Business ethics case study

Class – T.Y.BBA .

Ayush agrawal (09)

Chirag randhir (23)
Rupam khune (60)
Swaraj malusare (70)
Vaishnav magar(75)
Harshad Mehta Scam
The Man who shook the Nation !
 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 FII’s & FDI’s

• 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 Co-operative Bank

had issued fake BR
 Modus Operandi

Issue fake BR

Broker
Borrower bank Lender bank
Harshad Mehta

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 chairman of the vijaya bank committed suicide over
 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…!!!