Anil Divan Foundation
It is 1991. Rajiv Gandhi has been assassinated and PV Narasimha Rao has just been sworn in. Militancy is on the rise in Kashmir. The CBI discovers a mysterious set of diaries while investigating terror financing networks. The trail leads to the Jains, a powerful business family That in turn points to Rs 65 crore being paid to various prominent figures, including politicians and bureaucrats. The tabloid paper Blitz gets the scoop, splashing it on the front page. But the matter quickly dies down. How does the black economy work? What is the hawala system? Why is this scandal being hushed up?
Host: Raghu Karnad
Research and Writing:
Research Manager: Ramya Boddupalli
Legal Researcher: Uday Vir Garg & Vipinn Mittaal
Scriptwriter: Ramya Boddupalli
Script editor: Bhavya Dore
Fact checker: Vipinn Mittaal
Advisors: Lawrence Liang, Ranvir Singh, Shyam Divan and Vivek Divan
Head of Production: Shaun Fanthome
Creative Director: Mae Mariyam Thomas
Producer: Abbas Momin
Producer/Sound Editor: Joshua Thomas
Production Assistant: Sakshi Nair
Sound Design & Mix: Kartik Kulkarni
Graphic Designer: Sephin Alexander
Guest speakers in this episode include:
Audio and Sound clips:
News clip about Rajiv Gandhi’s assasination: https://youtu.be/3QVODgQQfCs
News clip of PV Narasimha Rao’s swearing in ceremony: https://youtu.be/yLuL1lhPwNM
News clip of Ram Mandir chants : https://youtu.be/1QBK_FPYA9c
Excerpts of Devi Lal, Sharad Yadav, Ram Jethmalani and Vineet Narain from original Kalchakra report: https://www.youtube.com/watch?v=Da9rNEWy0wc&t=4s
Doordarshan News clip - https://www.youtube.com/watch?v=vT8BLJujVvU
Reporting from Kashmir- https://www.youtube.com/watch?v=vb34Ap2muJI&t=401s
Sucheta Dalal interview with Harshad Mehta scam 1992 - https://www.youtube.com/watch?v=gDWuKIhPPug&t=207s
Books and other resources:
"Who owns the CBI" by BR Lall
"Bad Money Bad Politics" by Sanjay Kapoor
"Bhrashtachar, Aatankvaad aur Hawala Karobar" by Vineet Narain
"On the Front Foot" by Anil Divan
A curated collection of archival resources used to research this episode can be found here - Jain Hawala Case (legalarchive.in)
Host: You are listening to the first episode of Friend of the Court, a podcast series that explores important constitutional cases in India’s judicial history. Brought to you by the Anil Divan Foundation in partnership with the School of Law, Governance and Citizenship at Ambedkar University Delhi.
I am your host, Raghu Karnad. I’m a journalist and writer and I’ll be taking you through the ins and outs of the groundbreaking work of Anil Divan, Supreme Court lawyer and Amicus Curiae, or Friend of the Court
<Sound Design Clip Transition>
This is Doordarshan news, Good Evening and Welcome! And the headlines…
Jain Hawala kaand desh ka pehla aisa maamla hai jisme kayi rajnitik dalao ko choti ke netaon ko bhrashtachar katghare mein khada kar diya hai.
[English News Clip]
This has the makings of a massive corruption scandal.
Host: We begin this series with the Jain Hawala case, formally known as Vineet Narain v Union of India. At the heart of the case are scandalous diaries that made their way to the Supreme court and triggered a political crisis.
This scandal broke at a time when political uncertainty loomed large in the country. It set off what the BBC described as the biggest political earthquake to have hit independent India. Journalists and lawyers conveyed the diaries from a dusty corner in the CBI’s malkhana or store room to the centre of a political drama that played out in the highest court of the land. This was one of the first high-profile corruption cases heard as a Public Interest Litigation by the Supreme Court. It presented an opportunity for reining in the corruption and abuse of power that had spread throughout Indian politics by the 1990s.
[News clip about Rajiv Gandhi’s assasination]
Good evening, the former Indian Prime Minister Rajiv Gandhi has been assassinated. He and at least fourteen other people were killed by a bomb.
