Major scams of India since its independence - By Satbir Singh Bedi The following are the major scams

of India since its independence: Mundhra Scandal The Mundhra scandal involved then finance minister T T Krishnamachari , who pressured the government-owned Life Insurance Corporation of India into bailing out Haridas Mundhra, a Calcutta-based industrialist, by buying shares worth Rs 1.24 crore in six companies owned by him. LIC did so dutifully, bypassing its own investmen t committee. Mundhra was swindling the companies and, simultaneously, rigging up their stock prices to camouflage his fraud. TTK, as the FM was popularly known, least expected that this shady deal would be exposed by the PM¶s own son -in-law. Although Feroze Gandhi belonged to the ruling party, he did not hesitate to speak out against the government because he argued that corruption in high places was a betrayal of the ideals of the newly independent nation. To be fair to Pandit Nehru, he quickly appointed a one-man commission headed by Justice Mahommedali Currim Chagla, one of the most respected legal luminaries of the time. The speedy and transparent manner in which Chagla conducted the inquiry ²it was all over, and the guilty were punished, in less than two years²ought to have been a model for all such probes. All its hearings were public and the proceedings were aired on loudspeakers. Mundhra was sentenced to 22 years in prison, and TTK lost his job. Fodder Scam Fodder Scam is a scam related to Animal Husbandry Department of Government of Bihar in which irregularities of nearly Rs 950 crores (US $ 210 million) were detected. The scam was unearthed in 1996 during the regime of chief minister Lalu Prasad Yadav, but it goes back to 1980s and is believed to have started during tenure of Jagannath Mishra Lalu had ordered probe into these massive irregularities in accounts by constituting a committee. However motives of these people were questioned by a Public Interest Litigation and Supreme Court of India handed over the case to CBI. Many people who were in this probe committee themselves became accused. Charges were filed against Yadav too and later on Mishra was also framed. CBI filed 69 different cases related to this scam 31 of which has been in Jhar khand and remaining in Bihar. The charges were framed under: Sections 420 and 120 (b) of the Indian Penal Code and Section 13 (b) of the Prevention of Corruption Act. There are a total of 76 accused, of whom three have died and three turned state witnesses. It was only after Special Investigation Team(SIT) under U N Biswas was constituted

requested the British Government that two British bank accounts of Ottavio Quattrocchi be de-frozen on the grounds of insufficient evidence to link these accounts to the Bofors payoff. containing ¼ 3 million and $1 million. The case came to light during Vishwanath Pratap Singh's tenure as defence minister. Several attempts to extradite Quattrocchi failed. had been frozen in 2003 by a high court order by request of the Indian government. Gopichand and Prakash Hinduja. The name of the middleman associated with the scandal was Ottavio Quattrocchi. the then Prime Minister Rajiv Gandhi and several others were accused of receiving kickbacks from Bofors AB for winning a bid to supply India's 155 mm field howitzer. 2004 the Delhi High Court quashed the charges of bribery against Rajiv Gandhi and others. also naming Rajiv Gandhi. Datta. Win Chadha. The scale of the corruption was far worse than any that India had seen before. The two accounts. the High court of Delhi dismissed the Bofors case allegations against the British business brothers. . 2005. Quattrocchi was close to the family of Prime Minister Rajiv Gandhi and emerged as a powerful broker in the '80s between big business and the Indian government. but the case is still being tried on charges of cheating. the additional solicitor general of India. and directly led to the defeat of Gandhi's ruling Indian National Congress party in the November 1989 general elections.that investigation started at a brisk rate. the defence secretary and a number of others. 1991 for an unrelated cause. Meanwhile February 5. an Italian businessman who represented the petrochemicals firm Snamprogetti. Win Chadha also die d. In 1997. On May 31. causing wrongful loss to the Government. the Mr B. Shrichand. Soon many heads started rolling and Yadav and members of his party had to loose their ministerial berths both at centre and st ate facing corruption charges. Even while the case was being investigated. In December 2005. etc. the Swi ss banks released some 500 documents after years of legal wrangling and the Central Bureau of Investigation filed a case against Quattrocchi. acting on behalf of the Indian Government and the CBI. Rajiv Gandhi was assassinated on May 21. Bofors Scandal The Bofors Scandal was a major corruption scandal in India in the 1980s.

