition depot" was dereqws1t1oned as a .result of which the topography of t))e Uistallii:tion \IYBS, ch!'nged and the crest of the outer parapet did: not remam the same. The statements made by,Shri V.:.~-.~i;.Jllld Shri H. R. Gokhalc suggest tha~U.v(qJ. tile <l~q111~1tl~n ing of part of the land that ma~e a new decl~"!t1on necessary in I 969 so as to contmue .the .restriction~. but that is not correct. The land was 10 fact dereq!JSI tioned in Febniary 1.969 and.,tlte: :1969.'decjaral'on, $.R.O. 6, was published in January when f1!~r.e was no change in the topography of the 81DJDUDilJQn depot, and, therefore, no occasion for any .change i!1: tile crest of the outer parapet. S.R.0 .. 6of1969.. which replaced S.R.0. 315 of 1962 extende<Lov~r,.tbe. .same:area. It was considered inoperative as public: nott<;e of 1t ha? not been given. One would have. thought. tba~ if S.R.0. 6 was ineffective,. then the earlier nou~cahon of 1962 which it sought to repla~.w.ould ntinne to operative but Shri H. R. Gokhaletold the Lok Sabha that the earlier notification stood repeal~ by n<;eess~ry implication. What' repealed , the earlie~notifi~ation if the subsequent notification !:,was. "moperanvc. ? If it was the derequisitioning of:land)Which,. according to Shri Gokhale-, led to this ~~QDi:theCollector. of Gurgaon who made the' dereqws1tion order.l1ad certain!y no jurisdiction to repeal an order,, of the Central Government, and therefore. there was: not)!iug he could do from which the declaration. could be inferred to have been repealed. It is not .clearhcw;,the principle of repeaJ:by necessary implicationwhichis one of.the n1le' of interpretation of statutes'could.be pressed mto ervice in these circumstances to get rid of: a deeiaration made by the Central Government under section 3 of the Indian Works of Defence Act, 1903. A letter dated January 6, 1969 from Shri S. N. Rao, Jcint secretary in the Ministry of Defence, wrytten in rerly 10 a query from Shri N. R. Snvarna, Director of Investigation in this Com.mission of .Inquiry, show~ that some "minor work relaung to re-alignment of perimeter fencing was necessitated by derequisitioning. of about 65 acres of land" in February 1969. This i.s a fact which would have justified a demand for revoking Qr amending the notification S.R.O. 31 S of I 962, but it was never revoked, withdrawn or amended. It further appears from the site plan sent along with Shri Rao's Jetter that re-alignment of the fencing was done only in one corner of the land, on all otber sides includine the side where the Maruti complex of buildings arr located, there was no change iu the perimeter fencing. It is therefore difficult to see how a small adjustment of the fencing line in one comer so changed the topography of the installation that the restrictions imposed by S.R.O. 315 of 1962 must be considered to be nonexistent. Shri Shukla in thC'. C01ifse of bis speech mentioned the fact that the circular letters issued by the

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'".r,iipisf,ry 'of Defence seeking to control th~ const[UCc . of. 6uildings in the vicinity of Air ForcCi.installa- , ' lions were not followed by legislation. The statement se~l!ls convey a suggestion that violation . of -the res:rictions sought to be imposed by these letters could 1101 thcrdore ()e prevented. BUl Shri A. N, Thyagarajan, Deputy Secretary, Ministry of Defence, has poin: e4 out that "all the State Governments'? have "always" complied with the request made in the circular ktters and stopped constructions conslituting "fiiglit safety hazanls" on the strength of tbei;e letters. Apart from the alleged violation of the restrictions prescribed under the Indian Works of De(ence Act, 1903 it is found that a major part of the Maruti buildings comes within the flying funnel of 54 ASP airfield. According w the circular letter dated July 4, 1966 issued by the lvlinistry of Defence "tall structures" built "within the flying funnel of an adjoi,ning airfield would ccinstitute a flying h~rd. and eudanger the safety of the State as well as the Central Governmrnt',s properly".

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Following t!1e Lok Sabha debate on the privilege motion tabled by Shri S. N. Mishra. a Board of offi. cers WaS convened by the Air Headquarters to assess tbe situation and suggest remedial measures. This appears from a note recorded on July 9, 1973 by Shri S. P. Rai. Deputy Secretary (Al) in File Dy. No. 4341/JS!A)/73. The operative part of the note reads as follows :

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"It would be advisable .to take stock of the situation and decide upon the re!Ilediaj measures. Gurgaon is au abandoned airfield but fr being retained. by the Air Force, Sini#, the factory falli; on one side Of the ~el, tile .use of the itii'lield" ' It, activated iii f!J.turc will ~el~ited' to one directi0 (i\,oiilY:.:J\ ~ mg may be convened wll~re :the, rq>rei;entatives from the Government of'Haiyaliaana:,, the Headquarters could be;,invi~,;:vt~.t-f"' .~ec~etariat will have to.~ closely,;~ociated. ,; .. '" .SIJ!1.B, N:,.'/:'andon,, l01nt .S~~to th;.,, ,1 . Pnme .. Mm1ster, ~:.I-be n~qu~1!1!141to kindly . see the prqceedings: of (,he J;loiir<!: ;before a . 1 meeting .is coIJven~d"., ~. , , 1;. ;
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16, 1973 Shri S. N, Mishra raised the again in Lok Sabha by Unstarred'Questiou Nq. . 3~01 which is reproduced below :---;.

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have.' ~o_'m. l~~.(jt-"the ' inquiry into the factors respoiil;ib!li''fiii''wba'{" . appeared to. them a,s defects in 'the 'riblil!ca'! :.- I tion of 1969 uridcr. tbe war~ 'oL#ici" D'~'~: .. ,, fence Act, ,1903 relating' to the s~i,tY 'o(: : :1he I;>efence iusiallatioiis at' GUri!aaii; ~nd' .<?! 1 :'' '''
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Departments witb 'internal notes' in accordance with the practice in the Prime Minister's Secretariat. A number of such noras still exist in the tiles now in custody of this Commission, only the file in question here does not cmuain any of these notes. In fact, on October 1, 1978 Shri Tandon wrote to Shri H. S. Shah, Joint Sep-etary to the Prinle; Minister, for inspection of these internal notes. Sh1i Shah's reply dated October 15/16, 1978 say~ "all papers available in this oflice on Maruti affairs have already been sent to the Cooimission 1111d we did not have an1 internal notes or other papers left with us on this subject". The reply adds tl)at ftom one of the files sent to the Commission, the notes portion was noticed missing. Shri Tandon's aflioavit fu1ther eontains the followini: statcme~:

reminders from tinl~ to time no action wa$ taken by the Gov~t of H,ai;yana: Jt. \Vas, only after ti! last .general elections \Vere over 1n March, 1977, m which Sbrimati Indira Gandhi was defeated that a demalld was :nade on the CODIJ>aDY tin AJ>ril S, 1977 for a tOta1 sum cf Rs. 14,46,976'.35 dui: 'upto May 10, I 977 adding that on failure to pay action; imder the Agreement would be taken. Still n9 payment was made. On March 6, 1978. the P.unja.band .Harjaua High Court made an order for winding up of' qie company undet secifon 433{f) of the J.ndian. ~Pl!!Plinies Act, 1956 on the application of Delhi' Auti>mobile Piivate Limited. Shri G .. S.'lgar Suri w~,~~':MAo1f$iJ:lg .Difec. ,tor of the applicant company.'. ' '

"It is my personal knowl~ge that sometime in late 1975 or early 1976 the prinle Minister had called for the internal notes regarding Maruti and these were seiit to her house. '!be&e were pot returned as long as I w~< 111 the P.M. Secretariat".

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On .tb.ese facts, there is no reason why Shri Tandon's stafCD)ell\s .should not be accep!ed as true that:. What he'h~ ~nveye~_to ~. s. P. Rai.~9n'.N9vej!iber,S,. 1973 was .ynder w.tructions from the,g-.Priin~'MiruS'-' ~hri!D.ati lnd!fa G~i ' 1,iilf 11,Jat ~Ji\: Jwd. 'i'!P.ed for the mtemal notes conce~ Marilti'l'..iiiiited'aiid these w~e seiit,19~~ l)quSe.Shn TandonJ.et!, 'Piiin1FMiJUS.:; ter's Secre~#. on Iufy 22,' 1976. :shii u. 'S'.'rliiiill:s. reply t.~ 'f8\iP9n'~ letter iJ!dj~ies''ihat ~ti'..~fu'1 r~g,not re111n1, tJIC8e note$ 'even.aft~'~Jffi 'I?l.ijps>~.~~w

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. . ' ... ' -. It will be ~~arr to coine baci, (9: the ~.:ement between Maruu Limited and the, povernment qf Hi!ryana to see. if the Company complied With 'the:. tenns and con!fitions on which the allotment 'of Iaiid. was made t? it. First of the 18 annual instalments in which the pnce of the land was t~ be pa~ was d.ue two years after lhc d!Ulil of the dolivecy of po$$e5Sion. Pos. s~slon~~ delivered on August 10,-1971'. The aw:cment; 11 may bo recalled, provided .11Jati\eac.h in:italme!lt wa&I!) be paid within 30'days!from:tJie date on Wb_ich. it bec1?1e due alld if a~y inst~me~t was not . Paid 10 time,' mtercs~ ~ the raJel~ 12' per cent per ann~ to be' charged on the amount'dfl$. The ' first mstahtlent 'fell due 011 ;August 9,"19!7S' aii<I was payable by September 8, 1973; 1After a' Jot of ~P?ndence _on the 'exact amount payable; Maruti LJDUted. re~tted by a demand draft the first instalment With 'Qlterest. at lbe agreed rate Of ;7 ;per Cent per ~ amountir.g...to Rs. 6,21,790,, ...Ai. further sum o . . ,7,350.40 being the, penal iIJtercst Rat; ... the rate of 12 .per cent per annum fot late paymeutr.Whk:h shoulcJ have.heel? paid was however not teiidered After this Maruti P..imited <lid not pay any otlier in: stalment though . they kept on corresponding with th oflice of .the Urban Estates, Faridabad,. disputio .th; claimed by ,w~y ot instalmcnt.l with . int~rut. tha l!Ceta!mtopay wilbiit one year from the date. when e ms eJ!I was due entitled the Governmeiic to resull!e the. site along with buildings constructed aiid machinery mstalled thereon in terms of paragra hs 3 and 12 of the Agreement. However, beyond i~ing
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from that dat~. The ~~posits were to ~e adjusted " 11 ~ time or the fin.ii six monthly payments a~ the i;:C!ld of the term. Shri God dcpos1lcd _Rs. 5,00 CJ? : Ma 29 , l 975 :is cviJ.,nccd by the receipt grantd ~~ : . tJicyAccounts Ollicer of the company ?Im A. Gulat ' tbc balance of R.s. ~,000 was dcpos1tod. !uly 9: , 1975 against r~ce1pt issue~ by Sim Shash1dl.ar~n, an Oilier Accounts Offic~r or the C?mpany. . Sim Goel told this CommissiOl that he culuvattd this ~25. a~res of land till May 1976; in June 1976 M~rut1 Lmuted " took back 36 acres out of this area w~1c.h the com.. . leased out to Shirke & ~o. ~P) Limited.. The .; ~d of Directors of Marutl L1m11ed at th~1r 29th meeting held on A~gust 26, 1976 had passed ~ ~csc:i.... . lutioo proposing to lease 0111 36 acres of land ~1~1:1 c\. die company's premises" IP S!1irke & Co. (P) L1m1ted t of Poona initiaUy for a penod o! three: years. Th~ i~'' resolution further authonsed Shn Saniay 9andh1, \. Managing Director o! the Company, to finalise the .,., .~~ agieement, a draft o{ which wa.s placed on t~e ta_ble, "'l ;. by making any c~ang!s, alterations and modifications lbat he might thmk proper.

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and also from Mann's attempt to find. outGanfrodhim .~~1:d ad' F b ry 197 \ whether Saniay w a :e;u:i\e. Mann himself ad.mils that ooe fac: ~~r that "weighed heavily" in prcpar~ng the. draftf de;e lo ment !ans was Sanjay Gandhi's ~ho~ce o s1 e. -r/:e site Pultimately acquired was fert!lc agrlC11lt~ral land and those who were dispossessed m condsr.qu';fce were mostly unednc~ small land .owners T&isn 11lll for their livelihood entirely on agnculturc. ~ai: not considered by the State G<_>vcrn!"ent a suffic1en. reason to look for an alternative ~1te.

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The site had not been fully utilised for industrial urpose before th~se iransfers were made an~ except f&e first instalment no other i>talmen~ w~ paid. The fumsfers were thus made m clear v1olat1on of paragraph 7 <;>f the Agreement which cn\itled the Govem1Dent of Haryana to resume the site. No step ~as however taken. A$ already st9ted, an order for \\lnd U!g up of the compdny was made in March, 1978.

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" , Summary of Sper.ial Features :-The facts revealed in the foregoing pages of this chapter speak for them-

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aelves. They bring to light two prommcnt features i ooe of them is the unusual interest shown by Shn Baosl Lal, then Chief Minister of Haryana, in Sanjay Gal)dhi car proicct ; the other is the stand taken by tho Central Govunment and the conduct of Prime Minister Shrimati Indira Gandhi when Govemmeot's Bltention was drawn by some members of Pai1iament to the constructions made by Maruti Limited within (be clearance ~one around rhe ammunit.ion depot. Shri Baosi Lal direct~d s~nior officers of the Gove.mment !Ute R. S. Mann, Dlrcc!Pr of Town & Country Planning aod Urban Estates, L. C. Gupta, Director of Jnd'ustries, aod V. S. Ailawadi, Deputy Commissioner, G11fgaon to show Sanjay Gandhi site~ around Sonepat aod Gurgaon for his car factory. These officers were not sent to select land which could be acquired for industrial purposes of the State, they were asked to take Sanjay Gandhi around waiting for him to choose a site suitable for his p11rpose which the Guvemment was to acquire and make ove.r to him. Both Mann and G11pta have said that it was unusual for senior cfficers to be asked to accompany an industrialist to help him select a site for his purpose. The draft development plan for the controlled area in Gurgaon was changed from time to time till Shri Sanjay Gandhi finally made his selection. The Haryam Government was willing to have an industrial zone wherever Sanjay Gandhi decided to have his factory. This is dear from the fact that the ~irector of lndusues reduced the area origina!ly considered necessary for industrial purposes, which was 600 acre~. to 400 acres whei: the defence authorities declined :o release the land in their occ11pation,

The Chief. Mini;tcr also made Shri M:ann and Shri R. K. Gupta, Assistant Legal R~~m~rancer, carry the draft agreement between Ma.ruu Lill!'ted the Government of Haryana to Saojay Gandpi ~t ~w Delhi for his approval. 'The .stamp pfaperb oi ~II!~ San ay Gandhi had th: draft typed a ter e a r prated it did not bear the stamp vendor's endorsement. Even the Assistant Legal Remembrancer wbo W!15 expected to detect this defi~i~cy sa~ that lie did llOt notice it, which i> surpnsmg.. This ~hows ~t ~e officers were concerned only with gelling SlJr!.uSanJllY, Gandhi's signature on the agreemnt ~or, wbicli they were sent to Delhi, and once he had. signed the docu: ment they did not applf their IQiod to ar;iy othcrgal as-' pect. It is not im~ble that th!'' AS51S1llllt _,Le . Remembrancer did notice the deficrency, but did:. J!ot dare point it out to 5anjay Gandhi. }4ving got .SanJa{' Gandhi's signature on the document on August 9, 197 , Mann and R. K. Gupta who wer: joined ~y M. Shankar, Administrator, Urban Esta~. at Delli} gave?' f~.!11 . possession of the land to san1ay Gaodhi the ~ diiy There is no precedent for semor I.A.S; ollie,ei:s. :m ~-. yana being employed for such purpos~; Sbri BallSlr.bll also issued peremptory orders from time to ,tJme &~k ing 'the officers to do something orolhctlin' co~o11 with Sanjay Gandhi's car project. He asked the Jlino. tor of Industries on Nov~mber 16, 1970 to inform the Central Government on that very day that H9;ryana Govemnient had no objection to SanJllY Gandhi's prO!losal !or change of the location of his factory ftom Fandabad to Gurgaon. On April 21, 1971 Shri Bansi r.at told the Dltector of llldUStrles to write to Sanjay Garidhi on, that very day assurin.c him tbat"Sql ~c~ of land would be allotted to him and' ac:ceptmg Jiill req11est for payment of the price in i!1s~ts. The urgency was due to the fact that Sanjayi.Gandh1 had expressed his annoyance at the delay in .allotment Of land to him. The Director of Industries .w:is. also told not to ask Sanjay Gandhi to justify his' requilemeilt of 300 acres uo which tbe Director of Industries was insisting. On June 24, 1971 Shri Bansi Lal telephoned Mann from Delhi directing him to ellSUrC that the acquisition proceedings were completed 'and possegsjon ibf the land delivered to Sanjay Gandhi by July 10, 1971 at the latest and to see that a letter was written to Saojay Gandhi oo that very day that he would be given possession of 300 acres of land by.July .10. .Jn obedience to the Chief Minister's orders, tl;te ~r .\\'as despatched to Shri Sanjay- Gandhi iliro11gh a ~pccial messenger. Here ag.1in what moved the Cliief Minister was the fact that Saujay Gandhi had complained to him about the delay in the allotment .of' land. In the meeting with Sanjay Gandhi held on July 3, 1971 where the terms and condition> for allotmeru of the land were settled, it was Shri Baosi Lal who took

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all the decisiOl)S giving no, chance IQ the ~Jpr~ sent"to exp:ess thJ:ir views.- 1The \CQD~iPI1S;1giv~n .to11 Sanjay ~ were extra-ord.ii;uuy.J .:Ac<;otdipg IP ,th . MalUland ,L, C ... Gupta :\10 other party,,e,lljoyed:~ucU. concessions either bcfol'C;. or atter: At' this.:1imee.lblg Sbri BllJ)Si Lul went back on .lhe1 earlier decision; based on the pr.:cedcut of .ffaryana. Steel and Alloys l.iJnited, to reali,se the' entire priee of the. land before possession was: ;;iveu, and agreed to deliver ,possession on payment of 10 per cent of the price. The dxision taken in the meeting was also :against , the. Rules, Qi 'Business of Haryana Government under which it was t!ie Cabinet and not the Chief Minister. alone that was competent to allow transfer of Governiilent land v.alued 1 over ~ 15,000 ; the. Ministers wh~~~ d~~1;Jnents were v1tally concerned m the. transaction, !he 1 Fmance (Minister, the Jndustriois Minister aild the Mlriister for Public Wo~ks were not called to at/~nd \he;1nee!4Jg.
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When Bansi La!'s attention was' drawn to. the con"' ~~ns made by Mar~ti Limited at gates 1. and .2 :i.n disregard of the prov1S1ons or. the Punjab Scht:dukd' R93ds and Controlled Areas kei;lrictions o! Unregula.ted iDevelopment Act. 1963, he did .not take ,any , step on .thee alleged assuranc.- of Slliljay. Gandhi that the illegal constructions would . be removed. He took no step. even. wheti San1ay Gandhi gave no mdication Qf kecpmg his promise Tiu: experience of Building Inspector Ram Lal and A>>istant Estate Of!1cer J. N. Bhargava who tried to stop the illegal constructions' has becu described. The constructions at gates 1 and 2 "".e.r..it..~tarted without ~ ~auctioned plan and complete ed m sp1te of the dcmolit1on order made by Shri Bhar-' gava. Bbara!Lva however did not have the courage to' carry out' his own ordc1 for demolition. Wl)en a request for compounding the ofiencc was made to Bhargava on behalf of Maruti Limited he 'thought it safe t~ seek the ~dance of his superior officer Shri l>ritam Smgb, Admiwstralor, Urban Estate~. . Pritam Singh foUlld that the olfen.e could not be compounded. under the Act 8!111 he r~~ the matter .to hissuperor ollicer Sbri R. S. because:. be feltiJhat this was a sensitive issl!e and apprehended. th.at SanjayGaodbi mi&ht "complaiu to hi~Ct authoritics'C against him. Ma.nn drew: the Chief Ministet's 'attention to this matter who was sat,ijfied with Shri Gandhi'NissW:auceJ.1bcre was no attempt lo stop the construction of the five storey~ Stalf 9Ulrtcts which was completed unojiposed. Sbri Banm Lal must have been aware that the Nr Force ollicers at Gurgaon as well as the Ministry of Defence had been objecting to the erection of structures by Maruti LiJDited inside the clearance zone around the ammunition depot and within the flying funnel o~ the ac!joining airfield, but he allowc.d the constructions to be completed. \he extra-o:~inary zeal shown by Shri Bansi Lal in SanmJay Gandhi s ~ar project had its , clkct on the ro cers. Even ~hri R. S. Mann, Director of Town and Country Planmng and Urban Estates and Sbri O p ".adav, /i:"edd Acciui>ition Collector, 1~ho 1 i11 the begin: nmi: re . , , to be !nf!ucnced, by !he tact that it \VilS ~hn dhi,S:inlay <tandhi, son of Prime Minister . Indira an . or w .0111 the land wa5 being ~cquir~d,: ulti~ately had to ;v,1el~ to pressur~ from the Cl)}ef Minister " ,ann ~~uld l\ot, dl>lobey his Chic~ ~.~ \Yho. ~

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the Land Acqu1S11ion Act agreed with the objectors that the. GoverD!Ilcnt might acquire; the alternative site su8!l~ 'by the oblectois instead 'of :the 'fertile land notified for acquisition. Later 'W""." 'iuforlned f .... target date set b .,,._ ..... ' 'M;::'it' ., o ::""" . . v """ '-met . """ter for completing the acq1!15!!i~n proceeqings, Yad.av lJIShed through the proce"1'%'.'8!1d made his !!wards .iri an wibelievably shortbeenume which leaves an 1mpre~~1on. that the awards had completed beforehand ""it J""t d nd . the' excrcise1V priisi:ribcid''l) ihe :rr:rn '.r . ~~ Y a as a formality. Yadav h;!~elf 1 "'1-~. wqe t;i~7n only option but' to co'mpleie'rth;;' 'prJ!\Y~~t,, ~ bad no bi:cause.of tbetime limit futed ~ ., ~,,,in .a ~urry tbllt What'Yadav did was Und. , f' ~yide~ ll!dicates his i pmQnal'beDClit;"'', " ei:. W:~l(.Jlllc! ~ot for

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Sbri V. S. AUawadl Deputy; Com,missioner, ! giirii, knew what was' expected :of ~iio. ue"sl!~~cd 'lllWety to be' of help by suggcstmg; more dwi ~n,ce t land in t,be occupation of iDefence authont1cs thould be "got released" for Sanjay Gandhi's car factory. To the problem created by Maruti Limited raising___strl!c;tures. witlun. the cl~arance zone around the 'i,. llJIUnuru!Jon depot, hi~ soluuon was th~t the petc~ce < authorities should be asked to shift their fencmg line. Fffe al.so descn'l)ed the ai;ficld adjoining the ammuni. lion depot as ~ bandoned without any reference to the Ministry of Defence, the only authority competent to ':\'say,,~ it was really so. Shrl ~ilawadi h.ad ~ receiv~a,"a series of communicanons from the Air Force !'.' . .cillls 'since. July 19?1 expre$oing thejr anxiety over <;!, construction of a car ~ctory so cJpse to the ,!llllg munition depot anti 'the' airfield. In one of the letters bis attention was drawn to the fact that f\1aruti Limit(; ~!Cd was constructing a .wall ."Yithin 200 yllrds of the <?'Outer parapet of the amrnu:n111on depot, but ,be chose :~,; ~:llOt to take any step. That Ai!awadi' was well aware -, .. : , .of the restriction .would appear from an order he him. self made on December I 7, 1971 in which while perj ,, milting a brick kiln to be se: up iri that area, he added )i;that it must "not be located within 1000 yards of the . jl '-.... . i!J'outer lim.it of the parapet of the amrnunitio.c depot". ' li:After Sbri M .. Shankar, Administrator, Urban Estatl'S, ''' , . received froro Sbri Mann a copy (lf Air Vice Marslial "' . (Retired) Harjinder Singh's Jetter written to Sbri , ' <' M. L. Batra pointing out the "hazards" for the "defence .ill, ..... operatfons" created by the Maruti constructions, Shankar enquired from Ailawadi if the points made in tbe letter were Yalid. Then followec' a long spell of inaction during which 'Maruti Limited proceeded with th!l constructions unhindered and ,jinally Ailawadi :1:aent blS report- to Mann on 1anuary 28, 1972. The ... validity of the findings in the report has been disi cussed earlier. In Ailawa<li's case also, .. tbere is no 1 . :-: material to suggest that he .gained pcnonillly !rem 1 ' what he did. 1

ttie Govenunen~l!:>.aftet''~' 19l,~Af~~w vaJiditY'Ofl~'196.9~~~ .. ~.~..=\~ .-o.~J~ni's~ 1973Shri.S; P. Rai; .,..,,_, .,_.....,_~.,..,""' .

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, of iDefence, suggcstedlii.>meeting !lfO, tllk~ . s~ Qf ,tl)~ position" and decide uJ>C!D.l "the 'i:cilled18l measures Prime Minister Sbrimati Indira Gan~ ~, tbg !elevant file with her for about fo\Ir monthS . iakfug no action 0n Sbri Rat's suggestion. At the insisten~c of

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earlier 'QJis touching' -~f1 l':~a11to b'e !5 . vc<t\'r'Sbrimati Indira GaDdhi. In Au~t 1!J73~mf 1 s! 1 ~~ by an Unstarred Question wanted to "''*'Whether Govemmeni had fOlitPle!ed t11e inquiry .il!k!,,tlic ~o~ res. lisib~tor the alleged defects m ".tliC: notification of po " 1969, the reslt Qf ... if' ' leted, ..,e IDQUJrY, .. ~-. 'ter'and the reinedial ' steps . taken. ,Jhc DefeQCCl '.'MIJ!IS s . r~p1Y which must have been vetted by the"PrlOle M1n1stcr following the u~al practice, did not ll)!SW~~e,_qucry as to the rem.:dial steps ~.en l;>y,,tJ:i~ Government. Uii.imately, no r~:nedial measures~~ to have been taken. . ;IH ; , : _, :r1 ,r : ....q

~ ~~ai, ,~ 1!'' ~~~ $~ P. Rai: ~.e the-~g,S~ .. )~;G~.."~~.;,~~l!:!~ """",.on to see that 1;hC.. auitt:was~. "' ,. , ..
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; ; :. ~,fuade by Maruti Llmite.I in the prohibited zone, when 1 ...., ; ~,G!)vernment'~ attention was drawn to it by some MemJ 11 t, ~ of Parlll!!'lent, and Prime Minister Sbrimati .. "" 1 , Indira Gandhi s reSJlOnse to the disclosure. The stand i of the Govern1!1ent was that the declaration S.R.O. 6 of 1969 was mopecative and the earlier declaration S.R.O. 315 of 1962 should be considered to have been reJ?Calc:<i 't>y implication. The relevance . of the ~ule of unpl!ed repeal sometimes applied in inteipretmg statutes IS extrcm~ly doubtful to this context. This W1\5 ,a matter concernwg the country's security, yet the M!11!8ter of State for Def~nce Production and the Law .,, , . ..~UllSter seemed. "!Ore !lnxious to prove the invali. ~1ty of the restrictions. Jr,nPOsed. Assuming tJte posi~. . .. lion was as. t~e t~o MlWSters made it out to be, the , , Defenc:: M1n~ter .s Jetter of April 2S, 1973 to Shri ~ 11Jdabavir Tyagi .d1Scluses that .iJ was. ooly in Decem >, ber 19?2 that the Government WllS aware that the 1 . . ,1 .decla,rat1on S.R.O. 6 of 1969 was inoperative Th , ; :,_ ' question the!efore remains;. why no step was taken t; [, prevent the illegal construc!Jons before Dec.emi... 1 2 ' ;! 1' when. there was no doubt as to' the. 'valicffi?ror the , . '.,': ~ect1veness of. 6 of 1~6 9. 'd what again did
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to the constructions

is the starid of the

Ali' that Shri Ban;;i Lal di\!, the. rules of law and the nonns of propriety that. he. d1u;egardcd or cau~ed lo lgnorea cannot be cxplainJ as the natural auxiety of a Chief Minister trying tA>-invite rta~hia Slllt~ a new and important industry >as. ,Counsel for. Ba11;s1 Lal tried"to impress upon th~ Commission. It was said that this , was ShrL Bansi Lal'J; slylci of. functioning, rwhcn he wantecl':to 'getathing.d~.1for tbe welfare iof tbc State, he refused. to::.be fettered by red tape. But when Shri Saujay Gandhi':vear pioject proved a failiire and Maruti Limited failed to comply with the tmns and c:Onditionsof,'the agreement with'the-Government'd Haryana. the'Chief'Miriistcr took no steps to recover the dues or to reslime 'the land as provided in the agreement . His inactiC!I \yas ~~n'y. r.pt, for the.welfare of the State. He d1!l'not con~1der 1t neces. sary to aCt when it was pointed out that the Maruti com.Plex of buildings was a "'hazaril" 'fo the "defence operations", What then made Shri Bansi Lal act in 'the: manner he did ? The following :list of dates and events might help in finding an answer to the ques-

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3-12-1968 About seventeen members yana Legislative Assembly the Congress Party write to of Haryana withdrawing Sbri Baosi Lal. of tbe Harbelonging to the Governor support to 2nd week of August 1970.

11-12-1968 Shri Sanjay Gandhi applie& for.1111 iudustrial licence to manufactyrc inotor can. 18-12-19.68 Shri Bansi Lal writes to ~hri Fakliaruddin Ali Ahmed, then Union Minister of Industrial Devel~pment and Q,>J!ipany Alfairs, recommendmg grant of .l1a;nc:e. to, Sltri Sanjay Gandhi anti stating' that the Haryana Government had o'fered facilities in respect of land. water, el~city and finance for tbe pro~. , ~ " : .ut neither the' '~qery."Jdr tiie' State ,, Goyemment had exa~ .Slin;: San,iay Gandhi's proiect rq>ort,:D.Qr 9Jr ;. State Government had decided lo 6ffer hiui. the Jet~r. facilities mentioned in: tbC;' ""! ,..,;,; 19-5-1969 A niemoranduni -dli~<b''ll>-$.1969 con. ' taioiog about 66 alle~~'a.?fust Chief Mioister Bansi Lal ;s:: :submitted'' to the President of India by Sliri Bbagwat Dayal i;harma, Member of Parliln.ent. and 9thers Praying for setting up' a '" iiomriiisilion of inquiry to COl)sider th(aJiegatio05,
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17-6-1969 Union Hcmie Minister 1iovites eomments "' of Sliri Ban~l,Lalon:th~.~~~. 6-8-1969 A second memoranduid which 'iS really supplementary to thefirstdsP~ted to the President of -lndia .by ~hQ" .Bhagwat Dayal Sharma and others' :L q;it'' u 30-8,1969 Union Home. of Shri Baosi Lal on. the<,' supplementary . . u memorandum. -.. - '. ,.r1- ,,,~/_,.,, ..Ji 23-12-1969 $hri ~i La~ sC1114 biaiC9~ts. which .:,,.,arc- r~ved.ID .:IJ.oo>e:uMiPiatrv.ron ' .29-12-1969. . ."' ' . 27-6-1970, 'Prime Minis.ter Shrimilti Jndi~>J~Gandhl tak!:s over direct charge of Ministrv of Home Affairs and the Department of Personnel in place of Shri Y. ll Chav:ui,
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31-7-1970 Sbri R. N. Mirdha, Minister of State Ministry of Home Affairs, states in Lok Sab~a thl!t the first memorandum against Shr1 Bans1 Lal and his comments thereon were und~ examination . , 8-8-1970 Prime Minister Shril)lllti .Indira Gandhi sees the first memorandum a~iost Bansi Lal when tbc; Secr~tary (Services) puts llP for her con~1.derat10~ a draft reply to a letter from Shn Rao B1rendra Singh, a signatocy I? the memorandum, requcstine; examinalic;>n .of the charges against Shri Bansi Lal Within a specified period;

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acquired for Sbrj Sanjay Gandhi from the q_ffice of the Deputy Commissioner, Gnrgaon. Sccrela1y in the Prime M'nistcr's Secretariat, records on the file relating 'to the 1969 memorandum ag:,.inst Shri Bansi Lal that "P .M. bas ~en" meaning that she agreed with the sug!(estion of Shri L. P. Singh and Shri R. N. Mirdha. Shri R. K. Dhawan lelephones Shri Ailawadi, Depuly Commissioner of Gurgaon from Delhi asking for copies of correspondence rela!ing to land which was being acquired in Gurgaon. A note is recorded on the file of Town and Country Planning Department which discloses that the file had been summoned to Delhi by the Private Secretary to Chief Minister Bansi Lal "for reference". Shri S. K. Misra, Principal Secretary to Chief Minister Bansi Lal, conveys to S'ui L. C. Gupta, Director of Industries, th: Chief Minister's direction that a letter hould be sent to Sanjay Gandhi on that very day saying that 300 acres of land would be allottca to him. The Chief Minister also wanted Shri Gupta not to ask from Sanjay Gandhi justification for his requirement of 300 acres on which Shri Gupta had been insisting, Shri Misra further tells Shri Gupta that Sanjay Gandhi has expres sed annoyance to the Chief ldinister for the delay in allotiog land to him. Maruti Limited is incorporated under the Companies Act, 1956. Chief Minister Bansi Lal telephones Shri R. S. Mann, Director of Town and Country Planning, from Delhi telling him that Shri Sanjay Gandhi had complained to him about the delay in the allotment of land and asking him to ensure that the acquisition proceedings are completed and possession of the land delivered to Shri Sanjay Gandhi by 10-7-1971 at the latest Mann is also told that a letter conveying !his assurance to Sanjay Gandhi must issue the very same day. Shri Sanjay Gandhi writes to the Director of .Indus!ries i~dicating in the layout sent to him earlier by the Director of ~dustries, the plot selected by him for his car factory and asking for immediate possession of the land.

3-7-1971

A meetln.. is held ats:'t.pJ!1garb'.between Shif B&iiSi Lal and sOllic "Olli.cials of the Hacyana . GQ11crwllesit wjtb, Sh,l:j . ~jay

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Gan~ whC{c the tel'lll!l',(llld,,AAnditiC?DS for allotmc!U of land Ito: Shrl' SanJBY Gandhi a.re *'ttl.ed. The 11~. of.the meeting is not. the Cbiet.Mjojster'~ offiC:e or resj\lence but Uie Rest H.~ w~ere Shri Sanjay Gandhi was tq~l)., staymg. The terms, according to the 'Dliector of Indus tries and also the Director of 1 cwn and Country Planning, a.re unusu;illy favour able to Maruti Limited and lh~re is no instance of any other unit in Haryana enjoying simlla,r coneessi~1,~ The Land Acquisition Collector makes awards completing bind acquisition proceedings.

10"71971

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Aug. 1971 File relating to the 111C11l()randum against Bansi Lal is agai.n submitted to the Prime Minister witii Shri' Mjrc;lha's .epmment that further clarification with regard to. the 14 allegations is necessary.

9-8-1971

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10-8-1971 3-9-1971

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Prime Minister Shri.mati Indira Gandhi agrees with the suggestion 't11at further clarification of the 14 allegaticns was necessary and Chief Minister B:msi Lal is written to accordingly; tional clarification on the filst memorandum.

13-10-1971 Chief Minister Bansi Lal furnishes addi2710-1971 Another memorandum against Chief Minister Bansi Lal, submitted to the President of India by Sbri Bbagwat Dayal Sharma, M.P. is forwarded to Prime Minister Shrimati lndira Gandhi. This memorandum contains the followiiJg allegations among others : "An impression is being created in the public . mind as if the Central leaders are sharing the fruits of misfeasance and malfe.Sance of the present Government. . Shrl Bansi Lal even brags about bis personal equation with the Prime Minister .whom, according to his own statement before responsible persons he has ob)iged by acquiring land ovC: 300 acres for the proposed~ !:Ill' factory to be started by. her son". .,
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27-11-1971 Collllllenls o[ Chief Min:stcr Bansi Lal are invited on the 1971 m~010randum. Prime Minister Shrimati Indira Gandhi records a note on the file relating to the 1971 memorandum : "Ask K. or Db. to speak with C. M. too". AsShri Tandon bas ciqilained, K. refers to Shri Yash Pal KapoQr and Db. to Shrl R. K. Dbawan. Shrl Yash Pal Kapoor was not a mcm bcr of the personal staJI of . the Prime Minister at that time while Shri R. K. D)lawan was working as Personal Assi taut. Why they are asked to speak to the Chief Minist.i:r when a decision has been taken to make a formal refcrenee to him inviting his comments on the memorandum is not stated, The nole also does not indi catc what Shri Kapoor or Shri Dhawan was supJ>Osed to convey to the Chief Minister m this regard. The note thus discloses a parallel personal approach to the Chief Minister by Shrimati Indira Gandhi. 24-2-1972 Another memorandum against Bansi Lal i submitted to the President of India. 28-2-1972 The above memorandum is received at the Prill)C Minister's secretariat. 1-3-1972 The said memorandum is sent in original to the Secretary, Department of Personnel before Prime Minister bas seen it. 27-10-1972 Shri B. P. Bagchi, Secretary (Personnel) having CXlllllinCd the 1971 memorandum suggests a reference to a retired High Court Judge for informal opinion on some of the allegations made in the memorandum. 7-ll-1972 Sbri. Mirdba does not agrec''with Shri Bagchi's suggestion and recommends that .. the Chief Minister should be written to aski,ng for cliui1ication. Sbri Tandon also records a note to the etfect that the matter co~d be. examined further aftel' receiving clarification from the Chief Minister 8-11-J 972 J>rwe Minister Slirimati Indira o~inu approves Shri Tandon's suggestion. 10-11-1972 Chief Min,ister Sbri Bansi Lal replies to the allegat!ons, 10-11-1972 The file is submitted to tl!e Prime M"mister by the Minister of State, Department of Pe~sonnel, with his finding that the allegations have not been sublltantiated. l 2-11-1972 Sbri Tandon submits to the Prime Ministe a 'toP' secret' band written note ~tin~ that t!t~ matter be referred to a Committee of M1msters. l 3 11-1972 Prime Minister Shrimati Indira Gandhi records a note that she bas asked her colleagues, Shri Fakharuddin Ali Ahmed Shri Swaran Singh, Shri H. R. Gokha!~

and Shri KU111ar~.nat)jlllam f!Jr advice if there was a ~ fo.r,.;.~tung. up a eommission of inquiry to. look mto the alleptions lllllde in tbO 1971 111Cmo11U1dwo. '
1.

12-12-1972 Draft of the report pi'ej>~d by .a Committee of four Ministers ls !lllbmittcd to the Prime Minister. for clcatancc. 15-12-1972 The report is signed by the.four Mi?iter.i. The repon finds that the allegations have not been established. 22-12-1972 In the course of his speech in the Lok Sabha, Shri S. N. Mishra said : But one thing is abundantly clear, it is ahnost conclusively proved; that the Chief Minister of Haryana has left nothing undone to place the Prinle Minist.lr ln a situation of blaclo:t;lail. He has robbed the peasants to put her in the wrong. He bas violated the defenee rules which prohibit the seiting up of snch factories or any construction within a portlcul.ar distllllCC to show that he C3l1 do anything In the name of the Prime Minister. He bas tried to . equate public inlctest with private interest and also tried to say to the world that industrial estate , means person.al

estate.

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9-7-1973

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-<l :~f;_... "/. :~(f-~,,jl': '?~1~!\f.:"<i.~:. :r,~ - Shri. S. P. Rai; .Dcputy<--iSeeietary in the Ministry of l).cfence records;a, !I~ lo the file Dy. No; .4)4l/~)A-'7'1i;saving that . ' it ~uld be !ld~~to~fsfuck;\ of the sitwUion.arisingn<iut. off,the constructions mad!! ~= in t close proximity ofby the ' ;;Jtled ~. :'' . at Gurgaon ~ 1\'lithin~'d!Jiii ~}of ~ adjoinjng airiie1d ad ~ljle!:j~ ,Pon e l'Cll}l!!lia1 -~.tn.Al!.,n-:, ...n--ts a meethig of the , )':!;~=-""' '"""!'-

that it wol!ld be ~ell fl>t tht:1.Prirnc Minister.to go into lhs, ~115!1 Jie had been taking all the steps allllost l!t the same time when the char~ of l:orzUption ag!linst him were being qq!J!i~FCLllTbis ls no more accident that the fliilure of the oxaminatiou of the ..i..-.,;(lf , i:Qrtuptlon against )ljq1 ~~ . 'od ln which he 'tcio~ ~~i!Ubr~f\mta& tically itre&uW'. ste()S :;,;i>:~l.;'~*~"' '

.", (, ... .. ,-_, NQW, therefore, thiS IS my. submission,


.
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L
~

Hcadquarters'>and~~"~'"' ( Prime Minister's seci~'l\111'"':.,,.,,,,'


months wllho~ !ki~,g wY~;~Jt. 16-8-1973. ~g llll '.Unstamd<'.!.QUesllon by Sbri S. N M'iWa In ;thc.iP.1fJSiibJia : the Minister of D$\ce ~!~ by Sbri Mishra as tol1lie'' , !at" Steps

Government of

~P!es,~ ~

Primo Minister : ;': C) ' keeps the; litO,with~tOi<T:o~

made
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53
taken by \he Government

in the siniation brought about by the allCiCCfly dcf:ctive notification S.R.O. 6 of 1969.

The reply, following t~ usual procedure, must have been vetted by the Prime Minister.
A meeting is held between Sbri S.. P. Rai and Sbri Tandon after Shri K. B. Lal, Secretary, Ministry of Defence, requested Shri TaJJdon to have the matter expedited. In this meeting Shri T aJJdon on instructions from Prime Minister Shrimati Indira Gandhi tells Shri Ral that the time was not yet ripe to t~ any actiori in the matter and it should be kept pending for at least six months.

'.~~efi'it .bas been menticned that Shri Bansi wrote ~ w $.hri Fakharuddin Ali Ahmed in December 1968 '.;s;e" qso. ring ~anjay Gan@i'.s.i;ar project and enumerating t . . nc:css10ns offered to him before the Government na had taken any decision in the matter. ::,, . . .f This was the time when Sbri Bansi Lal's political car~r was in peril followin& the revolt in bis own party

.i.a1

against !1im- nie~ . as the were bemg submitted one after linolhct,;.~ . . went on making large concessions in f&vour of Mll?1ti Limited attempting, it seems, to plcaSc; "1c l'1iD!C Minister by making a~~ to her son~ fo:r his car factory and other facilities not enjoyed b.Y any other industrialist in the State before orI-;;11!stead of summoning Sanjay Gandhi to his ~ or ies~ilc;e to settle ~ terms o( allot.ment of thq ~ ~ himself went to thC rest house at awi'Q W$#C'".Sanjay Gandhi was then staying. What has t>Cen SWed abOve also b~ to l\ght the- calculated inactil>,n on t!ie part of Shrimati Indira Gandhi to enable tliC Maruti COll5tructions to be completed and her . anxiety to keep back the facts tro:n Parlimnent in sp~ .9f[1jd)aiowledge that the .constructions: were,~.; Jlli~4 > .t,he defence operations. It Is remarkllblli"'tba( ~en the report of the panel of Ministers lnquiqiig mto tbc allegatiol)s against Bansi Lal had to be cleared by the Prime Minister bcfote il was signe4. .. ~~. Tht sequence of e\lents suggests thlit ' ;...Miilistcr Shri Barisi Lal sought to protect himself bY'tliO :sCrvic:ea he rendered, and in this situation the former Piimc Minister who was aware of Bansi l.ili's derived for her son the advantages be needed for his car project. .. '

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111tnU>iP'1.'L{*blll1Lal

motive

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CHAPTER Ill
The fourth subject in the list of matters specified for inquiry relates to : "All matters p~rta1ning to (he proj)ricty of the methods by which these [Maruti] concerns raised capital, working capital an~ o~er financial resources and the manner m which these financial resources were utilised". The Maruti conc.::ros a~ Maruti Limited, Maruti Technical Services Private Limited and Maruti Heavy Vehicle.s Private Lim,ited. MARUTI LlMlTED

In his applicatiof!. for au industrial licence to manufacture motor cars, &bri Sanjay Gandhi had stated that the new indlll>trial undertaking he proposed to set up would l>e a public !inlited company which he ttamed Maruti Limited. On this application he was granted a letter of intent on s~ptember 30, 1970. Maruti Llmited WllS. incorporated on June 4, 1971. On May f2, 1972 Maruti Limited applied under section 3 of the Capital Issues (Control) Act, 1947 "for consent for the issue of capital". Under this Act no company can raise its share capital by public subscription except with the consent of the Central Government. Under the Capital issues (Exemption) Order, 1969, made by the Central Gov"rumcnt in exercise of the powers conferred by section 6 (I) of the said Act, the Controller of Capital issues can grant acknowledgment to a request for raising capital by private allotment of shares. lf the application is for permission for a public issue, the Departmem of Economic Affairs, Ministry of Finance, insists on the project cost being examined and approved by underwriters and also ou the approvalof the scheme of finanee of the company by public financial institutions, In allow:ng a private issue the conditions mentioned in clause 5 of the Capital Issues '(Exemption) Order, 1969 huve to be satisfied; the eonditions prescribe inter alia that as a result of the proposed issue the equity of the company should not be less than one half. of its debt, and tb~ total paid-up preference share capital more t!1an one-third of the total paid-up equity share capitai. The application made by Maruti Limited on .May J 2, 1972, which was the first of the live applications made by the company for raising , hare capital was in. the pre~cribcd form signed by Shri Sanjay Gandhi as a Director of the company. The endorsemen~ on tho application made by Sbri Kewal Krishan, Sec\lon Officer 1n the office of the Controller of Capital tssu~s: shows that it was handed over personally to the A~diuonal Controller of Capital Issues, Dr. Raj' K. N1gam. ~ormally these applications were received in the Rec~1pt an~ Issu~ ~ction of the Department of E~onom!c Affairs, Ministry of Finance. It appears from the se~llon offi.ce~s note dated May 17, 1972 that ~1gam desired the application to be processed within !!tree or four days, The application as made

,, )l;rt1 , ... was for a public issue'and as'.such;it,1was to be processed under the Capital Issue5(Coil!;i:'ol) Act, 1~47. "h Ii u uMoA the, ..,.. rnmponvs ' anthonscd l e app ca on JllCn .._ . .~~. "'''-'!! "~ capital as Rs. S crorcs and. the to'81'1.;p1t~llllt ';' _.,.,.. capillil Rs. 6 crores, which was'ob'\lioil81Y lllCOll'cct because the iNued capital could. ~~;be more than the authorised capital. The applieatton'stated that the company had _;Uready raised a}~ of;~ ~:6.0,700 privately. Agamst the column object of ISSllC .1t was said that the company hl!d starte~ i~ activ~tie& and w,as in need of more funds "to meet its Jll]Jllediate financial needs in respect of pwchase of JllllChincry,, erection of factory buildings and the- working capital of the pompany''. ~t was stated further th~ ~Piei!.pf .~ prospectus would. be sub.i;wtt at a I~~ '6~.aDif ~b'' ,the company proposed to get the "~. ~!M on the stock exchange. Sbri P. Radh;lkrishriail; ~ U!!der Secretary. (Capital lss11C) in theqep~~ ,!If EcOnomic Affairs, who eXll,nllned th'<l appheati!>D fouDd .that it was incomplete in several .reS~., .gn Mily 27, 1972 a letter signed by Dr. l\igain was lSSUCd seeking from the company particular~ of the basjs of allotment of the total equity iss11C and whether U would satiafy the reqqirements for listing of aha.res in tho stock exchange, Tb: company waa told that the Government did not generally approve issue of capital to the public unless the scheme of finance had been approved by lhe public financial institutions if the project depend on financial assistance from them. It was cliirified that this was not a requirement for a private iq11c Bild the company was advised that if it desired to m~ a private issue first i~ should indicate the &mount to be so . issued and the parties to whom the issue was to be made. Under the guidelines for listing of shares in the stock exchange which were in force ii,u June 1972, the promoters of the company were a,Uowed Sl per cent of the issued capital and .49 per c~ had to be offered for public subscription. Under the new guidelines which came into effect from July I 972, the promoters' quota was reduced to 40 per cent, 49 per cent of the capital was to be issued to the public and a maximum of 11 per cent to the Central or State Governments or public financial institutions, if any, otherwise this 11 per cent was also to be offered for public subscription. Under the ?Id guidelines the general practice was not to allow issue. of shares to the friends and relatives of clirectors and 1t was confined to the promoters and their associates. However this rule was relaxable where the proportion of public offer satisfied the prescribed minim~ listing requir~ents. Maruti's first application was considered according to the old listing guidelines.

aa

Dr.

On July 11, 1972 Maruti limited replied to the letter of Ma)'. 27 s!ating inter alia that it proposed to make the private JSS~ first upto Rs. 1 crore which would be allotted to the friends of .tho directors It was ~aid that. this would not co~ with the ~ting requirements 111 the stock cxchl!"&e;. The leltcr further mentioned that by a reS<>lution passed by the Board'()(

54

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .lllillllllllllllllllll8lllllllillillllll!lllllil..........................~"""""""'

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SS
' Directors on June 29, 1972 "it was decided to 6x the : amount of the issued capital at Rs. 7 crores" divided ' into equity :Wd preference shares in the p1ofortion iDdicaled in the lell~r, The letter wa& signed by Sbri ;Sanjay Oandbi us Managing Director of Maruli Limited. Tbc Minute, Book of the meeting of the Board of 'Pireetors however dqcs not show that any such resolution as claime<) was passed on June '.!9, 1972. ' Sliri Raunaq Singh, a director o( Maruti Limited, who depo.sed before the Commission, admitted after going tl).rougb the Minutes Book that r.o such resolut'ou was passed on that day. The letter did not metion the l, ,llaU)es of the parties to whom. the private issue was to : "be made. It v.as also not clarified whether the sum of I crore proposed for private issue would be in ''11Uity .or preference share~. But tJ1e company was 41ot written to for further mfonnalion. On July 24, .,. ~~~. ~hr! ~anjay Gandhi, Managing Director of ., Ii'. Ll.llllted, .and Shri S. M. Rege,, Sec1:etarY of . c~~any saw .Dr. N~. Dr. Ni~m I~ told the :~DllljlSSlfln '!iat t~cy, cl~ptied .~rtam maQrs raised ~,,hlio m discuss1ons with them and they. assured tbat the Public Financial institutions would clear ,,;,.~.jjnancial sche!"e and the. project report of the com '.1P!DY They also wformed him that the Government of .;t~ana bad agreed to take equity and preference. A .c:ap1tal of the company. and that the total subscription . ot the State Government would be Rs. 25 lacs. ,;. Sbri. P. D. Kasbckar who was the COntroller of , : ,Cap1tal Issues till August 1972 from wmc time in ',,;}97~, says tl!at ll:farut,i:s apJ?lication was, processed as [>'!PC ,for an u~tenm pnv~te issue as form1!Jg, part of a , total ~sue whi~h. would IJtClude a public issue consis ,tent with the hstmg requirements''. This, according to Sbri Kasbekar, was a correct decision "provided nU the assurances regarding further action' to be taken by the company were taken to be established facts". November 28, 1972 Shri Y. B. Chavan, then Finance Minister, rcplyiug to a question in the aajya Sabha.as 10 whether Shd Sanjay Gandhi had asked ior loans from the Public Financial (nstitutiol)s for his small car project, said that none of the all India long term P ,1blic l'inancial. institutions had so far rece~ved imy aw:kation for financial assistance from M!u\lti. l,.imitcd. Thus the statement Shri Gandhi made in b,i/; letter of July 25, 1972 was untrue. On Dec~mbel' 8, 1972 Maruti Limited applied for !he second ti~~ for p:rmission.to ~e furt,hcr P,r~vatc :ssue to the d1rectors and their friends to,,the cittent permitted by the stock exchange regula,lions., . The applica.tion was in the f.ol'lll of a. lctter..s~e. \f l;>y Sbri Sa.n.jay Gandhi; Managi.rig'.D~r''<1!, . IJ\9 .. !WP.tPan.y. In fa.ct after the first llJ?plicaUop.: W; . .w~.~.13,. llie PI,seribcd. for111 alJ the appP,eaticiQ~,. , "'b',y:r_~ti LiajtedJor a private issJie,were in the" ' , gF;lctters

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w~ P.1~frF,.Ji'~a!Cd a5, #nsio~ 1~f';'\ ~t(~ " .' app~catio11,., , This. Jetter was: toUQwA.~' :~ w illen 0 .Janua ' 2 1973 'ai .. .;i~ y1 ~~ P,d, , eqc, ' l!'Y '"ih'e. ' tef)lllf ' .$1!ni;,,~. pjnt.ln.'=l.~.yf G~andh'1 an oSJDg, 1.-... .. . . =n,;,, o preference shares of .the caiupany 'and ii '.J:e~ll\:pject

iiick

report. The letter of January ,2 i$o' ci>ntaini:ij, a statement .. tha~ the finaiicW ~heme: o(,;'th..:, 'c(ipj-.:.a~y s~bmitted tl1.~ fi\lanc:iI:iliit!MlhiJlif(e!;~ifil.' ~ by them m pnnciple and that ~,,'11(185' c,> 'al approval was received it v.'i>u!d be ~t tO. the. COnt'roi!er

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of Capital rssucs., Acco ..r<!ingthe t.o .. Dr , . ... .' . a ':". . .. . l.ettc .r showec) that the assurances "mJmiy :.jpvcn ~ 01,1 Jilly .f'I 1972 .had,11ot ~J . " ~co.

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discussion with Shri Gandhi and shri Rege Dr. N1gam relaxeij the old listing guidelines and allowed t.he company t<;> raise capital by private issue to the fnends of the duectors. On July 25, 1972 an -acknowledgment letter. was issued permitting the compa.ny to ma.kc. a private issue upto Rs. 1 crore. To th!s ComJUJss1on Dr. Nigam first said that he ac~ m );':Ood faith. on the Vel'bal assurances given by Sl1ri Saniay Gan~bi and. he "bad no reason to suspect that a man of hrs (San1ay Gandhi's) status could go back 1;1pon the assurances given to the Government" La~cr. m answer to ~ Q,ucstion put to him by Counsei ass1stmg the <;:<;>mm1ss1on, he admitted that he had made .the d7C1s1on under pressure from San'a !3andh1 Shn Kasbekar has said that the decision 1t~ issue the ac!'nowledgm~nt was taken without sbowin the file to hrm. A~cor~mg to Shd Kasbekar "it woul~ ha~etbbeen/e~t~r in his .<Dr. Nigam 's) own interest to I ese .ec1~!ons o!.h1s.endorsed by his suporiors. weedre 1bn is pos1tio~ I would have got my Views d en ors Y my superiors". 0 I .,.. . .. issued, t }~1;a~~ f9~ .tb~hrlc~o~Jcdgment. letter wa

After

Shn. Radbakrishnao recoi;ded a iJP~ that;~ i11format1on should be called for from the company concerning its a~plication dated Dece~b,er 8, J51?,~ .. ,,, 01,1 January _4, 1.~73 Dr. Nig:im r~rded a. notq ~lit' the followmg addmonal material or iofoi:mauon, should be asked for: . , . . (i) copy of the Haryana Govemment's fotter sbo~g its intention to participate in the capital structure of the company (equity and preference separately) ; (ii) Initial project report with the 'comments of th~ financial institutions ; and , -;, ' , ' (iii) whethe~ any. publi17: sect.Or c;<)llsuJtancy company like the .Nauonal Indu.strial Develop- , ment. Corporation had been consuJled in the drawing up of th1: project report. ,

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ff

:her
"

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had been submitted 10 ditf nt fu1 . e . company and that it had. bccll' acce 1red . a!JCl~l mstitutions P e m pnncrple. But on

~e ~~[eJoIJ1t~te ~~nJ~,~~~iaffsc~i~al~P:~s ~~d~~fi~~~

No letter ho~eve~ appears; to hlJ:V~ ~C,eq ~sued,' th~ company asking 11 to fur~h the. lifo!Csaid par:ticilla.rS. About three weeks later, 10 a note AAte4'Februacy.. IS 1973 Dr. Nigam himself slji4 that i~ Wa.<' 1 ' to ~a11 for i'!formation rrom the caiiiPW.'.i~ tC:~~~i:~ their !ina~c1a.I ~heme had been approved " by the financ1!1I mst1tut1ons. Dr. Nigam explains this uote ~Y sa~ng that as the s.ccond request was for a private issue . e thou~t that 1t was not necessary to call for , such mrorma1:10n. . But this request for a ptlvate issue ~as on }'. an 111ter1m measure "forming p,art of a to 1 issue: which would inclu,!le a public issue', as Kasbe~:r P 0 ~ !t. finThe .aPP!'Ov~I, C!f the financial scheme by the pu ic , anc1al ms111u11ons was therefore necess m~y be not exa!'llY at that stage. Tho Fmailce M'ary, ter s statement 10 the Rajya Sabha on Nov U!:s1972 proved that Maruti's first claim in th'mber -8.

to

..

lS

regard

I I

56
was untrue. It is a little surprising that no attempt was made to verify the truth of the second claim. On April 9, 1973 Shri Sllnjay Gandhi along with Sb.ri S. M. Rege, Secretary of the company, met Shri R. M. Bhandari who had succeeded Shri Kasbekar as Controller of Capital )~sues. Dr. Nigam was present at the meeting. Shri Sanjay Gandhi was asked to furnish the latest information as regards his application to the financial institutions for approval of the scheme of finance and when the company intended malting a public issue. A copy of the letter from the Haryana Government was also asked for. The meeting was followed by a lctl~r from the. company written on May S, 1973 which again mentioned that the company had applied to the financial institutions along with the project report. 111d expected to gel clearance from them m due course. The lcncr further stated that tho company intended making a public offer of its shares possibly by the end of 1973 and endorsed a copy of the Haryana Government's letter. The Haryana Government appears to have consented to invest to the extent of "25% of the share capital" of Maruti Limited without specifying whether it was in equity or in preference shares and in what proportion. This Jetter was not received in the section ; Dr. Nigam says "it might have been received by me or by my personal llSllistant". . Di. Nigam recorded a note on the Jettie itself saying that it contained all information sought for and that the company's request could now be processed. Shri R. M. Bhandari ju his note dated June 14, 1973 recommended private i~ to the.extent of Rs. 60 lacs which would make the total. sanction for private issue 35.2 per cent of the issued equity capital of Rs. 5.25 crorcs. In his note Sbri Bhan~'i also said that it should be made-clear to the company that no further permission for private allotment would be given. On July 10, 1973 the second acknowledgDlCllt letter was issued but the condition th8t no further private allotment would be allowed was not included m the letter. According to Shri Radhakrishnan thls was due to oversight. .,,
July 13 and the othe1 on August 22, 1973 for~

November 11 the company fumisbed cutain information. On January 18, 1975, ano.ther letter was issued to the company by the Directoi' 1 ~veS!m~'.'seekin$ further clarifications. Ou': JailWitY 20, "1975 , Sbr1 Pranab Kumar Mukheijee,'MiiilsierOf ReVehue and Expenditure, called Shri R. M. c.Bhandad and Shri J. P. Mukherjee, who had succeedw0r. Nigam as Additional Controller of Capital bsucs; 'to' a meeting where Shri Rege, Secretary of ..Mapiti Limited, was also present. The Mlni$ter told tliC oJlicers that he wanted to know the facts of ' the 4:llSC; Shri J, P. Mukherjee says that at this meeting it wa's. agreed that a fresh acknowledgment o;wOuld ' be . issued. J. P. Mukherjee has stated' flltther. that ,' later the Secretary to the Minister asked him on tho telePbone to expedite the mauer. , "

I i

Maruti Limited made two more applications, one' on

I
\ I

sion to make further private issue of equity shares.

- Both .,these applicatio.ns were rejected. Refusing Maruu s request made 1n the letter Of August 22, the
Controller of Capital Issues wrote to the compaiiy on December 12, 1973 ; "Government are unable to p t permjssion for raising any further capital. by prlVate allotment. In case the company desires to raise any ~er capital they are advised ~ raise it frQm the public by prospectus and by obtlllning the ~sary permission under the Capital Issues (Control) Act" . . 'J'!1c next application which was made by, Maruti Limited on August 27. 1974 was for consent for a public issue for Rs. 8,~5,39,300. .A !!raft prospectus. was also sent aloog with the applicauon .whlch however lacked pllrticulars in respect of certain important ~rs. The details of the scheme of finance, undcrwntlpg arra~gc!llents, number of shares offered for public S!!bserrptron etc. had not been furnished. Further lllformau~n was c~lled for by the office of the Controller of Capital hsucs on October 4 and 011

_ _ _ _ _ _ _. . ._ _ _ _!!Ir.,_._

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57
1bat during his tenure as Addilional Controller of 'la) Issues he had not...come across any other case . public .limited company in which only a private '.l!ad been allowed ancj no public issue". Sbri P. bekar also says that during his tenure as Iler of Capital Issues "there was never a case any company having first promised a public e, went on making private issues only and never pc a public issue".

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.''''Another remarkable feature appearing frotn the so far is that in four letters written to the /Controller of Capital Issues on different dates, July 25, , 1972 ; January 2, 1973 ; May 5, 1973 ; and January 27, I 975 Maruti Limited claimed that their '1ehcme of finance had been approved in principle by lhc diJferenl public financial institulions, and the state. nt made on all the four occasions was untrue. C. Bhat of Unit Trust of India, C. R. Thakur of 'Life Insurance Corporation of India, D. J. Balajirao . of Industrial Credit and I nvestmC11t Corporation of . lhdia Limiled, M. S. Nagrath of Industrial Finance <~ration of India and S. Rajendran of Industrial ;Development Bank of India have deposed before the '.Commission. It appears from their evidence that on the dates on which Maruti Limited addressed the four 1letters, none of the public financial institutions had 1 Reeived any application for approval of their scheme <of finance and therefore no question could arise then "of their accep1ing 1he scheme in principle. The~e \ wiUtcsses have slated what happened. In August 1972 when the Chairman of the UD!t Trust of India was In : l>flhJ, Sbri H. S. Mehta of M/s. H. S. Mehta & Co.i a stock brokers' firm, infc;rmally handed over to him . a ~ project report on bdla1f - of Marud Lilnited. No action was taken on this. . Then In ',, November 1972 the Merchant BaDking Division of . t,hc National and Grindlays Bank Limited, Bombay, :. .. who had been appointed by Maruti Limited to m:rango ' finance for its car project, sent to all the public llnanclill :, insli1utions a project report prepared by the Industrial ,: Development Services, New Delhi. This report was 1 not considered adequate. According to Shri Balajirao ''of Industrial Credit and Investment Corporation of ~ : India, it had "lots of gaps-the information given was 1 :. very scanty and the technical aspects were not carried in details". Shri C. R. Thakur of the Life Insurance Corporation of India, has said that the report did not contain "information regarding the scheme of financing' and "!here were many details even about the project re~ort which were n!>t. made available". ~ queslion~ru~e -yas prepared iomtly by t.he pubhc financial mshtu11ons and sC11t to the Na11onal and Grindlays Ban~ Limiled, l!lerchant. Banking Division, Bombay, , seekrng further mformation on some basic points relating to the technical aspect. The reply received ~as. al~o CO!J~idered unsatisfactory and the financial . mstitullons 1om.tly wrote to t~e Bank asking for a formal apphcat1on and a detailed project report. In 1uly, 1973 Maruti Limited suggested a visit to the company's fa7tory a! qurgaon by the representatives . of the financ1~! mst1tutmns where, it was said, the necessary details would be available. On August 9, !97,3 a, team ?~ representa1ive~ from the public financial institutions v1s1tcd the Maruti factory. They felt that the P.roj~t W\15 l!t a. very preliminary stage and a detailed mvest1gation mto the various technical aspects

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o! 1he project was necessary. About a YC'!f and a. halt af1cr their visit 10 the M~ti factOl).', .ID~~ 1975 Maruti Limited sent its afplication ~:, ,...,. assistance to the public ~ncia .~llntllp~; :~Jllno 1hrough the. !'<ferchant Bailkiug,pivajo~,.<>t~.qntral... . . Bank of Indi3, Bombay. The,,pro~l!i;~-$cd, 1 a1 an intcr-iruititutional meeting held .. O!h~.~ . . ,,,~_o, 1975 when a unanimous view was Ulken ihih, I~ not possible to consider the ,project at Present~:~?. ~l;lS 1he public financial institutions neve.r .approved ,.,II! principle or otherwise the financial scheme;of::Maruli Limited. . In the three a~knowledginents issued - to Marutt Limiled, the company was permitted to raise, ,,share capital from promoters, directors and their friend$. It appears however that in violation of this .r,~tion shares were allotted to all and sundry includipg ~veral companies. .Shri P. D. Kasbekar who was fi>r soi;ne 1ime the Controller of Capital Issues, in the COl1ISa of his deposition has said that a company C8DllOt be a friend of a director or p~omoter of another 0mp1111y though it can be an associ~ of thei other compuy. Shri Raunaq Singh,- one of the Directors of Maruti Limited, does not agree with Shri Kasbekar on the point. However it is .not .necessary to cousideF ~ point as an abstract question of law becallllC m tl)is case witnesses appearing on behalf of i:oany of these companies have disclaimed friendShip with the directoIS and promoters of Maruti Limited. Shri Sitaralll Singhania and Shri Sobania! Singhania, President a,nd Director respectively of J. K. Synthetics Limited have said that their company was not a friend '!f any.~ the direclors or promoters of Maruti . LUlllted. Shri T. ,p, Ravindran, Oiief aitecutive of Sudershan Trading Company Limited, Madras, sa:f$ t?a~ his company did not purchase shares of Maruti Limited in the capacity of a friend of the promot.:rs or directors of Maruti Limited. Shri G. Saga. Suri, Managing Director of Deihl Automobiles Private Limited, bas said that his company was not a friend of any of the promoters or directors of Maruti Limited. Apart from the companies, individual shareholders like Shri B. N. Jhunjhunwala and Shri Om Prakash Modi have said that they were not friends of any director or promoter of Maruti Limited. Many from various parts of the country who approached the Management of the company for appoin(ment as dealers of the Maruti ca1 were forced to buy shares of the company ; they could 001 be de<cribed as friends of the directors or promoters of MaruLi Limited. Shri S. M. Rege, Sei:retary ot Maruli Limited, says 1hat he did not know who among lhe shareholders were the fiiends of the directors or promolers. Shri S. Kumar. Registrar of Companies, Delhi aad Haryana, bas told the Comssion tbai if it had come to his notice that the persons to whom shares were allotted were not the friends of the- directors or promoters of Maruti Limited, he would have referred the matter to. the Controller of Capital Issues fnr necessary action. Dr. Raj K. Nigam, Additional Controller of Capital Issues, in the course of his statement to the Comniission said that a private issue should not have a public character, but this is exactly what happened when Maruti Limited offered its shares to a large nw:nber of persons and corporate bodies who could not be

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The evidence before the Coll11!lission shows !.bat In 111any cases i111proper 'methods were adopted to make per.;ons buy Maru\i shares. The follo)Ving are some of the insrance~ : (i) Shri A. D. Kolhatkar, PC'l'soru1~1 Manager or Maruli Limited, bas said that he along with various other officers of the company were for~d to purchase shar~s of the company. I-J.: boughl the share~ in the name of his wife and "' ithh1 ,;, months from the date or the allotment he transferred the same to one Shri Devpuj;1ri,
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might be po5sible for him to two or three molllhs prov41,~~~~ , , ffJ;;~&~ to llft7 ,000 metric tonnes u1. ~ ... :G . hi tonnes. all?tted to"him J~'';~'.iJ.~.~ ~as assured him that he would sce~!QthCi:\ . &ssi0ns' extended and promlscd to ~ '. . '"i '"""~"' ~ . t and facilities in his coal bustn~~"'~""';V!lwCSS .go extension of time upto Af ril';3()!l'.J,;-J~~d~,!d remaining quantity of coa . The' w1 .,u~c shares of Maruti Limited worth .~:~9,ooo ID the name of his son-in-law. Soon~ ttiC,~e .the witness got a funhcr allocation''of~;<\!)O'.~c.tonnes of very good .quality coal.. Ther~ !he W!!JICSS was again pressurized by SanJaY ~,fl!r, buyillg_ more shares and threatened with dire consequences if he ' " .. 11; ' failed to do.

