Harshad Mehta

Scam
The Man who shook the Nation !

BY,
Prerana Kulkarn
MBA 1st Year
DSCE, Bangalore

DISCLAIMER
This Presentation is just to shed
some light on a Unethical Scam,
No person is suggested to try
imitating or inculcating the following
information for Unethical Practices !

Things you can expect to Know

after this Presentation !
Economic & Market position before
the scam
About Harshad Mehata
Modus Operandi
Impact of scam
Regulatory Actions Taken Against
Mehta
Conclusion

Economic & Market position before the

scam
Licensing system
No permission for Liberalization, Privatization, Globalization
Government intervention in business
There were no permission for FIIs & FDIs
There was not specific act passed for SEBI by the parliament
Open-Outcry system
No Circuit Breakers

Harshad Mehta
Name: Harshad Shantilal Mehta
Born in: 29 July 1953
Died in: 31 December 2001
Profession: Stockbroker
He earned degree in Bachelor of Commerce
Started his working life as an employee of the
New India Assurance Company

In the early eighties 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

He

triggered SENSEX in 1992 & made the scam

by diverting funds of Rs.4,000 crore

Exposure of 1992 Securities

Scam
On April 23, 1992, journalist Sucheta Dalal
exposed Mehta's scam

Sucheta
Dalal

She is columnist in Times Of India

The Instruments were used in

Scam

Mehta had used 2 instruments in

this 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 Karad & Metropolitan Cooperative Bank had issued fake BR

Modus Operandi
Issue fake
BR
Borrower
bank

Broker
Harshad
Mehta

Lender bank

Funds

Impact Of Scam On Market

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
The

over

chairman of the vijaya bank committed suicide

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

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. He was tried for 9 years
and Of the 27 criminal charges brought against him,
he was only convicted of one, before his death at age
47 in 2001

Thank
You!!!