as President of the Congress Party.The accounts were de-frozen on January 11. and the stock market reacted and crashed within days. and Harshad Mehta. has a long standing red corner notice to arrest Quattrocchi. a number of people holding key positions in the India's financial sector were adversely affected. 2006. When the scam broke out. the Indian Supreme Court directed the Indian government to ensure that Ottavio Q uattrocchi did not withdraw money from the two bank accounts in London. the State Bank of India. the Indian stock market crashed. faced government. M. Mahadevan. on January 16. The panic reaction ensued. Quattrocchi has been released by Argentinian police. The British Government released the funds based on a request by the Indian Government. at the request of the CBI. On January 16. stoking claims that it may have been suppressed by the ruling Congress government because of state elections.He was arrested on June 5. but the news of his detention was released by the CBI only on 23 February. one of the Managing Directors of India¶s largest bank. As an aftermath of the shockwaves which engulfed the Indian financial sector. he was called upon by the banks and the financial institutions to return the funds. It transpired that he had manipulated the Indian banking systems to siphon off the funds from the banking system. The Central Bureau of Investigation which is India¶s premier investigative agency. 1992 for his role in the scam. The CBI (Central Bureau Of Investigation). Quattrocchi was detained in Argentina on 6 February 2007. and Sonia Gandhi. However. The Interpol. necessitating liquidating and exiting from the positions which he had built in various stocks. and used the liquidity to build large positions in a select group of stocks. which included arrest and sacking of K. removal from office of V. the person who was all along considered as the architect of the bull run was b lamed for the crash. Margabandhu. 2006. then CMD of the UCO Bank. which in turn set into motion a chain reaction. the Indian Federal law enforcement agency. on January 23. in the two accounts have already been withdrawn. about USD $4. CBI claimed in an affidavit filed before the Supreme court that they were still pursuing extradition orders for Quattrocchi. was entrusted with the task of deciphering the modus operandi and the ramifications of considerable criticism for this sudden volte face by the Indian . 2006 admitted that roughly Rs 21 crore.6 million. At the time a Congress-led alliance was in power. Security Scam In April 1992.

The Board undertook a feasibility study on the proposal only in September 1995.000. Lakhubhai Pathak cheating scandal Lakhubhai Pathak. the Board signed contracts with Lavalin to provide technical services for management. ignoring the CEA's recommendation that immediate replacement of the generating units at the Pallivasal power station was not called for as the plant was in fairly good condition. an Indian businessman living in England alleged that Chandraswami and K. Despite this. During his judicial custody. Rao. the funds for the renovation were to be arranged by SNC Lavalin from the Export Development Corporation (EDC). the Jain brothers. and was moved to a hospital. where he died on 31st December 2001. while he was in Than e Prison. The amount was given for an express promise for allowing supplies of paper pulp in India.N. who later became a consultant to Lavalin. There were also alleged connections with payments being channelled to militants in Kashmir. Hawala Scandal The Hawala scandal or hawala scam was an Indian political scandal involving payments allegedly received by politicians through hawala brokers. Under the provisions of the MoU. cheated him out of $100. engineering. due to lack of evidence. The failure of this prosecution by the Central Bureau of Investigation was widely criticised. Rao and Chandraswami were acquitted of the charges in 2003. by a retired Chief Engineer of the KSEB.the scam. Harshad Mehta was arrested and investigations continued for a decade. K. The Board did so. Lavalin Scandal The Kerala State Electricity Board (KSEB) signed an MoU with Lavalin in August 1995. and the Canadian International Development Agency (CIDA). procurement and construction supervision in February 1996. Advani who was then Leader of opposition.Based o n the consultant's report and further discussions. The consultancy agreements were . Those accused included L. to ensure completion of the projects within thr ee years. Canada. it remained a large black mark on Rao's administration. partly because the hawala records (including diaries) were judged in court to be inadequate as the main evidence. along with Mr. He and others were acquitted in 1997 and 1998. he complained of chest pain.00 entertaining Chandraswami and his secretary. Aggarwal alias Mamaji. and Pathak alleged that he spent an additional $30. It was a US$18 million dollar bribery scandal that implicated some of the country's leading politicians.00. Mumbai.000.