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f\1aru1i c;:r wrn: 1nadc to purchase shares of the com pany und"r thr~at. Some of the dealers have filed aftida\'it making this allegation : several others who

were examined as witnesses also made the same complaim. Shri Rcge, Secretary of the Company, does not deny that in the letters written by him to some ot the dealer~ he threatened them with drastic action ; he says that these letters were written after consultation with the Managing Director of Maruti Limited, Sbrl Sanjay Gandhi. This aspect will be considered in more detail in the next chapter which con~ms the dealers. The dealership agreement itself included a term that one-third or one-fourth of the security deposit the dealers had lo make might be converted into shar~s. and the Government or Haryana used their authority te compel persons io buy Maruti shares. Shri Jawahar Lal Mehra, President or the Janpath Traders' Association, in his deposition describes bow by issuing a notice of demolition of their shops, some of the s!iopkeepern were compelled to deposit with Maruti Limited a sum of Rs. 11.000 as the price of Maruti shares. Shopkeepers Harbans S(ngh, Baidev Kumar Wabi and Gulzari Lal Khanna, have deposed. They have stated that they were not at all hiter~stcd in Maruti shares but were compelled to sign the share application forms . out of fear that their shops might be demolished. The Janpath Market site had been provided by the New Delhi Municipal Committee for the rehabilitation of displa~d persons on licence basis. Sbri Mohan Lakhani, Managing Director of Urban Improvement Company, has said that his company was trying to get a new colony In district Gurgaou approved by the Haryana Government. Shri Bansilal, Chief Minister of Haryana, conveyed through Shri Mehtani, an officer of the State Government, that the company must buy shares of Maruti Limited worth one lac of rupees. Ultimately his company, in spite of depleted financial resources, had to buy Maruti . shares of the value of Rs. 10,000. (iv) Sometimes threat and inducement were bolll used to sell Maruti shares. Shri Onkar Nath Gotewala, a coal dealer, bas deposed that somctiine in December 1975 he was summoned by Sbri Sanjay Gandhi and told that he must buy MIU'Uti shares for Rs. 1 ~ or he would be arrested under the Mainteriancc of Internal Security Act. He told Sanjay Gandhi that it
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(v) Certain companies ~!lo i!b~i\e(I' mo'ricy with Maruti Limited or invested m ~~ s/lll!"l!' fqr so~ undisclosed reason were not Willing to do so ID thell' agents ,or own names and prevailed UP9n , stockists to do it on their t:elu!lfiP;\'ovJding them With necessary funds. Sbri Sushil Kumar ~rah, a partn~ of Arvind Exports of Bombay, has dejiosed that his firm which was an agent of Kamani ~nghu:ering Corporation was asked by the.latter tq deliver to them some cheques signed but leavmg them b~ ~ ~Ththe amount and the date and the na~ Of. the~. e Chief Executive of Kamani told hiW. tl)at DI had to make a "substantial deposit" to .some co~pany an,a that Arvind Exports shoul<! make tl)e deposit, on thei.r behalf. The arrangement. was. t~,. ~lf'l'D.I would provide adequate fund~. befoi:c: 't\Je.1 ch~q_cs w~rc presen!Cd for cncashment and. tl)~t t'f!.crliorr<>wing company repaid th.e money Aryil)d ~porlS were to return it to Kamaru. . The name of,~' ~pa.ny With whom the deposit was. ,nade .~ Ii~ disc!~. as Maruti Limited. The total alllO\lll~ as dc~1t by Arvind Exports was Rs:<; lacs out o which .Rs. 3 lllC!l was converted without their consept Into ~~ by !h Management of .Maruti Limited. Kam81U Engmeermg Corporation assured Arvind Exports .that they would obtain the shares .by transfer in their own name or nominate some other person as the ~erce.. 3~,000 shares of Rs. 1O each were transferred to Ka,n;ian1, ~d as regards the remaining three lacs of. rupees Arvmd Exports kept on writing to Maruti Limited for refund. In Shri Deorah's words : "Time p~. in the meantime emergency came and everything was transferred to cold storage".

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Sbri P. c. Arora, a stockist of !he ~d~stan ?o{atio!llll Glass Industries Limited, Babad~. says that being asked by the company be. agreed to ~it Rs. 30,000 with Maruti Limited to buy Maniti &hares in' the n;unes . of some employees of the HincJustan. :t'l~qnal. G~s Industries Limited. Subsequenil)',~;!'JIP~ttons ID the names of the employees of the ~m~ ~hand ed over to him by a senior office( mA-91DpanY and be sent them to Maruti, LiP..ii~9Ki~ t.!!1$6Jres. Some of the employei;s.:pf~;, . ~%; ~ affidavits g~nU'8lly.,~. ,. , ~;~"@t,e- . ment. Shn Arora. says,'th.li,~ . ,,,money from.Hindustan ?'."atiorial q~,. I ~~~6. tries,

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59
'.c ~ ot these shares were not bought direct] y fl"'!m . Maruti Limited. The dealers of J. K. Synthetics Limtied and Straw Product< Limited, which is another J. K. concern, appear to have taken a sudden _interest In Maruti Limite<J all in January 1975. Shn 0. P. Gupta one of t~c partners of a fi~m known _as r:iew Brigbtways Hosiery Factory, Dclht, and Shrt La1pat Rai Aggarwal who manufactures nylon socks, are both dependant on J. K. Synthetics Limited for supply of nylon yarn. Shri Gupta says that be deposited Rs. I lac with Maruti Limited in January, 1975 which lhe company kept as dealership reservation money ; ' this me-ant that the money was treated as an advance for dealership rights to be granted in future. According to Gupta he had to incur a loan in order to be able to deposit the sum and the loan was arranged by one Shri Subhash Chander Jain who worked in J. K. Synthetics Limited. In 1976 Gupta's firm wrote ' to Maruti Limited requesting them to convert the deposit into Maruti shares knowing, as Gupta himselt adinits, that Maruti shares had no value in the share market. J. K. Synthetics p~rchased the shares from . them in February or March 1977 before Gupta's firm liad received the share certificates. Shri Agprwal '' deposited Rs. I Jae as dealership reservation money c also in January 1975. He did not get the dealership, and ultimately he decided to convert the deposit into shares of Maruti Limited. The money in deposit was worth 10,000 shares of Rs. 10 each. But before he took any step in this behalf J. K. Synthetics Limited agreed to purchase from him the shares to. which he proposed to convert his deposit. Shri Aggar\val then wrote to Maruti Limited to convert the deposit into shares in the name of J. K. Synthetics Limited. The witness says that having made the deposit in January 1975 he did not make any inquiry from Maruti Limited as to the progress made in the production of the car. Neither 0. P. Gupta nor Lajpat Rai Aggarwal had any previous experience in the automobile line.

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before investing the money be did. not lllllko ~y inquiry whether the company had been granted a licente to manufacture cars, nor as ti! the exact sum. tha~ was required to be paid for getung the dealership rigbts, nor as regards the price at which !he car 'Yas to- be sold. From the books of account of the fim1 1t appca.rs that the firm's total sales were on the in~ from 1974 and the !irm did not suffer any loss dunn41 any of the financial years from 1970 to 1977. The wuness however says that by recession he did not mean to suggest that their sales h3fl gone down, what he meant was that their profit margm showed a downward trend. Shri N. s. Gandhi 84mits that in !u!Y 1_975 the Government had imposed certain restnc;tions ~n. the .paper mills on the production of certaiJ1 v~ties of. paper and there was a shortage of paper of th~,~ :vanetiea. Shri Gandhi does not dispute that lo this. 11tuation the paper mills were in a position to tiivor the .deaJers ot their own choice. Both Shrimati Bhilrga.~ l!Dd Sbri N. s. Gandhi admit that they bad no prev;ious. ~ perience as car dealers .. Neither B~vas fim1 n~r Gandhi's bad any occasion to exercJSC lbe-cfc:alershtp rights they had paid for ; according to them-~ money .. ,'.: has not been refunded.

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Pee Kay Enterprises are paper mercliants doing business in Chawri Bazar, Delhi. Kalyan Paper Mart, Ahmedabad, is also a firm engaged in paper business. Both these firms are dependant for supply of paper on Straw Products Limited. Shrimati Karuna Bbargava is one of the two partners of Pee Kay Enterprises, the other partner is Shrimati Pritama Bhargava. Shrimati Karuna Bhargava has deposed that in order to diveTSify their business the partners thought that they should get an agency of the Maruti car. They were told to deposit a sum of Rs. I lac for the purpose and they sent the cheque for the amount on January 25, 1975. According to Shrimati Bhargava, the partners advanced the money without any consultation with their husbands. From the account books of Pee Kay Enterprises which were produced before the Commission, ii appears that the firm's business with Straw Products Limited increased in volume from February 1975. Shri N. S. Gandhi, one of the partners of Kalyan Paper Mart also gave evidence. He deposited a sum of Rs. 1 Ja~ on January 27, 1975 with Maruti Limited for the grant of dealership rights of Maruti car. Marun Limited treated the amount as dealership reservation _money. According to Shri N. S. Gandhi the partners of the firm thought of diversifying their business because of recession in the paper business. He admits that
S/8 HA/79-9

0. P. Gupta, Lajpat Rai Aggarwal; ~ti Kamna Bhargava and N. S. Gandhi have all dem ~ tl)ey were in any way pressurized by J. I):, SyntbCtlcs Liinltcd or Straw Products limited ti> invest 1n- Marti Limited. Shri Sitaram Singhanla, President of Ii" IC: l~tbetics Limited, Shri Hari Shankar Singhania.:. ~ and Managing Director of Straw Products. Limited, and Shri Sobania] Singhania, Director of J. K. Synthetics Limited have given evidence. They baV!''~ deuied that they exerted any pressure on their d~ _ or_ agents to invest in Maruti shares or to become dealers of Maruti car by depositing large sums of money with Maruti Limited. However, certain other which might be relevant may bo stated here. On-November 21, 1975 Ramesbwar Aggarwal, Export Manager of J. K. Udyog Limited was arrested and detajlied under the Maintenance of Intemal Security Act" (MISA) and later his detention was continued under the Coaservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA). A detention order under MISA bad been issued also a p t Shrl Bharat Harl Singhania, a brother of Hari Shankar Singhania Certain other proceedings bad been initiated by the Enforcement Direciorate against two Directors ot J. K. Synthetics Limited, Shri Hari Sbankar Singhania and Shri Sripat Singhania, for violation of Foreign Exchange Regulation Act which were also pending. In this situation Sohanlal Singhania and Hari Sha,nlcar Singhania saw Shri S. B. -Jain, Special Direc.tor of Enforcement on November 22, 1974 to protest ap.inst Rameshwar Aggarwal's arrest and tJie __ apprehended arrest of Bharat Hari Singhanla. Shrl Sobania! Singhania says that they also met Sbri Pianab Kumar Mukherjee, Minister of Revenue and Expenditure, Shri Om Mehta, Minister of State in the Mlriistry of Home Affairs, and Shri R. K. Dhaw~n. Additional Private Secretary to the former Prime Minister, attempting to secure Rameshwar Al?llarwal's ielease and to prevent the arrest of Bharat Hari Sin~.iania. Tho attemp~ were continuing in January 1975 when tbe Yarn dealers and the paper merchants depending on the J. K. Group

60
of lodustrics for t)!eir business started buying the shares of Maruti Limited and making deposits for dealership of the 'Maruti car. Rameshwar Aggarwal was released on June 27, 1975 and on the same day J. K. Synthetics Limited paid a sum of Rs. 1 lac for buying shares of Maruti Limited. Between-June 27, 1975 and April 25, 1977 J. K. Synthetics Limited invested a total sum of R.s. 29,90,000 in the shares of Maruti Limited. Shri Sitararn Singhania admits that in no other company outside the J. K. Group, J. K. Synthetics' investment approaches this figure. clearly be capable of m.aking profits_. and d~,laJing _ dividends within a reasonable period 9f tjme._ - - . These guidelines were issued in 1962. Shri A. Choudhury who approved the investment of J. K. Synthetics in Maruti Limited thollgbt tbl!t the guidelines were "lleirlble"' and that "over the years certain practices had developed". According to_ him lllllDY of the guidelines bad no meaning for a new company. He said that the guidelines were only illustrative and the cir~urnstances ot each case bad to be con sidered. Shri Choudhury kept in view two principle. in this case, whether the investing company had adequate iunds aad whether the investee company could "give a reasonable return to the investing company". It is not clear how be satisfied bimseU on the second point. He admitted that he did not e~ mine the balance-sheets of Maruti Limited. He. was asked whether be thought that Maruti Limited- w.i_s capable of making profits and declaring dividend~ wi'o a reasonable time. He parried the question by saymg "well, this a hypothetical question, ' whether they will be dble to declare divid~nds within a reasonable period of time. Now if we start defining what is reasonable here then you have -to define what is the gestation period in a car manufii5tuiing -company". The 3DDual report of Martiti Liriiited -cor the year ending March 31, 1975 showed a deficit of Rs. 1,06,53,321 to be carried forward to the next year. There was no material_ be!ore Slitj_ Cbauclhury to s~ow that the adverse financial pbsition ' was a passing phase. - . The warrant o~ arrest against Shri ,Bharat Harl S!nghan!a was not _ultimately executed. Sitaram ~mghawa. says that J. K. Synthetics Limited invested m Maru!i shares because they thought that "Maruti companY. had good prospects and it -would be profitable to mvest". I be annual reports of the com an however tell !1 di~erent story. Till March 31, 97~ I. K. .syn~het1cs invested a sum of Rs. 12 lacs in Maru11 shares: fhe annual report of the company for ~i ear en~mg March 31, 1976 shows the total e cit earned forward to the next year as 1976 Rs. 1,59,64,390. Thereafter on August 6 Sept~mber 10, 1976, April 2, 1977 and lastJ on ~pril 25,thl977 respectively J. K. Synthetics Li~ited mvested e following sums in Mnruti h Rs. 4,S0,000, R~. 1,00,000,. Rs. 8,45,000s !~~

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J. K. Synthetics made an application on October 3, 1975 under section 372 of the Companies Act for approval by the Central Government of an- investment of Rs. 20 lac~ in the shares of Maruti Limited. But before the application was made, J. K. Synrhctics had already invested R~. 5 lacs in Maruti. J. K. Synthetics made another application under section 372 on September 29, 1976 for approval of a total investment of Rs. 40 lacs in Maruti shares. Before the second application was sent, a further in\'CStmcnt of Rs. 12.5 lacs had been made. Shri Vcd Prakash Upp!11, U~der Secreta!Y, Department of Company AlfallS, said that section 372 did not contemplate ex post facto approval, but he pointed out that the Investments were within 10 per cent of the subscribed capital of Maruti Limited aL tilt material time and therefore the probibiuon in section 372(4) was not attrll;cted. _How.ever, the Department of Company Affairs did give sanction to the investment on Oct_ober 8, 1976. From the evidence given by ~bn A. Chou~hury, Joint Secretary, Department of Company Affairs._ 11 appears that the note regarding appro~al _of. the mveslruent of J. K. Synthetic.~ in MarutJ Limited was put up to him by the Under Secretary on October 6, 1976, he endorsed the noteon the sa!ll~ day and passed on the file to the Dtheputy MID!Ster w~o approved the proi:osal also on e sll!lle day. Shri Choudhury admitted that nor111all:y 1t took about 3 or 4 days to dispose of a file at bis !eve!. Shri Uppal said that the file of J K Synthetics relatin(: to the investment in Maruti Limi~ ted was d~alt with at al! levels within 6 working hours. Shr1 Choudhury discfos_ed that "there was a ~~fYHfroR the office of the then MinLlter in char"e J Gokhale, regardiog this case someti~1 ; between une and O.:tober 1976 as to why this was pending" a d . 'ase th I . n m answer it was pointed out rhat e res_o ution of the shareholders of thA com an .Y approvmg the investment had not been v recive~ 10 the 0 epartment of Company Affairs. '

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of these guidelin~s are_e(i) :/;; resourcthes for ~~~king n~h~t i~i:.~me;t~c.qu(jl) liquid . ' a company at has re-sorted to b orro"'.m~ for its own requirement or intend borrowing should nots b~o financ~ its mvcstment bl' !nvestment (there is a provisbctrrru~e<I t9 .m~ke the lll not relevant for the prese to t s gu1dclmes which !=-ompany in which investmen~ . purpose) ; (iii) the 1n a sound financial r0 15 proposed should be profits and declared ~~\j nd, should have earned 1v1 ~n s or should at least .

application for the !he Punjab and Har1!na "iii~~ ~~pr~n~d beffore t could hardly be said th th . ese acts inspired by a genuine beu!: th!t .~est13ents were ~~esf.?OdThprosfapccts and it would be a~orua1::1~a~~ e cts stated above su h -WlS some reason behind th . dd 8Jlest t- at there in Maruti shares b Kan v. su ~n ~terest ev1nce<1 tion, the Hinuustai' Natio~::J ~;;_~~r';j1g tr'Col'Jl?r~ ted and the J. K. Group of Industries~ us 1es L1m1. ( ~i) 'fo attract more share . L1m1ted mcorrectly represented to CaJ?ital Ma1uti t~a! their investment would be witb7r~ compa_nies hmit of 10 per cent of the b ID prescribed. Maruti Limited. Shri R N ~a~~n1Jed c~pital Qf Companies, Maharashtra. h~s disc'j!:._,,Rethgistrar of ' u...., at Maruti

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61 Limited had induced Killick Slotted Angles Limited of Bombay lo i11vest Rs. 2.60 lacs on the assurance that the amount Qf Maruti's subscribed capital would be soon raised. In fact the invcstmtnt exceeded l 0 per cent of the sup&cribcd capital of I.be investee company. On JJnuary 3, 1972 when Killick Slotted Angles Limited invested the sai<.! amount, the subscribed capital 01' Maruti Limited was only Rs. 20,00,700. This sur.1 was inclusive of Rs. 17 lacs which was the value of 1,70,000 hares allotted on that day to various shareholders including 26,000 shares to Killick Slotted Angle; Limited. Excluding only Rs. 17 lacs, the sub<eribcd capital was Rs. 3,00,700. Maruti Limited made similar representations lo two other companies, Fi!Uona India Limited, Boruaby,, an<l Automobilt. Products of India, Bombay, contrary to th1} real position. Shri T. P. Ravindran, Chief Executive of Sudcrshan Trading Company Limited, Madras, has saic! in his deposition that bis company invested Rs. 3 lacs in the shares of Maruti Limited on the representation made by Maruti Limited that its subscribed capital was about Rs. 1 crore. The investment was made on December 10, 1971 when the invested amount exceeded 10 per cent .of th~ subscribed capital of Maruti Limited. T~e mvestrng company did not get the necessary pnor approval of the shareholders and the Central Government before making tl)e investment because of the representation made by Maruti Limited. (vii)_ Shares were allotted in the names of persons who did not buy the shares and had no knowledge of the allotment. Shri A. Banerjee Income Tax Officer, Central Circle XVIII, New Delhi who had been han~ling the cases of Maruti Limited fur purposes of m9ome t~x assessment since Sept<mber, 1977 has g1vcu ev1dc11ce before the Commission. He says ~hat he !iad to inquire about the s10urces of share capital r~ce1ved by the company over the years a.nd for that purpose issued notices to Dlliny of the shareholders named in the list of shareholders as on ~ept~mb~r 30, 1976 including twenty of them residmg m B1har. Shri Banerjee's evidence is that except one person, Dr. (Mis.;) Kiran Shaur.a of Lakhisarai Mon!lhyr (Bihar), nineteen of them wrote to ~ d!JnYl,\lg .Purchase of any share of Maruti Limited and disclaimmg. any ~nowledge Qf the shares having been purchased m their naroc~. Of. these nineteen alleged shareholders, Dr. .Mahav1r Mishra has deposed He :ays ~at he did uot apply for or sign any applic~tion Orl!l or J?Urchase of shares of Maruti Limited and !3rat ~e s1gnatll!CS appearing .on the applications .ege to be his aud of his sons Uday Chandra !l;fishra and Prakash Chandra Mishra were not their IignatureT Dr. (l\-Iiss) Kiran Sharma Wr.ote to the s~~:sieWO~~ ~~Ce{ Joom England saying that Maruti were purchased ill her name b L N M' . ' Y ib 1sra and that sl)e did not know ill what way. e payment was made. This Co . re~e~ved mformation on this aspect fr~~h1onC also 1D1ss1oner and Secretary to Ha e omVigiJance Department Chand' hryan affi Government, , igar ; 0 cer on Special Duty E . l Smergcncy Excesses Inquiry Authority Delhi . Specia ecretary to the Gov ' ' -Home (Poll), Calcutta ; a~~runen~ of West Bengal . ~e~retary to the Government of B'ha 1 r C~bs~tstant a met \ V1g1lance) Department, Patna. The COl;l.l,DllJQicatioll.S received from them disclose that some of the alleged shareholders did not live at the addresses recorded in the books of Maruti Limited. Some of the streets or Lanes mentioned did not exist. Some of the names did not appear in the electoral rolls and their whereabouts could not be trac.:d. In some cases the alleged shareholders had uot resided at the addresses given for the last ten years. Some trading companies said to be operating from a particular place did not exist. The records of Food anu Supplies Department also failed to indicate the whereabouts of some of the alleged shareholders. Shri S. Kumar, Registrar of Companies, Delhi an;! Haryana, !)as said t)lat if this fact had come to hi;; notice he would have taken up the matter with the company and taken all pQssible action under the Companies Act. i;..arge swns received by the company with applications. for shares appear to have been. retained by them for an indefinite period without alloting the shares. The A1mual Repon and Accounts of the company for 1975-76 shows the a.niount of share applicatfon money pending adjustment as at March 31, 1976 as Rs. 46,89,350. Shri S. M. Rege Secretary. of Maruti Limited, maintained that as ~ was a .pnvate iss!le, see~on 69(5) of the Companies Act did not apply. Shri S. Komar Registrar of c;om~anies also thinks that this did' not constitute a y1olat1on of the Companies Ac: but admits thlit i.t was unusual. ' The annual reports of the company for the years 1.971-72, 1972-73, 1973-74, 1974-75. 1975-76 duly signed by th.e Managing Director and 'other Directors and authenticate~ by th,e Secretary contained stat~ ments and P.roquses ~hich were often untrue lll)d baseless seeking to paint a bri&ht picture of the progress of the 'J.I'Uti car project. This was done appare~tly to mduce people to invest in Maruti and ~ retam the confidence of those who had already mvested, _Though Maruti Limited had bcrn permitted offer lts shar~ fo! sale only to the promoters, . ectors and theJ,r (r1end::, m fact, as th~ . evidCI1ce discloses, the shates were being sold' io all d sundry. . .. IUl.

lfJr

ssues. on. ~ay 12, 1972 and Au~t: 27 : -1974 Maruti Lmuted stated that they r uired' ::nonghother things, for working !~t:fl as. well ~~ om t e methods by which the e cap_tal. Qf th raised working capital b era! PllCatS to' . have Some of the methods em/ioy:J"may bethi:;~nti~:~~s. (i) Shri J K p h M , Credit) of Maruti L~ ~Ja, anag~r (Finance and re~:ived from the de!ii~r~~s h~~ that ~ l!IOney Utilised for the operatio:i f 1h Y deposits was of a~ount of the cornpa~y d~ c~~pany..The boob deposits were kept in . .o Show that- the account. The dealershi a sepwa~e !btcd deposit deposit was really a ..fec~eement l!J~ica~s that t4e be adjusted at the rate of . d1 1t . which .was to With the supply of each car to the dealer No' C'll' for s~e was

r In the applications n1ade to the Centro~ Qf ea1'iw

~<?~i C:;ftaf,aisif'tn~i P~if!i w~ch wis ~sed a=

00

62
ealers and the dealership money supplied to any of th e d . few cases. There was not refunded except m ~ ve2' to a dealer as ere cases where a cheque issue . h rcwf d f i..:. d posit was not honoured w en P re un o '"" ' M b 1977 a cheque was serifed for encas!uncnt. 1n ar" f tral Bank the Mulliihcra Branch o l 1 1e en drawn~\ wa of refund of the deposit made by lnduJrial 1ndia, New Delhi. The chequle wa: . d whn prescnt~d for cncas 1men . ~r~~~fue !inn" was given a bank draft for Rs 50 000 and a cheque on the s~me bank for a siuillar 'amount in April 1977. This ch~uL. w~d aJs dishonoured In February 1977 Maruu urut. is ~ a ch u~ for Rs. 25,000 in f.avo11r 'lf Sree Mills of Calcutta. This . che~uc tbs well was returned by the ba,~ unpaid with e remark : "exceeds arrangement by a resolution pa~scd 0. t case the ~oarhd~lodf o.nirAecugo~t 26 1976 approved the at a meetmg transaction.
(iii) A art ,,f the Maruti pr~is~s was let out lo Maruti He~vy Veh!clos Privat,; Llllllted at ~~en~ of 40 paise per square feet. The Board of ~ec ~~s passed a resolution Oll March 1, 197~ s1111ctiohnmg . e transaction. This also was done \\ithout 1 e prior approval of the Haryana Government reqwred u~er clause 7 of the Agreement. It has howeveJi:~ bn possible to as~ the ~xact 11:1'~ u Y Maruti Heavy Vehicles Private Lumted.

~/~

Ranum.an 1:i1e

;:f

(li) From Shri Pabuja's evidence it !1P~e3? edthat income tax deducted at source by Maruli L1D11t on interest payable to the dealers for the years 19737~ and 1974-75 amounting to Rs. 3,41,741 was deposited to the credit o the Centr~ Governmc:nt very late and the amount was used Jn th~ meantime "" workil)g capital. Si.milarly the tax deducted from the loyees' salaries and payment to _the contra<;tors utilised as working capital before 1t was deposited.

(iii) On an app~cation made ~Y Delhi Automobiles Private Limited . some tune m May 1977! the Pllll,jab and Haryana High Coun made an order for the winding up of t,be company o.n M'!l"c!i 6, 1978. A statement of affairs of Maruu Limited as Oll Suly 22 1!.>77 sineJ by Major Kapil Me>han, a Director' of Maruu Limited, was prouuced before t~e ~ Court by the ollicial Jiquidato1'. Shri Pahuia 'ts that this statement discloses 'that other dues on account of salary and wages, provident fund ~ad employees state insurance, sales tu etc. an:tounung to abOut Rs. 25 facs were also used as workina capital,

Some instances of the other methods by which the Maruti Limited increased its financial resources may be cited:(i) On May 30, 1975 the company entertd into an agreement with on~ I<anbiya Lal Goel for the lease of 125 acres cf land out of lhe lalld in company's occupation on a consideration of Rs. 450 per acre per year. This was a clear violation of clauses 7 and 8 of the Agreement between the company and the Government of J faryana on the basb of which Maruti Limited came into possession of about 297 acres of lanJ in Gurgaon district. Shri Raunaq Si\18h, one of the Directors of MaruH Li,mitea, says lhat he was not aware of this transaction for which approval of th~ Board of Directors was not obtained.
(ii) Later, on Au.%nst 28, 1976, ~6 a'res was ta.ken out of the land leased out to Goel and trailsfcrre<l to B. G. Shirke and Company by W3y of a l~asc at the .rate of. R~. l,000 per acre per annum. 'f!lis was agam aq mfringemern of the Agrc~ment with the Govemmeqt of Haryana, though in this

(iv) Cement and steel purc;h.ased by !l!e company for its own needs on Governll)Cnt pemuts, the c.ommodities being controlled items at .the relevant time, were also sold to various persons. and there was" no resolution of the Board of Directors approving <he sale of these commodities. These transactions wit! be considered in more detail in Chap~ VU. ~1. B. M Pant who was General Manager of Maruli Lumtcd fr~m July 1, 1975 to August 14, 19?7. lllln:lits t\lat apart from cement and steel other build~g material, st.ores and raw material were sold , dunng the fir:st half of May 1977 under the orders of Sbri '' Sanjay Gandhi for getting cash receipts for !lisburse_ment t~ the workers and crediwrs of the coq>any. Shri Gan4bi had ceased to be Managing Director from February 1977 and by Resolution da~ Ap~U(.~ }977 and May 7, 1977 the Board of Directors . .1 ~ over the day-to-day administration of the company., However, no meeting of the BOllrJ toolc lifter May 7, 1977. Shri Pant, says that he was"IAAbiJ orders from Shri Saojay Gandhi though Shri ~dhi was 110 longer tne Managing Director. Shri HarkaraD. S~, Official Liquidalor, dcpo~ing before the Colll1.~Jfs1on . 1ias disclosed that certain stores valued bem>cen Rs. 8 and 9 lacs belonging to Marutl .1..Uoited were disposed of in May 1977 either just be.fore the winding up petition was filed or iinmediately l;hcre.after, and the sum was paid to some Of the ''!'editors of the company. The witness also meiitioned the names of the parties to whom the. stpres were sold. The Board of Directors did ncii autholiSe ail: selling of stores and it cannot be said that this done in the ordinary course of business of the Ccimpany.

was

A large part .:if the financial resources of Maruti Limited was naturally employed i,n . setting up the Maruti comple:< of bulldirigs and getting the necessary machinery and equipments for the car project but not altogether imignificant portion of the resources was frittered away in several ways, Shri R. H. Chawdhry, Chief Executive of the company says that approximately Rs. 51 lacs was spent ~n the deve!opment of the prot~type which sum, according to hini, was 'most exorbnant'.'. Such a large Slim was spent only because, as Shri Chawdluy baS explained there was "no fix~ and lirm design model" and that "thousands of changes were being. incoiporatcd and all .componc,nts anr! materials produced during the yanous earlier stages were rendered as scrap" According to Shri A. D. Kolhatkar, Manager, Per~ sonnel and Factory Administration o! Maruti Limited the company WU ove!lltalfcd in certain departments'. Kolbatkar has also said that bogus muster rolls were

- - - - - - - - - - - - - - - . . . . ----

I
oicpa.rcd for showing expenditure under the head 'iva&es' but actually the money was spen! for other purposes. According to him bogus vouchers used to be made out for the work~rs' wellarc c~penses but _in fact except soi;ne expenditure on ~ports nothing was spent on workers' wclfar~. According to a resolution passed hy the Board of Directors on April : 8, 1977 the General Manager ;if the company was to seek l)rd~rs of the U.;ard of Directors for day-loday adminit1ation of the company after that dat1:. lly another resolution dated May 7, 1977 it Wa$ c!ccided that for the :ime being the company would \ managed by the Beard. But e>n May 13, 1977 a sum of Rs. 1 lac appears to have been paid to Shri Naunit Lal, an advc.catc of the S_upreme Court of India, for the defence of the company before th~ Commission of Inquiry on Maruti Nfait"s. The Commission was n.it appointed then. The paymc:':lt wa~ authorised by Shri B. M. Pant, General Manager of the company. Shri Pant ,. says that he was instructed by Shri Sanjay Gandhi to make this payment to Shri Naunit Lal. In accordance with the aforesaid resolutions of the Board o! Directors, an approval of the Board should have been . obtained for the payment but there was no meeting r of the Board after May 7, 1977. Shri Pant admits that till May 27, 1977, for day-t<>-day administration of the company he wa& taking orders from Shri Sanjay Gandh\ w_ho had ceased to be Managing Director sometune m February 1977 but continued to be a Director. A part of the said sum ol Rs. 1 lac was used in dcfoading the liqu;dation proceedings before the Punjab and Haryan~ High Court, and some amount out of the sum was spent for Sbri Naunit Lal's remuneration for some legal work don.e for Maruti Technical 5ervices Private Limited. ~hn ..Harkara.!l ~ingh, Official Liquidator, made mqwncs a~out this sum from Shri Naunit Lal and others and also issued a notice for refund of the amount. According to Shri Harkaran Singh the management was not authorised to make the payment when . th~re was already an application pending for the wmdmg up llf tl!C company. He points out that ,!1iere ~~s no reS)lution of the Board of Directors authonsmg such payment. A sum of :i'!;s. 32,!MS was paid by way of encashment of leave ro certa;n officer< of Maruti Limiteci. The payment was authorised by Shri B. M. Pant, General Ma'!ager. There was no resolution of the Board of Directors authorising the payment. The payment was not made to all the employees but to a few officers only ; uccor:lhg to Pant tbe idea was to prevent the office~s ~oing on leave en masse. Pant ~s that ~e had oota111ed Sanjay Gandhi's apprnval fore making the paymC11t. He admits that approval of \,he Board of Duectors was necessary for the a ment made but no. Boan! meeting was held .ftt~r May. 7, ~97_7. Saniay. Gandhi .in a letter to the ~eta! L1qu1datar demed that this paylllfnt and certam other payments were made with his knowlcd Ci"en~nalseMnt and s21id that he had not autboris~d r anager or any one else to mal:e th~s ments. Pant also adnlits that a sum of Rs. to~i:fci ' was paid to Mantti. HeaV. Vehicles Private Limited on May 14, 1977. The liquidation proceedings had iben started in the Punjab and Haryana High Cowt. The Board of Directors did not authorise t);te paymeut of this sum. According to Shri Pant it was repayment oi a loan which Maruti Limited allegedly owed to Maruti Heavy Vehicles Private Limited. Maruti Heavy Vehicles Private Limited Wa$ a subsidiary company of Maruti Technical Services Pri\'ate Limited which in turn was practically a family concern of Shri Saniay Gandhi and his close relatives. Shri Harkaran Singh, Official Liquidator, says that i)e bas tiled a suit in the Punjab and Haryana High Court for recovery of this sum. The books of Maruti Limited show that large sums of money were refunded in Feb~ _1977 to a number of persons who had applied for ~ sh~es and dealers. The money paid by the share applicants and the dealers were in deposit with the company. Shri Harkaran Singh has said that in bis capacity as Otljcial Liquidator he tried to contact some of the persons to whom payments had been made but they were not traceable at the addresses given. Shri A. Banerjee, Income Tax Officer, has shed more light on this aspect. He says that he received from the Central Bureau of Investigation a register of Maruti Liil:tited which they ~ad se~ (Item ~o. 46 dated 28th May, 1977). This ;Jocument contai.ns the details of certain repay!llents made by the company to various pe1 ~ons described as shl\feholders and depositors. All the paym~nts were made in February 1977 and the total ~um .1~ around Rs. 13-14 lacs. Shri Banerjee made ll!qumes about these pcrsol)s either by addressing r~ g1stercd letters to them or through the concerned Income '!'ax Officers and Assistant Commissioners of the various places, and his inquiries revealed that these shareholders and depositors did not exist. One Shri B. D. Sharma who was named as a depositor appeared before the concerned Income Tax Officer and stated o~ ~ath that he had not ad1anced any loan to Maruti Lu'!!ed at any time. Shri Banerjee says in his deposition that the object of "introduction of moneys in !!1c names of )'ogus ~rsons" was clearly to introduce unaccounted }ncomc Ill the books of account of 'the company to give the colour of accountability to the unaccounted Incomes of various people i,n the names of people who do not exist" and that from the alleged return of these sums to persons who did not exist it would be "reasonable to presume that the moneys were use~ for some other pu,rpose by the people concerned with the running of the company". It has al~eady been stated that the repayments were all made m February 1.977; . it may be mentioned that the last General Elections Ill the country were held . M h 1977. Ill arc

1n.y

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: .~

MARUTI TECHNICAL SERVIcEsP!UVATE

Ln....,..,,...

-.u..u :

t:;

in!;frpoarutitedTechniN~ Service,, Privai;, jJmw was ra on oveinber IQ 197Q Th - of the ~hf!l'eholdets ot MarUtf Tcch~i614Tg_~~~pJ~ vate Lmutcd according to th ~tes ............,.

e "' t annual return

Nr~~~.,~~"=--

1~

~I !rl.
Q.

64
lllade up to March 7, 1977 and also including the allotment !llade on June 7, 1977 are as follows : SI. Name of the No. Member (i) Shri K.L. No. of Date of

a
~
!
~.

ru~

Sbri Banerjee the obvious intention of the company was to "convert unaccounted J110ney into accounted money without payment of income tax thereon". Shri Om Prakash Modi who was for sometime a partner of M/s. Jalan Modi :<\Utomobiles. of Cal~utta and is a shareholder of Marutt Heavy Vehicles Private Limited, has told the Commission that in Decl\lllber 1973 and February 1974 a total sum of Rs. 7,50,000 was sent to M/s. Jalan Modi Automobiles out of the bank account of Maruti Technical Se!'vices for purchasing road roller components on behalf of Maruti Heavy Vehicles Private Limited. Maruti Heavy Vehicles Private Limited had not come into existence then. No resolution appears to have been passed by the Board of Directors of Man,iti Technical Services Private Limilcd for disbursing this sum of Rs. 7,S0,000. MARUTJ HEAVY VEHICLES PRIVATE LlMlTED. Maruti Heavy Vehicles Private Limited was incorporated on February 22, 1974. From the facts appearing in the preceding para$1"1pb, this company staited business before incorporation with the help of funds of another company. The particulars of the shareholders of the Maruti Heavy Vehicles l'rivatc Limited are set out below :
SI. No.

shares
(F.quity)
ll-5, NDSE-11,

allot1ncnt
9-6-1975 trans

Shroff

100

New Delhi.

fer)

(By

(ii) Shri Sanj;1y

Gandhi

1-Sardarjang

10 Road, New Delhi llOO 1000</

16-11-1970 15-12-1971 19-111973 7-6-1977 16-11-1970 4-2-1974 4-21974

~.
.,
-;

.~

Crescent, New Delhi . (iii) Sn1t. Sonia Qandhi -do-:..


(iv) Miss
Gandhi (l\1inor uadcr guardian ship of Shri Rajiv Gandhi) (v) Master Rnhul Gandhi (Minor

1.ZWillingilon

2000
10 19004000

Jrianku

-do-

:1 ...
-..;

-do-

4000

4-2-1974

u11dcr guardian ship 01 Shri Rnjiv


Gandhi). 23520

lf
i ~

C.Oa Ju1~~9:J975 the share ceriificate for 2,000 equity shares in the name Of Shrin:aati Sonia Gandhi was sub-d1vic!ed into
two share certificates of 1,900 and 100 shares rcspectivel)'. and the said 100 shares were trans(errcd to Shd K. L. Sbrotr).

')

"'

Shri S. M. Rege in his deposition has said that it was known to all concerned that Shrimati Sonia Gandhi was a foreign nallonal and not a c1Q.zen of India. Under section 29(l)(b) of the Foreign Exchange. Regulation Act, 1973 allotll!ent of ~ares of an l'nd1an company to a person who 1s not a citizen of India but is a resident of India without prior approval of the Reserve Bank of India is prohibited. Shri S. Kumar, Registrar of Companies, Delhi 3;11d ~aryan:i, says that the allot,ment of shares to Shnmati So!lla Gandhi in 1974 was in contravention of the Foreign Exchange Regulation A-et, 1973 and theref<?re init!o void. The shares allotted to Shrunati Sonia Gandhi were cancelled by the company subsequently. According to Shri Kumar the cancellation of fully paid up equity shares amounted to reduction of capital in conllavention of sections 100--104 of the Companies Act, 19S6, and for this, Kumar says, necessary show cause notice had been issued to the Directors and the matter was under consideration of the Department o( Company Affairs.

Name & Address of Member

shares

No.

of

(l!quity) 7500

ap

(i) Shri Saojay Gandhi, I, Safdarja,og ltoad, New Delhi. (ii) . Smt. Sonia Gandhi, I, Safdar:iilus Road, New Delhi. (ili) Sbri Krisban Lal Jala.n, 7, BabuJal Lane, Calcutta-7. (iv) Shrl Om Pa.rkash Modi, 41A, Taracband Dutta Stmit, Calcutta-I.

sooo
6000
10500

(v) ~~ ~.

Gandhi, I, SafdarjllJIB ~oad

2400
. 88000
3500

II, 23-I>aeyagaoj, Delhi. . :' (vii) Sbri Pawan Kumar Jala.n, 64/10-B, Suien Sar(viii) (ix) (x)

(vi) M/s Maruti Tedmical Services Pvt. Ltd. 41S91

The books of the company show an interest free 0. P. cash loan of Rs. 20,000 received from one Shingal during the previous year relevant to the assessment year 1972-73. Shri A. Banerjee, Income Tax Officer, says that the company could not produce a confi.rmatory letter from the creditor. Notices and summons issued in the name of alleged creditor were returned unserved. The postal remark was that there was no such person at the address given. The assessment of the company for the assessment year 1972-73 was rc?r;ned after .ob:aining the permission of the Comm1ss1oner of Income Tax. In the assessment this sum of Rs. 20,000 was treated as unaccounted income of the company and was added to its total income and the com.!'any was ruxed accordingly. According to

(xi) (xii)
(xiii)

bar Road, Calcutta-JO. . . .,. Sbri Surcsh Kumar Jalan, 64/10-B; SUJ'CD Sarkar Road, CalcuttaIO. Smt. Laxmi Devi Jalan, 64/10-B, Su.ren Sar kar Road, ~tta-10. . Sbri Shco Kumar Jalan, 64/10-B, Suien Sarkar Road, Calcutta-JO. , Shri Dwarka Prasad Modi, 41-A, Taracband Dutta Street, Calcutta-I. Sbri Satya Narain Modi, 41-A, Taracband Dulla Street, Calcutta-I. Smt. Menaka Gandhi, 12, Willingdon Crcs cent,NC\vDelhi. u. , .. ,,_,._._,

2500
5000 2500

10000

10000

2500 .:...._;. 1,55,400

__

The allotment of shares of Maruti .Hca~ Vehicles Private Limited to Shrimati Sonia Gl!lldhL,which was made on February 22, 1974,was void ab inilio according to Shri S. Kumar, Registrar, of ~ompanies, for the same reasons he mentioned rega{Cfing her sl)ares

.r

65
.. ...,

about Maruti in the press, I thought inecl:1Ji:dom that as a special case I should conduct t sc~ tiny of these companies and collect "'.17hateyer matenal may be for answering further quesuoos 1f any" It was pointed out to Shri K11mar that aftel' he joined as Registrar of Companies and before .the last General Elections were held in the country UI !'1arch 1?77, a number of questions had been asked in Parliam:nt about the irregularities, illegalities and contrav:ntion of the law in regard to the affairs of the Maruti concerns which were als<? publis~ed in the ne~pape!S Jn fact Shri Kumar bunself said that be ~hed mformation to the Department of Company Aff:urs frol!l the material available on the records with bun, obv1ously for the preparation of answers ~o the questions asked in Parliament. It is therefore difficult to understand why in . spite of .the . irrell!llaritfes alleged in Parliament, wluch were published Ill the newspaP:rs, he did not consider it necessary to take any action earliel' similar to that he did in May 1977. Dr. Raj K. Nigam, Additional Controller of Capital Issues, and the Department of Economic Affairs were also extremely helpful to Maruti Limited. .Dr. Nlgiun personally received two of the applications made by Maruti Limited to the Controller of Capital Issues and allowed the company to raise capital by private issue on the verbal assurances of Shri Sanjay Gandhi because he thought that "a man of bis status could not go back upon the assurances given to the Government'' .. This suggests that Dr. Nigam acted on the assutanccs of Shri Gandhi not because he was convinced of Shri Gandhi's integrity as businessman but because of bis status as the Prime Minister's son. Ultimately Nigam admitted that he was pressurised by Sanjay Gandhi. Tn April 1975 Shri c. Subramaniam, F"maiiee Minister, approved the proposal of Shri Pranib Y.umar Mukherjee, Minister for Revenue and Expenditure, . to allow Maruti Limited the maximum prh ate iss\ic of 40 !>er cent of the proposed equity capita' on the ground that Maruti Linnted was pressed for ::unds. In exercising their discretion the Ministers do not appeaJ to have taken into account that till then the company bad failed to make a public issue, and that not even two months earlier, in February 1975, the Public Fmancial institutions bad turned down the company's request for financial ' assistance. The speed with which the Department of Company Affairs disposed of the file of J. K. Synthetics Limited relating to their investment in Maruti Limited was remarkable. According to Shri V. P. Uppul, C'nder Secretary in the Department it was dealt with at all levels within ~ working hours'. Shri A. Choudhury, Joint Secretary in the Department disposed of the file on tho same dav it was put ut:> to him and he admitted that normally it took about three or four days to dispose of a file at his level Shri Choudhury had to satisfy himself iji a few hotirs that Maruti Limited could "give a reasonable return to the investing company". He could not possiblv hold up the file to examine more closely the finaiicial posltioo: of Maruti Limited because the Minister incharge had made it known by his telephone call that be was interested in the speedy disposal of Maruti matters. Shri U ppal sta~ed : "while processing and granting approval to the mvestrnent by J. K. Synthetics Limited in the share capital of Maruti Limited to the tune of 40 lacs we were aware that we were dealing with a sensitive

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' Maruti Technical Services Private Limited. Here the shares allotted to Shrimati Sonia Gandhi w~re lubsequently cancelled l)y the company and according Shri Kumar the c:mcellation was irregular for the ""as0ns he had earlier state<J. SUMMARY OF SPECl'AL FEATURES The facts disclosed show that the methods by whic.h the Maruti concerns raised ~apital and the manner m which they utilised their financial resources have not been always proper or regular. Maruti Limited, a public limited company, fu!'ction~d !i!l the <!rder for its winding up was made w1!hout mv1tmg c:ip1tal from 1he public by, prospectus winch was somethmg umql!' and though the company was sup.posed to offe; 1\s shares only to the promoters, Directors and their (pends, the shares were sold to all and sund1y indiscriminately, often thrust on people by coercion, threat or misrepresentation. To get acknowledgement for . pri~ate i~sue from .the Cont[oller .of Capital Jssuesl . Shn Saniay Gandhi, Managmg Director of Maruti Limited wrongly informed the Controller of Capital Issues that the Board of Directors by a resolution passed on June 29, 1972 had decided "to fix the amount of the issued capital at Rs. 7,00,00,000 (Rupees 7 erores)", knowing that no such resolution had been passed on that day and made a series of untrue statements to the effect that the public financial institutions had approved in principle the financial scheme of the company. The way certain public limited companies induced their agents to be dealers of the Maruti car by depositing large sums of money and. to buy shares of Maruti Limited for which funds were arranged by these companies, the mysterious coincidence of the Export Manager of J. K. Udyog Limited being released from detention under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 on the day on which J. K. Synthetics Limited started buying shares of Maruti Limited, their investments in Maruti shares continuing till April 1977 in which period an order of detention under the Maintenance of Internal Security Act against a bmther of the Chairman and Managing Director of Straw Products Limited, a J. K. concern, was not executed, the nonexistent persons to whom large sums of money were shown to have been returned on the eve of the last General Elections, the manner in which the resources of Maruti Limited were frittered away-all these topics 1 have been discussed in the foregoing pages. What is remarkable is that Maruti Limited got away with every thing. Shri S. Kumar, who has been Registrar of Companies, Delhi and Haryana, since January 15, 1973 repeated several times while giving evidence before ~he. Commission w~en some irregularity in the f~nctiomn~ '!f the Marut1 co~cerns was pointed out to him, that 1f it had come to his notice earlier he would have taken action_. . He took action ultimately on May 27, 1977 by taking up the technical scrutiny of the balance s~ects of these concerns. According to Shri Kum.ar this could not be done earlier due to the "acute pa1Jc1ty of staff", but the position in this regard had not chan.ged much in May 1977. Shri Kumar added that ~arher he. th~ugbt that "there was no need of techmcal scrutiny but "later on when the change of Government was there and a furore was being created

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matter perlaining to Maruti Limited of which Sanjay Gandhi was the Managing Director".

Shri

"PRIME MINISTER'S, SECRBTA.RIAT


P .M. has seen. She tbi.n.ks' ~ a reply ~ in the draft (mke4 apJ9v\Jd ~ enclosed should go to Shn,~,, .rt. JS .n,Ot ~s sary t<> enclose the statement as _proposed by the DeParllnent of Company Affairs. . pie latest balance sheet is open for, .public ~ns ~tion. Shri Bosu can obtain the requm:d information by inspecting that document.

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Reference has been made in the previous chapler to the evidence of Sbri B. N. Tandon, Joint Secretary in the former Prime Minister's Secretari:i-t, that "!he various Ministries used to refer questions regardmg Maruti Limited and allied concerns and members of the Prime Minister's family to the Prime Minist~r for her approval/clearance", and that even the repbes to the letters written by members of Parliament were finalised only after the Prime MiniMer had seen and approved lbem. Shri Jyotirmoy I3osu in a letter dated November 4 1974 addressed to the Minister of Law, Justice and 'Company Affairs levelled a charge that the Deparlment. of Compa'!y ~ffairs h~d been ~elibe rately withholding from him mformallon relating to Maruti Limited. In an unnumbered file of the De par11nent of Company Affairs there are notings by Shri C. M. Narayanan, Director, and Shri K. K. R~y, secretary, of the Department of Company Affairs which al'c reproduced below : "Shri Jyotirinoy Bosu, M.P., has, in his leller dated 4th November, 1974 levelled a charge that we have been deliberately withholding from him information relating to Maruti Ltd. There has never been an occasion where we have withheld, deliberately or otherwise, any information that is available with us. In second para of his letlcr he wants to know the 'real' value of the assets of the company . Schedule VI of the Companies Act prescribes that the balance sheet should indicate the original cost of the fixed assets as also the depreciation. This has been furnished by the company in its balance sheet. We had never any necessity for ascertaining the intrinsic or market value of the assets of the company. The balance sheet of Maruti Ltd., a public Limited company, is available for public inspection. However, we may furnish full details of the assets as revealed by the latest balance sheet (as at 31st March, 1974) to Shri Bosu. Draft D. 0. to Shri Bosu for approval.

N. Tandon, Joint Secretary to the Prime Minister 11-11-1974."


This shows that the information called for by Shri Jyotirmoy Bosu was communir.ated to him after the draft reply was shaped as suggested by the former Prime Minister.

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8-11-1974

Secretary
I have slightly touched the draft.

Sd/ K. K. Ray
8-11-1974." Shri K. K. Ray marked the file to the Minister of Law Justice and Company Affairs from where ihe file found its way to the Prime Minister's Secretariat. Shri B. N. Tandon recorded the following note on the file :

Those who had been at any 'time Direetors of Mantti Limited were asked to clarify certain poiiils regarding the functioning of. the company.... Of,piem ~ C. B: Saran, Shti J agdish Prasa~. Shri .B. ~: Jindal, S!>r1 M.A. Cbidambram, ~ V1dyalJ~,li!ld Ma1or Kapil Mohan have replied to the quenes sent .bY the Commission. Shri Raunaq Singh, another Di.rector, was examined as witness and he answe~ all the material questions in the course of his deJ)Osition. Shii Raunaq Singh also filed an afli~avit before this Commission in October 1978 whereJll ,he refers to an earlier affidavit sworn by him on Ju;!)' 2; 1977 which was filed with the Ministry of Home ~ A copy of this earlier affidavit has been brought on the record of the Commission. fn his July affidavit Shrl Ranaq Singh states how be came to be a d.irector ,of Marut.i. Limited : "I was called by Shri R. K. Dhawan..in his office and was requested to serve on the Boaixl of Maruti Limited as according to him Mr. Sanjay Gandhi needed guidance of experienced entrepf!llleur in his new venture. I also accepted the appointment as a Direclor as I believed in all sincerity that .Mr. Sanjay Gandhi was really a hard workini; dynafuic techocrat who wished to produce a low WJced car for the benefit of the middle class people ~ ~aq Singh was then asked "to make some contribUtiO!IS towards share capital of Maruti Limited". Accordingly one of Raunaq Singh's companies, namely, Bbar.it Steel Tubes Limited "purchased $hares of Rs. S lacs in Maruti Limited". About a year li!fer be wa& "approached through Mr R. K. D~wan''. to. make an additional investment of about Rs. 2S ;Jiles to which he pleaded his inability. "When I ex~ my inability to make any furthe! inves~"! ~aq Singh says, "I could smell a feeling of d1.ss 11 ~ctiQD; . ,, I could visualise only later as to w.AA!;!;!luld.liimoen in the event of Mr. Sanjay Gandhi or,~~~l(~~Wan not befng so happy with someone". 8,~~ ~ D,liawan when he was '!Ying to ind~ Rallll!l,'i~~to cpntri" bute to Mantti's. $hare. capitilJ, ~~ ~~~'Assis tant to the former Prime, .Ministep;~!i,,~ ;, Indira Gandhi. About the worlgni 9l ~9lll!B"'. Shri Ra.unaq ~gb says : "l.~ad ll ~~Ji_~.,lli!t ~~_ll>,kectors~ were CSU,Jted on formal bU$Ul.CSSl'~~ di.meet~ ings only. No body could , :: !11!>!'1!ti9,11! Mi:., ,Sanjay
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Gandhi as he ran the organisation in the way he liked . . . .. . In fact the members of the Board were not consulted on any important company policy or details of an) cunlract. All decisions were taken by Mr. S:mjav Gandhi :as the Managing Director of the company". Saran, Jagdish Prasad 'a,nd Jindal were Directors <mly for a short time. Shri Saran ceased to be a Director on Novcml)er 30, 1972. He says that he was not present at the meeting of the Board of Directors held on October 18, 1972 which approved the annual report of 1971-72 and the said report was not sent to him prior to October 18, 1972. As such be says, he.is not responsible for any mis-statement in' the annual 1epo1t of 1971-72. Sbri J agdish Prasad also says !hat he was not present at the meetin_g of the Board of Directors held on October 18, 1972 which approved the annual report of 1971-72 and that the report was not sent to him prior to October 18. Accordingly he says that he is not responsible for any Incorrect stat~ment. that may have been made in th~ said report. Shn Jagd1sh Prasad ceased to be a Director on December 2, 1972. Shli Jindal's statement is that he attended very few meetings before be resigned on October as 1~. 1972. Accord,ing to him his "contribution Director was not purposeful because of lack of knowledge of the English language". He adds that at that stage he had "no basis to suspect the oonafules of Sbri Sanjay Gandhi". Shri Jindal says that he was t,ID~ware of any pa1t of the land of Maruti Lir11ited bemg leased out to others and also of any space in the Maruti factory premises being "allowed for other uses". I Shri M. A. Chidambram was a Director from the inception of the c~mpany and subsequenUy made its Cha1rn,ian. . He resigned on May 17, 1977, According to Shn Ch1dambram, Shri Sanjay Gandhi who was appointed the Managing Director of Maruti Limited was "at. all times" "fully in management and control of the affairs of t~e company". Briefly his stand is tllat the statements m the annual reports were made in good fa1th upon the information supplied by the Managing Director and responsible ollicers of the co!Ilpany whkh

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he had no reason to doubt. He was not aware of the irregularities like leasing out the fcctory lands, or that an imported NSU engine was ~.:d ii.I the prototype car that was sent to Ahmednagar for test. He had no knowledge of the failure to deposit in time the income tax deducted at source or to refund the dealers' deposits; these were, according to him, routine administrative matters for the ollicers of the company to deal with. The statements of Shri Vidya Bhusban and 'Major Kapil Mohan are similar. Both of them WCie appointed Directors in 1973. Vidya Bhushan stales that the statements in the annual reports WCJCe based on information supplied by the concerned officers which be accepted as true because there was no circumstance before him to justify a contrary opinion. .Matters like failure to deposit in Ii.me the income tai deducted at source or refund of the share application money or the dealer's deposits did not come .tO his notice, These were part of the routine work of the exccutiYCS of the company. He was also not aware that an imported NSU engine was fitted OD the Maruti prototype car that was sent for test at Ahmednagar. Ma.jor Kapil Mohan's statetent is exacUy similar. Only he adds that "for all technical and othCJC detail$ of Maruti Limited", he relied. on the. infonnation supplied to hini by the officers of the company. and also the MB,Q.aging Director, Shri Vidya Bhusban does not mention the Managing Director. Both Shri Vidya Bhusban and Major Kapil Mohan assert that the Di.rectors' Reports were intended for circulation to the etlisting share" holders and not to serve as a prospectuS,'' The facts bearing on this aspect have alrelidy been discussed and 11eed not be repeated, but a brief reference may be mad~ to the evidcilce given by Shri Sitafam Singha'lia PrCSldent of J. K. Synthetica Limited, as to what in: duced him to buy Maroti shares for his com an ' After d~ssion with one of his friends, Shii SinJ:aJ; thought 1l 'Youlcl: be profitable to illvest in Maroti, then he met Shri San1ay Gandhi sometime between September and November 1974. Shri Gandhi gave him "a copy of the balance sheet'', to the year 1973-74", he "&tudied that balance sheet" and found that the prospects appeared to be very bright.

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CHAPTER IV The fifth item listed in the terms of reference of the Commission includes : "All 111'1tters J?ertaining to the manner and method seJecung and appoi!1ting .dealers and su.les "gents including the supulauon and collect1on of money from such dealers an'! .ase.nt5 and the accounting custody and u\ll1Sat1on of the money so collected". earnest money fo~ al!olment of dcalrrsbip in .fu~ure: From a typic~l dealership agreement be\\lecn Mur"!ll imited and t':leir deilcrs it appears .tbat the. sums b the dealers were security deposits but tt was a ~ ~ovided that o&~ third or one fourth ~f the deposit ~gh~ be converted into equity ~e capital & that ttu; balance of the denosit was to be adiusted at the rate o Rs 500 per car allolted to the dealer. U the productio~ of the car w:is delayed for six months beyond the expected date, the company was to pay to .the deale~s interest on the sum at the end of Ole period of . six months at 10 or 10! ~r cent per annum. It was 111pulated that if the company desired to reta~ the. amount upto Rs. 500 per car for a longer, per!od it would pay interest at a higher rate on t)1e r~ined amount. According to clause 18 of the dealership agreem~nt, either party ;ou1d terminate the a~~nt at any tune ~lhout assigning any rcas~ll by '$1Ylllg not less thll!l nmety days' notice in writing to the other of such temunation. In the balance sheets for uve yeurs .from 1971-72 to 1975-76, the dealership disposits have been shown as follows : -

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MARUTl LIMITED Maruti Limited which was incorporated o!1 June 4, 1971 started appointing dealers for the Maruh car from the year J 972, long before the COf!lpallY was. granted a licence to manufacture cars which was in July 1974. On March 2, 1972 the B!>ard ot Dll'~ors of Maruti Limited passed a resolution dclegat!Dg to Shri Sanjay Gandhi, Managing Direclor, the power to appoint selling and distribution agents for the products of the company, subj~ .to Board's col!-61mation, on such t=s and conditiOD.i> as he J111gbt think fit and proper. The Minutes Book of the meetings of the Board of Directors does not disclose that Board's canfirmation was obtained in any case. No guldelines were laid down by the Boar<! for such appointments, no limit was fixed on the total number of dealers to be appointed, the territorial limits of the dealers were also not indicated. No standard or model terms for appointment of dealers. were approved by the Board. The total number of dealers appointed till 1976, after which ~e was no further appointment, was approximately etgbty throupout the country. Among them wece persons without my experience in the automobile line, like. paper merchants, food-grain merchants and nylon yam dealers, who were made to deposit a sum which was not the same in every case, ranging between Rs. 3 lacs and Rs. 6 lacs. The amount appears to be ~xees sive compared to what the dealers of other manufacturers of passenger cars had to pav. Sbri P. N. Ghosh, Secretary, Rajiv Motors, Private Limited, New Delhi, who are dealers of Hindustan Motors, manufacturers o1. Ambassador cars, bas told the Commission that Hindustan Motors charged only Rs. 5,000 from their dealers as security deposit and pa.id interest at 8 per cent on the deposit. Shri K. N. Menon, General Manager, Prem Nath Motors, Private Limited, New Delhi, who are dealers of Premier Automobiles, manufacturers of Fiat/Premier cars, has deposc:d that Premier Automobiles did not charge anything from them by way ot security deposit or any other kind of deposit. According to Shri Menon it was the standard practice of Premier Automobiles not to take any security deposit from their dealers. Apart from the dealership deposits, Maruti Limited also accepted from the prospective dealers sums, ~ailed by the company dealership reservation money, which was a sort ot

1971-72 1972-73 1973-74

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Rs.1,64,10,900

t974-7S 1975-76

Rs' ,18,91~2 Jts,2,30,47,073


R.s.2.ss.07,688 (which Includes Interest acerucd) '

Dealership resetvatlon money b_as. been .~wn Jn .the books of accounts of Macutl LiJJUted,
(i) Ason JJ-3-1975 tii) As on Jf.J-1976 (iii) As on 31-3-1977

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Some of the dealers claimed tliat they w~e'''ihe selling agents within the meaning of section 294 ot the Companies Act an<l alreged violation of the said provision by Maruti Limited. Part I, clause l(b) of the Dealership Agreement provided that subj;;ct to the provisiollS of this Part and .Parts lll and lV of the Agreement, persons appointed as dealerli of the company's products had "eJtclusive right" "to book as agent of the company from persons orders for direct sale of the motor vehicle by the company. to such persons''. Part III .of the Agreement stated that the "dealer shall be an agent only or the customer for the collection of the motor vehicle shall not be deemed to be the agent of the company on any account in respect thereof'. Part JV of 1he Agreement bearing the heading "General Terms of Dealership" provided ihat "nothing in this Agreement shall in any way operate to constitute the Dealer an agent of tlie company in any respect and for any purpose whatsoever". These stipulations read together suggest that the company

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was not appomt111g sole selling agents within the meaning of section 294 of the Companies Act. The dealers of Maruti Limited formed in Ma)'.

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I 977 an association called the All India Marutl


Dealers Association to protect their interest. Shri P. C. Aggarwal, Secretary of this Association, bas deposed before th~ Commission He says that ma.oy of the deal~rs were told that they would be appointed sole selling agents in rcspc<.'t of a particular area, but when the Jetter of appointment ca.oie it was found that they had b~en appointed just dealers. The manner and method of appointing dealers may be stated. In some cases purchase of Maruti shares was made a pr~coudition for the grant of dealership and the prospective dealers were made to buy the shares under threat. Shri J. P. Shaw, Miss Rita Shaw, Miss Rina Shaw and Shrimati Kum Kllm Shaw, partners of a firm called M/s .N. P. Shaw a.ad Company in Baripad.i, Olissa, have each filed an affidavit affirmed 011 differen: dates in April 1978 to the effect that "as a condition for allotment of dealership of Maruli cars in Jamshedpur and Ranchi" Shri S. M. Rege, Secretary of Maruti Limited, "proposed to Shri j, P. Shaw to invest in equity shares to \he tune of Rs. 50,000 in addition to the security deposit". Thereafter in two successive letters Shri Rege i11formed the deponents that "failure to purchase the shares may lead to cancellation of the <jealership" and reminded them "that the company may resort to some dra'l!ic action due to non-fulfilment of the terms precedent to the award of dealership". It has been ~lated earlier that the dealership agreement contained a clause that one third or one fourth of the security deposit might be converted into equity shares. Shri Aiam Ali Khan, Managing Director of a firm called Riiians Agencies at Hyderabad, has said that in addition to Rs .. 3 lacs be paid as dealership deposit, be bad to buy shares of Maruti Limited worth Rs. 25,000 because this was made a condition for the grant of dealership. The evidence of Shri Om Prakash Gupta of Hapur, District Gaziabad (U.P.), is that in. addition to Rs. 3,50,000 his firm paid as security deposit, they had to buy Maruti shares of the value of Rs. 50,000. Some of the dealers who after waiting for a considerable time for the Maruti car to be delivered to them terminated their agency ii1 terms of the dealership agreement and wanted refund o! the 01uney, were made to agree to let a part of the money due to them to be converted into equity shares. In an alfidavit affirmed on September 30, 1977 Shri M. L. Bhayana, a partner of the firm Bhayana Motors, has >aid that they paid Rs. 3 lacs for an agency of the Ma1uli car at Ambala. When he found that the car was not available, he on behalf of the firm requested the Maruti Management to retu~n the sui;n 0f Rs. 3 lacs they bad deposited. A.cC?rdmg to Shn Bhayana .:~e Manage.men! of Maruti L1m1tc~ tlueatencd to fot!e1t the en!Ire sum unless they did not agree to the conversion of Rs. 1 Jae out of this amount lo equity shares of the cumpany. The deponent s~ys that "the Management of Maruti Limited being. i1 . P?Wcr" they had to agree to the proposal. Shr.' Girah1r I.al Dodeja, a pa1tncr of a firm called Smdhu Paper Mart, Paper merchants,

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deposited Rs. 1 lac a.~ dealership rcseivation mcmey on behalf of the firm. When !hey did not get a dealership, they demanded interest on. lhe sum lying with the company. The M1U111gement:,,. of, Maruti Limited warned them that they should not make any further demand and insisted that they:purchase Ehares of the company. Sbri Dodc}:i says "thCso. shares were thrust on us'', but as they ' were under: some kind of fear" they did not have the courage tO tell the Maruti Management that they were: ncit interested in Maruti shares. Sbri Rat1air t.al; a partner of M/s Vishal Motors of Chandigarh, paid Rs. 2,5(),000 as dealership deposit. No car was, however, delivered to them for sale. He did not demand re!und of the deposit apd he states. the :r~ ; ~ , follows : "Because 111 the meanwhile we bad ~; t011U10.w !hat one or two other dealers who had daii:d' deriland their deposit back were harassed and some of them wtre put under deteution under MlSA". Shri Om' Prakash Gupta, to whom reference bas .already been made, bad written to Maruti Limited 'asking }C>~ payment of interest as provided in the d~ .agreement. When he met Shri Sa.ojay,Gandhi and Shri S. M. Rego in this connection, be found both of them very angry He was arrested tmder the Maintewuice with him. of Internal Security Aet on May 16, 1974 and det1ined for about two months. He was ordeied to be released by the Allahabad High Cow:t' oil a habeas corpus petition. To in.duce persons to accept dealership of the Maruti car, the Management of Maruti. Limited held out assurances that the car would be on .the road very soon. Shri P. C. Agg4IWal, Sretary oClhe All India Maruti Dealers Association; says that to him and many other dealers Shri Sanjay Gandhi gave the assurance that the car would be delivered to them in April 1973. Shri Aggarwal says that but for this representation he would not have spent any money on the dealership of Maruti car. He says that he and some other dealers vis.ited the Maruti factory premises several times but "did not see any activity as far as the manufacture of the car \\'as concerned". Shri Rattan Lal, a partner of Visbal Motors, Chandigarh, came to know in August c 1972 "that agency of Maruti car manufacture<! by Shri Sanjay Gandhi was available" a.ad be met Shri Gandhi. Shri Gandhi told Rattan Lal that bo ci>uld get an agency if he ;Jeposited Rs. 2.S lacs with the c,ompany. Rattan Lal was assured that the agency !or Chandigarh area would be grapted " to him and that the car '7/ould be availill>le in April 1973. Rattan Lal says that he acrepted the . terms on Shri Sa~d: Gandhi's as.urance. The car was not e available v.inli.ti the promised time. Thereafter Maruti LilUited went on assuring bim from time to time that . the car would be delivered to him shortly. He personally saw Shri Sanjay Gandhi in 1973 and Shri Gandhi told him that the car would be delivered within two months. Two months expired and. the car was still not ready. Similar assuranc~s were given to Rattan Lal every time be ll)et Shri 9andbi therealtcr. Rattan Lal says "I became cc;msc1ous thnt no car would be made available to him,. but out ~f sheer fear I <lici not dare tell him (San1ay Gandhi) that I was already deceived".

