3. CONTENTS
A. HISTORY OF HARSHAD MEHTA BEFORE SCAM
B. EXPOSURE , TRIAL AND CONVICTION
C. FACTS OF SCAM
D. BANKING FAULTS RESULTING IN SCAM
E. IMPACT ON PARTICIPATORIES IN SCAM
F. IMPACT ON ECONOMIC MARKETS
G. LIFE AFTER SCAM
H. SOME POPULAR REFERENCES
I. CONCLUSION
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4. A.HISTORY OF HARSHAD MEHTA BEFORE SCAM
Harshad Shantilal Mehta was born in a Gujarati Jain
family of modest means. His early childhood was
spent in Mumbai where his father was a small-time
businessman. Later, the family moved to
Raipur in Madhya Pradesh after doctors advised
his father to move to a drier place on account of
his indifferent health. But Raipur could not hold
back Mehta for long and he was back in the city
after completing his schooling, much against his
father’s wishes.
Mehta first started working as a dispatch clerk in
the New India Assurance Company. Over the
years, he got interested in the stock markets and
along with brother Ashwin, who by then had left
his job with the Industrial Credit and Investment
Corporation of India, started investing heavily in
the stock market.
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ASHWIN 4
MEHTA
5. Harshad Mehta was making waves in the stock market. He had been buying shares
heavily since the beginning of 1990. The shares which attracted attention were those of
Associated Cement Company(ACC),” write the authors. The price of ACC was bid up to ₨
10,000. For those who asked, Mehta had the replacement cost theory as an
explanation. 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
was the darling of the business media and earned the sobriquet of the ‘Big Bull’, who
was said to have started the bull run. But, where was Mehta getting his endless
supply of money from? Nobody had a clue.
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Mehta gradually rose to become a stock
broker on the Bombay Stock Exchange,
who did very well for himself. At his peak,
he livedalmost like a movie star in a
15,000 square feet house, which had a
swimming pool as well as a golf patch. He also
had a taste for flashy cars, which ultimately led
to his downfall.
6. B. EXPOSURE , TRIAL AND CONVICTION
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April 1992: Exposure of the Scam
•Sucheta Dalal, a veteran columnist, exposed the
scam in The Times of India
•Mehta was alleged to dip illegally into the banking
system to finance his stock buying
•He exploited the loopholes in the financial
system through the Ready Forward Deal (RF)
and the Bank Receipts (BR)
•Bank of Karad and The Metropolitan
Co-operative Bank were involved in the BR Scam
•Sensex tanked to 2,529 points in August,
wiping off over Rs. 0.1mn crore in market capitalisations
•Banks were left with BRs bearing no value; banking
system lost a huge Rs. 4,000 crore
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The Downfall
•Arrested by CBI on Nov ‘92; charged with
72 criminal offences and over 600 civil actions
suits.
• Also accused of offering Rs. 1 cr. Bribe to
former PM PV Narsimha Rao, to
cover up the scandal
• A decade later, Mehta died in a
hospital, with 27 cases still pending
against him
8. C.FACTS OF SCAM
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“THROUGH OUT THE PAST YEARS MANY SCAMS HAS BROKE OUT BUT THIS
SCAM HAS MAINTAINED ITS POSITION IN TOP TEN SCAMS IN INDIA” BY THIS
WE CAN ESTIMATE HOW MUCH BIGGER THE SCAM WAS.
CURRENTLY IT IS
AT NO.6
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FAVOURITE STOCKS OF HARSHAD MEHTA -
TATA IRON
AND STEEL
COMPANY
RELIANCE
ACC APOLO TYRES
VIDEOCON BPL
11. D. BANKING FAULTS RESULTING IN SCAM
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• 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
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
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MECHANISM OF MEHTA’S TRADING
BANK OF KARAD (BOK) AND THE METROPOLITAN COOPERATIVE
BANK (MCB) AGREED TO ISSUE FAKE BRs.
BR PASSED TO ANOTHER BANK, MONEY ACQUIRED.