The country hadn’t seen a stable government since Rajiv Gandhi’s tenure ended in 1989. The coalition government that followed was led by two Prime Ministers before it fell in early 1991. Rajiv Gandhi was hoping to stage a strong electoral comeback but was assassinated while campaigning in Tamil Nadu. His party, the Congress, still emerged as the single largest party in the 1991 elections and formed a minority government under the Prime Ministership of PV Narasimha Rao.
[News clip of PV Narasimha Rao’s swearing in ceremony]
Main PV Narasimha Rao ishwar ki shapath leta hoon ki…
The Narasimha Rao government inherited multiple problems including a major balance of payments crisis that led to sweeping economic reforms. There were other domestic issues such as the insurgency in Kashmir, reservation politics and a rising Hindutva movement.
[News clip of Ram Mandir chants]
Ram Lalla hum aayenge! Mandir wahin banayenge!
On top of all this, the diaries, which named a number of Rao’s colleagues from his cabinet and party, threatened to delegitimize his government if they ever became public. Whom did these diaries belong to and what were consequences of their discovery? We find out in this episode.
It was 1991. The violent insurgency in Kashmir was approaching its peak, and a new terror organisation called the Hizbul Mujahideen was moving into the forefront.
Deep divisions between the groups have sharpened with the reported killing of pro-independence JKLF cadres by pro-Pakistan Hizbul Mujahideen, the strongest militant outfit in Kashmir today.
More than any separatist group before it, the Hizbul Mujahideen was fighting for Kashmir’s unification with Pakistan, and was fueled by foreign funds. To aid the efforts of the army to combat militancy in the valley, the CBI had been investigating these terror-financing networks. Here is Sanjay Kapoor, who in 1991 was a young journalist with a Bombay tabloid newspaper called Blitz. He played a critical role in breaking the Jain Hawala case and would become the first to report on this story.
Kapoor: They were trying to ascertain how terror gets funded and.. where was the money coming from to buy arms or to even feed protest and… some people were arrested in Delhi, a Mr. Ghouri, a student from JNU and then they finally found that the money they got was from a hawala dealer.
Host: In late March of 1991, the CBI arrested an alleged Hizbul operative, Ashfak Hussain Lone, and the student Shahabuddin Ghouri, who was a middleman, as well as a hawala agent Shambu Dayal Sharma.
Hawala is a parallel banking system in the black economy used to move funds from one entity to another without scrutiny. During his interrogation Sharma gave up the name of 25 people to whom he had delivered various hawala amounts to, including Rs. 94 lakhs to a Delhi resident JK Jain. Acting on this information on May 3rd, 1991 the CBI raided JK Jain’s farmhouse in south Delhi. Here is Kapoor telling us what they found.
Kapoor: There, they found two diaries, a lot of cash, lot of foreign exchange, some Indira Vikas Patra. The time of the raid, when it took place was third of May, this was about 19 days before Rajiv Gandhi was assassinated - when - the course of politics and election changed.
Host: The man in charge of the CBI investigation was a Deputy Inspector General (DIG) named OP Sharma. Sharma’s team marked the diaries with their signatures as a way to verify them as evidence.
When they interrogated JK Jain the next day, he said that he maintained these accounts for his employers – the powerful Jain brothers, the owners of Bhilai Engineering Corporation. JK Jain told Sharma’s team that the diaries recorded financial transactions which took place between 1988 and 1991. The numbers against each initial appeared to be funds transferred by the Jains to politicians, bureaucrats and heads of public-sector undertakings. The total sum recorded was Rs 65 Crore, which today would amount to Rs 500 crore.
OP Sharma’s investigation report had also stated that the cash found on the premises was unaccounted for and that the Jains could be booked under the Foreign Exchange Regulation Act (FERA). If convicted, the public servants involved could be looking at imprisonment for anywhere between 6 months and 7 years.
Host: The story of the Jain brothers is a story of enterprise, intrigue and corruption that is also emblematic of post-independence India. They originally hailed from the industrial town of Bhilai in Chhattisgarh (then part of Madhya Pradesh) where they ran a business in engineering works. Of the four brothers, two moved to Delhi to look after the “political interests” of the family.