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70 Thoug)i the car was not made available to the dealers in spite of assurances, Shri Sanjay Gandhi asked them to get their sbilw rooms ready and send their mechanics for t,raining. , Shri P. C. Aggarwal, Secretary of All India Maruti Deillers Association, says that some of the dealers bad set up show rooms at various places but man)' bad not done so and- were watching the situation. In Sbri Aggarwal's own words : " ... the car wa5 not coming but when we were asking him when the car woUld be coming, he would ...... catch us on this weak point. Theo, he will say that you make your show rooms, send your mechanics for training". According to .Aggarwal there was no arraugement for tt:aining of the inecha~ in the Maruti premises. Aggarwal'& evidence is that the J,>~ of the show room was to be _approved by Maruu Limited, a workshop was also to be attached lllldjt bad to have a lot of space. ~ _to ~ the dealers had to spend large sums of money settiDg. up tho show r<!oms. Rattan Lal bas deposed that bis firm bad to hire a show room paying a rent of Rs. 1,800 per month in Sector 7, Chandigarh, from May 1973 because Saojay Gandhi had represented that the car w-:iuld be available for sale by April 1973. Shri N. _X. Bhasin deposited a total sum of Rs. 2,S0,000 for dealership by October 1972. He lllso made ready a show room at Lucknow in the best comincrcial area in October 1972 on the assurance from Sbri Saojay Gandhi that the car would be available for ~ale in January 1973. On a visit to the Maruti factory premises he found that the assurance was without any basis. Though ' the witness was not able to tell the exact amount :ie spent for the. show room, he remembered that the cost of renovation only was 11bout Rs. 20,000 apart from the other costs. . Industrial licence was granted to Maruti Limited

laterally and the balance o{ the sum depoSited was ,never rewroed 16 them. Another dealer., &!!.~i Daljit Sing)!. converted his shop into a $how room C..n the representation of Slui Sanjay !3an4hi, , ,.llult ti!.; car would be available very soon. lie_ w8'- also given a car, for deOlODStiatioo in his sh~,,J;90Dl._ which he tho~ he would get free for,th;~'l>ut"' to his swprise be was charged Rs. 22,0QO . J.W.c~-show piece. .thti car defective, ~_ I!~_-_-_~~ he was dti~ the car and th.e cliiti:l!;was also giving t,r,o!I~- ~ sent l}i_e car !!>,~ ~ for ~ ...., did nor Set back either.~ car or the pnce he paid Cor il. , - ''' ~- " ' - - -

_Ho-foun!J

,failed_ __ .

m !uly 1974 .and therefore there could be no justification !or asking the dealers to keep their show rooms ready m 1972 and 1973. ., . Shri S. _ C. Aggarwal paid Rs. 6 lacs on behalf of bis ~ for agency of the Maruti -car at Hissar and ~~~ti. Th~Y. s~t JU.13,_ooo for buying a plot of ._.. at Haus1 m ffissar district in Haryana to set up a show room because Shri Sanjay Gandhi insisted that lbo dealer should. )la v~ a show room and a garagi: bdeli!>fe the car was delivered to tb~m. One car wa5 d vered to them on June 30, 1974 not for sale b~t for exln'bition in . their show room. He tried ~ drive. the car to Hans1 .where he bad arranged a small l'u,nCtion for tho ~ion. But the cai broke. dovi.u on the wa:y 8lJ!i it took him about sh. hours - to readi Haus1 which. was double the tiJne .a car ShOujd normally ~. Ultimately the car ha4 -.... be _- b to .its destination. In June 1975 hiSr.Jii P~.. ~ noti!:O !O Maruti Limited mriniuatipgi: "~' !'! ~~l!t_,;i Gauhati. When the wi!De$S next .aiet~~ ;;tt Gandhi, Shri Oandbi thieatehed hi ' 't, -~,,,, ~~ft he would g~ to jail for sending the-~ also told b!m that the consequeolles. w9i:17bc,~~ and the witness had to . apologiie lo'; S ' -rr-Oll!ldhi by touching his feet. Shri 'p;";'tf.r' B.!IJ&Y p)ams tha~ about Rs. I lac out of th:I! rwJll ~om liad deposited was -converted into Marut'1 ' i!llhP~Y _ s ares '~y um-

Some of the dealers of the Maruti 1:ar:were curupelled to be dealers of a g;ulget calJed the 'pct.rel saver'.. Shri Om Ptaka3h Gup.a of 141111( in his allidaVU affimiOO:on October, 8, 197.7)m~',that some of the Maruti -4ea1ers including bimsdf",\V~;supplied with theae petrol savers which were Dllinilfactured by a. comPaDY. of B~mbay ~~ of w*'1 Mapiti Techmcal SeIVices Private L1m1ted was :the-i~s<>Jo, selling agent Shri Sanjay Gandhi was a DirCcii>r' of the Maruti Technical Services Private J.imited--which was really a family cooeem of the Gandhi$. Acc01ding to Shri 0upta Shri Sanjay Gandhi used to buy lb~ petrol savers at Rs. 15 a piece and was forcing the dC!llers to pay Rs. 85 for it and the entire ~t was bemg appropriated by Maruti Tecbnical Services. The deaJetS were forted to buy stocks of petrol savers worth thousands of rupees but there was no demand fo~ the artii:lc as it was really _of no utility. The P!ICC was gradually reduced to Rs. 35 but the dealers ilid not get any refund. Later Maroti Tei;lmicaI Seryices &tatted~ mam'1:acturing the petrol savers. Shri P. C. Agga,rwaJ. Secretary of the All India Maruti Dealers AssOaalioo; has also :somethlng to say about the petrol sav.:ss. According to hiJn, Shri Rege !:lephooed blm liOJlle day in Janiiai:y .19~~ and said I liave got some good news for you;_':When h3 met Rcge the fatter told him : "I am telling you very \!Oofidentla1\7 that the price- of petrol is going to be mcreased very sho"!ly and we have found, an item ca)led 'petrol ~aver If -you bcCODJe an agent of this, you will be m:iking a lot__ o! _ - 111oney" Shrl Agguwal says that he thought othat-1>.;... be ~~all this "on behalf of Mr s~""~m~ he~ tbC Primil Minisl!:r' -__ - ' .~~: .. dhi & ing the secret". ~~~~tie~w petrol was raised m March_ 1/.t4 :r pnce ~f Sbri Gupta's alfidavit !lie ~ice of lht~~'i''~hadm __ S.......d. down from"~ 85' - ~.IC!-' to be .v .._,. 'to ;'1>"'-35~ : ~nu was found ~ ~c _ f"'ft"" ,,...~.P.!~

A'9/r

article.. _Whenthe dealers 'a~.llQ,;,,,

= - _

:r::.~~~,;::,.!'..ai!'.~-&aVCill~; -- ~'~
.'.. '
'~...~.t

;,-

.,_ ~t

,,'fq~,,the

>

savezsi"' -..

'

f./i!J F'"

for M;;'rtri;1{Jqjit"" 1,''-shh~> sa_~'.~~':._ ,~-,...._,, .,~;_! ~" - 1"l.cii~ ed with

_;., --~.~:-" ..,_-f.~-~' 'fl~-+. '. ?..:' .,,.,.,~. 1/~-_.r;. .-Jt_.'~t!Jat,-_ _da!e;I;;;_"'~lll'.'_~_-U11111n ' --~f~' - - ~ -.-
><''lr'-

..

ta ,z~_:._o" ot:"''. - . '>-'<: """'

l'ufther. tlilit iii~,.-~.,.

Darsban ;Distributors;; :ri1111 by L. N. Mishra, Darshari''PiStri~

dilferen~'

71
,-.\
1.

.,tS

~!jil
. )c

Marut.i Limited a sum o{ Rs. 3, 75,000. This sum was treated in the books of Maruti Limited as dealership resenation money.
It appears that Shri Rege, Secretary of Maruti Limited, issued several letters to the dealers from 1972 to 1975 making promics which were not fullilled. The nature of the promises will appear from the extracts given below :

(k) Letter date.i April 5, 1915


"YOU will

..--,.a i'1ch

car

we

,-19
,,/-

lied
. -.....,.r
~.

to learn that to start with releasing Marut.i car for show rooi:n demon~traticn in I>elhi by the tnd of this inontb. Our other esteemed dealers will oot hav~ to wait for a very long time as we intend to allot them also one car eatb in shortest pos'ible time".

are

re p]eas.:d

ory

.;;:p

(a) Letter dated September 19, 1972

:rol
-~'?i

"The cars will b~ delivered to the dealers for show-rooms in the b~ginning of 1973 and booking will Hart r.ubscqucntly". (b) Lettr <latte/ October ~. 197:. "According to our forcast tho prototype should be approved by the end of this month".

The subsequent promises proved the earlier ones untrue a.nd the last of them al.so remained unfulfilled .

car project were

I.ncorrect

reprcscntatio~ about the progr~ss of 1ho mad~ through the annual reports of

me
~~

cly

I~
I

:he
~-

I I I
I

iiig

(c) Letter dmeti October 19, 1972 "The booking ol the car may be started from F~brnary 1973".
(d) Letter dat~4 December ti, 1972

Maruti Limited, the intention must have been to beguile people into investing Jn Mllnlli, iuduc:e ptospective dealers to make deposits and prevent the exis!ftg dealero from cancelling their agreements and ask or refund of their deposits. The nature of the representations made in the a'10ual reports was as follows :

An11ual Report /or tile year

1~171-72

''"':
rue

.....;;.

~ ....~

"Dealers will commence booking for 'al's from February 1973 onwards" .
(e) Letter date/ Decemher 18, 1972

:)!
'he
~)

ers

:1

cal
:r-1\,

"We shall proviJc the VLhicle for .how-room demonstration towards the end of Januar:1 or early February 1973".
(f) Leiter dat,oi January 22, 1973

I
,1
:1

i.IJ
!lll
~ ,.~

It was stated : (a) "A few cars are being made available to the Government for approval in regard to its roadworthiness". (b) ''The company plans to produce 10,000 cars in 1973''. (c) "Negothtions v.;ilh some dealers have already been finalised and efforts are being made to appoint further dealers of good repute"'.
But in 1971-72 a prototype car based en indigen<ius know-how and produced without using i.D".ported components was yet to be developed and arrangements for finallce and supply ot car components had not been finalised, the factory building was not complete and the inltalied plant and machinery as on March 31, 1972 wa.; not adequate for mass i;roduction of 10,000 cars in 1973. Schedule of the Annual Report for 1971-72 as on March 31, J 972 shows:-

I aid .. '
'tY he
..,i

"The exact elate for booking has still not been decided bu: it mav be sometimes in March 1973". .
(g)

Letter dated March 30, 1973

1
'1

.Qf

II
.I

JSt .,.....,,
iy:j..

"The car for show-room demoustra1ion be supplied to the dealers before the commencement cf boc>kings which is likely to start in May 1973",

"m

<>1
,..i)

-l

I J!!!, . _,.-

(h) Letter dafe<l Novtmber 30, 1973 "The car for show-room aemonstratiou will be .s.u:i~lied i!1 early 1974 and corumi~rcial proauct10n 1v1!1 start towards June 1974",
(i) Letter dated Marci; 23, 1974

"Licensed capacity

Installed capadtY

Not applieahle

,ij

I
1

:he

Indeterminate as ollJy a pertion of plant and machinery is installed''.

""' iii}
"1

I
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I

l'vi
---,
~-"'-~

I
I

"We are proud and glad to inform you that your M.~Rl/TI. has passed all the t<.-sts and after satisfymg its roadworthiness and the performance to the . Ve1!icles Research and DeveEstabhshment authorities the lop'!1ent ~~D~".ha> been finally passed by the (j) Letter dared August 8, 1974 "We

The sll!tement ~bout . selling arrange~ents through dealers is also !Wsleading aa the commercial model of the car was still not ready even for display, .

Annual Report for th;; year 1972-73

mi

This claims that t]ie engine of the car "has been fully developed and .~ undergoing rig1.rous tests with successful and promtsm.; results"'.

M
IJ-;,

;t"

~r~ now making n~cessary arrangements for


t

~.

~d

tra(1ou to cur dlalcr~.. "

ie .su_?ply of cars for show-room d~mons

1!1 1972-73 _lhe prototype was not yet ready for ::ttugthby VRDE and it could nut therefore be said a! e engine had .been fully developed. In fact an- !Dlported NSU engine wa. utili~ed for the protctype car sent subsequently to VRDE for tests.

...

IL
.
72

1 ',.-\
A1111ual Rcpurt for the year 1973-74
It says that the VRDE has ~asscd t~c pr;,itol) P~ car as roadw.:>rthJ and that the Gol'e.rnmcn~ h, d con verted t-he lcttec of intent into an mdustnal licence and with the i>suc of licence the company hac "crossed the last hurdle". By the end of !llarch 1974 no dechion had bcrn taken by any authority that the prototype wa~ road worthy. Tlic l~ttcr of intent was C{\nverted into ~n industrial licence later, in _July. 1974. The pubh~ fin,ancial institutions had not given appr~val to th' company's scheme of finance and therefore 11 was 1101 correct to say that the companv ha.! cro~scd the last hurdle.

dealership deposit register or_ the ~ealersbip rese!r~ tion money regi:W,r ..,f Marut1 L1m1ted aod there te the moneys wer s~nt to lb~ different banks-Safda.r img Enclave and Mullahera br~nch~s of the Centrh,11_ Bank of India aud }'a1!iamenr Strec.l ~ranch ~f t " Punjab Natiooll Bank. The Manag~n!; Director authorised disbursemcn!s frOll1 th~ banks. Part IV, .:::lJu;e Hi of the dealJii:s.hip agreem~n: indicat,s that the dealership deposit was a security deposit for :he du performance of the terms am.I conditions of the agreemeni by the dealer; The tern.is overning the security deposit are set out . m :nnexure B :o he agreement. '!be terms mcntwn inter a/la that th., company would re!und to the dealer a sum of R,. 500 with ~ac~ car allotted to .the dealer out of thP. amount ID deposit. It als!! provides that if the production was delayc:d by SIX molllhs beyond the date when the !'TOducllo_n was expected to start, the ccmpany would pay mt.:rest o~ the amount of deposit from the end of such penod of six' months at 10 per cent or 10! per cent. U the company desired to retain the. a:n<:'Unt upto Rs. 500 per car for a longer period. it would pay interest at a higher rate on the retamed amount. Clause !S(a) ~rmits either party to t~e agre~me11t to terminate the agreement at any ume without assigning any reason by giving not less than ninety days notice in writiug to t1.1e ~her party. Under clause l 9(d) upon the teflll.\Dat1on of the agreement the security deposit is. to be returned. to the dealer. The dealership deposits .were n<?t mvested separately either in ID:cd deposit or 1n government securities. The deposits were pool~ With !ther cash incomings and used as working capital. This appears from the statement of Shri J. K. Pahuja, Manager, Finance and Credit, Maruti Lir.iit~. ,Sbrl Rege, Secretary of f he company, in his stal'lJllcct has said that he was ,101 sure a~ to what '11toyid .have b~en the proper modz of custody of the deale~h1p depos1_~. Shri P. c. Aggarwal, Secretary ot .. tbe All Ina1a Maruti Dealers Association, says that many of lhe dealers who t.:rmina!ed their agreements 7:hen they found that the car was not forlbcinninjj; did not get their money back anci some of tlu!m 'wh.o demandec.I refund were threatened and mlide ''to"apologise. In bis own C3SI! he terminated ~ a~\lPcy,.J!l,.197t and served a notice on the company on!Juoe "19, 1975 that ii his money was not refUUd~tbc-would "take the company to liquidation". Slid i~flY>:~ on receipt of the notice summoned :tliO~ and made him apologise. The experience of Sl!J;i .Om, 1.'rakash Gupta of Hapur bas been . ~~,,!"""~y'rI,have also mentioned that Shri Rattan . ~;~;:-JW Dal'it Sillgb, two ot~er dealen;, ~ho l\a:vifl(g!laied th~ir agreements did not dare a5" Jofu:fl'1Qf!1 of their money after they came tel 'Jr:i:i.Q'\Y: ~t-.tMbarassment of those who hacl demanded rcfilil'd'. Slffi. :Anil Kumar Gupta, a partner of Dell Motors, Niti Bagb, 'Neiv Delhi, paid Rs. 2.5 lacs aa deale!'JiltV deposit in 1972 on the ass11raoce given _by s_hi_1_ sa_ n_iay Gandhi that the car would ~ ready in, !@IUUY ,J973. When the car was not available even m 1974.he ~Celled the agency on November lS, 1974. 1The money he dcpo~ited was not refunded to him but .he'. got interest for six months from October I, 1973"to"'Marcb 31 J 974 at the rate of ten and a half per ce~t per annum.'
'J '.

.-~.

I '
1

'\ !

Annual Report for the ~ea1 1974-75 The report claims that during the year concerne~ "it was possibb to start the manufacture of Marut1 cars on a moderate basis" and that the car ~ad "shown very good performance" . on plain roads as also at high altitudes and was "hkcd and wcl~omcd by all" During the year there was no production of cars at all, not .even on moderate ba~is, as would appear from Schedule X of the Annual Report. as o.n March 31 J 975 wherein the actual producuon is shown as '"nil-work being in prugH.$S, c'"ly some spare parts/components/di.es were produced on part of the instaUod machinery". The licensed and installed capacity were shown as :
L.icensetl capacity /11stalled capacity S0,000 1nolor cars per ;11un1n1 Jndclcrnl.inoit~ as only a portilHl of the plant and niachincr)' is inslallcd.

I I
,\'
'\ I

I
1 I

! I
I

A$ for the claim of good performance, the experi~nce of S. C. Aggarwal and Daljit Singh has already oecn narrated.
-~.

Annual Report for the year

1975-7~

''"'\

I
\

-,

It is said that due. to recession in the automobile industry the "productior1 was maintaintd at a very low rate" and a tew cars wtre sold. The car .had "shown good results" and was "very w~ll received \)y the general public".

ao,nual production was 21 cars only \\hile the project


1.

Schedule X of tl:e Annual Report shows that the

I
!

visualized a productio:i level of 50,000 cars a year. The recession in the industry occurred in 1!173-74 due to petrol p:ice hike. The faillire to launch mass production cannot thrcforc be attribt.table to recession. The :eal reason seems to be the failure to develop a suitable commercial model of the car and the reiection of the company's financial ~cheme by the public financial institutions. The statement that the car had shown good results and was well received by the public does not also seem to have any basis. From th~ ckalershio registc rs of Maruti Limited and the bank acco~ms of the Maruti concerns it appears that Ilic ~urns received by way ol drn!trship deposits were entered in the cash book and the

73 ' He did nl't institi1tc any legaf proceed!"gs for.. recovery of the money. He says that had II been any . one else than Sanjay Gandhi then we """!d .have ;, roceeded ag.1inst that party". Shri. Alim Ah Kha~, ~other dealer also says that he did not file al' ~u1't ' for recovery ~f hi~ money b:~ause "the, po 1t~C'.t conditions were sue!: that to fl!; a smt , agamst ' . MJ:, Sanjay Gandhi was not proper and that 1t would -'' have been "i!'lviti~g trouble" . "Th~ story o! Sb.ri Chander Bhan Gupta of Bhatmoa 1s as follows Shri Chand~r Bhat. met Shri Sanjay . Gan~hi at t?e ri<.J i office of Maruti Limited and bad d1sc!'ss1on wit~ i:-s him. According to Chander .Bh~r. Saniay Gandhi nl asked him tO make an appbcafJOn fo~ purchase Of J!lt snares of Maruti Limited and assured ~1m that shares \ ... would be allotted to him Gftcr he pa1~ the money. :he On April J0, 1974 Chan~er. Bhan pai~ a sum of Rs. 1,50,000 to Maruti Lumted and d1ffere!1t .sums ns ;" on different dates in 1974 and 1975. He paid m all a sum of Rs. 11,95,000. In 1974 the Income-tax ::ne authoriiles sought to recover a sum of Rs. 9,67,77~ .o.f by attachment of his prnperty. He requested Maru11 .J Limited to deduct the amount attach~d by the tax authorities from the sum he had depo$1led and return to him the balance. He was told that the mon!lY would not l,Je refunded but it was suggestc~ to hi~ tbat if he chose be migb: keep Rs. 2 }acs m deposit Coe dealership right.; or the Marut1 car and Rs. 1,75,000 as the price or the shares to be ~ott_ed to him and let the balnnze, Rs. 8,20,000, remain with the company as fi>:.c:d deposit for three years: The witness accepted the prcpornl. In January , 1916 h,e asked for payment of the interest due on his deposit which came to some figure between Rs. 1,50,000 and :sh Rs. 1,75,000. He also went and saw S~ri ~anjay ""; Gandhi personally at the oflic1' of Marut1 Limned, Gurgaon, for this purpose. ~cording to hint Shri Sanjay IJaiidhi brought him lo No. l, Salda.rjang Road in his car and after a Jong wait he was mter~n viewed by %ri R. K. Dhawan, Adrlitional Private Secretary to the former Prim> Minister, who told him that he would be arrested under the Maintenance of Internal Security Act if be kept on demnnding money. Chander Bhan says that he felt scared and came away nod since !hen he had not :nadc any further demand. He adds however that he wrote tc. the Income Tax ~uthorities "that whatever is due from me may be recovered from the Maruti L1mi1r.d ot which I am the creditor".
~

SJ. No.

Name & Address M/s Faridabad Automobiles, Neelaw Cinema Building, Faridabad. M/s Sanjay Automobiles, C/o Allied Automobi)es, Mod~ Basti, Near Filmistan, New JJelhi-5. Mis Malwa Motors, C/o Lala Inder Challd Harl Ram Mittal, 3, .Bajaj Khanna Chowk, Indore. Shrl A. K. Sag11r, Movclam~utdilari Street, Suryarappet, Vijayawada (A.P.) M/s Vasant Rao, Y ashwant Rao.

2.

Amount (in Rupees) . 1,00,000

3.

2,S0,000

4.

3.00,000

-"

""

5.

. , so,ooo
10,000

I :

6.

In terms of the agreement with the dealers Ma.ruti Limited was under an obligation to pay Interest QI!: the deposits. This matter was being bandied by Shri Sanjay Gandhi, Raunaq Singh ~ays t~at be was not aware whether interest was being paid regularly to dealers or not. P. C. Agg-.uwal says that out of seven instalments due to ~ dealers, .they we~e paid only one instalment of interest for Sil!. months m January/February 1977 and that also not to l\ll the dealers. According to Aggarwal l)c. did not get even one instalment. Pallan Lal also says that he was not t>aid any interest in spite of demand. Om Prakash Gupta of Hapu~ plead~ with Shri Simj~y Gand~i that he wa$ cnutled to mtcres: from April 1973 ID accordance with the agreement ;.nd to convince Shri Gandhi b~ handed over the agreement to Shri Gandhi. Shri Gandhi gave it to a mei.nbcr of bis staff who took it away and after some time came back with the agreement. When the agreement was returned to Shri Gupta he found that some changes ~d been made In the agreement as r~gard!l the date from which he was entitled to claim i11terest. Shri Pahuja admits that certain dealers whr were entitled to interest for three years were paid only for one and a Shri Raunaq Singh. a Director of Maruti Limited half years instead of three. ' who deposed befor.: the Commission said that it was not within bis knowledge that some of the dealers It has been found earlier that the dealership who baa cancelled their age11cies were not bemg deposits were being utilised as working capital by the refunded their money. company. From the account of M.aruti Limited with the Central Bank of India, Safdarjang Enclave Shri Pahuja, ~ fan~ger, Finance and Cud it, in his Branch, New Delhi, a sum of Rs. S lacs appears statement has ruemioned onl}' ~ix ta~es where no refund was given in spite of the cancellation of the to have been transferred by cheque dr.twn on July dealership gmnted to them. The ca~es admitted by 22, 1972 to the account of Maruti Technical Sci.vices Private Limited with the First National City Bank, l;'ahuja arc : " :.... Parliament Street, New Delhi. The said cheque dated Name & Address Si. . Amo uni .July 22, w~~ enca,hcd on August 28, 1972. This sum No. (m Rupees) was transferred to Maruti Technical Services Frivate 1 M/s. Dell .Motors. l. 2,50,llOO Limited in terms of an agreement between them and Clo Shri Anil Kumar Gupta, Maruti Limited. What is relevant in this context is 22, Bara~hamba Road, that on July 22, when the cheque was issued by New Delhi. Maruti Limited, the bank balance of Maruti Limited

74
with the C~ntral Bal,lk of India, New Delhi, was Rs. 2,37,350.74 p., with the Central Bank of India, Mullahera, it was R~. '75,217.88 p., and with the Punjab National Bank, New Delhi, it was Rs. 44,126.21 p. The total was short of Rs. 5 lacs. Between July 22 and August 28 Maruti Limitedl received a number of deposits from the dealers which made encashm1mt of the cheque pnsible. Some of the pa11ies from whom deposits were received during this period wer~, Boo1hay Engineering Corporaticm who deposited Rs. 1 lac on July 31, M/s. Jftikar Motors-Rs. 75,0llO on Augus: 1 ~nd another deposit of Rs. 75,000 oc August 21 ; SW!'.desh MotorsRs. 75,000 on August 4; Jaswant Singh and Soos-Rs. I ,25,000 on Angus! 9 ; and Syaoe DasaniRs. 1,00,005 on August 21. Even b'fore July 22 when the cheque was drawn, depu> its from dealers constituted a large part of the company's bank balance as would appear from the evidence of Shri P. R. Shashidbaran, Accounts Officer of Maruti Limited. From 1he statem~nt of affairn of Maruti Limitd a.< oo. July 22, 1977 signed by Major Kapil Mohan ? Director of Mnruti Limited, which was produc~d before the Punja!> & Haryana High Court ~y the Official Liquidator, Shri Pahuja pointed out the sources of the company's funds and how they were utilised. The position rndicated was as follows : "Source of Funds tak~n as on July 22, 1977 from the Statem~nt of Affairs after making .adjustments of non-casb items.
(.~pprox.

The dealers of Maruti Limited,, ~91!!!,~'hl!!l ~!a tion in May 1977. toto protect thelr.,.i!Jl~.~J..,,A~r~mi: to Shri P. C. AggaJWa!, Secretary of ,tlii$ AssOciation, after the last G:octal Elcctions)lF!!lA;;...~~"l977 when all chances of the Mamu q.r~ J!ltO market had vanished, Shrl Saojay,, . ,.l>Cgan to take aw;ry the goods lying in the. ~ ..facloryfrcmises and by May 1977 he had rCmove\f j!oods o the approximate value of R&. 17 la~, SailJ,i .Motors of Ludhiana and several other dealers. !!ave .filed allidayjts making similar allegatios. :,;, c. '

. ,_

I;,. ...

MARUTI TECHNlCAl- SERVICES:.PRlVATE LThllTED .

,,

The Balance-sheet of Maruti 'Teclinical Services Private Limited as on September 30, 1974 shows a &UID of Rs. 4,6S,OCO a.'I dealership dL'jl0$it., The names of the dealers and the amouora deposited by them as appearing from the Balance,slieet are a.~ follows : '
S.No. Name & address Amount

(Rupees)
2,00,000

(i) Share capital . (ii) Sbare Application Money


(iii)

figures in) laes Rs.)


300.00 26.59

I. Rainbow Industries Corporation, .Muzall'amagar 2. M/s Dayagcn, M-13, Conoaug!lt Circus, New Delhi . . 3. c.L. Jaipuria. s, Prithvi Raj Road, Dclbi 4. A.P.S. Arora, D-106, Curzon Ro;;d, 1'ew Delhi S. M/S Nu Tcchphotonithographcn, 47S9, 11/23, Darya Ganj, Delhi 6. Allied En1erprises, Ansari Road, Dclbi 7. Kilrain Engg. (P) Ltd., 16/S, Marhura Road, Faridabad

New

1,00,000 60,000 40,000


25,00Q

..

2S,OOO
IS,000 4,65,000

~1

:t

Secured Loans . (iv) Unsecured Joans .

119.96
63.66

.Te~-

(v) Dealership Deposits . . . . . (vi) C)ther Jinbilitles including Sundry Creditors etc.

239.57
80.27

-,

830.05

I
''"'

Utilisation of funds taken as on July 22, 1977 (rom the Statement of Affairs after making adjustmeo.ts of non-cash items.
. . (iii) Olbcr assets including vehicles and furni;urc c;c. (iv) Raw materiaJ; components, work-in progress and other stocks
(v) Sundry debtors, adva..;.. and bank bal;oces (vi) Ex~nditurc ~n prototype, preliminary and pre1ncorporat1on etc. , . . (vii) Aggre~te expenses during all the years. being.
(i) Buildings . . . . . (ii) Plant, machinery and equipments ,

,j

' l

I
I

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'

384.79
164.49 I l.58 36.02

I
--<;-,,

94.32
SS.JS
80.SO

I
,.-';

balancing figures

830.0S"

J"f st~temcnt !ndicat.:s that at least a part ot the fabe~i~!P deposits was utilised in the construction
0

~-

' .....

81!

d u1 ~gs and for the purchase of plant machinery equipments. This may be a reason why Maruti ~unt!ed was u9able to. refund to the dealers who had ao?thate? thcir ahgco.c1es the dcpo~its they had made e m 1crest t at was due to them.

The deposits were received from these seven parties for giving them agency of Maruti Petrol .Savers when Maruti Technical Services themselves started manufacturing the Petrol Savers. It appears from the book.s of account that only some of them were refunded the deposits lhey had made en termination of their agencies. Of these seven parties, Shri S. N. P. Punj representini: M/s. Dayagen and Shri A. P. S. Arora were exaouned a,; witnesses. Shri Puni paid Rs. l fac for M/s. Da}'.agen C!n December 3, 1973. M/s. Dayagen had dealings With the Govemmeo.t for supply of air conditioners through Directorate General, Supplies and Disp,sals. According to Shri Punj his YOWlgcr brother. who had known Shri Satjay Gandhi for many years told him that Shri Gandhi needed Rs. 1 lac l!S loan and the sum of Rs. 1 lac was paid as short term loan for about six months without any in!Crest. Shri Punj. says that a pronote was also sen '!Ith the money 'YJth the idea that Shri Gandhi wotild sign and return 1t, but he did not. In the books of :;ccount. of Dayagen the entry made was 'To cheque issued m your favour as loan as apinst. pionote". The money was not returned after SJX montlis. In the InCC?mc Tax Return of the firm thii loan was shown agamst Sundry Debtors. It appears that ln response to ~ o.otice .under section 142 of the IIK:ome Tax Act ~ ~ made a statement before the. Income Tax cci: evmg . the full . particulars of ~e dealers of Maru ti ec!Jnica! Services Private Lirilited and the amoOllt received from them till September 30, 1974.

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75 In this stat~mcnt the name of M/s. Dayagcn was shown as a dealer and the amount of Rs. 1 lac as dealership de;>osit. Shri Punj states that the money was repaid in September 1977 when a claim for the amount would J;~v" been barred in a court of law. It is a little surprising that a businessman would let one lac of rupees to be retained by hJs debtor for oyer three years withot claiming any intetcst. Shri Arora's case i~ also a littfo oeculiar. He says that he approazhed Maruti Technical Services Private Limited for grant of dealership rights of Maruti Petrol Savers in 1974. Manni Technical Services had not then started manulacturing petrol savers but were planning to do so. Arora says that he read about the petrol savers m ne\Vsp.ipcrs. He was aked to make a deposit of Rs. 40,COO which he did liy a cheque in February 1974. He did not know the name o( the gentleman with whom he had a discussion about th~ dealership of petrol savers; He did not get a dealership for the area he chose which was Chandigarh ; .the management oi Maruti Technical Services Private Limited told him tha~ negotiatioDJ; had been going on with some otb~r party for tbe dealership . in .Chandigarh. The witness \\'llS not interested in any .other place but be told the management of the company to retain the deposit with them till he made up his mind. Ultillllltely the money was refuuckd to b,im on Septetnber 27, 1977 more than th1 ce years later without any interest. This also seems unusual conduct for a busiaessman. MARUTI HEAVY VEHICLES PRIVATE LIMITED Maruti Heavy Vehicles Private Limited was incorporated on Februa."}' 22, 1974. From the facts stated in the pr~vious chapter, it would appear that this company commenced bu~iness even before its incorporation. According to Sbri P. C. Aggarwal Shri Sanjay GandJli, tried to induce the Maruti dealers to become dealers of Maruti Heavy Vchicles P~vate Limited for tbe sale of their road rolleni, but Without success. SUMMARY OF SPECIAL FEATURES From the evidence discussed it appears that attempts we1.'e !Jlade to attract prospective dealers and induce ,the eXJSting dfl&lers not to cancel their dealership agree:inents by promis~ of early delivery of tlie Maruti ca~..Late L. N. Mishra, when he was Union Cabinet .. J.(inister, also tried to gel deal~rs for the Maruti car ~ :aCJ!J:.d ot Dirc~ors of Marutl Limited left it t~ Sim San1ay <.>aadhi to appoint the deillers on such tel'lllS and conditions aa be might think proP<;r To create. an i1J1prcssi0>1 that the appearance of the Maru11. c;ar. m the market was iln111Jncnt, Shri Sanjav Gand~1 ms1stcd on the dealers to set up show-rooms even ~ 1972 and 1973, which many of them did spendw~ large. su"!5 of money. Maruti Limited was granted mdustnal hcence in July 1974 and therefo . there was hardly any justification for asking th~ dealers to keep their show-rooms ready in 1972 or
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1973. Two of tbe dealers who were given a car ead;1 to exhibit in their show-rooms have u.;uratcd their respective ~xperie'lcc ; c.ue bad to push the car to his show-room, and the other who returned the car to the Maruti garage for repairs folluwing a brake failure while be was drivmg, did not get back either the car or the money (Rs. 22,000) be had paid for it. The dealers have .given evidence as to bow Ibey were treated by the Maruti management some wbo applied for dealership of the Maruti car were made to buy shares of Maruti Li,rnited as a pre-condition under threat. some of the d~rs who terminated their agencies when they found that the ;;ar was 11ot avail able, were mad~ to ar;rce to the couver&ion of a pait of the deposit they bad made into Maruti Ehares. They yield:d without raising obj~on . , because of fear. One of them said that "the. DJll!!ll&cmtnt of Maruti Li.rnitcd being in power" they had to agree to the pr~ The reCeren;ce is. obvio:,islY..to Shri Saujay Gandhi and the suggestiOn JS tbat he was powerful being a SQD of the Prime Mi.nistcr. Another said that "tbeSe shares were thrust" on theni aiid that as they "were under scm= kind of fear', they did not have the courage to tell the n1anage01.Cnt of Maruti I..imited that they wer~ not interested in the shares. And tbe fear was real. One of the dealers, S: C. Agguwal who terminated bis agency was threatened by Shri Gan(ihi that he would be sent to. iail and ,Agsarwal bad to . apolo,gise to him by touching his feel Om .Prakash Gupta of Hapur, who had asked for paymtnt of interest due 10 blm on hb deposit was amll>ted under the Maintenance of Internal SecuritY Act. Shri Chander :ahan Gupta of :abatimla who. aJso dCl)lllllded the lnte~t du~ to hiril was told by Shrl, ~.,K. Dha\'an, AdditiOnal Private Secretary to . the .tlifmer Prime Minister, that h~ woukl be arrested.~ the MIS.A if he kept on dc;mardini; money. Many did not as!; for refund of thCU' deposits or ~ymcntQf due interest when they came to blow of the haraisment of those who did. There ar11 only two wb1i appcar<to have paid some money to one of the Maruti coucerns,aud were not ~cen on gettingit back. ooeOf, :them; s; N. P Puu1 of M/s. Dayagen, .New Delhi; . claims to have a soon .paid Sbri Sanjaf Gandhi Rs. 1 lac by way term. loan for IX. months. But the amcQDt was treated . as de~p deposit in.the bocks of1'taruti Tecl>nica,J was .a. D~r. ~ other ~se 'is; of ~hri A. P. Servu:es Pnvate Lmuted of which Shri Sanjay Gandhi Arora who deposited Rs. 40,000 for dealmhip ri,ghts of Maruti Petrol Savers. He did not get the dealership ll}ld yet he aski:d the company to retain th!: mime till be made up his mind, which he failed to do i~ tbe next three .Yeani. _In. bolb ~,.the monty was retume<! but wit?ut. m~t alid aflcr be expiry of the period of lunitation for the instilotjori of a suit for. ~ery of ~e sum. The C!>iuluct of both Shri PunJ and Sbn Arora wuuld. ttr!h one' as quite unusual for a b~1nessman. Whar sceniS .Iikelv is that there Was more ID these tr3DSactiODS than what has bee11 told. Some of tbe dealers ot. the, iMan.11 car were forced to buy petrol savers worth. thousands f rupees at a considera:Jle loss to tbeDJSt-lvps but whicli camp ed large profits for Maruti fechukal Services rivate Limited, : ;.

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CHAPTER V
This chapter deals with_,the sixth topic mentioned in the terms of reference wli1ch covers : "All matters perialning to _the agrc:ement entered into by any of the said [Maruti} concerris with any other Maruti copcem, or with any other individual, ijrm, or body corporate, the extent to which these agreements resulted in diverting funds from one to the other for the pecuniary benefit of these concerns or the persons connect~ .. wit~. the a.lfairs of these concerns, the 1ustiliability of such agreements and the extent. of performance and proper implementation of these agreements". The agreements relevant for the present purpose t,he followioi: : ( 1) Ai:reement dated 21-11-1970 between Shri San.iay Gandhi and Maruti Techmcal Services Private Limited. (2) Agreement dated 2-6-1972 between Maruti Technical Services Private Limited and Maruti Limited. (3) Agreement dated 25-1-1973 and supplemental agreement dated 17-11-1973 between Shri Sanjay Gandhi and Maruti Limited. ( 4) Agreement dated 26-2-1973 between Shrimati Sonia Gandhi and Maruti Technical Services Private Limited. (5) Agreement elated 28-9-1974 between Shrimati Sonia Gandhi and Maruti Heavy Vehicles Private Limited. (6) Agreement dated l-4-1975 between Maruti Teclmical Services Private Limited and MalVti Heavy Vehicles Private Limited.

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Agreement dated ;!1-11-1970 betwee11 Shri Sanjay Gandhi alld Maruti Technical Services Private limited : rt4may be recalled that in his application made on December 11, 1968 for a licence for the establishment of a new industrial undertaking to manufacture motor C1!XS, Shri Sanjay Gandhi had stated that the ~ndert~km~ ~as ,to be a public limited company named Maruti Limited . Before Maruti Limited was incorporated on J_une 4, ,1971, a ,Private limited CQmpaoy, called M~rull T~hrucal Services Private Limited, was broug~t into eX!sten?C on November 16, 1970. The ~uthonsed share capital of Maruti Technical Services is Rs. 5 lac< divided into 50,000 equity shares of Rs. lo. each. On November 16, 1970 Shri Saajay Gandh! and Shnmati Sonia Gandhi wife of San' Gandh~s elder brother Rajiv Gandhi ~ho were n~~ as the first and PCrmanent directo~ in Article 7 of

the AniclH of tween them ~w~nty equity s ares o was a!so the lioancial.po.sitiol!.. of ,91~:,;~;oop !"OVember 21,.1970 .when SJu:1 ~l}Y\~!L. .~.'P.ri f~ mto an agreement ~~ '.!~~~~..~ vale Limited under which saniay ' " ., ',.~~~W;. render technical know-bow to t.he: . f~ 11Qn sideration Rs. 3 lacs. It is stated: in thO,ag,i:eement that Sanjay Qandhi.had"d~.,. .. -, '~ assembled in India a whollyi indl=.. ,.. ..,., an and :that he offered and the .c:~ ~ optio_n to purchase" the tee~, f .. '~ido.LtllO by him !>D the terms and condi~!!l!Rii.bffi;bl). agreement. The agreem~t defui,i:i;:.:..~~'" how' 'to mean "the ~ting''!""'~ "f .. design, drawing, material al!<' part_ p,~q. .\eCh nical documentation includmg di'a~l : 'ti ,!IS of requiJ'ed special tools, jii.' ~', .. - . . . l. P.11~ terns, core boxes, pr~ess sheets,:~. , , ;,~cu lations, test specifications and r~,-~, ~ and maintenance man. .ual etc .. :m~pcs.~ . ca.q' .!fie,~. . signer relating to design, fl\bncat1oit,,. . '" .. ~ sembly, operation and maintenance~... . 1~ The option was exercisable by the ~ymg Shri Sanjay Gandhi Rs. 3 lacs. ~ 1 U,. . ,of the date of the e:J,ecution of the agreCrileilt.' . prc>vided that "forthwith upon I.he company cxerclsing _its option as aforesaid" Shri G\lllllbi wasiJOl "ddlir!lt to the CQmpany the technical kno'll(-hoW,itl.''.lhis>possession". On the date the agreement,... UllCllted; "the paid-up capital of Maruti Technical &!:.vices. WI!$ Rs. 200 as already stated. On. D.el:embetl15~r1971, 1500 equity shares of Rs. 10 each! fully paid.lip were allotted to Sbri Sanjay Gandhi. On 1uoei 21 1972 ail agreement was executed betwee~,,Mamtii.Tccbciil Services Private Limited and Maruti Limited according to which Maruti Technical Services .was to provide Technical know-how to Maruti;,' Y!ni!Pd and Maruti Limited was to pay in refuiii Rs." S lacs in lump sum to Maruti Tee~. I shall .r.:fer to the agreement. "Delweea"Maruti Limited and Maruti TecbnicaJ" ':'Private Limited in more detail later iwiih1' ~~"it is sufficient to state here that in teims o' 'lhat 'a=ment Maruti Limited paid to ,1'fi ti Tfi~.,..sCr vi~es. a sum of Rs. S lacs on Ju~2:?~l'l!}72'.':0U~ of this sum. Maruti TechDicaJ Services; l)liid{ 'Sm? Sanjay Gandhi Rs, 3 lacs on 1anuarv 13, 1973 'ucising its .~e option to purchase technical know-how"~' stip!"ated l>Crioc;! for exertjsing 'lhe':C?.R.YS#.'J#ii/tben exp1red. Thus it was only. a.~er ll,l()!lCJ,mik .lfYii!lable from t)ie funds. of the public ~ Cl?mpany ',tfu\f .,M~ti Techru~I Seryices Private L!Dll~ of \VIJ.ich Sanjay Ga~dh1 was o~e of the two d1rect0rs, w.as able to pay Saniay Gandhi, the technical expert, tli~ ptjee for the know-how he offered to sell.

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. Accor~ to the agreement between Maruii Techmcal Services and Sanjay Gandhi, "f~h,_wit!i'.' upon 76

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77 that "it would be an c:xaggeration to sa:y that a :-V?rkablc plan or IUOdel cx.iitcd at the ume he JOl.lled Maruti Technical Servi~. 'U1e veiJic!es he then sa":' were not prototypes suited fa~ prl)dUCUO!J- . In Muller s opinion, it was clear ~at SanJR}'. Gandhi would not be able to "provide a feasible working prototype, nor tt.e planning required". The facts stated above . show that Shrl_ Sanjay (jandhi had no technical know-how or expe~e wh1_ch he could sell. Though the agreement required !Jim forthwith on receiving the. sum of Rs. 3 _lacs to deliver to Maruti Technical Services the technical. know-how in his possession, nothing in fact wa;; deli,vered, because thre was nothing really to deliver. Agreeme/JJ dazed 2-6-1972 between Maruti Limited and Maruti Tec/111irnl Services Private Umiled : On June 2, 19.72 an agreement was executed betw!lCn ~.ti Limi!ed and Maruti Technical Services Pnvate Llllllted which was signed on behalf of Maruti_Limit~ by Col. V. R. Mohan and Shri Sudhir Kapadia, Drrectors of the company, and for the privatt: company )>Y .ii$ tV.:o Directors Shri Sanjay Gandhi and Shrimati Soma Gandhi. The execution of the agreel!lent was approve~ in the meeting of the Board of DJ.rectors of Maron Limited held on May 30, 1972 and ~ special resoh~ tion of the shareholders was passed ID an extraordinary general meeting on June.29, 1972. Shri Raunaq Singh a director of Maruti Limited from September 2i, 1971 to May 10, 1977 b.as t<?ld the Co~mis sion that this agreement between Saniay Gaudin and Maruti Technical Services waa never brought to t)ie notice of the Board of DirCl:IOIS of.Marutl Limited. This agreement between Maruti Limited and Maruti Technical Services describes Maruti Limited as "the manufacturing company" and Maruti Technical Services Pri.vate Limited as "the leebnical com~ and states that the technicaJ company "hl!s ~pallility ,-t imparting te.ci)nical knO\Vbow for .lb!! .desi~ m1111u facture and assembly ID India of a Wholly indigenou! motor car" and the Dlljll~ COIDPapY h/Is l!C"" cepted the offer. of die techmcal ~~y 'to BCq1!1fl' on licence basis tho said know-bow .from: the technical company". Th~ mannfae(ring co~w was to make an initial Jump sum payment of R,s., 5 Jilc& .to the tech" niciil company for providing teclmical know-bow and also to pay an annual technical fee of 2 per cent on the net sales of the motor cars from --"the effective date of the agreement" subj~ct. to a minimum of Rs. 2.50 lacs for each accounting year of the manufacturing cominny. The "ell.:ctive date of. this agreement" bas been def!ncd as the ""dalt> on -wbich tile manilfacturing company shall make payment to the technical company of the initial lurup sum payn.ent of Rs. 5,00,t}OO (Rupees five lacs only)". Under the a,greement the tecbnicai ccmpajly was to provide t:chmcal know-how "on a continuous basis". By this was meant tb~t on receipt t'f the initiapump ~um ~aymeat, the technical company was to deliver to the manufa~ turing company the technical know-how N,or the design, manufuctnre and assembly- in ,,lndi11 of the motor car" and that on "procuring or developing any improvcmen~ o~ modification 1n the tccl!ilica! know. ho'\'" "inform the manufacturing i:ompany of such improvement and/or modification, as the case niily be". Under the :igrc~ment the m:uiufactaring 'coiaiiany was

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the company paying Rs. 3 lacs lo Sanjay Gandhi, Shri Gandhi was to deliver to lhc comPl!Dy lh". techn.ica.I k;J;iow-how in his posse5sio1_1. There IS nolhmg on record to show that Sanjay Gandhi delivered lll!Y technical know-how on receiving Rs. 3 lacs. W1_messes examined on ihis aspect of the mailer have said th~t Shri Sanjay Gundhi did not reaUy possess any techll!cal know-how that he could transfer. The letter this Commission has received from Roll> Royce ;Motors. ct England may be recalled. Shri Sanjay Gandhi W1!5 with Rolls Roye~ Motors as special student _apprentu:~ for about three years and. reccive!1 an. Ord1ll!"'Y ~~uonal Certificate in mecha111cal engmcenn~ which. _was a relatively minor qualification". Shn GandJu did _not complete the special student apprenti=hip, Reu'.ed Wing Commander R. H. Ch~wdhry, Chief Ex~u~1ve of Maruti Limited, was exammed ?Y the Co~ss1on. According to Shri Chawdlvy, Saniay Gandhi ha~ a very good I.Q. and a .ve~y sharp ~as~. <?f techrucal matters but had no pracucal expenence . !11 the field of car manufacture. Referring to the definition of t~h nical know-how in the agreement between San1ay Gandhi and Maruti Technical Services, _Chawdhry says "none of the items constituting techmcal knowhow' e.g. method, design, drawings, ma~erials. and part specifications, technical documentati~n mclud~l;l drawings, specifications of required special tools. pgs and fixtures, dies etc. etc. could have ~n av~able ..it that date as those were not even ready m th_e1r tota,\1ty as on 17th May, !977, the date fr~m w~ch San1ay Gandhi stopped gomg to the factor)'. . Shn Cbawd~ry bas said that till the last the design of the engme had not been finalised and that the results proved that. Sanjay Gandhi did not have at his disposal a_ ready made technical know-how in regard to a defimte engine design which he could transfer to Maruti Technical Services. W. H. F, fy.!uller, the G:rman technician 'on the Sll!ff of the Manlli Technical Services hap made certain statements under section 131 of the lnC01De Tax A~t, 1961 on January 23 and February 3, 1978. CQp1es of these statemenis have been brought on the record ,.,.of this Co11U1}ission. T? a questi'?n. of. th~ IncOJll,e ,Tax , Officer about Shri San1ay G11ndh1's contriQution to the technical side of the car project, Muller's @llS)Ver was that it was "actually a set.of draWi:n~, inco1J1.pl~~.set, in respect of the car be had l:!uilt , AcctjrdiliB to Muller. what Shri Snnjay Gandhi sold to aruti Technical Ser.vices was "the basic concept of a proi:Iuet ~e hod in mind" and that the end product of .Muller s collaboration with Maruti Technical Serviees., was "a prototype capable of being produced, approxllllaJ,ely 80% completed, not including the engine". No car was finally manufactured, "what actually was produced were a few prototypes hand-made". The Income .Tax Officer asked him. " ... it is said that some Maruti cars are running on roads. Have you got any idea abouL this"? Muller's answer was : "these cars . were given out to certain people. fn all about 10 or 12-these are all prototypes, not the same in. dt,,;Jgn etc. They arc different from one another. They were changed several times. Engines were modifications of Sun Beam which were also prototypes, mride .in Marutt Limited. These Sun Beams machines were fabricated (purchased in' parts) in Maruti". Muller staled further

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also to re-imbUe the techr.ic11l cm pony Ccr the "actuals in\olw:d". "Actuals" las been c:;pl:tincd 10 mean "actual disbursements and expenses mcurred @d/or liable to be paid bv th 'c' hnical :om~iny ,tor or in connection with the prov1s1on of the technical assistance". This Wall to include all printing and pubUsbiog expeDSes, travelling eKpcnses, other c;ut of pocket expenses etc. Sbri R. H. Chawdbry has mid lbat the . technical stall employed by Ma1uti Technical Ser.,ees were "very young uu;l inexperienced in the field" and the company bad M qua.lifted graduate ~nginfer for design work on their rolli. W.H;F. Muller, the German techniciao employed by Maruti Technical Services Private Limited, was a specialist in car body welding. As for i;qu,ipment, M.uuti Technical Se1vices had only ~ few drawing boards and lbe rest of the plant and machinery and the drawing boards belonged to Maruti Limited. Shri CbawdbrY adds that no final car design had been made for mass production. "Whatever was produced had been subiected to thousands of changes rendering earlier achievements completely obsolete" . as there was n<> fixed and final~ dei:ign of the ~chi cles. ''The necessary data was produced, changed and eondemned as we went on manufa;;turing and remanu facturing the p31'U and components", Sbri Cbawdbry states that Maruti Technical Services "was riot .in a r:;~on to ~ive anything readily a'lailable to Maruu . ted". "No re&ea.rch or developm&nt wvrk fucilily was available with M/s. Maruti Technical Services (Pvt.) Ltd. as loug as I was associatui with Matuti Limited", says Chawdbry.

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In his affidavit afli,rmed on December 16, 1977 and 6Jed before this Commission, W.H.F. Mull~r corroborates Chawdbfy that "no research or devefopment work was being carried out by M/s MartJti Technical Services Pvt. Limited and they had no laboratory of Lbeir own". Muller adds that Sanjay Gandhi bad "overestimated bis expertise in automobile industry" and, besides lacking the necessary qualification to be able "to design such en$ines/cars especially those lti tended for mass production, Sbri Sanjay Gandhi lack ed experience also". From a letter addressed to Maruti Technical Services Private Limited by the Department of Industrial Development on November 24, 1975 it appears that the name of the company bad been enlisted with that Ministry only for statistical purposes. The relevant part of the letter reads :
"It may please be noted that this enlistment bas been made purely for statistical purposes and does not carry with it any kind of financial benefits or your competence and clain:. to

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It m!1Y be men~oned here that on January 25, 1975 a special resolution was passed at an extraordinary general meeting of MJ1ruti Limited modifying the remuneration stipulated in the agreement dated June 2, 19?2. Under the revised terms the payment by the public company of an annual technical fee on the net sales of the motor cars subject to a minimum o_f Rs. 2.50 lacs for each accounting year of the ubhc ,com~any was suspended from the date of the lullon till the company commenced production of

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gest.ed to his higher authorities that information on tbe abovo points should be called for from the com pany. He fullhcr observed that the proposed salary, commission llJld pe1 quiE itcs seemed to be on the "higher side ior a company which was still in its infancy stage". The fil~ then went to Shii c. L. Pra tham, Section Officer. Shri Pratham who was examined as a witness a.Amitted that be did not verify the age, educational and technical qualifications and practical experience of Shri Sanjay Gandhi b11t accepted what was stated in !he applications in forms 25A and 25C. In column 3 of the form 25A it was mentionca that 5anjay Gandhi was a qualified and experienced tech nician in the automobile industry and under column 5 ( i) it was said that he was a mechanical engineer and had considerable knowledge and ex perience fn the design, manufacture and assembly ot automobiles. In his noie dated August 11, 1972 Pra thllDl l!1so pointed out that the details about the age, educa.tional and !eclmica! qualifications and b11&iness experience of Shn Gandhi had ilot been mentioned by the c?mpany in th~ application;. He suggested that the a~mtment of .!ihri Sanjay Gandhi as Managing Dll'ector for five years from March 2 1972 on the PfC!~sed remuneratio11 might be appr~ved subject to a limit of five ~r cent of the net profits and the mini '!1Wll remuneration protected according to the guideynes for one year only. He also stated mat consider. mg the present state of aflairs of the company the P!'0~ed remuneration seemed to be on "very high side ~s for the minimum remuneration, Shri Prat~am sa1~ th?t a3 thr. figure of paid up capital menDl tioned 1n column 2 of form 25A was Rs .. 24,60, 700, this had to be taken as the etfe~J' c.ap1tal l!Dd, h~ving regard ro the guidelines the etrC:. tive capital bem~ between Rs. 1O to 25 lac; the m.in.imum remuneration could not excee<! Rs 24 000 ~um. i.~. Rs. ~.ooo a month. Deposuig ~ore . IDllllssion. Shri Pratham stated that he had tr ~1::s an mJ>O!lant !!nd sensitive case because~J J Y Gandhi, Managmg Director of Maruti L'1 cd MJas. a son of Slicirnati Indira Gandhi the ~ C R1~crMof India. The file was then subthitt.edn to Shr~ 1 cnon who was Under Sec~ tar th De ment of Company' Affairs at lh j YID e part. has also been examined befor: [hi:~t ~e. Menon f~d that ~e applications lacked in ce~Slon. He P . culars lik!l the date on which th d tm~t became effective cap'taJ th d . e JlllJ up capital qualifications of Shr/ S . c ucat1_0Da! and technical Witn~ss dictated a note~;ythe~~ hUing~ age etc. The details but before he signed it he had for further note Under presure ff . e a to c:hange the 1 removed and h; r is ear er note on the file was 1972 making out ethc~rdfcldl a .fresh !JOte on August 19 Was b" o owing pomts (i) th . 110 0 jCction in tb~ abscn f at there g~~~~ficatiM"on to .the appoint:Cn~ ~'fY ~':pl~nt .or I as anaging Director of Ma . ' . an1ay to one third of biS annual salary !'f Rs. 1,000 per month. While comf.ltting lbe ellecti.ve capital h,e left out of account th., charges create<! by lhe company to the tune of Rs. 41.32 lacs" bcc:auso he bad "no Information about the actual amount drawn th~ dates them>! in rcspec: of the charges created. . Shri Menon Indicated in his note that it was possible to relax the guideline on the ceiling on minimlll'!- re~u neration if there was evidence to show that Shri San1ay Gandhi was combining in himself the functions of an executive in J.ddition to his responsibility as Managing Director of the coinpany. Meqon however said that there was no evidence in regard to this on the file, The case was then placed before Sbri S. M. Yousuf, then functioning as Secretary of the Company Law Board, who recommended minimum monthly salary of Rs. 4,000 fo1 one year pill& perquL~ites amounting to Rs. 1,000 per month. On the question as to how the minimum salacy could be fi,~ed at Rs. 4,000 peI month, Yousufs evidence befor~ the Commission is: " . it was a case I mad~ out I 'oking into the overall picture of the company, that it was supposed to be a very big, giant co1npany with 'some crores of rupees, and with this batkgroiind l bad suggested Rs. 4,000 per month for 011e year only". He, however, admittl!ll that there was no material on ic.,--ord which could justify fixation of salary at more than Rs. 24,000 a year under the guidelines. When it was pointed out to h!m that :he details of the age, educational qualific;itions and business exi;>erience o[ Sanjay Gandhi had not been mentioned Ill the applications, Yousuf only said "I am afraid we did not call for that parti cl!lar information". He said that "at that point of time there was a certain atmosph_ere" and it "was always working in everybody's mind" that the "applicant was Mr. Sanjay Gandhi who was the son of the then Prime Minister of India". The recommendation of the .Secretary, Ci>mp1:1ny Law Board, was endorsed by Sllr! C. C. Ga!18pati, Joint Secretary Department of Cc;iu;ipany Aff&ll'S, ~ho suggested protection of the muwnUID f!lmuneral!on for three years in the first in s~ce. This was approved by the Deputy Minister Shn Beda Brata Barua and finally by the Minister of ~:~/or Company Affairs Shri K. V. Raghunatha

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The Department of Company Affairs in its letter dated A~t 28, 1972 addressed to Mari.ti Limited co~vey~ .ts approval to the company's proposal with this ".anation only lh!'I the minlmUID remuneration was sanctioned for a period of three years instead of five as asked for by the company. mto a formal agreement with Shri Sanjay Gandhi January 25, 1973. The main provisions of the a :ic~ ment c;>f January 25, 1973 are these' . Sbri S ~. Gandhi was to hold the o.fliCj: of the Malia ~!1J 3Y tor for five years. Hls remuneration' w ,gmg treco.f Rs. 4,000 per month, (b) one '''"'(a) sala.ry SIOD. OD the net profits of, the com:!y=COllUIUSmaYmnm of fifty per CCllt of. the;llDD""' .:iec:t to a Rs. 24,000 per.annum. and (c) -~~,~.e. eluded. (i) medical benefits for perqu._., w1:!iCJi lll of Rs .,

On receiving the approval Maruti Limile<i entered

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. , ?e ory Dllt of llvc per cent of th t Ii e statu, ! CO!IJpany, and (ii) .that with 'reg:Je,oprtbe ~t ~ m.uumum :emunerntion, the maximum of th 0 ,. remuneration admissiblt under the 'de/ llllmnium only be Rs. 2,000 per month and pe~':tisit~e:es~~~~

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uio-'u5 1.-. sub~ . . 3ll4 4D;Uly not ""' ~, ~ect -. to:ra Dlilxi. 12,000 for a ......._ .. of euery .a, . ~- ,., . ' lllUDJ '"''\JU ' tee'eonsecutive

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80 years of service ; (U) leave t.ravel concession ; (iii) free use of car the monetary value of which was to be evaluated according to Inccme Tax Rule~, 1962 ; (iv) subscription to clubs subject to a ma~1mum o1 two clubs only, ct~. ll was p10.vidcd that lll the absence or inadequacy of profits 1!1.any year, the c?m pany would, as anc.l by way of mm1rnum. re.muncrauon, pay the same salary but not the comn11ss1on and the value of tli perquisites would not exceed Rs. 1,000 per month. Thereafter Maruti Limited made another application seeking increase in the remuneration . as w~ll as the minimum remuneration of the Managing Dire<:tor by way of granting bonus and ailditional perquisi!e.; with cficct from March 2, 1972. The Company Law Board approved the proposal on July 13, 1973 following which a supplemental agreement was executed between Maruti Limited . and Shri Sanjay Gandhi on November 17 1973. Undcr this agreement the company was liable to pay the Managing Director bonus "according to Company's rules" and additional perquisites lik_c free telephone facility at company's cost at the residence, free use of company's car with driver, pet.rol and maintenance co.;t, the monetary value of which was to be evaluated as per Income Tax Rules, 1962this was introduced in supcrsession of the previous term as to the frc<: use of car. The three years protection of the minimum remuneration expired on March I, 1975. On March 18, 1975 the Board of Directors of Maruti Limited resolved to extend the protection by two more years, from March 2, 1975 10 March l, 1977 and applied to the Central Government for approval. The Company Law Board approved the proposal on April 3, 1975. The Board of Directors of Maruti Limited on August 26, 1976 .passed a resolution re-appointing Shri Sanjay Gandhi as Managin~ Director on the expiry of his fin;t term as such, subicct to the approval of the Central Oove,nment and the shareholders, for another period of five years with effect from March 2, 1977 -0n terms and conditions as before and made an application for approval of the appointment and protection of the minimum remuneration for the said period. Shri B. Prasad, Under Secretary in the Department of Com pany Affairs, who dealt with the case did not recommend payment of both bonus and commission to the Managing Director because both were incentives and normally it was not the practice to allow two incentives at the same time, it had to be either bonus or conunission. The Joint Secretary Shri A. Choudhury agreed with his recommendation. However, Deputy Minister Shri Barua overruled them both and on Novem~cr 13, 1976 approved Shri Sanjay Gandhi'~ re-appomtmcnt "on the same terms and conditions .. as was _done earlier". But before the agrce~nt fo~ re~appomtment of Shri Sanjay Gandhi as Managing Director could be given effect to; Shri. Gandhi ra;igned and ceased to be Managing Director with effect from March 2, 1977. It is clear that on the basis of the two agreements lar!\e Slll!1S of mon.ey were paid for all these years to Shri Sania:,: Gandhi from the funds of Maruti Limited Clearly S~n Sa~jay Gandhi did not possess the requisit~ quahficat1ons, ~1ther technical or managerial to justify the remuneration and the perquisites he ~as paid. He hiid no !lllll)agerial e~rhice and as .repr?s- .hi$ technitaj qualificatiOn, .the '~Uer. :~ve4, h:9~; Rolls Royce fyl:.Otors of England may .1be .reCall~ The r<'.solution :ippointing Shri Sajay Gandhi, Managing Director with effect from March 2, 1972. .was J,>asscd by t~e Board ot Dir~ctQfS of ~ti l:ilpited ,tit a mccllqg held on that day al\d the' ilpjl!llllbPent was approved at ~n extraordinary general. meeting of th" company held on.March 31, 1972. It.. is nei;essary to state certain facts coneerning these 'two 'meetings. At the Board meeting held on lV!arch 2, 1972 the following Directors were.present : .
(I) Shri B. C. Jindal

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(2) Shri Sanjay Gandhi

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( 3 ) Shri Sudhir N. Kapadia ( 4) Shri Raunaq Singh, Leave ~f absence was granted to Shri M. A. Ch1dambaram, Shri C. B. Saran, Shri 1agdish Prasad and Lt. Col. V. R. Mohan.
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In rcspo115c to a notice issued by the Commission clariiication from him on certain matters, Shn Jindal f.kd an affidavit afflflJled on November 15 l 978. In this affidavit he says that he was "not com:crsant with the English language" suggesting. that he did nol qu1lc follow the proceedings in:tlle meetings he .a\tcn~ed, that ~e bail no . personal .knowledge of Shn Sa!1Jay GalJ\lbi) ,unuifications but<i!'believed in good {a.ith tllat ~.possessed .the r~uisi!O~~ilications to becomF the Managing Director' ,and! . ''~at that stage" he "had no basis tu suspect the boiulfides of Shri Sanjay Gandhi"'. As regards;,thchextrllordinary general m~eung held on March 3,l, 1972 :,it appears tha~ only Sill shareh<?lders were p~,,Th.is:meeting which approvc:P Shn Saiijay Gandbi~s 1appointment as
;: ( 1) Shri sana. ::.:\::. ;'"'.'..,,.;A~ '">. J y G.;! dhi ' ... '"' ~lll>i:T,1111' (2). Shri R. K. Dhawan , '' '.fc..: 1

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.(4) Shri Sheiwnder KaUrtal 1 "'*''iiirt>O ; , ~ . n--; """..".>-''I ., ( 5) Karan B'tr' s. mgh...... . . ' . . "'-~~., -:-rl, . '"" 'W:Q:q~;; ...-~ ..,_,._, .- . ~' ..... ;. _,,_j~~~,'-,:r;~_Jtt,~_~'..i::.q.'f, '.i... ... In this meeting the resolution atf!~ ..'~1'~'a.PPinnt meJ!-t w~,proposed.by Sbri Bhim'. -~!':IT. lid b Shr1 R. I!'. Dhawan who was Pers6nat'~~t' to th~ then Prime Minister. From the affida\'it !1!!!!:4 J),ccei:o ber 16, ~9~8 _of S!1i Digambl!i"J?asl"D~l!ii!C!i''.Clerk of MatlW Limi>cd, 1t appears thaH1i>tic:Q dl:ffi.js meeting was sent. oiy to twenty .siX sh8rehp~{liil'I, ,ti! on March 12, 1972,which wurliJSJif~diiYs'.:~too the. date of the meeting thougli. ~eiitf'Qrte da ' cl~~ nouce was. necessary Under the 1aw:~l!ri '.A,;:o,rR:olhatkar, J'1an ...ag~,. Pe~onnel.. and.. F!iCtO...ry~;t\dmi.''niStration, Marutt Luw!ed, said : . "I can ~ . . ...)i~l.y'.Wf..itliat 0 . ut and of .the m~gs J\p,ld ~ee~ . ,JI~~; 15th _May, 1974, .whea I res1gnCd;"tfie.i'eK!raordinary meeting da~ 3!-31~7l,was,11CVC!;"lllel,cl;\fhc:lllinutes of t!Je meeting were <hcta~,l>Y ~JS8njay'Gandh1 to Shn S. M. Rcge before me . This .IJI an uncorroborated

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statement, but even if the meeting.wa~1 h\:ld, the.indis. putable facts ar~ that there wer~ <iulY si;y ,sl!ar~bolders present and nouce of the meetmg ,)V"'i ~l!ed. to only i; twenty six shareholders and the notice agll!n w:is short. From these facts this at least is apparent that the intention was to. avoid a properly convened and largely attended meeting of the shareholders. It is clear that the authorities did not follow the normal procedure in approving Shri Sanjay Gandhi's appointment as Managing Director or ensliring hi~ minimum remuneration ; they were under pressure and afraid to antagonise Shri Sanjay Ga.ndhi. The guidelines issued by the Department of Company Affairs were ignored. The practice of not allowing two incen~ tivcs, commission and bonus, at the same time was departed from in this case. Sliri C. R. D. Menon, Under Secretary, Department of Company Affairs said he had to alter his original note calling for further information. Shri S. M. Yousuf, Secretary, Company Law Board admitted that his 'recommendation was ~uenced largely by the atmosphere prevailipg at that time. The two agreements next in point-of time are between Shrimati Sonia Gandhi on the one hand and Maruti Technical Services Private Limited and Maruti Heavy Vehicles Private Limited, respectively, on the other. They relate to her appointment as Managing Directot of these two companies.

of a technical company. Quite a large s~ C:f money was paid to her on account of her salary'l!Dd:perquisites during the period she remaiued tbe tt~~g Director of the company. Shrimati Sonia 0. . had&bown . in her income ta){ returns the following inc:Ome she received from Maruti Technical Services Private Limited :
1. Foryeareoded3091973 From 26-.:!-73 to 30-973 (i) Salary . Rs. 20,484.00 (ii) B.>nus R.s. 4,097 .oo (iii) Commission. R<. t ,441.00
2. Yeareaded30-974 (a) (i) Salary . (ii) B.>nus. (iii) commission
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3. Year eiuled 30.975 (a) Remuneration to Rs. 9,348.00 Managing Director from 1-10-74 to 1t-l-7S including commission of Rs. 1s4. (b) Dividends (Gross)
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Agreement dated 26-2-1973 between Shrimati Sonia Gandhi and Maruti Technicar Services Private Limited : Shrimati Sonia Gandhi was appointed Managing Director of Maruti Technical Services Private Limited at the extraordinary general meeting of the shareholders of the company held on January 25, 1973. Shri Sanjay Gandhi and Shrimati Sonia Gandhi, the two Directors of Maruti Technieal Services Private Limited were also the only shareholders c;>f the company at the time. A form.al agreement was executed on February 26, 1973 under which she was to remain Managing Director for five years from January 25, 1973. The Managing Director was to discharge such duties and services and ex;ercise such p_owers a~ assigned .by the Board of Directors from time to ume. She was to devote such time and attention "as may, from time to time, reasonably be required" of her during the business hours for the discharge of her duties. She was to get a salary of Rs. 2,000 per month plus one per cent commission on the net profits of the company subject to a limit of fifty per cent of her annual salary plus perquisites . As th1~ agre.ement related to the appointment of a Managing .D!rector of a private limited. company, it was not reqmr<:O to be approved by the Department of Company Affatrs.
I~ was a f~ct known to all concerned that Sbrimati Som~ _Gandln was a foreign national. In view of the pr~v1s1ons of. Foreign Exchange Regulatio.n Act, 1973 w~1ch came mto force on January 1, 1974 she could neither hold shares of any Indian company nor hold any office of profit in su;h company from the date the Act came mto force without prior approval of the Re~erve, Bank of India. l'.Jltimately she tendered res1JP!al!on o!' January 21, 1975. It is surprising that Shmpati ;Soma Gandhi who did not have any technical qual1ficat1on should be appointed Managing Director

Rs .. s2;321 ;oo

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Assessing the income tax of M~ti Private Limited for the assessment ear 19.75~76, Shrl A. Banerjee, Income Tax Officer, disallowed a part of the . remuneration paid to Sbrimali; ~~ GanpJli as excessive because she had no qualilicatton to be .able . to render any technical serviee to the company. Shri Banerjce's evidence is that he found that the reasonable remuneration admissible to 'Sbrimati Sonia Gandhi could not be more than Rs. 2,000 per month inclusive of bonus and commission. The incoine U!X assessment of the company for the two preceding asse,,sment years had. also been reopened but the pf!)Ceedings aft.er the re-opening were not concluded at the time Shri Banerjee deposed.

