Harshad perfected the art of diverting money to the stock market from banks security portfolio by exploiting the

loopholes in the system. He, however, raised a controversy by addressing a press conference along with his lawyer Ram Jethmalani by displaying two suitcases in which he claimed to have paid Rs 1 crore donation allegedly to then Prime Minister Narasimha Rao. Two small and little known banks - the Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB) - came in handy for this purpose. These banks were willing to issue BRs as and when required, for a fee, the authors point out. Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta, assuming that they were lending against government securities when 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. When the scam was revealed, the Chairman of the Vijaya Bank committed suicide by jumping from the office roof.[5] He knew that he would be accused if people came to know about his involvement in issuing checks to Mehta. . It is believed that It was later revealed that Mehta used the replacement cost theory to explain the reason for the high-level bidding. The replacement cost theory basically states that older companies should be valued on the basis of the amount of money that would be needed to create another similar company Having gained considerable experience as a sub-broker, he teamed up with his brother Sudhir to float a new venture called Grow More Research and Asset Management Company Limited. When the BSE auctioned a brokers card, the Mehta duos company bid for it with the financial support of J.L. Shah and Nandalal Sheth. Another name that is rumored to have a crucial hand in the scam was Nimesh Shah. However, Shah could keep a safe distance from the accusations and is currently known to be a heavy player in the Indian stock market.

THE custodian of Harshad Mehta's assets has put up for sale the securities of top companies, including Reliance, ITC and Tata Tea, worth nearly Rs 100 crore. The benami shares were seized by the custodian from the deceased broker Mehta and his associates after the 1992 Securities Scam. They include 14.59 lakh shares of Reliance Industries, 1.17 lakh shares of ITC Ltd, 12.49 lakh shares of Apollo Tyres, 6.03 lakh shares of Punjab Tractors and 2.33 lakh shares of Tata Tea Ltd. The custodian recently obtained permission from the court to sell these shares. The companies, following the court order, have issued these shares in the custodian's name to facilitate the sale. On Tuesday, the custodian called tenders from institutional and non-institutional buyers for bulk sale of the shares. The bids will be opened on August 22, according to a pubic notice issued by the custodian appointed by the Special Court. The managements of the companies can also bid for the shares. Earlier, Apollo Tyres had bought back a huge chunk of shares of Harshad Mehta. According to sources, there are further shares of companies such as ACC and Bombay Dyeing seized from Harshad Metha, which may come for sale later.

Harshad Shantilal Mehta (1954-2002) was an Indian stockbroker who grabbed headlines for the notorious BSE security scam of 1992. Born in a lower middle-class Gujarati Jain family, Mehta spent his early childhood in Mumbai where his father was a small-time businessman. The family relocated to Raipur in Chhattisgarh after doctors advised Mehtas father to shift to a drier place on account of his health. Transition from an ordinary broker to Big Bull Mehta studied in Holy Cross Higher Secondary School, Byron Bazar, Raipur. He quit his job at The New India Assurance Company in 1980 and sought a new one with BSE-affiliated stockbroker P. Ambalal before going on to become a jobber on the BSE for stockbroker P.D. Shukla. In 1981, Mehta became a sub-broker for stockbrokers J.L. Shah and Nandalal Sheth. Having gained considerable experience as a sub-broker, he teamed up with his brother Sudhir to float a new venture called Grow More Research and Asset Management Company Limited. When the BSE auctioned a brokers card, the Mehta duos company bid for it with the financial support of J.L. Shah and Nandalal Sheth. Another name that is rumored to have a crucial hand in the scam was Nimesh Shah. However, Shah could keep a safe distance from the accusations and is currently known to be a heavy player in the Indian stock market. By year 1990, Mehta became a prominent name in the Indian stock market. He started buying shares heavily. The shares of India's foremost cement manufacturer Associated Cement Company (ACC) attracted him the most and the scamster is known to have taken the price of the cement company from 200 to 9000 (approx.) in the stock market implying a 4400% rise in its price. It is believed that It was later revealed that Mehta used the replacement cost theory to explain the reason for the high-level bidding. The replacement cost theory basically states that older companies should be valued on the basis of the amount of money that would be needed to create another similar company. By the latter half of 1991, Mehta had come to be called the Big Bull as people credited him with having initiated the Bull Run. The making of the 1992 security scam Mehta, along with his associates, was accused of manipulating the rise in the Bombay Stock Exchange (BSE) in 1992. They took advantage of the many loopholes in the banking system and drained off funds from inter-bank transactions. Subsequently, they bought huge amounts of shares at a premium across many industry verticals causing the Sensex to rise dramatically. However, this was not to continue. The exposure of Mehta's modus operandi led banks to start demanding their money back, causing the Sensex to plunge almost dramatically as it had risen. Mehta was later charged with 72 criminal offences while over 600 civil action suits were filed against him. Significantly, the Harshad Mehta security scandal also became the flavor of Bollywood with Sameer Hanchate's film Gafla. The 1992 security scam and its exposure Mehta's illicit methods of manipulating the stock market were exposed on April 23, 1992, when veteran columnist Sucheta Dalal wrote an article in India's national daily The Times of India. Dalals column read: The crucial mechanism through which the scam was effected was the ready forward (RF) deal. The RF is in essence a secured short-term (typically 15-day) loan from one bank to another. Crudely put, the bank lends against government securities just as a pawnbroker lends against jewelers. The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan, typically at a slightly higher price. In a ready-forward deal, a broker usually brings together two banks for which he is paid a commission. Although the broker does not handle the cash or the securities, this was not the case in the prelude to the Mehta scam. Mehta and his associates used this RF deal with great success to channel money through banks. The securities and payments were delivered through the broker in the settlement process. The broker functioned as an intermediary who received the securities from the seller and handed them over to the

