The scam can be categorized as capital market scam in which it is done by manipulating the facts in order to attain enormous funds. There are four different aspects of the scam. Diversion of funds Intra day trading Use of ready forward to maintain SLR Fake bank recipts

1. BY SNEHA KHANNA
SRISHTI JAISWAL
SONA PARVEEN

3.  Name: Harshad Shantilal Mehta
 Born in: 29 July 1953
 Died on: 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

4.  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
 Later started his own venture : grow more
research and
asset manangement company ltd.
Become a dream seller and celebrity in financial
world.

5.  Got the great tag of “BIG BULL” in the Indian
stock market.
 After the recommendation of big bull, demand for
stocks used to exponentially rise
 Propounded the replacement cost theory .
 He was alleged to have engineered the rise in BSE
in the year 1992.
 On Aril 23, 1992 Sucheta Dalal in a column in TOI
exposed the dubious way of Harshad Mehta.
He was later charged with 72 criminal offences
and 600 suites were filled against him.
He died of massive heart attack in thane jail.

7.  The scam can be categorized as capital
market scam
in which it is done by manipulating the
facts in order to attain enormous funds.
There are four different aspects of the
scam.
1) Diversion of funds
2) Intra day trading
3) Use of ready forward to maintain SLR
4) Fake bank recipts

8. Banks
To
Brokers

9.  The modus operandi mainly included
investing heavily in certain shares at the
start of the day which led to a sharp increase
in the price of the stock and the cashing in at
the end of the day to reap huge benefits.

10.  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

11.  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

12.  A BR means that issuer holds the securities in the
trust of the buyer but there is possibility that
issuer may not have the security at all.
 Following are the reason for the bank to issue BR’S
which are not backed by any securities:
1. Bank may do an RF Deal and issue fake BR’S if
bank simply wants an unsecured loan where the
lending bank is under the impression that it is
dealing with the unsecured loan but in actuality it
is advancing an unsecured loan

15.  Taking the advantage of loopholes Harshad and his
associates triggered the securities scam by
diverting funds to the tune of RS 4000 CRORE.
From bank to stock brokers from April 1991 to
May1992.
 Some of the stocks which were highly invested by
Harshad Mehta
1. ACC
2. APOLLO TYRES
3. RELIANCE
4. TISCO
5. BPL
6. STERLITE

17. In the early 1990s, Banks in India had to maintain a fixed
ratio of their deposits in the form of Government securities
/bonds which was governed by the statutory liquidity ratio
(SLR). This obligation on the part of the banks required
them to show a detailed sheet of its stock of Government
bonds at the end of every day. Soon after the rule changed
and the banks were not required to show these details at
end of everyday rather they were allowed to show in once
in a week i.e. Friday. This allowed the banks to sell their
bonds in the earlier part of their week and then buy it back
in the later part. This helped them make some profits as
they could invest the money that they got by selling the
bonds. The whole process of buying and selling the bonds
was taken care of by brokers and only they knew the two
parties which were involved .Individual banks didn’t have
any idea as to who the other party in the whole transaction
was.

18. The whole process can be described in three phases:
1. SETTLEMENT PROCESS
2. PAYMENT CHEQUES
3. DISPENSING SECURITIES

19. The immediate impact of the scam was
a sharp fall in the share prices. The
index fell from 4500 to 2500
representing a loss of Rs. 100,000 crores
in market capitalization.
Since the accused were active brokers
in the stock markets, the number of
shares which had passed through their
hands in the last one year was colossal.
All these shares became "tainted"
shares, and overnight they became
worthless pieces of paper as they could
not be delivered in the market.
Genuine investors who had bought
these shares well before the scam
came to light and even got them
registered in their names found
themselves being robbed by the
government. This resulted in a chaotic
situation in the market since no one
was certain as to which shares were
tainted and which were not.

20. The government's liberalization policies
came under severe criticism after the
scam, with Harshad Mehta and others
being described as the products of these
policies.
Bowing to the political pressures and
the bad press it received during the
scam, the liberalization policies were
put on hold for a while by the
government. The Securities Exchange
Board of India (SEBI) postponed
sanctioning of private sector mutual
funds.
The much talked about entry of foreign
pension funds and mutual funds became
more remote than ever. The Euro-issues
planned by several Indian companies
were delayed since the ability of Indian
companies to raise equity capital in
world markets was severely
compromised.

22.  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

23.  GOVT. was under immense pressure from the
media and opposition
 People wanted loopholes that caused the
scam should be covered so the scam didn’t
reoccur.
 Case was handed over to the CBI & JPC
 Special court were set up for the speedy
trail.
 All the transaction done by the accused were
considered void after march 31,1991.

24. •Discover the guilty:
This task was assigned to the Central Bureau of Investigation (CBI)
and to the Joint Parliamentary Committee (JPC). A special court
was set up to facilitate speedy trial.
•Transactions became void:
The government set up a special court and promulgated an
ordinance with several draconian provisions to deal with the scam.
Sections (3) and (4) of the ordinance attached the properties of all
individuals accused in the scam and also voided all transactions
that had at any stage been routed through them after March 31,
1991.
•Recover the money:
Provisions of the Ordinance for attachment of property and
voiding of transactions with the consequent creation of "tainted"
shares were attempts in this direction.

25.  Due to scam Insider trading in BSE have been
suspended in order to prevent misuse of
price sensitive information by Brokers ,
Directors and stock market
 SEBI has imposed an additional 10% volatility
margin on all A – Group Shares and
additional margin stocks in Automatic
Lending And Borrowing Mechanism and
Borrowing And Lending of security scheme.

26.  To increase liquidity , SEBI has allowed bank to
offer Collateralized lending only through NSE
and BSE
 The SEBI has banned short sales.

27. The government's response so far, banning of RF deals and
going slow on liberalization. The main motive behind punishing
the offenders is more to prevent future offenders to not to try
this type of scam. The government must ensure that not only
the obviously guilty (the brokers) but also the not so obviously
guilty (the bank executives, the bureaucrats and perhaps the
politicians) are identified and brought to book. These types of
investigations are not only very time consuming but also very
expensive.

28.  He died in Thane Prison, Mumbai, he complained of
chest pain and was moved to a hospital, where he
died, at the age of 47, 31st Dec. 2001
 Mehta’s death remains a mystery. Some believe that
he was murdered ruthlessly by an underworld nexus
 Some members of nexus was moved to Thane Jail
and landed up in the cell next to Harshad Mehta

29.  Acts only if it effects.
 People forget things easily
 Govt. takes things lightly.