Tee!lliical 8emces

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Agreement dated 28-9-1974 between . Shrimati Sonia Gandhi and Maruti Heavy Vehicles Private Limited : It is not necessary, to discuss. t,he terms of the agreement dated September 28, 1974 between
Shrimati Sonia Gandhi and Maruti Heavy Vehicles Private Limited because the agreement was never put into effect and Shrimati Sonia Gandhi did not draw any salary as Managing Director Qf .Maruti Heavy Vehicles Private Limited. .

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Agreement dated 1-4-1975 between Maruti Technical Services Private Limited and Marut/ Heavy Vehicles Private Limited : Maruti Technical Services Private
Limited and Maruti Heavy Vehicles Private Limited also entered into an agreement on Apn1 l, 1975 under which the Maruti Technical Services was to render technical know-bow to the other company for manufacturing road rollcrs. The shareholders .. of Maruti Heavy Vehicles Private Limited. passed a resolution approving the agreement on October 30, 1975 long after the agreement was C'Xecuted. The remuneration

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that Maruti Heavy Vehicles agreed to pay :o Maruti Technical Services for supply of the technical knowhow was two per cent of the net sales of road-rollers and spare parts, less all discount. The agreement was to remain elkctive for ten years from April 1, 1975 and was to continue thCTeafter on year to year basis until terminated by either side giving the other not less than six months' previous notice. The difference between this agreement and the one entered into by and between Maruti LiJJtlted and Maruti Technical Services may be noted. Under the agreement between the two private compailies, Maruti Technical Services was to be paid only two per cent of the net sales of road-rollers and spare parts, in this case no payment of any lump sum or any ijxed mini mum technical fee was stipulated, nor there was any clause for re-imburscment of actuals. The difference presumably was due to the fact that both the private companies were controlled by Shri Sanjay Gandhi. On the day the agreement was executed, Shri Sanjay Gandhi, Shli Rajiv Gandhi, Shrimati Sonia Gandhi and Maruti Technical Services, of which Shri Sanjay Gandhi and Shrimati Sonia Gandhi were the shareholders, held the controlling shares in Maruti Heavy Vehicles Private Limited whieh had a number of shareholders not belonging to the Gandhi family. From the material available to the Commission a sum of Rs. 82,660/88p. appears to have been diverted from Maruti Heavy Vehicles to Maruti Technical Services. It has been found that Maruti Technical Services was not competent to render technical know-how in respect of motor cars. There is no evidence that it had the know-how in respect of road-rollers. Shri R. H. Cbawdhry, Chief Executive of Maruti Limited, has stated that till he left the company in March 1974 there was no improvement in the technical expertise of Maruti Technical Services, "Upto March 1974 '1aruti Technical Services Private Limited did not have any technically qualified person or specialist on road rollers and whatever little assembly worlc on road rollers had started by the time, I had left; was done b>.: Maruti Limited personnel, using Maruti Limited s premises and all the other related services i.e. electricity; water, telephone, postage, trunk-i:alls, !urmture, tools and vehicle,s etc.". The officC1'S of Maruti Limited who deposed-R. H. Chawdhry, Chief Executive; S. M. Rege, Secretarv ; J. K. Pahuja, Manager, Finance and Credit ; and A. D. Kolhatkar, Manager, Personnel and Factory Administration, have all stated that the two private companies had been utilising the services of the em ployees of the public company and also its office space, laboratory. workshop, telephones, vehicles ~c. Rege has said that he himself, J. K. Pahuja and Mohinder Singh, all full time employees of Maruti Limited, were also working for Maruti Technical Services Private Limited and Maruti Heavy Vehicles Private Limited. According to Rege the following members of staff were common between Maruti Technical Services Private Limited and Maruti Limited : 1. Shri S. M. Rege 2. Shri J. K. Pahuja 3. Shri J. L. Varma 4. Shri J. K. K. Afridi

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Services Private Limiled and Maruli''~...,.vye 1c1 cs Private Limited. They were : : '""" "' '" 1. Shri S. M. Rege 2. Sbri A. D. Kolbatkar 3. Shri J. K. Pahuja 4. Shri J. L. Varma S. Shri A. S. Parmar 6. Shri A. K; Guhlti 7. Sbri J. K; K. Afridi. The employees of Maruti LiJJtlted who working for either or both the private cbmpanics were given a nominal honorarium which was not" a. ~ SWll and depended on the~discretion of Cle MDagiDf Director, Shri Sanjay Gandhi. Shri KoJbatkar~;.~ ;,that not only the officers but also the dr..ftsnlcn.llll!l solllj: other employees of Maruti Limited v.ho .~ WOJbJs. Ullder the Factories Act were also niade .to Vf<lfk fol' Marut.i Technical Services Private Limited though they were on the pay rolls of the public comp1111)'.. According to Kolbatkar he pointed out to Shri ~~Gandhi that double employment was prohibited . r ~on 60 of theo Factories Act and was PUDisbablC Under'section 93 of the said Act. Kolhalbr sug8cstcd to Sanjay Gandhi that he should appoint a ~ &CJ.of officers for Maruti Technical Services. Shri R. H. Chawdhry also expressed the same view. To that S!uajay Gandhi replied, according to Kalba!)car,Jh?t he ~ not c:ire for the Acts made by ParliamcDt. Kolhatkar added that he had seen the list of einp!Oyces wilrking with Maruti Technical Services . during the_ }'car 197273 and found that all the 23 employees of Maruti Technical Services figured in the muster rolls of Maruti Limited. Kolhatkar stated further that the employees of Maruti Limited were also utilised by !'.(arutl Heavy Vehicles Private Limited for the assembly of road rollers. He named these employees : I. Shri Joginder Singh 2. Sbri P. N. Raut 3. Sbri Alimuddin 4. Shri N. D. Joshi S. Shri Kishori Lal. The employment of the staff of Maruti Limited by the two pnvate companies resnl.ted in indirect diversion of a large ~ of moneY. from .the pu!>lip company to the tw~ pnvate companies ~.,by Shri Sanjay GandhL It has not been possib!C'i"ti), ~n the exact amount so diverted. Sbri RaJQ S~ Labourcum-CODCiliation Officer of ~,iGovment in Gurgaon, depos~ ~ore the ~mis.siAA said that it nevci: came .to bis noucc that the.,Rllll)'.Mlnl.oyces weie w~king for the public co ionA/""""'; private com~. On'~~-~~ the two not have been di~i;ul~ to)~~~oW,d

J. K. Pahuja also named the cmP!i:!Y~~1Pf 1.~~ti Limited who were also working fo!i:~~.J !k:f'.~luii.h.ca1' .

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CHAPT!ll VJ
Items 7, 8 and 9 of the matters listed in the terms of reference fall into one group and cover a very wide field. They are being dealt with together in this chapter. The seventh term of reference relates to business dealings of the Maruti concerns with !be Central Government and, various State Governments a.nd also public sector undertakings, statutory cnrporatious, Government companies and local bodies. It covers all matters pertaining generally to the negotia: . tioo, conclusion and execution of contracts ai.id agreements between the Maruti concerns and the Departmeiits of the Central or State Governments, etc. Tho various aspects of these transactions such as the reason '.' ableoess of the terms of such contracts and their com' petitive character, the measure of freedom that the contracting parties had in entering into such contracts i and agrjlements, the extent to which the normal proce. dural and other requirements were adhere to, the extent of the extra financial burden tha~ the other parties to the contract had to bear under those contracts and agreements, the quality of the performance of the contracts by the said Maruti concerns and the standard and utility of the goods ana. services supplied thereunder and all other aspects of such contracts and agreements between the said Maruti concerns, either as principals or agents, and the aforesaid contracting parties relating to supply of mounted cranes, trucks, road rollers, aircraft and the building of bus bodies arc to be looked into. The eighth term relates to all matters in respect Of contracts and agreements mentioned in item 7, which pertain to or suggest undue influence, coercion, misrepresentation, exercised, used or made by the .Maruti . ~ncerns or by any of their. Directors, Managing Director, officers, associates 01 anyone connected directly or indirectly with those concerns or acting on the instructions, instance or guidance of any such Director, Managing Director, officer, associate, etc. The ninth term of reference amplifies the scope of the seventh term by directing the inquiry to such further L,atters as the nature, magnitude, 1ustiliability, propriety and legality of the financial and other benefits that accrued to all or any of the Maruti concerns or to anyone directly or indirectly connected with those concerns or his friends, relatives or dependents, arising out of the above contracts and agrecmnts as well as all . matters relevant to the determination of responsibility for entering into those contract~.
. Numerous transactions have been reported by different departments of the Central Government and I~ authorities and Government companies which were entered into by them with Maruti Limited and Maruti Heavy Vehicles Private Limited. Certain State Goyernments, namely, Hin1achal Pradesh, . Haryana, Ra1asthan, Madhya Pradesh, Punjab, Karnataka, Uttar Pradesh and Maharashtra have also furnished details regarding transactions which were entered into by those Governments or their Road Transport CorporaS/8 HA/79-12

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tious and other statutory bodies (such as New Okbla Jndustrial Development Authority, Himacbal Pradesh Housing Board) with Maruti Limited, and Maruti Heavy Vehicles Private Limited. A complete list of the various business trallSactions thus cn!etCd into will be found in lumcxure 'A' at the end of'tbis chapter. The various transactions etc., can ~, COD.vcniently grouped together as follows : . . , ,, . ,

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(a) Supply of road-roUeni (Slid~) by Maruti


Heavy Vehicles' Private Liuiltcd'; :.: ''
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(b) Contracts. for fabrication-. of ,l)llt-bodia by Maruti Lbtlitd ; . . ." . ,".>'., ' . :, ',,i< ",.. . (c) Import and . . of Pipor :Altci'8ft ;' ( d) Supply of various components, parts, etc. by Maruti Uinited and Maruti HC4vy:Y~lcs Private Uinited to the : Depattllient ' 'of Defence Supplies, Departmeut!:of,<1 Supply, DeR!lrtlllent of Electronics, Hindustan Aeronautics Limited, etc.. i
( e) Trade enquiries !llllde by Manlli Tedmical Setvices Pr~vate. Limited for~ supply of certain items (and also purcbaies.' lllltdo) from Bharat Electronics ; .
(t) Purchase of aircraft-spares; ~iilPJli:clu. ~. etc. by Maruti Technical Scniccs <Limited

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from Indian Airlines.

(g) Supply of the foll~}t"":'..,by,.. Maruti Heavy Vebii:lesi ~ate~ tO'Oil lllld

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(I) 14 truck tractors ; . . . .. . , (h1 8 truck-mounted' ~obilo ~!:J


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(h) Miscellaneous transactions including,:

(i) Purchase of Quick Flow Po~ by Water Supply and Sewera~ ~"' Undertaking from Marull, T~t,al,:iSei;vlces Private Limited';' . '
Delhi Municipal Committee fron:i Maruti Limited for storm water drain$.; (iii) Consultancy Contract of Maruli. Tocbnical Services Private Limited "1tb J:iOIDA ; (iv) Purchase of 6 Maruti Pro~ by Eitgineering Projects (India) Limited ; (v) Negotiations for purchase Ot macbi11ca from Maruti Lintited by .Scooters lndia
limited; ' (ii) Purchase o~ pro;c:aSt. RCC &labs by New

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Limtied for building of cabs and bodies received by Scooters India Limited ; (vii) Placement of orders for Idlers and Rollers of Maruti Limited by Mining and Allied Machinery Corporation Limited ; Sale of machines to Maruti Limited by (viii) Hindustan Machines Tools. It was not considered feasible to conduct a d~tru1ed probe into each and every transaction. Certlti.n transactions were prima facie of a minor character. In some cases though negotiations had been initiated, no business actually materialised. In 3 cases vi:. ONOC Road Rollers case, Polymix case and Delhi Transport Corporation Bus Body Building Contract, the Central Bureau of Investigation had already finalised their investigation and initiated further action. A de novo investigation by the Commission into those cases did not seem necessary. As a result or a preliminary check of the available material certain cases could, however, be identified as deserving a detailed probe. These arc listed below : -

lVi) frnde offer from Maruti

I I. Purchase of one Roa4 .Roll~ ~Y ~nttal Coalliekls Company Lin11ted, , a public Sl'ctor

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Orders placed with Maruti Limited by : I. Rajasthan Roadways.

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I. ONGC Cases :
I. Purchase order for 14 truck tractors placed by ONGC on Maruti Hea.vy Vehicles Private Limited in 1976 ;

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2. Purchase of 8 Truck mounted mobile cranes


by ONGC from Maruti Heav.v Vehicle< Private Limited.

Sj)".citic mentioq haS been. ~a#'.~;~~i?7or contracts. for the supply of m.ou ..nted. ~~'.~~: ro.,,i'~. rollers and. also for fabricatio.9 Qt ,'b.. . , ,, , . ;im. 'fi , Natural Gas Commission e~ed Ill .~ ,, , ,Ill;~~ deals with Maruti flea vy Veh1cl~ . . ~J!ir supply of moun.ted (mubile) era , :~lfAA~ tors The road rollers group of ca5es . ,. . . eflJUS transactions. These ha.ve been .de,all., ~. ~~.W.~.IJ! . e~)r. this repurt for the .sake of cOn\!enle#~;: , .. ~,. l!S Bus body building ~ntracts/~1\ie~~~.'..'.ll:'Pn~~' 11 is necessary to look m:o certain tr~o.p,s .,en,\CfCd into by Maruti Limited, with the ~,,' ;Tt111l5port Corporations of Madhya Pradesh,, .~, Pradesh and Delhi TransJ>Ql1 ~~&M~ dealings with Haryana Roadways. W~;trpm the terms of reference of this ComD!J~!?~ii/ill!l.-,;;i;!i!!se transactions were included in the tenDs Of reference of' the Commission of Inquiry he~de\t"or~~~ifa,gilnmohan Reddy, t ,:. 1'''" ':>;\!" fl-Y .,

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II. Road-Rollers Group Cases : I. Purchase of 25 Road Rollers of Maruti make by Public Works Department (Building and Roads) Rajasl)Jan ;

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2. Purchase of I 0 Maruti Road Rollei;s by New


Okhla Industrial Development Authority (NOIDA) Govt. of Uttar Pradesh. 3. Purehas~ of Marutl Government of Punjab.

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For supply of Piper aircraft, . Jlli~oli,S , were entered into between certaii) Staie.. ~ts and auth~rities ~ubordil!1117 to them, willl '~ '.J::C\Ch11ical Services Pnvate nt1te9: Orders.,~ nc;>t;".l!o~~~~r, placed QJl Maruti Techmcal SerYJCC!i PrmjtO L.mutcd for supply of the aircraft, even though Orders for release of requisite foreign exchapge for theU import were issued by the Central GoverJJl!ICJ1!, due to the change in the Governm,:nt at the'.CcinJrc in' March 1977. No transaction regarding ~~A;>,f,;\q.)'.,'oiber make invo(vin,g any o~ t}le ;,~~,: was reported to tlus COmmiss1on. . ,, , .

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4. Purchase of 9 Maruti Road Rollers by Governmeni of Himachal Pradesh and one such Road Roller by Housing Board, Himachal Pradesh.

Case-wise statements of facts nave. been . preparc:d which are incowrated in the Apnendix IO. this repi>rt. For full details of each case the relativ~ ~tatelllem <'f facts can be referred to. , . :. . TRUCK TRACTORS ONGC had floated a global tender for trW:k tractors (an imported item), 16 units witb<>lit'oilfiC!d equipment and 6 units with oilfield equipUle!Jt, Tenders were received from dilfereut parties wh!P,i,w.cre opened on.March 4, 19~6. 21. offers were.~ ou ti.me while 7 were received late. One of the tiniely tenders was from M!ll'llti Heavy Vehicles Private.Limited for a West German .model. This '!ff'er alo11g ,~th several others was considered tcchmcaDy . acceptable the lowest of!"er so acceptable being that of M/s. U~imac <;orpo~auon. While these , tenders we.re under cons1derat1on, a fresh offer dated May 14 1976 (that is long. after the date of opening the 'tenders) was received. from Maruti Heavy Vehicles Piivate Limiled for a different model. The compa,ny approached the

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5. Purc1lase of 3 Maruti Road Rollers ana soare


parts by NDMC. 6. Purchase of I 0 Maruti Road Rollers by Delhi , Development Authority,

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7. Purchase of 3 Maruti Road Rollers by Delhi Municipal Corporation.


8. Purchase of 8 Road Rollers of Maruti make by Government of Kamataka. 9. Purchase of one Road Roller by Roadways.

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10. Purch~se of 6 8/10 tonnes Road Rollers of Maruu .mak~ and SJ?are parts of Road Rollers by Engmeenng Proiects (India) Limited.

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then Minister of Petroleum, Shri K. Q. Malavi ya, requesting consideration of this late offer. The letter containing this new offer was passed on to ONGC wilh a minute of the Minister, Shri K. D. Malaviya to consider it, if otherwise in order. The Tender Committce of the Oil and Natural Gas Commission considercd the matter again and decided to call for fresh bids by June 28, 1976 from all the parties. The fresh quotation of UNIMAC was again found to be the lowc,;t. Maruti Heavy Vehicles sent a telegram which was received on July 3, J976 offering reduction i.n the Indian agent's commission from 7l per cent to 3t per cent. Thereafter, further negotiations were held and eventually the offer sent by Maruti Heavy Vehicles as revised was recommended for acceptance for the truck tractors without oilfield equipment. The requirements were, however, revised and reduced to 12 units without oilfield equipment and two units with oi!Jicld equipment. While making a comparison of thequoted prices, certain esSC11tial elements, i.e., bea~-y lift charges and cost of spare tyres, were ignored and insurance and freight charges were also calculated on a rough percentage basis and not on the basis of fignres quoted by the parties. When the case went to th~ Government for consideration, not only was the proposal of ONGC in respect of 12 truck tractors without oilfield equipment accepted, but even for the two truck tractors of the second categorv the Min!stcr-in-charge decided to accept the Marutl 'Heavy Vehicles offer on the ground that it bad become the cheapest as a result of further reduction otfercd by th~ supplier. It was pointed out to the Minister by the . Jomt Secretary concerned that even with this reduction, the Maruti Heavy Vehicles offer for truck tractors with oilfield equipment remained costlier t~ai;t UNIMAC's offer. On this Shri K. D. Malaviya dCCJded that the supplier CMHV) should be asked to fu!'f~er reduce thei.r price. Concurrence of the Financ6 Mtwstry was obt;uned to this proposal on S.:piember 20, .1976 and orders were placed on Maruti Heavy Vebtcles for both the categories of vehicles :it a total c~st of Rs. 73.48 lacs. Maruti "Heary Vehicles having failed to make supplies, the purchase order was eventually cancelled on October 7, 1977 at the 'risk and expen_se of the party. On the basis of the evidence avatlable, the Conunission is of the view that un?ue favour was shown to Maruti Heavy Vehicles P:rvate Limited, in consideting their late offer for a drffere!'t model. and allowing the company to revise .its quotatron.s agam and again without allowing similar oppm;tu!'llY to other competitors to participate in the ne!!otiatiOn~. further, the computation of the quoted _price and )Jlc1denta1s was not done according to the CQfl'CC~ methodology with the apparent object of gettina financial benefit to the supplier. "' MOBILE CRANES '!
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Vchicles submitted a fresh offer for two d.ifferent DEMAG models. A Committee of OJ!iccrs uf the OU & Natural Gas O>riJmission examined all the offers received, both timely and late, on l<>th November, 1975. Though the necessary technical data was not available, on -the basis of a load diagram chart and certain assumptions, the revised offer of Maruti Heavy Vehicles for the different model of DEMAG which had air cooled engines was recommended for acceptance without even cbeckillg whether the crane model IC-280L now otrered conformed to -the tender specifications, particularly the lifting capiu;ity of tlte boom to the required height of 12 meues and mobility of the vehicle. Approval of the Members concerned in the Oil and Natural Gas Co~on WQ not obtained in the first instance before considering the late otrcr of Ma1uti Heavy Vehicles and negotiations were also conducted with the parties without obtaining t.be prior approval of the competent authority. The Tender Committee bad reCOillQleQded _tl)e ~ of mobile cranes of HOIST make for which the quotation was t.be lowest technically acceptable, but hlll;I also clc;ired the latest offer of Maruti Heavy Vehicles for nir cooled DEMAG model as technically suitable. The Secretary in the Ministry of Petroleum recomin.:nded acceptance of the lowest offer for HOIST ma~ cranes which confQrmed to the tender speclficati<>llS. - The then Minister.of Petroleum, Sb.ti IC D. Ma!aviya, however, did not endorse this recommendation and recorded a note on January 29 1976 directi,ng acceptance of the offer of Maruti Heary Vehicles for DEMAG cranes on two grounds. ~e referr~ IO .thc: {a,ij~- , 011_ the part. of some Ame~ suppliers ur.W<!~dijg spares on lime_ ~nd als? laid stress OIJ th~-~iy Of a collaboration being worked out ~'',i'i~aiuti ,11,11d Demag. ~- Janu;uy..27,).?76 ~,ll.H1;11y,_V~~es offerec;I a Pl'lce_~educti_on.-;ui_!J : ______ _,< tQ _ ,, _ _ " re.go totally the ' Jnd1an -a~"' - - ~- "' -To!r'th Finance Minister 'to Wiio~tiie ~- ' - -M" f~~ eoncuaence initially 'avolil'_ .;,, . ~ftd tn -- _o . . ,..,. -the _ ce bnng for --~' - ""'"- --,. level of'thr~.~ - !~~ -- . - ;i'.1Jle 9

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cussion Malaviy_a' 'and' 'tlic-'tli "'1 Fl '' _, . - ... ,:~c;n . :~ ramanlam an., a fieSh 110-"' ~ hic,b, w::'y>_: :\YQ$ ._ ,_ " Sub
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Comm1ss101! for supply of 8 truck mounted - b .1 cran;s ca7 imported item), The tenders Wen' ~~~~ on une ' 1975 and offers of I 0 parties coverin 13 models we~e found technically acceptable Mg I' Heavy Ve~rcles had sent a timely offer for Z-DE~G mod~~s w.luch were not found to conform to the tender spec1 cations. On October 17 1975 M - . H arutt eavy

Glo~al. tenders were floated by Oil and Natural Gas

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made by Maruti Heavy \!'~J~ ~~.P,.~ icf'~ lower otrer_ of HOIST._ -111e M1_~~-~tiOril !h anangemel)t between Dem . ' ~r ~i:~ liol) referred to aS of the. ~t 'l"!li:.h M ~~ Heavy Vehicles offer never mateniilised'''~ f' _arulJ collaboration proposal was ar1 ...11y ,, .; n a.ct no lion at that $l3ge-~tweeii _,,er cons1den.7 concerns or -bad _- llllck ~Y. Qf,f;bc Maruu Maruti for such anuy bapp, !=llJiOIJ; '~cu .tec:e1ved from a co a oration. Even though Maruti

merely. Jcompetitive. ~Ii u~.vv y,.h; 81 ' of M 1000' - .. ~!'<"-;,<;., ,..,., ,R- -- ,_,~, C t ion -per ~~\a!i'Pr:o - " r,soo agai!lst a total cost ~~ 2;.n1 t;.#<;.ori.1; /lll~ foret!l" exch:QJge ri:qmrem_P_ts_ ~~~- ; e -_! _ ::::. - '''.'i.r :: -d but instead of the actU-llt"111i:rea.s1:<1"' '~~~ f Rs. 16.~41acs, a!1 in~.9f~.:~z;q3 ~we~~. The revised foreign exc:Jiai!gc requit,eni~ofRs. t.70 cror~s W3;5 released by the -DepaitmCilt ' of Economic Af!ap:s without th!! .s~ :l!PP!OVl!i. nr th p anc<1 Mm1ster. The_ MiniStCI' ~_or P_c e~_1e~sfilf it'_- _m D
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Heavy Vehlcles had offered to fo!'cgo the entire Indian agent's commission in their revised offer, Demag have confirmed having paid the equivalent of R:;. 13.62 lacs as commission to Maruti Heavy Vehicles and another Rs. 2.56 lacs (D.M. 69000) as mediation commission to one Shri Onb; Ahluwalia, the Company's representative in West Germany. Maruti's share of the commission was credited to their Bank account in the Muiiahcra: Branch of the Central Bank of India. The evidence adduced before the Commission as regards the above transaction clearly shows that undue favour was shown to Maruti Heavy Vehicles Private Limited in entertaii)jng the offer made by the company and allowing it to niake unilateral reductions in the quoted price. Rejection of the lower offer for cranes of HOIST make could not be justified on the basis of the grounds stated by the Minister of Petroleum in his note and is another instance of undue favour to Marutl Heavy Vehicles Private Umikd. I ROAD ROLLERS A large number of transactions fall in this group a.nd most of them have been examined. The facts or each case have been considered in detail in the relative statement of facts (see Appendix). On analysis of the facts certain common features of these transactions have been identified. Global tenders bad been invited by the Pubhc Works Department (Building and Roads) of Govemnient of Rajasthan for bulk purchase of road rollers Detailed (25 .in ll\llflber) for certain. project works. specilicauons had been notified for this .Purpose. One of the offers received in response to this mvit1sllon wa. from M/s. Jalan Modi Automobiles for Maruti brand road rollers. This' offer was rejected as being technically unacceptable and also because the price quoted (Rs. 1,60,000 per unit) was not the lowest. Shortly thereafter fresh tenders were invited for pllICbase of a second lot of road rollers for ~on of certain Central road works. The purchase was to be financed out of a loan promised by the Ministry of Shipping and Transport, Government of fudia, in July 1975. subtect to the c;ondition that the purchase of th~ eqwpment sanctioned out of the loan assistance Wl\.S to. be routed through Director Genera! of Supplies 1111d Dispo~als (DGS&D), a Central purchase organisation On this occasion the specification for the road rollm a~ notified w~re different. M/s. Jalan Modi Automobiles_. authonsed selling Agents to Maruti Hea Vehicles Private Limited for I'Oad rollers, sent th;&'. offer. Tb.ls off~r. though not the lowest, was accepted after the pnce quoted by them was reduced by Rs. 2Spo per. roller. Shri Amrit Swaiup Agaiwal Executive Engineer, Mechanical, PWD {B&R), Rajas: than and certain other witnesses have categoricall stated that the above order was placed due to essu/ l,rom. the .th~n Chief M"mister, Rajastban, Sbri ~id~ !osh S~n ~ S. Agarwal has brought out the following 1acts 10 his statement ; " .as on ht January, 1976 r could not visualise that tender of M/s. Jalan Modi Automobiles could be considered for acceptance because their price per unit was Rs. 1,25,000. I had, therefore, issued such letters only to the firms who bad given the three lowest tenders. I thought at that timo that tender of one of them was likely to be accepted. lt was on 2nd January, 1976 for the fu'St time that I learnt from the Chief Engineer that the Chief Minister desired the order to be placed on M/s. Jalan Modi Automobiles." Sbri Durga Prasad Jain, fonner Chief.:&gin=. (B&R~, .Rajasth~ has in his 'aeJ><:"itiOI?- .before tbe Comnuss1on admitted that the Chief:, .Minister,'. Shri Harideo Joshi, told hiDJ to accept Mailiti's::offer by 3rd Ja.nuary, 1976. He has furtijer. stated "l was told that last time also r did not do the ri&iit. thing and created di11iculty in not getting tho,~!~:,tcnders sanctioned. This time if I bCbawd~m>this:. m&nncr, I will be in dlfficulty in bot waters and :dmi is emergent time and anything can happen", ... ..; , ;; . 1 The offer quoted by Maruti Llmited was not the lowest and ShifD;'P;'Jain had to enter into negotiations with Sbri K; Ll'Jalan of Jalan Automobiles, sole selling agents for Maruti Road Rollers, for getting their quotation Iowiired~ Ceriain ot!te~ witn~ have i!1 their ~ny befoie the ConiIWSSlOn admitted bavmg COIDDlltted certain: pcocedural lapses so ~ the ~rde~ CO!Jld be ~ cn@dy. Certain technical deficiencies m the Maruti :koiui"Rollers have also been brought out in th~ ~;t Two witnesses Sbri Raman Lal Gupta, Scmor Accounts Officer and Shri A. S. A23rwal have tOld'#Uie'Com" mission that Shri D. P. Jaln Wlltl)Cd tbeiu.'ciJiat ''Main to MISA men Jaoonga he Jaoonga, Aili> $le- sath jaengei agar aapne note chadane i;hllQl ~ tO'':'(I i;haU go in Wider MISA, you too shall he scm!iJi :if yoq put up notes). .~1h~'0~,;1~',1__;:r _

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Rajasthan Roadways also purchUcd 10rie ~uti ~ad Roller without inviting open 'il'!]F .Th.e ptjce paid by them was that settled by thC PllbliClf Works Department (Buildings and Roads) of tluf State Government in their deal with M/s. Jalan l49di Automobiles. ! . .. _..;;,: . '>,Another major purchaser of Maniti' braad rollers was. the Public Works Department of. GQv,e,giment of Pun1ab. That Department purchased 15 road rollers (and spares) from M/s. Jalan Modi Atomobiles Sole Selling Agents for Maruti Roll~ ... ~Qll W!!!i .hutiat-. ed. for purch!ISC of road rollers by th~:J:J>!i4 .Works Department m pursuance of the decisioif taken by the thC!J Chief Minister, Punjab on Se~ 13, 1976. This was d~ne Oil the recommendation' of the .Minister P'YJ?, Pun1ab, as S!ui T. A. Pai, who was then Uuioil Mimster !'f ln~'!stri~ and Civil Supp!icsbad written to the Chief Minister m July 1975 and again in August 1976 to ~ road rolle.111 f.romJCSl!!'J>S, a public sector W11t, which was bavmg a heavy 'mventory of road. rolle:s. Though necessary funds had not been provided m the State Budget for purcljase of road rollers, the Chief Minister. directed t1J4t 1111. indent for p~ase may be placed. Tenders were thereafter mvtted by the Omtroller of Stores Puzjjai; (Dat i publication 30th Seplepiber, 19i'6 ~ii' due date cfo~

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opening fixed 15th October, 1976). After considering the offers received (7 in all) including the offer of Greaves Cotton for Jessops rollers, the lowest three were rejected and that of M/s. Jalan Modi Automo biles for Maruti brand rollers was treated as competitive and accepted. No administrative appl'Oval or financial sanction was obtained before placing the indent. Shri 0. P. Malhotra, Chief Engineer, Punjab, has stated that "though it is a normal procedure to submit estimate for administrative approval prior to the placing of indent, it could not be done in this case as the Chief Minister had ordered to place an indent immediately''. Payment for the rollers was made by issuing a Letter of Credit since budget provision did not exist. In his statement Shri Malhotra has l?iven the following explanation : "As per the Chief Minister's orders, the Leticr of Credit was issued out of the suspense account as the road rollers had already been delivered and payment (90 per cent) could not be withheld as per the terms of the supply order."

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Shri S. L. Kapur, Commissioner, Excise and Taxation. Punjab, who was Secreta1y, Industrfos and' Public Relations, Government of PUJ)jab, in 1976, has stated "I received a number of messages from C.M.'s Secretariat regarding early disposal of this file. It was also indicated to me by the Secretariat StaJf that Mr. Jalan had also met the. Chief Minister and that the C.M. w~ annoyed on the delay in disposing of the file". Slu,1 Ka~u~ had put up the file with his note to the Cluef Miruster who was also the Industries Minister then. The note was approved by the Chief Mir,ister the same day. .
The Government of Himachal Pradesh has purchased 10 Maruti brand rollers in all. 9 were purchased by the Public Works Department of the State Government w!JUe the tenth unit was purchased by the H1machal Pradesh Housing Board, Two out of me nine. Ma!'1ti rollers u~quired by the State PWD were received rn 1975, two m 1976 and five in 1977. Severn! witnesses in their depositions before the Commissi~n have openly referred to the pressure that was put on the'!! by th~ then ~WD Minister. Shri Ram Lal. Shn R. C. Srngh, Chief Engineer, bas stated that about Sep!emb-:r 1975 he. was told by Thakur Ram Lal that Shn Saniay Gandhi had asked him to purchase two . or three Maruti Road Rollers for Himachal Pradesh PWD '.'".d it appeared to him (Shri R. C. Singh) thai the Mmrst~r . was under some sort of pressure. He told the M_mister that be was not competent to place an order du-ectly and that a reference to Controller 0~ Stores "'.as necessary. Shri ~am Lal told him to go ahead with the !11!1~ter and expedite the same. Action: was, therefore, Ulltiated for purchase of 2 road rollers.. In S!!ptember. or October 1976 Thakur Ram Lal Minist~r~ again t_old him that hc-'l(fas under ressur~ the Mm1ster .desired that the matter should s~mehow rollers for H1machal Pradesh PWD There wa bd t " ' ' S DO th ti!~ovrsron. for the purchase of road rollers but be ter desired that the matter should some how r;ff~!3e~ 1fiirougb. Severa( other witnesses have also .. :o e. atmosphere of fear which wasthen revailinz and sard that they handled the case with ut~ost

expedition knowing that the Moruti Heav,y Vehicles Pnvate Limited was owned by Shrl San1ay OaJidhi, Sbri H. C. Ma,lhotra, another Chief Ene;i.ncer in the PWD of the Hinlachal Government has, however, denied that any pressure was put on h,iln. It has come in evidence that bis wife, Mrs. Usha Ma.lhotra had contested the Assembly Election for Simla constituency as a Congress Candidate in June 1977. Shri lnper Mirchandani who was then I.he Chief Engineer, Himachal Pradesh Housing Board, has said in his statement that in connection with the purchase of one road roller by the Housing Board Shri H. S. Sobti, representative of M/s. Jalan Modi Automobiles, introduced himself as representative of Maruti Road Rollers. Mirchandani says "Shri H. S. Sobti had told me that he was representing Sanjay 'Jandhi and that it was in my own mtercst to place order for Maruti Road Roller to meet the needs Jf the Housing Boal'd. That time was an emergency ;>eriod and (be atmosphere remained vitiated. The PWD had already pur Chased some road rollers from this lion and it was known to all that the Government was interested in the pwt:hasc of these road rollers. Sbri Sobti had also told me that he had taken Thakur Rain Lal, Minister PWD, and Shri H. C. Malhotra, .Chief Engineer, to Gurgaon for showing the factQry. He olfered to take me also to the factory and introduce me to Sbri Sanjay

Gandhi" ....

"I ~as conscious of the fact that the ~ offering Mantti road rollers belonged to. Sanjay Gandhi and h.is representative who was near to the Government had already threatened me by saying "Na Lo Gey To Pachtao Gay" [If you do not take (Maruti road rollers) you will come to grief]. The New Okhla Industrial & Development Authority (NOIDA) which was set up by tl;te Government of Ut\al' Pradesh in April 1976 llllder U.P. Industrial Arca Development Act of 1976, bad placed several orders in quick succession on Maruti Heavy Vehicles Private Limited for supply of road rollelli-ten in allthrough their authorised sellinJ: agent J alan Automobiles. Shri D. M. Misra, Chief Executive Officer 'NOIDA, has brought out tl1e following facts io hi~ statement : "On 15th April, 1976 I met the Chief Minister of Uttar Pradesh at U.P. Niwas who in!ormed n:e that Shri Sanjay Gandhi had informed ~un that no work was being done in tbe proiect. The Chief Minister appeared to be upset and desired that the whole work should be started on war footing and the red tapism should not come in our way. He also desired that we should ensure very speedy and visi ~le progress and keep Sbri Sanjay Gandhi infonne~ o~. the progress. In pursuance of these dire~o~ of tbe f!len Olief Minister f I_D~t ~ Saniay Gandhi at the then Prime Minrst:;r s . "ho~ a'!<>ut .live or six times . 'Shri San1ay Gandhi. also visited NOIDA srte about four-five times between May/June. 19?~ to Februazy 1977. During most of his visits I was present cw:ept the first. one and D!lil be one or two afteiwards. .Dur!n& these VU1ts. also he gavc'various &uggestions about vanous development works

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s~ch as construction of sheds, roads, laying of sewer lines, erection of power stations etc. ctc.u ..... . "As far as I remember Shri Sanjay Gandhi had vbited NOIDA on a Sunday in the last week of June 1976. I was not present at that time. One of the Assistant Project Engineers, Mr. H. S. Gaur was present. Shri Sanjay Gandhi was accompanied by Shri J agmohan, Vice-Chairman, DDA. He was taken al'Ound the various developmental works. He expressed opinion th.at there was a shortage of road rollers in NOIDA and therefore the compaction of roads might not h~ of the desired quality . . . . Shri Gaur infom1c<) me about the visit of Shii Sanjay Gandhi and points raised by him ..... probably Shri N. D. Tiwari the then Chief Minister of U. P. also visited Delhi on the same day. It was probably the same Sunday

88 of Maruti was the lowest. The Jessop offer was rejected and p111chase of 3 rollers-two of ~ti mak~ and on~ of Lion make was ordered. Shri G. G. Pun, Chief Engineer (EM), Irrigati~n Dep~CI!t, Madhra Pradesh, has stated the followmg facts m his affidavit: "The purchase of 2 Maruti Rollers an~ one L!~n Roller were essentially trial purchases agamst spe~ilic sanction and requisition with due regard to contramts of time and pJsition of funds. . . . . Though I was undei considerable pressure .to agree to the purchase of large number of Road Rollers I have done everything that could be done to protect the mtcrests of the State .... " Shri Laxman Panjwani of Bhopal has stated in his affidavit that the trial tests of one o! the two Maruti Rollers purchased by the Irrigation Dupartment were undertaken and certain deficiencies noticed. The working of one roller loaned to Public Works Department for consolidation of roads has not been trouble free. The other roller could not be used or tested till 8th December, 1977, the date of the allidavit. The Irrigation Department of the Government o! Kurnataka had also purchased 8 Road Rollers of Maruti make. The State Gove11lll).ent had sanctioned purchase of 19 Diesel Road Rollers durinj: 1975-76 for the Malaprabha Project. In the sanctl;On i! was stipulated that the purchases may be. Dlade without going through the Stores Purchase Department but advantage could be taken of any subsisung DGS&D rate contract. As there was no DGS&D rate 'contract for road rolle1~ in force at that time, a restricteiJ.lnguiry was floated by invitinl! quotations from tivQ'nianufacturers of repute or their sole s:lling agentS on December I, 1975 for supply of road rollers. Onbecember 2, 1975 quotarion was also invited ft-c;>,~ ,.~s. Jalan Modi Automobiles, Guq;aon. The. letters mVtllD!I the quotations did not sl'Cl"dically r~fer .~o '.~;,~cifica tions ror road rollers. Three firms viz,.Qrel!IVCll, Cotton (for Jessop road rollers), Garden. Reach ...W1>rbhop (for GRW road rollers) and J$Ji ~~ij\~ti>JJil:Obil~s (for Maruti road rollers) respond~''\'.l~q fitii1s did not respond at all while the sixtli' fiiiiir~~te'.iO'stiy IJ!at they had stop~ manufact\lring .i'qil4 rgt{e~,,,.. An indent for supply of 11 road roll~4.'.1.~:lli$: w~s placed with the DGS&D on ~~;~.'.:~97.S. a~ 10 the meanwhile Greaves Cotton anif' .CoiJl~Y Lm11ted had informed the Chief Engineer that :JCllSQp road rollers offered by them were availal:>lcrli,(:PQS&D approved price of Rs. 1,56,000 ~I!. :Po(the J~alance requiremen.t of 8 roa~ rollers 1!11 c?n.fer)Y~ pJl!~ on Jalan Modi Automobiles on January :~~:t}.ir!#i,'~!l the lowest offer of Garden Reach Wor"'1Jop;'.(a pjlblic sect!>r unit) was ignored. . The field lif.,_f#., ti),~ }rrigat1on Dc:J?artmen~ later . repo~ .. thJI~.'. IJ!e::~ ..road rollers did not give satisfactoiy, ~m~.s~itfJY ID up hill drive; due to improper weig!J('~.!l~i!A l:>Ctween the front and rear wheels of th~ .\\,l;lu.ir.~R'J; 1 ,: .. . In his testimony before the Co~i>i:i;'i$1Jn Basawaraj, Special Secretary, . PWD 'CJPilillt\On);' Government of Karnataka, has stated "l'd!i''riofiiliilember whether anyone met me while' l~wjisc:w: l3aogalpre in November before sending the' enquiric5TJ' got the literature regarding Maruti Road Rollers in Ute Chambers of the Minister of 'State for Major and Medium

that I n1i;t hin1 in the evening at U.P. l':hvas.

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He i1Jquireu about the progress of the project and informed me that Shri San jay Gandhi had informed him that there was a shortage of road rollers in NOJDA. He wanted to know what steps were being taken to procure road rollers. I informed him that we had purchased Jessop road roller and were making arrangements for more road rollers . . . . . . . . He said that we may consider Maruti road rollers also and as they would be easily available and Shri Sanjay Gandhi could also be requested to expcd1:e their deliveries. Before this I' did not know that M/s Maruti Limited were manufacturing road rollers. On the basis of this suggestion of the Chief Minister I asked the Senior Project Engineer, NOIDA, Shri B. S. Agarwal to float quotations from them also . . . . . . in this case also it was a rush purchase. There was no time to invite ., quotations through wide publicity from other manufacturers. The matter was also not examined in great technical assessment/details by making technical comparisons". After this the requirement for road rollers was reassessed by the NOIDA Project officials from time to time and purchases made by placing repeat orders on Jalan Modi Automobiles. The Public Works Department '(Buildings and Roads) of the Government of Madhya Pradesh )jad been advised by DGS&D, (on whom an indent had been placed as envisaged in rule 7 of the Stores Purchase Rules of the State Government) in February 1977 to meet part of their requirements for road rollers by purchasing 5 Maruti Road Rollers (against an indent for 36 rollers) .. This advice was not accepted by the State PWD for technical reasons in March 1977. However, the Irrigation Department of the same State purchased two Maruti Road Rollers in February 1977 :Ut~r inviting a short notice tender instead of placing m mdent on DGS&D. Three valid offers that of Jessop, Lion and Maruti were received and the offer

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Irrigation, who infomied me about the n~ roller~ ~rid asked me to examine this product for use 1n the Irrigation Projects". At that time Shri Subhash Ashture was the Minister for Major and Minor Irrigation. The New Dc!hi Municipal Ccmm1ittce, a local authority under the. cc.ntrol of the Central Gmern mcnt had also purchascJ 3 road wller> of M~ru1i mak~ alongwith spare p,arts. Jn August 1974 th~ Municipal Engineer, N DMC proposed purcha~e of two road rollers as acccrding tc- him road rollers acquired by NDMC in I 966-67 had be.::ome.unserviceablc. At first purchase thro~gh DGS&D was con templated. The matter. was however reviewed some time in August-September 1975 and a deci:.ion was taken to invite open tenders. In rrspon<e tc the invitation to :ender issued on Oc;lobcr 27, 1975, several offers were received induding one by M/s Jalan Modi Automot>iles for Mvruli road rolkrs. The offer of M/s Jalan Modi Automobiles was not the lowest but it was rOlommended for ac:eptancc by the Chief Engineer, Shri V. P. Chctal, as acco1ding to him the Maruti n111d rollers were of good quality . being the product of a registered small scale industry, and entitled ta l 5 per cent price preference. Supply order was placed on M/s Jalan Modi Automobiles for 3 road rollers instead of two. Several witnesses, including Shri V. P. Chetal, Chief Engineer of NDMC have while !xplaiuing their role in this deal admitted before the .Commishm that thev were acting under pressure. In his statement Shti V. P. th~tal t.as said "There was certainly no immediate need for the purchase of the ro~d rollers and we could have managed without the same for some more time", He has further rtated, "I would like 10 restate that although the actual need for a<-ldilional heavy road rol.lers arose only with :he commissioning of the Hot~ Plant, I was pursuing this matter vigorou~ly oecause of !~e pressure on nN for purr. has~ c.f Maruti road r'?llers . He gee~ on to ;ay " ...... after the promajgation of 1he ~n:erg~n.;y, I wa_s in no position to \!Ike any .steps wh1cn. n11ght hove gl'>'en the il'lpression of my bemg ob.<tructi"c. The fca~ of cnpleasant consequence~ had !'lway.i loomed large in my mind. Persons like Shn Ar11m Das nnd 1'hri K. L. Jalan were ~on,stantly pursu:ng me for securin~ an order in this regard and I was fully aware that Shri Sanjay Gandhi W1!5 the pr'?m".~er o( .M/s !\!~ruti Heavy Vehicles Pnvat~ Limited . Shn \. P. Chetal gave " certilicatc o~ s~tisfac~ory performanc~ for Marnti road rollers iu his mspect!on note dated 29-10-1974 after attrnding a dc_lllonstration run of one road roller at Maruti fact91)'., Gurga.on. Two other rngineers had also g;ven S!!!lilar certipcare.s; his ~tatement Chetal savs "l was p~essurised in g1vmg this report b Shri Sanjay Gandhi and the matter was. pursued liy Shri K. I.. Jalan repeatedly. 1 am not a mechanical En2 inccr and I have do!le n., specialised course in <icsi nin and research .of. road r 9 llers. My knowledge thi~ rc~ard was limited only to the praltical C:>.p . gamed by me OV~r ;1 period of lime in the fi~f~~nc~ would not have given 1hc report in question but 'o open quotations instead of placing; an indent on the DQs&D. The Municip.al Corpe.ration, Delhi, bad in.clud.ed m the sanctioned estimate for road making, J!lllChinery road rollers (with hut mill plant), to bC purchaml through DGS&D. 1\n advan.:e deposit of Rs. 5.40 lacs was propos.!d on Au[lust 16, 1975. apd was approved by the Co:nmi!;StOncr, Sh!:i R... T.amta, only on January 1976. But OD february 25, 1976 it was decided, instead, to caJI for open tnders to. avoid delay. According to Shri C. M. Vij; then >er, he i;eceived a tdephone mcrsa:;e Assistant Engh.. on February :?.3, 1976 from the then Dei>UC, Mwlicipal Engineer, Shri J. P. Goyal, who had desired that before givinil th~ advanc~ for the purchase of road rollers the mattu migh be brought to 1'.is notice. He made a noie to tl1is effect oo the file. He says farther "I also conveyed the above message to Shri V. P. Saluja who told me that he knew about it as the purchase was to '1e made from Maruti now". In the tender specification Indian Slandards Institution (ISi) specificativns were not a;lopted. Predelivery inspection by DGS&D suggested by Shri S. D. Mehta, Assistant_ Engineer, in his draft specifications was c1uuiged to inspection by Engineer-in-charge. According to Sbri Mcllta, "the ahove conditions were not allowed to be incarporated to accommodate Maruti road rollers".

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Of the 8 !enders received in rc~ponse to the open tender, 5 were passed over as they did not enclose the earnest :noncy deposit as per tender notice. These included Jessop and Garden Reach Workshop (Govt. companies) :ind tw.> other;;, including the lowest tenderer M/s VAK Engineering, regi,stered with DGS&D, ~d consequently according to the rules they were not liable to mak~ earnest money deposit. The lowest valid ctTc1 of M/s Associated 'fubewells (ATW), amrmg th~ rcrrainio;! three, was rejected. The next low~st tender for Mi;ruti road rollers was accepted by Shri Tamta, Conmtissioner, Municipal Corpora~on of Dell1!, exercisnig the powers of th! Corporation. M.iruu road rollers had cast iron rolls whil<: the tender specification prescribed rolls of fabncated steel. lt did also not meet with certain othe~ ten~er specifications. Three rvad rollers were r~ce1v~ in ~ovember 1976 which were subje;ttd to visual inspection only. As for their performance cut of 417 days from November 10, 1976 io !D~cem ber 3_1, 1977, one roaJ rolle: worked for 116 da)' another for ~)9 d.:ys and the third for 42 days.' .. ,

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the pressure c,n n1c".

The Dcl~i unicipol C?rpvration alo p1:rchased three road ,oilers of Marut 1 Make directly by inviting

The Del11i D~velopmeut Authority, a local authoritv under the control of Central Government, had also purchased. t:n road. rollers CO.!iting about Rs. J 5 lacs after obtammg a single quctation. Jn this case a proposal was initiated by the Chief Engineer in ~ugust 1975 f.c.r pu,rchase of 10 road rollers through G!>&D. .. On. this the the~ finance Mcrr,her, Shn ManJ1t Singh, asked for 1ustification based c;n work load data. Tl11S proposal was not ursued However, in Deccmocr 1975, the Chi'f ~nginec; !1Jade a new proposal for a Hot Mix Plant unit includm~ four road ~vllers of Jessop make and this was ultimately sanctioned by Delhi Adoi.inistration in

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90 February 1977. fa July 1976, another proposal was made by the new Chief Engineer, Mr. Telang for 6 roac! rollers in addition to the earli~r proposal for four which was the:i pending approval of the Ddbi Administration. Thu~, a total number of ten road rollers were lo be purch3scd. On the suggestion of Shri Jag Mohan, the then Vice-Chairman, the Chief Engineer obtained a quotation from Maruti Hea\y Vehicles Private limitec!. This along with a letter Qf fr()m Grea,es Cotton of January 1976 referring to the price Jessop rqad milers obtained for preparation of estimate to the Delhi Administration was also put tJp. No justification based r,n work loaa data was furnished. The a~oun~~ officer who examined the proposal raised the points that open tenders should have been called for and the ques\ion of justification on ;work load data be considered. But the Wo1ks Advisory Board with Viee-Chairmac Shri Jag Mohan, th_e Finance Member Shri Knwaljit Singh, and the Engineer Meml/cr R. S. Gupta decided in the meeting held on July 2C, 1976 to buy JO Maruti R()ad Rollers. . For the procurement of these road rollers not made. Garden Reach Workshop, a public sector unit, had 1 ' indicated their willingn..-ss to supply road rollers as per the list price. Tbis fact was taken note .of by the Chief Engineer in his note dated July 'J, 1976 but this olJcr WU DOI' pursued despite reminder; from the Garden Reach Work4top. Shri R. S. Gupta who WllS Engineer Member of the DDA during the period ha. explained in his statement 'how the Mantti offer was obtained. He has said "Prior to WAB mectini: a!tcr-16-71.976 I do uot remember to have dis~ed this proposal with the C.B. Qr the F JI{. The questio11 of requirement and _purchase of road rollers was discusied at the time of inspection of works Qf the V. C. when ijie Vice-Chairman (Shri, Ja!llllohan), myself and Chief Engineer and many other officers were present. The r-,ad works were being got done by DDA employing NDMC as ou,r Agency. We were paymg hire .-barge for their plan~ an:i machinery which included the road rollers. This inspection took place sometime before the proposal was sent by the C.E. During discussic.ns, Rollers of Maruli Make were woddng on behalf ot NDMC, it was reported by the NDMC Engineer that t.'leir pert'ormance was satisfactory. Vicc.cbairllllln (Shri Jagmohan), therefore, asked us to get quotations f~r Jv!aruti Road Rollers as well." ... . . . . . D.unng inspection/dil>CUS11:ons the Vice-Otai~man had askc0 I.ho Engineers to c.ollect quotations from Maruti Road R()IJers as .Yell, since the oflicers had already con tacted DGS&D to know about the running ra~ . contract etc. and had also made en qwnes from other manufacturers of road rollers. T~is .note of C.E. dated 13th July ~oes not tnd1cate whether any specification has been drawn for the road rollers to be procured or any open tenders were call cd U>r. I also see that tlte OJl<ln tendeta have, not been called for. I find _front the C.E. s not~ that two quotations were en closed to h~s. note. One quotation was from Jalan Modi for .Maruti road rnllers of 7th July, 1976 and the o:ber was of Grtavcs Cotton for Jessop road rollers dated 16th January, 1976. It has been mentioned in the note that the offer of JC8$0p had expired QD March 1976. The C.E. also reported that M/s Garden Reach Company have indicated that they do not hold DGs&D rate contract ~d w!ll be willing to supply road rollers at lbc

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1. Only the approval of the Vic~-Chnirman as member o( the Works Advisory Board was obtained whereas under the rules the sanction of the Authority is necessary.

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2. The

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lat~r approval of Deihl Adminitration in Febmary 1977 for four road rollers . was specmcally for those of Jessop make.

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3. The pur~ba3e was not routed through the DGS&D as required under the rules, the road rollers being a centralised item, when the nroposal was firs: mooted in August 1975 th-~ intentio!l was to place the indent on DG~S.O.

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-4. Road Roll~r is an item

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covered by Indian Standards Specification of 1%9 lNO. IS 5502/69 J. According to the rules incorporated in th~ Central Public Works Depart men~ C9>WDJ Manual Vol. II !SI spcc'.ficatiou is to b~ adopted for tender inquiry. This rule was. not o~servcd in. the present ~ase._ The Chief Engineer, Sim T1~11g. i:a3 m his statement oxpresscd his to!al ignor.ance of the existence of such specifications.

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5. Purchase Of ten road rollers involving an outlay of about !ls, l 5 lacs was approved by the Wotks AdVIBOIY Body comprising three ViCemembers namely Shri Janmohan Cbairman, Shri ~awaljit Singh, 'Finance Member an~ Shr1 R. S. Gupta, F.ngineer ember, wit.bout calling ienders. Only a single qu?tat1on received from Jalan Modi Aut1?mOMes fo: aruti road rollers was cons1dere~ alon~w1th a Jetter of another party which bac.. been obtained 6 months C!U~cr for fraJl!i111 tbe estimate. Even a limited tender mquiry to scvc1al manufacturers of repute or their sole agents was

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The Maruti road rollers were ' 11 ~-- _- : August 1976 to October t976. ~l:'.!thi,t!Vcen effort was made by tl1e Chief Enln or., o,, rs no else to check on tbc quality rcliabffii~ct ,qr. an~ one performance w!rh actual ~rs R capactty or on .the three certi.6catea of . Shri~v.~:'.'~ placed Shri A. K. Bhat and S - ~. '- ,,,.,P,,.. Cbcta.J, (Ha.ryana). . upcfl!ltendeut ~ J:iiiiuecr

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The rules pre'Cribc that cvct' if such equipment arc as possible. bought direct, inspection shoulo, as be entrusted 10 DGS&D. ODA also did not have any inspection facility or competent technical manpower for ! ucb in.sp-..ction. Still i~sp.:<.k o wa< not cotrusted to !Xi5J(O ~nd 1be only inspc:c;i0r. c~n ducted consisted of the rc,ad rollers being driver. by road from the premises of Maruti Heavy Vchicl<s Private Limited to the DOA workshop by Maruti Heavy Vehicles' driver. A: the time of delivery no inspection was done to ascertain 1hc age of tho engines. The Executive Engineer has since confirmed that they were of 1966 make .

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agency. This agency had, in 1967, surveyed the stock of engines et~. of Agriild Fabricators Limited most of which were later (ittcd to Maruti road rollers. Shri A. K. llhat or Maruti Heavy Vehicle; objected to in;pectiM by this a.,oency aJKi inspection was evenrua!ly disp:raed with. In his statcmi:nt Sbri Tbandani hJs admin.:d that expect in the. ca;e of Maruti road roll"rs all other items for the Kuwa;t project were inspected either by the DGS&D or Gel!,Cral Superint~ndcnce & Co. ' Oil and Nat11rul Gas C<.'llllllission had. also purcbased 6 road roll~rs from Matuti Heavy Vehicle Private Limited. This case has not been looked into by the Commission as a criminal case has already been instituted against Shri Sanjav Gandhi and certain other persons in respect of this "tra.nsaction and the matter is subjudice. ...

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Most o! the road rollers started being uoed m,;ro than two months after receipt and the average perfonnancc ratio l)as been about 25 per cent. After purchase several defects were noticed .including frequent breakdge of axl~, defects in brake s:;stem and steering, engine becoming hot, and consequently the road rollers have been lying idle for Jong periods.
~intited (BPI), the estimate for Kuwait housing pro-

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ject provided for 4 8/10 tonnes road rollers. In A?gust 1976, the requirement for rhis equipment was ratsed. to 6 for reasons not on record. The tender comnuttee decided on August 21, 1976 to limit the procurement to 3 units for the present. In Septtmber 1976, however, .it was decided to buy all the six units fr<?m Maruti Heavy Vehicles on the ground of ell:,lgency of work. Actually in Kuwait, more than 3 road rollers were used at i: tinae only for 6 days out of 373 days. According to Shri S. K. Kapoor, :Qeputy. Project .Manager; Kuwait, "two or three road rollers 1n workmg condition would be able to meet the demand of our projec: in Kuwait" as in view of the sa~dy soil .conditions "the ur.e dt M aruti road rollers 1s very hmited". R!Jles of the company permit limited tenders being obtamed from reputed firms registered with DGS&D / BPI etc. . after drawing up proper specifications, the nnm?er and n~mes of paxties being decided by a spe~iJied com~tttce: The Deputy .Purchase Manager, Sb.i:1 V. K. Jam himself called for quotations from Jessop,. Marshall and Sons (no more in the' line of production), Heatley and Gresham (for Sayaji road rollers) and M.arua. Heavy Vehicles Private Limited onlJ;'. ISI specificauons were not mentioned. Registration of Maruti Heavy Vehicles with DGS&D was n~t checked !hough the DGS&D list. then available ~d .not ,contam the name of Mamti Heavy Vehicles Ho mquuy was made from Garden Re.!ch Workshop. eatJey and Gresham requestetl for extension of t;m~ by four days b'!t wit!1out waiting for :h~ir tender the tender co1t1m1!tee decided to purchase 3 Maruti roa~ hlllers as being cheaper than the only other a".ai da e offer of Jessop. Later the number was raise to 6.
Ser.

Summary of Specitl/ Features.--On !lie basis of such evidence as is available in the files, SUJ>plemcnted by the testimony of the witnesses who . in their official capacity have dealt with those files at various stagcS, the following signiJicant facts have come to light : 1. Shri T. A. Pai then Minister of
Industries and Civil Supplies in the Guveriunent of India had address:d d.o. letters to the Cb.ief Ministers of State Governments in July 1975 and again in August 1976 requesting them to place orders for road rollers on Jessops anJ company, a public sector undertaking, ill order to clear the stock accum11lated . with the company. Jessop road rollers are of reputed make mid confonn to ISi specifications. They arc titted with M. S. rolls which give better performance.

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2. Jes.~ops rollers are normally available oc DGS&l> rate. contract. In 1975-76 period this rate contraGt was somehow not renewed. Non-renewal ol the DGS&D rate conrtact for Jessop rollers has been mentioned as the reason for inviting direct quotations by most of the purchasing organisution~.

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3. Garde~ Reach Workshop . (GRW) another public sector unit, is manufacturing road rollers of a reputed make and conforming to ISl specification.\. Th~e road rollers are fitted with cast iron rolls. . Under t.he Government of India ordeis then in force the GRW was entitled to a 10% pri~ pre!erence when competiti\'e ttnders were l!JVttcd.

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4 ~den Rea~h Wor~shop sen! their quotatious


!n s~yeral cases ID response to tender mqumcs and the price quoted by tbtm was generally lower than that quoted for Maruti roUers. No business could however be secured bv tbem in taese case.. 1 . t' Depart f G ' mga ion d'd ment o oyer11ment of Karnataka Id not accept their oJf.:r. Cetllral Coal t:. (a publrc sector unit) did not accept e1r tender even though it was specifically

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b P~eJ~in~y .inspection by EPI ollkers in N~vem s o.",ed .many defects in Maruti rollers b~nb~'&nganJi A't1ser Purchase, suggeMed inspcctio;; pection by 'GeneeraasloSsugg~stedd, m the allcrnativc, ins . upcrrnten enc and Co ed m December 1976 as EPJ's ;;,clu~ive : appoi_ntS/B HA/79- l J mspecl1on

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brouht to their n~tice that GRW was entitl~d to 10% price preference ~Is'!. M . . I Corporation of Delhi ignore th~~~:icJ~r of GRW totally ~or not furn~~hh ill earnest money, a rcquirr.men~ w '~ c~ be waived in the case a supphcr nlg1stered with DGS&D. Th~ J:?elhi Deve opment Authority did not mv1t.e any tender from GRW even when the uwt. had expressed its readiness to supply roac. r~llers.

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. h3 d only three forward ,. e<,I but acccrdThese roller., and one reverse .pe 'fi ations the ing Lo the .iandard ;pec1 : Id be at reverse an<l forv.ard speeds s ou least three each. I of . Maruti road 8. Orders for supp_y ,. trialrollers runs were piac~d without ms~wig 00 . ed b in a single case. Certificates ISSU y Shri V p Chetal Sliri A. K. Bhat and the . . E'n_gmeer, Government of . technical Supenntendmg Haryana. were rebed upon as f of suitability of the road .rollers verifying whether . the had been issued by these pers!'08 official capacity after carrymg . out the prescribed tests liiicludiog gradie~t test[ amJ/or after actual use of the equ1P.me'!d Shri Chetal has stated that he ~ tEsu the certificate in 1tjs pers<>naI capaeity

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S The relative rulei. of the Government of ln~ia for regulating purchase of store~ (which are applicable to most orgamsanons .hke MCD DDA NDMC etc.) have categorised road ~oll~rs 'as 'a centralised it~m to be procured only through the DGS&D., All of them, however, pro,cured the )'darut1 road rollers direct, though m the earlier stages consideration of the proposals, purchas;through the agency of DGS&D ,w,as spect fically envisaged. Jn Delhi Mumc1pal .cprporation the requisite amount f<?r giving advance deposit was als~ . sanct1one~ and drawn hc!ore a fresh dec1S1on to sto m for '1irect purchase was taken.

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6. TI1e relative rul~s also prescribe th!-t even in cases where direct procurement ts resorted to inspection of the equipment ~hould, as f~ as pr11cticablc, be entrusted to t~e Jnspection Wing of the <DGS&D. This was Ignored b> almost all the organisations wh'! hought Maruti road rollers. In the Delhi Municipal Col'J?oration, the .draft te~der conditions required the matenal to be lllll peeled by the DGS&D. But this was deleted in the final tender notice by the Executive Engineer. In the case of Central Coal. fields, the purchase order prescribed predelivery inspection by DGS&D. But before this -:ould be undertaken, supply was completed on telegr-dphic instructions from the Chief Engine~r and inspection by DGS&D was later waived. Jn the Engineering Projects (India) Limited, despite defects appearing during P.reliminary inspection and despite a specific suggestion by the Adviser, Purchase, Shri Thandani, Inspection by DGS&D was ignored. In~pection by the contracted inspecting agency, General Superintendence & Co., who in 1967 surveyed the stock of engines, transmission etc. of Agrind Fabricators Limited most of which were later fitted to Maruti road rollers, was also dispensed with, and the road rollers supplied by Maruti Heavy Vehic!es ~rivate Limit~ were shipped to Kuwait \\1thout any mspeclion. In the case of DDA, inspection by DGS&D was not resorted to though DDA itself had no arrangement for carrying it out. 7.

9. The engin~s. powe~ packs an:mrmi components used 10 th~.. ~ from road rollers were pu,r~ the l'unjab National Bank m auction. These component otiginaUY: belonged. to a manufacturing unit, Agrind ., F!!brii:a~ors Limited, a company which ha\l. p.o mto liquidation, and the court had enlrl!Jted the old stock of engines and allier. COJ!IP.o~, imported in 1966. to the bank r:l~posal.

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The in1ported engi.iles used by Marati Hcnvy Vehicles in their road ro~ra we.re ~tThof stock sold by Punjab NaUOQ! Bank. e engine numbers in several ClllCS h!-ve be.en examined and found to tally with th~se available in bank records. The GDgllJe manufacturer's test certificates were not fUrnished to the buyer. of ld;u:uti. rQad rollers,

11. Maruti road rollers had . d~vc: brakes and tho steering system WJS; .also, faulty. Maruti rollers had not bccll subjected to gradien.t tests. Fitness , certiftc:ates for Maurti rollets were obi.inect from Shri V. P. Chetal and Shri A. K. Bhat !n their personal c:apacity but utilised as official documents. The prescribed tests were not carried out before the fitness certificates wer~ issued by them. A certificate of fitness wai. issued by Superintending Engineer, PWD, Haryana, for Maruti rollers at the instance of the then Chief Minister,

Haryana.

12. Maruti Heavy Vehicles Private Limned were liable to pay e.11cise duty from March 1, 1975 on the road rollers assembled by tbc11J whereas this duty has been pa!d by them to the Central Government only from Apnl I. 1976. 13. Adverse performance reports have . been received from certain users. ln some case$ road rt>llers purchased from Maruti Heavy Vehicles have remained idle !or long

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lSI had drawn up tandard specificat1?ns for road rollers. Maruti road rollers did not con(irm to the ISI specifications.

