Harshad Mehta Scam: Career He Tried His Hand at Various Jobs

Harshad Mehta Scam
One of the greatest scams in Indian financial history occurred in 1992, by a man
widely known as ‘The Big Bull’ Mr. Harshad Mehta
Mehta allegedly committed a fraud of over 1000 crores from the banking system
of India to buy stocks on the Bombay Stock Exchange.
Now let’s see his background and how it happened.

Harshad Mehta was born on 29th July, 1954 in Saurashtra state. Mehta
completed his B.Com in 1976 from Lajpatrai College, Mumbai. Mehta was an
average student.
Career
He tried his hand at various jobs. Mehta started his career as a sales person in
the Bombay office of New India Assurance Company Limited (NIACL). During this
time, he got interested in the stock market and released this is the game he was
born to play so he resigned from NIACL.
1981- Joined brokerage firm B.Ambalal & Sons where he worked as a jobber for
the broker P.D. Shukla. He learned Ins and outs of market, made connections with
influential brokers and started his own brokerage firm in 1984.
1984- Mehta was able to become a member of the BSE as a broker and started his
own firm “GrowMore Research and Asset Management “. He actively started to
trade in 1986. By early 1990, a number of eminent people began to invest in his
firm, and utilize his services, including the then minister Mr. P. Chidambaram,
through Mr. Chidambaram’s own shell companies.
By 1990 Harshad Mehta was known as the Amitabh Bachchan of the Stock
market.
LOOPHOLE IN SYSTEM
At that time RBI mandated all the Banks to keep a certain minimum number of
funds into government bonds. By the end of the week all bank should have
minimum number of bonds otherwise RBI would penalize that bank.
Strongest bank will be having enough number of bonds but weakest bank will not
have. So to save themselves from getting penalized they always borrow bonds
from strongest banks and in return it gives along with Interest and the Check will
be written with the name of Broker.
Here both the banks are happy. Weakest banks are saving from getting penalized
and strongest banks making money by interest.
This transaction was not done directly between banks. They done through brokers
and one of the broker is Harshad Mehta. He started rotating the money between
many banks. He asked some time for banks to done their operation. As he was
very popular and predominant all banks give some time and the checks will be in
his name.
TIME IS MONEY
In this given time he invest those huge amount of money in stock of any company
and pumps the stock value of a company.
Mehta’s portfolio value raised by 10 times than estimated.
One of the company he pumped the stock value of company is Associated Cement
Company (ACC) from 200 to 9000 in just 3 months. Some other companies are
Reliance Industries ltd, Apollo tires, Sterlite copper, TATA Steel.
Fake bank Receipt (BR)

This BR are bonds. He became greedier and started using fake bonds/ BR with
the help of two small and not very well known banks – the Bank of Karad (BOK)
and the Metorpolitan Co-operative Bank (MCB) – came in handy for this
purpose.
Once these fake BRs were issued, they were passed on to weakest banks and the
banks in turn gave money to Mehta, assuming that they were lending against
government securities even though this was not really the case. This money was
used to drive up the prices of stocks in the stock market. When time came to
return the money, the shares were sold for a profit and the BR was retired. The
money due to the bank was returned.
The game went on as long as the stock prices kept going up, and no one had a
clue about Mehta’s modus operandi.
Exposure:
On 23 April 1992, journalist Sucheta Dalal exposed Mehta’s illegal methods in a

column in The Times of India about howMehta was illegally dipping into the
banking system to finance his buying. This became the End of the scam.
END
With this Breaking news all senior officers got alerted and started asking money
and at the same time the stock value of his portfolio was also decreased and was
unable to pay the money back.
November 1992
He was charged with over 70 criminal cases (mostly relating to bribery, cheating,

forgery, criminal conspiracy and falsification of accounts) and over 600 civil action
suits.
Harshad Mehta was then charged by the Bombay High Court, which estimated
USD 740 million on account of his fraud.
Securities and Exchange Board of India banned him from the stock market and
related activities for life.
Harshad Mehta died on 31 December 2001 at Thane Hospital, Mumbai after

complaining of chest pain. More than 27 cases were still pending at that time.
Affected
1. People - The scam impacted the entire exchange system as the securities

system collapsed and investors lost thousands of rupees in the exchange
system
2. The scam’s exposure led to the reported suicide of the Chairman of Vijaya
Bank, who was guilty of having issued checks to Mehta and knew the
backlash he would face from the public..
3. In 1993, Mehta stirred up a storm when he publicly announced that he had
paid Rs 1 crore to Prime Minister PV Narasimha Rao.
References
http://web.b.ebscohost.com/ehost/detail/detail?vid=3&sid=d97f64e1-7a7d-4029-8862-bfa9d09d937d
%40pdc-v-sessmgr05&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#AN=9301080679&db=crh
https://en.wikipedia.org/wiki/Harshad_Mehta
https://economictranscript.wordpress.com/2017/02/07/the-story-of-a-scam-harshad-mehta-1992/
http://web.b.ebscohost.com/ehost/detail/detail?vid=3&sid=d97f64e1-7a7d-4029-8862-bfa9d09d937d
%40pdc-v-sessmgr05&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#AN=9301080679&db=crh
https://www.indiatoday.in/magazine/cover-story/story/19920531-securities-scam-harshad-mehta-
throws-banking-system-stock-markets-into-turmoil-766377-2013-06-14

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Harshad Mehta Scam

Now let’s see his background and how it happened.

Fake bank Receipt (BR)

On 23 April 1992, journalist Sucheta Dalal exposed Mehta’s illegal methods in a

He was charged with over 70 criminal cases (mostly relating to bribery, cheating,

Harshad Mehta died on 31 December 2001 at Thane Hospital, Mumbai after

1. People - The scam impacted the entire exchange system as the securities

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