Over the years, the Insurance industry has not remained untouched by scandals. In this series of blogs, the author seeks to chronicle the few cases, where the top management were indicted for wrong doing. Please note we do not seek to comment on the culpability of the cases, we just seek to compile them for the information of our readers.
Life insurance business in India was nationalized vide Life Insurance of India Act in 1956. This write-up takes a look at one matter that unfolded around the period when India gained independence and is considered by some as the ‘raison d’être’ of Nationalisation of Life Insurance business in India.
In pre-nationalisation era, almost all Indian insurance companies were owned by big business houses and often acted as their front for their other businesses. Mr. Ram Krishan Dalmia, with a rags to riches story, had formed the Dalmia Group (later on Dalmia-Jain Group) that had a business empire ranging from sugar mills to cement factories and insurance companies to banks. It was second only to Birlas & Tatas.[1] The group owned jute mills, newspapers, automotive, airlines, railways, collieries, biscuits, chemicals, pharmaceuticals etc. Mr. Dalmia also had a brush with politics and was close to most of the top political leaders of India at that time. There were, however, some allegations of indiscretion in business dealings of Mr. Dalmia.
In 1955, Mr. Feroze Gandhi, a young Parliamentarian in his maiden speech, in the Parliament raised the issue of misappropriation/ misuse of public funds by Life insurance Companies. He cited the case of Mr. Ram Krishna Dalmia[2] [3] It was revealed that the ownership of the newspaper ‘Times of India’ had been attained by Mr. Dalmia through acquisition of Bennet, Coleman & Co. Ltd., engineered through transfer of monies from Bharat Insurance Company and a bank of which he was the chairman. Mr. Gandhi exposed the nefarious activities of the private insurance companies and built a case of nationalisation of Life insurance business[4]
To investigate the allegations the Government appointed a Commission of Inquiry headed by Justice S R Tendolkar (and then after his death, Justice Vivian Bose). Constitution of the Commission of Inquiry was challenged by Mr.Dalmia in Bombay High Court[5] and later on in Supreme Court [6] but without success. Investigation by Vivian Bose Commission of Inquiry into the case unearthed a number of wrongdoings and malpractices on the part of Dalmia that were detailed in its report[7]. Based on the report, prosecution was launched against Mr Dalmia.
Mr. Dalmia as Chairman of Board of Directors and Principal Officer of Bharat Insurance Company was found guilty of conspiracy of diverting funds of the company to his own Company Bharat Union Agencies[8] He was ultimately sentenced to two years of jail term and sent to Tihar jail in Delhi.
This case is referred to as one of the reasons that led to nationalisation of Life Insurance business in India first by issuance of a presidential ordinance and later on enactment of Life Insurance of India Act in 1956. Dr. C.D. Deshmukh, Finance Minister had said, “Misuse of power, position and privilege that we have reasons to believe occurs under existing conditions, is one of the most compelling reasons that have influenced us in deciding to nationalize life insurance”.
(It may be noted that this blog is based on available publications or records. Readers wanting to read more or wanting to verify the source of information may follow the given links to read more).
[1] (https://www.marwar.com/the-rags-to-riches-story-of-ramkrishna-dalmia/)
[2] (https://www.thehindu.com/opinion/op-ed/a-lesson-in-propriety-from-one-nehrugandhi-soninlaw/article4019723.ece)
[3] (https://www.newindianexpress.com/opinions/2019/sep/10/a-gandhi-who-fought-corruption-2031350.html).
[4] (https://www.newindianexpress.com/opinions/2019/sep/10/a-gandhi-who-fought-corruption-2031350.html)
[5] (https://indiankanoon.org/doc/1753678/)
[6] https://indiankanoon.org/doc/685234/)
[7] (http://reports.mca.gov.in/Reports/18-Tendolkar%20committee%20report%20of%20the%20commission%20of%20inquiry%20on%20the%20administration%20of%20Dalmia-%20Jain%20companies.pdf
Succinct, clear and to the point. Absolutely wonderful.