.........-----------------------93 periods. Various technical defects had been repomd by Himad;1~I Prad.esh, Karna ta.ka, Raia5than. As agamst this, the EPI, NO!PA, NJ?MC, DMC have made no such complamt.
J 4. R. K. Khadilkar, then Minister for Supply, had put pressure o~ .the offic.;r~ <!f !JGS&D for granting provmonal registration to Maruti Heavy Vehicles as approved supplier of road roller:; cyen though the technical report w.1s adv_erse.

type and 21 of DTC Mofussil type. 10 of th~ Leyland Viking chassis bad RSRTC new Mofussil ty~ bodies. AU the 74 Tata cl;iassis had RSRTC Mofussil new design. Maruti Limited first came into picture for bus body building work for RSRTC in June 1975. The RSRTC had fioated a tender for the fabrication of 300 bus bodies (for RSRTC old model) on _March 21, 1975. The date originally fixed for opeD.Ulg of the tend~rs was May 26 1975 which was postponed to June 9, 1975. On lune 3, 1975 Maruti applied.for the tender documents and soon thereafter filed their tender: The tenders were opened on June 9, but further consideration of the offers received was held up as the the!! Chief Mechanical Engineer, Shri G. N. Chakraparu, was on leave. After his return from leave in J '!1Y 197 5 Shri G. N. Cbakrapani recommended negouations' with t,be parties for bringing down tl)cir rates as the quoted rates were on t,be high side compared witb the previous years' negotiated rates of Rs. 34,000 per unit for Leyland and Rs. 32,500 for Tata and oth~ model chassis. l'n the meantime, there was change 111 the incumbency of the office of Chairman of the RSRTC. The new Chairman, Shri Mohinder Sil)gh, took over on July 14, 1975. He gave a direction that a meeting of the officials should precede the negotiations with the parties and fixed this meeting on July 19. The same day Shri Kalra, an employee of Maruti Limited met Shri Mohinder Singh -IUld had discussions with bim regardioj: the bus body fabrication work. On August 5 Shri KalEa wrote a letter to the corporation seeking allotment of one chassis to Maruti for fabrication of prototype. In this letter be referred to the discussions he had with Shri Mohinder Singh. Comments of the Deputy General Manager (Accounts) were obtained on this letter and the Chief Mechanical Engineer was not consulted. On the basis of the note recorded by the Deputy .General M.anage1 (Accounts), the Chairman, Shrl Moliinder S~ ordered the release of one chassis to Maruti Limited for fabrication of prototype on the same terms and conditions on which other body builders were making bodies for this corporation. Since the new tender for 1975-76 bad not been fiDalised till then, the release of this chassis to the builder (Maruti I Jmi!f'4) i1,1 August 1975 had to be reckoned against the 1974-75 tender which was then in operation and the same rate was adopted in this case abo. Maruti was not one of the parties who had participated in the 1974-75 tender. The prototype fabricated by Maruti was delivered to RSRTC on January 2, 1976. On the same day, a further allotment of 2 more chassis was made to Maruti Limited on the same rate as on the earlier occasion, in pursuance of their request contained ln the letter dated December 6, 1975. In this letter it had been claimed that the prototype job had already been completed to the satisfaction of the Inspectorate of RSRTC. Acccrd.ing to the evidence adduced before the commission, work on the prototype was not completed till December 6, 1975. The allotm~nt of two chassis on January 2, 1976 was illso against the 1974-75 tender which was in operatloa as the tender for 1975-76 had yet to be finalised. Approval of the corporation was not obtained for the allotments which were made by the Chairman. Accordll,lg

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On the basis or the above facts it is clear that undue favour was shown by the various purchasing Dcpartm~nts and organisations in placing orders on Jalan Modi Automobiles for supply of road roller~ of Maruti make and allowing in some cases favourable terms of payment, dispensing with inspection before delivery, and failing to take appropriate action for having the defects in the units rectified. The requirement for road rollers was often inflated to increase'the sale of Maruti rollers. SUS SOOY BUILDING CONTRACT CASES Sus body fabrication contracts constitute .the nex~ important group of cases. The first undertaking to be approached by Maruti Limited, for bus body building work was the Haryana State Road Transport Corporation (HSRTC). - The dealings ofthat corporation with Maruti were specificallr excluded from the Terms of Reference of this commission as another Commission of Inquiry headed by Shri J agalUllohan Reddy was looking into them. The other Transport Corporations which gave business to Maruti were Raiasthan State Road Ttansport Corporation (RSRTC), Delhi Transport Corporation (DTC), Madhya Pradesh State Road Transport Corporation (MPSRTC) and Uttar Prades!i State Road Transport Corporation (UPSRTC), in tbat order. The DTC case having been investigated already by the Central Bureau of Investigation (CSI), this commission has not looked into it. The bus body building contracts secured by Maruti Limited, from the remaining three Transport Corporations, namely, RSRTC, MPSRTC and UPSRTC have distinct features of their own in the_ moee of entertainment of the offer or tender, the accommodation in numbers and also in the fixation of rates. All the three corporations are constituted under section 3 of the Road TransDOrt Co1poration Act, 1950.
Rajasthan Bus body Fabrication coruract with Maruti

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The RSRTC had as many as 152 bus bodies fabricated by Maruti Limited.-3 on Leyland Comet, 75 on Layland Viking and 74 on Tata chassis, during the period September 1975 to March 1977. From August 1975, when the order for construction of the first prolotype bus body was gi>en to Maruti, till March 31, 1977, the totnl number of bus bodies constructed for the corporation by all the builders was 547. Various types of bus bodies were built by Matuti--three units on Leyland Com:t were of RSRTC old model, while 44 units were on Lcyand Viking cl)assis of DTC city
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93 periods. Various technical defects had been report;:d by Jlima~b~I Pra~esb, Karnata)(a, Rajasthan. As agamst this, the EPI, NOIDA NDMC, DMC have made no such compl11111t.
type and 21 of DTC Mofussil type. 10 of th~ Ley-

land Vi.king chassis bad RSRTC new Mofussil ~ bodies. All the 74 Ta1a chassis bad RSRTC Mofussil new design.

J 4. R. K. Khadilkar, then Minister fo~ Supply, had put pressure o~ .the ofilc.;r~ 01 ~GS&D for granting pro~1s1onal regisltation .to Maruti Heavy Vehicles as approved supplier of road rollen even though the technical report w.1s adverse.
On the basis of the above facts it is clear that un due favour was shown by the various purchasing Departm~nts and organisations in placing orders on J alar;i Modi Automobiles for supply of road rollers of Maruti make and allowing in some cases favourable terms of payment, dispensing with inspection . before delivery, and failing to take appropriate action for having !,he defects i_n the units rectified. The requirement for road rollers was often inflated to increase'the sale of Maruti rollers.

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aus BODY BUILDING CONTRACT CASES


Bus body fabrication contracts constitute the next important group of cases. The first undertaking to be approached by Maruti Limited, for bus body building work was the Haryana State Road Transport Corporation (HSRTC). The dealings of'that corporation with Maruti were specifically excluded from the Terms of Reference of this commission as another Commis~ion of Inquiry headed by Shri Jaganmoban Reddy was looking into them. The other Transport Corporations which gave business to Maruti were Raiasthan State Road Transport Corporation (RSRTC), Deihl Transport Corporation (OTC), Madhya Pradesh State Road Transport Corporation (M.PSRTC) and Uttar Pradesh State Road Transport Corporation (UPSRTC), in that order. The DTC case having been investigated already by the Cenltal Bureau of Investigation (CBI), this commission has not looked into it. The bus body building contracts secured by Maruti Limited, from the remaining three Transport Corporations, namely, RSRTC, MPSRTC and UPSRTC have distinct features of their own in the mode of entertainment of the offer or tender, the accommodation in numbers and also in the fixation of rates. All the three corporations are constituted wider section 3 of the Road Transoort Corporation Act, 1950. Rafasthan Bus body Fabrication contract with Maruti The RSRTC had as many as 152 bus bodies fabricated by Maruti Limited.-3 on Leyland Comet, 75 on Layland Viking and 74 on Tata chassis, during the period September 1975 to March 1977. From August 1975, when the order for construction of the first prototype bus body was given to Maruti, till March 31, 1977, the total number of bus bodies constructed for the corporation by all the builders was 547. Various types of bus bodies were built by Mmuti-three units on Leyland Comet were of RSRTC old model, while 44 units were on Leyand Viking cl)assis of DTC city

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Maruti Lim.ited first came into picture for bus body building work for RSRTC in June 1975. The RSRTC bad 1loaled a tender for the fabrication of 300 bus bodies (for RSRTC old model) on March 21, 1975. The date originally fixed for opening of the tendc;rs was May 26 I97S which was postponed to June 9, 1975. On iune 3, 1975 Maruti applied.for the tender documents and soon thereafter filed therr tender: The tenders were opened on June 9, but further consideration of the o~ers rec~ivCC;I was ~eld up as the the9 Chief Mechlllllcal Engmeer, Shri G. N. ChakrapBD,t, was on leave. After bis :return from leave in July 1975 Shri G. N. Chakrapani recommended negotiations' with the parties for bringing down their rates as the quoted rates were on the b,igh side compared with the previous years' negotiated rates of Rs. 34,000 per unit for Leyland and Rs. 32,500 fo~ Tata and oth~r model chassis. fu the meantime, there was chao,ge 10 the incumbency of the office of Chairman ol the RSRTC. The new Chairman, Shri Mohinder. Sinj:b, took over on July 14, 1975. ' He gave a direction that a meeting of the officlals should.preced~ the negQtiations with I.be parties and fixed tbls meeting on J u)y. 19. The same day Sbri Kalra, an employee of Maruti Limited met Sbri Mohinder Singh and bad discussions with him regarding the bus body fabrication work. On August 5 Shri Kalra wrote a letter tQ the corporation seeking allotment of one chassis to Maruti for fabrication of prototype. In this letter be referred to t.be discussions be had with Shri Mobinder Singh. Co1D1Dents of. the Depu~ General M.anal!er (Accounts) were obtamed on this letter and the Chief Mechanical Engineer was not consulted. On the basis of the note recorded by the Deputy General Mana.get (Accounts), the Chairman, Shri Mobi.nder Singh, ordered the release of one cha$sis to Maruti Limited for fabrication of prototype on the same terms and conditions on which other body builders were making bodies for this corporation. Since the new tender for 1975-76 bad not been finalised till then, the release of this chassis to the builder (Maruti Limited) in August 1975 bad to he reckoned agitinst the 1974-75 tender which was then in operation and the sarne rate was adopted in this case also. Maruti was not one of the parties who bad participated in the 1974-75 tender. The prototype fabricated by Maruti was delivered to RSRTC on January 2, 1976. On the same day, a further allotment of 2 more chassis was made to Maruti Limited on the same rate as on the earlier occasion, in pursuance of I.heir request contained in the letter dated December 6, 1975. In tbls letter it bad been claimed that the prototype job bad already been completed to the satisfaction of the I.nspectorate of RSRTC. According to the evldence adduced before the commission, work 911 the prototype was not completed till December 6, 1975. The 8llotment of two chassis on January 2, 1976 was also against the 1974-75 tender which was in o~ aa !be tender for 1975;76 bad yet to be.1bi!!11$i;4; APproval of the c~rporauon was not obtahted,. fQ,t,~!b~ allotments which wc.'t'C m,ade by the C!taUW,~r .l\ccording

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94 lo t,bc delegation of linauciaJ powers contai.ied in Order No. F. 4( 142)/AccoulHs/Rulcs/65-66/7790 dated January 25, 1974, all powers regarding purchases are subject to the usual Tender Rate and Purchase Policy of the corporation and in his depo,utiw1 before the commission, Shri Mohinder Singh eventually conceded that "tender system a.nd tender rules" could be applicable "to the bus body contracts". While the body fabrication work on the two chassis allotted to Maruti on January 2, 1976 was unJcr way, Shri P. R. Subramanian, Chief Mechanical Engineer, who had in the meantime, left Delhi Transport Corporation had joined RSRTC. He put up n note to the Chairman on February 5, 1976 giving his assessment of the facilitizs available with Mai uli Limited for bus body building work, Shri Mohinder Singh took a decision on thl note on February 6 : "It appears from th" report of the CME that Mis Maruli LitnihJ, 'ire in' a good position tu 111akc bus l)odics. Accordingly, we could also give them " ccr;ah1 number of chassis for building bus bodies. In the b~ginning we should keep it restricted to the Mofussil bus bodies and not semi-deluxe or deluxe types". Following this decision a Jetter was issued to Maruti Limited from RSRTC on the same day, February 6, informing them that RSRTC was prepared to give 'them chassis at the rate of 10 per month for the year. Shri P. R. Subramanian has said in his statcme111 that "It came to be known for ccrrnin that towards the end of 1975 that M/s Maruti was en~ering the field '!f bu.s bod,Y building m a big way, evidently after their failure 111 cheap car productiun and Haryana Road Tr:insport Corporation had already placed orders and alloaed chassis in fairly larg~ numbers.... The emergency atmosphere was vef) much felt and the general feeling was that RSRTC would have to cooperate with M/s Maruti Limited to the maximum extent. It was also known thai M/s Maruli's case had the backing of Government of Rajasthan". Between th.e 8th and 11th April 1976, a further allotment. of 15 chassis was made to Maruti L'mited. Shri P. R. Subramanian's version is that abo~I the time of finalisation of the tender for 65 bodies Shri Pant, General Manager of Maruti Limited "wa; kecn on taking up the construction work of DTC city type buses in as much as, according to him, they were organised for this work and wanted that they should. be given chassis for this purpose" .. According tc;>. Shn P. R. Subramanian, he had communicated this. req~est of. Shri Pant to the Chairman, Shn Mohtnder Singh, "who told me that he will discl,l;~ .the matter .with the Miriister and then take a dec1s1on. It "'.as. in my knowledge that in all importan;. body bwldtng l!latters pertaining to Maruti, the Chairman used to discuss the matter first with t11e Tra.nspor~ Minister, Shri Chhagani and Chief Minister Shr1 Handeo Joshi before taking decisions". Shri P. R. ~ubramaman states that in this case "after discuss1o~s the Chairman decided 10 allot 15 chassis to ~ar~t1 Ltd.: and 5 to Delhi Automobiles". Shri Mohmdcr Smgh has also admitted this. He has stutcd : "In. view of t~e known pron1inence of Mis Maru!J Ltd. dealings of the Rajasthan Slate RQacJ Transport Corporation with that firm were, from time to time, subject of discussion wiUi Uic con ccrnc<l Transport Ministers ( Shri Mohan Chhagani uplo April 16, 1976 and . Shri Ram ~arain ~~ou dhary thrcaf,er), and wnh tho Chie'f Mu11ster Shri Harideo Joshi, The Tra11$pCrt Minister ancl the Cnic[ Minister wero of the view .hat the firm may be accommodated in respect of ord crs. Maruti Limited wns k~on for a regular monthly ~Uotment. The request of Maruti Limited for an allotment of chassis on r ~gular basis was first discussed with the Transport Minister Shri Chhagani near about the clo:.~ of January 1976. Again towards the eDd of 1976, Maruti Limited wanted to know as to what business it could expect from RSRTC during the forthcoming year of i977. It was intercs.t~d in 40 chas~is cv~ty tim~ more so because of their surplus capacity, wnh ;he large U.P. Roadways orders nearing completion. Several discu<;ions were held with th= including two meeting; at Maruti Lixmted in December 1976, and January 1977. The matter was discussed by me with the Transport Minister and the Chief Minister. 1 wa' 'advised by them that RSRTC need not enter into any commitment with Maruti Ltd. on this scale, bu~ its requ,st for larger allotment be accomn:iodated". Fabrication o'i 29 more bus bodies according to the DTC ci1y model wa> entrusted by RSRTC to Maruti later in the year. The allotment and release of chassis was as follows : Augus". 1916 October 1976 December 1976

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No tenders were in.vited for fabrication of bus bodies ol the OTC type before giving the job to Maruti Limited, and no prior _.approval of the corpeoration was obtained for these allotment,s. In his statement, Snri Mohinder Singh has given the following expla nation for this deal : "Having found that Ooverwnnt of India was financing a maximum of 15 Leyland buses. and no more. we at the oflicial level reviewed the wltole situation probably in the last days of. March 1976, or in the first days of April 1976. It 'w!IS propqsed that we may have a minimum of 20 buses to make a viable unit and that meant putting S from our own n:sources .... CME who bad epnic from DTC advised that as RSRTC had 110 experi:l!Ce of designing anct building specialised city buses, it may adopt in toto the DTC city design which be considered as one of the best in India and mare suited to our climatic conditions .... CME ad.vised that RSRTC may get these 20 built on the same ~5: as 'DTC which had an' existing tendered rate"qf Rs; 40,700 f!Jr Loyiand Comet and was negotiating for the addiltonal amount to be paid for Uie Viking. overhang. Shri Subramanian considered Rs. 40,700 a very attractive rate .... CME's adyise was accepted and 011 his informing tha! Maruti Llmi\F!f ll!l'f De)hi Automobdes were bubding such bus~,'~, l;>TC, 15 were allotted to Maruti and S to Delhi Automobiles. The decision taken at the official level was put up to the corporation in the forthcoming meeting on

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95 26Lh April 1976". The agenda note on the subject nol only rcconunend.l adoption of the same design as <)evcloped by the DTC and payment of the .same rate as was to be fixed by DTC 10 !he body builders bul a specific recommendation w:is also made for ~111ruslmc11t of the work to Maruti Limited and DcUii Automobiles only because they had specialised in lhe fabrication of DTC type bodies. The agenda note jiJ 'not mention that two Jaipur flfms Azlld Body Builders and Kamal and Cn., who had been having dealings with RSRTC for u l<ing time, had also handled bus hody building work for DTC. Shri Mohinder Singfl has admitted this omission, but says, "I d9 not remember whether Shri Subramanian mentioned that the firms of Azad and Kam~! of Jaipur were also doing this work. lf that had hrught to my notice it is quite possible that these may also hav~ been allotted some. Incidentally the CME has always been favouring fewest possible body builders for specialised bodies on the grounds of standardisation''. Tenders were invited for body building woi:k on dcvelCJ>eJ by RSRTC in July 1976. The date fixed for openiDa tho tenders was July 31, I 976. 12 parties including Maruti Limited and Delhi Automobiles sent tenders. Identical rates 9f Rs. 44,500 per unit were quoteo by Maruti and D.:lhi Automobiles and these were the highest. On the basis of costing calculation done by RSRTC, the 'cost of fabrication for this bus body design on Tata chassis was calculated as Rs. 40,000. This figure was higher t.han the lowest quotation recoived from one of the tendering firms, M/s Auto B,x!y Centre \\hich had quoted only Rs. ~4,240. This Jow~r offer Wa.> rejected by Shri P. R, Subramanian on the g;ound of low capacity and workmanship of the firm and also for the sake of standardisation. The matter .was subsequenlly "taken up l\l the l3oard on August 20, 1976 and the Corporation's approval obtained, In the provisional allotments of chassis proposed under the tender, the name of Maruti was not inr.luded till December 12, 1976. However, a revised allotment was proposed by Shri P. R, Subramanian on December 25 in wllich 30 clwssis were earmarked for Maruti Limited. SubramaJlian has admitted that this was done 1n deferen,c;e to the wishes of Maruti Limited convcye4 orally for increased allotme11t of Tata vebiclo:s. In sub~cc;uent letters sent by Maruti on January 7 and 12, 1977 they expressed preference to have 3 /4th Tata and I I 4th Leyland for the allotment to be made, al)d also desired to have mont,hly allotment of 40 chassis on regular basis. Shri P. R. Subfl!mnian has stated that the Chairman, Shri Mohinder. Singh h'ld discussions on this issue with Shri Harideo J~bi, the then Chief Minister and Shri R' <;;, Cbodhazy, the then Minister for Transpon and as"a~'resulfof this discussion Maruti were allotted 30 Tata chassis in January 1977. 20 in February 1977 and 24 i..'I Marc.h 1977 at the agreed rate of Rs, 40,000.
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On June 7 and July 31, 1976 Maruti Limited were cotrU>ted with the additional chassis, 10 each tim~, for the fabrication of DTC Mofussil design on Leyland Viking chassis without observing the tender pro;:edure. This decision was taken at the ll'Vel of the Chairman, Shri Mohinder Singh. These chassis were released from lhe lot o'f 65 chassis included in the new tender for 1975-76 for fabrication of RSRTC old Mofussil bodies but the allotment to Maruti out of thls tot was for DTC Mofussil design, at rates yet to be fu<ed by DTC themselves, instead of the RSRTC old Mofussil bodies. By that time DTC had not got any Mofussil design bvdies built on their Leyland Viking ch,assis themselves or by Maruti Limited, On June 18, 1976 a rnetting was held between Chairman Mo!1inder Sin~h and Chief Mechanical Engineer Shr1 P. R. SubrllJllanin with representatives of 7 firms who had respond.:<! to the tender notic' when the .issue of fabrication of OTC Mofussil type bus bodtes was decided upon. Fabrication for DTC Mufussil bodies was canvassed at this meetin.f.>: OD the gr9und that d~liv~ry of chassis was expe.cted soon, bemg already m !me, and floating of a fresh tender for . the fabrication of new design bodies was not adv1s!ible as. that wo!!ld mean delay. It was specifically mentioned m th7 rnmutes that 10 chassis.. already relased to Maruti and 5 to Delhi Automobiles should have Mofussil design bodies.
M~ruti ~so built a DTC Mofussil body on one chassis which was lhe substitute for another chassis out of the ~rst lot of Viking chassis sent direct to them bv Raiesh Motors on September 5. 1976. In Fact t!iev ~ere cxpcctc;d to fabricate DTC ciry type Rs~1Tc~mt. This chan2e was, however, condoned by

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W'?rk orders subsequently issued in respect of 20 chassis _released to Maruti on June 7 anJ July 3 1976 me~ti?n th~ tender for 65 bodies of RSRTC ~~ri~15tu;~i de~n and .the negotiations held on old Mofu 581. . us, agamst the tender for RSRTC 1< 1esign, allotments were made fo bod . .

RSRTC floated a tendec for fabrication o1 100 bodies of their new Mofussil ~C:Jl! on Leyland "sed l;Jv ther.1 Viking which design had been {OWards lhe end of November 1976, IS films submitted their tenden, including ~ and Delhi Automobiles. Maruti Limite4 aod..Dlllhi. Automobiles had quoted idefitical rates of Rs.' 46,SOO pill$ taxes. Accordng to the costing done at RSRTC the cost per unit for this type of body w;is worb:d out at Rs, 44,500. In his note oil the openiilg of tenders on December 7, 1976, Shri P. R Subramanian recornmen~ed that the_ allotment should~ be restricted <o 8 pa~1es, 6. of Jaipur and 2 of DelhL The noting of Shn. Mohinder Smgh was i~ fl!v~ur of allotting the maxuown ~wnber to Marut1 Linllted. In the notional allotment .m~e. on the fi!st lot of 22 chassis, the name of Maruu L1m.1t~ was, however .not mentioned. But l ~ ~yland V1kmg chassis were allotted to Maruri Limited against the tender in January 1977 at the agreed rate of Rs. 44;500 e:itcluding taxes.

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RSR'~C ':''bile allouing 15 chassis of Leyland Vikin f~r fabrication of D'fC city type to Maruti . Limited had. on the assumption that the rate of 40 700 fixed by DTC for DTC city type on Leyland Co~e Vehicles was an attractive rate and that the extra ~mount

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required 'ior Leyland Viking would work out o~!Y Rs. 2. 700, indicated the r~tc as Rs. 43,400 1.? th~ir holatcd work order. Maruu took up the rnatl.r with the OTC .and in their letter dated May 8, 1~76 mainrnincd that tiic rate ~xcd by OTC for ~re city typ" on Leyland Vik1~g. wa~ Rs. ~5,000. l he; stuck 10 this as far as DIC city typ.c body 01 Leyland Viking is concerned. Bui, when 1t ca"!~ to the question of DTC Mofussil type they quoted t:ic 01 ~ rcfcr:ncc to lww that the rate for OTC M.ofuss1l typ~ on Leyland Comc_t was. Rs. 48, 700. This was according to DTC's confidential letter dated July. 23, J973. a copy of which was handed over ._:o Shr! P. 1-t. $ubra111uniun by Muruti's reprcscntaUv\!, .su.?'"qucn1Jy, in their lelter dated August 3, . 19, 6 Maruti claimed R" 48.500 for OTC Mofuss1l typ~ on Leyland Comet and Rs. 5~,800 for OTC Mofuss1I typ.: on Lcylaml YikinJ>,~ On S~p~emb~r 2, I<l76, they raised the rate ot 01 C Molussll type on Leyland Comet 10 R<. 53.000. This was also ronlirmcd by D'f(: in their leitcr elated Novemb;::r 2, J976. The RSRfC wliicl1 were advancing , only Rs. 40,000 provisionally for each vclli,;le delivered to Maruli Limited took up the matter 10r final seulemcm of the bills on January 7, 1977 on a note by Shri P. R. Subranrnnian. His recommendation was to accept and pay Maruti Limited at Rs. ~3,000 fo1 Leyland Viking, deducting Rs, 3,320 '>emg .. the 'difference in usin~ M. S. flooring instead of alummtum ftooring Shri Johri who was the Chief ,<\ccoums Ollicer tit that time pointed out the incongruity in this and rewmmcnd that payment hould be only on the basis of the rate fixed for RSRTC new model on Leyland Viking i.e. Rs. 44,500. He also pointed out that inasmuch as no tender was lfoatcd for the work of such magilitudc, corporation's prior approval or ;;! least ex pcm foc10 approval was necessary. Chairman Shri Mohindcr Singh decided to ha\c the ex post f,1cf(1 approval of the corporation r~1r the rate recom~ mended by Shri P. R. Subramanian, Chief Mechanical Em:ine.r. Howcv.r, on February 26, 1977--th~ day of 'the mcctino-a news item appeared in the Indian Expr\.!ss r~f~r!ing lo the n1alpracticcs rcsort.;d to in fixing boosted up raic by DTC for Maruti Limited by no less a person than an ex-Chairman and a member of DTC. A revisc(j agenda note recommending n mwh reduced rate of Rs. 46,990 was thereafter put up to the corporation and this was approved The original agenda <lid not memion the objections raiseLI by Shri Johri nor did the revised agenda refer to the OC\\'S item.
lnvesligation has ri.:vcaled that except in th<:! case
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accommudu.led outside the prevailing tclldcr. ~er details of the various transactions between Marull and RSRTC can be ascer~ed from t!te . statement qf tacts included in the ap,!)elldi.x t~ thlS repon. Shri Harideo Joshi, former Chief .Minister, Rajasthan, and Shri Mohan Lal Chhawn and ~~I Ram Narayan Chaudhary foriner Transport Munsters of Rajasthan have totatiy deoied their involvement. in tl)e dealings between Maruti Limited and the Raiastha!l State Road Transpon Corpor~tio!L ~.bis _affidavit Shri Chhagani says "From tlllle to umc informal discussions and consultations us:d to be held. by and between the Cbai~man of the State Corpo,_at1on und myself The said discussion and consultat1ons were g<neraily on policy matters, . It was very .rar~ly tJiat any ~pecific detail as tQ the day to d~y !unctionmg of the corporation was ever gone into In de.pth the corporation was an auto11omous corporatJC?O. and that all matters pertaining to day to day administration were looked after by the ollicers concerned. and the ultimnte decisions relating thereto were exc!USJvely the privilege of the Board of Dir~tors of the corporation. At no stage either the Government o_r mysc!f as the Minister were involved ;o sJch specific decisions being taken by th~ Board or in implementation thereof by the officers concer .ed.... As far as I rocollcct, it was only once tha the Ch.ainnan of t,he corporation had mentioned to 'me the facts about Maruti Ltd, having a large .capacity and Pl/mt an~ their performance and . that It would be desirable 1f s0mc orders are also given to Maruti Ltd. I recollect having told the Chairman that there was no hann in doing it provided there was no detriment to the interests of the corporation or to !Qe local body manufacturers and if placing of the orders with Maruti can help exp:d!iious delivery to cope with the requirements of the Corporation", Snri R. N. Chaudhary has dcn;c J that he directed tile Chairman or any olficial of the Rajasthan State Road Transport Corporation to accommodate Maruti Limited in the matter of placing of orders by the Corporation for the construction of bus bodies and thereby giving pocuniary benefit to Maruti Limited. He says that he did not discuss this matter with the Ch~irman or any other official and titat he never asked them to ensure pre'icrential treatment for Maruti Limited. Shri Harideo Joshi, former Chief Minister, Rajasthan, has stated that "except for cursory reference which the then Chairman, RSRTC had once, the1e had been no discussion, meetings" with him "nor any paper was put up" before him in this connection. The 1<;:iJnony of L~c witnesses examined before the Commission and the material furnished in the affidavits fikd before the Commission was sought to be contradict~d by a denial. On a cocsidcrati.m of the available records and cvidco.:c it is quit~ clear that undue favour was shown to Manni Limited in the placement of orders for hus body fabrication work, i!Uotment of chassis from t;1110 to time ~ud in agreeing to pay for the DTc city a 'ld Mofus,iJ t)l>e bodie.; at the same rate which was settled by Manni wi:b OTC without ob~erving the normal financial procedure.

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of I 0 bodies got built on Leyland Viking chassfa on RSRTC new Mofussil design in January 1977, and on 74 Tata chassis according to the RSRTC new Mofussil design in the months of January, February anJ J\forcl1 l 977. Wh('l'C allotment; were covered J,y the regular tender. lhc alh,tmcnt of 68 hn< bodies in th;, C~i\I! nr olh1.1 typo;-. in favour (lf Maruti Lin1itcd
was ~adi.: \Vithout a tender or even a limited tl~nder cnql~1ry. No1: \vas th~ app_rovaJ of the corporation ob!l11n,d which i>as essential as the firm wcs being

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Madhya Pratleslz 811s Botlies Builtli11g Contracts


Madhya Pradesh State Road Transport Corporation (MPSRTC) entered into two conuacts with Maruti Limited for bus body building wo1it:, Io 1975, the tleet position of the M,PSRTC is claimed to have been very bad. About 391 vehicles had become overaged according to the prescribed norms of 10 years for Leyland vehicles and 7 years for TMB vehicles and these were d1e for replacement dming 1976. The cost of operation of the fleet had gone up, due to the bad condition of the vehicles and this had an adverse e.lfect on the income of the corporation. The corporation was also faced with demands for improvement in tleet, -:xpansion of bus services, nationalisation of ro11d transpoit on new routes and also in' uncovered areas along the existing routes, etc. As it was felt that the business of the corporation could. no longer be carried on economically and efficiently with an out-moded and depleted fleet, arrangements were made with the Punjab National Bank and IDBI and the Provident Investment Company for loans to the extent of Rs. 327.09 lacs. The financial position of the co1poration at the end of the financial year 197475 was not sound as the accumulat~d losses had gone up to Rs. 885.07 lacs, The State Government had advanced a loan of Rs. 50 lacs to the corporation in March 1974 and a further loan of Rs. 50 lacs was advanced by it to the corporation in March 1975 to be adjusted against capital contribution for the ~ext YCW: Even the loans from the IDBI and the Punjab National Bank were sccu1'ed on the strengtb of guar3:11tee from the State Government. While the question of replacement of the old vehicles was still u.n~er consideration, a suggestion was made by the Chief. Accounts Officer. of the Corporation for hiring of pnvately owned ."eh1cles as an alternative solutfon However, this suggestion was not pursued. ' '!Jte Madhya Pradesh State Road Transport Corporation ha~ t~o departmental workshops where bs body fabncation work can be undertaken the Central wor~op at Gwalior and a workshop at iodore. TI1e capaci!)' o~ both the workshops in 197&.,77, 11C<:Ordi11,g to Sbn ~I.Jan Chandra, Chief Accounts :w:M ?,?~ buses IQ a. year. ~ capacity of th.e. . , ......~;:;t;;..'t. worltshop alone wa ~ 2" l .. n.""'i."-" ' "'"'"''<""11\'t .,_ .,: ,_ _ . <lf'f. 1n a;year. . ,_,,., ,,. ,,,.."'.' ...

July to October is the 5111.~'S(... , therefore wauicd to repiacc;i the~! during the peak period (Le/from.
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On November 10, 197S Sbri R. S;tl<iianii&;- General Manager of the coiponltion, submit~,'.~ilote .indile tender No. I/7S{fcch in which hec!gavif'.justificaticm for getting bus bodies constructed through outsid~ agencies. This note was recorded bydlimon :the suggestion of Shri Sitaram S. Jajoo, who was then Otairman of the corporation, and in the note it is stated that the Chairman had already been informed ab.Jut the position varbally by the Gener!ll Manager Sbri Khanna. Shri Khanna stated that new' buses W>!l'c required by the corporation and kecpm.. g .jn. .view the practical aspects, replacement of 230 b~ would take 8 months and this meant that new buses 'WOUid not be available to t~e corporation durin~.~e;.~t, part of 1he traffic penod. He was of opinion tllat ''looking to the consti:uction capability of our worltshops, it would he better 1f we go in for bus body building from outsid~ age!1ci~s". This o~te Wll!I P!1! up to th~ then. Cltairman Shn Sitaram S. Ja100. Sim JaJOQ m.ar~'the"note to the Vice Otainnan, Shri Moti ta! VOJU.i!'I!or1~ men ts who in his note dated November'13'?i'l97S stated "the on!y point whi!=h is for considcra~n is .that, if we receive 40 chassis a month .~ wor~ops are in a position to deliver constructed bodies: Iftbis number exce~d~ then only we should l<>ok Jo. outsiders for body bulldtng". Otairmap Sbri Sif'' 'ra'oi iii his note dated November is ~~+;. ~ eW ,..1n7s ., . ,ex;~ .,,.,.,._ .-.. that the bus body wort shou)!f be' "onel'tllo'nii;,!.';Y~.d as th~ Government " .. . " . ~-mir1:<:dffeU'" 1 e age!1?1es worki;h~ w~e( ot in a pos11ton to achieve the tar~t.. He ~~;jlG 1 Manager to prepare. a prccjS_Jor: " ..~ .... The proposal ~as d.iscussed'. <>11" ~S 'at the 85th m~eting of the Boaid ofi ~'"''aed over by Shn Sitaram S. Jajoo. Th,.; ,, ... J>~I d the proposal for fabrication of'll;;;;.') . . .Pj>p>Ve ' . .. m Out s1de agenCles. ,,, .~;:f' ~-,., .. ' . ......

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.... ,.i Jlili; ,,;;.;;(f .. a. JCS fabrtCllted;fl:olU Hlin OU!S1d~ agency. 1n 1971. This gave rise :.to iio audii Ob)ection and m November 1974 the Vi~ n.. " of MPSRT<; Sbri ;Moti Lal Vohra agieeibg"Wf~n view taken i.n audit expressed his opinioit tl1at '. they,!Re . 35 bus. bodies could have been eonsthictl:<f " 0~ econo1D1cally at th-e Corporation's own worltshopIll' r ~mber 1974 the Boll'l'd of Directo1s of tile cOr n r!lllon accepted tI!e Audit Report and the.~mmcri~; gon made thereon and referred tho matter to the State . o~rnmcnt for appropriate action. Final decision Ill e matter was, however, taken by th S Government only in June 1978 . e . late
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98 lc:;tkr documcnls according to lh~ purchase policy 11:lcs. Maruli Limited had also not submitted the required <Jrawings for TMB chassis. They bad instead submilled drawings for bus bodies on Leyland chassis, though the tender l,locuments specifically referred to TM8 chassis only. The HQTC of the corporation considered all the tenders in its. meeting held on January 9, 1976. The offer of Maruti Limited was not the lowest, six other offers being lower. Tbeso. six parties were : M/s Auto Body Centre, Jaipur ; Azad Body Suppliers, Jaipul'; Rajasthan Commercial Corporation, Ja1pl!r; Rama Body Builders, Delhi; Mehrotra Industries, Calcutta; and Wadia Body .Builders, Ahmedabad. These lower offers were rejected on one or mol'c of the following grounds :
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that Maiuti Ltd. would supply us SO, bodies by the end of March 1976. Thereafter, the rate of supply could be more. It could be 30 ~ per month. Neither I nor any other official from' the 'Accounts Department was associated i,n the negoilations with MJ s Maruti Ltd. as provided in th.c ruliis". S'.iri R. S. Khanna, then General Manager, MPSRTC has in the course of his deposition stated : 'W.e. foun~ th~t the Chairman was very mucb i,nter~ ..111..QD.e particular tender. . . . The matter was kept open. We thought that even though there is some. intetest shown by the Chairman the matter may be kept 'open 11ecause we did oot know whether Maruti ~fl~ able to fully implement the order for 100 bm:J>!Jdi~ or not . .i.. first day . . . . . . . . . . The whole '-'-' .,.....g i s tbaT . 9.1!..;"I'!'. we visited the factory. On the secon<l d;&)'" W:e visited the P.M.'s residence. The meeting was: ~d at ~lie P.M.'s residence. And well, fi,rst Chairman and Vtce Chairman entered Mr. Sanjay Gandhi's ,i;h~ber nil(! later on we followed. Well, there Jt !'l'~,,tJceiordtllat a rebate of Rs. 1,000 per bus will .gi\'en w er to tempt Mr. Sanjay Gandhi for gmng the iebate, the Chairman mentioned, 'well, the order could be for I 00-200'. But then I told him later on tl;lat 'NIT (notice invitillg tender) for 100, r am"t gpiii.g to sign an order for more than 100' and, tberef9ie. ~e words 'depending upon finances available' W.S .l!)sO JCCQrded as a conclusion of the meetjng''. Reverting to tile statement of Sbri Krishan Chsndra, be has stated that Sbri R. S. Khanna put up the note to the Chairman on January 16, 1976 reg~ing th~ discussions which they bad on January 13 with Shn Sanjay Gandhi. The Qeneral Manager mentioned in the last portion of the note that "the party was asked to depute some person duly authorised to sign the agreement with MPSRTC" Shri Sitaritm S. Jajoo, Chairman approved the above notti of the General Manager on January 16, 1976 thereby autltorisi,ng placing of contract for this tender wilh Maruti Limited. According to Sbri Krish31\ Chandra, rules 43 to . 53 of the rules framed by the Corporation regarding tender for purchase of stores and execution of worb en\'.!saged that if negotialions wr.re t? be done, it should be cone by the HQTC with all the parties as far as possible, and that this was r. lt done fa the present case when Chairman Shri Sit'lralll S. Jajoo visited Delhi and Gurgaon for unde'rtaking negotiations with Maruti Limited.

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According to Shri Krishan Chandra, Chief Account Ollieer of the Corporation, Maruti Company knew that the said tender was only for construction of bus bodies on TMl3 chassis and normally a tender could qualify fo1' acceptance onJy if it was accompanied by the requisite drawings for the model specified in the tender documents. Nevertheless the offer of Maruti Limited was considered acceptable by the HQTC. It was decided by the Committee to submit the case to the competent authority for consideration. A decision on the offers of other tenders was not cons1del'ed necessary for the time being till the result of discussion regarding the delivery schedule etc. with Maruti Limited was finalised, ns the rates of other tenderers (besides the six rejected) were on the higher side. Thereafter, the file was. put up by the General Manage1 to the Chairman who saw it on January 9 I 976 and invited comments of the Vice Chainnan: Shri Moti Lal Vohra. Shri Vohra in his note dated N;ovember I 0, I 976 stated that the rates of Maruti Limited were fairly reasonable, that the tenderer had also e~pressed his willingness for fnrther discussions regarding the terms, and suggested "As the HQTC has recommended the tender of M/s Maruti Ltd. of Haryana, Chairman may approve the recomrnendat1011s of the HOTC in anticipation of the sanction from the Board". The file was sent to Shri Sitaram S. Jajoo, Chairman on the same day and he agreed with the note of Shri Vohra .and directed that discussions with J'o:fa~uti .'c-imited he held for obtaining favourable tcrms. Shn Krishan Chandra. Chief Accounts Officer, has ?.rought out the following facts in his statement : Su~sequently the Chairman. alongwith the Vice Chairman, General Mnnager and CWM Shri K N Wahi had visi.ted Delhi from !Ith to 14th January 1'0;-6 f<;r ha~r.g d!scussic;ns ":'ith Maruti Lim.itcd. In 1ho d1scuss1ons with Shn Saniay Gandhi it was also decitled
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In accordance with the discmsio.qs held by Sbri Sitaram Jajoo the entire lot of bus bodies fabricated by Maruti Limied should have been delivered to the corporation by the end of May 1976. However, accor~ing to the avaiJ'!ble records, delivery of the hus bodies covered by this tender was co01pletcd only by September 1976.
In the note recorded by Shri R. S. Khanna it was stated that Shri S. r.f. Rege was due to arrive ai Bhopal on Januuy 17, 1976 for signing the agree. ment for Maruti Limited. He . therefore desired that the draft agreement should be prepared urgent! The Law draft agreement was prepared and vetted by Officer and th.e agreement was fuially typed on the

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same day Janu3ry 17, and ~igned by both the The matter was placed before the Board. on ary 27 1976 tor ratification. In the mcaotlll!e cipatio~ of Board's approval, 25 chassis were ed to Miiruti Limited, IS in January 1976 upto June 14, 1976. Shri Sitaram Jajoo himself. who had ~ ~ . at the Board' ineetng as QD.O .. "' . . ..M,..ntt.. motion .;;...,,.t;n "ll)YJ of .....--~ item. Subsequently, the fiJe ~...-~\im;JaP> who of .Maruti Limited was .PJl1._1! ~i:', 19.76' and aftet dehvi~ ~d_ed .a note. oo Deeem.-. ~ the al!d JUStifyiog the waiver of tho peoaJty .,, . . , ... entire penalty be coQdoned. . . Even before the last batch .of bll5e$ W"5 ~~~ Shri Krisnan Cbar.dra has stated that "while pl~c by the coq>Oration Crom ~u ~ on June , order iog orders on M/s. Maruti Ltd. no other officer mciuding myself could have raised objections of any Shri Jajoo was .:ontemp~ pla~ ~wltbout sort because the emergency was on at that tune and for another lot of bus bodies on by. Shri Sanjay Gandhi. as everybody kn.ow~, . h~d ca1)ing for fresh tenders. This ~ ob)eCted ~o e . of the ofticers oi the corpoiatiOD., ;Somet m m attained lot of J'Oiitical power. Moreover. as LS borer. first \Wek of ~ember 1976, Shri R. S . Kfwla out from the notiogs on files, no time was given to asked Sbri Krisban Chandra to ~ to see us to study the case properly and there was constant Shri S. C. Shukla, the then Cbief MiQister, who bad pressure on us Iron~ t~c Ch(\il1ll'!n Shri J.ajoo to clear called him (Shri Khanna) ~ the .Secretaxy this case on top pnonty baslS without raismg !l"Y ob~ jection etc. as virtually he had already agreed m Delhi Shri N. V. Krishnan for a di5C:'!m<lD Shri Khanna to award this contract to M/s Maruti Limited. has deposed 1"fore the ~DIJl!isslon '!18t be and~ Finance Secretary had discuss10DS .. wilh tJ?e. From the records it i5 quite apparent that within Minister and he (Chief Minister} sh.QWCd bis~ in placing a turtber order on Mamti Ud. This was a matter of 4 Jays the Chairman and the Yice-Cbairman not only decided to accept the Maruti tender followed by a telephonk: call on September 14, 1976 without placing the matter before the competent from Shri Shukla to Sbri Khano.. asking him to send authority, which was Board. but also suo moto pro20 chassis to M~ruti Limited. :Iowever, a. the first ceeded to negotiate V1ith the contractor, and that too contract bad just hlen complete.:!, Sbri JCbanna put op at his residen~eifactory premises". a note oo ibe same day meotiooiDg that this could be done only if the Board 8've its sanction or the As regards deli1cry of bus bodies Shri Krishan Government issued a direction in that regaJd. ,Chandra says, '"in fact, no bus body was received Thereupon the Chairman asked the General Mana in the month of March, '76 from Maruti Ltd. and ger to prepare a pn!9is whereby a case could l:e llllldc only 33 buses arrived in April and May and the out for placing a further order of 100 bus bodies on maiority (67) arrived during the slack monsoon Miiruti Ltd. The General Manager pot up a note months ...... there was abnonnal delay in tlie supply September 23. 1976 which was siped by Sbri dated of the bus bodies by Marutl Ltd. to our CorporaJajoo on the n'!:tt. day. It was to be put op before tJ1e tion ...... the last lot of 22 bus bodies was received Board meeting o:i October 4, 1976. The precis was from Maruti Limited by our Corporation as late as finalised without getting the coDUDenlS of Chief AcSeptember. 1976. This means that delivery was late counts Officer. According to the provision of secby about four months". tion 15(2) of the RTC Act 1950, all precis/proposals having fiDaocial implications shoold be shown to the One of the conditions of the agreement was that Chief Accouuts Officer for bis views/~eots before if !here was delay in supply i>f bus bodies, the body putting the same before the Board. In .the precis it builder was to pay a line of Rs. 100 per day per was stated inler-a!ia that it was "coosidcl:ed desUalile chassis and the penalty wns to be recovered by the to go in for outside contract as last year. M/s. Maruti <?encral Manager ~rom the bills and the se~urity depoLimite<.l have expressed their willingness to cooatruc.t sit of the body builder. The icuder was floated mainly another 100 bus bodies on the same terms and coowitJ1 a view to getting the buses io March 1976 so ditions as was done last year. l'.n fact ioWing of that they coul.d be utilised fully during the peak period tenders may take a long time. The rules may. probably between Apnl and June. According to the calcularequire calling fresh tenders, but as time is . an imti~os. made by the Accounts .Depariroeot of the corportan~ factor, getiing b~ bodies CODSllucted by poration. there was a delay of 414 days and at the Maruti Ltd. may be considelM proper. Prioes have rate of JU. I 00 per vehicle per day, the quantum of gone: op ~ the meantime and therefOie, leDdeis. lll8y penalty was worked out at Rs. 41,400. The Technical entatl a higher cost also". Protest againSt this proceDepartment however revised the figure to 328 days dure was made by some of the Board ~ indelay and the qu~ntum of penalty was reduced to . cludins: Shri M. N. Buch tbe thfin Rs. 32,800. On November 10, 1976 a meeting of Tow~ & P!iuming. As a seciuel to this. tlJerc was ~ the ~oard was held when the Chairman raised an item meeting with the l.'hief M"mister SbrFS~. C., Shokla outside the a;:enda and Resolution No 1774 was on October 5, 1976. This meetipg lV8S atteni!ecf. by passed whereby the Chairman was delegated the power M. N. Buch, Secretary, N. V. KrisbnaD, :Fi!laco.&0of reducing or condoning the penalty where such retary, R. K. Tikku, Secretary to the C!Jiid Mbl;ster pegalty had fal.len dc. No precis was submitted at 3tU! R. ~ .Khanna, Cleoeral Mannger. Iii 't lllf#log t~e BRoard 1!1eet1og for this outside agenda item before Chief Minister ordered that tcndlll$ shODid ..;. .8oa t . e esolution was passed and even General for further 70 bus bodie8 to be - "" ted corporation from Qutside ~~"1,b.lhe Man!liter ~ad not proposed this !tem for the Board'8 t wa coos1deratioo. According to Shri R. s. R:lianna 1 put up a note on October S/8 HA/79-14 s 1;.,1i!ies. . ru.m ~nu

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on this gr to n~go t"tate . howver no negot1a!lons bad offered . ' ~ ' A draft precis was prepared, which was seen by Chief Accounts Officer and Genetal Mauager and aped b the Chairman Shri Jajoo all on the same ~rov DeJmber 20 1976. The matter was then put up i!f~re the Board in its meeting held on ~mber 24 and the Board appro\'ed lhe award of this contract to Maruti. Lim:ted. Shri Sitaram s. Iajoo, former GWnnan .' of . t!te MPSRTC and Sbri R. S Shukla, fdnner Chief Minis. ter have 'denied that any pressure was. put by them on' the officers in the matter of a~. of thesi; contracts Shri Jajoo bas taken up the position that 1t '!a& absol~tely essential in the interest of 'the corporation to get the funds utilised and p~ a ew.~. on the road as early as possible so that the COIJ!Ollltioil.could start gettiiig better return. There '.is' no otliCr iii rebuttal of the testimony of KrisJilln. ~ ... Khanna and nth~ wit.nesse<J. . ' .... ~ .; . : , On the basis :>f the mate$! before tlie Coinmissi~ it is clear that undue favour Wiiii. $o.1'A .to Marut.i Limited in the award" of the two contnicts and confining negotiation of the rs; of thefiM~ oi;iiy 1 to them and '!!so in condowng the delay m sup"'ymg the built vehicles. " <: , " ,.,

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Uttar Pradesh State Road Corporation (UPSRTC), a public undertaking establsbe.d by .the State Government of Uttar Pradesh, the Road TranSport Corporation Act, 19SO, alSO!iplaCed bulk orders with ?vlaruti Limited for fabrication of bus bodies in 1976-77. The Corporation !lave their' own Central workshop al Kanpur with a production capacity of SO chassis per D;JOntb .. In ~r 1975, the Board had occasion to review .the ~Pli!l~QD capacity of the Central workshop. In the.~ of,dlscussions regarding the ways and. :JDellll& . of ,ckaring the backlog of 2SO chassis lying in. the Yard. it :was pointed out that at the rate SO per JOOlb, tbc Central workshop could pro\'ide only ISO buses ..by the end of March leaving 90 cbasis on wl!lcb"~ bad to be built oilly by AprU 1976. Since J11:8k. ,traffic .season normally commences fro~. April, both loss. of revenue and public criticism would .follow if lbe remining buses were not ready before ApriL The idea of getting atleast 7S bus bodies bwll on .l'ata .c;ba.ssis througb the agency of private bnUderii was therefore mooied. In the Board Resolution No. 392/75, this silggestion was ~ted by the CorporatioJ,l and fabtklition of bus OO<lles on 75 chassis through private, agencies on the lowest rate accepted in 1974-75 was sanctioned. Along with this it was decided to augment capacity of the Central worksh!>P !15 also :to . develop Allen Forest Workshop to raise its capacity for renovation work to about 50 buses per month; This matter was also .iliscussed <l'l D~mber 24, 1975 at tbe third I!'eeting of ~e Corporation. ~ March 1976, the position was reviewed. al a meeting .hdd in the office of the General Manager and Ch<iim;an. At this meeting

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Sbri R. S. 'Khanna and Shri N. V. Kri~h.nan ha~e corroborated the statement of Shri Krishan Chandra abou~ ihe meeting they bad with the Chief Minister. Shri S. C. Shukla. Sbri Khanna in his d~positiori has stated that the time the:ce was pressure on him t',rom th@ Chairman for placing a re~at order and calling for the second tender was a mere formalitv as it bad already been decided bv the Chief Minister a.nd the Chairman to .award the second contract also to Maruti Limited. However, a notice inviting tender was issne.d on November 11, 1976 calling for tcndeT!l from outside agencies for construction of bus tiodies on about 70--100 TMB chassis. Sealed Tenders were received from 13 parties including Maruti lhiiited. one of them late by one day. These were opened on December 16 and 17, 1976 in the presence of HQTC members. HQTC in it~ meeting held on December 20, 1976 considered the tenders. It rejected the lowest tenders, 9 in nnmber, for reasons like non-submission of earnest money and drawings. After that the other lower tender was of M/s. Rama Body Builder but it was not accepted as according to HQTC the ierms quoted by the party werz not ir. accordance with the terms and condition.~ prescribed in the tender. The HQTC foun~ the tender o~ Maruti Limited in order. The tenders m respect of other part.its were not considered as their rate.; were higher than Maruti's offer. The matter wa~ t~en. put up to the Board. this cas~ also Maruu LJtru~C!f had not submitted drawings wb1c~. were a pre-requ1s1te according to the terms and cond1t1ons of the tender. According to Shri Krishan

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101 Gandhi for discussions regardillg, \'>UJ. bo4y {AArjcation. i\ little la1er I was infollned on ~ne by the retary that cbi:f Minister (Siu) 1\1. D. T1war1l had desired that he (the Secretary) ~uld alsc> ~o to Delhi and meet Shri Sanjay Gancnu, AC!=Qrdmgly myself and the Secretary, Trans~ both travelled by the same plane ou 2-6-1976 aftem~ frOlll; Lucknow to Delhi and in the evening met- Sbn,-Malik 8' U.?. Niwas. The following morni::ig we again l;UCt at U P Niwas. Shri Fazle Al)med who was tbe :actmg G:ll~. in the abseuce of Sb..-i s. K. Moc!wel on lllave, also JOllleQ us at U.P. Niwas on 3-6-76. We, all the _fuur of us, Shri A. B. Malik, Shri Fazle ~. Shri Mahe shwar Prasad, the TranspOrt Secretary . and myself went to Maruti Ltd. at Gprgaon at 9.00 A,M. It ma~ be mentioned that the pievious ev~ OJl 2-6-76 when we met Shri Mallk, he hall. ilU!k:ated that discussions with ~hri Sanjay Gandhi W<>uJ'1 be, IJll?r; or less, one sided an:!, therefore, one bas 10 J>e giuuous while conversing with him. So it was decided that only the Secretary Shri Maheshwar Ptasad would condnct the discussions, b~ing the seniormost 9lficer in the group. We met Shri Sanjay Gandhi in the office of the .G.M. Shri Pan:, Maruti Ltd. Durli!g tlie discussions, on behalf of Mandi, Shri Rege and Shti Pant were also prese:it beside. Shri Sanjay Gandhi. At the outset Shri Sanjay Oandli asked us as to l.ow we had come to visit Miu:uti. Shri Maheshwar Prasad expressed that we were directed by the Chief Mini~tcr to go and meet him (Sbri Sanjay Gandhi) as he (Sbri Sanjay Gandhi) had desired to discuss on bus body fabrication tender. Shri Sanjay Gandb: S3Jd that he had nothing to discuss. He mentioned that regard ing bus body fabrication' he had seen that tender was issued by UPSRTC and Maruti Ltd. had also tendered. Jn case UPSRTC required Maruti Ltd. to fabricate bus bodies, they would be in a position to fabricate bus bodies against a. planned programme. Sbri Sal)jay Gandhi was then informed that on a rough tabulation made on the tenders received,. ~ stood at sl. [serial] 11 on basic rates and 16 on landed cost. Shri ~jay Gandhi immediately pointed out tltat the tabulation could not be fullll 11.od ~SRTC would be calliug the selected firms for negotiations. He iDdicated that at the time of n~gotiations, the'r rotes would. be brought d<?wn to match w1t,h other firms selected for entrusting With ~us body work. He als" 11;1entioned that though Maruu would be prepared to reduce the ra~ it would d<iso only. to the level of the rates otfcred by reputed firms. _During the course of discussion, Slui Sanjay Gan'!J1i asked as to when the tenders were opened. He was inf~ ~ the temlers we.re opened on 15"5-76. !='n heanng this, he sbarpiy reacted an.cl remarked that 1t W!15 already 3-6-76 and the tender was ,yet to be finalised. ~e also inade a sarcastic .remark. that perhaps woi:k m U.P was done in this fashion. After this the meeun~ closed aad the Transport SecretarY asked me to ~ase the tender as soon as possible and in any . :nse within ~e next 15 days. He also asked me to inspect Maruu workshop then and there and durin the course of :he day see as many bus body fabricatil) g ~ w~o bad tendere_d as possible at Delhi also and t~ V!Sit Jaipur the fo!Jowmg day to inspect the .body builders the_rc: Accordingly all of WI along with Shri San.a Gilfl!lltl wpcctro the Maiuti Ltd. workshop befbr~ lhavmg the pla~e. l ,subsequently inspected two works ops at Delhi that day and also visited Jaipur on

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Sbri K R. Ramanujam, Deputy General Manai;cr (Mechiinical Engineering) . pointed out t!Jat accord1bg to the budget provision only 400 cbassL were to e urchased during the y:ar and, therefore, tenders rhould be invited from private body builders for fabrication of only 400 bodies. 1 he then G<ne1al Manager and Chairman Shri Anand Swarui;>, however, ~ of the view that tenders could be invited. tor fabncation of 1000 bodies. Shri K, R. Ramanu1am has exlained that this view was taken in order to put on fbe road additional vehicles to meet th~ Kumbh Mela requirements. Ba~ed on th)s de~ision a tender w~s floated for fabrication of bus bodies on 1000 chassis and necessary publicity was also arranged. In . response to the tender notice 31 ~enders were rece1yed. The tenaers were opened by the ~urchase Committee m Qie presence or th~ representauves _of .several tenderers. Tenders invited were for fa~ncauon of both . Mofussll type and City type bus bodies on Tata: LWR chassis, hill type bodies on Tata. ~SB_ c~a>s1s a~d Moi'ussil type buses on Leyland V1k1!lg Ll>JB <:1:1ass1S. 18 firms had quoted lower rates than Maruu for Mofussil bus bodies on Tata chassis and in the cas_e of City type bod,ies and Jilli type bodies on Tata c~asSL< the number of tenders lower than that of M9:1'1t1 ~as 14 an.cl 4 respectively. In respect of Mofussil design on Leyland Viking, 14 tenders with rates lower thaJ! that of Maruti wcr! received. 1he rates of Maruti Limited and Delhi Automobiles were not the lowest in term,s of landed cost. In his statement, Shri K. R, Ramanujarn has clarified that originally Maruti had quoted for bodies of one specification only and they were asked to send their rates for bodies for other specifications also, and the required information was sent by Secretary, Maru:i Limited in his lelter ciated May 29, 1976. There were >ther firms also be~ides Maruti which haq 9mitted to quote correctly for the different specidcations and therefore a letter was sent to all the tendercrs for furnishing the rates for different specifications or. May 27, 1976. A tabular statement of the \larious rale.' quoted by the firms for the different bodies was prepared. Among tlie firms whose quotations were not !ewer than those of Maruti were reputed firms such a Hindus<a:i Steel Industries, Lucknow, Utkal Automobiles, Jamshedpur, Kamal & Co., Jaipur, Azad Bociy Builder;, Jaipur and Hyderabad Allwyn, for different types, At this juncture, Shri S. K. Modwel, the tbM General Manager received a tclepl;ione call from Shri A. B. Malik. Resident Coinmissioger,. Government of Uttar Pradesh at !Delhi, to the elf~t iliiit the then ~hief Minister, Shri N. D. Tiwari, desired that the maximum number of chassis be allotted to Maruti Limited for fabrication. Sbri Modwel who was ~o pro;ceed on leave from May 31, 1976 assured. Shri Malik that he would fook into the matter on his return from leave. Shri Modwel remained OD lea".e upto Jun~ 20, 1976 and during this period S!Jri Fazie Ahmed Khan, the then Transport Commissioner held charge of the posr. Shri Ramanujam in his statement has said that "on 2--6-1976 (forencon) Shri Maheshwar Prasad, Secretary, Transport/Chairman called me. to his office and I w3s asked by him t~ g~ t<;> Delhi immediately 3nd meet the Resident ComOllss:oner for U. P. at Delhi, Shri A. B. Malik t:he same evenmg and on the followinr day to meet Shri Sanjay

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4-6-1976. On 6-6-76 the tenders rec~ivcd were considered by a Cor.nmittee comprising of Cbief Accounts Officer and myself. The Committee broadly considered. _entrusting of bus bodies for fabrication to the firms based on the rates tendered, location, area, cquipm<nt, production capacity, etc., as revealed from the tenders received, the inspection note of workshops by different officers and other factors which arc explained in the note dated 6-6-76. . . . . It was recommt cdcd in the same note that the following 11 firms could be ~ed for negotiatio1;1s in order to determine uniform basic rate : I. M/s Azad Body Builders, Jaipur

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to the Chairman, Shri Maheshwa,r Prasad Oil June 15. 'rhe C11airman discussed the note with Sh,ri Ramanujam orally and approved the inclusioQ. of the item in the Agenda. When the matter came up for consideration before the Corporation at the meeting held on June 23 a revised note was submitted on the ground that the previous note contained clerical and other errors wbic]) had inadve1tcntly crept in. According to the revised note Maruti Limited was proposed to be allotted 280 chassis instead of 260 chassis while others were pro posed to be allotted chassis as follows : Delhi Automobiles .
Hindu:-.tan S1ecl lndtbl1 it:~ Ccnlr<!l \\'ork!>hup, UPSP.l(' I la1 hb lr.du .. tiic:!I.

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2. M/s Royal Body Builders, Rohtr.k 3. M/s Maruti Limited, Gurgaon 4. M/s Hindustan Steel Industries, Lucknow 5. M/s U:ka) Automobiles, Jamshedpur 6. M/s ieamal & Co., Jaipur 7. M/s Saoghi Engineers, Jaipur. 8. Mis liarish Industries, Meerut 9. M/s Sukbaoaod Jain, Mecrut 10. M/s Jullunder Body Builders, Delhi 11. M/s Delhi Automobiles, Faridabad n1e note was duly approved by the Chairman on 7-6-1976. The Negotiation Committee meeting was to ~ held in the office of the UPSRTC, Ajmere Gate. Delhi, on 146-1976. The meeting was proposed to be he}d .at Delhi because most of the firms sele.;:ted fo>: negotiations were located at Delhi and around Delhi."

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Marall Umltcd (i) Tata Hill bodies (ii) Tata Rural bodies . (iii) Tata ci!Y type bodic;
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Two firms of Jaipur, M/s Azad BIJdy Builders and Saughi Engineers, were omitted in the new allotment proposed. In the Board R~solution No. 431/76 it was 'pccifically noted that hill type vehicles should bP allotted only to Maruti Limited and Delhi Automobiles. One chassis was tbercafte1 allotted. to Maruti Limited for construction of a prototype. Shri Ramaoujam thereafter visited Maruti Limited on July 24, 197(i along with Shri Diwale, Chief Accounts Ollicer, and Shri Rajinder Singh, Service Manager, Meerut. Dwiug this visit Shri Saojay Gandhi suggested some .alterations in the body specifications in order 1..0 make the structure of !be body as a whole look .e!cg;mt. The chaoge! envisaged replacement of alunwuum outer framework with tt-eated mild steel for strength and stability ; re4uction in the number of roof sticks, reduclng the size of the window glass according to the DTC desig'n, . and also the siz.e of the window to 46" and certain other changes. Sbri Sai!jay Gandhi assured them that the revised costing based on these cJ!J':'l.~ in the specifications would be intimated to QfSRTC. Shri Ramanujam has in his statement givt:D. the fo!l<>1YinJ facts : "The G.M. in bis observations on .page 6 . of t11e note had e!IQuired if the changes .irivQlved any dilfereace in cosL Since the Managing Director, "M/ii Maruti !-Ad had assured during the discussions"that ~ons in. the costs would be worked out and, intiDiated J~r. this matter was not pursued in routinecoiirse;. Flirthei.. there was always a fear complex persisting in the. minds of the ofilce1'S while dealing with Maruti .44,; ., Ii was kn.o':"" too well, how deeply interested We:iii ilie :cwci{ Minister, the Traosport M"mister, the State Mintstei for Traosport, in Maruti Ltd. as evidenced.. , in , the :i.u~tm~nt of vehicles aod especially. in view of. theit tndi~on to us to see that Shri Saojay Gandhi .WdS not displeased at an:i' stage,. i! was. ,C9~red quite . unsafe to take up this .111attei:. of CIJSt'.var!iiticlns with. . the firm on urgen;t basu;. I.t .Wa$. ~ .~!lijig~to be . taken up a! the tUlle. of ~al settJeIQ~t .of,ai:coimts. Moreo~r, 1t was dunng this. period llJat Shri. San jay Gaodhi b~ once swken to me oq teJ!lph,.~ ... and expressed his annoyance over the delay' m ...~ delivery of chasS!s to Maruti Ltd H ., ~ . .. . e a~used tb4t-.!ID the. previous VIS!~ of Ge!Je~al ~nager 11r1d myself t1.>'Matuii Ltd. We liad fum1slied incorrect Jntormatqn iilid ibal . .. ,,, . ' ' .
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(prototype) (prototype)

Th~ n~te. prepared by the Ni:goriation Committee after their SJtting on June 14, 1976 was included in the Agendit for the 26th ~ard meeting which was put up

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i11l the files had also Q<:cn manipulatc<,f. As a result G.M. and myself had to seek an appointment with Shri Sanjay Gandhi on telephone and had to rush to Pclhi on the ~me day by car for want of accommoda 1ion either by train 01 by plane from Lucknow or Kanpur 1md explain the jYJsllion lo him in person''. On July 19, 1976 Shri S. P. Singh, Minister for Transport, had proposed at a meeting that the UPSRTC should go in for purchase of 2,000 additional buses by the end of 1976, in addition to renovating 1,000 buses. This was also stressed by Shri N. D. Tewari, the very next day at a review meeting on the work,ing of 'fran sport Department and Road Transport Corpo ration. However, the Corporation approved !he purchase of only 560 new chassis and its meeting on July 28, 1976 mainly due to the paucity of funds. It was also decided to make the allotment only to such of the private bus body manufacturers who had responded to the tender floated in May 1976. In view of this decision to allot extra number of chassis to the private builders, Shri K. R. Ramanujam, "isitcd Maruti Limited on August IO 1976 for assessing the additional capacity of the fi~. He was told by Shri Pant that Maruti Limited would be in apos1tion to augment their capacity to 65 bodies from October 10 December 1976 and 85 from January 1977 onwards. While UPSR TC oJllcials were preparing the notional allotment lo Maruti Limited and other bus body builders on this basis, they were pressurised by Shri S. P. Singh, Minister for Transport to think in term of increased allotment to Maruti Limited." lo deference to his wishes and the directions of Shri Ma:heshwar Prasad, then Chainnan, who had received a similar direction from the Minister, General Manager Shii S. K. M?<lwcl ':'isited Maruti Li'!1itcd on September 25, l,976 with Shn K. R. Ramanu1am for further discussions with Shri B. M. Pant. Shri Sanjay Gandhi also joined the discussion. He told them that Maruti Limited could fabticate 100 or even ISO buses per month. Before t~c ~evised notional allocations of chassis could ~c finalised by UPSRT<; officials, Shri Sanjay Gandhi personally rang up Shr1 K. R. Ramanujam 011 phone on September 29 and expressed his annoyance thaf Mar~li ~~re not being allotted any chassis despite l~c!r availab1hty and accused the UPSRTC officials of sivmg false data and information and manipulatino !ccords. Ab?'!I the same time, Shri S. P. Singh: fransport M1mstcr, spoke to Shri Modwel General Manager, UPSR'!'C and told him (as stated in Shri Modwcl's aJlldav1t) that the Chief Minister was extremely up~et over the .del!'-Y. in giving increased allotment of ~hass1s to Maruti L1m1ted and .that he desired that actio~ should ~ taken in1mcdiately in this regard. i'!e dir~cted So/i ModwcJ to seek an appointment unm~diately with Shri Sanjay Gandhi and rush to Dclh1 to settle the m~ttcr.. Thereafter the General Man~ger rang up Shn Saniay Gandhi and sought an nppo1~1mcn1 to cxpl.ain to him the corr<>ct position. Appomtmcni was given by Shri Sanjay Gandhi at 9.30 A.M. o.n September 30, 1976 and the General Manager Shn Ramanujam ha(j to leave for Delhi on September 29 in the evening. On September 30 they met Shri Sanjay Gandhi and explained !he po~tion of availability of chassis and their allotment to. Maruti. On return from Delhi a note of the discussions .held was prepared by Shri K. R. Ramaoujam and both. the General Manai;er and the Cbainnan approved the revised proposal made in this note. Aecording to the new proposal Maruti limited was to get 125 chassis in October, 110 in NovCll!ber and. 41 in December 1976. Shri Ramaiiujam 1bas stated' th~t, "Tl!is of CO!'fSC ~ to be .at the ~ !'f o;her private body builders In bis affidim~"S@."~ ~ ~odwel, Gener_al Manager, ~ co~~F.d: .. th"!. statc!Dcnt. ~hri S. K. MOd,weJ 0!1 returp ~ ..Delli! apprised Shrt N. D. Tewari, Shri S. P.,~,, .Shri R. P. Gupta, then State Ministe.\' for T~. and. also the Chairman, Shri Miieshwar. ~.. of tile .talks he had with Shri Sanjay Gandbi '!QC!, ~ r~yiJed allotment proposed to be made. An a~nt >was thereilftcr executed between UPSRTC and Maruti Limited by which Maruti were tO i:::t 170 cb&ssis over and above 280 chassis already a:ll<>Ued. Jn l;!ecember. 1976, a further mo\'c was made to incr~Abe flow of chassis to Maruti. On Dec:ember 13 Sllli S. K; ModwC! was instructed over phone fr<~m oelbi . by Shri R. P. Gupta, the then Stlile Min.istcr of Tr.wspon, ; not to make any further allotment of ch~s to M/s Azad Body Builders and M/s Sarighl Engineers, both of Jaipur, till further ord~rs. Sbri .~""K.,MC!4."Yel has recorded a note to this effect in the' relevliiU,file:Sbri. ~fod1~cl was als<? instructed to meet .Shri, ~..J.~Y-.9.,l\?d,hi m this connection and to ensure that llUobileoFto Maruti Li'!lilI w~ kept at the mu}~l11J;: ;, ~ble level. Shri S..P. Smgb, Transport MiniStcr ,aJSO gave similar instructions to Shri MOdwel frajn ~ .and desired that final outcome should be re.Jlilrted tid1im and the Chief Minister. Shri Modwel 111 '.biS ~avit has averred that Shri Mal!esliwar Prasad; ~ UPSRTC, has also received similar instiuctions from the Chief Minister and had conveyed them to him. On December 17, 1976, Shri MOdwel along'with.bis Assista1lt General Manager (ME) met . Shri 'Sanjay Gandhi. Shri Modwcl says that Shri SaDjay, Gandlii found fault with him for diverting chllSSi,5 to other. firms in spit.: of clear instructions from the:; Chief Minister, Transpon Minister and the Stale Minister of Transport and directed him to divert all cbiis$is to !-faruti Limited. Sh1i S. K. MOdweJ pointed out that 11 was necessary to keep the Central workshop of UPSRTC engaged in bus body building work. Besides there was diJllcuity in securing loans from Banks fo; pur7hase of chassis. It has been further stated by Sryn. Modwcl that the . anaging Director of Maruti L1m1ted became very stem and told him in clear terms th~t no further diversion of chassis to other body bw~ers should '?c done an~ it should have been clear to him that th~ h1ghe~t of!ic1als of the U.P. Government h~d already given. du~~100 that all chassis should be ~1vertcd to . Maruti Luwted for bus body fabrication. fwo ri:med1al measures were suggested by Sbli Sanjay Ga!1dh1 to overcome the difficulties mentioned by Shn Modwcl. He suggested firstly that the Central wo~kshop could be kept fully engaged with the renovation and re-r~ovation of old buses in order to lengrhen the service span of the bus , bodies beyond

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4 lac k.o!. Secondly, he said, ;iruti Limited W0\11d use its influence with Punjab Nallonal Banll; to prov1d~ credit facilities to the UPSRTC on suppliers credit basis. Discussions which Shri Modwel h~ wi~. Shri Sanjay Gandhi were duly conveyed to Chief Munster, Minister of Transport and State Minister of Transport AJ> a result by Shri Modwel immediately on return. a further allounent of W Tata cha.ssi~ o! small wh~I base was made in favour of Mruuu L1nuted for fabncation of hill bodies and 80 L WB Leyland chassi~ at 40 per mon~ ~ January :ind Feb~ary. I.~77, subject to M;lruti LIDllted a,rrangmg credit facilities. through Punjab National Bank. fhe Transport Minister Sbri P. Singh, according to Shri Ramanujam, again spoke to Shri Modwel and desired that all vehicles except those intended for the Central workshop should be allotted to Maruti Limited. A note was recorded by Shri Modwel on January 7, 1977 in this COl)J)ection wbicb was submitted by him to the TransJ?O!l Minister th.rough the Chaitman. The Transport Minister thereafter had discussions with the Chairmn, Shri Mahcsh war Prasad, and agreed to modify his direction to the exient that the commitments already entered into with small scale industries could be honoured. These facts have been mentioned in the noting in the relevant Ji.le. The proposal to make further allotment to Maruti Limited was brought to the notice of the Ministers including the Chief Minister in a note prepared by Shri K. R. Ramanujam on January l 2, 1977. possible extent may be given to the:fim:I for !>us' body fabrication, and suMequently there were clear orders that all contracts for bus body fabrication should .be entered into with one good party". Shri K. R. Ramanujam has stated : "While dealing with M/s Maruti Ud., in the matter of bus body fabrication, r have been under COIJ,S~nt fear of being put under MISA for any lapse which would cause annoyance to Shri Sat.ljay Gandhi. On I 7th Dceember 1976 when I was on leave in Delhi, I was called by the Transp(Jrt Minister who was also m Delhi in U.P. Niwas. He told rn') that Sbri Sanjay Gandhi was extremely annoyed wi:h me but that he had explained to hi.m that there .va.s perhaps some misunderstanding and it was within his personal knowledge that I was not putting any impediment with regard to the payments or allotment to the firm. It was, however, suggested by the Minister that the matter be C'Xplained to Shri Sanjay Gandhi personally".