According to the CAG.31 crores. Ketan had large borrowings from Global Trust Bank. The Board also could not ensure quality of renovation work in the absence of technology transfer and training of its engineers.89.03 crores) in February 1997.94M Canadian dollars (Rs. The CAG has found that Lavalin was only a consultant intermediary and not the original equipment manufacturer and that the supply of goods and services was made by other firms at much higher cost leading to excess expenditure.In the opinion of the CAG. The CAG found that the Government did not receive Rs. Ketan also used benami or share purchase in the name of poor people living in the shanty towns of Mumbai.000 crore from the Madhavpura Mercantile Co-operative Bank despite the fact that .169.98. Ketan and his associates got another Rs 1. During this period Pinarai Vi jayan was the Minister for Electricity.21 crores. Ketan Parekh formed a network of brokers from smaller exchanges like the Allahabad Stock Exchange and the Calcutta Stock Exchange. w hose shares he was ramping up (so that he could get a good deal at the time of its merger with UTI Bank) ±he got Rs 250 crore loan from Global Trust Bank. though Global Trust¶s chairman Ramesh Gelli (who was later asked to quit) repeatedly said that lendin g to Ketan was less than Rs 100 crore in keeping with Reserve Bank of India norms.2. and failure to negotiate and exclude the exposure fee from the loan agreement resulted in avoidable payment of Rs. Ketan's rise to fame occurred at the same time as the worldwide dot-com boom (1999-2000) and he relied primarily on the shares of ten companies for his dealings (now known infamously as the K-10 scrips).9. there was also an avoidable payment of Rs. failure to exclude fee for technical consultancy from fixed price contracts resulted in avoidable payment of Rs. According to the CAG. On 16th January 2007. Owing to various technical defects in the equipment.48 crores and future liability of Rs.30 crores that was promised for the Malabar Cancer Centre.1. the absence of due professional care in negotiating the foreign loan proved to be detrimental to the financial interests of the Board.20.converted into fixed price contracts for supply of machinery and techincial services as part of the renovation at a cost of 67.32 crores out of the grant of Rs. Kerala High Cour odrdered a CBI enquiry into the scandal Ketan Parekh Scandal Companies when raising money from the stock market rope in brokers to back them in raising the share price. the generation of power could not be maintained even at the pre-renovation level and the Board had to spend on repairs.20 crores as commitment fee despite there being committed but unavailed advance.

