COURSE:iCAPITALiMARKETSiANDiSECURITIESiREGULATION

COURSEiCODE:iLAWi5034
SEMESTER:iWINi’2021-22’

TOPICiON
HARSHAD MEHTA CASE ANALYSIS
SUBMITTEDiTO
PROF.iDR.iJAYENDRAiKASTURE
ASSISTANTiPROFESSOR
VITiLAWiSCHOOL

NAME:iS.E.SIVAM, RISHIVYAS SRINIVASAN

REGISTERiNO:19BLB1056,19BLB1020
COURSE:iBBA.LLB(HONS)
INTRODUCTION:-
Stockbrokers rwanted rto rborrow rfunds rto rdeploy rin rthe rmarket. rStringent rRBI
rregulations rrestricted rthem rfrom rborrowing rfrom rbanks, rthe rcheapest rsource rof
rfunds. rBrokers rfound ra rworkaround rbuilt ron rtrading rin rgovernment rsecurities,
rcolluding rwith rbanks, rcircumventing rRBI rrules, rgetting rtheir rhands ron rbank rfunds
rand rdiverting rit rto rthe rstock rmarket. rBrokers rand rbanks rgot rhelp rfrom rpublic
rsector rundertakings r(PSUs), rwhich rwere rlooking rfor ravenues rto rdeploy rtheir
rtemporary rsurpluses. rIn rviolation rof rrules, rPSUs rstarted rtaking rpositions rin rthe
rsecurities rmarket rthrough rthe rportfolio rmanagement rservices r(PMS) rschemes rrun rby
rbanks. rThis rwall rof rmoney rfuelled rmassive rspeculation rin rstocks rbetween rApril
r1991 rand rMay r1992, rand rcaused ra rnear rfourfold rjump rin rthe rBSE rSensex.
Stockbrokers rneeded rfunds rto rfinance rtheir rstock rmarket rtrades. rThese rbrokers rtook
rup rproprietary rpositions rin rstocks, ror rwere rfinanciers rfor rvyaj rbadla rtrades. rMany
rof rthem rwere ralso rbrokers rin rthe rmoney rmarket, rwhere rcorporate rbonds rand
rgovernment rsecurities rwere rtraded. r
What ris rvyaj rbadla? r
Back rin rthe r80s, rstock rmarket rtrades rwere rsettled ronce rin rtwo rweeks. rBut rbuyers
rhad rthe roption rto rroll rover rtheir rposition rto rthe rnext rsettlement rcycle, rif rthey
rcould rfind rsomebody rto rfinance rit. rThe rfinancier rwould rcharge ran rinterest, rwhich
rwas rhigher rthan rthe rrates rin rthe rbond rmarkets, ras rwell ras rthe rdeposit rrates
roffered rby rbanks. rMany rbig rbrokers rwere rbadla rfinanciers ras rwell. rAnd rwhen rthey
rwere rnot rfinancing rother rtraders, rthe rbrokers rwould rneed rfunds rto rroll rover rtheir
rpositions, rif rthe rmarket rwas rin ran ruptrend. rSo rbrokers rfound rit rprofitable rto
raccess rfunds rfrom rthe rbanking rsystem rand ruse rit rfor rtheir rstock rmarket roperations.
rThey rfound ra rloophole rin rthe rbanking rsystem rthat rwas rthere rfor reveryone rto rsee.
rThey rexploited rit rto rthe rhilt. rThis rwas rto rdo rwith rbanks’ rtrading rin rdebt rsecuritie

Jobs, roften rrelated rto rsales, rincluding rselling rhosiery, rcement, rand rsorting rdiamonds.
rMehta rstarted rhis rcareer ras ra rsales rperson rin rthe rMumbai roffice rof rNew rIndia
rAssurance rCompany rLimited r(NIACL). rDuring rthis rtime, rhe rgot rinterested rin rthe
rstock rmarket rand rafter ra rfew rdays, rresigned rand rjoined ra rbrokerage rfirm. rIn rthe
rearly r1980s, rhe rmoved rto ra rlower rlevel rclerical rjob rat rthe rbrokerage rfirm
rHarjivandas rNemidas rSecurities rwhere rhe rworked ra rjobber rfor rthe rbroker rPrasann
rPranjivandas rBroker rwho rhe rconsidered rhis r"Guru".
