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Harshad Mehta Scam

Harshad Mehta rose from a stockbroker to prominence in the stock market during the 1980s and 1990s by taking advantage of loopholes in India's banking system. In 1992, journalist Sucheta Dalal exposed Mehta's securities scam, in which he had defrauded banks of Rs. 4,000 crore through illegal practices like "ready forward" deals and fake bank receipts. Mehta was arrested and banned from the stock market, though questions remain about his mysterious death in prison in 2001. The scam had widespread impacts, including allegations of bribery against the prime minister and losses for banks holding fake documents.

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94 views

Harshad Mehta Scam

Harshad Mehta rose from a stockbroker to prominence in the stock market during the 1980s and 1990s by taking advantage of loopholes in India's banking system. In 1992, journalist Sucheta Dalal exposed Mehta's securities scam, in which he had defrauded banks of Rs. 4,000 crore through illegal practices like "ready forward" deals and fake bank receipts. Mehta was arrested and banned from the stock market, though questions remain about his mysterious death in prison in 2001. The scam had widespread impacts, including allegations of bribery against the prime minister and losses for banks holding fake documents.

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shashwat tripathi
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© © All Rights Reserved
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Download as PPTX, PDF, TXT or read online on Scribd
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HARSHAD MEHTA SCAM

RAGS TO RICHES

 
 In the early 80’s he quit his job and sought a job
with stock broker P. Ambalal affiliated to Bombay Stock
Exchange.
 
 He became a jobber on BSE for stock broker P.D. Shukla
after that,
 
 In 1981 he became a sub-broker for stock brokers J.L.
Shah and Nandalal Sheth,
 
 He took advantages of loopholes in banking system.
WHAT HAPPENED?
 By 1990 Harshad Mehta had risen to prominence in the
stock market. He had been buying shares heavily. The
shares which attracted his attention were:
 - Associated Cement Co. (ACC),
 - Apollo Tyres,
 - Reliance,
 - Tats Iron and Steel Co. ( TI CO ),
 - BPL,
 - Sterlite,
 - Videocon.
 He took the price of ACC from 200 to 9000. That's an
increase of 4400%!!!
"The big bull's" explanation

 Mehta had Replacement cost theory as an


explanation.

 The theory basically argues that old


companies should be valued on the basis of
the amount of money which would be
required to create another such company.
THE BULL RUN
Exposure of 1992 Securities Scam
 

 On April 23, 1992, journalist Sucheta Dalai


exposed
Mehta's scam.

 She is the Columnist of Times of India.


THE ‘BIG BULL’….GONE WILD
UNEARTHING THE SCAM
THE INSTRUMENTS WERE USED IN
SCAM -
 MEHTA HAS USED TWO INSTRUMENTS IN
SCAM-

1) READY FORWARD DEAL


2) BANK RECEIPTS
READY FORWARD DEAL
 
 A secured short-term (typically 15-day) loan from one bank to another.
 
 Bank lends against government securities
 
 A broker usually brings together two banks for which he is paid a
commission
 
 The securities and payments were delivered through the broker in the
settlement process
 
 In such settlement the banks may not know with whom they are dealing
THE PROCESS OF RF

 Settlement Process.
 
 Payment of cheques.

 Dispensing of securities.
BANK RECEIPTS
 
 In a RF deal securities were not moved back and forth in actuality
 
 The borrower, i.e. the seller of securities, gave the buyer of the
securities a Bank Receipt
 
 Bank receipts serve three functions
1) Confirms the sale of securities
2) States that the securities are held by the seller in trust for the
buyer
3) Acts as a receipt for the received money by the selling bank
 
 In this scam Bank of Farad & Metropolitan Co-operative Bank had
issued fake BR
WAS IT THAT EASY???
IMPACT ON OTHERS

 
 Mehta had by then swindled the banks of a
staggering Rs 4,000 crore
 
 Bribery case on P. V. Narsimha Rao

 Stay on Liberalisation
 
 Holding banks of fake BR had to face losses

 BR was removed by RBI


 M. J. Pherwani of UTI also died in the scandal

 K. M. Margabandhu, then CMD of UCO Bank


was arrested
 
 V. Mahadevan, one of the M.D. of India's
largest Bank, the S.B.I., were removed from
his office
REGULATORY ACTIONS TAKEN
AGAINST MEHTA
• He was later charged with 72 criminal offenses,
and more than 600 civil action suits were filed
against him

• He was arrested and banished from the stock


market

• Mehta and his brothers were arrested by the CBI


on November 9, 1992 for allegedly
misappropriating more than 27 lakh shares of
about 90 companies
IT’S ALL ABOUT MONEY!!!
Its all about the money!

• Where has all the money gone?

- It is rumored that a part of the money


was sent out of India through the HavaLa
racket, converted into dollars/pounds,
and brought back as India Development
Bonds.
TIMES OF INDIA,2010
This
THISgame, too, did not
GAME,TOO,DID NOTlast
LASTlong.
LONG.

• He died in Thane Prison, Mumbai, he complained


of chest pain and was moved to a hospital, where
he died, at the age of 47, 31st Dec. 2001

• Mehta's death remains a mystery. Some believe


that he was murdered ruthlessly by an
underworld nexus

• Some members of nexus was moved to Thane Jail


and landed up in the cell next to Harshad Mehta
CONCLUSION
• Harshad Mehta was brave stock broker. He
knew the loopholes in banking system as well
as how to exploit that loopholes.

• His whole intension to do this was to rise in


SENSEX.

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