You are on page 1of 17

HARSHAD MEHTA SCAM

or
The BIG Bull SCAM
or
The Securities SCAM
Presented By:

Praveen Kumar
Zeeshan Ahmad
Siddhartha Panigrahi
Nayan Agarwal
Rekha Gupta

HARSHAD MEHTA
Name: Harshad Shantilal Mehta
Born in: 29 July 1953
Died in: 31 December 2001
Profession:

Chartered

Accountant

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
In 1981 he became a sub-broker for stock
brokers J.L. Shah and Nandalal Seth
He triggered SENSEX in 1992 & made the
scam by diverting funds of Rs.4,000 crore

People Involve

Harshad Mehta & His Associates.


Sudhir Mehta.
Bank of Karad (BOK).
Metropolitan Co- Operative Bank.
Vijaya Bank.

What happened ?
By 1990 Harshad Mehta had risen to
prominence in the stock market. He had been
buying shares heavily. The shares which
attracted his attention were:
-Associated Cement Co. (ACC),
-Apollo Tyres,
- Reliance,
-Tata Iron and Steel Co. ( TISCO ),
-BPL,Sterlite,
-Videocon.
He took the price of ACC from 200 to 9000.
Thats an increase of 4400%!!!
Imaginary companies created

Bought the shares of own company by


himself causing Sensex up
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

Exposure of 1992 Securities


Scam
On April 23, 1992, journalist Sucheta Dalal exposed
Mehta's scam
She is columnist in Times Of India
She is well known for her numerousinvestigative
reports on Indian Stock Markets, Trading, Consumer
Protection, Infrastructure Projects and Budgets.
She gained fame, notably for breaking thesecurities
scam in 1992 that was Indias biggestfinancial scandal
.
She co-authored a book on the securities scam with her
husband Debashis Basu called
The Scam: Who Won, Who lost, Who got
away(1993).

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

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
Co-operative Bank had issued fake BR

The process of RF
Settlement Process
Payment of cheques
Dispensing of securities

Exploiting the loop hole in


the banking system
He triggered the rise in Bombay stock exchange in the
year 1992 by trading in shares at premium across many
segments
He was arrested and banned for life from trading in the
stock markets
Taking advantages of loopholes in the banking system,
harshad and his associates triggered a securities scam
diverting funds to the tune of RS 4000 crore from the
banks to stock holders between April 1991 to may 1992.
Major culprits were brokers, bankers and financial
institutions.
He was charged with 72 criminal offences. A special
court also sentenced Sudhir Mehta, harshads brother, 6
others, including four bank officials.

Impact Of Scam On
Market

He believed in bull market , which was very rare at that


time. And believed in rising the price instead of
decreasing it.
The index fell from 4500 to 2500 representing a loss
of Rs. 100,000 crores in market capitalization.

IMMEDIATE IMPACT:
The first impact of the scam was a steep fall in the
share prices. The index fell from 4500to 2500
representing a loss of Rs. 100,000 crores in market
capitalization. However, the major damage to the
stock market did not stop here. Since the accused
were active brokers in the stockmarkets, they had
traded a large number of shares during the previous
year. All these shares became tainted and worthless
and could not be used in the market. This was a
great loss to the innocent investor who had bought
these shares much before the scandal was exposed.

IMPACT ON THE BANKS


IMPACT ON THE INDIAN ECONOMY

Recommendations
Normal transactions must be allowed to be
done openly and transparently, and the role
of brokers as market makers must be
recognized.
Artificial barriers between the money market
and the capital market, between the market
for corporate securities and the market for
government securities and between the
formal money market and the informal one
must be eliminated.

CONCLUSION
Corporate Governance is the value framework,
ethical framework and moral frameworkwithin
which businesses make decisions.
Business must harness the power of ethics
which is assuming a new level of importance
and power. (James Joseph - former US
ambassador to SA).
When large sums of money are involved, greed
causes people to become unethical. How