RBI regulations ruled that the maximum a broker could have got as a loan was Rs 15 crore. The Global Trust Bank and the Madhavpura Cooperative went bust because the money they had lent to Ketan had sunk with his K-10 stocks. The information which was furnished by the Reserve Bank of India to the Joint Parliamentary Committee (JPC). Now with the prices of select shares constantly going up. Thus.were at loss.. SEBI has found prima facie evidence of price rigging in the scrips of Global Trust Bank. At the time of the year 2000 Financial Budget this cartel placed sell orders on the K -10 stocks and crushed their inflated prices. and several people including the Samata Party ex-treasurer R. Ketan Parekh was later arrested on December-2. and ar ms dealer and ex- . Anand Rathi. All the borrowing of Ketan¶s could not rescue his scrips. Zee Telefilms. Others named in the First Information Report include politicians George Fernandes and Jaya Jaitly. Soon after discovery of this scam.K. The scam burst and the rigged shares came down so heavily that quite a few people in India lost their savings. Barak Missile Scandal The Barak Missile Scandal is a case of defence corruption relating to the purchase of Barak Missile Systems by India from Israel.400 -odd crore to companies known to be close to broker Ketan Parekh. Aftek Infosys and Padmini Polymer. The case is currently under investigation by the Central Bureau of Investigation.the prices of these stocks came down to the fraction of the values at which they were bought.thanks largely to this rigging. during the Ketan clean up. Nirmal Bang) relied on the global meltdown of stocks to make their profits. In the current Ketan case. SEBI concluded a 3-year old case where Harshad Mehta colluded with the managements of BPL. At this time a group of traders (known as the bear cartel-Shankar Sharma. Some banks including Bank of India lost money heavily. Ketan¶s modus operandi was clearly to ramp up shares of select firms in collusion with the promoters ± ironically. Jain have been arrested. Lupin Laboratories.2002 in kolkata. Sterlite and Videocon to ramp up their shares with money provided by these managements ± and to get funding from them to do this.innocent investors who bought such shares thinking the market as genuine. Bears sell stocks at high prices and buyback at low prices. HFCL.during the investigation of the scam revealed that Financial institutions Industrial Development Bank of India (IDBI Bank) and Industrial Finance Corporation of India (IFCI) had extended loans of Rs 1.

alleged that 15 defence deals made by the government had involved some sort of kickback and the Barak deal was one of them. 2006 and claims that George Fernandes the Indian defence minister at that time. 2000. then heading the Defence Research Development Organization. and APJ Abdul Kalam. On October 23. These commissions were paid to them by Suresh Nanda. The Tehelka exposé In 2001 a sting operation conducted by Tehelka. who is the son of retired chief of naval staff S.5 per cent. and the Former Chief of the Indian Navy. The NDA government set up a commission to investigate the matter. Nanda.com that 3 per cent of this cost went to Fernandes and Jaya Jaitley as commission. The UPA government. Telgi Fake Stamp Scam . has rejected the part-report by the commission and the whole matter is now being investigated by the Central Bureau of Investigation (CBI). This was done despite objections raised by several groups. the middleman in the deal. contracts had been signed by the Indian government to procure seven Barak systems at a total cost $199. The Barak missile system (jointly developed by Israel Aircraft Industries (IAI) and RAFAEL Armament Development Authority of Israel) employs vertically launched missiles to counter anti-ship sea-skimming missiles and attacks by aircraft. Admiral Sushil Kumar were involved. while he himself was given 0. The FIR restates R.13 millions. R. In early 2006. The FIR notes that the Indian Defence Research & Development Organization had sought to block the import of the Barak system right until the end. George Fernandes had to resign his post as the defence minister. Jain's admission to Tehelka. according to the Tehelka tapes. although he was later reinstated. The CBI lodged an First Information Report (FIR) on October 9. Due to the scandal which emanated when the allegations first surfaced.K. including members of the team that had originally visited Israel to observe the missile performance.K. Though some of the objections are of a procedural nature.M.50 millions and 200 missiles at a cost of $69 . Jain was arrested in the case. the Navy Chief of Staff Sushil Kumar is currently under investigation as to why these objections were not considered.naval officer Suresh Nanda. currently in power.