Remember this was in the late 1980s when India was still under the Licence Raj, a system that made it extremely hard to run businesses without patronage from bureaucrats and politicians. Surendra Kumar Jain, the youngest of the four brothers, was a man of ambition and wanted to emulate the success of India’s newly minted industrialist Dhirubhai Ambani. The younger Jain brothers, who were sent to Delhi to advance the family’s business interests, were rubbing shoulders with the who’s who of the political class, often at lavish parties that they hosted at their South Delhi farmhouse. The Jains became influential through lucrative contracts from Coal India alongside donations and gifts they gave to politicians.
Professor Arun Kumar who has done extensive research on the black economy in the 1990s, helps us understand the informal Licence Raj system.
Arun Kumar: They cornered licences, and how did they corner licences? Through cronyism. So, cronyism in India started developing in the 50s and the 60s, it grew further in the 70s. So, this hawala channels and payment to the politicians was an important part of developing this cronyism. That's why I say that it is the triad which underlines the black economy, because the triad consisted of the political class, the business class, and it co-opted, the bureaucracy and the judiciary and Police in it.
Host: The invisible link between the aspirational business classes and the political class was that of finance - which political scientist Stanley Kochanek calls “briefcase politics.” The diaries had blown the lid off this network of black-money bribery, and the role of hawala brokers in moving cash. Arun Kumar explains the hawala system:
Arun Kumar: I think, for a hawala operator, there's no terrorist, there's no politician, it's just that he's transacting through a business channel, just like a bank. If it doesn't know what your antecedents are, it's just transferring money. And it can be used by a terrorist, it can be used by a politician, it can be used by a teacher in a university. So I think Jain probably did not care who was transferring money through him, you know, so it's not that he was involved in any terrorist activity. So hawala would transfer anybody's money. And I think terrorists do use hawala channels to transfer money internationally, there's a process of layering, which you must have heard of, to hide their track, they use the process of layering to transfer money from one to the other. And it's very difficult to track it, you know, because these are all shell companies, which are closed down. So you know, one to the second to the third, and beyond that, it usually becomes very difficult, unless there is persistence.
Host: The source of funds itself was not as big an issue as the fact that large sums of money were being received by those in the political establishment. The central issue was that corruption had crept into public life by way of deeply criminalised politics. Arun Kumar elaborates on this point.
Arun Kumar: When I was writing my black economy book in 1998, I interviewed 14 members of parliament who were successful in the 1998 elections, you know, and these were very good friends, including former prime ministers and so on. And they all said that we know that we started the day with a lie. Now, after I said that, a lot of other people have also said, because, you know, we exceeded the election expense limit, and how did we finance the funds? And they said, one of the important components was the executive, the corrupt policemen, the corrupt bureaucrats, you know, the corrupt judges, because there was a quid pro quo involved, they knew that once we get to power, we'd give them you know, favourable postings, etc. So that's how they got access. And the businessmen were involved, local businessmen were involved, and the big businessmen were involved. In fact, one person who fought from Bihar, told me that one of the big business houses had a liaison officer in Patna. So you know, there's that kind of liaising between the politicians and the businessmen, and the executive, you know, so this triad begins to form at the time of elections, you know, and, BB Kumar's book, which came later, in 1990, it said that this criminal element started entering the triad, after 1983. And why they've pinned 1983, he said, that is a time that, you know, a lot of smugglers were given amnesty. So Haji Mastan, and others started entering politics. So what was the triad was outside of the criminal elements until '83, but then the criminal element started entry. So either the businessman or the criminal, or the politician with a criminal, you know, so the criminal started directly entering, you know, the nexus. So, you know, the nature of Indian politics changed. And that's why a large number of criminal cases are there against politicians, against the legislators and so on, you know, so criminalization of politics took place as a result of this.
Host: This nexus between politics, business and the criminal underworld might never have been exposed at all – if the CBI hadn’t discovered the Jain Hawala diaries, while investigating a terror financing network.
Around this time, Sanjay Kapoor, the journalist with Blitz, heard murmurs about the CBI’s discovery. Kapoor tells us how he found out about these transactions.