Over ra rperiod rof rten ryears, rbeginning r1980, rhe rserved rin rpositions rof rincreasing
rresponsibility rat ra rseries rof rbrokerage rfirms. rBy r1990, rhe rhad rrisen rto ra rposition
rof rprominence rin rthe rIndian rsecurities rindustry, rwith rthe rmedia r(including rpopular
rmagazines rsuch ras rBusiness rToday) rtouting rhim ras r"Amitabh rBachchan rof rthe
rStock rmarket"
Grow rMore rResearch rand rAsset rManagement, rwith rthe rfinancial rassistance rof
rassociates, rwhen rthe rBSE rauctioned ra rbroker's rcard.He ractively rstarted rto rtrade rin
r1986.[6] rBy rearly r1990, ra rnumber rof reminent rpeople rbegan rto rinvest rin rhis rfirm,
rand rutilize rhis rservices. rIt rwas rat rthis rtime rthat rhe rbegan rtrading rheavily rin rthe
rshares rof rAssociated rCement rCompany r(ACC). rThe rprice rof rshares rin rthe rcement
rcompany reventually rrose rfrom r₹200 rto rnearly r₹9,000 rdue rto ra rmassive rspate rof
rbuying rfrom ra rset rof rbrokers rincluding rMehta.[10] rMehta rjustified rthis rexcessive
rtrading rin rACC rshares rby rstating rthat rthe rstock rhad rbeen rundervalued, rand rthat
rthe rmarket rhad rsimply rcorrected rwhen rit rrevalued rthe rcompany rat ra rprice
requivalent rto rthe rcost rof rbuilding ra rsimilar renterprise; rthe rso-called r"replacement
rcost rtheory" rthat rhe rhad rput rforward.
During rthis rperiod, respecially rin r1990–1991, rthe rmedia rportrayed ra rheightened
rdeified rimage rof rMehta, rcalling rhim r"The rBig rBull". rHe rwas rcovered rin ra rcover
rpage rarticle rof ra rnumber rof rpublications rincluding rthe rpopular reconomic rmagazine
rBusiness rToday, rin ran rarticle rtitled r"Raging rBull". rHis rflashy rlifestyle rof ra rsea
rfacing r15,000 rsquare rfeet rpenthouse rin rthe rtony rarea rof rWorli rcomplete rwith ra
rmini rgolf rcourse rand rswimming rpool, rand rhis rfleet rof rcars rincluding ra rToyota
rCorolla, rLexus rLS400, rand rToyota rSera rwere rflashed rin rpublications. rThese rfurther
rexemplified rhis rimage rat ra rtime rwhen rthese rwere rrarities reven rfor rthe rrich rpeople
rof rIndia.
In rcriminal rindictments rlater rbrought rby rthe rauthorities, rit rwas ralleged rthat rMehta
rand rhis rassociates rthen rundertook ra rmuch rbroader rscheme, rwhich rresulted rin
rmanipulating rthe rrise rin rthe rBombay rStock rExchange. rThe rscheme rwas rfinanced
rby rsupposedly rcollateralised rbank rreceipts, rwhich rwere rin rfact runcollateralised. rThe
rbank rreceipts rwere rused rin rshort-term rbank-to-bank rlending, rknown ras r"ready
rforward" rtransactions, rwhich rMehta's rfirm rbrokered. rBy rthe rsecond rhalf rof r1991
rMehta rhad rearned rthe rnickname rof rthe r"Big rBull", rbecause rhe rwas rsaid rto rhave
rstarted rthe rbull rrun rin rthe rstock rmarket. rSome rof rthe rpeople rwho rworked rin rhis
rfirm rincluded rKetan rParekh, rwho rlater rwould rbe rinvolved rin rhis rown rreplicate
rscam.

Outbreak rof r1992 rsecurities rfraud

On r23 rApril r1992, rjournalist rSucheta rDalal rexposed rillegal rmethods rin ra rcolumn rin
rThe rTimes rof rIndia. rMehta rwas rdipping rillegally rinto rthe rbanking rsystem rto
rfinance rhis rbuying.
A rtypical rready rforward rdeal rinvolved rtwo rbanks rbrought rtogether rby ra rbroker rin
rlieu rof ra rcommission. rThe rbroker rhandles rneither rthe rcash rnor rthe rsecurities,
rthough rthat rwas rnot rthe rcase rin rthe rlead-up rto rthe rfraud. rIn rthis rsettlement
rprocess, rdeliveries rof rsecurities rand rpayments rwere rmade rthrough rthe rbroker. rThat
ris, rthe rseller rhanded rover rthe rsecurities rto rthe rbroker, rwho rpassed rthem rto rthe
rbuyer, rwhile rthe rbuyer rgave rthe rcheque rto rthe rbroker, rwho rthen rmade rthe
rpayment rto rthe rseller. rIn rthis rsettlement rprocess, rthe rbuyer rand rthe rseller rmight
rnot reven rknow rwhom rthey rhad rtraded rwith, reither rbeing rknown ronly rto rthe
rbroker. rThis rthe rbrokers rcould rmanage rprimarily rbecause rby rnow rthey rhad rbecome
rmarket rmakers rand rhad rstarted rtrading ron rtheir raccount. rTo rkeep rup ra rsemblance
rof rlegality, rthey rpretended rto rbe rundertaking rthe rtransactions ron rbehalf rof ra rbank.