The Congress party distanced itself from him and on December 6.Telgi was arrested in 1991 by Mumbai police for fraud. which acted as an intermediary for illegal sales of oil to a Swiss firm named Masefield AG. Allegedly. 2005 that he and his son Jagat Singh were non -contractual beneficiaries of the Oil for food programme. 2007 Telgi was sentenced to rigorous imprisonment for 13 years and fined a whopping Rs 202 crore on var ious counts in one of the main cases of the scandal. Mid Day Meal Scam In January 2006. The Independent Inquiry Committee under Paul Volcker had reported on October 27. the police had seized eight truckloads (2. This controversy got murkier when Anil Mathrani. in 1994. 2005 (though retaining a cabinet role as minister without portfolio) following a controversy over his alleged involvement in the United Nations Iraqi Oil for Food scandal. During his subsequent prison sentence. His monthly profits have been estimated as being in the neighbourh ood of Rs 202 crore (US $20 million). Natwar Singh was suspended from the primary membership of Congress Party for moving privilege motion against Prime Minister Manmohan Singh on the issue of leakage of Justice Pathak Committee report. insurance companies. Natwar Singh was removed from the post on November 7. In December 2005. Allegedly. FIs. they along with Jagat Singh's childhood friend and distant relation Andaleeb Sehgal were associated with a company called Hamdan Exports. On 17 January 2006. the Delhi Police unearthed a scam in the Mid -Day Meal Scheme. he resigned from the cabinet On August 8. and a close aide to Natwar Singh alleged that Natwar Singh had used an official visit to Iraq to procure oil coupons for Jagat Singh from Saddam's regime. acquired a stamp paper licence from the Government of India. US sanctions on Saddam Hussein).760 sacks) of rice meant for . He began printing fake stamp paper. he reportedly learned the art of forgery from an expert. 2005. Masefield had to pay kickbacks. and share-broking firms. (termed "surcharges") partly to Saddam Hussain's regime and partly to Natwar Singh and others. Food for Oil Programme Scandal The Then External Affairs Minister. On June 28. in return. including banks. He was released and. Telgi and several associates were sentenced to ten years' rigorous imprisonment. then Indian Ambassador to Croatia. It was alleged that such surcharges were Hussain's way of securing support from politicians around the world and that this influenced Natwar Singh to lobby against US policies in Iraq (in particular. He appointed 300 people as agents who sold the fakes to bulk purchasers.

an assistant teacher at the government model primary school. She was transferred to a government primary school at Cholanayakahalli. When the police detai ned the trucks. . Bharatiya Manav Kalyan Parishad (BMKP). There have been many other scams and if we add up the sums involved in each scam. we are still a poor country because most of the 75% of our population living in the villages is poor. However. It may be seen from the details given above that all the major scams were perpetrated in India by scamesters with the help of politicians and bureaucrats. the residents of Pembong village under the Mim tea estate (around 30 km from Darjeeling).primary schoolchildren being carried from Food Corporation of India (FCI) godowns in Bulandshahr District of UP to North Delhi. in Yelahanka acted as a whistleblower. The scam was exposed. the drivers claimed that the rice was being brought all the way to Delhi to be cleaned at a factory. The modus operandi of the schools was simple -. of course. The Ti mes of India reported a scam involving government schools that siphon off foodgrains under the mid -day meal scheme by faking attendance. In November 2006. Jakkur. health care and education etc. due to the greed of the scamesters. there may have been no hardship for the common man as enough funds would have been available for sanitation. We cannot fill up the gap between India(Urban India) and Bharat (rural India) till we get rid of all scamesters. However. accused a group of teachers of embezzling mid-day meals. corrupt politicians and their willing more faithful than the King servants. when P Asha Kumari. She informed the Lok Ayukta. who issued notice to the school. The desired infrastructure would also have come up and India would have been one of the most prosperous country in the world. the rice has to be taken directly from FCI godown to the school or village concerned. where she again found the same modus operandi being used to siphon off the foodgrains. The whistleblower was harassed by the school staff and requested a transfer. who conducted a probe and indicted four persons for misappropriation. politicians and bureaucrats. the total.the attendance register would exaggerate the number of students enrolled in the class. She again complained to the Lok Ayukta. Later it was found that the rice was being siphoned off by a UP-based NGO. in connivance with the government officials. in my opinion would b e sufficient to wipe out the fiscal deficit of the Union Government. Had these scams not occured in India. cleanliness. only some of the scams. In a written complaint. The additional students would not exist -they were "enrolled" to get additional foodgrains which were pocketed by the school staff. nutrition. according to the guidelines. the residents claimed that students at the primary school had not got midday meal for the past 18 months. These are. In December 2006.