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In the statement submitted in response to the notice under Section SB of the Commissions of Inqu).ry Act, both Shri S. P. Singh and Shri R. P. Gupta have denied the role attributed to them and so did Sbri N. 0. Tewari by a telegram. On the basis of the material available to the Commission it is quite clear that undue favour was shown to Maruti Limiled in the matter of consideration and acceptance of their offer which .was not the lowest, changes in the body design as suggested by Shri Sanjay Gandhi without checking .the cost varia~ons .involved, and allotment of additional chassis from time to time beyond the limit envisaged in the original. tender. It appears Maruti Lintlted dictated terms. A bus body builder in the normal course of business cannot summon the top management of any Tl'llllSport Corporation to his bus~ess premises to tell them how much business he must get. The UPSRTC, a statutory Corporation, is an autonomous body and the frequent interferences by the fo1mer Chief Minister, Transport Minister and the State Minister for Transport were wholly unjustified and only indicated their desire to help Maruti at the expense of the other body builders including the Central Workshop of the Road Transport Corporation itself.

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The proposal mooted by Shri Sanjay Gandhi at the time of the discussions he had with General Manager, UPSRTC, on December 17, 1976 to arrange credit facilities through Punjab National Bank on suppliers' credit basis for the purchase of 80 Leyland Viking chassis did not however materialise. Both Shri S. K, Modwel and Shrl K.' R. Ramanujam have stated quite clearly that at every stage in the bus body fabrication programme ever since Maruti entered the field there was interference and pressure exerted by the Chief Minister, Shri N. D. Tewari, Transport Minister, Sbri S. P. Singh and the State Minister of Transport, Shri R. P. Gupta, for the allotment of maximum number of chassis to Maruti Limited. Shri S. K. ModweJ ha~ stated in his affidavit : "That in view of what has been stated above, it is evident that at various stages the Chief Minister, Transport Minister and the State Minister for Transport had told me and the Chainnan <if the Corporatiol) that the chassis to the maximum

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LIST OF CASES OF CONTRACTS, ETC. (ITEMS 7, 8 & 9 OF THE TERMS, OF REFERENCE)


L Mlnliley or Deronce (Ooptt, or Der...,. S1111plloel

I. Placement of orders on Maruti Limited for cap chambers (Zinc b:lse alloy)-4,00,000 numbers.

2. Supply by Bharat Electronics Ltd. of I .75 lac diodes at Rs. 4 per piece (Total value of order Rs. 7 lacs) to Maruti Techoi"cal Scrvic:cs (P) Ltd. for export. 3. Transactions between Wndustan Aeronautics Limited and Maruti Umited. One trial ordc~ in 1973 and 46 supply orders for tooling items during the period 10-5-15 to :?-3-76 for amounts varying from Rs. 400 to Rs. 93.000 (Two orders were cancelled). Total value of order Rs. 8.77 lacs.

ti. Department or ElectronlC'S


1. Fabrication Qf 3 special computer cabinets. 2. Fabrication 9f three base plates for Brcodboard Servo Kits supplied by Electronics Corporation of India Lid. 3. Fabrication of one Display console. Ill. Ministry or Tourism & Civil Aviation J. Sale of aircraft spares, cquipmenl, tools, etc. by Indian Airlines to Maru1i Technical Services (P) Ltd. 2. Import or Piper Aircraft. JV. Mlnlsley of Potrol"!JJ, Chemicals 4 Ferilllsers (ONGC) I. Purchase or 14 Truck Tractors in 1976 by Oil and Natural Gas Commission from M/s. Maruti Heavy Vebiclcs (P) Ltd. 2. Purchase of 8 Truck mounted mobile craocs by ONGC from M/s. Maruti Heavy Vehicles (P) Ltd.
3. Purchase Of 6

ru TOD Road Rollers together with spares (total value Rs. 8,74,6S7) through Jalao Modi Automo~

Gurgaon

V. Department of Supply

I; Provisional registration of Maruti Heavy Vehicles PriV.te Limited, as approved dealers for supply of Road RoUcn. 2. Registration of Maruti Limited by DGS4D as approved dealers for 11111Dufacturc of : "' , , . (i) Maruti cars ; (ii) Die Casting components; (iii) Bus(Truck bodies; (iv) Dies, Jigs a11d Fixtures; (v) Kittables for Bus/lrll<:k chassis; (vi) Sheet Metal pressing; . (\ii) International Harvester's Motor Trucks and Rear-End Dumpers.
3. Seven Tender coses :

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(i) First A{f placed on Maruti Limited for supply or Radiosonde MKm Pressure Die cast rra.mc. (ii) Second A/T placed on Marut.i Limited for supply of Pressure Die cast frame as risk purchase. (iii) Third A{f pla<ed oo Maruti Limited for supply or Pressure Die Cast frame. (iv) Ac:ccpl;locc or Maruti Heavy Vehicles Private Limited as Authorised SuppJJci: for supply of ;pares for ~ Moore Road Rollen. (v) Procurement or 18 of Killable bodies aod cabs for TNB cbasais (Maruli Umited). (vi) Procurement of 13 of All Steel Killable Cabs and Bodies (Maruti Limiltd), (vii) Supply of Cap end and Securing Ring by Ordnance Factory, Chanda.
VI. MWstry or Heavy IDdustry

() Encineerlfll Projects (Indio) Limited


(i) Purchase of 6

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iO tonnes road rollcn at a. price of Rs. 1.20 lacs each.

(h)

(ii) Supply of spare parts for road rollers at the value of Rs. 62,228. 76. (iii) Supply of 6 Marutl Profiles at a prloe of Rs. 7,200 each. Scoottrs l11dia Ll1111ttd (i) Negotiations for lhc purchase of machln1>1 from Maruti Limited. (iD Building of Cabs and Bodies.

105

106
(c-}

Ali11i11g & Allied Alachi11cr)' Corpora1it111 U11ri1td Pla1X1ncnl of order for Idler-.&. Rollers on Maruti Limited.

(h) Hi11d11.fto11 i\ft1chi11e Tools J ..JrnittJ

Sale of machines 10 Marud Limited.


VII. NDMC/DDA ond other local ulhoritles I. Purchase of Qulck Flow Polymi by Water Supply & Sewerage Oispa'"I Undertaking from Marutl Technical SctvicosPrivate
Lim~l~d.

2. Purchase of pre-c."sl RCC slabs from Maruti Limitc4 for storm water drains. 3. Bus Body fabrication. con1ract by Pelhi Transport Undertaking.
4. Purchase of 3 Maruti Road Rollers by NDlllC.

Purchase of spare parts for Maruti Road Rollers by NDMC. 6, Purchase of JO Maruti RoaJ Rollers by DOA. 7. Purchase of 3 Road Rollers by Delhi ~funicipal Corporation.

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VIII. Transactions with State Governments I. 2. l. 4, S. 6. Supply of 25 RoaJ Rollers by Maruli Heavy Vehicles Private Limited to PWD (B & R), Rajastban and I to ~tl!aD Roadways. Purchase of two Road Rollers by Madhya Pradesh Government. '" Purchase of JO M:iruti Brand Road RoUcrs by NOIDA. Government of Unar Pradesh from JalaD ~odl AU:tomobiles. Purchase of IS Road Rollers by Government of Punjab. ' Purchase of 8 Road Rollers by Government of Katnataka. , Purcha<C of a Road Roller by PWD, Government of Himachal Pradesh and I Road Roller by Himacbal Pradesh Housio1 Bonru.

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7. Bus Body Building contracts awarded to Maruti Limited by : (a) Haryana Road\\ays (referred to Justice Jaganmohau Reddy Commission and excluded from the purview of this Commis(bl (c) (d) (e)
sion). Madbya Pradesh Roadways. Rajasthan Roadways. Haryana Electricity Board. Uttar Pradesh Roadways,

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8. Negotiations for purchase of Piper Aircraft by Governments of Maharashtra, Punjab and Haryana. IX. Miscellaneous Consullancy conlracl wilh NOIDA (Government of Uttar Pradesh Undenakjng).

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CHAPTER VII ,
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The tenth item in the list concerns "all facts and circumstances relating to allotment of controlled commodilies aild materials, like steel and cement, to the said [Ml\l'uti] concC!'ns and their utili<ation or disposal otherwise". The controlled conunodities c<>ncerned here are steel, ccanent and coal which were allo!ted to Maruti Limited. STEEL Maruti Limited got the letter of intent on September 30, 1970 and the industrial licence on July 25, 1974. As in the case of other industrial units holding letters of intent or industrial licences, th~ . Directorate General of Technical Development (Automobile Directorate) became the sponsoring authority in respect of steel for Maruti Limited. During the period 1911-75 supplies of iron and steel materials were regulated and allocated to the consumers from the fol.lowing sources : ( i) Steel Priority Committee (assisted b~ Joint Plant Co.mnlittee) ;

In this respect we are abo attaching the certillcate of our lirebitects for the immediate need of the steel quantities to start the conatruction. programme.
Thanking you. You.rs faithfully, for Maruti Ltd.

Yfg. Cdi-. R. H ..Clmwc!hrY


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(Retd.)

Chief BXC\ive" ,
On the next day, March 25', 1972 the DGTD rcceivi:d
an undated request on a plain white sheet of paper from Shri Sanjay Gandhi, ~. ),Jaruti Limite4 for exemption from payment of 15%. adVllDCC with the order of 6000 tones of structural. steel._placed by the company with Joint Plant Co!Wllittec and Billets R1>-rollers Committee al Calcutta. The request wa,s based on the ground that Maruti Limited was still a new company with limited resources. On th.is undated letter a telephone number, 617477. and a name "R. K. Dhawan, P.A. to P.M." are written in ink in a .comer. It Is not kil<iwn who wrote this, but 617477 was the number of the one of the'!Clephones in Prime Minister Shrimati Indira Gandhi's residence. As Maruti Limited had not yet boOn granted an industrial licence, DGTD sought the advice of Iha Ministry as lo whether the request should be pi:ocessed further. The Ministry decided .that in the circwnstan~s of the case the request for allocation of structural steel should be accepted in J>rini:iple, In a note recorded on April 10, 1972 Sbri R,. V. Subrahmanian, Additional Secretary in the Ministry of lndustri.al Development (Dqiilrtment of Heavy Industry), said ~'.., ... the request o'f Sbri Sanjay Gandhi for allocati<in of structural steel for the construction of factory building should be accepted in principle. The actual quantity of st1'Uetllral steel to be recommended for allocation by J.P.C. (Joint Plant Commi!k") should be dflCideJ,, :!1.f:;OOTD ill accordance with the accepted norms.:.: Being .a new ~t . the case should be i:er,omm~ for. exempnon from payment of eame6t lllOllCY":' Sbrl R. V. Subrabmanian deposing be'UR tho oc(-Ommisslon sought to jllilify the . decision by .saying .iiiiit "since the production oi prototype was a primary condition of the letter of intent, I tboiigbt ihat 'i we ''should enable them to produce-~ illldl'give'' thein such facilities needed for the p~!l. Slui Subrahmanian ligrced wilh Coullscl mting' tbo,Commlssio that at that a1age the object was nodiiar,stprqili!Ctio: of cars but only the D[Oduction of pro~ and that for this limit~ PUf!lOSI? . the ~ of steel was not reqwred. It was ' pOhited out to

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(ii) Billet Re-rollers Committee; and

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(iii) Discretionary Quotas as the disposal ot (a) Iron and Steel Controller, (b) Regio~al Iron and Steel Controller, nnd (c) Stockyards of the main producers. Allocation of steel was normally made to the various sponsoring authorities leaving it to 1hem to suballocate different . quantities . among the individual indentors. To the units sponsored by the Directorate General of Technical Development . (DGTD for short), however, the sub-allocations were made by the Iron a'nd Steel Controller at the instance of DGTD. Altogether 6066 ton,nes of steel were allocated to Maruti Limited. On March 24, I 972 the Chief Executive of Maruti Limited wrote to the Iron and Steel Conlroller in Calcutta the following letter : "Dear Sir, You may ha".e alread~ heard that we are setting \IP a very major industrial comrlex to mass produce "Maruti-The People's Car" at an annuaJ rate of 50,000 pieces under the Government permission being granted to Shri Sanjay Gandhi our Managing Directcir. We have already applied for the requisite steel requirements to the J_.P.C., but the pr"cessing of the application form submitted to the have to J .P.C., will take sometime. As w~ complete our project in 6 pionths' tim~ we will request you \o allot some quantities of steel through the stockyard on priority basis. 107
S/8 HA/79-15
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Shri Subrahmadiaa. that for the production ot prototYi'"S it might be necessary to construct a research and development block but not a fullfiedged factory, and 6000 tvnncs of steel was ce11ainly not required for con.,tructing a research and development . block. Shri Subrahmanian a\!milled that he did noi indicate in his note that the rcquiremeat of steel.at that stage was for the limited purpose Of production of prototypes, l;lut did the coiupany require any steel at that stage "! 1 he progress report sent on February 26, 1972 liy Maruti Limited to DGTD discloses that they had already constructed a research and developruent shed. ~tn office block, and a design olficc and in addition had so\ up a tool roo.m, a ji11 boring shop, a small foundry and small forge shops. The report to DGTD also state\! that the fir~t ten production models of the car were "well near completion" and that out of these the first three were soon to be offered to the government for trials. Thus Maruti Limited seems to have afread y completed construction of such structures as were necessary for the production of prototypes. When Maruti wrote to the Iron and Steel Controller Cakutta or to .~TD (t: hel~ only a letter pf int~n; and t~e grant of 1tidustnal hc~nce depended, on tl1c pro!otype car being declared roadworthy yet ih its letter of March 24; 1972 to the Irol). 'and Steel ControlJl'r. the company stated "we arc scttbg. up' a very '!'ajor i1!d1mrial complex to mass produce ' Marull-the people's car at an annual rate of SO 000 ! pieces". The CO!JlllllilY appears to have been i~ no doubt t~at an. indst~ial licence would be grantoo and obv1ous!y its requirement of steel was ~alculatCd . on that. basis .. If !he success of Marut i's . application for an mdustr1aj hcence appears p.redetermined so it seems was Maruti's demand for 6000 tonne.s steel. The te!~Phone numl;>er and the name noted on Sanjav Gandh-! s u~dated letter to DGTD acquires a signifi-

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DGTD wns directed t.o process the case on the basis of th; Ministry's decision. Another" problem arose at this st;1ge. An industrial unit sponsored b .. D~TD for the i:rant of steel had to be registere~ . with ~GTD. On August 29, 1972 !he Joint Plant Committee. ask~d for a photo copy of Marut"'s D.G"fD reg1strat1on number for their record.. Mariiti . LllJ!l!Cd approached DGTD for allotment of a registrau on numb~r. Shr! B. S. V. Rao, Development Officer, DGTD examming the position recorded a note on September 12. I 972 th~t normally registrativn !JUdmbe: wns allotted to a unit after the issw of. an in ustrtal licence. The Ministry was therefore aain .req.uested to advise. Jn the Ministrv Shri N~ I< .Krishnan. Deputy Secretary, recorded the follo~ing note on D~cembcr .18, i 972 : "Two courses. are o. Jo. us. We_!Jlay either issue the industrial J' !' Without wa111~g for the fulfilment of the conditi~~~n~f the letter of intent or authorise .the DGTD t . ' the registration number in antic! ation f th o issue an industrial licence. r understa~d thato th e grant of '~R~E vA~ciedhas not vet been despatcheJ'~~ot;jj: -. me nagar. It may not perhaps th ~ ~ .lie desira~le to grant an 'industrial lieen~ ere or~.

number". On the same day Shri R. V. Subrahmanian made his recollll.llendation that the "DGTU may be authorised to issue the registration number". This was approved by the Minister of Industrial Development, Shri C. Subramaniam on December 30, 1972. Examined before the Commission on this aspect Shri R. V. Subra.l;unanian. said that JICCQl"ding,rlo the "general policy and practice" "a ..unit.ia:Jlllot:tc:d ... a controlled commodity like .st.eel onlyr.aflel<.Cilbelt1it,.hJts induslfiill licence or .regi$ei;ed ,wjf4 ,1h1i.Jll3TD~'. Sl!ri R.. v. Sub;ahmanian. howe}lql' ad.dl:d,,\~ndid,fl:el, :;11t that point .of time tha~.in orderAo,c;naPil\'-~J!old~r Jlf the letter of intent to be, 11b)e. ~o flll.fil,$he:J~IIIS of .the letcer of intent and in order to make the prototypes, they would require certain facilities in the s\11111 pf ome sort of factory buildings ~nd some. C?ther .equipment. ... ". Ri. V. 1 Subrahman1an however' 'failed to recall any other case.where ''Uie11goderi11:'}X>lf6y.' was ' depart!Sd' from ;iJs: was dO!re iJr!.thd-ca&eOollil Marilti Lllf!it~/ lS_hri.1C.. S~aniam ~ialso,'.. ~e8tioii.ed .,n tbJS pomt. Ue sa1d~1\Xluner1iWcre 'bi>&D'...fO>us ... though as afact we'111ayeithearlissue1tlfdlin!lu~trial licence withoutwaiting.for the Mtlbiicntiof th6 conllitions of the :Jetter ot '>intent ' or! ordd:c'!lhe D61ll)I' to .ist;ue the registration wrtilica~cfoFirce:rtaln'>'i~fic purposes for the allotment of stcel.~i<>Sol\V(f>ihad opted fo~ the second . altema. ti~.'.::!! l y . ~ two courses were dpcn. It' WllS' bot ~ble' lsSuc the industrial licence disregardirig'tbe'c:Ondltt ns of the lcuer of intcut. l do .not tjlink.Sln:i (:. -~~m was sugge5iirig that the Minist..Y ciluld have ma'de a1 exception in the case of Maruti11aii(l1iJSiie :'licence just to enable the COfllpany ,t.o .get a, flPO!il of steel. The only course open therefore. was 't'1. deV.iat~ from the general practice,' and direci'DGTD tci' isue a registration certificate in favour 'of 'Maruti Limited if this was necessary for the purpose of en~bling th~ company. to: pr~oce protocypes. llhri R: V\'Subrahmaman~s.. note did not mention lhllt"Mlli:uti'S reqlli.re.ment steel :was fonhis 1imited' 'jjurpOSefohly; IH11ivc :already-!f~a.l~ with the :ciuestion 1wbetliera.t that< sia~ ~a~ut1 Limited really needCd any'lrteeJI ewu :for"th1s hm1ted. purpose.. 'r!. , h1. '.:-!\~ .1'.)'/~'l1url ;., no:~
:R . :_

,,,;-

"

ot
'

'

'

' ;

:. ' .. )(' i;lll:

(,"

en

Reference may be made to one oilier fcatlire relating to the allocation of steel to Maruti ;J Limited. Chapter 8 of the guide book for. iron ilJld steil indentors issued by he' Joint Pinnt' C.iminittee'in''197Z em'powers the Iron and Steel. Gontrollf(fo' iSsue illlotmcnt lettei;; :Com time to time tor small'' qi!liniities, not ex~mg .twency tonnes, to a pariy whldh were !O remam valid for ninety days ffaip. 9!e date of issue. rt appears that Shri Shivencjer Sinib ~ I an~ .~tee! Controller, issu~ ,.allotiucn.t .~tten ~; r.~~ me.tic t?n!1es ~f steel op ~8/491\i'"""-'~.f 1972 _ rently fit violation of the rbecd ' i 'ti! ' ~ " .. "appa ~., s of'the gicfe' bo91:: l?seCl)p::r~ ~ ~Tl!J.!t chhp10 practice twenty torines'wasa1.iti~t!llii!ltfW,,Js t at ron~cs. per section/thic.kness. of a . en as twenty Shn Sidhu elaborat this aS t I' i:at~~?ty of steel. issued by the St~ Co . o o:w11, ~"i'otii;icnt. letters demands witb'ihe'sto~i,;~ 1 ro11.er .~v.cm: "~tcrcd as keep the .stookyards~::a~ and it was ,fhc ~llcy "to of .dJquinds s~u:h~:ythl<Jaded 'With these mtSuse". Accordilig.to Slui ~-dlt ey;:-01-not able to perience has been" ihat of th~e :ilobiie~fi:~~~ : ;

!'

g~~D l~h~u1;f ebcfore

consid.eration whet~tel'. t~; . e authonsed to 1ssoe the registration

to:

re~istratioO:

199
was for ~3 tonn,cs;'the ~ concerned received within a pcnod of 1bree ~on t~ only .forLy ,>i~ ionnes i.e. seven per .cent, and th_e all~ ment letters Jiccame invalid alter wnety days _from t. ic date of issue "So we were deliberately li~ral with these allotment letters" which wer~. "n~t h~e lorm~ allotment orders or firm allotments , aid S1dbu. Hts. attention was drawn to an ordet be recorded on March 28 J 972 on the lelte1 dated March 24, 1972 Maruti Limitccj to the Iron and ~tee! addressed Controller, t.alcuua, for allotment ~f '.'some _q~a11tmr.> of steel through the stockyar~. on p1onty ~as!S . While assenting to !he release of some,, material from tl.1e stockyards of the m~ . P"!~uc~rs he. menl1~~ed 1n the order apparcnUy m 1ustlllcat1on of 1t th_at. Indus~ ttial Development Ministry has ~!ready 1>su~ the licence" ror Maruti's car project. , f~at was. an mcorrect statement. \4aruti Limited got .mdustr!al h.cence in July 1974 anJ Shri Sidhu admitted his mistake before tlie Commissi1m.

DlQ~.c.,~., "'fie .addi:4'.tbat'1w this particular 'case

thn ten.

r \:Cnt or fifteen pct cent "ull.imatdy

Delhi also filed an affidavit, alli.rmcd on Dc~mber. 18,

e.

::~ Ji~ 'auoune~

l~?~,!P~_., ~~111e;s 0 .,,. ,1;r_,~1W''m ..~ .fa"~'ci)]lS~_ purchase.C?l U~ l!iid ~ i;u,.~. ,,;i ,.,,. ,;''\;i, ..
ed in the.~ >Uld :t>Qfc~ ~oJ!lM .. l :rul?,)es," T. iron, angles, squares etc. The iron and steel materials purchas from rerollers ii/d,i o~;~~re;_sold by retail to f.acrory owni:iS ai:id &ulal!/iM~~~i'ir~ tr~ and steel d~''.,,_V~J~~.,~;;l9,-.'l1 'W: that M/s Prem Nath Na.ndll ,&,.Sons ,~lh.l~ftom'. whom his firin purchased '31,900 kgs)of:;M.Sr a1igle<" got these materials 'from Marui'i 1 1jmit~. ;'Th,i;reafter he contacted M. M. Pur! whom he detc.ti~'.:as pu,rc)lase supervisor of Maniti Lim\~~- ~~ s!iow~d. inc. the angles and plates that they :wci:eiolI~ring for1 sale and he also g;it my oiler of the rates: After this be took me to Shri Sanjay Gandhi;. Managing Director. Maruti Limited, in his iactory office \11 Gutgaon. Tlus should have peen on February .~i, i?1~ ,ot, a', day <>r tw9 earlier". As a trader in stecl1hekncw tliat"iron and steel was iu soon supply lllld was a scarce C<'mmodity iu those days for most of:the items, 'pa: cularly M.S. a.1glcs ~nd plates", but lie was iloi aw. r~ whether these w;re 1:9ntroljed ite!llll pr 11.ot,. V~<I l,'ra-, kash sets out in his affidavit the dates, the quantity and description cf th~ material and the amounts pai.I. He also says that gate passes W<re issued to thon for taking the mat"rial out of the Maruu factory which bad to be surrendered at the gate.

'

.,, (ibis' finri"~iiloP&bkflahd

\y

From the evid;nce of sev~ral traders and some ol the employees of Maruti Limited. it appears that " p~r of the controlled steel allocat~d an~ dcspatc.hcd .to '"e company was sold to private parues m v1olauon ut the Iron and Steel Control Order, 1956 Sc.11n~ ?I these traders have .filed afiidavits before the Co.mnuss1on amJ one of them was examined as witness, Shri Vishwanath Nanda, a partner of \he firm ~1/s Prem N~th Nauda and Sons of HaUL Kl):li, Delhi, ~tates :n his affidavit (iUfumed on 16-12-78) that they used to purchase steel from regist.:rcd stockists or from the open market and offer tb~ same for sale, and that between November 1973 and May 1974 they buugbt stel materials from Maruti Limited. This firm used to sell mill stores and tool item; to Maruti Limited. In November 1973 orie' of :he employees (Shri M. M. Puri) ol Maruti Limited informed Sbri Nanda that the company hac.l iron scrap for sale. After a discussion with Shd Sanjay Gandhi, Sbri Naoda putcl1ased the first lot of irQn scrap from the company on November 24, 1973. Nanda also "came to know that th~re were other parties. <?f Delhi who were buying steel materials from Maruti Limited". Ifo adds : "we were also sold th~ steel materials lt rate; mutually settled betwten l)S. By mutual settJ~meut I mean that the rates were quoted by Shri Sanjay Gandhi in respect of the particular it~ms and they were accepted by rne. There was no q~estion of a counter offer from my side ... while taking out tile materials from the premises or the Maruti Limited they used to give us a gate paS> allowing the materials to be taken out of their premises. They used to give only one copy which we surrendered at the gate to the security staff of Maruti Limited". Shri Nunda says that the steel materials purchased from Mai'uti Limited were all sold by his fi.rm in the open market to various pan;es. He produced the book of account of his firm recording fhe tra1!sactions and his affidavit includes a statemmt settmg ou.t ':he dates of the .transactions, the quantity and descnpt1on of the matena! and the amountii paid. Shri Vcd Prakash, partner of firm M/s Chaudharv Ram Chuni Lal ~ Company of Loha Mandi, Naraina,

Tile bu;iness (lf M/s S. N. Steel Corporation was also purchase an i sale of iron and. steel materials. Shri S. N. Beriwal, a partner of the firm, affirmed an affidavit on Ocember 15, 1978 in which he states that one of his ewployees Shiv Kumar Shorma hao met Shri Sanjay Gandhi aad got an offer of sale ,,1 iron scrap. Beriwal accompanied by Shiv Kumar. Sharma met Sbri Sanjay Gandhi in the third w'ck of January 1974. Shri Sanjay Gandhi said that ''1hcre was no scrap available then for sale and he offered 10 sell M.S. plates and angles and asked us to quote .. 1 kucw that M.S. plates were not easily available in the open market'". This firm sold all the materials purchased from Marnli Limited to other parties in Delhi. Beriwal's affidavit also contains a statement containilrn the details of the transactions between his firm and Maruti Limited. Shiv Kumar Sharma has filed a supporting affidavit. Shri Santosh Kumar of Narela, Delhi, carried 011 business of purchas~ and sale of iron and steel in the 11ame and style of M/s Santosh Kumar. In his affidavit (affirmed on December 16, 1978) be says that he purchased M.S. steel materials from Maruti Limited on different dates, the details of which arc annexed lo his affidavit; "I used to arrange my .own trucks to

IC.
~110 !alto the steel 1W11erW:; f.rom their premises to Delhi: .. steel Jlllltcrials purcbll$ed by me were sold to vanous steel merchants ill the market". He produced the ~ks of ai;couots of bis business recording the transacuons. of Rewa.ri (Rajasthan) with branch c.fjice at 21, Ind~ t,rial Est.ate, Gurgaon, deposed be!orc the Comiws sion. ffis ti.mi used to supply machinery, namtly deep dp.wl!lg boards, wooden patterns, iron castings etc. to Maruti Limited. Rama Nand says : we started construction of our own factory at our branch at Gurgaon from 2-2-74. We needed sted materials of various types for the construction purposes and on coming to :k;now that some steel material.< are available with Maruti Limi~ with whom I have alrtady dlling bus1nl!lls, I approached Mr. Gulati, Accountant, and dis cussed the rates etc. in respect of those items which I required and asked bim if tbey were available ... I purchased the steel items from Maruti Limited on ~ occasions". The detaiB of the purchases such a5 bill lllllllber, dall:a and the amounts paid have been mentiol\Cd by S!iri R'10la Nand. According tri him Shri Gulati told him that "they can sell these mate;rials since they had purchased the steel from open market also apart from the steel mills and most of their construction work was over". It is incorrect to suggest that what Maruti sold to these parties were all steel purchased f.rom "open market". Shri Trilochanjit Singh who was Store Keeper in Maruti Limited from August 1972 till February 15 1975 has filed an affidavit affirmed on December 29' 1978. As Store Keeper bis "duties were to look afte; the receipts and issues of the building materials and maintain t)le records thereof'. His records contain entries of all receipts of cement, and steel materials from the stockyards as well as from the local market. H~ says that the sale of steel to private parties commenced from the middle of 1973 and continued upto about the end of 1974. "These sales were. effected because they [steel materials} were considered, SllfI'lus after the completion of the variou~ phases of the factory building' . Some steel materials purchased from the local market were used in the construction of the Maruti complex. Ou the basis of the available records Sbxi Trilocl)anjit Singh bas compiled charts in respect of five items, namely, M. S. angles, M. S. plates, M. s. channels, M. S. flats and R. S. Joists, showing the re ~ipts of these five items by Maruti Limited during 1972-73 and 1973-74 from stockyard as well as from ~he local market. These charts are a part of bis affidavit. Shri S. Venkataraman joined Maruti Umited as Cost Accountant in April l 9'73 and from Novem ber 1973 he was asked also to look after the day-today work of the purchase department under the supervislon and c~ntrol of. the M~~aging Director Shri Sanjay Gandhi. 1!1 his depos1!10n he said that he knew that steel m~tenals were bcmg sold to some local pa;tics of Delhi. .He was asked whether he could on the basis of th<: av111lable records trace the origin of the steel matc~ials sold by Maruti Limited "to the controlled ste<:l 1t~ms purchased from the government stockyards". Shri Venkataran;ian Wc;trked out the answer on the basis of ,the re~~rd~ mcl.udmg the charts prepared by Shri Tr!loch!l,nJ1t Singh m respect of three items, (i) R. Joist, (u) Tor steel-18 mm and (iii) M. S. Plates s :nm. The statement prepared by him "showing the minimum amount of stores materials whose sales can be traced to government purchase" is as follows : "R.S. Joists htM. Tonnes.
313-1973 Closing balance of tock Purch1ses from 1-4-197) to 313-t974 (as per the Building Material Receipt tlegister) HSL 25.0SS TISCO . S.9SS usco . 9,994 Local purchases . from Co nti;actors (as per the Store 'Rel urn Resister) Sale durina 1973 74 (as per tho Issue Resister) R.cturM<\ to Steel Sales Syndicate Others
R~turn

Rama. Nand, a panner of M/s. Rallla lndustrie;

------Nil (n per inventory list 16S-1973)

the di.

----

41.034

Nil
33,009 41.034 27.S36 75.043

I
IL

I
-I

Stockason3131974
Ph~sical

balaDcc recorded as on 31 374 Buildil!S Material InYO.Dtol'Y Lit 1-3-74) . .

--- ------6.473 7 .118

68.S70

l.
~-..

l t.
\

lI
\

From the statement as shown above, it is. seen that 68.570 M. Tonnes of RS Joists all of which can be traced only to Governmi:nt pwclwe& have been sold In the local market. This r say on tho basis that firstly there has been no purchases from lOcal markets in the year 19737 4 and secondly the recurn flOm the Contractors of materials prclwnably purchased In 197273 were all Government purchaScd materials as seen from Shri Triloehanjit Singh's statement .
TOR Sled (18 mm)

l!
I
I

k
[
j__.

Ml. Tonus
CloiDS balance as on 313-1973 Parcl!asOd llDl'l1 l97'3-7'

Nil

. Local Gover11111&nt Sales

NII
91. 730

S9.39S

Roturncd to Steel Sales SYndicate

I I
1,

Total Sales

,I

I
I

From the above chart it is seen that 69.375 M. Tonnes of Tor Steel 18 mm were sold in local market and there was no purchase of this material ffom the local market during the year 1973-74 and ::!so Ibero was a 'NIL' Cosing Balance as on 31st March 1973. Thus all the 69.375 M. Tonnes are clearly traceable lo Government stockyards purchases. M.S. Plata (8 mm) M. ToQDCS M. Tonnes
Clo.ins Bilance .. on 313-J973 Purclaueadllrln; 1!173-74

----

9.980 69.315

79.411
Nil
JS.069 47.JSS

Local Govcmrncat Sale dutln; Ill~ year 1973-74


Steel Sale SYndicate Total sal'

s.

23.240

----

70.62S

---
\

,_ ,
------~.--~--

_____

;_~------------

.,
__

!
111
MS Plates as on 31st Man:h. 1973 was 79.411 M. Tonnes as shown abo\-e. From Shri Triloehanjit Singh's statement it is seen that 69.852 M. Tonnes of 8 mm MS Plates was purdwlcd from Gove1nm~nt stockyards and only 6.628 M. Tonnes from the local market [in 1972-73). Therefore, it is clear that the bulk of the stock in hand as on 31st Man:h 1973 consisted o! Government purchased materials. ::Therefore, the sale of 70.625 M. Tonnes during the year 1973-74 was from the G.>v- . cmment's stocks since no local purchases had been' resorted to in the same year". Even if the entire . quantity of MS Plato:s ( 8 mm) sold to or !fallSferred otherwise during 1973-74 did not come out of the gov, ernment stock, the builk of it must have, because the quantity of locally purchased steel in stock was only 6,628 tonnes. Venkataraman added that he prepared the statement "within the limits of time" meaning it was hurriedly done and therefore was not comprehensive, however, the statement puts it beyond doubt that Maruti Limited sold considerable quantities of steel despatched to tbem from the stockyards.
lllDl

1
The Closing Sto.:k of 8
To that must be added SO tonnes wblchon a~ estimate was used for m~~- ~ making the total 3588 tonnes. ThlS ::ety includes M. S. angles, plates, fiats, joists, and . ~Is; Public Works Department's analysis of rat:s allows live per cent wastage. This quantity added to SS88 ~ wOU Id make the total 3767.4 tonnes. '."''' , ,'le.~," . ,.,. , . ,

<;entral

,-

._,,,
-.-/

M. S. sheets have been used for covei,ipg~bl!nqeJ,s provided in the factory building and' -.llo1Jl!J: cable ducts which are provided inside, Jhc: clinnels. 123.824 tonnes of CR and HR !\beets were.~~ to Maruti Limited. The quantity ofM..~,.~!I!.~ for gate, the gauge of which cannot be measud i:psi!y, is likely to be about one tonne. The total quan,uty of M. S. sheets used works out, again on a . .fo!IP ~hl tion, to 37.64 tonnes against 123.84 to.Dile& ,~Jled. 64 839 tonnes of angle 200 X 200 X 20 MM were also~ to Maruti Limited. From the Co~?,'s profit and Joss control ledger volume,n; 197~74! 'it appears that 57,935 tonnes of 200X200X20MM has been sold.

wung

a written requisition from hoads of various diviSions . . . no head of any division would dire! me to issue !,he same to outside partieo wlless the matter had the coocummce of Shri Sanjay Gandhi, Managing Direc-

be t.aken outside die factory I would generally act on

Trilochanjit Singh says :

"if any material were to

tor".
It is found from the figures supplied by the Ministry of Steel and Mines that altogether 6066.082 metric tonnes of steel had been allocated and despatched to Maruti Limited. Apart from the evidence of witnesses to the effect rhat the company sold a part of this quantity to private parties, the investigation agency attached to this Commission also made an attempt to find out the actual quantity of steel that went into the construction of the Ma1uti factory building which would indicate approximately the total quantity of steel misutilised by the company. Owing to the limitations of time and resources it has not been possible to make a thorough probe into the matter, the total quantity of steel bought from the open market by the company is not known but the results yielded by such investigation as the Commission has been able to make would justifv a more thorough probe by an investigation agencj, having more time and J'esourccs at its disposal. It may be recalled that Maruti Limited. in their report dated February 26, 1972 to DGID stated that the company had completed the construction of research and development wing and oflicc i,Jock, tool room, jig boring shop, a small foundry and forge shops by February 1972 which was before the allotment of steel was made to the c~"!pany. That being so, the steel used for these ~Ut!d~gs .has n,ot ~een taken into account by the Q;i~m!ss1011 s mvesltgalton team. Roughly the total ul1!1s~t1on of steel for the company's main factory building has been calculated as follows :
(a) N~rmul bays roofini.i: lb) lilHh b1y roolinu (c) Steel colun1 ns . " (d) (.~,une Girders . '

2~00 Tonnes 4R" T 7

( ~> fJracing of columns in Hiah baY

onncs 140 Tonnes 89 Tonnes

-----

---3538 Tonnes

:'O Tonnes

CEMENT As regards cement, Maruti Umited ~ to have sold large quantities of it almost openly. 'A'. D. Kolhatkar, Manager, Personnel and F~:Admiqjs tratioo of Maruti Limited, says in his allid&vit (affimled on December 19, 1978) that "a suhstantial}JOftiOn" of the "stocks of cement whieh they had sCCU.-td. from the cement controller", ~became surplus ,beCause of over-estimation of their actulll requirem~:' 11ierc is no dispute that in 1973-74 there was aC:ulc shortage or cement and the evidence indicates that industries In Gurgaon were in great difficulty because of the shortage, and even the requirements of municipal .1!ies could not be fully met. Shri S. M. Goyal who' was Sub-Divisional Magistrate of Ourgaon ii& well llS District Food ilnd Supplies Controller at the time has filed a statement supponed by an affidavit in wbich he says that he was informed towards the end of 1973 or early 1974 by Shri V. S. Ailawadi, Deputy Commissj!JQer of Gurgaon, that Maruti Limited had substantial 9.il!u11ity of surplus cement and that "it might be possible to arrive at a suitable arrangement" with them for distribution of cement "amonpt the public". Shri Goyal met Shri Gandhi who "stipulated two conditions : one was that wheneve1 Maruti Limited themselves required some cement, the District Food and. Supplies Administration should be willing to make the cement available from the district quota without delay. The second condition was that permits should be addressed to Maruti Limited favouring parties who were interested in collecting the cement from them [Maruti Limitedj". According to Shd Goyal the first ~.ooc'itioo could not be, ~cccpted "because in the scarcity conditions preva11iog then no Controller could h JVe anticipated the supply position during the comior, months to be able to say ~at he wo!'ld. m~t the r~uiremeots of a big ~act_ory hke Ma~u Limited. AJw no time limit was mdic~ted by Shn Sanjay Gandhi as to when he would require the cement which again complicated mauer; even more . . . The second condition could also . not be m:t because permits could ooly be addressed .. to licensed dealers and neither Shri Sanjay Gandhi nor Maruti Limited was registefecl as a dealer in cement with the District Food and

112
Supplies Controller", Goyal adds "I !IJ.ll not aware of the intention l/chind the second cond,iuon but it was not possible under the Regulativns to address a He perm.it to anyone other than a licensed dealer''. therefore came away and "reported the matter to t!1e J;>eputy Commissioner". Shri Satis~ Chander Yir mani, a partner of M/s Akash lndustnes of Gurgaon, in his affidavit (affirmed on December 26, 1978) says that he and several other industrialists were summoned by telephone to the office of Shri Dhanpat Sin,gh, Assistant District Industries Officer, Gurgaon, Whe" , Shri S. N. Goyal was also present. They informed the industrialists, according to Virmani that suiplus cement was available with Maruti Limited and that the company was "willing to sell it to the industries of the town to the extent that was required by each ~ty''. This information was conveyed by the industnalists ptcscnt to others. Virrnnni says lvlaruti Limited later weut back on the promise they made and declined to part with the ceri1cnt in their stock for reasons unknown lo him. A probable reason is suggested in the affidavit of Shri Ohanpat Singh (affirmed 011 December 22, I 978), " ... they [Maruti Limited] took this decision because of the prohibition under the Haryana Cement (Sale and Licensing) Control Order which was in force at that time under which only licensed dealers were authorised to sell cement. It would have been an offence for M/s Maruti Limited to have sold any surplus cement without being a licensed dealer and if they had granted cash memos, that wollld have created documentary "vidence against them". Dhanpat Singh however, denies that the lndqstries Department of Haryana sponsored Maruti's proposal to sell contr01l cd commodities like cement his version is that the representatives of the Oistrict Industries Association brou(ll1t it to his notice that Maruti Limited was in a position to distribute cement to the industries. Shri Goyal could not recall. having met the industrialists. But Dhanpat Siugh admits that he "ascertained that
s.-Yo~che;-Name

I
1

M/s Ma.ruti Limited .Jiad i!ppro~a~ly ,3Q\lc:>J~40"9fi bags of surpl.us cell\e~t w11~ \l\elll" <Y!Jir~,tljey,.\\'.r~, piepared to dispose or .and ihat $.e ~i1w. u11Y.11ate- i ly d,id not seil the cement to I.he 1!1d~!J;i\l;S1 IDiJ!P1~ 'lf,, an assurance given earlier. , Maruli Limited however, did sell :cement .IA?. private parties and even municipal and local authorities,. only the transactions were labelled as loan. The comp.my realised from the transferees the v:tlue of the .cement made over to them with a condition. that whenever, asked for they would return the quantity of cement they, had received. No time limit was fixed for such retransfer and the value realised from the transferees iu most cases as would appear froin the stalement& 0 these parti~, was Rs. I 5 per bag which was in excess of the controlled rate. From the evidence it appears that except in two cases, in no other. the cement transferred was retumed. The two parties who returned the cement bags were Tiger Locks Limited and Aosal Housing and Es1.atcs Private Limited, Gurgaon. Fron! 1he affidavit (aflirmed on December 16. 1978) of Shn A. R. Vanna, who was the Public Relations Officer of Tiger Locks Limited at the relevant time, it appears that U1e cement bags returned by Tiger Locks came out of the allotment received by them from the Regional Cement Officer, New Delhi. Such use of the controlled cement was also not permissible as would appear from the statement of Shri L. R. Julka. Joint Cement Controller, New Delhi. It is not known ft'om which sourco Ansal Housing and Estates Private Limited returned the quantity of cement which . they received from Maruti Limited. Maruti Shri Trilochanjit Singh, Store Keeper in Limited, who pt'eparcd in the .'coutse of llis duty vvuchcrs "to show on a day-to-day baS.is and transac tionwise all issue of building material" under instructions from his superiors, has drawn up a chart showL'lg the relevant transactions which is as follows :

- - -------
No.
I. 2. 3. 4.

or ti;; ~a;tY~nd cfutc of~ue----Desct--i-pt-,-io_n_o_'rc:i-te-m------:R:-e-mar-:ks---------,--.,,

No.

______

... .,

17839 17836 17812 17811

Rama Industries 2..3..74


Om Surin Engg. Works 1-3-74

_______
Cement (150 bags)

issued with ..:.;...... qty.

____________
Gate pass No.2827-Party's sig. avai.lable Gate Pass No.2183.:....Party's sig. available Gale pass No.2t75-Party's sjg. available Gate pass No.2174-Party's sig. available Gale Pass No.il49-Party's sig. available

Cement
(ZO bags)

Sbri S. D. Diwan, DSP, Gurgaon 232-74 Rama Industries 22274 -do


-do

(150 bags)

Cement

Cement

5. 178tO
6.

21274 13274

(100 bags) -d<>-do-

9992

(tOO bass)

"

7. 9989

Tiser Lock.> Ltd. 122-74


-do-

(50 bags) Cement (600 bags)

' Gate pass No.2128-30-Party's sig. ava!Jal>le.


Gale Pass No.2127-Party's sjg, .avall!lb!o Gate Pass No.2126-Pat:tys sig. avai!a'b!o

8. 9985

11274

9.
10.

9984

Tiger Locks Ltd. l t274 Mr.

(200 bags) Cement (200 bags)


Cement (20 bags)
(60 bass)

-do-

.,"

9956
9952

Cbaman Lal Arora 25-174.

ll.
12.

Surpanch, Mullahcra, t 1-174

Cement

.. ,,

9948 9945
-do

Cement (800 bags) 12174

13.

Gato Pass No.1907, 1909, 1910& 1911-Monoy' Rca:ipt No.373 '

t4.
.
.-- ..

(100 bags)
~

Cement Cement

.,

9902

Ansal Housing & Estates P. Ltd., 211273

-- -------- -- - -------- ..

-------------- --- ...

(ISO bag.-;)

Par1y's signature available.

113
Of the parties mentioned in the above chi"!, the following-A. R. Vmma, Sales Executive of Tiger Locks Limited; Rajindcr Sharma, Store Keeper in Ansal Housing and Estates Private Limited; Mai Chand, ex Sarpanch, Mullahcra Village Panchaxat have filed affi davits before. the Commission admitting the transactions. Shri Rama Nand, Partner or Rama Industries, and S. D. Diwan were cxaminccl and they affi1med the transactions mentioned in the chart against their names. However, Shri G. S. Aneja, Proprietor of Surin Engineering Works, Faridabad, who was also examined denied that he received any cement from Maruti Limited and stated that the signature appearing in the records of the company against receipt of 20 bags of cement was not his. Evidence has been adduced in respect of one more transaction which does not figure in Trilochanjit Singh's chart. This was the transfer of 500 bags' of cement to Gurgaol) Municipality. .R. S. Duggal formerly Administrator, Gurgaon Municipality and Bhim Singh, an Overseer, Gurgaon Munlcipality, have filed affidavits before the Commission st:iilng that the municipality received 500 bag5 of cement from Maruti Limited in May and June 1973. A; D. Kolhntkar, Manager, Personnel and Factory Admihistratiol), ' Maruti Limited, also refers to this transaction in his affidavit. Trilochanjit Singh has ~aid thaf these bags of cement could itot . have been taken out of Maruti's store and transferred to the different parties without the concum:nce of Shri Sanjay Gandhi. The steel and cement sold by Maruti :Limited were purcl,ased by .the company out of advancetalcen from the Punjab National Bank against hypothecation of these materials and the conditions of the loan did not permit the company to remove the hypothecatlld mate . rials except against proportionate payment.. COAL
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Special Duty to the Chief Minister Shri Bansi !al] Shri Mehtani rang me up one day sometime in the fo1'eooon stating that he had sent through a messenger a letter of Maruti Limited addressed to mo as Director, of Industries requesting for allotment of slack coat He also told me that the C.M. had desired that act.ion should be taken on the letter very urgently. I told him that the matter concerned the Directorate of Food and Civil Supplies and that I in my capacity as Director of Industries was not concerned with it; ' Sbri Mehtani told me that since he (Mehtani) was going to Delhi and as Shri Bansal, Director of Food & Supplies, was IQCllted in the same building as the Director of Industries, l may pass it on to Shri Bansal for doing the needful. I' accordingly hand! over the letter personally to Shri Bansal and told him abOut the message received from Shri Mehtani". However, the original of the letter is fpund in ' the :.life of the Directorate of Industries, Hary811a. It : also appears from the file that en J'ebruary 24, 1.9721 a reply was sent t9 Maruti Limited by the A$sist8nt Director for Director of Industries advising .tlfe COJppany to take up the matter with the Director, Food and Supplies, Haryana, Chandigarh. . ' '. ''. '
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, Sbfi ,B)lasin jlr~w up''a piohri!i!i.;..1 oil' 'c ~a~ day in which stated :" .... ...'iT;'Jf ,~, 1 ,,,, ">l! . ' , ... ),, "')';(! ;f'.! (;J._'{l"f'.!fFf:,J/. .i' O> '!hqi''Jthe .Chl~f ,& ", , ~r;w.D/ had mfo~~ed t~e P. ' , ~ .:.l!Jld' Supplies, . a few days ear~. tha P. J>;0did not reaui.rc any slack coiil"' iif"' . "M!lf'"""ooanct 1and therefore the comPIJW'J.' .. , " could be met .out of tlic "'Ince lrii'imlfcs" without any difficu:liy. """ 1'1 ' l~r~"i?'" .

he

ent

(ii)' That'one

. CC?al is the remaining controlled 111 this context,

com~odity. 'relevant

for. Ballabgarh for the: nillntb~Of iMarch 1972 . out of, which 12 wagoils \lbllld.'be dfrected to be allotted to Maruti: Umitcd for March ' -1972. 1 ; C) .r~-. :it-rli.r Hi~~'.f.1

rah of~ ~.~~included

On December 23, 1971 Maruti Limited was granted a brick kiln licence by the District Food and Supplies Controller, Gurgaon, for manufacturing bricks for the construction of the company's factory building. (),, or. about March 16, 1972 Shri L. C. Gupta, who was Director of. Industries, Haryana at the .time, handed over !O Shn H. D. Bansal, then Director, Food and Suppltes, Haryana, a copy of a letter dated January 31 1972 a~dressed b.Y M~ruti Limited to the Director of fndustnes requestmg him to allot to them "slack coal to the tune of I 2. wagons per month (i.e. 288 tons)(' B~nsal ll)ade over the letter to S. P. Bbasio Deput' Director m the Food and Supplies Department,' Ooveni. ment of I;faryana, to deal with. on the copy of thi !~tt.er Shn Bansal made the following endorsement G1_ven t~ me personally by Director of Industries: .Shn L. C. Gupta, please take action urgently". Shri L. C. Gupta ~as d!lpos7d t~at the original of this letter ;vas not received m his Directorate though the lcttei;, rs supposed to have been addressed to him. He ha stated how he came in possession of the co y that he hand~ over to Bansal : "I recall that th;! letter was received by me from Shri Mehtani [Officer on

(iii) That a tetegraill ll)"r!1:;j; ". for e 1" " " " "If~"!!& allotment .. q, ,.,~,, ~ ..~PJpany th !or the !llOJllhof, ,, 9, . : 'i12four wheeler wagons . incl of. the c9mpaoy frqm. 1972 onwani~, tiH~,,~~:iW)Dpll!ly's requirements were ~~.~d! .it ;uo ' .' . . ' . . . Shri Is~war Ch11nder Gupta, n.;;., R.i'' 1 :~ 1 ~ has demed in an affidaVit'. th.at . ~~.~. '"''' 'l'e ~ llDY ~ information as alleged by Bhasin to .the ~-~. 11nd Supplies. In fact. acco "19 jJj:a - require slack coal . m Grding, urgaon ,;a~ n.se ... ng <,!,id the r~levant period v.'.z. I 97J~72;,t1!5!.PiWJ!. Wllf.:RJ~en cmg great dijliculty .to acco~,dlc:"~for the. co,mtruclioa of r<>;lds: and -,bJIU!jings,rin'.tbe ~ate ?f Ha~yana fo~ "'.ant of bricks all over the" districts mcludmg the d1stnct of Gur~"

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Bhasin has filed an affidavit, affirmed on December 21, 1978. He says that the system of sponsoring slack coal had been in force since the, creation of !;'aryana S~ and that for several years since then coal was bemg brought to the State by coal agents who undertook to invest the entire CO$t of die coal as well as movement from the collieries and the Stat helped them by recommending to the railway authoritle~

............

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114

...... .' ...


to Maruti out of the stocks to be ~eiv'l.4 . J.Iow.eycr, after Ailawadi's attention was d1awn. to .!bi& (Jec1sJQ, he directed that the quantity allotted should be deducted out of the future allotment to this 1:9mp11DY . Thereafter Ailawadi appears to have made an allotmcn.t of five box wagons of coal to Maruti Limi.ted ~y his order dated April I I, 1972 out of the coal. recelVed by the Executive Engineer, P.W.D. (E&R), PllJ\'\'l!.I !hrou~ M/s Khas Khajura, coal agents, Calcu11!1- . this on;er was again revised two days later, on Aptjl 13, and the allotment was raised to eleven box wagons. Eleven box wagons work out to roughly 28 wagons [four wheelers]. Thus the allotment ordered by . Ailawadi in favour of Maruti Limited in April 1972 was much in excess of the autho1isation sent by the Directorate of Food and Supplies. Shri Bhasin is unable to say what considerations prevailed with Sbri Ailawadi .in makin~ this allotment. It appea.rs from the evidepce of Shn S. L. Behl, District Food and Supplies Controller, Gurgaon, that the increase in the number of wagons from five to eleven in !avou1 ot.~!i Liptlted was made possible by reducing the a}lo~ts made to six coal agents, and the result was that "some of the original allottees were now given reduced quantity, the only party who gained substantial!~ in this was Maruti Limited''. Asked to explain Shri Ailawadi first tried to hedge by saying that he did not know how the allotment to Maruti Limited c~me to be revised from five to eleven box wagons. He then ll)Ok up the position that "it was certainly with'.n the power of 1be District Magis1rate to exceed the illotment", but he did not say that Maruti Limited approached him for raising the quota. Asked why he allotted boX' wa&0ns instead of four wheelers as contemplated in the decision of the Directorate of Food and Supplies, Ailawadi tried to argue that the quota {if twelve WlljtOns fixed by the Director of Food and Supplies' did not illdicare the type of the wagon, which uught be"a four wheeler or a box wagon. It is too much to accept that when only 'wagon' was beina mentioned without anything more, Ailawadi had any justification to take it as a box wagon. Even Maruti's application mentioned twelve wagons per month and not box wagons.

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allotment of railway rakes in their favour so that the requirements of the brick kiln owners could be 1net without any difficulty. The railways themselves would not allow imy wagons to the coal agents without necessary recommendations from the States". He adds that "such recommendations wen: being made only in favour of coal agents who in tum would declare the arrival of the coal to the District Magistrate as well as the District Food and Supplies Controller for arranging their further distribution. The coal e,gents were not free to dispose of the coal directly. The District Magistrate/District Food and Supplies Q:mtroller would allot the slack coal to the brick kiln owners on a rotational basis .... ". Bhasin admits that there was "no direct sponsorship of any brick kiln owne1 to the railways for allotment of coal wagons" and the recommendation to the railways to allot wagons in favour of Maruti Limited was a "departure" from the normal POiicy and practice. But that was what be proposed. Bhasin's proposal for the allotment of I 2 wagons for the month of March 1972 out of the incoming supplies was approved by Shri Bansal. According to Bansal he "reserved the decision on his [Bhasin's] proposal to sponsor the firm directly to railway authorities for allotment of wagons" until he discussed the mallet with the Secretary of the Department. Later, after a discussion with Shri Din Dayal Sharma, Secretary to the Department of Food and . Supplies, Government of Haryana, Bansal approved t!te proposal to sponsor Maruti Limited directly to the railways. When Shri Din Dayal Sharma was con.,_ fronted with Bansal's stat:ment, he first stated that the matter was several years old and that he did not remember anything about it, but later he admitted that Bansal had mentioned to him "something about the party being important and the need for caution in dealmg with the matter''. All of them, Shri Din Dayal Sharma, Shri Bansal, and Shri Bhasin have admitted that there was no other instance of a party who was not a coal agent being allotted wagons as done in the case of Maruti Limited. On the same day, March 16, 1972, Bhasin wrote a letter to Maruti Limited requestin$ the company tO iiitimate their total requirement of l:mcks. On March 16, Bhasin also wrote to District Magistrate. Gurgaon, informing him about the allotment of 12 wagons of slack coal to Maruti Limited <luring March 1972 and requesting him to arrange the supply out o( the incoming slack coal to Gurgaon District. On April I, 1972 Maruti Limited replied to Bhasin's letter stating that their total requirement of bricks upto December 1974 was 2 crores and 60 lacs. District Magistrate, Gurgaon, Shri V. S. Ailawadi rei;eived Bhasin's letter on March 20, t 972. Ailawadi ordered supply of 178 tonnes of slack eoal to Maruti Limited out of the dumped coal at Ballabgarh although the decision had been to allot coal

eroc.:ss

The supply of excess quota of slack coal to Maruti Limited and sponsoring Maruti Limited, not a COl\i agent, directly to the railway authorities for allotment of coal wagons are clear instances of undue favour shown to the company. What Maruti Umited. a brick kiln owner and not a coal agent, gained by being directly sponsored to the railways for allotment of coal has been stated by S. P. Bhasin : "This had the effect of enabling only this party to get bricks at subsidised rates . . . . It also had the effect of sparing them of 1he obligation to pay sales tax and other incidental char~ which they would have had to pay if they pUl'Chast'I bricks from the open market''.

CHAPTER VIlI
of the District Manager. Shri $h39W11 Officer on Special Duty, discussed the proposal ~ith th: General Manager and the Custodian auer which Sbri Sharma returned the proposal to the A~,istant General Manager on Dec~mber 14, 1971 with the r!I~ "We should wait for some time". The reason behirid this advice is not apparent on the record. Sbri T~a who bas given evidence could not remember, w!la,t the reason was after this lapse of time. , .'. . "'; , On December 30, 1971 Shti Mathuria wrote to the Manager, Loans Department informing him about the "latest development", which was that "the Central Bank of India have since opened L/Cs amounting to Rs. I 0 lacs on behalf of the aforesaid compan).' for purchase of machinery and also reported to have assured the company of any other ~<!'fation that they may require before the share capital ts duly raised". Shri Mathuria in his deposition stated that he got this information from Shri J. K. Paltuja, Manager, Finance and Credit, of Maruti Limited and that his object in writing the letter was to see that such an important client was not lost to the bank. It may b: mentioned here that on November 12, 1971 Shri K. L. Kalra, Manager of the Safdarjang Enclave Branch of Central Bank of India, while f~g. to the Chief Agent of the Bank a loan propc)sal from Maruti Limited had said, "Punjab National' 'Bank have approached the party and assured them sw:b facilities at the eatliest and thus they are offering every competition. Since it is a highly remunerative account with huge potentialities, we ca,nnot afford.to l'!SC it". Ulti" mately on January 3, 1972 the Assi$tant General Manager of Punjab Nation.al Bankput'.ilp a proposal to the Bank's Board of D1recton; tllrougll the Officer on Special Duty, the General MaDager, and _the Custodian for consideration whether the bank might accommodate Mliruti Limited for th~infetjm !C41WrCments. The proposal suggested li,n ii)liid,Je~ ot credit-cum-term loan of ~ 3() lacs ~~.-PYIJOtllec:ition of tool room plant, machines and: -~fficnt1 with a margin of 2.S per ~t and in~i,S:,W;~~ over bank rate .with a UQI .. ,ofU_-.. ~.'. \~f!DD_~ a maxunum of qne ~;!',:' ;z~cies m the proposal at this stage" \1Vere: :. . ted out which indicated that _the_ p_ro,ie<;t ~ .. ' :_. " -~~-..so. . far ~een completed and the. shareJ~. ilj~;;J!Qt._been

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ISSUed.

The proposal

sugges~.'. .:_"".~. . '.._:_~~ : ~ .:-~t:_-~;.f~~~~ ..<.;:~.:~):~i!'


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"(i) The facility to ~ guaran' .. 1. 'i.'.ieast two of its [co~~~~"';"' ''" (ii) The ccimpany ~unt

will be adjusted from tlii:RibalO Q&PitaJ.


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(iii) The company to ~; 19,;~~Jhiiik its pro~t l'eport by the cn<\,Qt;f~l?l\l!NYJ972."