Mehta rused rforged rBRs rto rgain runsecured rloans, rand rused rseveral rsmall rbanks rto
rissue rBRs ron rdemand. rOnce rthese rfake rBRs rwere rissued, rthey rwere rpassed ron rto
rother rbanks rand rthe rbanks rin rturn rgave rmoney rto rMehta, rassuming rthat rthey rwere
rlending ragainst rgovernment rsecurities rwhen rthis rwas rnot rreally rthe rcase. rThis
rmoney rwas rused rto rdrive rup rthe rprices rof rstocks rin rthe rstock rmarket. rWhen rtime
rcame rto rreturn rthe rmoney, rthe rshares rwere rsold rfor ra rprofit rand rthe rBR rwas
rretired. rThe rmoney rdue rto rthe rbank rwas rreturned.
This rwent ron ras rlong ras rthe rstock rprices rkept rgoing rup, rand rno rone rhad ra rclue
rabout rMehta's roperations. rOnce rthe rfraud rwas rexposed, rthough, ra rlot rof rbanks
rwere rleft rholding rBRs rwhich rdid rnot rhave rany rvalue r– rthe rbanking rsystem rhad
rbeen rswindled rout rof ra rwhopping r₹40 rbillion r(equivalent rto r₹260 rbillion ror
rUS$3.4 rbillion rin r2020). rThey rknew rthat rthey rwould rbe raccused rif rpeople rcame
rto rknow rabout rhis rinvolvement rin rissuing rcheques rto rMehta. rSubsequently, rit
rtranspired rthat rCitibank, rbrokers rlike rPallav rSheth rand rAjay rKayan, rindustrialists
rlike rAditya rBirla, rHemendra rKothari, ra rnumber rof rpoliticians, rand rthe rRBI
rGovernor rS.Venkitaramanan rall rhad rplayed ra rrole rin rallowing ror rfacilitating
rMehta's rmarket rrigging
Stamp rpaper rfraud
Up rto rthe rearly r90's rbanks rin rIndia rwere rnot rallowed rto rinvest rin rthe requity
rmarkets. rHowever, rthey rwere rexpected rto rpost rprofits rand rto rretain ra rcertain rratio
r(threshold) rof rtheir rassets rin rgovernment rfixed rinterest rbonds. rMehta rcleverly
rsqueezed rcapital rout rof rthe rbanking rsystem rto raddress rthis rrequirement rof rbanks
rand rpumped rthis rmoney rinto rthe rshare rmarket. rHe ralso rpromised rthe rbanks rhigher
rrates rof rinterest, rwhile rasking rthem rto rtransfer rthe rmoney rinto rhis rpersonal
raccount, runder rthe rguise rof rbuying rsecurities rfor rthem rfrom rother rbanks. rAt rthat
rtime, ra rbank rhad rto rgo rthrough ra rbroker rto rbuy rsecurities rand rforward rbonds
rfrom rother rbanks. rMehta rused rthis rmoney rtemporarily rin rhis raccount rto rbuy
rshares, rthus rhiking rup rdemand rof rcertain rshares r(of rgood restablished rcompanies
rlike rACC, rSterlite rIndustries rand rVideocon) rdramatically, rselling rthem roff, rpassing
ron ra rpart rof rthe rproceeds rto rthe rbank rand rkept rthe rrest rfor rhimself. rThis rresulted
rin rstocks rlike rACC r(which rwas rtrading rin r1991 rfor r₹200/share) rskyrocketing rto
rnearly r₹9,000 rin rjust r3 rmonths.
Bank rreceipt rfraud
Another rinstrument rused rin ra rbig rway rwas rthe rbank rreceipt. rIn ra rready rforward
rdeal, rsecurities rwere rnot rmoved rback rand rforth rin ractuality. rInstead, rthe rborrower,
ri.e. rthe rseller rof rsecurities, rgave rthe rbuyer rof rthe rsecurities ra rBR. rThe rBR rserves
ras ra rreceipt rfrom rthe rselling rbank, rand ralso rpromises rthat rthe rbuyer rwill rreceive
rthe rsecurities rthey rhave rpaid rfor rat rthe rend rof rthe rterms.
Having rfigured rthis rout, rMehta rneeded rbanks, rwhich rcould rissue rfake rBRs, ror rBRs
rnot rbacked rby rany rgovernment rsecurities.