buyer; and he received the check from the buyer and subsequently made the payment to the seller. Such a settlement process meant that both the buyer and the seller may not even know the identity of the other as only the broker knew both of them. The brokers could manage this method expertly as they had already become market makers by then and had started trading on their account. They pretended to be undertaking the transactions on behalf of a bank to maintain a faade of legality. Mehta and his associates used another instrument called the bank receipt (BR). Securities were not traded in reality in a ready forward deal but the seller gave the buyer a BR which is a confirmation of the sale of securities. A BR is a receipt for the money received by the selling bank and pledges to deliver the securities to the buyer. In the meantime, the securities are held in the sellers trust by the buyer. Complicit lenders Armed with these schemes, all Mehta needed now were banks which would readily issue fake BRs, or ones without the guarantee of any government securities. His search ended when he found that the Bank of Karad (BOK), Mumbai and the Metropolitan Co-operative Bank (MCB) two small and little known lenders, were willing to comply. The two banks agreed to issue BRs as and when required. Once they issued the fake BRs, Mehta passed them on to other banks who in turn lent him money, under the false assumption that they were lending against government securities. Mehta used the money thus secured to enhance share prices in the stock market. The shares were then sold for significant profits and the BR retired when it was time to return the money to the bank. Outcome Mehta continued with his manipulative tactics, triggering a massive rise in the prices of stock and thereby creating a feel-good market trajectory. However, upon the exposure of the scam, several banks found they were holding BRs of no value at all. Mehta had by then swindled the banks of a staggering Rs 4,000 crore. The scam came under scathing criticism in the Indian Parliament, leading to Mehta's eventual imprisonment. The scams exposure led to the death of the Chairman of the Vijaya Bank who reportedly committed suicide over the exposure. He was guilty of having issued checks to Mehta and knew the backlash of accusations he would have to face from the public. A few years later, Mehta made a brief comeback as a stock market expert and started providing investment tips on his website and in a weekly newspaper column. He worked with the owners of a few companies and recommended the shares of those companies only. When he died in 2002, Mehta had been convicted in only one of the 27 cases filed against him. What attracted the taxmans attention was Mehta's advance tax payment of Rs 28-crore for the financial year 1991-92. Another eye-catcher was his extravagant lifestyle. I-T, PSBs recover dues nine years after Mehta's death Nine years after Harsad Mehta died, the I-T department and public sector banks (PSBs) have successfully recovered a significant portion of their claims emerging out of the securities scam from his liquidated assets. The Supreme Court directed the Custodian of the attached properties and assets of the Harshad Mehta Group (HMG) in March 2011 to make payments of Rs1,995.66-crore to the I-T department and Rs 199.25-crore to the State Bank of India (SBI), making the two institutions two of the earliest claimants to recover their dues. While the SBIs total principal amount claim of Rs 1,000-crore have been largely settled, financial institutions have also received some money. However, Standard Chartered Bank, which had claimed Rs 500-crore, has yet to recover its dues it was one of the late claimants. Although the total claim over the HMG is of more than Rs 20,000-crore, the apex court has said that for the present, it would only consider claims towards the principal amount.

Even before that he was featured in a video newsmagazine feeding peanuts to bears at a Mumbai zoo to symbolize his victory over the bear-cartel in the stock market. In fact, for weeks after the scam, he was convinced that he would never have been caught but for the bear cartel. Whole bear cartel joined against Harshad Mehta. The bear cartel exposed the truth behind the constant rise of this big bull. The amusing paradox is that the even bear cartel was using same technique as Harshad Mehta used. But there was a difference - Bears cartel used the money from overseas banks where as Harshad Mehta used Indian banks for his growth. And this act was crime as per Indian law books.