3. CONTENTS
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• Early life
• Rise of Harshad Mehta
• Loophole in Indian banking system
• The fraud- Modus operandi
• Impact on Stock Market
• Conviction and Death
• New regulations
• In Popular culture
4. EARLY LIFE
o Name – Harshad Shantilal Mehta
o Born on 29 July, 1953 at Paneli Moti, Rajkot
district, in a Gujarati Jain family of modest
means.
o Earned degree in Bachelor of Commerce.
o Started his working life as an employee of New
India Assurance Company
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5. Over a period of ten years, beginning 1980, he served in
positions of increasing responsibility at a series of
brokerage firms.
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•Stock broker P. Ambalal
•Jobber for P.D Shukla
Early
80s
•J.L. Shah and
Nandalal Seth1982
6. RISE OF MEHTA
Established his own firm when BSE auctioned a broker’s
card.
Traded heavily in shares of Associated Cement Company
(ACC), increasing share price from Rs.200 to Rs.9000.
Justified increase with Replacement cost theory.
Earned the sobriquet of “The Big Bull”. 6
Year 1990
7. INSTRUMENTS USED IN SCAM
Harshad Mehta used following instruments in the scam:
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Loophole in SLR
Ready Forward deal
Bank Receipts
8. LOOPHOLE IN SLR
SLR- The banks in India had to maintain a particular
amount of their deposits in government bonds.
In early 1990s, each bank had to submit balance sheet at
the end of each day.
Now, Government decided that banks need to show it
only on Fridays instead of every day.
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• Average %age of bond holdings over
the week needs to be above the SLR
but the daily %age need not be so.
EXTRA
CLAUSE
10. 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 with. 10
12. BANK RECEIPTS
Bank receipt serves three functions:
o Confirms the sale of securities
o States that the securities are held by the
seller in trust for the buyer
o Acts as a receipt for the money received by
the selling bank
Borrowing Bank
(Seller)
Bank Receipt
Lending Bank
(Buyer)
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Funds
13. THE FRAUD
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• Sold securities to
Harshad Mehta
• Issued fake Bank
Receipts
Seller
Harshad Mehta
• Bought securities
from him
• Issued cheques in his
name
Buyer
Invested in
Stock market
F
U
N
D
S
14. 14
• Mehta took money from Bank A
• Delivered securities taken from
Bank B
With
Bank A
• Immediately took securities (for A)
• Paid money to B the next day
• Offered 15% return to B
With
Bank B
• He always had some working capital
• Cleverly squeezed out funds from
banking system & invested in equity
With
Stock
market
MODUS OPERANDI
15. Mehta collected fake BRs from Bank of Karad and
the Metropolitan Co-operative Bank.
Exchanged fake BRs with other banks for money.
Invested money in stock market, made huge
profits, retired BRs on due date.
He offered the ‘Replacement cost theory’ as an
explanation.
Mehta earned the sobriquet of the ‘Big Bull’ who
started the bull run.
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17. 17
THE IMPACT
Banking system had been swindled of a
whopping 4,000 crores
Banks holding fake BRs when scam
unearthed faced huge losses
Shares of ACC rose from 200 to 9000
(up by 4400%)
18. 18
Swiped 6 billion from SBI
Bribery claim of 10 million on the then PM
Mr. P. V. Narasimha Rao
The day he sold shares, market crashed
Chairman of Vijaya Bank committed suicide
20. CONVICTION AND DEATH
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, and banned
by SEBI from the stock market
Convicted in 72 criminal offenses and over 600 civil law
suits
September 1999, Bombay High Court convicted and
sentenced him to five years rigorous imprisonment and
a fine of 25,000
He died at the age of 47, on 31 December 2001. 20
21. NEW REGULATIONS- LESSONS LEARNT
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Listing
Agreements
Securities Laws
(Amendments)
Act, 1995
Mandatory
disclosures by
issuing companies
SEBI empowered to
penalize capital
market violations
Securities
Appellate Tribunal
established
22. IN POPULAR CULTURE
In the 1995 movie "Gambler" starring Govinda, Harshad
Mehta is referred in the parody song "Stop That"
The character Natwar Shah in movie Aankhein
(released:1993), placed under scanner for a Rs. 50 billion
scandal, was inspired by Harshad Mehta.
The Mehta scandal was portrayed in the Hindi movie, Gafla.
It was premiered in Times BFI 50th London Film Festival on 18
Oct 2006.
Mehta scandal life is covered by Sucheta Dalal and Debashish
Basu in their book The Scam: From Harshad Mehta To Ketan
Parekh.
Harshad Mehta's trial has been referred to in 2001 Bollywood
movie Nayak.
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