Once rthese rfake rBRs rwere rissued, rthey rwere rpassed ron rto rother rbanks rand rthe
rbanks rin rturn rgave rmoney rto rMehta, rplainly rassuming rthat rthey rwere rlending
ragainst rgovernment rsecurities rwhen rthis rwas rnot rreally rthe rcase.[13] rHe rtook rthe
rprice rof rACC rfrom r₹200 rto r₹9,000 r(an rincrease rof r4,400%). rSince rhe rhaReady
rforward rdeal rscam
The rready rforward rdeal
ris ra rway rwhere ra rsingle rbroker rliaisons rbetween rtwo rbanks. rWhen rone rbank
rwants rto rsell rsecurities, rit rapproaches rthe rbroker. rThis rbroker rgoes rto ranother rbank
rand rtries rto rsell rthe rsecurities rand rvice rversa rfor rbuying. rSince rMehta rwas rvery
rrenowned rbroker, rhe rgot rcheques rissued rin rhis rname rinstead rof rthe rbank. rWhen
rthe rbank rwanted rmoney rfor rthe rsecurities, rhe rapproached ranother rbank rand
rrepeated rthe rsame rprocess, rand rinvested rthe rbank rmoney rin rthe rstock rmarket.Mehta
rused rthe rready rforward rdeal rand rapplied rit rto rthe rBank rReceipts rsystem rof rthe
rIndian rfinancial rsystems. rThis rsystem rwas rthe rmost rflawed rsystem ras rthe
rJanakiraman rCommittee rrestructured rthe rentire rBank rReceipts rsystem rafter rthe r1992
rscam.
Mehta rused rforged rBR's rto rgain runsecured rloans, rand rused rseveral rsmall rbanks rto
rissue rBRs ron rdemand. rSince rthese rbanks rwere rsmall, rMehta rheld ron rto rthe
rreceipts ras rlong ras rhe rwanted. rThe rcheques rin rfavour rof rboth rthe rbanks rwere
rcredited rinto rthe rbrokers' raccounts rwhich rwas rthe raccount rof rMehta. r
A rbank rreceipt rwas rissued rby rbanks rwho rsold rthe rsecurities rbut rwere runable rto
rmake rimmediate rdeliveries. rThey rspecified rwhat rhad rbeen rsold rand rthat rfunds rwere
rreceived rfrom rthe rlending rbank rwhile rthe rsecurities rwould rbe rdelivered ron ra rlater
rdate. rOnce rthe rdelivery rwas rmade, rthe rbank rreceipts rstood rdischarged.
So, ra rbank rreceipt rwould rconfirm rthat rthe rborrowing rbank rwill rdeliver rthe
rsecurities rat ra rlater rdate. rThis rassured rthe rlending rbank rthat rthe rbank rreceipts
rwere rissued ragainst ra rcollateral.
Also rthe rsettlement rcycle rwas r14 rdays. rSo, rif rSBI rloans rmoney rto rPNB ragainst ra
rBR, rthen rNB rhas rto rdeliver rthe rsecurities rwithin r14 rdays. rAs ra rresult, rbanks
rmade rheavy rinvestments rinto rBOK rand rMCB ras rthey rshowed rpositive rsigns rof
rgrowth. rUsing rthe rBR rscam, rMehta rtook rthe rprice rof rACC rfrom r₹200 rto r₹9000
rin ra rshort rspan rof rtime. rThis r4400% rpercent rincrease rwas rseen rin rseveral rother
rstocks rand ras rhe rsold rthe rstocks, rthe rmarket rcrashed
This rwent ron ras rlong ras rthe rstock rprices rkept rgoing rup, rand rno rone rhad ra rclue
rabout rMehta's roperations. rOnce rthe rscam rwas rexposed, rthough, ra rlot rof rbanks
rwere rleft rholding rBRs rwhich rdid rnot rhave rany rvalue r– rthe rbanking rsystem rhad
rbeen rswindled rof ra rwhopping r₹4,000 rcrore r(equivalent rto r₹260 rbillion ror rUS$3.4
rbillion rin r2020). r
They rknew rthat rthey rwould rbe raccused rif rpeople rcame rto rknow rabout rtheir
rinvolvement rin rissuing rcheques rto rMehta. rSubsequently, rit rtranspired rthat rCitibank,
rbrokers rlike rPallav rSheth rand rAjay rKayan, rindustrialists rlike rAditya rBirla,
rHemendra rKothari, ra rnumber rof rpoliticians, rand rthe rRBI rGovernor
rS.Venkitaramanan rall rhad rplayed ra rrole rin rallowing ror rfacilitating rMehta's rrigging
rof rthe rshare rmarket.d rto rbook rprofits rin rthe rend, rthe rday rhe rsold rwas rthe rday
rwhen rthe rmarkets rcrashed.