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The proposal was considered by the Board on January 3, 1972. The Board sanctioned inland letter of crcdit-c11111-fixe<,1 loan facility of Rs, 30 lacs on the terms and conditions suggested in the Assistant Gen~ral Manager's note of January 3, 1972. While the company was yet to avail of the facility, the Branch Manager and the DistJict Manager recommcnd.cd conversion of the term foan into cash credit facility. The Assistant General Manager put up a proposal 10 the Custodian on March 3, 1972 accordingly. The Custodian on March 8, made the following order : "We may agree to allow the inland Jetter of credit-cum-fix.od loan facility by way of inland letter of credit-cum-cash credit facility as recommended subject to the observance of all other terms and conditions of the sanction as laid down by the Board .... ". The facility was allowed without an examination of the . viability of the Company's car project fol' whicli U1c loan was asked for. 01;1 March 15, 1972 the hypothecation agreeme1;1t was executed in which .the goods hypothecated were mentioned as "tool room plant, machines, equipment etc. to be purchased out of the loan proposed". 'The charge was registered with the Registrar of Companies on May 9, 1972. It appears that in the meantime Maruti Limited had approached the Branch Manager to reduce the rate of interest from 11 per cent to J Ot per cent, On March 14 the Bra1!ch Manager wrote to the District Manager rccommendmg acceptance of lhe company's request and all the intermediate authorities having endorsed the recommendation, the Board of Dh~rs accorded necessary sanction to the proposal by resolution No. 10 . (lated March 19, 1972. The 'project report .which Maruti Limited was to have submitted by the encl of February 1972 had not yet been submitted. J'he Board's resolution therefore added : "the B;mksbQuld in~ist upon getting Project R~port fro~ the i:omoany . l/y 1~-4-1972, .In the me~nti!ne SO~per ~nl ot!Jtbe sanclJoncd loan. may be disbursed and the bal~ce .amount only after the company furnished the Project Report". Shri S. C. Trikha has said that "reitdc.tion on ,d~bur$en:uint of the credit, facilitY .!o,,~0,:}>9r, cent was imposed by the ,Board iii order' .to- bruig , pressure on the \lorrowing company to submit' project. report !1rgently". The project report wits submitted c;m ApnJ 18, 1972.. . , .. sanction of an inlaud Jetter of cr~il"'' limit 1>f Rs. 60 lacs against .hypotll . . steel materials, cement anll oth r, . Iwo of .lhll Dir.eclors of tbe ,corn afl aniay an j, .we : .,. S er ij>llditions su advance against cement and oth shall not exceed Rs. 10 lacs tti:IHilluJ; will b~ i;ot registered with the. RI: J?-ili! St<? Ck Companies, (2) Advance tobeaq {&:p,er1od of six months out of the capital issiijfr., ~'~ing the Assistant General Managerlstuli@'"the ''Deputy General Manager obsel'Ved that it, w!is incomplete in certab respects ; these were, clarified,Jll~l The Statement of Advances bearing dateApril-28/29, 1972 which was placed before the Boai'd shows... the . net means of the two guarantou, Shri ,Y,:~i!,,~l!anJmd Shii Sanjay Gandhi, as Rs. si,-06;00Q!UICl,~}1,00,000 respectiv~ly and mentions the follo~!!l!t,o.~ditions

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'. Ofi' Aprii' 14, !'912 the chief i~eeuti.Ve ~f M:~ti L1m1ted wrote to the Brancli MallageiU~'fffor ~nother loan of Rs. 60 lacs against "hyp0thecauoti of iron, steel, cement.and other basic ~uilding materials". Jt w~s said that out of Rs. 60 lacs, 'Rs: 40~Jacswas required for purchase of iron and 'steel only;',...,llJA ,, Jetter added that the company proposed to "~me ;;; ," the share market sometime in , August-&ptember ., .w~e,n we shall p,ay off all tbe outst3Jling Joaris against this proposal. . ; The Branch Manager, Shri Mathuria . forwar~ed a copy of the Jetter to the District l\{anager . on Apn! 21, 1972 recommending a fre.sb inland iqtter of. cri:<11t-cu111-casl) credit limit of Rs 60 lacs . On the s~e day t!Je District Manager sent his ~ men~ation to the Assistant General Manager and on Aprll 24, the Assistant General MaoageT put u a proposal to the Board through the Deputy Genfr.tl Manager, the General Manager and the Custodian for

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h) pothecation agreement was signed by. Sh_ri , Sanjay Gandhi as Managing Director of Ma.mil L1m1.ted .on June 2, J 972. The charge was i:cg1stered wllh t~e Registrnr of Companies on July 28, 1972; the details of the malcrials actuallv hypothccalcd were not how cvc1 eommunicntcd to' 1he Rcgislrar. This facilily was also allowed wi1houl an upprnisal of the vi;1bili1y of the company's car pl'Ojccl. With the sanction of the loan of Rs. 60 lacs, Maru!i Limited became entitled to avail of two. cash credit facilities : (a) Rs. 30 hies for a maximum period ol one year. The letter allowing this facility was sent to the Branch Manager on January 6. l 972. The validity period therefore expired on Janual'y 5, 1973. (b) Rs. 60 lacs for six months. The Jetter sanctioning the advance was sent to the Branch Manager on May 19, 1972. In thi case the validity period expired on November 18, 1972. A ceiling of Rs. 75 lacs was imposed on total withdrawals under both facilities. Both the accounts were hO\yever, allowed to continue beyond the s~ipulatcd pcnod, even beyond the whole of the foUowmg year 1973 and no one r~ise.li-ll!J~Qll ab9ut it. The 11'1liiilguaran!or V. R. Mohan died on January 28, 197 3, yet the operation of the accounts was not stopped, the reason being that it would 'create unnecessary unpleasantness'' as Shri B. S. Puri who had succeeded Shri Mathuria as Manager-of the Parliament Street Bl'anch explained to the Regional Manager in his memorandum dated February 27, 1973 adding "we shall stop the operation if so instructed by you". A fresh guarantc> by Sliri Sanjay Gandhi and Shri M. A. Chidambaram, Chairman of the company wa' furnished in Novcmber 1973. ' Manager, Credit Admirustrat!o11, S'lating that ..".thi,~ case docs not require submi~s1on of renewal. fac1h~1es. 'lfld it was enough "to let tins gap loan continue ull 1t ls adjusted out <?f th.~ share ~apital. Accordin t? the present expectations , he said, the company ~Ill go to the market to raise the capital.... . sometime by the mid<ll~ of the next year". Seeking to e!'plai~. why he allowed the company to overdraw, he said :. lloth th~ CJC-cum-L/C limits were being co'nducted 10 terms of the sanction. Io the fust week of November the company had to meet certain commitments and he had to accommodate them thus eiceeding the: permissible limit of Rs. 75 lacs. Instead of putting the accounts in order, we weye requested by the Co. to get the restriction of Rs. 75 lacs remov~. The c~se was accordingly referred to you. Our action in lettm.g the Company cross the limit of Rs. 75 lacs was mottvatcd out of rhe commercial consideration as returning the cheque unpaid would have compromised_ the c?m pany's position. NormaUy such an actiQn JS avoided in case of good parties". On February'>9, 1974 the Credit Administration advised the 1Bran~ Man~r. to move through his Regional Ml!-11ag~ for (1) !=C)~atwn of his action in accommodating the company' beY?!ld the ,sanctioned limit ; (i,i) exte0$ion of,;,, the facility beyond the sanctioned period stating clearly the period by which extension was required, and (Iii} removal of the present stipulation .requiring !>U~land!Dgs ~ot to exceed Rs. 75 lacs under the two lilajl~.N.;;>"1. ~,t On May 10, 1974 Shri Sarwan Singl,lvWh<!"Sl!l;CCCded Shri Pud as Branch Manager subJ:nj~ ,a. proposal for renewal of both tl!r facilitjes for ~~~C)f the Credit Administration. For the. secqn(ff\'f.iu:imy of Rs. 60 lacs he suggested as siciirity .',~'~lipg. a.nd future machinery acquired by the comlll\iiY'."m a,dditton to the original security in iron and steef, CCIDeDt and other building material. Ou May 14, 1974 a proposal prepared by the Chlef, Credit Admi9jstration on the lines suggested by the Branch Manager .was placed before the Board recommending <Q'for the,,jj~st,cash credit account a limit of Rs, 30 l'!Ql;,(j!l f<!~,~e,second Rs. 60 lacs and (iii) inland letter of'CJ,~t;Wllli a limit of Rs. 20 lacs; the total withdt!lw!iJS;,w~1:not to exceed Rs. 80 lacs. In .c:ash !=i'~ :~Wi(Jio. 2 "machinery installed or to be mstalled,. ~l!S ,recor.1mended as additional security. The inlandJetter of credit for Rs. 20 lacs was for C$1a.1>Ils1"og .. )el!ers of credit relating to building material and/or machinery." The following conditions were also specified : .
(l) Advance to be adjusted either out of proposed

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On Novcmbe1 16, 1973 Maruti Liuiited had already rawn Rs. 80.88 lacs I.e. Rs. 5.88 lacs in excess of he ceiling of Rs. 75 lacs. On November 20 the ranch Manager wrote to the Regional Manager saying hat Maruti Limited hau approached him to remove the stipulation that the advance again'st both the facilities was not to exceed Rs. 75 lacs at any time (condition 7) and to p~rmit them to avail the limits to the full. extent (Rs. 90 Jucs). He recommended waiver of the ~anal Manager's office endorsed the Branch. !\1anagcr's recommendation. The Credit Administration Division, when the matter was put up to them, pointed out to the Branch Manager that he had not given any justification for removal of the ceilling of Rs. 75 lacs and referring to the fact that the account was overdrawn by Rs. 5.88 lacs asked him to submit his l'cmarks for allowing unauthorised accommodation to the company. The Crodit Administration Division .further l\dvised the Branch Manager to "assess the genu111e requirements of the company and submit a complete renewal proposal in its favour with your comments/recommendations, through your Regional Manager". II has been already staled that the validity On period of both the facilities had Jong expired. Dcc~mbcr 27. 1973 the Brauch Manager wrote to the

public issue or loans received from fulancial institutions whichever is ear~X' (2) Bank's charge to be got modified '\\lith the registrar of companies in res~. C)l additional securities. ( 3) The company to submit statemellt of hypothecatcd stocks each month whiCh should be checked by the Branch Mapager .h,,, . regularly. -: . ( 4) AU the machinery hypothecated to the Bank, should be adequately insured with agreed Bank clause.
( 5) The company to undertake that the security

offered to the Bank will be excluded from the

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charge of any other Bank/Finan~ial lnsti tutions with which the company ID1ght make arrangement for working capital/Term Loan. (6) Margin may be stepped up in L&A Circular No. 106/73. terms

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had been allowed". On April 29, , 1975 Punjab National Bank addressed a letter to the.Res~i:ve Bank of India, the relevant portion of ~)ll~b ~,set out below: "We have now been informed by the compan~ that they had applied to. tho <;ontrotter o Capital issues who has sanetioncd them issuance of securities privately for the value of Rs. 1,15,39,300 and in such a ~ase underwriting arrangements are not requtred to be made. A copy of letter dated 16-4-75 from Controller of Capital Is~ues lo the company is enclosed for your kind perusal. However, I.be company. is e"P!'Cted to go to market for capital issue dunng 2nd half of the year 1975 after getting the . necess~ry clearance certificate from F'mancial lnslllutions and permission from Controller of Capital Issues. , Since there is sufficient gap a:nd t.l!e ~allsat1on ot underwriting arrir, gements at this stage would be too early, they have stated that the necessary. arrangement shall be ma<!e about two months prior to. .th= Pubhc Issue They have requested us to. rclease the bridging loan as tbe fu'nds are needed by thell! for genuine needs. . . . Please reconsider yonr decision and allow us authorisation at an early date to release the bridging loan, as requested earlier." Reserve Bank of India replied to this letter on May 15, 1975 saying".... we advise that we have no objection to your bank disbursing the bridge loan before the company has made firm !lrrangement. for underwriting of the proposed pubbc Issue of us , sh~r~s. Your bank should, however, ensure that the bridge loan of Rs. JS lacs is repaid by the company out of th! private issue of its shares of Rs ..l, 15,39,,300 f~r which the Controller of Capital Issues has given his approval in April 1975". The General Manager for Maruti Limited wrot~ the Chairman, Punjab National Bank, on September 15 1976 offering to regularise tlie cash credit accounts by' payment of monthly instalments of ~- 1 lac and also down payment of &. 5 lacs provided the penal interest amounting to Rs. 67,302.17 p. already charged was refunded to them and waived for future and tl1e rate of interest reduced to the maximum extent possible. It was said that the irregularities in the accounts were mainly 'due to the accumulation of interest. The Bank's Board in the meeting held on October 6, 1976 approved refund of the penal interest charged and waiver of the demand in future. The rate of interest was also reduced frGm 151/2 per cent to 14 per cent. The company paid Rs . 5 lacs and several monthly instalments of Rs, 1 fac and then discontinued PllYtllent from A12,ril 1977.
10

(7) The advance against cement and other building material not to exceed Rs. 10 lacs. The Board considering th;;o proposal on May. 23, 1974 decided to renew the lin:ll!S bu~ at th~ CXfSIIng level and suggested that the position n11ght be reviewed in December 1974. The Board was particularly interested to know if the net means of the guth arantodi~ had been verified and, i:i so, bow. One of e con ; tioll;I of the renewlll proposal was tha.t the bank s charge was to be modifjj:d with ~<'. Registrar o~ ~m panies in respect of the additional secunty 1.e., machinery instaUeQ. or to be instaUed. No step. however appears to have been taken in this d~ecuoi;i., The result was that in the case of cash ~redit facilit):' of Rs. 60 lacs, the charge registered contmued t.o be tron and steel, cement and other buildin& maten.al whose vlllue could not be adequate security agau:st the facility. On January 14, 1975 Shri Sanjay Gandhi, Managing Director of Maruti Limited, wrote to the General Manager Punjab National Bank informing him t~aL the cmnpany would go for public issue of ~hare .capital in the second half of 1975 and requestmg him to remove the condition that the total withdrawals sho~ld not exceed Ks, 15 lacs. On February 12, 1975 Chief, Credit Administration, put up a proposal to the B<;>ard that "as the company's need is only ~Y .way of bndge finance and is repayable out of pubhc tssue, we may agree to the removal of the ceiling of Rs. 75 lacs subject to the condition (a) that the outs~andings be adjusted out of public issue when subscribed or on release of term loans when sanctioned by financial institutions whichever is earlkr ; (b) under facility No. 2, advance. against hypothecation of. iron and steel material should not exceed Rs. 5 lacs mstead of allowing advance to the full extent". This proposal was approved in the Board meeting held on February 18 1975. Coot.lition (b) is significant because 1t sh~ws that the charge regist~red with the Registrar of Companies was not modified following the inclusion of the additional security in machinery. After the Board's approval was obtained, the Chief, Credit Administration, wrote to the Reserve Bank of India on February 26 requesting them to accord necessary authorisation. The authorisation came from the Reserve Bank of India in their letter dated March 31, 1915 which stated inter alia "We have no objection to your bank allowing the proposed bridge finance of Rs. 15 lacs to the above mentioned company for a period of six months only or till the proposed publi.: issue of shares, whichever is earlier, provided the bank is fully satisfied on merits. The bridge fina:nce ~ltould be disbursed after the company has made firm arrange!Jlents for tl1e underwriting of the proposed public issue of its shares. Our authorisation is also subject to. !he condition that !he bridge finance should be utilised by the company for the purpose for which it

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In October 1976 the Bank had formulated a scheme for promoting family plannitig by industrial and commercial establishments. Under; this scheme a higher rebate in the rate of interest' at 1/2 per cent

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per annum was allowed to Mrruti Limited for a period of one year from November I, 1976.fMaruti Limited bad claimed that out of I 00 employees eligible for st.crilisation operntion, 96 bad already undergone the opcrntion and therefore they were entitled to the reduction in the rate of interest. The claim was accepted without any verification. This concession allowed for five months from November 1976 to March 1977 amol)nted to Rs. 19,000 whereas according to the terms of t_he scheme sanctioned by the Board it should not have exceeded Rs. 10,000 for 96 employees of the company.

bottlenecks and problems stated to have been faced by the i.:ompaily. (5) The aggregate outsti:ndings In ,lhe two a~<!unts have been allowed to ~eed the lmut of Rs. 75 lacs continuously since 1973, .the maximum amount outstanding at any ume being Rs. I 05.17 lacs i,n Qi:tobe~~..,,
( 6) The bank did not take adequate steps . to

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The 1iabili1ies. of Maru1i Limited in the t\\'o accounts amounted to more than Rs. 94 lacs in May 1977.
Summary of Resene Bank of India's /nspclio11 Reports: Shri D. N. Samratl" Assistant Chief Officer in the Department of Banking Operations, Reserve Bank of India, who prepared summaries of the reports of inspection conducted by the Reserve Bank of India in rdalion lo the loan accou111s of Maruli concerns in Punjab National Bank and Central Bank of India, has given evidence, and the summaries he prepared have been brought on record as evidence. The irregularities observed regarding the sanction, supervision and conduct of the two accounls of Maruti Limited in Punjab Nalional Bank have been summarised as follows :
( I ) The credit limits were

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ensure during the period prior to Noveml?er 19.75 that the aggregate borrowings of the company from it and its other bankers (viz. Central Bank of India) did not exceed Rs. I crore without prior reference to Reserve Bank of India,.as. requiied by the Credit Authorisation Scheme. (This ceiling was raised to Rs. 2 crores only in November 1975).
( 7) The concerned branch of the bank did not exercise proper supervision over the opera- lions of accounts. The company was highly irregular in the submission of the monthly statements of hypothecated stocks. On seve ral occasions drawings were allowed In excess of the drawing power, mqch beyond the discretionary powers of the branch manager and such over~awinp were not reported by him to the appropnate higher authorities for ratification; during June--October 1976, the outstandings exceeded even the value of securities charged in the ai:counts. There are indication$ that the company hacj borrowed from/lent to other companies in which its directo1:/s were interested as directors.
( 8) The supervision

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sanctioned to the wit.bout proper pre-sanction app~aisal or a study of viability asp~cts of lhc compahy's car manufacturing project. company

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(2) Initially it was stipulated by the Board that the company should furnish its 'project report' to the bank by the end of February 1972. Subsequently, the then Chairman (Shri S. C. Trikha) authorised the release of 50 per cent of the sanctioned amount although the company had not furnished the 'project report', stipulating that it should be furnished by April 15, 1972; the residual 50 per cent of tl1e sanctioned amount was to b~ released only a'itcr the report was . . made available to the bank.
(J) The abo,ve. cr~it limits were sanctioned by

and COll!rol C)lercised by the branch over the securities charged to tl1e bank was also not satisfactory There was no record to indicate th!lt th bi;inch 1,111icial had carried out inspeCti~' ot<<Secu.ritic- at periodical intervals. ThO.''iilVQic:es relating to the machinery hypothecatec:J:t<i the bank could not be matched with the. list of hypothecaled machinery a~~~,;i:g:~ pr~nch.

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way of bridging finance', the first sanction being valid for a penod of 12 months and the second one for six months. The rellltive advances were expected to be adjusted out of the proceeds of public issue of the company's shares, However, the company has not been able to go in for such an issue so fa~ ~nd the advances have remained una~iusted. The ~an~., however, has not considered the des1rab1hty of taking effective s1cps for recovery/ regularisation of the advances. ( 4) The reasons and circumstances cxolained b~ t!ie company from time to time for its failure to .execute ils project and raise its share capuaJ have been accepted by the bank without an independent analysis of the

t~=lJ.~:~~ tho foll~\~~ given (a) The rate of in~t was.~._ ..1_..:~.' frnm;l$1/2
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( b) Penal i~erest aggr~tinll_ ._Rs _0,6.7. Jae charged m the accounts.uptU'fthCn: wasrefun. de<! and levy of such interest' iii' future was

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'"the bank's. the'! chairman (~'lVR,.. "Tuli) . au!hortSed m Novcmbei-''1976 'a" further 1ebate o.f ! per cent per annum in the rate of 1nterest, under the bank's Family

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Planning Incentive Scheme approved by the Board in August 1976 for all industrial/ cemmercial concerns. While authorising this, Shri Tuli did not ensure that all t11e terms and conditions o1 the Scheme were duly satistied. It is also observed that the benefit of the Scheme was availed of by/ given to only Maruti Limited and no other borrower of the bank." CENTRAL BANK OF INDIA AU the thrco Maruti companies, namely, Maruli Limited, Maruti Heavy Vehicles Private Limited and Maruti Technical Services Private Limited figure i11 the transactions with Ccmrnl 13ank of India. I shall start with Maruti Limited. MARUTI LIMITED Shri Sanjay Gandhi as Director of Maruti Limited mac!e an undated application to the Manag~r, C"ntial Bank of India, Safdarjang Enclave Branch, New Delhi. for an interim Joan of Rs. J 0 lacs against hypothecation of "machin~s and e~uipments'. From otl1cr materials on record the application appears to have been made on or about November 12, 197 I. The loan, it was said, to be "utilised to meet part of the expenditure likely to curred towards implementation" of the company's car manufacturing project "for inslt11lution of machinery and equipment". As to the mode of repayment of the Joun, the Jetter said : "may be determined mutually. This may oo paid out of the funds to be received from the public issue". lt was also slated that all the Directors of the compaf!Y ,were "prepared lo provide guarantee against then pcrs!Jnal assets for the repayment of the said loan". Shri K. L. Kalra, Manager of the Safdariang Enclave Branch, processed the applicatiou on November 12 nol on the prescribed proposal fonn but on bank's Jetter head. Shri Kalra explains tl1is by sayin" that Safdarjang Enclave Branch being a new branch~ the proposal form was possibly not available, but he docs not say why he c?nsidered the matter so urgent that h~ could not. wait and send for the prescribed form lrom the Regional Otncc or some other brand1 office of ll!c Bank in Delhi. He forwarded the proposal to the Chief Agent (subsequently this post was dcsig!1ated as Zonal. Manager) 011 the same day recommendmg that sancuon of the Head OJJlce to the proposal be obtained by telex. This also suggests tlia.t he treated the propos,al as very urgent. Shri Kalta did not make any app1a1sal <?f the loan proposal according to the g1~1de!mes prov.1~cd in th~ circulars issued by the Hank s Head 01l1c.e from ume to tim~. These circulars ~vere con"1l1d~t<~ Ill the .Manual of Advances published Ill 1972, .In !us torwardmg lcuer he memioned amon other pomts that "Punjab National Bank hav~ npproached. the party and assured them such faciliti" ~t the .c!lrll.est and thus they arc offering
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by telex. There was also no appraisal of the loan proposal by th() Chief Agent. As it was me11tioned in the loan applicatiou that all Directors of ~,COIJJpauy would offer guarante" in their personal . Cljpacity. Shri Bhalla, Chief Agent, had written to the respective bankers of six of the .Directors of the cpmpany; Milfl!ti Limited had then seven Directors including;Slu;i,.s@jay Gandhi. Nothing was dO!lt to yerify his financial status. In the Head Office the proposal was put up. bqfQrJHhe Custodian of the Bank Shri B. l-1. Adark{lr ,1iwho became its Chairman and Ma~g Direc.tor from 'piemb'1".::.U. 1972. On Novein. r J9, t,hc.Cw;todian 1nfonnd Shrii:lhii!Ia' by telex that he wollld agree to sanction the proposal subject to Bballa's , s11bmitting n report 011 certain points. Que of the ~ was "willingness of at least some Directors to 'lurllish guarantee ~d an indi~tion of additional bridge JlP,ance they arc going to provide". Bhalla clarified ~ other points after a discussion with the :Oirectorf of, the company but as reganls the guarantee by the Difectors h~ informed Head OJJlce that the other Directors wan1cd their personal guarantee waived and, only Shri Sanjay Gandhi was prepared to furnish guarantee. On December 9, J 971 an interim loan of Rs 10 lacs on personal guarantee of Shri Sanjay aaDdbi aiul hypolhecation of machinery purchased and to be purchased was sanctioned by th~ Head Oftice for three 10 four months subject to confinnatlon from Shri S':njay Gandhi and Shri V. R. Mohan, ll!IOther Director of the Company, that the small car project would be implemented according to the time schedule despite the state of cmcrg,ncy that was prevailing in lhc country at the time. For this Joan the in~erest was J0 l per cent per annum and margin 25 per cent. Shr! Sanjay G~ndbi cono/med iu writing that the car J'ro1ect was gomg to be UJ1plementcd according to the ume schedule. On January 10, 1972 Shri Sanjay Gandhi executed a document hypothecating in favour ol- the bauk "ex.isling and future machinery to tl1e extent of Rs. 10 lacs purchased out of the said loan of Rs. 10 lacs provided by Cential Bank of India". The document contains the statements : "A list of n<isting machinery 1~orll1 of Rs. JO, I 0, 782.54 is enclc'led herewith duly signed by Shri Sanjay Gandhi". Akng with tl!ii i!ocumcnt of hypothecation Shri Sanjay Gandhi sisned a guaramce form for payment to the bank the sum advanced and a letter declaring that the machinery hypothecated "were free from any encumbr.uice whatever", No list of. machinery however appears to have been enclosed w1lh the document. Shri K. L. Kalra ~Id. the Co~mission that Shri Sanjay Gandhi bad t ~nushed a Im of m~ch!nery ~ut he could not say wh~t had. happe~cd lo this bsl. It is not possible to accept Shr~ Kalra s statement in view of the following facts A l!st ?f m~cbinery w~rtb Rs. 10,10,782.54 was sent by Shn San1ay Gandhi to Safdarjang Enclav~ Branch of rile Bank on February 23, J972 which shows that the co1!1pany ha~ machinery worth Rs. 8,76,455.2 oul m thc1: possess10n on !anuary JO, 1972 when th~ docum~ut of ~ypothccauon was signed and, further, :,~at lhe" machinery of the value of Rs. 1,34,327.29 " pro,urcd by the company after January JO 197' ll seems clear ihat Katra accepted th d 1v" th . e ocumcnt I out rn;islmg on the hst and his statement that the

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121 fot was enclose<) with the hypothecativn agr.c~mcnt b not correct. Also, having regard to the condmon ~f the loan requiring a margin of 25 per ccm, macl11ncry worth Rs. 12 .5 lacs should have been hypothccatccJ. This !om1 which was sunctioncd for thrc.~ or four months only was opc~ed by Shri Kalr:i as a C.C.M. (Cash Credit Mercanulc) account. Sim G. K. Nan!la who ""'" 1hc Accountant in Central Bank of 1n91n, S:ifdarjang Enclave branch, at the relevant tune cxpiains the difference between a c.c;.M. ac:ount and a term loan account. The .term loan is sanctioned for J fixed period and it is to be adjusted within the stipulated time. "C.C.M. loan is a sort of continuous <iccount und it lluctuates wilhin the limit mentioned". Shri Narula further says that by treating this loan as C.C.M account the advantago that accrued to Manni Limited was that they got the facility of availing it for a Jong period beyond the stipulated time. Kalra's cxplmrntion is that as the Head Office had not dnssificd it as a term lot1n, he ope11ed it as C.C.M. account, He admits h~ did so without consulting the Zonal Olllce or the Head Office but seeks to justify his action by saying that "nomenclature of the loan" was not material but the terms and conditions according to which the loan should have been adjusted after three to four months and that it was the duty of the Branch Mam1gor who succeeded him to recall the dues from the company. His successor Shri F, C. Khatri is dead. According to Shri Adarkar it was wrong to treat this loan as if it was a cash credit limit, Shri Adarkar says that it was enough that the transaction was classilkd :is a loan : "a loln for three months is all the classificaticin on. earth that is required. Mr. Kalra docs not require any further classification. This is a mt1lter of common sense". According to S~ri Adarkar "changing the basic character of the loan from a Joun
in'.o a cash credit is a very material cha'nge" and that n Jnnn Wh'J does not un<lerstand this 0 does not under-

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stand banking". Shri D. V. Taneja who became Chairman and Managing Director of Central Bank of India aflcr Shri 'Adnrkar has also said that conversion of the loan into cash credit arrangement "was not in on.kr", and "if the Branch wan1ed to convert the loan into cash credit, they should have asked the sunctioning authority for such an arrangement". Normally C.C.M. limit ;, sanclio'ncd against stock in trade withou! any fixed period of payment and it is subject to review and renewal every year. Maruti Limited '"'"i'aiJ thi' loan to the extent of Rs. 9.90 lacs on J '.I nuary 2~, J973 about nine months beyond the stipulated ume. but as the loan had been open~d as C.C.M. account ihe company against availed of this urnrngcm:'lt to ihc f!1llest extent by June 1973 and this sum was never 1eah.<cd from the companv. On Septcmh~r 7, 1973 Shri Khatri who was then the Manager of S~fdarj~ng Enclave branch wrote to the Zonal Man:igcr requesting him to have the C.C.M account of M:1ruti Limited renewed till the public issue of their sl.iarcs. Shri T. N. Dastur, Zonal Manager at the time did not. however, refer the matter to the Head Offic~ . und allowe~ the accou'nt to continue as it was on some ~ssur.anco given by Shri Pahuja Mana~er Finance and Credit, Maruti Limited. ' ' '.l,. ,,.
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In February 1972 Maruti Lilllitcd bad, approached the bank for issuing a deferred payment guarant~e fedor Rs. 25 lacs on its behalf. The, Bank's ~o!l"d re1ect this request in June or July 1972 OJ!.tlle;YI~~ ~at !1Je company should approach a teml lending 1nsutullO!! for the purpose. rn the meantinle in April 1972 Marull Limited had applied for a loan. of Rs.: 6 lacs for purchasing steel, cement etc. rcqu.ire_d for the. constr~c lion of its factory and othe.r buildmgs. S~n Adarkar who was then Custodian of the. bailk re1ected the demand on April 19, 1972 but tlie next day when the Chief Executive Officer of the company approached him Shri Adarkar sanctioned a kl!y loan of Rs. 6 Ines' against pledge of steel for_ three months. only. But this was pot availed of bv the company as 1t was not consitlcrcd convenient. In August 1973 the company approached t~e bank for a 'bridging' loan of ~ 1.5 crores required for financing its project and this proposal was forwarded by the bank's Mullahera branch which was openell in September 1973 and was housed in a room in tbe Maruti complex of buildings near tho company's 'factory, Although the bank's liead Office processed the proposal after obtaining 'ceuain additiQDal. information from the company, it was never.. placed before the Board of Directors, perhaps in view of the Board's earlier direction that the company shou!!I approach the term lending institutions for such fi,nance. rn April 1974 the company approached the Safdarjang Enclave branch of the bank lo convert the key loan of R<. 6 lacs granted to them in April 1972 which the company did not avail of, to hypothccation loan against machinery. On that day the loan of Rs. I 0 lacs sanctioned in December 1971 for three to four monlhs was still oulstanding. R. L. Grover, Manager of Safdarjang Enclave branch, recommended to the Zonal Manager conversion of the aforesaid key loan of Rs. 6 lacs to C.C.M. open loan against imported machinery. Zonal Manager Shri A. B. Wadia in his turn rocommended the proposal to the Head Office <'ll May 18, 1974. Shri Wadia has explained a key loan as follows : "The principle of key Joan i~ that tlie stock should remain under the e1ICcllve possession of the bank and the stock should move out of the goclown with the full knowledge of the bank and either on replacement by fresh stock or by payment there against". On May 23, Wadia received a letter from Shri R. !'." Pradhan, Assistant Manager, Advances, Head Olhc~, Bombay, where the loan proposal of Rs. 1.5 crorcs was pending consideration, slatiDJ: that the bank should not make any commilIJlents even by way of short term finance which might lead to givin~ the company further finance in future,' This, Jetter wntten on May 18, 1974 was ~!)llowed by a telex o!l May 27 saying that the facility sanctioned . in April 1972 should not be kept open for a long period and it should be treated as c;ancelled. Wadia .says. thaJ on May 27 Pa~uja o~ Martiti Limited ,; '3W: 1ijiri', and pressed for tmmed1ate release of Rs. 6 lacs which Pahu.ia .sai", was ~equired for. pur?iase of. machinery'. Wad1a informed him of the direction.from theJ>ailk's Head Office, P~ja .then saw Sbri~:q1 V'4~ia who was then the. Chamnan and Managl,llg'J;?ln:c;t~ of the banlc who happened to be present iii. t!tll.;Zo.nai Olllce at the lime. Shri Taneja asked Wadla 'tc)'jiut up a note

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122 which he did without mentioning anything about Shri P ..adhan's letter or telex. Shri Taneja sanctioned . a fresh loan o[ Rs. 6 lacs with 25 per cent margin agains' machinery for a period of six months. In his ordor the Chairman gave the following directions : ( i) the Chief Internal Auditor should depute a Godown Ins11cctor to check about the state of machinery ;
(ii) th~ original invoices

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should be taken on

account ;
(iii) the machines should bear the note that they

were hypothccated to the Central Bank of India ; and ' (iv) the bank's charge for additional machinery should be registered with the Registrar of Companies. On Jun~ 28, J974 Shri Sanjay Gandhi, Managing pirector of Maruti Limited, applied to the Safdarjang Enclave branch of the bank for another loan of Rs. 6 lacs required, it was said, for making urgent .payments. Shri R. L. Grover, Branch Manager, forwarded the application to the Zonal Manager with his recommendation. The Zonal Manager held up the proposal for a discussion with the Chairman of the bank who was expected in Delhi on July 19, 1974. Shri Taneja must have visited the Maruti factory some day arc.und this date as would appear from a telex received by the Zonal Manager, Delhi, on Aul!USt 7, 1974 from Head Office saying that during Chairman's last visit to the Maruti factory, th.. company had requested the Chairman to release a sum of Rs. S to 6 lacs to enable them to take delivery of some machinery and that the amount shollld be released, if not released already, after completing the necessary formalities. The Zonal Office was also advised to send a comprehensive proposal for the sanctioned limits aggregating Rs. 22 lacs for being placed before the Board for obtaining its co1,1firmation. On August 13, I 974 Shri A. B. Wadia, Zonal Manager, sanctioned a loan of Rs. 6 lacs for three months with 25 per cc:nt margin. The Zonal Manager also directed the Branch to put up a consolidated proposal of Rs. 22 lacs for consideration. The consolidated proposal could not, however, be sent for want of required informafon which the company did not furnish. It does not appear from the files that any appraisal was made of the company's requirement before the two loans of Rs. 6 lacs each were sanctioned respectively on May 27 and August 13, 1974. The loam were sanctioned on the ground of urgency ple~qed by the representatives of the company. Shn R. L, Grover, Manager of Safdarjang Enclave branch, who had processed the aforesaid loan proposal~ has said that although it was necessary to examine the past performance and repaying capacity of the party, it was not done In this case He admits that while scndln1 his recommendation to the Zonal Manager he did not mention the fact that Maruti

Limitcq w;is a defaulter in respect. of Rs. JO lacs loan sanctioned in 197 I. He explams the reason : "the Managing Director of the Company was so important a personality in those days and he was sc. close to 1he Head Office and the Regional Office. I dared not highlight the past performance of this company in my recommendation", Grover has also said that Sanjay O:indhi and V. R. Mohan refused to enclose the list of machinery along with t!te document of hypothecation. Shri Grover "dared not withhold disbursement to the party because such action against this party could have Invited troubles for me .... because this was not an ordiJ!ary party, its Managing Director being the son Qf rthe : then Prime Minister". He has said fUrther tl!at.$hri Sanjay Gandhi refused to allow the name _Plate of the bank to be placed on the machine indicating that these were hypothecated to the bank. . .'
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Shri Sanjay Gandhi had certified beforo'the' al>ove loans were disbursed that ' the'" 'machinery hypothecated to the bank WI!$ fri:e from encwnbrance. It may be recalled that the' Government of Haryana held first charge on the machinery 'installed on the basis of the agreement dated August 9, 1971 between the Government of Haryana. and the company. '!Ji'' - " ,-;-

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Shri R. L. Kapahi, Inspector of Godown,' inspected the hypothecated stock of Maruti , .Umift9 ,, wjth reference to the C.C.M. accounts -of '.the: company in Safdarjang Enclave branch of Central Bank of India on different dates in 1974 and 197S; He did not find the name P:late of the bank displayed or pabitcd on the. mac~inerv to !d.icate the .b~'s lien. ,01t ing11iry Shri San1ay Gandhi 1nfon:ned hlDI that lhis''i:ond11ion had been waived. There is, however, riothinlt oil record to support Shri Gandhi's statementi_Shr1'''Kapahi found that the company had included the instaUation charges and i:artage in the valuation of. the macbinerv which was not proper, the valuation Of tho hyPothecated stock should have been the 'aCtuaJ value mentioned in the invojces. The borrower 'had not ~alculat~ the depreciation while valuipg the securities ~h1ch were purchased three to J!'ur years back. rn v1ew of the fact that Punjab National Bl!llk had al~ sanctioned loans to this party agaist ~achinery. Shr1 Kapahi:suggested that the listS-pf Jl!&ehinery hypothecated to the two banks should bo exehangecl for a clear indication of the securitiei hypothccated to each bank. Shri Kapahi's inspection 'noteS were sent to all concerned incluiling the Blauch Manager and the Zonal Manager, but no corrective measure were taken. In April 197S the company's accounts at Safdarjang Enclave branch were transferred to the M111lahcra branch. In ~ly May l 97S Shri P. F. Gutta took !>ve,r ~ Chairman of Central Bank' of India. A note md1ca~g. the position of the bank's advances to Maru11 Limited "'.as sl!bmitted for his sanction. On May 7, 1,97S. S!m San1a}'. Gandhi, Managing Director of Maroti Lim1tc'd, npplicd for CBEh credit limit of Rs. l S la~ 1111d bdl ~unting facility of Rs. s lac.< for fiuancmg cer!:Uo ,1ob . WOI~a undertaken by the company under 1.s d1vcrs11icatiou programme. Since

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123 the company's a8.\lrcgate dues to Central Ba~ of India then amounted to about Rs. 25 lacs and It was enjoying limits aggregating Rs. 90 lacs with an overall ceiling of ru. 15 lacs with the Punjab National Bank, grant of any additional facility would have required prior approval of the Bank's Board and the Reserve Bank of India. For thi cornpkte data was not available from the company and the Head Office therefore did not sanctio;1 this facility. The Head Office asked the Zonal Office to explain the position "tactfully" to the company.
On June 16, 1975 the Zonal Office recommended a cheque discounting limit ;)f Rs. 1.75 lacs stating t-hat the branch concerned (Mullaheta) bad already allowed the facility in anticipation o( the sanction. While the matter was pending with the Head Ollice, Shri A. D. Wadia, Zonal Manager, advised that Rs. 1.7 lacs was inadequate and recommended consideration of a cheque discounting limit of Rs. 3 lacs and clean overdraft limit of Rs. 1 lac with th" stipulation that the aggregate outstandings under these two facilities should not e.xceed Rs. 3 bes. On July 11, the Head Office sanctioned cheque disccunting limit of Rs. 3 lacs but the clea1,1 overdraft limit was rejected. However following i:ers1stent requests .by the company and xecommendal!on~ from the .branch and the - Zonal Offices, the Chairman sanctioned clean overdraft limit of Rs. 1 Jae on August 30, 1975 for "occasional use". The Head Office advised the Zena! Office to ensure that the total adv!lnces. to th.e comp.any made. by Central Bank ot India and Pun,ra~ N at1onal Bank did not exeeed Rs. 1 .cr~re v1?,at1~g Reserve Bank of India's credit authonsatmn d1rec11ves. On September 4, 1975 Mullahera . branch wrote to the Zonal Office saving that acc"!rdmg to its information the company's iota! oorrowm~ ~ad already exceeded Rs. 1 crore. The overdraft Jnrut for R<. I laG was thcr~fore not released lt. was released ofter th~ aggregate limit requiring pno~ approval o.f the Reserve Bank oflndia tinder the credit authorlsat~.i scheme was raised from Rs. 1 crore ~hr~H m Novemher 1975. Evfn thereafter 1 2S.crores Chawla Manager of the Mullabera branch ~ften ac~o~modatcd Maruti Limited beyond the sane: t1oned hm1ts for clean overdraft or for discounting czheques and not always with the prior anproval of tl onal Office. . ' "' IC

facilitiC$ &all!:tioned to tho com~ to bCplaced befor~

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the Board. A comprehensive l!ote was place4i before the Board at its meeti,ng held ~ .l)c:<:embet-27, 1976. No additional limits for adviiiCeS~iwerc' Sa.nctioned thereafter. By the end of. May,1I271ll~ .the inilial loan or Rs. 10 lacs saneli!-lnC<!'-JA,~!Jlr; ~971 and Rs. 12 lacs in May and Aogust 1914, 'other raci)Jties were adjusted. For recovery ()fl the;~ iamouoling to Rs. 22 lacs, Central Bank of ~;instituted 11 suit in April 1978. ' ''~'~t':''!flll~i!:i " Shri Saniay Gandhi deman~ redua.iqn of the rate of interest from Central Bank .QfJD!Jia, 911,.the ground that Punjab Nationll Bank luu:l ~y agreed to reduce the ~te. Al~<'~ the ~~,',.Qf !be af'lresaid cash cr~t/loan limits.. a881'.t&l!.IJ!l&,~. l~. las was never satisfactory,.tbe comPlUlY:Wll!I,.~ '.tj ted c:Oncessioo in the rate of inwcst wbich ..wea iedw:c1l'from 16 per cent to 14 per cc.nt with elfi;ct.ttom:.~er 17, 1976 under the orders of the ChaiiJnaD subject to the production of a letter trom Punjab Natioaal Bank confirming the red11ctio11 of the rate. of ~t by them. Wb~n ~Manager of M~.W&nch'approached Shr1 San1ay Gandhi for a writteilic:onmDiation. Sbri Gandhi refused to produce any confirnlatl>,ry letter. That however did not stand in the way Qt the'iate of inierest being reduced. Punjab National Ba$.~iw.eci the rate about two weeks later, from Octi>ber 1, 1976 after the bank's Board ~f Directors aP.P>v~,.the proposal.
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SummtJ!Y of Reserve Bani> of 'l~s': lnspertion .Reports : The Aeserve Bank of ll!dfa sioted the folJ~~og irregularities in regard to the anetlon, superVJS1on and conduct of the aboveAll(ilities as would appear from Shri D. N. ~s:Ji:umnary:

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( 1) The various credit facilities were &actioned from time to time on an ad hoc basis without a C:itical ~eot . of , ~ . company's

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In May 1975 the Z?m1l Office recommended eocheque. di.cou11ting and clean overdraft were s~ncti~n;d1a;l~ ~~ CRhs .. 3 bes rrespectively which amuan. n June 1976 the ~ompany_ approacncd Mulldhcra branch of the bank d:e:af~~'::in thf mst?v~rdTraft. limit of Rs. 15 lacs against e "t. ranspor: Undertakings Tb, z I on~ cc sauctloned a limit of Rs 3 lacs ~ d f c war cd the ,Proposal to the Head Office Then Hor~ffiR: ~~i:uned the JfroposaJ and sancti~ned a Zo acs. Su sequently in October 1976 the ~'=j rec~~end~ enhancement of !ht< limit to . ~cs. Chairman approved this subject t0 th . e cond1t10n that the advance would be limit~ against the dues from the State G on 1 Y takings and f overnmeot under. a margin 25 per cent should be tamed. The Chairman also directed a full review tmh. S/8 HA/79-17 . e

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genume requxrements over a period of time. (2) The 1'.3Sh credit/loan ~ts against hypotbecauon of machinery aggregating Rs". 22 lacs were, .>ancti~ f9r periods of tbr~ to srx monbs but when_ the stipulated penod was over, adequate measures were not taken by lite .Branch/Zonal Office/ Head Office to fDsure the repaYment of the advance. In tl!e case of th!l limit ot Rs., l 0 lacs sanctioned in Dcember 1971 which was to be repaid in .3 to 4 months out of the proceeds of public issue of the company's shares, it is observed that the outstanding balance was reduced to Rs. 0.10 !ac in. January 1973 on account of moneys received from private issue of shares but the. comP!Uly '\'V3S subsequently allowed to aga10 avail of _the limit to the full extent.

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( 3) Pan of the. ~acbinery in respect of which the above .limits we~ granted was all purpose .machmery af!d tt a~ that such machi!lery was mainly utilised for tbe manufactunng and other activities of Maruli Heavy Vehicles Private Limited an allied

concern.

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124 ( 4) On several. occasions the company was accommodated for large amounts { upto Rs. IO lacs) by way of overdrawings beyond sanctioned limits or advance granted under different heads without any sanction of regular limits, particularly at the Mullahera branch. Howc-ver, this branch did not ensure that all such accommodations were duly reported to higher authorities for obtainin)?; confirmation thereof, (5) The company was extended credit again't cheques by way of both purchase thereof and/or allowing overdraft there against by the Mullahera branch. Although many of the cheques were drawn by the same party and in round sums, the branch did not make enquiries about the nature of transactions in respect of which they were drawn. . In the case of overdrafts allowed against bookdebts, it did not observe the usual safeguards of obtaining statements of outstanding debts at reAUlar intervals, deleting long outstanding dues from the drawing power, verification of company's books, etc. ( 6) While sanctioning the additional cash credit limit of Rs. 6 lacs in August 1974 (raising the aggregate limits against machinery to . Rs. 22 lacs) the Head Office had instructed that a comprehensive proposal should be submitted for being placed before the Board. However, this was never compiled al)d submitted. A note reviewing the varioiis facilities was placed befora the Board only in December 1976, when the various advance limits aggregated Rs. 45 lacs. Certain adverse comments made by the internal auditors/godown inspectors about the conduct/supervision of the accounts were not brought out in this note, and in the paragraph provided for brinwng out ..such features, it was indicated that there were no such comments. credit limit of Rs. 15 lacs lllld a bill discounting limit of Rs. S lacs, it. was request~ by the bank to furnish certai.D data but 1t refused to do so, stating t~at s'!fiic!ent da~a had b..oen given in connection with its aJ!pllcation !or 'bridging' loan; but that was given prior to August 1973, i.e., nearly two years ago.
(b) In July 1974,

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in connection with the proposal for a cheques discountinj: lim,it of Rs. 3 lacs, the Head Office desired to know . the nature of the transactions in respect of which the cheques were received by the company. The company rcfu~ed to fumis~ these particulars stating that 11 was an mtemal mauer of the company and that its sources of funds were disclosed on the face of the balance sheet. (c) The limits sanc:ioucd in Dec.,,mb.:r 1971 and M~y 1974 were guaranteed by t:l" company's Managing Director and some cf the other directors. However, the Managing Director refused to extend his personal guarantee in respect of the limit of Rs. 6 lacs sanc.tioned in Augusi 1974. The matter was noc pursued by 1he bank.

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(7) The company has availed of advattce&


against hypcithecatlon of machinery from Central Bank of India as well as Punjab National Bank. The internal auditors of the former bank had reported, filler al/a, that the machinery charged to the two banks were not clearly demarcated and hence it was not possible 10 verify all the machinery charged to the Central Bank, the invoices relating to the machinery available on the b~k's r~rds could also not be matched with the list of hypothecated machinery. Apart from the aforesaid irregularities, the Reserve .Bank su~ma.ry ~ef~rs t'? the various concessions granted to Ma!1'11 L1m1ted m the ,rate of interest, charges for collecllon o~ cheques and issue of drafts etc. whichl have been mentioned already. . ~e summary also cites instances of the "companv's md1fference towards the normal requirements of ihe bank":
(a) Jn connection

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with the company's request made in May 1975 for additional cash

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Maruti Heavy Vehicles Priv11fe Limited This company was incorporated on February 22, 1974 with Shrimati Sonia Gandhi, . Shri Sanjay Gandhi, Shri Kishan Lal Ialan al)d Sbtj 9W,J'1akash Modi as its DirCClors. The company w~., .~rmed with share capital of Rs. 20 lacs divided ja,tQJwo lacs equity shares of. Rs. 10 each for the. p11tpose of ~man~ road r~. 'i,,M/s. Jah!n Modi Automobiles, a finn o~ Calcut!/l ,~~i;)J, ~. to deal in motor can;, automobile spare.,~" c~. wai; one of the dealers of the Maruti ear andclaJer. becU:ie the sole selling agentii of_ Maruti Heavy'; 'Vehicle~ Private Ltd: In October 1973 the firm offered to pay Rs. 28 lacs o~ eertai!1 Imported . road-rollc.r' parts and components .advertised for sale by lb!\ ,Receiver of a company In liquidntio11. The offer was llcceptcd by the . Rc;ei"'.er on December 5, 1973. Shri Sanjay Gandhi approached Mu!Jahera- branch ,,of,;;. Central Bank of India wih a request for financial assistance of Rs. 24 lacs to be disburs'ed in the ,name , of Shri. Kishan. Lal J~I! Tb.is was bef~ ~lii~avy Vehi?les Pnva1<: Lun1ted was iDCOIJICtt!lted.t~s JaJan Modi Automobiles also requested Shri D.; :v; Taneja, who was then Deputy General Mana~cat: the ban)c's Head Office in Bombay1 to &rant theni inter!iil;Jinance of Rs. 15 lacs for paying the Reetjver:foritllc roadroller parts and componenc. Tb.is lCq~i\was con"'.C)'ed to the Zonal Office at New l)elbi with instructi01!5 to consider it on' merits. In. Miiich -1974 Shri JaJan on behalf of Marutl Heavy Vebieles dis,. ::USSed the proposal with Shri Tan~ja: illd:..oo : hh !15truction the l.onal Manager Shri A. BiWadia 5inctioned on. March 12,. ~9'14 a C.C.M,,;Y~:;J,.oan or Rs. 5 lacs. The conditions of the Joai(werc that the pa~nt sboul,d be made direct IO the Recelver and ongioal receipts issued by the Receiver should be khpt ) 0 record, the company should like delivery of t e p edged goods within ~ix months.. from ll)e date

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of advance, all the Directors of the company must furnish personal guarantee and the progress made by the company {rom time to time in regard to the assembly of road rc.1llers should l:e informed evcrv month end: On March 26 Shri Sanjay. uandhi, Diree.tor ;it Maruti Heavy Vehicle;, requested the M11llah~ra Branch Manager to release the balance of Rs. 19 lac.s out of the original proposal of Rs. 24 lacs. This was followed by a telephonic request from Shri Kisban Lal Jalan to Shri D. V. Taneja to sanction the limit: Sl!ri Taneja approved the relea>e of an additional sum of Rs. S lacs 011 cash credit pledge basis .on April 1, 1975 on which date Shri Taneja succeeded Shri Adarkar as Chairman of Central Bank of India Eight days later, on April 9, Shri Sanjqy Gandhi again approached the Branch Manager to release another stiin of Rs. 5 lacs "for taking furth.er delivery of road-roller components and parts". The Branch Manaser forwarded tbe request to the Zonal Manager on !,he same aay. In the meantime the Head Ofhce ~f the Bank sought information on certain points relating. to the original proposal of Rs. 24 lacs. While the Branch"'Manager was in correspondence wirh the company Oii this subject, Chairman Shri Taneja sanc tioned a further release of Rs. 5 lacs on April 15, 19~4 on key loan basis with 35 per cent margin with a nder that any further mcrease in key loan facility would' be considered only when the paid up capital of tho company was raised to Rs. 20 lacs. It was further indicated that stocks should start 1r.ov111J1; u soon as assembly of road rollers started and the movement of stock must be reflected in the operation of the account. Three days later, on April 18 Maruti Heavy Vehicles requested the Mullaher~ branch for. sanctioning a part limit of Rs. s lacs on hypotbecauo~ basis out of the sanctioned limit of Rs. ;s lacs m key loan and also for reducing the marll!n of 35 par cent to 25 per cent. This also was ~!'_nc!ioned by the Chairman adding that hypothecation faqbty would be allowed only in respect of good wh1Cli l;Ould not be stored in the godowo.

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M On May 3, 1974 Shri Sanjay Gandhi requested the


anager. of the Mnllahllr:i branch for release of anotbe~ instalment of Rs. 5 lacs assuring him. that the paid up capital oi the company would tie increase~ from Rs. 13.74 lacs to Rs. 15 lacs "in near ~~t%'e Zo ~MBr:inch Manager forwarded the request e n . anager and before the Zonal Manager's rec:o;1llDJ.e.!1~ation.s could go to the Head Office the .sancuo.ned the proposal on May 11,' 1974 b e mstructlon that the monev should be d' :S~se~i~~ :!testhe2ga\d up capital of the compa~~ guarantee of the f~ur Di~~tor:nd Bu~" ~:r personal :~~ Hea~ Office sent a telex tc. ti 1e Zonal Officeaa::-:k e~h~~c~~~'::: .,~f tbRs. 5,dlacs wit~out insisting on e pa1 up capital.

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On June 25 19n Sh s of Maruti Hca~ V~h'cl 1 ri 11.!lJay Gandhi as Director Mall!'ger to ~anctiun i.es ~=~mofpplied to the Branch making the aggre~ae Rs 24 furtbe: Rs. 4 Iaci 1acs which was the

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nougb oui of the sanctioned liniit of Rs. 25 lac,s, 15 lacs was key loau and Rs. 1.0 lacs was on hypothecatioo, it Rppeurs Crom the report of the Godown Inspector Shri R. L. Kapahi that the company availed almost the entire limit on hypolhecation l;>11$is. Shri Kapall.i who inspected the hypothtcated and key loan godowns in December 1974 tound lh~t the bank's boards were not displayed on the godowns of the bypothecatcd stock. The godown of the pledged stock remained unlocked frCJm 10 A.M. to S P .M. and the workers were !ounel carrying their job work on the pledged stock. Ford Super Gear Box assembij~ numbering 123 valued at Rs. 8,88,000 of the pledged stock were all found dismantled and there were no details of other items of the pledged stock. Many items of the pledged stock were fitted with the road-rollers of lhe hypoihecated stock and the value of sucll items was counted Ill both. Tbe account w,s however adjusted in full in 1977. Summary of Reserve Bank of .India's Inspection Reports : The following irregular features in regard to t!ie sanction, supe1v1sion and conduct of the credit facilities were noticed by the Reserve Bank ot India :

stock since March 1974. Up to J~J97S not even a dozen road rollers were assembled, .'llthough the project envisaged'' ~m bly/slle of about 80 rollers by that time; the bank, however, does not app~ano have taken up the matter with the company. The sales picked up c~ly after August .1975 on account of order:; received from various Government Departments/bodies.
(4) The bank is not aware of the terll:l.s .ol agr~ement between the cllmp,any . and its

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( 1) The creilit limits were sanctioned wuhout critical assessment of the C<impany's long term rec:uir~ment. In fact, during MarchMay I 9'74 limits aggregating Rs. 20 lacs were sanctioned in four inslalments of Rs. 5 lacs each as and when approached by the comp11ny. The enhancement of the limit to R~. 25 lacs was santtic.ncd in February 1975 mainly for enabling the company to regularise the account which was overdrawn by over Rs. 5 lacs. The condition that the compan;: sb~uld raise th~ capita! to Rs. 20 lacs which was first stipulated in April 1974 and again reiterated in May 1974 was waived soon lhercafter. The comoany'; paid up capital as on the 31st March 1976 was fu, 15.04 lacs only. (2) No invoices in respect of the parls/compo nents pledged with the bank were obtained. Similarly, original receipts issued by the Receiver for Agrind Fabrlcators Limited were not obtained by lhe branch ultbough I~ was required to do so in terms of ~anc !Ions. The control over storage/movement of stocks was Jax. The bank's internal auditors could not verify some of the stocks because of dismantling of various materials and haphazard storage. They bad also reJ><?rted, inter alia_, that no record was main tamed of many items, which were taken by the. compa~y (for the ,remodelling of designs) Without issue of Delivery orders and that ce~tain p;irts pledged with the bank were fitted 1n the road rollers without mak!ng paym.ent therefor; ~ct, their value was mcluded in the value <if the road rollers hypothecated to the bank. (3) In January 1975 the internal auditors repo1tcd that ther: was no movement of

sole-selling agents M/s Jalan. Modi Automobiles. Sizeable amounts ID round SUQlS have been paid from the company's account to this firn1 and Shri Kisha!l Lal Jalan, but the l.lranch is not aware ot the na.ture ol ttansactions involved. At times ch~ues drawn by M/s Jalan Mndi Automobiles were dh;counted by the ~ranqt on behalf o_t the company to regulanse 1ts cash credit account. Shri Kisban Lal Jalan was opei:ating tlle company's account and s1gi;img delivery orders, stock staten1ents, e!e smce the beginn~ but the braneh obtained the necess;iry authority only in June 1975.

Maruti Technical Services Private Limiled


This company was incorporated in Novemb_er-19_70 , with the share canj!al o! Rs. S lacs and Shri Saniay Gandhi and Shriniati Sonia Gandhi as Directors. The object of the c11mpany wa: to provide 1ecbnical know how and other servic:s connected with autol!lohile and engineering industries. The bank granted to this company Joans Lf Rs, 35,000 and Rs. 34,000 for acquiring motor \'ans in July 1974 a,ud. Augus~ 1976 respectively. These loans were repaid m JUne 19'76 and April 1977 respectively. In January 1975 the company had approached the bank for a loan ot Rs. ZS lacs for purchasing general p11rpose' machinery but did not pwsue the matter after it was cal1e3 upon to furnish essential d<1ta in the forms prescribed under the credit authorisatior. scheme. Jn November 1976 the Zonal office at New Delhi sanctioned a 'packing credit' limil of Rs. 5 lacs to the company for financing the export of petrol savers dc:veloped by the company. This Umil was availed ,of . to the extent of Rs. 3.:?S lac.1 in February/March 1977. lllld was repaid in April 1977 through exports effected under the relative lett~r of credit.

got almost whatever they asked for from .. the two banks. Shri H. S. Chawla, Managei; of Mullabera branch of Central Bank of India froni 'f,19 3 to April 1978, \yho was responsibAefc ' .. ,~.i J. undue facilities to tht Maritti ainc;Crii~.f(:~"fC!.i "all requests made by Maruti Limited'"aliil lts co~i:>,arues :;vere considered at .,all levels '. a.ka .c:omparl!tl~efy qwck . speed". He says : .. ~S!D~,\~,.MailJti L.llDlted. and Ma;ruti ~eavy V.ehic!es J>riwte; Limited b.1g proiects. ~vni,g b1gb connections ~ '1d outside the bank, 1t a1ways worked on my ~l!d lh*t they

Limited and Maruti Heavy VehiclczPriv.afe;~.,W!!fe

From the above account it appears, lllat'. MaI1Jti

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sanctioniug paw!r. To that Shrr Galldhi said t1!at should not be givc11 any oppon~nity of ll!aking ~~: Shri Adarkar Chninna.'l of cewral B1111k of India. plaints such as dcliycd processmg of U.Cir pro~ was due to ~e shortly and ~ tscarcb .f~r a ...... I thought it better to I.eave the mat~ers to t e suitable person was on". On TanllJI! s next v~1t to better judgment an'' discrcu~r. <>f my b1~~er ~ Delhi on M'arch 11. 1974 Kalt;! ag;un t~ hm~ to by sending their proposals quickly to them . He adds wa~tcu to Sanjay Gandhi saying that Shn that he c:ould noL ''resist m~eling the drmand c;>I the "discuss his proposul for ro:d-rollcrs ~lb lu'!I At party with whom 0 111 higher authorities were d1rCftlY this meeting Shri Gandhi informed Sbr1 Tan~Ja that. in touch". Shri ~. L. Grover, Manager of Safdar1ang he had floated a new company called M;;ruti Heav~ Enclave branch from Octob.;r 1973 to . th<; end of Vehicles Private L:miterl. March 1977, "dared ;1ot" raised any cb1ect1on to ~he disbursement ~f the loans "because such a~l!on against this party could l!a\'C invited t~oubl~ for hm(: ./j" Sbri Adark.ir" c tern~ as Chairman of Central Bank he was very \lluch consc1ou; that ~hn San1ay Ganah1 of India was due to expire on M!1"c:h 31, 1~74. From ",. was the Prime Ministerr. sor. and an "important some papers .whic~ this Co1?1111~1on received from personality in thos~ days". Even the Head Office the Prime Ministers Secretanat It appeats that . on of Central Bank of India finding itself unable to January 19, 1974 Shri P. N. Dhar, ~etaiy to Prime sanction a further cash credit limit of Rs. 15 lacs Minister, Indira Gandhi, recorded an internal n'!tc on asked for by Shri Sani.Y Gandhi as Managing Directhe subject of a successor to Shri Adarkar as Chairman tor of Maruti Limited, advised the Zonal Office to of Central Bank of India. The note runs ~ follo~s.: convey their inability 'tactfully'. to the. borro-y~r. "P .M. had mentioned lo me the ~c of Sbii Tane1a m The Reserve Bank of India has hsted the trregularities connection with the Chairmanship of Cent~al B:mk in regard to the sanction, supervision and conduct of of India. As P. M. knows tlic C!mrnl Banlt IS not m a the accounts of Maruti Limited and Maruti Heavy good shape. Much will, therefor~, depc!1'1 on !he new Vehicles Privalz Limited with the two banks. None Chairman ... The proposal is to. appomt ~hn ~utt:i of the officers of Punjab National Bank and not all of the Union Uank as the Chairman. Shn Gut.a is the officers of Central Bank of India who have been n very able banker and enjoys a hl!P.1 . reputation. exumined have made :my such admis~ion as Shri Taneja is :it the moment No. 3 .m.. I.be .C~ntral Shri Chawla or Shri Grover have done; some of them Bank. . . As I have told P.M. l lulve cbeckc.d on must have been responsible for the irregularities the relative merits and demerits of the two candidates pointed out. The fact that so . many irregular fea from several sourc~s including the A~tor-General, lures are present. in th~ accounts of the same borrower some officials and bankers. The, ' P!O~ for (treating Maruti Heavy Vehicles as an allied conShri Gutta's appointment IJ:i,s ~~tgel:;.r;, cern of Maruti Limited) wc-uld (suggest that these mally to the A.C.C. [Appom~~.>, .. . . :~i> qllicers went out of their way to help the two Cabmet] and is berng subm1tted to 1'y.1.S.-1 Maruti concerns for which they must have h?.d some separately. I would r~~full~~Jll!!;;~,t ti!1Sln~~~ mot.ive, if it was not fear that made them act as thev posal may be accepted. Pnmc .~.'. .. . 1 did. Gandhi recorded the following o,, , , ,1/i!8,a s.1P of paper bearing the .date ...March ... t.~''...< . ih.e.'~.Y . .ear .... htch tiffshri D. V. Taneja wa~ appllinted Chairman of is not mentioned should be obvi.~,. , A9.,'.,4:J:i ".I hl!ve -tS;ntral Bank of hldia but his term was not renewed expressed~ firm \il?N'I rc1>ardmg !ill'S.lll,attc .. r, I thmk ( t:.:.ft IS . . .,.. . ,G,;ii"hi'H' lionM be after one year. The way he was chosen for the office Tane1a er.......,. ...,~f'lfi\-~.,,,,.. .. th tY . . . . . and then got rid of give> an inwcation of the trend given e pos /.T'" ...... o-J -:::~~~~-!;f:-Y';r:1.:_-, . ._ . of thing:; at the time. Shri Taneja was appointed / I lt is a fact that duting Shri''-T~~~~~:~ure ~ In Chairman with effect from April 1, 1974. NovembcrjDecemb~r 1971 be was associated with Lc~a\rJnan he gra~ a number. of fiilq~~Jo ~~r:J1 the deliberations over the Rs. 10 lacs Interim loan L111!1ted Maruti. li_eavy ... ... Shri Tane1a has 'cr1bcd,before.-;, ,~51 . proposal of Maruti Limited when he w11s posted at the Head Office of the bank in Bombay. . Beforci t!ie experience in dealing with ... the .. ~.~ ~.''.~l!penlS.. ~ proposal was put up to the Custodian of the bank. Chairman of ~ntral Bank of 111!11;_: J.ue Ma1uu Shn Sanjay Gandhi met Shn Taneja in Delhi when group of co~panies wer,e,.not n,oif#,IJJ{ ".~i4.~'f acthe latter came to Delhi sometime in October/ cording to hun. The opemng of. a;. l,.gJc,tl\li.bank November 1971. Thereafter in January 1974 in the Ma;ruti complex of buildi.u~:;~'.~g.11,r.~a ."was Shri K. L. Katra who was then Development Officer :II! invitation to pressres {t:om. a,. . . ~.,ff 9.!J~().Yed in Central Bank of India. introduced Shri Taneja to wide Governawnt p!llronage. It .. .. . .. -~- Shri Kishan Lal Jalan and Shri J. K: Pahuja. On men! of the bank's mind that it cf~l .. entifying January 23, 1974 Shri Kalra arranged a meeting it~elf witI! M~ busin~" Af~.a ~li,PF,~.~ between Shri Taneja and Shri Sanjay Gandhi at the wit~ Shri ~n1ay Gand,hi, Shfl ~~f~"t!t8t At thi~ meeting Sbri Gandhi Maruti factory. Sbn. Gandhi "was wanting .evct'yth1i!i,;i; ;~~dC?pe 1m told Taneja tha~ ."hi~ ,?Jachinery was. lying idle and mediately and had no patience for.; . .. r~..dres he wanted to utthsc 11 by manufacturmg or assembland formalities". Shri Taneja slat~(' .. J -. . fii .who ing. roud-ro!lers in collabota:ion with Shri Jalan. had d~vtloped a . close friendship;'.\'( ' ' ,i.SaQjay Sbrt Gandhr also wanted to know when his proposar CJandh1 wa.~ exerting great pressurjl''['J:~nc:ja] for a loan of Rs. '.'.!<\ lac, 10 be di~bursed ill the name to "keep on releasing funds for M~' . . . Vclilcles of Kishau Lal Jalan would be sanctioned. Taneja Private Limited". Tanrji had known" "ra.:--nce the replied that he as Oeputy Gweral Maila~r had no time be was po;tcd in .Delhi when ''l<alraY'iilso was . .

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working in the Delhi Oftlce. During the period be tween April 'lnd Septe1nber . 1974 Shri Sanjay Gandhi staned putting pressure on him regarding vario11S JDlltters, one of which was that Slui Taneja "must' Uu,mediately sanction the Rs. 1.5 crores loan fer which proposal had been sent in December 1973". Another point on which Shri Gandhi insisted was that Kalra ll)llSt be promoted. Tuneja states that "the more pressure Mr. Gandhi pu1. regarding promotion of Mr. Kalra, the greater pr~ssure Mr. Kalra would bring on Die for Mr. Gandhi". Shri Taneja admits being "quite in . a dilemma whether I could take the courage of transferring Mr. K.aln' but "felt that this would not be prudent at that stag~''. Accotding to Shri Taneja from September 1974 till :tlmost the end of the year, Shri Gan~hi repeatedly telephoned him or sent messages to him through Kalm that "something immediat~ly should be done to finance his car project". As the pressure from S'lnjay Gandhi continued to mount, Taneja "could nc.t bear it any longer" and he made up his mind "to take a decision one way or the other". He got the proposal for a loan of Rs. 1.5 crores examined by various people. in all its aspects and their reaction convinced him that this was not a viable project. Taneja felt that "a stage had come when I must tell him :bat so far and no more". Before con v~ying his .d~cision t,o Shrl Gandhi, Taneja saw the Fmance M101ster Shn C. Subramaniam on January 4 1975 and explained Sbri Gandhi's proposal to th~ Minister. He told th~ Minister that he had come tc the conclusion that the proposal should be rejected. _ A~r~ing to f~neja, Shri Subrnmaniam fully agreed with him and also added that l snap election was round the corner. In any elcclions that would be held in that atmosphere, Maruti would turn out to be a miJJ.stone !'ound the neck of the Omgrcss party". While Shn Subramanhm was being examined befor~ t~e Contm!ssion Shri Taneja's statement was put to him. for his comments., Shri Subramaniam admitted havmg met Shri Tancj,1 but said "l cannot recollect all those ~ings ~c had stat~d". , Shri Taneja himself conveyed his decmon to Shn Saniav Gandhi on January 51 1975. ~hri Ga!'dhi "was veiy upset" and told Taneja that 1f Taneja put up the proposal to the Boar~, he "would have arrangements made to ensure that. 1t would b~ passed". Finding Taneja hesitant, San)ay G~ndhi asked ~im to "think it ever". When Shn Taneja was nex~ m Delhi '?n January 24, 1975 Kalra conveyed to him that Shn Sanjay Gandhi was very. angl)'. an~ wanted Taneja to see him at on.cc. Poss1~Jy this be;ng a case of not a "nonnal borrower'', T11:11eia "".e~t t~ see Sanjay Gandhi that night at the ;I"r1m~ M1mstcr s house. Shri Gandhi who was "rude, msultmg, haughty, and demanding" said that "if this w~s the way 1mp\lrtcnt clients were treated and commitments not honoured,. proper people would ha\e to be .brought to head banking institutions". "This was a direct refer~ncc to me", says Taneja, "as my one vcar ~erm as Chairman and Managing Director was eipirmg. on arch 31 . 1975". On Fchruary 8, 1975 $hn .~aniay Gandhi spoke to. him en tel~honc it was a mo~ologue of complaints spoken in haughty ~dw~~Td~?d~~ 1 WJ81!tehuahg.c" e[Tndin!! with the threat that 1m .aneia] properly". Taneja says that on the same day Kalra also conveyed to

lTaneja's term was to expire ()R M~~.;stiJ975. On March 22 a proposal was s~t. ~y~)lj, .~r~IJIIY, Department of Banking, Ministry of. F~ r,:cO~ mendil!g extension of. the term of the ~en of Sl.X nation:ilised banks including Centra,l Ban,k; of India: For Shri Taneja the recommendation was for ~te.m,;ion~of his term for a period of fou.r years. Tb11 [!ICOllll1lelldation was made in consultatio11 with the ..Qovemor, Reserve Bank of India, with the appi9~ of the Finance Minister Sbri C. Subramaniam.. On this proposal Shri P. N. Dhar, Secretary to the Prlme~inister, recorded a note O'l March. 31, 1975 that the file con :aininjl the Finan.cc Ministry's proposals regarding the extension of the term of office of the six Chairmen expiring that very day "was received. only, this, morning". The note said "P.M. is unhll{>PY thaf.&uch im portant proposals should be submitted for approval at the very last moment''. Prime Minister. directed the term of the Chairmen to be extended. by. Olle ID()ntb for the tinie being. Thereafter Taneja's' case.. was discussed between Finan Minister Shri c. $!1bramamwn and the Prime Minister. Shri Subramainam has des cribed the substunce of the dlscussiQn in his deposi tion : "She said there were certain complaints against Mr. Taneja which required inquiry and th=fore his term may not be continued". Wl1ile Shrl Subramaniam was giving .evidence he was asked whetberiit was not unfair to drop Shri Taneja merely on th_e basis of some complaints made to the Prime Minister without an In quiry. Shri Subramaniam's reply was "you should realiSe that she was the Pdme Minister". It is not clear what this meant ; she herself bad told the Finance Minister that the allegations called for an inquiry and not that the allegations had bceu proved. Shri \Jutta was appointed Chairman and Managing Director of Central Bank of /I~dia with elfcct from May 1, 1915/1/.. / On April ZS, 1975 the senior executives of. Central Ban.k of India made a wi:itten representation u.rging "the Reserve Bank o! lnd1-i and the Government ot India to consider the re-appointment of Shri D. V. Taneja as Cbainnan and Managing Director as we ell feel that such re-appCiintment would be in the best interest of the institution". Shri R. C. Pocbkbaoawala Genera? "Mana~r. was authorised to approach tb~ "authorities and also. if possible, to pJaCe this representation personally before the Hon'ble Minister for Finance as well as before the Prime Minister with a view to conveying to thein our unanimollS feeling and as exp~ through this representation". From the papers recetved from the Prime Minister's Secretariat 1t appears that Shri N. K. Sesban, Private Stcretary to the Prime Minister, recorded a note on a sheet of Pa~ on April 26. 1975 which reads : ''SJ1ri P. A. Nar1elwa!a sent M:. R. S. Pocbkhanawala, General Manager, Central Bank of India. with the attached me~orandnm. The executives of the Central Bank of India wanted to see P.M.. if it was possible. I told them that P.M. wan verv hard pressed for time and they could ,leaw. their memorandum with me and I shall place 1t before her. Apart from the points made

seen. and dire,,,'J.1nsequences wo.illd 'f911_._ w_: _ ~.. fo~.~ .11ot Jelpmg Maruti/ tr:l" . ,.

him a message from Sanjny Gani!bl. whii:b. Taneja noted do~ in ois diary ; the 1DC50ge, ,WllJ~un.fore

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by the Govcrniiien~ to bead the Central Bllllk of. India. To drop him suddenly only alter a year will have a deQtoralising effect on the entire iru.tituiion. He made it very clear that they wer~ not questioning the righr of tho Government to appoiDI any body to the post iif Chairman of a nationalised bank". Below Ibis note Prime Minister Shrimati l.Ddira Gandhi added in her own halld OD _the same day : "There were many doubts about Shri 'fanej~. F.M himr.elf wa5 reluctant. I overruled him in order 10 give Shri Taneja a chance but reports about his activities arc not Aood. His P!'trooising of a particular union has naturally brought htm some suppoll from the ~mployecs. But it docs {not ?] auger well. There is no point in my seeinJI Mr. Pochkhanawala. Also I have DO time". She marked her note 'secret'. Thus she again overruled the Finance Minister and, on this occasion, the Reserve Bank of

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CHAPTl!!R IX

The twelfth item in the list of matters specified for inquiry in the terms of reference relates toAll matters pertaining to foreign collaboration agreements, contracts with foreign parties und all forcigii exchange transactions entered into by all or some or any of the said Maruti concerns, including the capacity and c>.ccution. capabilities or the Indian coll~borat ing party to the agreement, the mcnts and fairness of such agreements, the operandi or securing such agreements and the dcgrc~ of conformity to law, prescribed conditions, policies, practices. rules and regulations in relation to the entering into and/ or approval of these said agreements, contract~ and transactions.

