Harshad Mehta, born in 1954, rose to prominence in the Indian stock market during the late 1980s and early 1990s, establishing his own brokerage firm and earning the nickname 'Big Bull' for his role in driving stock prices up significantly. His methods involved manipulating the banking system through fraudulent ready-forward agreements, which ultimately led to the 1992 Indian stock market scam that resulted in his imprisonment and massive financial losses for several banks. After his dramatic downfall, regulatory measures were strengthened in the Indian stock market to prevent similar scams in the future.

1. A CASE STUDY ON
HARSHAD
MEHTA
PRESENTED BY;
AISHWARYA PT
SAIRAM
RAVI TEJA
ZHOU

2. INTRODUCTION
Harshad Shantilal Mehta was born on 29 July 1954, at Paneli
Moti, Rajkot district, in a Gujarati Jain family. His early childhood
was spent in Kandivali, Mumbai, where his father was a small-
time businessman.
He completed his B.Com in 1976 from Lajpatrai college Mumbai
and worked a number of odd jobs for the next eight years.

3. • After graduation, Mehta tried his hand at various jobs, often related
to sales, including selling hosiery, cement, and sorting diamonds.
• Mehta started his career as a sales person in the Mumbai office
of New India Assurance Company Limited (NIACL). During this time,
he got interested in the share market and after a few years,
resigned and joined a brokerage firm. In the early 1980s, he moved
to a lower level clerical job at the brokerage firm B.Ambalal &
Sons where he worked a a jobber for the broker P.D. Shukla.
• Over a period of ten years, beginning 1980, he served in positions
of increasing responsibility at a series of brokerage firms.
• By 1990, he had risen to a position of prominence in the Indian
securities industry, with the media (including popular magazines
such as Business Today) touting him as "The Amitabh Bachchan of
the Stock market".

4. In 1984, Mehta was able to become a member of the Bombay
Stock Exchange as a broker and established his own firm
called Grow More Research and Asset Management, with the
financial assistance of associates, when the BSE auctioned a
broker's card.
He actively started to trade in 1986.
 Associated Cement Company (ACC)
 The Big Bull
 Fleet of cars
 Broader scheme, which resulted in manipulating the rise in
the Bombay Stock Exchange

5. How He Used The Banking System
Banks lend each other money, one such transaction was called
the ready-forward agreement which is basically a bank receipt
which is backed by some collateral. Mehta’s firm as a broker
used these transactions between banks. It is said that he took
one week (or more) to exchange a bank receipt between one
bank and another bank, in the meanwhile he asked the second
bank 1 week’s time as well to find a buyer.
This circulation went on with several banks and allowed him to
always have collateralized backed securities from various banks
which were essentially ‘in transit’. They were used as money to
aggressively invest in the stock market. The ‘scam’ was
essentially a regulatory failure.

6. Transition from an ordinary
broker to ‘Big Bull’
• Mehta studied in Holy Cross Higher Secondary School, Byron Bazar, Raipur. He quit his job at The
New India Assurance Company in 1980 and sought a new one with BSE-affiliated stockbroker P.
Ambalal before going on to become a jobber on the BSE for stockbroker P.D. Shukla.
• In 1981, Mehta became a sub-broker for stockbrokers J.L. Shah and Nandalal Sheth. Having gained
considerable experience as a sub-broker, he teamed up with his brother Sudhir to float a new
venture called Grow More Research and Asset Management Company Limited. When the BSE
auctioned a broker’s card, the Mehta duo’s company bid for it with the financial support of J.L.
Shah and Nandalal Sheth. Another name that is rumored to have a crucial hand in the scam was
NimeshShah
• By year 1990, Mehta became a prominent name in the Indian stock market. He started buying
shares heavily. The shares of India's foremost cement manufacturer Associated Cement Company
(ACC) attracted him the most and the scamster is known to have taken the price of the cement
company from 200 to 9000 (approx.) in the stock market – implying a 4400% rise in its price. It is
believed that It was later revealed that Mehta used the replacement cost theory to explain the
reason for the high-level bidding. The replacement cost theory basically states that
older companies should be valued on the basis of the amount of money that would be needed to
create another similar company. By the latter half of 1991, Mehta had come to be called the ‘Big
Bull’ as people credited him with having initiated the Bull Run.

7. WHAT WAS THE
SCAM ALL ABOUT
• Diversion of funds
• Use of Ready Forward (RF)
to maintain SLR (Statutory
liquid ratio)

8. The making of the 1992
security scam
Mehta, along with his associates, was accused of manipulating
the rise in the Bombay Stock Exchange (BSE) in 1992. They took
advantage of the many loopholes in the banking system and
drained off funds from inter-bank transactions. Subsequently,
they bought huge amounts of shares at a premium across many
industry verticals causing the Sensex to rise dramatically.
However, this was not to continue. The exposure of Mehta's
modus operandi led banks to start demanding their money
back, causing the Sensex to plunge almost dramatically as it had
risen. Mehta was later charged with 72 criminal offences while
over 600 civil action suits were filed against him. Significantly,
the Harshad Mehta security scandal also became the flavor of
Bollywood with Sameer Hanchate's film Gafla.

