SIR Gulam Noon’s peerage was blocked after officials at the House of Lords Appointments Commission discovered from a report in The Times that he had made a secret £250,000 loan to the Labour Party.

The commission had already objected to three other businessmen taking their seats in the House of Lords on Labour benches. But the commission discovered that Sir David Garrard, a property developer, Chai Patel, the founder of the Priory clinic, and Barry Townsley, a financier, had also made loans only after they stopped the peerages going ahead.

But Sir Gulam, the curry magnate, was definitely destined for the Upper House until the commission read the report about the loan in The Times.

Richard Roscoe, the head of nominations at Downing Street, was immediately contacted by the commission seeking urgent clarification about Sir Gulam.

The commission, chaired by the crossbench peer Lord Stevenson of Coddenham, has a clear set of rules. All financial links between proposed peers and their political masters have to be declared.

The Electoral Commission, set up by Labour to police party political funding, requires all loans to be declared if they are not genuinely commercial and do not have clearly defined market rates of interest and specified dates for redemption.

To fail to do so is a breach of the Political Parties, Election and Referendum Act, which became law in 2000. It is an offence punishable by up to one year in prison to knowingly give false information to the Commission about donations or non-commercial loans to political parties.

The £14 million of loans, from 12 rich Labour Party supporters which bankrolled last year’s election campaign, were not declared to the commission.

The loans now form the basis of the Scotland Yard investigation into whether they were genuine or not.

Sir Gulam Noon’s evidence about what he was prepared to tell the House of Lords Appointments Commission, and whether the loan arrangements subsequently changed, will form a key part of the police corruption inquiry.

It is the first of its kind into a political party since Lloyd George sold peerages more than 70 years ago.

It is not just the form completed by Sir Gulam that is being examined by the police. Downing Street also sent to the Lords scrutiny body a certificate signed by Ian McCartney, the then Labour Party chairman, which was supposed to give a full and detailed account of any financial links between Sir Gulam and the party.

Mr McCartney made no reference to the loan for the simple reason he knew nothing about it. The certificates had been delivered to his hospital bedside, where he was recovering from major surgery, by Ruth Turner, the head of government relations.

The Labour Party chairman, like Jack Dromey, the party treasurer, had not been told by Mr Blair or Lord Levy, his fundraiser, about any of the £14 million loans.

Mr McCartney was demoted from the Cabinet in the last reshuffle to Trade Minister. The shake-up took place after the controversy broke.

The Appointments Commission is now to amend its forms to ask specifically whether any nominees for a peerage have given loans to the party.

A commission spokeswoman said: “As you will see from the Chairman’s comments, the Commission thinks its forms are clear. However in future the forms will be amended so that no one can claim to be be in any doubt whatsoever.”

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