INDORE INSTITUTE OF LAW

(AFFILIATED TO D.A.V.V. & BAR COUNCIL OF INDIA)

Principle and Practice of Management

TOPIC:

HARSHAD MEHTA CASE: STOCK MARKET AND BANK RECEIPT SCAM

SUBMITTED BY:

Pragyan Singh Bhadoriya

BBA LL.B (Hons.) with Global and Transnational Studies

First Semester

SUBMITTED TO:

Dr. Reva Mishra Sir

ACADEMIC SESSION

2021-22

Enrolment Number: 11211205164 Roll No.:

Date of Submission: 08/11/21

 CERTIFICATE
THIS IS TO CERTIFY THAT PRAGYAN SINGH BHADORIYA OF BBA LL.B (Hons.)
WITH GLOBAL AND TRANSNATIONAL STUDIES HAS SUCCESSFULLY
COMPLETED THE RESEARCH WORK IN “HARSHAD MEHTA CASE: STOCK
MARKET AND BANK RECEIPT SCAM” PARTIAL FULFILMENT OF
REQUIREMENTS FOR THE KNOWLEDGE OF GIVEN BY DR. REVA MISHRA SIR
PRESCRIBED BY INDORE INSTITUTE OF LAW.

THIS ASSIGNMENT IS THE RECORD OF AUTHENTIC WORK CARRIED OUT

DURING THE ACADEMIC YEAR 2021-22.

TEACHER’S SIGNATURE -----------------------------------------

DATE-------------------------
 DECLARATION
I HEREBY DECLARE THAT THE PROJECT WORK ENTITLED “HARSHAD MEHTA
CASE: STOCK MARKET AND BANK RECEIPT SCAM” SUBMITTED FOR
FULFILLING THE ESSENTIAL CRITERIA OF INDORE INSTITUTE OF LAW, IS A
RECORD OF AN ORIGINAL WORK DONE BY ME UNDER THE GUIDANCE OF DR.
REVA MISHRA SIR IN BBA LL.B (HONS.) WITH GLOBAL AND TRANSNATIONAL
STUDIES , INDORE INSTITUTE OF LAW FOR THE ACADEMIC SESSION 2021-22.

NAME- PRAGYAN SINGH BHADORIYA

BBA LL.B (HONS.) WITH GLOBAL AND TRANSNATIONAL STUDIES

FIRST SEMESTER
 ACKNOWLEDGEMENT
I, PRAGYAN SINGH BHADORIYA STUDENT OF BBA LL.B (HONS.) WITH GLOBAL
AND TRANSNATIONAL STUDIES, FIRST SEMESTER WOULD LIKE TO EXPRESS
MY SPECIAL THANKS OF GRATITUDE TO MY PROFESSOR AND GUIDE DR.
REVA MISHRA SIR WHO GAVE US THE GOLDEN OPPORTUNITY TO DO THIS
WONDERFUL ASSIGNMENT ON THE TOPICS “HARSHAD MEHTA CASE: STOCK
MARKET AND BANK RECEIPT SCAM”. I AM SINCERELY GRATEFUL TO MY
TEACHER FOR GUIDING US AND PROVIDING THE RELEVANT INFORMATION
AND THUS HELPING ME TO COMPLETE THE PROJECT SUCCESSFULLY. I
WOULD ALSO LIKE TO GIVE A HEARTY THANKS TO MY PARENTS WHO
SUPPORTED ME MORALLY AS WELL AS ECONOMICALLY IN COMPLETION OF
THIS ASSIGNMENT WITHOUT ANY TYPE OF PROBLEM. I WOULD LIKE TO
APPRECIATE AND THANK ALL MY FRIENDS AND ALMA MATES FOR HELPING
ME IN EVERY POSSIBLE MANNER IN THE WAY OF COMPLETION OF MY
PROJECT. LAST BUT NOT THE LEAST I WANT TO THANK THE ALMIGHTY WHO
MADE EVERYTHING POSSIBLE.
 Abstract
The term "securities scam" refers to the diversion of over Rs. 3500 crores from the banking
industry to stockbrokers through a series of transactions that occurred between April 1991
and should 1992. The scam has dominated the front pages of newspapers for several months
now. Despite massive media coverage of the scam, many readers were unable to understand it
especially when faced with arcane terms and acronyms like ready forward, double ready
forward, SGL, PDO, BR, and PMS. Nevertheless, an intensive understanding of the scam is
important to develop meaningful policy alternatives to boost the national economy.