MONEY THUS USED TO ENHANCE PRICES IN THE STOCK MARKET,
INITIATING BULL RUN.
SHARES SOLD FOR SIGNIFICANT PROFITS. BR RETIRED.
STAGE1
STAGE2
STAGE3
STAGE4
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MEHTA
FAKE
BR
BANK
MONEY
SHARES
BOUGHT
BR
RETIRED
PROFIT
KEPT
SOLD
FOR
PROFIT
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Borrower bank
Broker
Harshad Mehta
Lender bank
Issue fake BR
Funds
15. E. IMPACT ON PARTICIPATORIES IN SCAM
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• METROPOLITAN BANK AND BANK OF KARAD GOT
SEVERELY AFFECTED AND THEIR MANAGERS COMMITED
SUICIDE.
• K.M. MARGABANDHU, THEN CMD OF THE UCO BANK
GOT ARRESTED IN THE CASE.
• V. MAHADEVAN HAVE TO VACATE OFFICE AS MANAGER
OF SBI
• CHAIRMAN OF VIJYA BANK COMMITTED SUICIDE BEING
GUILTY OF HAVING ISSUED CHEQUES TO MEHTA.
• MANY INDIAN AND FOREIGN BANK GOT AFFECTED
INCLUDING NATIONAL HOUSING BANK
16. F. IMPACT ON ECONOMIC MARKETS
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18. Steps taken by SEBI in response to the
scam
• DUE TO THE SCAM INSIDER TRADING IN BOMBAY STOCK
EXCHANGE HAVE BEEN SUSPENDED. IN ORDER TO
PREVENT MISUSE OF PRICE SENSITIVE INFORMATION BY
BROKER, DIRECTOR, STOCK MARKET.
• SEBI HAS IMPOSED AN ADDITIONAL 10% VOLATILITY
MARGIN ON ALL THE A-GROUP SHARES AND
ADDITIONAL MARGIN STOCKS IN AUTOMATIC LENDING
AND BORROWING MECHANISM(ALBM) AND
BORROWING AND LENDING OF SECURITI
SCHEME(BLESS)
19. • THE SEBI HAS ALSO IMPOSED VOLATILITY MARGINS ON
NET OUTSTANDING SALE POSITION OF FIIS(FINANCIAL
INSTITUTION,BANKS AND MUTUAL FUNDS)
• IN ORDER TO INCREASE LIQUIDITY,SEBI HAS ALLOWED
BANKS TO OFFER COLLATERALIZED LENDING ONLY
THROUGH BSE AND NSE
• ON MARCH 8,2001, THE SEBI BANNED SHORT SALES.IN
SIMPLE WORDS,IT MEANS THAT ALL SHORT SALES
HAVE TO BE COVERED BY AN EQUAL AMOUNT OF
LONG PURCHASES.
20. H. SOME POPULAR REFERENCES
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• In the 1995 movie "Gambler"
starring Govinda, Harshad
Mehta is referred in the parody
song "Stop That" at [ 02:13 ]
• 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. The movie Gafla that was
nominated globally in various important
film events including at London by Mr.
Bradshaw is based on the actualities
and prevalent realities in the stock
market and Harshad Mehta's scam.
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• 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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MANY WILL LAUGH AT IT BUT THIS IS NOT A
JOKE! THIS IS REALITY OF OUR COUNTRY .
MANY OF THE SCAMS TOOK PLACE ONLY
BECAUSE GOVERNMENT WAS INVOLVED .
LEGAL AUTHORITES AND REGULATERIES
WERE IGNORANT OF THE FACT THAT
WHERE HARSHAD MEHTA WAS EARNING
THIS HUGE AMOUNT OF MONEY AND EVEN
AFTER DISCOVERING THE SCAM LEGAL
PROCEEDING TOOK 10 YEARS TO GIVE
DECISION ON THE CASE.IN LAST DECADE
MANY SCAMS HAVE BROKEN OUT AND IN
FUTURE ALSO MANY WILL ARISE IF WE
DON’T IMPROVE.SO IN THIS NOTE WE ARE
CONCLUDING THIS PRESENTATION.