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Only two transactions arise for consideration in this context on the evidence received by the Commission; they arc the two foreign collaboration agreements e?tered into by Maruti Limited, one with Internauonal Harvester of Chicago, U.S.A.. and the other with Machinenfabrik Augsburg-Nurhbcrg (MAN for short) of West Germany, both for the production of heavy duty trucks. In fact, Maruti Limited cancell~d the agreement with International Harvester to enter into an agreement with MAN. Apart from these two agreements Maruti Technical Services Private Limited applied for and obtained licences to import a nu!'lbcr of scientific instruments from abroad but there ts no evidence that this company utilised these licences to enter into an agreement with any foreign party tel import these instruments. It may be recalled that the letter of U:l.ent issued to Sanjay Gandhi and the subsequent industiial licence granted to Maruti Limited for tte manufacture or passenger cars were subject to conditions forbidding foreign collaboration or foreign . consultancy agree~ mcnts, and import of capital goods, components of raw materials. There was a marked fall in the demand for passenger cars and certain other types. of consumer goods in 1974. The Central Government in 1975 sought to meet the situation by allowing the alfected industries to \liversify. Ma1uti Limited was allowed to manufacture Heavy Duty Vehicles, and the foreign collaboration agreements entered into by the company were treated as incidental to diversification. The facts concerning Maruti Limited's diversification plan and the collaboration agreements may now be stated. On October 8, 1975 Finance Minister Shri C. Subramaniam wrote to Shri T. A. Pai; Minister of Industry and Civil Supplies, stressing the "urgent need to make a critical study of the possibilities of diversification" in regar"C! to the industries affected by the slump. Shri Pai in reply suggested setting up a ~tudy 130

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group to :xaminc the problem and .t'? ll!a.!ce ap(>ropriate recommendations for the rehabihtatton of the industries. On November 19, 1975. a stu~y group headed by Shri Mantosh Sondhi, Secretary, Department of Heavy Industry. ~a~ set up.. Shri ~ M. Ghosh. Joint Secretary in the Mm1stry of lndustr1~! Development Department of Heavy Industry, was tis. Member Secreiary. One of the decisions taken by the study group jn a meeting held on December 30, 19?5 w,as that passenger car units should be allowed to d1ver~1fy to other vehicles, industrial machinery, and machtn~ tools. However, even before the study group met, Joint Secretary, Shri S. M. Ghosh, recorded a not~. on the departmental file on Decell!ber 19., 1975 that !he following passenger car units v1;, Premier Automobiles Ltd., Hindustan Motors, Standard Motor Products of India and Maruti Limited may be allowed this concession (diversification) immediately", but on condition that "they will not need any imported equipment or foreign collaboration ~nd the~e will not ~e any su~s tantial addition to capital equipment barnng balancing equipment". Shti Mantosh Sondhi, Secretary, Department of Heavy Industry, saw this note on December 22, 1975 and addeli his own comment "I would suggest that we should issue a notification to cover div.ersi6cation so far as the passenger car manufactunng units arc concerned. A notification couched in general terms should be adequate; it is not necessary to specify each car unit by name". The Mmister Shri T. A . On Pai approved the note on December 25, 1975. the file, when it was on its way back to Sbri S. M. Ghosh the next day, Shri Sondhi added ; "please let me have a look at the notification before it is release4". After the file reached Shri Ghosh, be. summoned Shri Kannan, Under Secretary in the Department of Heavy Industry working as Officer on Special Duty to the Minister of Industry and Civil Supplies Sbri T. A. Pai, and asked him to put up a draft press note. Shri Kannan accordingly dtafted a press .note which was put up to Ghosh on December 30, 19"75 'for approval. Ghosh saw Kannan's draft on the same' day ancl marked it to Mantosh Sondhi in deference to his request, before sending it to the Department of Industrial Development whose job it was to issue the press note. Sonclhi found : the draft .press note to be in order ana 'marked thel 1 file to Ghosh also on the same day, J;>eceD]ber 30. I Next day Ghosh sent the file to p,,K:''Saxcina, Joint 1 Secretary, Department of Industrial Development, for issuing the press note. However, the press note that 1 was issued on January 3, 1976 did not contain the I conditions barring imported equipment;' foreign colla- l horation and substantial addition lei capital equipment. The versiqns of Shri Kannan and Shii S. M. Ghosh , differ as- to ho.w this happened.

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131 Socrc1ary, Dcpartmc11t of ln<;l~stri~l Development, fo: hsuc or the press note until Shri Bharat Bhushan, Under Sccrctbry, Department of Industrial Development, who was dealing with the matter came l!> see him three or four days later. Bharat Bhushan informally showc<) him a draft press note which had been fhrnlly cleared by S. M. Ghosh, D. K. Saxena and R. V. Raman, then Secretary, Department of. Jndus1ri;1l Development. TI1is draft did not contarn the conditions mentioned in S. M. Ghosh's_ note dated O"c'mbcr 19, 1975 which Kannan had mcorporate? in his draft. Bharat Bhushan told him that a decision had been taken by the aforesaid. senior officers to omit these conditions. ft appears from the file that Bharat Bhushan recorded the substance vf the discus sion that Ghosh had with Saxena on the subject of the press note on January 2, 1976, and this shows that Ghosh suggested that the conditions need not be incorpo1ated in the press note. Kannan says that at the request of Bharat Bhushan he scrutinised the draft that Bhnrat Bhushan had brought and made certain corrections therein but these are not relevant for the present purpose. The account Shri S. M. Ghosh bas given to explain tlic deletion of the conditions from the press note as published makes Kannan lar11ely _responsible for it. This is what Ghosh says in ms statement before the Commission: "After the orders of .the Secretaey an4 the Minister were obtained I gave it (file) to Shri S. Kannan . . . to dri.ft the .notification. Shri Kaanan came back to me to say that the conditions suggested by me (in the note dated 19th December 1975) did not figure in any of the press notes issued earlier allowing diversification to machine tools, industrial machinery, electrical equipments and foundry industries. He enquired of me if it would be correct to incorporate t.besc conditions in a pa1ticular industry when these conditions did not figure in any of the earlier noti,fications. I asked him to check up again if the earlier, relevant notifications did have these conditions. He came bac_k to me after checking up that they did not. Then I told him that in that (!j!S it will be better If the press note was drafted on the Jines the curlier press ilotes were framed and I would show It to the Secretacy before it is sent to the Department of Industrial Development, Accordingly Shri Kannan put up a draft on l:>ecember 30, 1975 which I marked to the Secretary. After Secretary had seen, I sent it to the Industrial Development for issue of press note. Af\er the receipt of the press note I was asked by the Joint Secretary Sliri D. K. Saxena to come over to his room for a discussion. As I went there, Shri Saxena pointed. out that the draft press note did not contain the conditions . . . . He also said that the earlier notifications for diversification prescribed much simpler procedure. I said that if the notifications issued in respect industrial machinery, machine tools and other industries did not prescribe these conditions, they should not be prescribed for th is notification also. A note of these discussions was recorded on 3rd January, 1976 and routed through me to the Secretary, l'ndustdal Development. On approval by the Secretary, Industrial Development, the presi; note was issued". propriety of incorporating in the press note the condi tions mentioned in Ghosh's note dated December I 9 1975. According to Ghosh the press note drafted bl Kannan did not contain these conditions. In fact thc draft press note which is" now in the file does not con tain the conditions. Kannan however has stated tba. the draft now found in the 6lc was not the one pre pared by him. Kannan denies that there . was ao) such discussion as alleged by Ghosh regardmg . the absence of similar conditions in the previous nollfica lions. Kaooan asseits that the ~ he prepared contained the conditions included in ,Ghosh's note of December 19, 1975. ' ' ._,,._ .
It is not possible to accept Shri Ghosb's version of the affair. Shri Sondhi. has tokt.~~~mission that the draft press note whicll'he;J:llw~~-'~ber 30, 1975 conlllined all these cood1ti0al~q<J -that the draft press note which is now iD tlic'8'li;was not tl!e one which he had seen and approved. .No reason 1s suggested why Sondhi shoold ~'.\'11.~ dlllft that was not in accordance with the ~~.!>IJU! ~e and the Minister concerned had ~'.Pl'lQ"ed; 1t 1s also a little dillicult to accept that Kaouan<1 aoo .Under Secretary, who was giVlm the W!'rk:-of'cltafting the press note on the basis of that policy~W~~pose tq the Joint Secretacy to deviate fro.nll~;;<lt:$1ieDJS,that the draft made by Kannan had beeide,mO'lecl<from file and was replaced by .another which ,had' D(!t"beeo seen by the Secretary. .Shri Ghosh' ~ ,Qla!~erc was only one draft which is the one tbat'Jf llOW.illl .the file cannot be accepted in the circrioJs~: stated above. The draft now foun4 in ie tiJ.e,;wj~;lbe. one pre pared by Kannan, there ts; )JpWeyer;~t.Vldence bow it found itq way into the file. Sbri Soiidhl l>ointed out the hollowness of the attempt .to .~1t)ie\ exclusion of the conditions from the. press' aote,i qu ,the grouod that the previons notificat.iOllll 'isSUedi iD 'resj:iect of similar other industries did oOt< i1:!3111ljio snch condi tions. Sondhi explained that there Could be no .nniform pattern for an press notes;. llltd the. cll!im ' that the previous press notes di4 not 1:9~!1lln the conditions, even if It were tnie, was hlll'dly !l!',Y, ~tioo folf not incoll'?rating them iii !lie ,ni)tifli1i;ic~. ~Cd !n. tbi.q case,, ,specially WhCll_. W_th "'*". ... _d!I.! _s !Jd_ .. ,!hp Jd101st~ ~qcei;ned bad approved thl),~111 p,jlJ1 of th~ divers1fication policy. It was Jlo( ~ the rights of either Sbri Ghosh or any o~~ tO change the draft to deviate frcim. the poliaf~iJCided ~ "It is an accepted practice" Soodhi-~ ~:~er.a draft notification is put up oti file,' it~to'Tie strii:ilv in confonnity with the policy decisloJi the file. If the. <?llicer was to .~e ai ~from1tbe policy decision.take'! ~n ~.fil.e.~,~~;alj~e level of !he,intster. JI. ts bis. dut}I to1l!i:i!lg;''ifi~y~ clearly m his n'!te giving reasons 'V111: !!t.l~SAA necessary and seeking my approval as Well aifthat of the Minister". Shri T. A. Pai, then Mifiister;cif IJldustrial DeveJoplnent, has said that the notiflc8tion 'that was issued excluding the conditions had not been brou.tmt to his notice and did not biive fti5 JlpprJ>Val. ,: :
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. Shri S. M. Gl\Osh also ~~d; the exclu~ sron of the conditions by saymg th!lf the "substantive decision of the ~ter was to, ~ificl!tiou to. the passen.tter car mdustry and lhat dCCISlOD remained unchanged" and that the conditions silbject to which

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diversification was allowed was only "the procedural part of it" which was !lot incorpor!'ted. in. th7 pr~ss Qote as ultimately published ''.to brmg 11 ~ !me ~1.!~ similar other press notes relating to other mdusl!U:> . This is a wholly untenable arg.ument. When .a thing is permitted to be don7 subi~ct to some cond!tions, the conditions are an mtegrat part of the decision, and it seems absurd to call them the "procedural part". The defence strikes one as an afterthought which further affects the credibility of Shri Ghosh's version. The pcrss note, as edited by S. M. Ghosh, was published on January 3, 1976. 01! l\fa 6, .1976 Shri s. M. Rege, Secretary of Maruti Lumted, m a letter to the Joint Secretary, Ministry of Industry and Civil Suppplies, Department of Industrial Dev~!opment1 said that "taking advantage of the press note Maruti Limited had "decided to take up the manufacture" of heavy trucks of the capacity of 50 tonnes GVW and above in collaboration with M/s International Harvester of Chicago, U.S.A. A formal application dated May 4, I 976 accompanied the letter from which it appears that the details of the project were still being worked out. A few days later, -on May 10, 1976 Maruti Limited applied in the prescribed form for approval of 'their collaboration with fntemational Hal'vester of Chicago. Next day, May 11,. the Secretary of Maruti Limited wrote again to the Joint Secretary, Ministry of Industry and Civil Supplies, conveying some additional information in connection with their application for diversification. "We hereby confirm that the production of cars at present per year is to the tune of 50 lacs"; this obviously was a reference to the value of the cars produced. It was further stated that the demand for the heavy trucks which they proposed to manufacture would be 500 in number per year. Out of which "Government orders will QC to lhe tune of 250 trucks per year" and the "balance demand will be from the public undertakings and private sector". Before proceeding to describe htlw Maruti's applications were dealt with, it is necessary to state how an application made by Unimac Corporation of Ahmedabad for industrial licence to manufacture a similar item in collaboration with certain American firms, was disposed of a few months before Maruti applied. On February IO, 1975 Unimac submitted a composite application for an industrial licence for the manufacture of : (i) Heavy Duty Truck chassis 200 HP to 500 HP, highway and off highway type, for rated capacities 14000 Kgs. (14 tonnes) to 60000 Kgs. (60 tonnes) ;
(ii) Heavy Duty Axles and Transmissions, with foreign collaboration.

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(Oil and Natural Gas Commission), Priority project~, Air Force, Civil aviation, Fire departments and, particularly, Defence". These requirements, it was stat~d, were being met through "an aggregate hnport of average 500 to 600 such type of special duty veJ:i!cles". In the preliminary survey report that accompanied the application Unimac said that their "pro~ sc/ieme is aimed at making the industl)'. self-sufficient Ul a phased programme of four years'. The applicant also undertook a commitment of 20 per cent of output for export which was proposed to be stepped up later. The procedure normally followed when such applications were received. from the. parties ~ bel:n descriwd by E.V.L. Prasada Rao, Section Officer m the Department of Industrial Development, in bis affidavit dated February 2, 1979 : "copies of the application when received from the parties are initially dealt with in the Central Receipt and Despaich ~tion of the SIA (Secretariat for Industrial Ap'lrovals). That section after initial scrutiny sends the copies to various scrutinizing agencies" who are "expected to fo1ward their comments within a period of one month awroximately to SIA and administrative Ministry". The case is thereafter considered by the Screening Committee which is headed by the Joint Secretary of the administrative ministiy, and in this case it. was ~l]ri S. M. Ghosh, Joint Secretary of tbe Department of Heavy Industry. After the matter is considered by the Screening Committee a summary is prepared in SIA for consideration of the Project Approval Board. After the J>rojcct Approval B~ard has con~idered the m~t~er the minutes of the meetmg are submitted to the Mm1stcr and after he has recorded his final decision the minutes are fo1warded to the administralive ministry. Unimac's application was referred by SIA to the scrutinizing agencies on March 26, 1975 and April 16, 1975 was the date fixed for the Screening Committee meeting. However, on April 16, Shri R. Krishnaswamy, Director, Department of Heavy fndustry after a discussion with Shri S. M. Ghosh, Joint Secretary. recorded a note saying that the meeting was postponed and that the Joint Secretary had stated that this was a case "for rejection". Shri Krishnaswamy in his affidavit dated Februaf'Y 5, 1979, says that on May 21, 1975 he discussed the next date for the Screening Committee meeti,ng with Shri S. M. Ghosh. Shri Ghosh told him that there was no need for a meeting of th~ Screening Committee but a note should be prepared and sent to SIA recommending the case for rejection mainly on the ground that there was no market for the type of vehicles proposed. Sbri Krisbn3$Wamy recorded a note accordingly on the basis of which Shri V. P. Gupta, Under Secretary in the Department of Heavy Industry prepared an Office Memorandum on May 31, 1975 which was sent to SIA. The Office Memorandum said : "It is felt that there is no market at present for the type of vehicles proposed to be manufactured by the above applicant. It is also learnt .that. the applicant has submitted another. proposal to the Mini!itry of Commerce for setting up an a$SCD1b)y. plant in ,the Kandia Free Trade Zone on 100 pe'r',~t export bl!sis and it has been approved by .!hat Ministl:y. It will, therefore, be seen that setting up c:J. a unit for the proposed items of manuf?CWre ~r.intepial.~l~.,alone,will otrer no scope for a viable u01t , Jn the ~\Il5ll11lces,
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It was stated in the application that vehicles of the aforesaid type were being. used "for such purposes as haulage vehicles, fire crash trucks, mobile crane mounting pureoses. aerial ladder use, truck tractor combinations, 011 field equipment mounting and various and numerous other purposes for organisations like ONGC

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this Oepartment recomme!'ds r.cjcetion of !he .proposal". At the time Shri Ghosh 1s said to have md1cated that there was no market for the type of vehicles proposed to b~ manutac1urcd, he had before him the views of DGTD, Council of Scientific and Industrial Research (CS!R) and a(SQ of the Development Commissioner, Small Scale Industries. All these scrutinizing agcndc had recommended !he proposal. DGTD in particular touched upon the (jemand aspect fairly extensively : "Heavy duty truck chassis is, al present, being imported for various applications such as a pulling unit for heavy duty trailers, chassis for crash fire tenders, heavy duty drilling rigs. oil field trucks, heavy duty recovc1y vehicles etc. The total annual requirements would be qf the mdcr of JOO Nos. to 150 Nos. These vehicles can also.he made suitable for off the highway duties". Contrary to the views expressed by these scrutinizing agencies, Shri S. M. Ghosh held that there was no market for such vehicles. No exercise of any sort appcai~ 10 have been conducted in the Department of Heavy Industry to support the view expressed by Shri Ghosh. l't appears from the affidavit of Shri V. P. Gupla, affirmed on February 7, 1979, that the "sources of demand" referred to by the applicant riz, Defence, Civil aviation, ONGC etc. were not asked whether they had any requirement for such vehicles before Shri Ghosh decided that there was no demand for them. Shri Krishnaswamy in his affidavit dated Februa1y 5, 1979 says : "In the specific case, allhough it would appear that no examination was made, the decision which Shri Ghosh gave must have l;leen based on his knowledge for need for a unit as applied for , ...". Thus it was mainly Ghosh's idea that Unimac's application should be rejected and it was he alone who offered the view that there was no demand for such vehicles in the face of the views-expressed by DGTD which, as Ghosh has himself admitted, was the "principal technical adviser to Government on technology and capacity". On July 21, 1975 the Project Approval Board also recommended r~jection of Unimac's prop0sal. Shri T. A. P~i. Minister of Industry and Ovit Supplies approved the recommendation on August 6, 1975. Shri Khasgiwale of Unimac made a representation against the order of rejection on October 9, 1975. In this representation he attempted to meet the two points on which the rejection of his proposal was based. As to the question of demand he said : "The Defence alone needs around 400 .to 500 vehicles of this type which I have suggested, and the recent requirement indicates that immediately they need 60 fire crash chassis of 400 HP for airport operations, and 400 vehicles with wrecker attachments for desert and off highway ?pcrations . . . . Their present requirement of [chassis of] IS tons and above is therefore in a vicinity of 500 vehicles a year. Organisations like IJ!t~math,m~I Ail'J?Ort Authority, Director General, Civd Av1ahon, OJI and Natural Gas Commission and so many other buyers need vehicles of this type regularly . . . . The requirement of present mobile crane manufacturers is also handicapped due to non availability of a suitable crane earner chassis". As regards the proposal of assembly plant at Kandla Free Trade Zone., ~e clarified that his application was cleared by M1mstry of Commerce for setting up the plant on I 00 per ce'nt export basis for SO vehiclcs only. 'lhis represen:ation was also rejected by the Department of Heavy Industry on Decemb:r 24, 1975. On May I 2, 1976 Shri S. M. Ghosh handed over the application for diversification received . tram Manni Limiled and the two letters of the 6th am.I the I Ith May, 1976 to Shri V. P. gupta, Urn.lei Sccr~tary, and asked him to process the mal!cr por>Onally, normally such applications used to b: passed on to the concerned section for processing, The procedure for processing the applications for diversification in the passenger car industry at the relevant time was laid down in circular !l:o. 4 (1976 sencs) ot the Department of Industrial Development accr.1 <.ling lo which the applicants had to submit five copies ot th, application in the prescribed form, on: ~opy each for 1he Directorate General, Technical D~ve lopmen:, Development Commissioner (Small Sc"le tndus1ries), and the D~panmel)t .of Company A1Ia1rs who were required to send their commenl~ within two weeks. Ewn the press note that was issued required the applicams to file five copies of the application. Maruli Limited, however, submitted only one application in the prescribed form. Shri V. P. Gupta, Under Secretary, says that having regard to "the sensitive nature of the case", he "felt 1!1at calling for additional copies of the application before processing it was not be insisted on". In terms of the aforesaid circular, applications for diversification from large business houses registered Wider Monopolies and Restrictive Trade Practices , Act.. (hereinafter called MRTP Act) were to be cotisidered by a Task Force ; other applications, the ~oint. ~re:ary was competent to dispose of. Marull Limited was not registered under the MRTP. Act but. Shfi S.' M. Ghosh decided in consultation with ShrLV'; P. Gup!a that it would be advisable to consult the Task Force before taking a decisiol). Accordingly 'Shri ' Ghosh asked Shri Gupta to prepare a note for ... ci.reulatiou to -the Task Force in consultation .: with' Shd K. Sankaranarayan, Development Ofliccr-. in .the . Automobile Division of the Directii.rate . . General of Technical Development. : il! Why did Ghosh think it advisablejQ:\'.~ult the Task Force though it was not nCssaey'? He bas said that it was the "sensitive nature'1< Of the case which prompted him to involve the Taskc ' F(lrce in the decision. It may be noted that 'tbe\l'aslc'Force had six members including S. M. .Gb0$b as' its Chairman and Sankaranarayan and y, p. Gupta as members. The.note prepared by.Y::P.>'G!Jp,taJ(lr the Task Force with the help of Sankranara:yan whom Ghosh had asked Gupta to consuJt. rellected the views of Gupta, Saukaraoarayan a.nd, it is reasonable to think, also of S. M. Ghosh, and they. constituted half the numerical strength of the Task . Force. There. seems to have been no doubt as to the opinion the Task Force was likely to exp~ess. In these circumstances, it seems the motive in involving the Task Force in the decision was only to allay suspicion by apparent shanng of responsibility. V. P. Gupta's note for the Task F~ce ~as: ready !he same day .Shri Ghosh bad asked' him to' prepare it-May 12, 1976. The note justUic:d the. proposal for

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divc1-sificmion on the ground that there wa con. si<~~rnble demand for heavy trucks of 50 tonnes GVW and above that Maruti Limited intended manufacturing. Paragraph 3 of V. P. Gupta's note said : "The heavy trucks of 50 tc;innes GVW and abllvc arc oil the highway vehicles required by proj~c( authorities for transportaticn of heavy materials aou equipments, They can be useu as tractors for heavy trailas required by various projects. They aro also required by Defence for use as Recovery Vchicles and Carriers. With the emphasis on offshore drilling for oil exploration in the country, there would be increased demand for these vehicles of higher pay-load capacity. These types of vehicles arc also used by ONGC for their drilling rigs cqui,pmcntx. Presently vehicles in this range are not manufactured in the country. The entire reouircments for such vehicles' arc, therefore, met by im'port. The m;mufacture of these vehicles in the country will, therefore, result in direct impon. substitution from the very beginning .... It is, therefore, essential that a beginning should be made with the manufacture of heavier off the highway vehicles as early as oossible". What V. P. Gupta did not mention in his note was rhat the demand for vehicles in the higher OVW ranges 50 tonnes and above. which Maruti proposed to man~facture was comparatively low. Shri K. Ramalmshna Rao who was Development Officer in th~ O~ce of the DGTD at the relevant time in his Qtlidavn <lated Februarv 3. I 979 states : "with reference to the nnture or the demand for the various or)!anisatio'ns envisaeed, the demand for vehicles hdow 50 tunnes would be about 75 per Nnt and for those above 50 tonnes GVW. it would be about 25 pt.:r cent".
A m~ctini: of the Task Force was held on May I 7 1976 where it was unanimously agreed that Maruti'~ propcsul for uiversification should be approved. The extract from V. P. G11pta's note for the Task Force qu?tcJ above appears to be a restatement of the pomts made in Unimac's application and their subsequent. rcpre~eritation b?th of which were rojcctcd. A thmg whtch was smd to have no demand, in a matter of mo~ths became a much needed commodity. V. P. Gupta s note does not mention the r~levant fact. !~at only a few months earlier they had rejected a s1m1lar proposal from Unimac Corporation cf ~hmcdaba~. Bv way of explanation Gupta in an affidavit affirmed on Feb111ary 7 1979 that he was "net able :o conn.cc! the two case; presumably as GV':V :-as not specifically mentioned" in Unimac's ~pphcnhon und "being a non-technical persnn" he did .no.t co-relate th:: axle rntinu and GVW rating", If .t~1s is true,. the~ he did not know what he was wntmg about m his note, but the explanation does n~t .sc.em .to he at a}.' convincing. Gupta admits in ~" aff1dnv1t that the sources of demand" mentioned m !Jo.th cases were- the same. viz.. Defence Civil ~vrnt1.cn. ONGC e.t". tmd there was also no difference m the use tn wluch the vehicles could be nut slated by the either partv. Even as a "non t h . "'1 " th 'I CC n'Ca Pere . on . c sinu antic& between the two cases cot Id n<'~ pcss1blv hav". esc:apcd him. What finall~ demolishes the explanation ts thnt in the second r>araeraoh of' /he representation submitted on Octobzr 9' 1975

by Shri Khasgiwale for Onimac eorporiiu()I)~ i( : t~ . said that their proposal "covers mailuflict~iJg;li)r<>; gramme for Heavy Duty Truck ChassiS '200t:HP, .(0 500 HP for haulage purposes. This clivm'SOO nos. of various types of chassis with GVW" raUn$5 of 14,000 Kgs [14 tonnes] to 60,000 Kllll1,!60tt.. ~nnes] capacities". In any case, Shri S. M.' GhOllb'.fcotlld 'not have possibly forgotten the view he,.' hiiJJse\f had expressed a few months back that there. was no demand for such type of vehicles. Qw'le': 1 ~obviously the entry of Maruti Limited on the: seenell!ccoUllts for this volte face. Why Unimac's 'applit:jjti_on wa~ rejected on the ground that there was' All.' demalld when various organisations were in neecHof< such type of vehicles remains unanswered; Maruti'applied about 9 motnhs after the rejection of Unimac's application. It seems all facts touching this aspect have not come to light. ~ In approving Maruli's proposal fl?f. d.iversidcalioo, the Task Force assumed as correct the claim made in the company's letter to the Joint Secretary,: Ministry. of Industry and Civil Supplies, written Olli.May II, 1976 that they were producing passenger<cars:of the value of Rs. 50 lacs every year. Sbri V. P. Gupta has told the Commission that the value stated meant about 200 cars a year. The two half-yearly .returns that Maruti Limited sulnnitted in the prescribed .form to the Department of Heavy Industry however disclose quite a different picture. According to the return for the period ended December 31, 1975, the com. pany had made a number of prototypes. It was also stated in this return that productiol\ on moderate seale had commenced and it was expected to '.ncreaso in the near future. The return for the period ended J unc 30, 1976 was a replica of the earlier one. The 5th Annual Report of Maruti Limited for the period 1975-76 shows that the "actual production" of motor cars till March 31, 1916 was only 21 in number. The claim that Maruti T..imited was producing cars of the value of Rs. 50 lacs a: year, made apparently 1to impress the authorities' who..would consider the company's diversiticati<in proposal was therefore quite untrue. ' the Shri Sankaranarayan, Developll)en1 Officer'. A uto"!obile Division of the DGTD M4 .vls!!ed tht:j Maruti factory along with his coIJeagiiC Sh.d K. Sharma. another Development Officer, .(ln February .15, 1975 to as~ess the progress made by the company m. t~e producllon of passenger cars.' They submitted a 1omt report on February 26. The r~ 'expressed doubts as ~o the ability of Maruti Lim,itCd t.o. step up produ:h?n ?f cars on commercial ..$Cale with the various !1m1tallons they had. In reply: to a questioq put to hm~ as. to. whether it would have been possible for M~rut1 L1m1ted to manufacture heavy duty vehicles with the equipments already installed,, ~.answer was that though some of the equip. 1s 1 d installed "COUid L t'fi. d f men . .jl rea y . "" u 1 se or the lllaqllfacture of ~ome COl!lpon~ts and sub-assemblies of the i heavy d . uty vehicles, It would have been ne e s1gn!ficfantlyh to the capital equipment ~ ~::O::ti~el~ go rn or eavy sub-cOntracting for co ts b assemblies etc.". Shri Manlosb Sol.I' 11,1ponen su ' ~ommi;sion that he did not visuaJisC. '!~ ':n~d the mg UDlt of passenger car IO go in for maouf:~:~;

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of such heavy duty trucks by way of diversification because the manufacture of heavy duty trucks would Involve substantial expansion. Shri Sontlhi's view is of cou;sc based on the policy approved by the Minister and reHected in S. M. Ghosh's note dated December 19, 1975. Ghosh admitted that !or Marutl Limited switching over to the production of heav)' vehicles implied substantial expansion of its capacity, but he said that in his opinion the diversification press note "comprehended it and covered such expansion imp)icit in diversification". Shri Ghosh added : "the press note was issued py the Department of Industrial Development and my presumption has been that it has been competently issued. We were implementing the press note in terms of specific request". The significance of deleting the conditions from the draft press note prepared by Kannan is how apparent. The policy approved by the Minister concerned as appearing from Kannan's draft press note would not have permitted Maruti Limited to diversify to the manufacture of heavy duty vehicles which implied substantial expansion of its capacity. Shri S. M. Ghosh first removed from the draft press note the impediments lo diversification and then took his stand on the press note to claim that it "comprehended and covered such expansion". According to the Minister, Shri T. A. Pai, the press note as published did not have his approval and was therfOre "out of order" .and accordingly "whatever was done on the basis of that press note was also out of order". It may be mentioned here that the application for diversification made by Maruli Limited was th~ only application received from the . passenger car industry afler the press note was published. On May 20, 1976 Maruti Limited wrote to the U!Jder Secretary, Ministry of Industry and Civil Supplies (Department of Industrial Development), acknowledging the letter ai;proving its proposal for diversification ; in this very letter Maruti also asked the Government to increase the capacity from !100 to ~.soo heavy du)y vehicles per year, The request for increased capacity was made on the ground lhat " ... the demand that we envisaged for these vehicles at pr~ent wa~ 500 vehicles per year, however. this may mer_ease 1.u the future ~nd as such we request you to kmclly increase the licensed capacity from 500 no.s. per year to 2,500 nos. per year. The demand for thrs type of vehicles is _goin,g to intrease and hence this request". It is a little difficult to understand why oply. ni.nc days ~arlicr, on May 11, 1976, when MarutJ L1m1!ed mentioned 500 as the number flf heavy tryick.s wh1::Ji the company intended to manufac!u:e, this likely mcrcase in demand could not be ant1c1pated. The Jette~ of May 20, does not disclose any fact that was not Known on May l l. The Depart!ent of .He~ty In<]ustry supported the proposal for increase m bcen~ed capacity and so did DGTD d !J!e Develc;>pment Commissioner. Small Scale Tnd~s t,rrcs. Sim V. P. Gupta, Under Secretary De flf Heavy Industry, who dealt with this' maftartment t t he was requested by Shri s. ~ Ghosh,er ~1~~ -.. retary ~o. process the proposal unmediately "a 1 't was a sens1t1ve matter". He put 11 a s 1976 suggesting tha the propo~ d nothe on May S/8 HA/79-! 9 e en ancement m

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the capacity be approved ; ''There is no gain-saying the fact that the demand for 1h9,11,l19vo type& .~. ~clcs [SO to1l11CS GVW and 'above] 'maYJ~''' w;eablY in the future". S; M. Ghosh, Jc:iint'SCCrttary, m.;rcf ed hi/! approval on the same day lll!d. a letter convey ing .the approval was_issued to ;a,qitl r i~~ also on the same day, Mav 21, J!l76. Io~;~ Shri V. P. Gupta has admitted that lhere<wls';u(iffresh material beiore him on May 27 to supJiort' tile C:oncfusion that the demand would go up live timw . from SOO to !he approved capacity of 2,SOO in nuiiiher. : In the meantime the appli~f;~ for foreign collaboration made by Maruti Limited on.May 10, l!l76 was also being pr<><:eSSed. Tho ~t for Industrial Approvals endorsed copies of the aDJ>lication to the Depal'ta!en.t of Heavy Industry, DG'tb, Development ComIDJSS1oner, Small Scale Iildustries, CSIR and several other authorities for com!llC!Jts. : Tho application mentionedonly !ht product propoaCcJti> be manufactured, the name of the foteign collabonitor-Jnter national Harvester of Chicago, U.S.A., and the terms of collaboration. It lacked Information on many rele vant particulars such as the estima~' value of annual pr~uction, proposed capital cost of .tile project in eluding C<?St of impo~cd and indigenoli&'capital equipment, estimated requirements of raw' material and ~mponents,. p~lll!ed manufacturing, "progriumnes for imJl!lr! substitution, e~ect on balanco of paYJ11ent wit,b foreign excJia.nge eammg a~d foreign exclJAAge outgo and net foreign exchange mllow, .llD!l, percentage of royalty computed as a proportion of -'lhC ex-factory value of annual production. The '~tion agreement w:is "initially for a periocl of'ive ycan". N '? expo!' was "proposed at present" ~ "no co ' m1tments ' were "made at present" for exports .f:e terms of foreign collaboration proposed ~ :'

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(i) Royalty 0: "5% Cii the nCt difl:erenee between dw U.S. net export price of a licensed produ:t less the value of C<llllpClnents purchasC4 from Ioteinatiooal Harvester. This fee will not apply to any Indian sourced components for which International HarYest~r does not suPJ!ly drawings or other technology".
(ii) "Maruti

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~ pay International Harvester 5% on. International Harvester's distnl>utor net pnee ?f all service parts 1'lllllut'actw'ed by Maruu ?r Produced from sources other ihan International !Jarvester, except that wch fee was n~ applied to service ~ for which I!Jternation:il Harvester does not SUPJ!l either the design or applic:at,ion draWin Y manufacturing or engineering r*8rcf' or other data developed by International n or Vester". . nlr

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CS~ found that it was not P<l$siblc i th thchrucally .examine the application In th:"abse:: ~ t e aforesaid d1ta. The-f wrote to MllIUti Limited o ~!so asked SIA to furnish them with lurther inf. and tion. DGTD considered that the tec.h ol o1111a. ~eing highly sophistic!ltctl it would be~ ogy IDVolved in for proven technology and thiit th ~ary t~ go e 1Dfemational

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136 Harvester enjoyed a very high reputation. Accordin~ IQ DOTO, five per cent royalty w~s r~asonable. Th~ lack of technical data in the apphcatOn, DqTD CX plained on he ground that unlc;s the foreign firm was assurccJ of govermuen~\ concurrence. to the pro posal, they woald not be w11lmg to art with necessary in'formation. The D.epa.rtment of Heavy Industry was $0 of the .:ame view.
A summary for the Foreign Investment Board (Fll3) was thereafter prepared inc.irporating the details of the application and the comments recci\'e<). The summary was considered by the Board nt its meeting h<ld on June 30, 1976. The Foreign Investment Board agre~d with the rccomm<>ndntinns of the administrative Minis try and approved the proposal on the trn11s ~pccificd above. On July 12, 1976 a letter was issued from SIA to Mamti Limited approving their proposal for collaboration with International Harvester of U.S.A. The terms of collaborntion approved appear to have excluded the following standard condition governing foreign collabor1\tion :

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3.5 million DM for transfer of kno~how of the pro prletory items in instalments propo1t1onate to the value of items. The know-how for the manufacture of axles was not to be transferred before the end of 1982. A two per cent royalty payment on the value !'f the proprictory items to be manufactured '!nder the h~ence was also to be paid. The deal with International Harvester involved payment !'f royalty for five y~ars, the agreement with MAN env1.saged payment. of royalty for ten years. MAN would also charg~ tcchmcal !Qiow how fee of DM 1 million for the engme. It. was add ed, however, that "MAN has presently a.reqwrement of about l 000 engines per year or the equivalent .!1JO!'U~t of spare' which could be procured from Maruti Wlthm a period' of 2 years'', but it is apparent from the words used that this was not a firm commitment. The technical know-how fee and the royalty would be subject to taxation wider fndian laws. The agreement with MAN covers the following types of vehicles :
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"The duration of the agreement shall be for a period of five. years from the date of agree ment or five years from the date of com mencement of production provided production is not delayed beyond three years of signing of agreement, i.e. a maximum period of eight years from the date of sigmng of agreement. Within this period, the Indian company should develop and set up their own design and research facilities so that continued dependence on foreign collaroration beyond this period Will not be necessary." A copy of the approval letter sent to Maruti Limited which is found in the file [No. I (24)76-AEl(l) of Department of Heavy Industry] shows that in the an nexure containing all the sl3ndard terms" this one which figures at serial No .. (vi) has been crossed out.

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Gross vehicle weight in 1000 Kg. 32 32 19 19

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Maruti's letter of December lS, 1976

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On December 15, 1976 Matuti Limited wrote to the Secretary, D~partment of Jndu~\rial Development, Secretariat for Industrial Approvals (Foreign Colla boration Unit) informing him that the "proposal [collaboration with International Hancster] could not materialise because we were offered better terms and conditions by on equally renowned company of West Gennany-Machincnfabrik Augsburg-Numberg,. com111only known as MAN". In fact Maruti Limited had already entered into an agreement with MAN on Oec:ember 14, 1976 initially for a period of ten years sub1ect to t.he approval of Central Government. The request made b~ Maruti Limited in their letter was : "trc;at our pre11011s foreign collaboration with Jnternat1onal Harvester as cancelled aod accord your approval to o:ur present co!la~oration proposal with MAN at th.e earltest opportunity'. As in the case of Maruti's appl1catiop for collaboration with International Harvester, th.is letter alsc;> did not furnish details on many relevant items. Unhke the previous agreement th agreement with MAN involved initial lump su~ a : 1Dent of J?eutsche Marks (OM) !i.00,000 for tra.fsf~ of techmcal know-how followed by payment of

lopment but the secretary being away .on tour. it was marked to Joint Secretary Sbri A. F. Couto Ill the Department of Heavy Industry. Th.e app]jcation which was in the form of a letter was thWI taken on the records of the Department of Heavy Jndustry,and acopy of it was sent to DGTD for e<>D11Dents on,.December 20. Copies of Maruti's application were not circu lated to different authorities by Secretariat,,for Indus: trial Approvals, as was the usual procednre. Shn K. Sankranarayan of DGTD examined the application on the same day and found the terms of collaboration reasonable. A comparative assessment made by DGID indicates that the foreign exchange outgo under the agreement with MAN was slightly lower.. but this was based on the following assumptions : ', .. : (j) In a period of ten years it would be possible to market at least 4000 vehicles .at an average cost of Rs. 7,00,000 each. (ii) The proportion of bought out i:Omponcnts would be around 40 per cent and imported components 30 per cent with the result that royalty would be payable only on 30 per cent of the output. On this reckoning the fiat royalty of S per cent for Internationa 1 Harvester would work out to RS. 4.2 c:rores without tax deductions. Jn the c:aSe of MAN the 2 per cent royalty worked out to Rs. 1.68 c:rores without taxes. The lump sum payment of S million DM (0.5 million down Payment plus 3.S million for transfer rif know-how plus 1 million for technical knowh'?w of engines) would be Rs. 1.75 c:rnres Without taxes. After deducting the taxes it wa found that pavment to International Harvester would be Rs. 2.52 c:rores and to MAN Rs. 2.41 crores.

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nGTD also mentioned the following in favour of MAN: ra1 1 he lump sum payment to MAN was related to indigcnisation programme, and (b) :.!AN would take from India 1000. cn~1es or its equivalent as exports from India which would mean about Rs. 600 to 700 lacs during the ten )ear period of agreement. It has been pointed out earlier that Ibis could not be taken as a firm commi.Unent.

137
This meant that Maruti Limited was permitted diversil.IUCks '?f 19 fication for the production of hea~ tonnes and 32 tonnes GYW. Ongmally ~aruti was allowed diversilication for heavy duty vehicles of 50 tonnes GVW and above, it appears that when th;y a.f6 lied for change of collaborator on December l ,. 1 . t11ey also wrote to the Additional Secn:tary, Ministry of fndustry and Civil Supp!!es (De~nt..of He~vy Industry) asking for penmssion to ~versify by takmg up: manufacture of heavy duty ve~. '!f 40 tonnes GVW and 100 tonnes GCW and above m collabor_ation with MAN. [Dej>8rtment of He!lvy Industry File No. 1(23)/76-AEl(l)]. Shri y. P . Gupta, Under Secretary, Department ot Heavy Industry, ~ote to Maruti Limited on December ~2, 19?6. conyeymg approval to Maruti's proPOSal for ~g up llljlf)ufacture of heavy duty vehicles of 40 tomle$ GYW/100 tonnes GCW and above. The t>OSilic!n therefol"e was that while Maruti. Limited WI! ~lied to coUaborat: with MAN for the productio!l of '!eJiicles o~ 19 tonnes and 3 2 tonnes GYW, the . petll115$10n ~ven to them to diversify was for lhe 1111111~ of vehicl~s of 40 tonnes GVW/100 tonnes 0!~<1th.-8bove : Tbisf anomaly was too glaring 1'? have - - t - e n'? ce o the authorities. But nothing was done about 1t. One bas no doubt that the approval acco~ .lQ collabo1ation with MAN would not have been qncelled . and matters would have been regularl.sed ~ow if the irregularity was detected, but fro~ the fact th~t l)Je authorities did not take any steps, it ~ t4e:i: did not aitacb any impartance to it. WhatevC! ~ wanted they bad granted, and there WIU! nothipg iwre .to do: Secretariat for Industrial Approval$. r.o~. to ,v!aruu Limited on December 23, 1976_ 1:9!1".eymg Government of India's approval to the ~ of !1'lllabor~ tor. It may be recalled that Sllri T. A. !'81 told_ llus Commi"5ion that the pr~ note on the .subJecl o_f ~1ver sification (to which foreign collaboration was mc1dcntal) had been issued without bis approval' and that every thing done on the basis of this press note was out of order. On March 17, 1977 SIA submitted a note regarding this matter to Foreign Investment Board "for its information. and conc~nce".

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As regards the longer duration of the MAN agreeme.nt, according to DG"J D, it w~s W)likely that any Indian firm would be in a position to absorb the technology 1n a period of five years. On Oecember 21, the very day on which the comments of DGTD v.:ere received in the Department of Heavy lndust1y, Jomt Secretary Shri S. M. Ghosh recommended to the Minister that Maruti Q., permitted to substitute MAN as coll~bora tor in place of International Harvester. All this was done without Nference to the Foreign Investment Board. In his note Shri Ghosh stated among other things that collaboration for ten years for items of high technology had been a practice and no~ an. e~ ception and emphasized the ~pect o~ pro~!ve mdigenisation of components env~ag~ m Maruti s agr~e ment with MAN. An exan;unat,lon of the foreign collaborations approved during the period July 197S to June 1977 however reveals no case where a foreign collaborator of a private firm had been a)lowed royal!)'. for ten years without the export condition. Marull <lid not undertake any export commitment. As regards indigenisation, it is surprising that Shri Ghosh should have been so enthusiastic about this aspect of MAN's proposal without probing it a little deeper !n view of his past experience. What happened was tlus. A proposal to set 11p a public sector unit for manufacturing heavy commercial vehicles was already under consideration when the Depa1tment of Heavy Industry started processing Maruti's applications for foreign collaboration. In fact a negotiating committee . had been appointed with Shri S. M. Ghosh as Chairman, who were negotiating with various parties includin.~ MAN of West Germany. The Committee in their interim report stated as follows : ""M/s. MAN have left tl1c Committee with a distinct impression that they would prefer not .to be involved in the responsibility relating to indigenisation of vehicle and component design. In spite of long arguments with the firni 's representatives, they continued to harp the view that, at best, they would make available the services of one or more of their specialists to guide Indian engineers in the problems attached to indigenisntion but without any commitment or responsibility for such adjustment." One should have thought that after this Ghosh would pr~scribe sufficient safeguards so that the condition of 'transfer of technical know-how' in terms of indigeoisation was spelt out beyond any ambiguity. The Minister of Industry Shri T. A. Pai cleared the proposal also on the same day, December 21, 1976.

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I have earlier referred to a proposal to set up a public sector unit for manu.fac~ .heavy commercial vehicles. How the proposal or1gmated and what happened to it ultimately, wh.ich is relevant in this context, may now be told. ln March 1973 Shri Mantosh Sondhi, Secretary, Heavy Industry, suggested expansion of the vehicles factory at Jabalpur, which had been set up under the. control of the Director General of Ordnance Factories, to bridge the gap between the output and the projected requirement of heavy duty vehicles by the end of the seventh decade. The draft Fifth Five Year Plan (1974-79) assigned Rs. 50 crores for the purpose. In .June 1974 a decision was taken in the Depar:me.it of Defence Production, Ministry of Defence, t.:> de-link the manufacture ~f vehicles of I 0 tonne pa) load and above from the !xpansioo of the vehicle Lctory at Jabalpur. The National [ndustrial Development Corporation wa5 ~skcd to prepare a feasibility report on the basis of a ocw rhnt. for manufacture of 12.000 ~uch vehicles in !he first Phase nnd 24,000 vehicles in the second phase. They submitted a report in September 1974. Afte1 examination of the report the Department of Heavy

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138 IJ;tdustry wrote to five reputed foreign manufacturers of whom Volvo of Sweden, MAN of West Gcrlll81ly, International Harvester of U.S.A. and, later, Berliet of France replied. The first three firms submitted tbelr proposals by June 1975. To examine the proposals and negotiate with the parties a negotiating team of three persons with Joint Secretary, Department of Heavy Industry, Shri S. M. Ghosh as leader was formed in October 1975. The negotiating comllllttee held discussions with the representatives of MAN, lntemational Harvester and Volvo in December-January 1975/76. A drafl interim report of !,be negotiating committee appears to have been prepared. However, no papers relating to the deliberations of the committee with the fordgn collaborators or of its own internal meetings arc available in the Department. of Heavy Industry except a carbon copy of an unsigned c(raft interim report. It appears from this draft that the negotiating committee recommended " ....of the four proposals received those of Mis; MAN, M/s., Volvo may now be dropped. Representatives of M/s. Berliet and M/s. International Harvester should now be invited for a final round of negotiations makmg it clear to them that the choice has now been reduced to one of the two depending upon the adjustments they arc willlng to make further in tbeir proposal as they stand today". In a m~cting held on May 14, 1976 for finalisation of the Fifth Plan, the Planning Colllll;lission agreed to make an allocation of !<_s. 10 crorcs duri,ng 1977-79 for the public sector vehicle project. For the Annual Plan of 1976-77, the Departmellt of Heavy Industry proposed an outlay of Rs. 1 crore for the heavy vehicle public sector project. The project report was still to be prepared, but to meet the expenditure on preliminary studies. ~Janning Commission agreed t<:> make a token provision of Rs. 10 lacs and the entu:e amount was provide<! a~ budgetll!Y suppo1t. On May 1976 Maruli Limued aPl.'li&d for approval of their collaboration agreement w11h J;nternational Harvester. On October :t, 1976 the Chief M.ll!is.ter of Andhra Pradi:sh enquired of th1 lndusl!y Mmtster about the stage to which t)le Publi., sector Heavy Vehicle project had progress- . ed. The Secretary, Heavy Industry, to whom the letter was forwarded directed Shri S. M. Ghosh, then an Additional Secretary, on October 8 as follows : presenf'. However, only two days e111lier. on December 18, an application of Punjab State lndustrial Development Corporaion Limited seeking approval ~o l,be!-1' proposal for manufacture of commercial vehicles m Sangrur District, which had earller"been rejected, come up for consideration before the full Licensing Committee when the representative <>f the Department of Heavy lndusuy, Shri V. P. Gupta~ Under Secretary, informed the Committee that "nis vepartment would not support the scheme, apart fr(!m other reasons, on the ground that "his Department was actively pursuing a proposal to set up a public sector project for the manufactwe of commercial vehicles". On January Scale 7, 1977 Anclhra Pradesh Minister for Small Industries wanted to be appraised of the progress of the public sector project. A draft reply was put up by the Section endorsed by Shri V. K. Malhu1', Private Secretary (Technical) to Minister of Industry, and Additional Secretary S. M. Ghosh. The Andhra Pradesh Minister was informed that "Government have clecided not to pursue the project for the present". After the general elections held i,n March 1977, at the instance of the Industry Minister an explanatory note was prepared in May 1977 which was approved by Additional Secretary Shri S. M. Ghosh on the subject of the public sector project for heavy vehicles. This note states illter a/ia : "After two rounds of discussion the firms were requested to complete their proposals and these were submitted by them over a period of time, the last of which was received from Mis Berliet of France on 30th June, 1976. Subsequently the Planning Commission indicated that budgetary constraints precluded inclusion of this project in the Vtb plan. On their advice,''further processing of this proposed (sic.) was abandoned and !,be foreign bidders fo1 a collaboration, infonned accordingly". No papers are available with the Department of Heavy Industzy about the deliberations of the negotiating COllUllilte<!. On January 5. 1978 Shri J. M. Lalvanl Secretary of this Commission wrote to Sbri Maju;idar, Secretary, Planning Commission requestinjl him to make available to the Commission of Inquuy all file& and papers with the Planni.ng CoJllll#ssion concerning the abandonment of th11 public sector heavy vehicle project. Secretary, Planning Commission, wrote back on January 16, 1978 to say : "'On perusal of our papers it is seen I.hat the discussion on the heavy vehicle project was limited to the question of the provision to be made in the Five Year Plan and the Annual Plans We have no papers concerning the abandonment of the scheme by the administrative Ministry". Thereafter, this Commission again wrote to the Planning Ccimmission for clarification after reproducing an extract from the 0..partment of Heavy lildustcy's note prepared in May !91:1 saying "subsequently the Planniiig CollUllission indicated that budgetary constraints precluded inclusion of this project in the Vth plan. On their advice further, process~g of this proposed (sic.) was aban: don~ . To this Secretary, Planning Commission, replied on February 4, 1978 as follows : "I have got the records checked up again and as. Sl!lted in my earlier letter, P~g nuss1011 has no papers con~ the abandonment of the scheme by the administntive

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"Please put up a draft reply stating that due to financial constraints it has been decided net to pursue this project." Shri Ghosh, however, put up a draft stating that "'inves11pent sancti!'ned for this. prvject has yet to be' obt,aj,ned. In View of competing claims on scarce in. vestment resow'CeS, it is difficult to say when such a aanction wiU be forthcoming". This draft was endorsed, ~y the Secretary and a reply was sent to the Chief Minister of Andhra Pradesh accordingly on October f 1, 1976.. At th11;t point of time the project had been. 1!1Cluded ID the Fifth Plan with the budgetary alloca" tion of Rs. 10 lacs for preliminary studies durlni 1976-77 and Rs. 10 crores for the project durlnz 1977-79. . . It appears that on December 20, 1976 Shri s M Ghosh inf~pne~ the foreign parties that the Go~crn~ ment had decided not to pursue the project for the

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139
Ministry. Based on the discussions held ~ May l 976 with t~e Min\stry for th~ .finalisation of the Fifth Plan, a proV1S1on of Rs. IO crorcs was made for this project in the final Fifth Plan document for the two year period 1977-79 against Rs. 25 crorcs sought by the administrative Ministry. The Minbtry did not, howev~r, seek any provision for this project during the f\Dnu~l Plans 1977-78 and 1978-79. Tmphc1tly 11 could be inf ~rred that the Ministry had, by then, <)ccidcd not to proceed with the project. , The Planning Commission had not attached high priority to this scheme. It was only at the instance of the Ministry that the provision of Rs. 10 crores was included in the Fifth Plan." From this Jetter i; would appear that the Depart ment of Heavy Industry themselves did not seek any provision for the projcc: during the Annual Plan for 1977-78 and had also made no provision for it in the revised estimates for 1976-77 even though a provision of Rs. 10 lacs had :ilready been made for it in the budget for 1976-77 and Fifth Plan funds of Rs. 10 crores were available for 1977-79. A perusal of the Oepartmeut of Heavy Jodustry Ftl~ relating to the Plan provision for the year -1977-78 {File 11-( 3 )( I ) /76-TSWJ support; what the Planning Com0),iss'on 's letter said. From Ute 6le i& appears that Heavy Jodustry (Integrated the Department of Finance Wing) Office Memorandum No. G. 20012 -(4)/B&A/Hl/76 d3t~ September 18, 1976 called upon a,11 administrative sections :o submit the reviied estimates for 1976-77 and budget estimates for 1977-78 along with reasons for variations between the budget and the revised estimates for the current year and the b11dgei estimates of the next financial year. The concerned se,!i<'n {AEI( I) Section] does not appear to have put up. any note or proposal in ~pee~ of lhe public sector vehicle project. In c;ontinuation of th<: letter d~ted September 18, 1976 of the I'!tc.;:rated Fmance Wmg, all public sector units were "'!"en to on Septeml)er 30, 1976 for data to !>e furwshed to th~ Planning Commission for finalis m~ tho revised estimates for 1976-77 and the hu!igel cstim1tes for 1977-?S. Shri S. M. Ghosh; P.ddltional ~ceretary called a meeting in his room on November 9, 1976 to ~iscuss the budget proposals of the public On Nwcmbcr 15 1976 sector uruts. Shri Mantosh Sondhi, Secretary, Heavy' Industry forwarded the detaiied proposals of the 1977-7S Annual Plan Outlay and the revisec estimate for 1976-77 to . Secrct,1ry,. Planning Commission. A Statement annexed to this le~rcr shows the plan outlay and. the bu,dget~1ry support in the case of commercial vehicle proieet m the public sector. While tJ,e budgetary su~pon f~r 1971!-77 was shown as Rs. 10 lacs, t~e revised estimate in the same vear was shown as ml and the budget estimat~ and budgetary s~pport for j~7 ~-78 w~re. al~o shown as nil, !he toraJ outlay for , -7 1~d1catcd was Rs. l O crorcs. No reason was slated either for the variation of the revised estimate from the budgel estimate or for not providiug funds in lhe budget o! the followillg year. On November 16 the Department of Heavy lndu,stry forwarded"to the Min.isuy of Finance, Department of Expenditure, copies of these pro_pos$. Comments of the Industry and Mineral Drvision of tbe Planning Commission on the. propogal.9 of the Department ot Heavy Industry, circulated in connection with tbe meeting to be held in Planoil)~ Collllllission OD Nnw:mber 17, J 976 about the Annual Plan of the Department m Hea~y Industry, did uot include any comments on the commi:rcial vehicle project presumably because tbc Depa1t1Jlen: of Heavy Industry had made no budgetary proposals. Jn the statistical portion of the note, however, the ~ that a prl)vision , of""Rs. 10.10 crores had been awgoed to the com men:ial vehicle projl:c; in tho Fifth l'lall and that tho Fifth Plan balance for th~ during 1978-79 was Rs. 10.10 crores was From the facts stated ab<ive one is left with the impression that all possible ~Oil was removed in a planned way from t b e o f Miuuti's ven1ure in the field of Heavy Duty Vehicles. After Sbtimali ln4ira Gtllldbi'i1l>, ~ in ibt. f.eneral ElecUons held in ~~!!17("1flJetter was JSSUed from the Department oftlfe&V, lndustty to Ml!ruti Llmit.:d on May 10, 1977.--on,tbe' subject of foreign collaboration agm:mcnt with, MAN of West Germany. The letter Said: ~ ;,;,~;of capital goods was rcqu!i'.xl for opt'llling ~.tM~ ~boratlon

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trucks. It has been 'ICllOlled:.~ . l.-.. .~:!,v.'Oi:.w.;, have been retren~ and clvif suils!.~Ji!Jed. by the dealers ~t you ;for refund of:m!'J!Or.~ted by tbeDI. 1betefOe, 1t appears . ,ltt.will'. not .be possible for you to apply for impart,~ ~.goi.lds". It was therefOEC ll"opo&ed to ~Wt.the approval accorded for fore1p collaboration ~if ' cancel the approval given to the divCl&ifW!l!i.<m'~r:. . It was added that "ii no tkfacc~(atf'Aiil:)~. of the above proposals" was-'r~... .. .. <b"jt)4y.;w~; 1!'77, Government would be "J!r?'"""W~': ~ in the matter. No reply was recetved to:this',w.er and on June 4, 1977, the ~'i'c)fl<ll.;;. ''i'. withdrew the :tpproval giveamrl,~-)f~t,~~ and cancelled thi> aPPJOV&l tQ,l<jit!JC'flli!divt.rsiliCation
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In the ~g of ~P~~u\~.~tioued that Maru!i Tcdutical Servkes n.. , ed import Ii ~ Im . .r;;.i~ l.i1D1tcd obtaincen~ Or porting some scientific ins1ru. meats. The ~y made two applications on DecThember 19, 1974 and June 3, 1975,for the purpose <?ughllicrc is no .evidence lhat the company enter: ed mt~ an agr.:lement with any fQreignparty to import th~ wtruments, some facts coacerning the ant of licence miw be bricdy stated., TIJe,fim.appn2'tion made by ?1aruti Technical, Scr.Yices, Private 1 imited was for a lteenee to imPort two uiacliin Photometer and Metallurgical , Mietoscoes, 8 cleared the applicati:l!'I CroD1 indigenous l:g!c, ~TI:

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is, certified that these instruments were not manu factured in this country. The case was :hen placed before the Capital Goods At! hoc Committee which decided to allow the import of Spectrophotometer with accessories and spare~ worth Rs. 2,05,354 from German Democratic Republic against Rupees pay ment sources subject to essentialily being certified by tl)e Ministry cf Industry and Civil Supplies and the matter was referred to them for r.his purpose. The 9J?ject of cssentiality certificate was to ensure that the item was needed for the purpose mentioned. The Ministry of Industry and Civil Supplies stated that .the company was not enlisted with them. A unit which was not a prouuction unit bad to be registered with-the Depa1t:ncnt of Science and Technology as a reselJl_ch unit, or, if it was a consultancy organisation, With tlie Ministry of Industry and Civil Supplies as a consultancy unit. The maller was again placed before the Capital Goods Ad hoc Crnnmillec on July 3, 1975 when the Committee endorsed its earlier dccfaion and further stated that the applicant should be registered as a technical co:isultancy organisation with the De partment of Industrial Developmen:. The object of registration was to make certain that the organisation was carrying on bonafide activities. Shri B. D. Kumar who was Chief Controller of Imports and fa:ports from May 1974 till Novembct 1975 has said that ".no~y where a uni:- is not regist~1ed its applica lion JS liable to be reiected", but "m this case the Committee did not take this fiim stand" because this was "likely to be misconstrued" by Shri Sanjay Gandhi. The case came up .1g:tin for consideration at a meetiJlg of the Capital Goods Ad hoc Committee on Februiliy 6, J 976. .\t this meeting, presided over by Shri P. K. Kaul who took over charge as Chief Controller of Imports and Exports from January 31, 1976, the impon of the aforesaid instiuments was allowed without any reference to the conditions insist ed u~on by the Comntittce in the earlier mc~lings. Kaul s explanation is that that aspect of the matte1 was not bro:ight to bis notice, the cnly issue consi dered was a request for change. in the source ol import, from GDR to West Germany. The file came to Shri M. I. Singh who was Controller of Imports and Exp_orts in the Office of Chief Controller of Imports and""Exporr.s, New :Oclhi: Mr. Singh says, "l was fully conscious that this matter 1elated to M/s Maruti Technical Services (P) Ltd. which was owned by Shri Sanjay Gandhi. If any letter had to be sent from the CCl&E office [Office of the Chief Controller of Imi;i9rts and Expor(sj it would have gone under my signature only as Controller. I had ~'!t ,fear that ~ny further processing by way of ms1stmg or seekmg further clarification on registration !~o!U the party as a c~n.sultancy organisation ... as also insistence on the. obtammg of essentiality certificate would have recoded on me and landed me in great trouble. The emtrgency was in full swing thtn and of PEC [Pro'ect the fate of Shri P. S. Bhatnagar Equipment. Corporation) and others for having t~ied to. P~?be JD!O Maru!i affairs was quite fresh in my !DJnd Sbri M l. Smgb adds that "under the p1evail IRj!hatmo~phcre I ~as <1Dly eager to get rid of the case Wit the issue of import licence to the firm as . kl (') .Squ1c y as possible". The import licence 'r photom.~'.er. and (ii) Metallurgical Mfcro~co ~cci~ioh acccsso11cs .ind spares was issued on March '197~. In the meantime Maruti TechniciU Services. Private Limited had made another application for licence on June 3, 1975 in respect of three instruments incli;ding Gear Rolling Tester No. 895, which, it was said, were required for !heir laboratory for teclloical development and research purposes DGTD gave indige nous clearance only for the Gear Rolling Tester. It may be mentioned that prior to the ,application made by Maruti Technical Services, Maruu Limited had applied for ill1po>t of Gear Rolling Tester but that apPJ.ication was rejected on the ground that lmpon of capital goods waa barred under the conditions of the licence JSSued to that company. 'I'hi\i is. another ins lance of how easily Maruti Limited could get round the prohibitio11 by getting things cionc through Maruti Technical Services. Shri Nand Kumar 'who was then working in the office of the Chief Controller of Imports and Exports as Joint Chief Controller noted on the file that the "applicant had not furnished any evidence that they have registered !hemselves with. the Department tlf Science and Technology as per the procedure". In bis s1atement to the Commission Shri Nand Kumar says, "the application being that of Maruti Technical Services (P) Ltd., connected with Shri Sanjay Gandhi and since it was being tal,ked about that some action had been taken against certain officials of DGTD etc., includillg Shri A. S. K&Jan, Development Officer of DGlD, and Shri Krishna swamy of Heavy Industry for collectiJlg details for answering Parliament QuestionF a~nst Maruti Ltd., nu officer was inclined to lndividual,ly take the res ponsibility of decicJin& to insin on the requisite con dition of registration and certification of essentiality as a pre-condition to the issue of import licence. That is why it was thought fit that the matter could be left to the Capital Goods Ad hoc Committee to ta,ke a decision". In the meeting of the Capital Goods Ad hoc Committee held on August 21, 1975 it was d~ded to refer the case to the Department of Science and fecbnology. The Department of Scien~ and Technology replied that Maruti Technical Services Private Limited wer.:: not registered with them as !1 research and dev,elopment unit. In the next meet mg held on August 28, 1975 the Capital Goods . Ad hoc Committee presided over by Shri B. D. KW!1ar, Chief C?u!t'oUer of Imports and Exports, dectded to permit 1mpon of .one Gear Rolling Tester fro~ West Germany against West Uerman Credit. Shri B. D. K~ar also speaks of the i:revailing atmosphe.re a~ that tune and says I.bat the conditions as to repstration and essentiality were not insisted on in l)ris atmosphere. Sbri B. D. Kumar says furiher : all the officers were awiU'a of the treatment m"ted to those of the Dep.utment of Heavy. Indus'try and DOTO wb~n they ~ere t.rying t!> collect informatiol) for answermg quesnons 1n Parliament; relating to Ma~uti f.td." S)lri ~ D. Kumar names one officer, Shrl _KrJShnas.wamy, m t~e D!Part.rnent of Heavy Jn. dustry, two m the Proiec:. t:quipment Corporation Mr. R'.olay and Mr. Bhatnagar, and, another officer U: DGTD, Mr. RaJan. . Maru~ Tecbnic~ Services Private Limited got the impon licences without complying with the rul The ollicers were too terrified to insist on the ru1C:S they knew .what. happened to rhose who proved d'ffi~ 1 cult to Shr1 Saa1ay Gandhi. .

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CHAPTER X CONCLUSION in some of them a scratch of the pen or a tick IJllll'k has to be taken as his signature.. It ICClllS Sbri Sanjay Gandhi was convinced tbat mUing lb-. a['Plications or writing these letters were a mere fonDality, it was predetermined that all be wanted would be granted to him-and in most cases they were. From the interest taken in Maruti's progress by mcll frODl the Prime Minister's Secretariat and the way even matters connected with th~ country's det'ence were subordinated to the interest of Maruti Limited, and the prcvailin&" sense of fear that prompted im{llicit obedience, one is left in no doubt as to the oiigul of the power that made such a stat~ of affairs pnsSihlc. Sbri" Sanjay Gandhi exer.::is<:d only a derivative power, its source was the authority of the Prime Minister. A number of. irregularities in the working of the Maruti companies have been noticed in the foregoing pages. The minutes books do not appear to havo been kept in the prescribed manner, at least two resolutions stated to have been passed by the Board of Directors of Maruti Limited have not been recorded Evidence has been adduced showing that abarcs of Maruti Limited were allotted to pcrsous who knew nothing about the transactions also that in Fcbrwuy 1977 large sums of money were paid out to fictitious Jiersons as refund of tbeir dealership resqvation money or deposits made by them along with their ~ applications for Maruti shares. AU these indicate the presence of unlccounted money. It bas not been possible for the Commission to examine all the voucfiers, books of original entries and other records and documents. What ls revealed in SllCh examination as the Commission has been able to do suggests that if a ioiot and co-ordinated examination of the records of the Maruti CO!DJ!anics is done by the Departments of Revenue and Company A.fairs and tbciJ. books of account are audited by a special ieam many more inegularities are likely to CC?lllC to light. '

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There is hardly anything that remains to be said except lo emphasise a point or two. The affairs of the Maruti concerns described in the previous chapters appear to. have brought about a decline in the integrity of public life and sullied the purity of administration. Legal and other requirements were bru.>bed' aside and accepted norms of behaviour were forgotten on many occasions when the interest of a Marnri company was involved. This was due to, as witne<s after witness repeated, an ~tn10s phere of fear then prevailing ; anything connected with the Maruti :;oncerns was looked upon as a "sensitive Dlattcr". And the fear wa< real. Threat of detention under the Maintenance of Internal Security Act or a CBI inquiry or other forms o! harassment made it ha,iardous for the officers to insist on the rules or the dealers and depositoro to insist on their rights. P<rson.' in public life were in danger of having their political careers ruined. That it was not an idle threat is proved by instances of peuons in whose case the threat was carried out. Some of the officers who went out e>f their way to be helpful 10 Maruti have denied that they were under any fear or pressure. What then ., made them act in the way they did ? No ~vidence has been found that any other kind of inducement was held out to them, and it is difficult to get direct evidence in such matters. Jn their case it may have l;>eei1 only a hope that in' future, if an occasion .arose the services rendired by them would be remembered'. It may have been power-worship which blurs judgement and makes one believe that the present trends !il:f_ C?nt.inue and whoever is in power at the moment 1s mv1nc1ble. Th~y could not e,nforcc the laws against those who appeared to be the laws' masters.

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Quite a few of the applications that Shri Sanjay Gandhi made and the letters be wrote to the auth<>rities asking fot something for his business concerns were undated or did not contain a proper signature;

Sd/(A. C; GuPTA) May 3J, 1979

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