· Plantation companies¶ puffery: These followed the same strategy as vanishing companies. A simple roll-call of the scams of the last decade tells the story of why Indian investors are so frustrated. · Preferential Allotment rip-off: This was an offshoot of the rampant price rigging on the secondary market. after a brief spot of trouble with the authorities moved on to the dotcom business and the regulators who were never held accountable. · CRB¶s house of cards: Chain Roop Bhansali¶s (CRB) cardboard empire is only the biggest and most audacious of many that were built and disappeared in the new µliberalised¶ milieu of the mid-1990s. in terms of their structure. and since they were subject to no regulation. It exposed the utter lawlessness and absence of supervision in the money markets. Many of these licenses required adequate scrutiny by SEBI and the RBI.year old stock exchange culture has only 19 million investors. Their furious developmental activities have put the two top Indian bourses almost on par with the best in the world. systems and regulation. The losers: millions of small investors who lost through fixed deposits or the mutual fund. their repeated attempts to re-enter the market with the same bag of tricks have caused further losses to investors. Soon thereafter. the Indian capital market and financial sector have been the fastest to grab every opportunity presented by the paradigm shift in India¶s economic policy. · The Securities Scam of 1992: This was the mother of all Indian financial scandals. In the process. it allowed funds to be transferred with impunity from banks and corporate houses into the equity markets. Satbir Singh Bedi 10 years of financial scams It terms of reform and development. A public interest litigation filed at that time drags on in court. His Rs 1000 crore financial conglomerate comprised of a mutual fund. Shoes case. But for all the development efforts. Apart from raising fresh funds. A Special Court under a separate act of parliament was set up and over 70 cases were filed by the CBI but not a single scamster has been finally convicted by the excruciatingly slow judicial system. So huge was investors¶ disappointment that the primary market remained dead for the next two years. The other half of the scam had a multitude of small traders. The IPO bubble which lasted three years from 1993 to 96 finally burst when prices of listed companies began to crash. a merchant bank (he even lobbied hard to head the Association of Merchant Bankers of India) and a provisional banking license. almost until the beginning of 1999. could get away with wild profit projections. They positioned themselves as part . the markets have remained shallow and stunted and have lurched from one financial scandal to another over the last decade. which caused losses of several thousand crores of rupees is known as the vanishing companies scandal. S. The CRB collapse caused a run on other finance companies causing a huge systemic problem and further losses to investors. which saw the secondary market recover from the scam even though badla was banned. who aided by a retinue of investment bankers and consultants diverted thousands of crores of rupees to themselves. chartered accountants and businessmen. Instead. CRB created a pyramid based on high cost financing which finally collapsed. the Reserve Bank of India which was guilty of gross negligence and was discovered to have deliberately buried supervision reports was let off scot-free with just a couple of officials reprimanded. As a result. This scam had two parts ± the first was perpetrated by existing companies which ramped up their prices in order to raise money at hugely inflated premia to fund greenfield projects and mindless diversifications. and appropriate punishment. They are adequate supervision. Armed with these and favourable credit ratings and audit reports. China has over 25 million investors. strict accountability. More significantly. with all its rapid development and its 130. who teamed up with bankers and investment bankers to float new companies and raise public funds. retail investors have been the biggest losers and the effect of their disenchantment is visible in the slow growth of India¶s investor population. fixed deposit collection (with hefty cash kick backs). the Control over Capital Issues was abolished with a one-line order and it opened the floodgates for a massive scam in the primary market (or Initial public offerings). Bhansali. · The IPO bubble: The entry of Foreign Institutional investors led to a massive bull run. R. while India. and saw thousands of crores of bank funds to move in and out of brokers¶ bank accounts in what was later claimed as a ³accepted market practice´. promoters of Indian companies who thought that prices would never come down. who.the bureaucrats. The winner: C. and that fact that they passed muster is another reflection of supervisory lethargy. exemplifies the first type of scam while the second type. the capital market remains seriously flawed because three key ingredients are still missing. Multinational companies such as Colgate and Castrol started the trend and it led to a benefit of nearly Rs 5000 crores (in relation to market prices at that time) to retail investors before the Securities and Exchange Board of India (SEBI) put in place a set of rules to block the practice. Every policy change in the liberalisation process was pounced upon by unscrupulous companies. most of which have either failed to take off or are languishing. quickly orchestrated general body clearances to allot shares to themselves on a preferential basis and at a substantial discount to the market. The botched up M.