Brokers rlike rHarshad rMehta, rwere rthe rmiddlemen rof rthe rready rforward rdeals.
rIdeally, rthe rlending rbank rwould rissue rthe rcheque rin rthe rname rof rthe rborrowing
rbank, rbut rHarshad rMehta rwould rpromise rbanks ra rhigher rrate rof rreturn rin rexchange
rfor rtransferring rthe rfunds rin rhis rpersonal raccount. rHe rtermed rthis ras rmaking rthem
r‘bank-rich’. rSo, rcheques rworth rcrores rof rrupees rwould rbe rmade rout rto rHarshad
rMehta rinstead rof rPNB ror rother rbanks. rHarshad rMehta rwould rdeposit rthese rcheques
rand rsince rthe rsettlement rcycle rwas r14 rdays ri.e. rhe rhad rto rpay rthe rborrowing rbank
ronly rafter r14 rdays, rso rfor r14 rdays rHarshad rMehta rowned rcrores rof rrupees
He rdiverted rthese rcrores rto rrupees rto rthe rIndian rstock rmarket respecially rrigging rthe
rstock rprices rof rhis rfavourite rstocks, rACC, rVideocon, rSterlite rIndustries retc rand
rtaking rthe rBSE rto rnew rheights. rHe rsingle-handedly rtackled rall rthe rmarket rbears
rlike rRakesh rJhunjhunwala, rManu rMundra rand rothers, rwho rhad rshort rthe rmarket, rin
rabsence rof rany rfundamental rfactors rdriving rthe rmarket rrally. r
With ran rinflow rof rcrores rof rrupees, rthe rstock rprices rrose rdrastically, renticing rother
rinvestors rto rinvest rin rthe rscript. rAs rand rwhen rinvestors rflocked rto rthese rscripts
r(nearing rthe rend rof rthe r14-day rsettlement rcycle), rHarshad rwould rsell rhis
rinvestments, rpay rthe rloan ramount rto rthe rborrowing rbank ras rmentioned rin rthe rBR,
rand rdeliver rthe rsecurities rto rthe rlending rbank.
Among rthe rmain rones, rBRs rcould rnot rbe rissued rfor rgovernment rsecurities, rthey
rcould ronly rbe rissued rwhen rPSU rbonds ror rmutual rfund runits rwere rtraded. rThe
rrecord rof rgovernment rsecurities rheld rby rbanks rwas rmaintained rby rthe rRBI’s rPublic
rDebt rOffice rin rwhat rwas rknown ras rthe rSecurities rGeneral rLedger r(SGL). rWhen ra
rbank rwanted rto rsell rgovernment rsecurities, rit ronly rhad rto rgive ra rSGL rtransfer
rform rto rthe rbuyer. rThe rbuyer rwould rhand rthe rtransfer rform rto rthe rPDO, rwhich
rwould rthen rcredit rthe rsecurities rto rthe rbuyer’s raccount rand rdebit rthe rseller rbank’s
rsecurities raccount. rThe rother rkey rrule rwas rthat rBRs rwere rvalid rup rto ra rmaximum
rof r90 rdaysThe rgame rwas rsimple. rEverything rwas rsquared roff rafter r14 rdays. rThe
rlending rbank rgot rthe rsecurities, rthe rborrowing rbank rgot rthe rcapital, rand rHarshad
rmade rmoney rin rthe rmarket.
In ra rnormal rready rforward rdeal, ronly rtwo rbanks rwere rinvolved. rBut rthe rbrilliance
rthat ris rHarshad rMehta, rinvolved rmultiple rbanks. rHe rwould rget rthe rmoney rfrom
rBank rA rand raskfor14 rdays rto rdeliver rthe rsecurities. rConsecutively, rhe rwould rget
rthe rsecurities rfrom rBank rB rand rask rfor r14 rdays rto rdeliver rthe rfunds.
How rwere rBRs rmisused? r
There rwere rmultiple rviolations rthat reventually rled rto rBRs rbecoming raccepted
rcurrency, rbeing rtraded ras rsecurities rwith rthe runderlying rsecurities rrarely rchanging
rhands. rBanks rstarted rissuing rBRs reven rfor rtransactions rin rgovernment rsecurities
rthough rRBI rrules rforbade rit. rBanks rbuying rsecurities rwould rnot rinsist ron rdelivery
rwithin rthe r90-day rlimit, rand rthis rled rto rBRs rbeing rvalid rindefinitely.
rA rbank rholding ra rBR rand ryet rto rreceive rdelivery rof rthe runderlying rsecurities
rwould rtrade rin rthose rsecurities rwith ra rthird rbank, rand rissue ranother rBR. rIn reffect,
rBRs rwere rbeing rissued rwith rBRs ras rthe runderlying, rinstead rof rsecurities. rSome
rbanks rstarted rissuing rBRs, raware rthat rthey rdid rnot rhave rthe runderlying rsecurities
Remember, rbrokers rwere rintermediaries rin ra rRFD rwhere rlending rand rborrowing
rbanks rremained ranonymous. rThey ronly rknew rthe rbroker rand ran rSGL rnote ror ra
rBR rwas rproof renough rfor rthem rto rissue rcheques rin rthe rname rof rthe rbroker. rAnd
rif rthat rbroker rwas rthe rbiggest rname rin rthe rstock rmarket, rMr rHarshad rMehta, rthen
rno rone rbatted ran reyelid rwhile rissuing rcheques rworth rcrores rof rrupees.