This paper presents a plausible reconstruction of how the scam originated, how it absolutely
was perpetrated, and what would be its aftermath. The paper is expository in nature and
therefore the authors make no claims to omniscience.

Turning to the world of reforms of the financial set-up, the paper argues that the origins of the
scam exist overregulation of our markets. It recommends that ordinary transactions must be
allowed to be done openly and transparently, and therefore the role of brokers as market
makers must be recognized. The second lesson from the scam is that artificial insulation of
closely related markets from one another is counterproductive within the future. Artificial
barriers between the money market and also the capital market, between the marketplace for
corporate securities and therefore the marketplace for government securities and between the
formal securities industry and therefore the informal one must be eliminated.
 Introduction
In April 1992, the primary press report appeared indicating that there was a shortfall within
the Government Securities held by the bank of India. In a very little over a month,
investigations revealed that this was the just the tip of the iceberg: what came to be called the
securities scam involved diversion of funds to the tune of over Rs. 3500 crores (well over $ 1
billion) and covered the majority aspects of the functioning of the money market.

The scam became a permanent feature of the front pages of the newspapers with parallel
investigations by the banking company of India (RBI), the Central Bureau of Investigation
(CBI) and also the Joint Parliamentary Committee (JPC) unearthing new aspects of the scam
intermittently.

The government more responsible the scam with a brand new law which founded a special

court to do those accused within the scam. The new law also attached the property of the
accused and voided all transactions done by them over the past year. These harsh and
extraordinary measures created a panic within the stock markets. The scam also had a
bearing on the liberalization policies being pursued by the govt. with several reform measures
being placed on hold.

Despite the large media coverage of the scam, most readers found it hard to know it
particularly after they were confronted with arcane terms and acronyms like ready forward,
double ready forward, SGL, PDO, BR, PMS etc. Nevertheless an understanding of the
scam may be a prerequisite for any meaningful analysis of policy alternatives to enhance the
functioning of the financial set-up.

This paper presents a plausible reconstruction of how the scam originated, how it absolutely
was perpetrated, and what would be its aftermath. The paper is expository in nature and is
predicated on our analysis of the available published data moreover as discussions with some
participants within the securities markets. We make no claims to omniscience.

The paper then goes on to debate the government's response to the scam and analyse the
policy initiatives required.
 LIFE
Harshad Shantilal Mehta was conceived on 29 July 1954, at Paneli Moti, Rajkot area, during
a Gujarati Jain family. His initial youth was spent in Kandivali, Mumbai, where his dad was a
bit time businessperson. Afterward, the family moved to Raipur's Modhapara, Chhattisgarh,
where Mehta considered in Holy Cross Byron Bazaar Higher lycee. A cricket devotee,
Mehta failed to demonstrate any exceptional guarantee at school and came to Mumbai after
his tutoring for contemplates and to seem for a few reasonably employment. Mehta finished
his B.Com in 1976 from Lajpatrai school Mumbai and worked various odd employments
for the subsequent eight years.

CAREER
After graduation, Mehta attempted his hand at different employments, frequently identified
with deals, including offering hosiery, concrete, and arranging precious stones. Mehta began
his career as a businessperson within the Mumbai office of recent India Assurance Company
Limited (NIACL). Amid this point, he got intrigued by the share market and following a
pair of years, surrendered and joined a non depository financial institution. Within the mid
1980s, he moved to a lower level administrative occupation at the securities firm Harjivandas
Nemidas Securities where he worked a merchant for the representative Prasann Pranjivandas
Broker who he thought of his "Master". Over a time of ten years, starting 1980, he served in
places of expanding obligation at a progression of brokerage firms. By 1990, he had ascended
to an area of unmistakable quality within the Indian market, with the media (counting
mainstream magazines, for instance, Business Today) touting him as "The Amitabh
Bachchan of the exchange.