Kapoor: After the elections - when Rajiv Gandhi died, there was a big gap and subsequently the election campaign started. Then PV Narasimha Rao came to power. Once the government was in place, turmoil in a certain way remained. And I was meeting my usual contacts in the government and in CBI and others and I was told by a very senior minister, that time in the government, that there is a case on which the CBI is sitting because it involves many politicians and many bureaucrats. So what I did, I began to get corroboration. I went to the director of information in the CBI who told me about the existence of the diary so there was one confirmation that I got that there was indeed such a case that was happening. I also checked out whether anybody had got to know about it and I was told that, firstly, nobody knew about the raid, nobody knew about the existence of the diary and also nobody would have the guts to carry a report like that. So in a certain way, the report continued to be buried in what is called the malkhana of the CBI.
Host: The reason the report was buried was this: Just a month after the raid, Sharma, the man in charge of the investigation, was himself accused of taking bribes from the Jain brothers. He was arrested in June 1991, and charged with having accepted Rs. 19 Lakhs from S.K. Jain. The documents which recorded the Jains’ dealings with politicians and bureaucrats, were sealed as evidence in the bribery case against Sharma.
Kapoor: I got in touch with Mr OP Sharma also. So OP Sharma was very unwell and he seemed to be totally, you know, disturbed by how the circumstances had panned out for him, he had been raided by the CBI, he was accused of accepting bribe and you know which pretty much happened to undermine his credibility as an investigator because he was shown to be corrupt and once a cop is shown to be corrupt, all the cases that they normally hold also get blighted by the allegations that are normally levelled against an individual.
Host: But OP Sharma’s troubles were Sanjay Kapoor’s opportunity. Sharma had made personal copies of the diaries, and according to Kapoor, he was ready to share.
In August 1991, Blitz carried Kapoor’s report on its front page. Under its iconic brand name in red lettering, the paper ran bold headlines like “Shady Deals of Top Politicos” and “Multi Crore Hawala Racket.” Blitz described how entries in the Jain diaries alluded to corruption across party lines implicating members in the previous Chandra Shekhar cabinet, sitting ministers in the Congress government and leaders in the opposition BJP. It also informed the public of CBI’s own failure, and the bribery case against the disgraced OP Sharma. Soon after the report came out, Kapoor began receiving threatening phone calls from influential lawyers on behalf of the people allegedly named in the diaries. And according to Kapoor, the story, which had created a huge stir in the establishment, suddenly went quiet.
Kapoor: So I was actually bewildered, I did not realise the full implication of how this will all pan out and after that, you know, the whole matter from August, I think it was August or September but thereafter the entire issue kind of disappeared from everywhere because no newspaper followed up and there was no television and there was no mad people chasing stories like you have now… nothing really happened and I moved on to other stories also.
Host: No other major newspaper covered this story. With the lack of media attention or action by law enforcement agencies, the story fizzled out.
During this time, the CBI continued its investigation into the terrorism funding case, and they filed a chargesheet on March 23rd, 1992. It included charges against the Hizbul Mujahideen’s operatives, and people involved in the hawala network. But the chargesheet left out any mention of the Jain brothers, their funding of political corruption through hawala, or the raid conducted on the JK Jain residence – except for one cryptic line buried deep in the document on paragraph 17 which stated, I quote, “some others who figured during the course of the investigation of this case”.
The others they were referring to were the Jain Brothers.
Story ye thi ki Harshad Mehta ne SBI se 500 Crore liye the aur… he was not in a position to pay it back
A month after the CBI filed their chargesheet, the country’s attention shifted to another scandal, the 1992 Harshad Mehta securities scam. Even more dramatic events followed in 1993: Communal riots tore through Bombay, India’s commercial capital, followed by multiple bomb blasts, including at the Bombay Stock Exchange. PV Narasimha Rao’s Congress minority government while trying to implement economic reforms was plagued by accusations of corruption and cronyism.
Host: Through this time the CBI continued to investigate the Jains in secret. Shantonu Sen, an ex-Joint Director of the CBI, who led the Hawala investigation briefly in 1993 tells us more about the CBI’s pursuit of the Jains.