UCO rbank rissued r50 rcrores rto rHarshad rMehta rin rclean rcredit ri.e. rwithout rany
rcollateral. rThe rbiggest rbank rin rIndia, rthe rState rBank rof rIndia, rissued rhim rRs r500
rcrores ron rthe rbasis rof runverified rbank rreceipts. rThis rtrust rand rhis rname rwas rthe
rcatalyst rin rthe r1992 rHarshad rMehta rscam. r
But rHarshad rsoon rrealised rthat rhe rwould rrun rshort rof rbanks rto rget rthe rbank
rreceipts rfrom. rThat ris rwhen rhe rdecided rto rprint rfake rbank rreceiptshe rconvinced
rsmall rsized rbanks r- rBank rof rKarad r(BOK) rand rMetropolitan rCo-operative rBank
r(MCB) rto rissue rhim rfake rbank rreceipts, rguaranteeing rto rmake rthem r‘bank-rich’. r
These rbank rreceipts rwere rjust rpieces rof rpaper rwithout rany rcollateral. rA rcollateral
rguaranteed rthat rif rthe rborrowing rbank rcould rnot rrepay rthe rlending rbank rafter rthe
ragreed rperiod, rthen rthe rlending rbank rwould rtake rthe rbank rreceipts rto rthe rPDO
rand rget rthe rsecurities rtransferred rin rtheir rname. rOnly rin rthis rcase, rthere rwould rbe
rno rcorresponding rrecords rwith rthe rPDO rbecause rthe rbank rreceipts rwere

Of rthe r27 rcriminal rcharges rbrought ragainst rMehta, rhe rwas ronly rconvicted rof rfour,
rbefore rhis rdeath r(by rsudden rheart rattack) rat rage r47 rin r2001. rIt rwas ralleged rthat
rMehta rengaged rin ra rmassive rstock rmanipulation rscheme rfinanced rby rworthless
rbank rreceipts, rwhich rhis rfirm rbrokered rfor r"ready rforward" rtransactions rbetween
rbanks. r
Mehta rwas rconvicted rby rthe rBombay rHigh rCourt rand rthe rSupreme rCourt rof rIndia
rfor rhis rpart rin ra rfinancial rscandal rvalued rat r₹100 rbillion r(US$1.3 rbillion) rwhich
rtook rplace ron rthe rBombay rStock rExchange r(BSE). rThe rscandal rexposed rthe
rloopholes rin rthe rIndian rbanking rsystem rand rthe rBombay rStock rExchange r(BSE)
rtransaction rsystem, rand rconsequently rthe rSEBI rintroduced rnew rrules rto rcover rthose
rloopholes. rHe rwas ron rtrial rfor r9 ryears, runtil rhe rdied rat rthe rend rof r2001
India’s rforeign rexchange rsituation rwas rquite rfragile rin rthe rlate r80s rand rearly r90s.
r“We rhave rto rdepend ron rloans rand rcredit rfrom rforeign rbanks rin rthe rinternational
rmarket,” rthe rthen rRBI rGovernor rS rVenkitaramanan rtold rthe rJPC, rwhen rasked
rabout rRBI’s rinaction ragainst rforeign rbanksThe rscam rfirst rbecame rapparent rin rlate
rApril r1992, rwhen rit rbecame rclear rthat rMehta rwas ra rdisproportionately rlarge
rinvestor rin rgovernment rsecurities. rAt rthe rtime, rMehta rwas rdoing rmore rthan ra rthird
rof rthe rtotal rsecurities rbusiness rin rIndia. rWhen rthe rpublic rrealized rthat rMehta's
rinvestments rwere rillegitimate rand rthat rhis rstocks rwere rlikely rworthless, rit rset roff ra
rselling rfrenzy rof rMehta's rstocks.
 rThe rbanks rthat rhad rloaned rmoney rto rMehta rwere rsuddenly rholding rhundreds rof
rmillions rin runsecured rloans. rThe rcombination rof rthe rselling rfrenzy rand rthe rfact
rthat rnumerous rbanks rbeen rdefrauded rcrashed rthe rIndian rstock rmarket, rwith rprices
rdropping r40% rimmediately. rStocks reventually rdropped r72%, rand ra rbear rmarket
rlasted rfor rabout r2 ryear

Sucheta rDalal, ra rjournalist rat rthe rTimes rof rIndia, rwas rintrigued rby rthe rwealth rand
rluxurious rlifestyle rof ra rcommon rstock rmarket rbroker. rHis rfleet rof rcars, ra rmini rin-
house rgolf rcourse rwas ra rrarity reven rfor rthe rrich. rWhat rwas reven rmore rintriguing
rwas rhow ra rstock rmarket rbroker rcould rhave ra rnetworth rof rRs r3000 rcrores rin
r1992. rAs rshe rdelved rdeep rinto rthe rsource rof rhis rnetworth, rshe runcovered rjust rhow
rMr rMehta rwas rlooting rthe rIndian rbanks rand rdiverting rthe rfunds rto rthe rIndian
rstock rmarket rto rinflate rthe rstock rprices.