LATER CAREER AND THE 1992 SCAM

Grow More Research and Asset Management firm
In 1984, Mehta could transform as private from the Bombay securities market as an agent
and founded his own particular firm called Grow More Research and Asset Management,
with the financial help of partners, when the BSE sold a merchant's card. He effectively
began to exchange 1986. By mid 1990, various famous individuals began to put resources
into his firm, and use his administrations. It had been as of now that he started exchanging
intensely within the shares of Associated Cement Company (ACC). The price of
shares within the concrete company within the end ascended from Rs. 200 to about 9000 due
to a big spate of buying from a rendezvous of representatives including Mehta. Mehta
defended this exorbitant exchanging ACC shares by expressing that the stock had been
underestimated, which the market had just redressed when it revalue the corporate at a
price proportional to the value of building a comparable endeavour; the purported
"substitution cost hypothesis" that he had advanced.
Amid this era, particularly in 1990– 1991, the media depicted an increased idolized picture of
Mehta, calling him "The Big Bull". He was canvassed in a very cover page article of
varied productions including the well-known financial magazine Business Today, in a piece
of writing titled "Seething Bull".

His showy lifestyle of an ocean confronting 15,000 feet penthouse within the tony zone of
Worli finish with a little fairway and athletic facility, his armada of an armada of autos
including a Toyota Lexus, Corolla Starlet, Toyota Sera were flashed in productions. These
further exemplified his picture when these were rarities notwithstanding for the rich
individuals of India.

In criminal arraignments later brought by the experts, it absolutely was affirmed that Mehta
and his partners at that time attempted a substantially more extensive plan, which led
to controlling the ascent within the Bombay stock market. The plan was financed by as far as
anyone knows collateralised bank receipts, which were in reality uncollateralised. The bank
receipts were utilized as part of here and now bank-to bank loaning, referred to as "prepared
forward" transactions, which Mehta's firm expedited. Constantly 50% of 1991 Mehta had
earned the epithet of the "Huge Bull", since he was said to own begun the bull keep running
in money markets. some of the overall population who worked in his firm included Ketan
Parekh, who later would be related to his own duplicate scam.

Foundation of the 1992 securities scam

1. Stamp paper scam
The Rs. 2200 Crores "stamp paper scam" of 1992 initially included the printing and offering
of stamp papers. It included false printing and offer of stamp papers in several parts of the
state, including by any semblance of youthful Gymnasium venture out in a very residential
community of Karnataka, Telgi. Up to the mid 90s, banks in India weren't permitted to
place resources into the worth markets. Be that because it may, they were required to present
benefits and on hold a selected proportion (limit) of their assets in government settled intrigue
bonds. Mehta keenly pressed capital out of the banking framework to deal with this
prerequisite of banks and directed this cash into the share market. He likewise guaranteed the
banks higher rates of premium, while requesting that they move the cash into his own record,
under the pretence of buying securities for them from different banks. Around then, a bank
needed to experience a merchant to buy securities and forward bonds from different banks.
Mehta utilized this cash incidentally in his record to get shares, therefore climbing up demand
of specific shares (of good settled organizations like ACC, Sterlite Industries and Videocon)
significantly, auctioning them off, passing on a chunk of the returns to the bank and
keeping the remainder for himself. This led to stocks like ACC (which was exchanging 1991
for Rs. 200/share) to about Rs. 9000 in mere 3 months.
2. Bank receipt scam
Another instrument utilized as a component of a serious way was the bank receipt
(BR). In an exceedingly prepared forward arrangement, securities weren't moved forward
and backward after all. Rather, the borrower, i.e. the merchant of securities, gave the
purchaser of the securities a BR. The BR confirms the offer of securities. It goes about as
a receipt for the cash got by the offering bank. Thus the name - bank receipt. It guarantees
to convey the securities to the purchaser. It likewise expresses that meanwhile, the
merchant holds the securities in trust of the purchaser.