with barely any exception have vanished. Years had gone by and the driving ambitions of a young man in the faceless crowd had been realised. exposed the dubious ways of Harshad Metha.000. The shares which attracted attention were those of Associated Cement Company (ACC). 1992. The RF is in essence a secured short-term (typically 15-day) loan from one bank to . most mutual funds had to be bailed out by their sponsor banks. · The 1998 collapse: What could be a bigger indicator of the ineffectiveness of the regulatory system and the moral bankruptcy in the country than the return of Harshad Mehta? In 1998. but the broker and the companies have got away so far. The government promised stringent action not only against Ketan Parekh and the brokers who hammered down prices. many of the sector specific funds are down in the dumps.400 m2) apartment. Though everybody knows this as a Ketan Parekh scandal. The came the big bail out of Unit Trust of India. made a comeback by floating a website to hand out stock tips and writing columns in several newspapers who were told that his column would push up their circulation figures. Almost all these project. it was back buying recklessly into the Ketan Parekh manipulated scrips and suffering big losses in the process. · The K-10 gimmick: This too is already on the way to be hushed up even before it is fully investigated. The price of ACC was bid up to Rs 10. over the decade. He had been buying shares heavily since the beginning of 1990. part IPO and promised the most incredible returns ± over 1000 per cent at least in seven years. the pressure for action is off and the momentum has been lost. The authors explain: ³The crucial mechanism through which the scam was effected was the ready forward (RF) deal. Starting with the scam-hit Canstar scheme. Just three years later. who was said to have started the bull run. Mehta had the replacement cost theory as an explanation. a string of government owned mutual funds have failed to earn enough to pay the returns µassured¶ to investors. which had a swimming pool as well as a golf patch. it was the tax. For those who asked. On April 23. Yet. it would seem as though only three operators caused the problem by hammering down prices. but also the regulators who slept over their job and companies/banks which colluded with them to divert funds to the market. Videocon and Sterlite shares ended with the inevitable collapse and a cover up operation involving an illegal opening of the trading system in the middle of the night by the Bombay Stock Exchange officials. who was the villain of 1992. 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. Mehta gradually rose to become a stock broker on the Bombay Stock Exchange and lived almost like a movie star in a 15.000 square feet (1.mutual fund. It will be a long time indeed before small investors consider mutual funds a reasonably safe investment. Since UTI is set up under its own act. The Ketan Parekh led scandal has been considered big enough to warrant the setting up of another Joint Parliamentary Committee. The record of the private mutual funds has also been patchy ± after hitting a purple patch in 1999-2000. which ultimately led to his downfall. Harshad Mehta was making waves in the stock market. or parent institutions. within a month. Yet. It cost the BSE President and Executive Director their jobs. The cost: Rs 8000 crores plus.payers who paid for the Rs 4800 crore bailout in 1999. He also had a taste for flashy cars. · Mutual Funds disaster: The biggest post-liberalisation joke on investors is the suggestion that small investors should invest in the market through Mutual Funds. regulation and accountability. journalist Sucheta Dalal in a column in The Times of India. A decade later we seem to have come a full circle. The broker was dipping illegally into the banking system to finance his buying. The year was 1990. And the fact that the second JPC has been spending its first few weeks action (not) taken on the previous JPC report says it all about supervision. but if one examines the selective leak of the SEBI investigation report to the media. His relentless rigging of BPL. But. where was Mehta getting his endless supply of money from? Nobody had a clue. High profile television campaigns. Through the second half of 1991. Mehta was the darling of the business media and earned the sobriquet of the µBig Bull¶. the scamster. full-page advertisments and glossy brochures had the investors flocking for more.