On r23rd rApril r1992, rMs rSucheta rDalal rpublished ra rfull rexpose ron rHarshad rMehta,
rwhich rshocked rthe rentire rcountry. rThe rbankers rwere rscrambling rto rverify rtheir
rbank rreceipts rand rthe rIndian rstock rmarkets rcrashed rfrom r4,467 rto r2,000, rwiping
rout r10,000 rcrores rof rmarket rcapitalisation rin ra rsingle rday.
This rstock rmarket rcrash rwas rdiscussed rextensively rin rthe rparliament rand ra rCBI
renquiry, rheaded rby rK. rMadhavan rwas rinitiated rto runearth rthe rentire rfraud. rThe
rRBI rwas ralso rconducting ran rinternal raudit rof rthe rbanks rand rsoon runcovered rfake
rbank rreceipt rfraud rof ra rwhopping rRs r4,000 rcrores r- rThe rbiggest rfinancial rscam
rever rwitnessed rby rindependent rIndia.
After rthe rentire rfraud rwas rdiscovered, rHarshad rMehta rwas rcharged rwith r72 rcriminal
roffences rand rmore rthan r600 rcivil rsuits rwere rfiled ragainst rhim. rThe rRBI ralso
rconstituted rthe rJanakiraman rcommittee rto rinvestigate rthe rfraud rand rthe rquantum rof
rthe rfraud rwas rsaid rto rbe rRs r4,025 rcrores.
On r9th rNovember r1992, rHarshad rand rhis rbrother rAshwin rMehta rwere rarrested rby
rthe rCBI rfor rmisappropriating rmore rthan r28 rLakh rshares rworth rRs r300 rcrores
rthrough rforged rshare rtransfer rforms.
After r3 rrigorous rmonths rin rJail, rHarshad rMehta rdid rmake ra rsmall rcomeback ras ra
rstock rmarket rguru, rgiving rstock rmarket rtips rand radvice rvia rhis rwebsite. rBut rin
rSeptember r1999, rthe rBombay rHigh rCourt rsentenced rhim rto rfive ryears rof
rimprisonment rand ra rfine rof rRs r25,000. rHe rwas ralso rbarred rfrom rthe rIndian rstock
rmarket rfor rlife.Post ran rinquiry rinto rhis rsources rof rincome, rthe rIncome rTax
rDepartment rcharged rHarshad rMehta rand rhis rwife, rJyoti rMehta rwith ra rtax revasion
rnotice rof rRs r11,174 rcrores.

The rimmediate rimpact rwas ra rdrastic rfall rin rshare rprices rand rmarket rindex, rcausing
ra rbreakdown rof rthe rsecurities rcontrol rsystem roperation rwith rthe rcommercial rbanks
rand rthe rRBI. rAround r₹35 rbillion rfrom rthe r₹2,500 rbillion rmarket rwas rwithdrawn,
rcausing rthe rshare rmarket rcollapse. rThe rBombay rStock rshares rresorted rto rrecords
rtampering rin rthe rtrading rsystem. r rIt rcaused rpanic rwith rthe rpublic rand rbanks rwere
rseverely rimpacted. rBanks rlike rStandard rChartered rand rANZ rGrindlays rwere
rimplicated rin rthe rscam rfor rbank rreceipt rforgery rand rtransfer rof rmoney rinto
rMehta's rpersonal raccount. rThe rgovernment rrealized rthat rthe rfundamental rproblem
rwith rthe rfinancial rstructure rof rthe rstock rmarkets rwas rthe rlack rof rcomputerized
rsystems rwhich rimpacted rthe rwhole rstock rmarket.
Various rbank rofficers rwere rinvestigated rand rimplicated rin rfraudulent rcharges. rThe
rfive rmain raccused rofficials rwere rrelated rto rthe rFinancial rFairgrowth rServices
rLimited r(FFSL) rand rAndhra rBank rFinancial rServices rLtd r(ABFSL). rThe rchairman
rof rVijaya rBank rcommitted rsuicide rfollowing rthe rnews rabout rthe rbank rreceipt
rscam. rThe rscam rled rto rthe rresignation rof rP. rChidambaram rwho rwas raccused rof
rowning rshell rcompanies rconnected rto rMehta. rMehta rwas rconvicted rby rthe rBombay
rHigh rCourt rand rthe rSupreme rCourt rof rIndia rfor rhis rpart rin rthe rfinancial rscandal
rvalued rat r₹49.99 rbillion r(USD r$740 rmillion). rVarious rbank rofficials rwere rarrested,
rleading rto ra rcomplete rbreakdown rof rbanking rsystems
The rfirst rreform rwas rthe rformation rof rthe rNational rStock rExchange rof rIndia r(NSE).
rIt rwas rfollowed rby rthe rdevelopment rof rthe rCII rCode rfor rDesirable rCorporate
rGovernance rby rRahul rBajaj. rThe rCII rCode rcommanded rthe rformation rof rtwo
rmajor rcommittees rheaded rby rKumar rMangalam rBirla rand rN. rR. rNarayana rMurthy,
rand roverseen rby rthe rSecurities rand rExchange rBoard rof rIndia r(SEBI). rThe robjective
rwas rto rmonitor rcorporate rgovernance rand rprevent rfuture rscams.