Having made sense of this, Mehta required banks, which could issue counterfeit BRs, or
BRs not supported by any administration securities. Two little and minimal known banks
- the Bank of Karad (BOK) and also the Mumbai Mercantile Co-agent Bank (MCB) -
proved to be useful for this reason.

Once these phony BRs were issued, they were passed on to different banks and therefore
the banks thusly offered cash to Mehta, obviously expecting that they were loaning
against government securities when this wasn't by any stretch of the imagination the case.
He took the price of ACC from Rs. 200 to Rs. 9,000. That was an expansion of
4,400%.The securities exchanges were overheated and therefore the bulls were on a
distraught run. Since he needed to book benefits finally, the day he sold was the day when
the markets smashed.
3. Exposed of 1992 security scam
On 23 April 1992, writer Sucheta Dalal uncovered Mehta's illicit strategies during
a segment within the Times of India. Mehta was plunging wrongfully into the banking
framework to back his purchasing.

An average prepared forward arrangement included two banks united by an agent in lieu
of a commission. The dealer handles neither the money nor the securities, however that
wasn't matters within the beloved spot up to the scam. During this settlement procedure,
conveyances of securities and instalments were made through the representative. That is,
the vender handed over the securities to the representative, who passed them to the
purchaser, while the purchaser gave the check to the specialist, who at that time made the
instalment to the merchant. During this settlement procedure, the purchaser and also
the vender won't not know whom that they had exchanged with, either being known just
to the agent. This the agents could oversee fundamentally on the grounds that at this
time that they had progressed toward becoming market makers and had begun exchanging
for them. To stay up a similarity of lawfulness, they placed on a show to try the
transactions for the advantage of a bank.

Having made sense of his plan, Mehta required banks which issued counterfeit BRs (Not
sponsored by any administration securities). "Two little and minimal known banks – the
Bank of Karad (BOK) and therefore the Metropolitan Co-agent Bank (MCB) – proved to
be useful for this reason. These banks were able to issue BRs as and when required, for a
 charge," the writers point out to. Once these phony BRs were issued, they were passed on
to different banks and also the banks thus offered cash to Mehta, expecting that they were
loaning against government securities when this wasn't most the case. This cash was
utilized to draw near the prices of stocks in money markets. At the purpose when time
came to revive the cash, the shares were sold for a benefit and also the BR was resigned.
The cash thanks to the bank was returned.

This went ahead as long because the stock costs kept intensifying, and no-one had a

concept about Mehta's tasks. Once the scam was uncovered, however, a large amount of
banks were left holding BRs which failed to have any esteem – the banking framework
had been cheated of an astounding Rs.40 billion (US$600 million). He realized that he
would be denounced if individuals came to consider his contribution in issuing checks to
Mehta. During this manner, it happened that Citibank, agents like Pallav Sheth and Ajay
Kayan, industrialists like Aditya Birla, Hemendra Kothari, various legislators, and also
the RBI Governor R.Venkitaramanan all had assumed a component in permitting or
encouraging Mehta's gear of the share market.

TRIAL AND CONVICTION

Abusing some loopholes within the banking framework, Mehta and his partners redirected
reserves from between bank transactions and purchased shares intensely at a premium
crosswise over numerous sections, setting off an ascent within the BSE SENSEX. At the
purpose when the plan was uncovered, banks began demanding their cash back, causing the
autumn. He was later accused of 72 criminal offenses, and quite 600 common activity suits
were recorded against him.

He was captured and exiled from the share trading system with speculators considering
him accountable of creating a misfortune different substances. Mehta and his siblings were
captured by the CBI on 9 November 1992 for professedly misusing over 2.8 million shares
(2.8 million) of around 90 organizations, including ACC and Hindalco, through produced
share exchange frames. the combination estimation of the shares was put at Rs.2.5 billion
(US$37 million) .