who passed them to the buyer. typically at a slightly higher price. The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan. Once these fake BRs were issued. Another instrument used in a big way was the bank receipt (BR). This money was used to drive up the prices of stocks in the stock market. the Chairman of the Vijaya Bank committed suicide by jumping from the .came in handy for this purpose. and no one had a clue about Mehta¶s modus operandi. who then made the payment to the seller. i.´ This the brokers could manage primarily because by now they had become market makers and had started trading on their account. It acts as a receipt for the money received by the selling bank. obviously assuming that they were lending against government securities when this was not really the case. A typical ready forward deal involved two banks brought together by a broker in lieu of a commission. a BR ³confirms the sale of securities.the banking system had been swindled of a whopping Rs 4. In this settlement process. Hence the name .e.´ Having figured this out.´ It was this ready forward deal that Harshad Mehta and his cronies used with great success to channel money from the banking system.000 crore. It promises to deliver the securities to the buyer. The broker handles neither the cash nor the securities. When the scam was finally revealed. the buyer and the seller might not even know whom they had traded with.the Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB) . That is. The game went on as long as the stock prices kept going up. the borrower. a lot of banks were left holding BRs which did not have any value . the bank lends against government securities just as a pawnbroker lends against jeweller. though that wasn¶t the case in the lead-up to the scam. When time came to return the money. As the authors write. gave the buyer of the securities a BR.another. Crudely put. These banks were willing to issue BRs as and when required. the seller of securities. they pretended to be undertaking the transactions on behalf of a bank. The money due to the bank was returned. for a fee. Mehta needed banks. the shares were sold for a profit and the BR was retired. To keep up a semblance of legality. Instead. deliveries of securities and payments were made through the broker. In a ready forward deal.´ the authors point out. the seller handed over the securities to the broker. they were passed on to other banks and the banks in turn gave money to Mehta. ³Two small and little known banks . while the buyer gave the cheque to the broker. securities were not moved back and forth in actuality. ³In this settlement process. It also states that in the mean time. Once the scam was exposed though. which issue fake BRs.bank receipt. the seller holds the securities in trust of the buyer. either being known only to the broker. or BRs not backed by any government securities.

the real story behind the entire scam is unknown. The recent Hindi movie 'Gafla' showed this scam in a different perspective. Mehta had been convicted in only one of the many cases filed against him. His early childhood was spent in Mumbai(Kandivali) where his father was a small-time businessman. [1] Interestingly. he was in cahoots with owners of a few companies and recommended only those shares.office roof because he knew that if people come to know about his involvement in issuing cheques to Harshad Mehta. the family moved to Raipur in Chattisgarh after doctors advised his father to move to a drier place on account of his indifferent health. Later. Till now. Byron Bazar. This time around. giving tips on his own website as well as a weekly newspaper column. people would accuse him. by the time he died. but Raipur could not hold back Mehta for long and he was back in the city after completing his schooling. This game.Raipur. Mehta made a brief comeback as a stock market guru. too. He studied in Holy Cross Higher Secondary School. [edit]Stock Market Scandal . [2] arshad Shantilal Mehta was born on 29 July in a Gujarati Jain family of modest means. did not last long.

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