1992 Indian Stock Market Scam

1992 INDIAN STOCK MARKET
SCAM
PRESENTED BY:-
PRIYAMADHAB SAHOO – 2002090040

SANJEEV KUMAR BAGAR - 2002090018
MITRABHANU RATH - 2002030144
ROSHAN TRIPATHY - 2103090003
PARAS SHARMA - 1902090064
SAI SONAL JENA - 2002090054
THE SCAM WAS THE BIGGEST MONEY MARKET SCAM EVER
COMMITTED IN INDIA, AMOUNTING TO APPROXIMATELY ₹ 5,000
CRORES. THE MAIN PERPETRATOR OF THE SCAM WAS A STOCK AND
MONEY MARKET BROKER HARSHAD MEHTA. IT WAS A SYSTEMATIC
STOCK SCAM USING FAKE BANK RECEIPTS AND STAMP PAPER THAT
CAUSED THE INDIAN STOCK MARKET TO CRASH. THE SCAM EXPOSED
THE INHERENT LOOPHOLES OF THE INDIAN FINANCIAL SYSTEMS AND
RESULTED IN A COMPLETELY REFORMED SYSTEM OF STOCK
TRANSACTIONS, INCLUDING AN INTRODUCTION OF ONLINE SECURITY
SYSTEMS.
FAMILY BACKGROUND:-
• Harshad Mehta was an Indian stockbroker and
businessman who was active in the Indian stock market
during the late 1980s and early 1990s. He is known for
his involvement in a major stock market scam in India,
which was uncovered in 1992 and is known as the
"Securities Scam" or the "Harshad Mehta Scam“
• .Mehta was born in Rajkot, Gujarat, India in 1954. He
started his career as a salesperson for various
companies before becoming a stockbroker in the
Bombay Stock Exchange (BSE) in the 1980s. He quickly
rose to fame and became one of the most successful
and influential stockbrokers in India.
• Mehta was known for his aggressive trading strategies,
which involved using loopholes in the banking system
to manipulate the stock market. He used a technique
called "circular trading" or "dummy trading," which
involved buying and selling stocks among a group of
brokers to artificially inflate their prices. He also used
funds from banks and other financial institutions to buy
stocks and manipulate their prices.
MECHANISM OF SCAM:-
READY FORWARD DEAL:-

A secured short-term(typically15-day)loan from one bank to another.
Bank lends again 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 settlements banks may not know with whom they are dealing..
BANK RECIPTS:-
Harshad Mehta supplied fake bank recipts from the borrower banks and gave to the lending
this was then continuing in a loop and he kept all the real bank recipts and invested in stock
market.
In this scam Bank of Karad & Metropolitan Co-operative bank had issued fake bank receipts.
He would use the money from the banks which were
temporarily in his account to hike up the demand for
certain shares. He selected well-established
companies like ACC, Sterlite Industries, and
Videocon. His investments along with the market
reaction would result in these shares being
exclusively traded. The price of ACC rose from
Rs.200 to nearly Rs. 9000 in a span of 2 months.
The banks were aware of Harshad Mehta’s actions

but chose to look away as they too would benefit
from the profits Harshad would make from the stock
market. He would transfer a percentage to the
banks. This would also enable banks to maintain
profitability
TAKING ADVANTAGE OF SYSTEM:-
❑ HARSHAD MEHTA’S SCHEME WAS VERY SIMPLE IN ESSENCE. HE WOULD SECRETLY
EMBEZZLE HUGE SUMS OF MONEY FROM THE GOVERNMENT SECURITIES MARKET FOR A
SHORT DURATION. HE WOULD THEN INVEST THIS MONEY IN A FEW SELECTED SECURITIES
AND DRIVE THEIR PRICES INSANELY HIGH.
❑ HARSHAD MEHTA IS SEEN GETTING INSIDE INFORMATION OF THE COMPANY AND
TRADING WHICH IS ILLEGAL SO THAT HE WOULD PREDICT WHEN TO BUY AND SELL THE
STOCKS.
❑ HE ALSO HIMSELF BROUGHT BUNDLES OF SHARES TO BOOST THE SHARES OF THE
COMPANY IN THIS WAY HE WILL GET PROFIT AND PEOPLE INVESTED IN THAT STOCK WILL
ALSO GET MORE BENEFIT FROM IT.
❑ AS THE MARKETS CONTINUED TOUCHING NEW HIGHS, PEOPLE STARTED LOOKING UP TO
HIM AS THE ‘BIG BULL’ AND STARTED BUYING THE STOCKS THAT HE INVESTED IN. MANY
RETAIL INVESTORS ENDED UP INVESTING SUBSTANTIAL AMOUNTS IN STOCKS.
LUXURIOUS LIFESYLE :-
❑ Harshad Mehta's property, an eight inter-
connected lavish apartment MORE THAN
12,500 SQUARE FEET in MaDhuli Society in
South Mumbai, Worli.
❑ he owned two more properties (No. 202 and
No. 301) in Vandana Cooperative Housing
Society (CHS), located on Janki Kutir Road in
Juhu. Each WORTH OVER 1150 SQUARE FEET.
❑ His office GROWMORE RESEARCH AND ASSETS
MANAGEMENT was among the most expensive
offices in That time
❑ He also owned some of the expensive cars like
Lexus LS400 , HM Contessa , Mercedes Benz
W126 ,Honda Accord and Fiat Padmini
HOW THE SCAM WAS EXPOSED:-
 Sucheta Dalal carried a front-page headline story in Times of India that “Big Bull” being
broker of SBI was asked to square up securities of Rs. 500 Crores without naming
Harshad but using his sobriquet because Chairman of SBI had denied the truthfulness of
her story.
 Sucheta Dalal deciphered the main reason behind Mehta’s ability to manipulate prices
and control the market: Fake SGL receipts and Bank Receipts (BRs) from multiple banks.
These chits enabled him to establish a cycle of borrowing money from one bank,
investing it in the shares manipulated by him, reaping market profits to pay back to the
initial bank, keep the balance amount between the two, and then, borrow from another
bank
However, investigation needed facts. This
is where her sources from the PR
department at SBI Bank and RBI helped
Dalal catch the paper trail. On April 23,
1992, Sucheta Dalal exposed Harshad
Mehta as a Scammer.
As a result, Sucheta Dalal became the