Mehta made a brief rebound as a securities exchange master, giving tips without anyone else
site and additionally every week after week newspaper segment. In any case, in September
1999, Bombay judicature indicted and condemned him to 5 years thorough detainment and a
fine of Rs.25,000(US$370). On 14 January 2003, Supreme Court of India confirmed High
Court's judgment. it had been a 2:1 larger part judgment. While Justice B.N. Agrawal and
Justice Arijit Pasayat maintained his conviction, Justice M.B. Shah voted to absolve him.
ALLIGATION OF PAYMENT OF BRIBE TO
INDIA'S PRIME MINISTER

Mehta again raised a furore on 16 June 1993 when he made an open declaration that he
had paid Rupees 1 Crore to the then Congress president and PM, Mr P.V. Narasimha Rao,
as gift to the gathering, for getting him off the scandal case.

TERMINATION
Mehta was under Criminal care within the Thane jail. Mehta whined of chest torment late
around night time and was admitted to the Thane common Hospital. He passed on
following a brief heart affliction, at 47 years old, on 31 December 2001. He's made due
by his mate and one child. He passed on with numerous suits so far pending against him.
He had inside and out 28 bodies of evidence enrolled against him. The trial of all except
for one, are thus far proceeding in numerous courts within the nation. Market watchdog,
Securities and Exchange Board of India, had prohibited him always from stock
market related exercises.

A 2011 Wiki Leaks record uncovered that Harshad Mehta had assets of 135,800 Crore
(1,358,000,000,000)/1358 billion out of thirteen sub accounts with UBS AG, a Swiss
bank.

May 2017, the overseer had dispensed rupees 6310 crores to banks and IT office by
auctioning off assets of the Mehta, his relatives, and partners it had likewise distinguished
extra assets worth quite rupees 2000 crore to be sold bringing the recouped sum (once this
assets are effectively unloaded) to around rupees 8000 crore.

What's to be remembered is that the combination sum may never be recuperated as

harshad Mehta likewise held share worth over rupees 453 crore crosswise over 131
organizations in benami accounts (esteem as on June 1995, all laid out in court
accommodation). At the purpose when the scam uncovered, the benami account holder
sold their shares having the overseer next to no to interface those record with harshad
Mehta.

Will the Mehta family and partners have the capacity to pay off their liabilities, just 50%
of which has been recuperated 25 years after the scam was uncovered?
 CONCLUSION
Hence, it is concluded that Harshad Mehta, balanced for the current expansion,
deceptively wiped out Rs 24 billion in the stock trading system over a period of three
years. Harshad Mehta was an Indian stockbroker, certainly known for his wealth and for
not having been blamed. Of the 27 criminal charges brought against him, only four
claimed, prior to his death at the age of 47 in 2001, that Mehta was living in a huge
inventory control package funded by useless bank receipts, which his company enabled in
"prepared transactions" banks. Mehta has been indicted by the Mumbai High Court and
the Supreme Court of India in relation to him in a financial scandal valued at Rs 4,999
crore that took place on the Bombay Stock Exchange (BSE).The scandal exposed
loopholes in the Indian banking system, the trading framework of the Bombay Stock
Exchange (BSE), and SEBI also learned of new standards to fill those loopholes. He
fought for a long time until he died in late 2001.
 BIBLIOGRAPHY
1. https://thecompany.ninja/harshad-mehta-scam/
2. https://web.iima.ac.in/~jrvarma/papers/vik18-1.pdf
3. https://www.indiatoday.in/business/story/harshad-mehta-securities-scam-india-
legacy-of-bank-fraud-1733374-2020-10-20
4. https://en.wikipedia.org/wiki/Harshad_Mehta
5. https://www.researchgate.net/publication/
46437168_Securities_Scam_Genesis_Mechanics_and_Impact
 Contents

Abstract

Introduction

Life and Career

Later Career and the 1992 Scam

Foundation of 1992 Securities Scam

Trial and Conviction

Termination

Conclusion

Bibliography

Plagiarism report