Sen: In March 1993 investigation on the diaries had commenced, but the commencement was confidential and not reported to the press in any manner. The idea was to find out the source of these funds. Where was this money - the foreign exchange coming in? Because if you look at the diaries or I call them books of account, there are debit and credit entries. So the DIG of Anticorruption II was asked to follow up leads and try to find out the foreign sources of these funds which were coming to Mr. Jain and then he was passing on to various persons – not only terrorists, but politicians of all hues whether of the Congress, the BJP the Janata Dal.. all their acronyms fitted their names mentioned in the diary.
Host: On the surface, it appeared that the Jains had paid off powerful politicians inside and outside the government, using illicit funds. The CBI would have to probe if the Jains were receiving favours in exchange for funnelling cash. By September 1993, two of the Jain brothers were interrogated and their passports were seized. But the CBI was no closer to discovering where the Jains got their illicit foreign funds from and where those funds were going. The actual diaries themselves, that is the people whose names appeared as initials, were not investigated.
As these events unfolded behind the scenes, the press once again began to take an interest in the case. On August 23, the Hindi daily Jansatta, reported on the diaries. Just a week after Jansatta’s piece, high-profile lawyer and Rajya Sabha MP, Ram Jethmalani wrote to the Prime Minister drawing his attention to a massive cover-up of the diaries by the CBI. A week later, Jethmalani stepped up the pressure by giving a press conference from his home. At this conference, he released a sensational exposé on the diaries by Vineet Narain, an investigative journalist who ran the video magazine Kalchakra.
<Hindi audio insert: Kalchakra intro>
Ahimsa ki tasveer dikhakar VP Singh ko hathyara bataya ja sakta hai! Ya phir Mandal Aayog ki duhai dekar Daliton ka masiha! Par Kalchakra bina tarafdari ke khabron ko jodkar kyon ka tyon pesh karta hai! Jane anjane sehat aur zindagi se khilvad karne walon ko benaqab karta hai!
Sirf Kalchakra! Is team ko joda hai Doordarshan par sach ki parchhai dikhane wale Vineet Narain.
Host: At the age of 36, Narain was a young journalist who had left Doordarshan to set up his own video news distribution service. Until the mid-1990s newspapers were the primary source of news for most Indians, but with the rapid spread of TV and video, Narain had sensed an opportunity. Kalchakra, which was mainly distributed on video cassettes through libraries, had previously broken stories on the exploitation of women and the adulteration of food. The reports were a catchy mix of interviews, animated sequences and direct monologues to camera. Through Kalchakra, Narain, a serious, kurta-clad presence, had broken free from the government-controlled broadcaster to do more independent, impactful journalism. And the Jain Hawala Diaries were everything a young investigative journalist could have hoped for: murky fund transfers and a possible trail of corruption leading to the country’s top political figures. Narain tells us how he got hold of the diaries.
Narain: I had a distant relation, who was a cousin of Jain brothers. So he convinced me because he felt that either this story would finish me off for life or I will become a global hero. I said nobody risks their life to become a global hero, but I accept the challenge, provided I get the evidence. Then he brought someone to my office and shared the documents, that’s how I investigated. In my style as a journalist, I don’t trust someone’s planted stories. If somebody gives me some documents or evidence I independently investigate, that’s what I did in this case, I went to each and every Hawala accused – politicians, bureaucrats to ask if they had accepted this cash. And three people categorically accepted, Devi Lal, Sharad Yadav and separately Madan Lal Khurana.
[Excerpts of Devi Lal, Sharad Yadav from original Kalchakra report]
Devi lal: Ho sakta hai Surender mujhe de gaya hoga, galt nahi hoga, lekin kaun de gaya mujhe ye pata nahi, fenkte hai paise ye, apna interest hai unka ye hota hai.... Toh CBI dabaye baithi hai, unko pass paisa pahunch gaya hoga pehle, dabane waalo ke pass.. CBI ka jo bhi in-charge hoga, wo Narsimha Rao aur Advani ki tarah koi aadmi hoga, ya koi aasman se utra hai, aadmi hi hoga, uski keemat 2 crore hogi, unhone 4 crore de diye honge
Sharad Yadav: Jo aap puch rahe hain, ki unhone paisa jo diya, toh jo donation hai, wo mamla toh partiyon ke bhitar sab tarah se chalta hai
Host: That was former Deputy Prime Minister Devi Lal and Janata Dal leader Sharad Yadav confessing on camera. These confessions, shocking as they were, confirmed that those in power saw nothing wrong in their dealings with the Jains. But there were others who differed. Ram Jethmalani featured prominently in Narain’s report. Here he is, discussing the incriminating nature of the diaries.