Financial Editor of The Times of India and
Consulting Editor cum Columnist for The
Indian Express Group
Padma Shri for Journalism by Dr. APJ

Abdul Kalam in 2006Chameli Devi Award
instituted by the Media Foundation for
Excellence in Journalism in 1992Femina’s
Woman of Substance Award for her work
on the Harshad Mehta scam
ETHICAL VALUES RELATED TO SCAM:-
 Imaginary companies created Bought the shares of own company by himself causing
Sensex up
 Purchased Huge amount of shares of a targeted company like ACC
 .Caused false bull run Created fake BRS, or BRS not backed by any government
 securities Illegally issue of BR by small bank
 Without verification, banks like "Vijaya Bank" issued the cheque.
 • Recommendation to purchase particular shares on his own website
GOVERNMENT MEASURES RELATED TO
SCAM
THE RESPONSE OF ANY GOVERNMENT TO A SCAM OF THIS KIND WOULD HAVE THREE MAIN
FACETS:
• DISCOVER AND PUNISH THE GUILTY
•RECOVER THE MONEY
• REFORM THE SYSTEM.
THE SEBI WAS SET UP IN EARLY 1988 AS A NON STATUTORY BODY UNDER AN
ADMINISTRATIVE ARRANGEMENT AND WAS SUBSEQUENTLY UPGRADED AS A FULLY
AUTONOMOUS BODY ON 12TH OF APRIL 1992.
THE TWO OBJECTIVE S MANDATED I SEB T ARE
1) INVESTOR PROTECTION
2) ORDERLY DEVELOPMENT OF CAPITAL MARKET..
IMPACT OF SCAM:-
 Index fell from 4500 to 2500,leads to loss of Rs. 100,000 crore in market. All banks &
financial institution start demanding to return the funds. Shares were tainted. Cam
Genuine investors fell like robbed, chaotic condition in stock market.
 Government Liberalization policies on hold . SEBI postponed sanctioning of private sector
mutual fund.
 Less than 2 months after the scam was exposed, the stock market had already lost a
trillion rupees. The RBI created a committee to investigate the matter. The Committee was
called the Janakiraman Committee. As per the Janakiraman Committee Report, the scam
was of the magnitude of Rs.4025 crores. This impact on the stock market was huge
considering that the scam amounted to only 4025 crores in comparison to a trillion or 1
lakh crores.
CONCLUSION:-
 The key instruments used in the great scam were stamp papers, bank receipts, ready forward
deals, and higher interest rates. Sucheta Dalal exposed Mehta’s crimes and involvement in the
columns of Times of India in 1992 after taking keen interest into his overly luxurious lifestyle. As
valued in 2019, the Harshad Mehta scam had swindled nearly Rs. 250 Billion from the banking
system.
 Despite the scam, Harshad Mehta is still looked up to in certain circles, As reported by Economic
Times some financial experts believe that Harshad Mehta did not commit any fraud, “he simply
exploited loopholes in the system”. When Harshad Mehta was first released out of prison in 1992
he was greeted with cheers and applause as his return would signify the return of his bullish trend.

1992 Indian Stock Market Scam

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1992 INDIAN STOCK MARKET

PRIYAMADHAB SAHOO – 2002090040

READY FORWARD DEAL:-

The banks were aware of Harshad Mehta’s actions

As a result, Sucheta Dalal became the

Padma Shri for Journalism by Dr. APJ

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