9. The 1992 security scam
and its exposure
Mehta's illicit methods of manipulating the stock market were
exposed on April 23, 1992, when veteran columnist Sucheta Dalal
wrote an article in India's national daily The Times of India. Dalal’s
column read: “The crucial mechanism through which the scam was
effected was the ready forward (RF) deal. The RF is in essence a
secured short-term (typically 15-day) loan from one bank to another.
Crudely put, the bank lends against government securities just as a
pawnbroker lends against jewelers. The borrowing bank actually sells
the securities to the lending bank and buys them back at the end of
the period of the loan, typically at a slightly higher price.” In a ready-
forward deal, a broker usually brings together two banks for which he
is paid a commission. Although the broker does not handle the cash or
the securities, this was not the case in the prelude to the Mehta scam.
Mehta and his associates used this RF deal with great success to
channel money through banks.

10. Complicit lenders
Armed with these schemes, all Mehta needed now were banks
which would readily issue fake BRs, or ones without the
guarantee of any government securities. His search ended when
he found that the Bank of Karad (BOK), Mumbai and the
Metropolitan Co-operative Bank (MCB) two small and little
known lenders, were willing to comply. The two banks agreed
to issue BRs as and when required. Once they issued the fake
BRs, Mehta passed them on to other banks who in turn lent him
money, under the false assumption that they were lending
against government securities. Mehta used the money thus
secured to enhance share prices in the stock market. The shares
were then sold for significant profits and the BR retired when it
was time to return the money to the bank.

11. Outcome
• Mehta continued with his manipulative tactics, triggering a massive rise in the
prices of stock and thereby creating a feel-good market trajectory. However,
upon the exposure of the scam, several banks found they were holding BRs of
no value at all. Mehta had by then swindled the banks of a staggering Rs
4,000 crore. The scam came under scathing criticism in the Indian Parliament,
leading to Mehta's eventual imprisonment. The scam’s exposure led to the
death of the Chairman of the Vijaya Bank who reportedly committed suicide
over the exposure. He was guilty of having issued checks to Mehta and knew
the backlash of accusations he would have to face from the public.
• A few years later, Mehta made a brief comeback as a stock market expert and
started providing investment tips on his website and in a weekly newspaper
column. He worked with the owners of a few companies and recommended
the shares of those companies only. When he died in 2002, Mehta had been
convicted in only one of the 27 cases filed against him. What attracted the
taxman’s attention was Mehta's advance tax payment of Rs 28-crore for the
financial year 1991-92. Another eye-catcher was his extravagant lifestyle.

12. I-T, PSBs recover dues nine
years after Mehta's death
Nine years after Harsad Mehta died, the I-T department and
public sector banks (PSBs) have successfully recovered a significant
portion of their claims emerging out of the securities scam from his
liquidated assets. The Supreme Court directed the Custodian of the
attached properties and assets of the Harshad Mehta Group (HMG) in
March 2011 to make payments of Rs1,995.66-crore to the I-T
department and Rs 199.25-crore to the State Bank of India (SBI),
making the two institutions two of the earliest claimants to recover
their dues.
While the SBI’s total principal amount claim of Rs 1,000-crore have
been largely settled, financial institutions have also received some
money. However, Standard Chartered Bank, which had claimed Rs
500-crore, has yet to recover its dues it was one of the late claimants.
Although the total claim over the HMG is of more than Rs 20,000-
crore, the apex court has said that for the present, it would only
consider claims towards the principal amount.

13. SEBI’s damage control
measures
SEBI investigations into Parekh's money laundering affairs revealed that KP
had used bank and promoter funds to manipulate the markets. It then
proceeded with plugging the many loopholes in the market. The trading cycle
was cut short from a week to a day. The carry-forward system in stock trading
called ‘BADLA’ was banned and operators could trade using this method. SEBI
formally introduced forward trading in the form of exchange-traded
derivatives to ensure a well-regulated futures market. It also did away with
broker control over stock exchanges. In KP’s case, the SEBI found prima facie
evidence that he had rigged prices in the scrips of Global Trust Bank, Zee
Telefilms, HFCL, Lupin Laboratories, Aftek Infosys and Padmini Polymer.
Furthermore, the information provided by the RBI to the Joint Parliamentary
Committee (JPC) during the investigation revealed that financial institutions
such as Industrial Development Bank of India (IDBI Bank) and Industrial
Finance Corporation of India (IFCI) had given loans of Rs 1,400 crore to
companies known to be close to Parekh.

16. CONCLUSION
Harshad Mehta was a brave stock broker. He knew the loopholes
in banking system as well as to how to explicit the loopholes.
His whole intension was to raise the SENSEX.
Some of the regulatory actions SEBI undertook came under
scathing criticism from some quarters who accused it of still
being clueless about its supervisory duties. Observers said the
regulator still continued believing that its only priority was to
prevent a fall in stock prices.

17. THANK YOU