Harshad Mehta Scam

Harshad Mehta
Name: Harshad Shantilal Mehta
Born: 29 July 1953
Died in: 31 December 2001
Profession: stockbroker
He earned degree in bachelor of commerce
Started his working life as an employee of the New India Assurance Company
He quit his job and sought job with stock broker P. Ambalal
In 1981 he became a broker of J.S. Shah and Nandalal Sheth
He took the advantage of loopholes in banking system
He triggered SENSEX in 1992 & made the scam by diverting funds of RS. 4,000 Crore
The Instrument were used in Scam
Mehta has used 2 instrument in this scam
1) ready forward deal
2) bank receipts
Ready Forward Deal
A secured short-term (typically 15-days) 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 payment were delivered through the brokers in the settlement process
In such settlement banks may not know with whom they are dealing
The process of RF
Settlement process
Payment of cheques
Dispensing of securities
Bank receipt
In a RF deal securities were not moved back and forth in actually
The borrower, i.e. the seller of securities, gave the buyer of the securities a Bank receipt
The bank receipt serves three functions
Confirms the sale of securities
States that the securities are held by the seller in trust for the buyer
Acts as a receipt for the received money by the selling bank
Modus operandi
Issue fake BR

Borrower bank Broker Lender bank

Harshad Mehta

Funds
Example:
Assume there are four banks:
A bank

B Bank

C Bank

D bank
Exposure of 1992 Securities Scam
On April 23, 1992, journalist Sucheta Dalal exposed Mehta’s scam
She is columnist in times of India
Regulatory Action Taken Against Mehta
He was later charged with 72 criminal offenses, and more than 600 civil action suits were filed
against him
He was arrested and banished from the stock market
CBI arrested Harshad Mehta on 9th November, 1992. He was kept in Thane Jail for allegedly
misappropriating more than 27 lakh shares of about 90 companies.
conclusion
Harshad Mehta was a prudent stock broker. He knew the loopholes in banking system as well
as how to exploit that loopholes. His whole intention was to rise in SENSEX.
Thank You….!!