Jethmalani: Ab ye jo dastavej hain, inke upar panchnama banaya gaya hai, panchon ki ek ek safe pe unki dasthkhat hai, ye documents genuine hain. Agar documents genuine hain to kam se kam prima facie - ho sakta hai ki aakhir beguna saabit ho - magar main vakil ke ehsiyat se ye zaroor keh sakta hoon ki kaafi saboot hai Buta Singh, Zafar Sharif, Kalpnath Rai, Balram Jhakar, VC Shukla, Arun Nehru, aur RK Dhawan.. Aur mereko toh padhne mein ye bhi nazar aata hai ki Rajiv Gandhi ko bhi paise mile. Aur Jains ko foren giraftar Karna chahiye tha… ye case agar Income Tax Jaega to 50 crore tax padegi uske upar, ye case FERA mein jaega to saat Baras jail ki Hawa khaega.
Host: Jethmalani explains that the diaries implicated politicians such as former home minister Buta Singh, Rajiv Gandhi’s confidante Arun Nehru, and former minister VC Shukla. The CBI team had put their initials on the diaries, which proved that they were indeed the documents seized in the raids. This counted as sufficient evidence to investigate the names mentioned in them. The public officials named here could face bribery charges under corruption laws. If convicted, the Jains could face up to a seven-year jail term for foreign exchange-related offences, apart from the penalty under Income Tax. Narain ended his report with a burning question: with such explosive material, why was the CBI not acting on these leads?
Narain: Hum 28 August ke subah 10 baje Pradhan Mantri ke karyalaya mein unke vishes sachiv se milne gaye aur unse iss mamle mein puchtaach ki. Unki baaton se aisa laga ki Pradhan Mantri is mamle mein ya toh puri tarah jaankari nahi rakhte ya un tak puri jaankari pahunchayi nahi gayi hai. Lekin ye bade aascharye ki baat hai ki itna bada mamla, itne barson tak CBI ki dhool khata rahe aur desh ka pradhan mantri usko janta hi na ho.
Host: That was Narain questioning the Prime Minister. But why was he doing that, when the prime minister was not directly named in the diaries? Shantonu Sen explains:
Shantonu Sen: Prime Minister is the cabinet minister in charge of the CBI. The minister under the Department of Personnel reports to him, he's the Minister of State. So he's fully in charge of CBI and the director of CBI reports to him. And no director of CBI has survived without the goodwill of the Prime Minister. Very early on in 1970, I remember I was a young officer in the CBI, we had Mr. FV Arul as director of CBI and he was removed immediately because he had disobeyed the prime minister - in starting some investigation about corrupt legislators in Bihar. So the prime minister has full control over the CBI, through the Director, CBI. It is up to the Director, CBI to stand up to the Prime Minister and tell him where he can, that it is the law which is superior to your director, where the director CBI cannot say that, and then the succumbing starts.
Host: The CBI was created under the Delhi Special Police Establishment Act of 1946. The act gave the central government administrative control over the agency, including appointing the CBI director. Over time, successive governments, and especially Prime Ministers, interpreted this power to control the agency’s activities. In his letter to the PM in August 1993, Jethmalani warned the government that he would approach the courts to seek action on the Jain Hawala diaries.
Jethmalani would ultimately work with other members of the legal fraternity, most notably Anil Divan, to pursue a Public Interest Litigation in the Supreme Court regarding these diaries. The petition, highlighting political corruption and the CBI’s inaction, was a first-of-its-kind. Vocal opposition leaders led by Ram Jethmalani, and LK Advani, stepped into the national spotlight – and landed in the middle of the Jain Hawala scandal.
This case eventually shaped the political future of India and laid the foundation for the judiciary to monitor the executive. We’ll continue the story next week in Part 2 of the Jain Hawala Case on Friend of the Court where we find out about hidden government documents and how this case shook Indian politics to the core.
Until next time, I’m your host Raghu Karnad.