[The rSEBI rwere rto rmonitor rthe rNSE rand rthe rNational rSecurities rDepository. rFor
rthe requity rmarket, rthe rgovernment rintroduced rten racts rof rparliament rand rone
rconstitutional ramendment rbased rupon rthe rprinciples rof reconomic rreform rand
rlegislative rchanges. rThe rintroduction rof ronline rtrading rby rNSE rchanged rthe
rdynamics rof rstock rbuying rand rselling. rThe rfinancial rmarket ropened rup rnationally
rrather rthan rbeing rconfined rto rBombay r(now, rMumbai).

Just rwhen rthe rMehta rfamily rponders ra rsimpler rlife, rauthorities rbarge rin rto rarrest
rHarshad, runder rthe rfalse rimpression rthat rhe rsold rall rthe rshares. rAs rAshwin rplans
rto rget rhis rbrother rout ron rbail rciting rhealth rgrounds, rhis rcondition rbegins rto
rworsen.On rDecember r31, rHarshad rsuffers ra rheart rattack rin rjail. rHe ris rtransported
rto rthe rhospital ras rfirecrackers rfill rthe rsky, rin rthe rbackdrop, rto rbring rin rthe rNew
rYear. rHe ris rleft rat rthe rwaiting rroom runattended, rwhere rhe rtakes rhis rlast rbreath.
rHis rvoice rtakes rover rthe rnarrative ras rhe rlooks rback rat rhis rlife rand rhis rrather rlate
rrealisation rthat rmoney rcan rpossess ra rman rand rlead rhim rto rruin. rThe rvoiceover
rconcludes rwith rthe rphrase: r“It’s rtrue, rmoney rcan rturn rinto rpoison,” ras rhis rfamily
rsheds rtears rat rthe rloss.
Mehta rbegins rto rtransition rinto ra rlife rof rwriting rcolumns rfor rnewspapers ras ran
rexpert rin rtrading rstocks. rIt ris rrevealed rthat rhe ris rstill rmanipulating rstocks rthrough
rhis rcontacts rat rthe rBSE. rThe rplummeting rof rthe rstock rmarket rin r1998 rdue rto
rinvestors rpulling rafter rnuclear rtests rin rPokhran rleave rhim, ronce ragain, rin ra rtricky
rposition.
His rhealth rbegins rto rrapidly rdeteriorate. rTo radd rto rhis rwoes, rAshwin, rHarshad
rMehta’s rbrother, rnotices rthat r27 rlakh rshares rworth rapproximately r₹300 rcrore rhave
rvanished rfrom rthe rstorage rof rassets rowned rby rGrowMore, rHarshad rand rAshwin’s
rfirm.
After rthe rbrothers rreport rthe rmissing rshares rto rthe rauthorities, rthey rare rmet rwith
rthe rstartling rrevelation rthat rHarshad’s rright-hand rman, rBhushan rBhatt, rhad rsold rall
rof rthem rout rof rspite rfor rnot rgetting rthe rsame rlevel rof rfame, rpower rand
racknowledgement ras rthe rsiblings. rBhushan rfalsely rconfesses rthat rHarshad rwas
rbehind rthe rsale rof rthe rshares rand rthrows rhim runder rthe rbus.
After rall rthe rplotting ragainst rHarshad rMehta rwears rhim rdown, rall rof ra rsudden, rthe
rstockbroker rbegins rto rcontradict rhimself rand rtakes rback rallegations ragainst rthe
rprime rminister, rhinting rat ra rdeal rfrom rthe rauthorities rin rexchange rfor rstaying
rquiet. rOne rof rthose rinvesting rin rstocks ras rper rMehta’s rtip roffs rends rup rlosing
reverything rand rfinds rhimself rin rcrippling rdebt. rWith rno rescape rin rsight, rhe
rcommits rsuicide. rWhen rthe rman’s rfamily rcalls rit ra rmurder rby rthe rMehta rfamily
rand rnot rsuicide, rthey rbegin rto rrealise rthe rfar-reaching rconsequences rof rtheir
ractions.
All rof rMehta’s rassets rare rauctioned roff rto rclear rdebt rright rin rfront rof rhis reyes.
rWitnessing rthe rsale rof rhis rbeloved rLexus rLS r400 rclearly rhits rthe rwithered rstock
rmarket rgiant rthe rhardest.