Harshad Mehta- Securities Scam 1992

Harshad Mehta was an Indian Stockbroker, famous for his Indian share market scam of 1992 (India’s Biggest stock market scam).

His full name was Harshad Shantilal Mehta. He was born on 29 July 1965 in the Gujrati family. His father Shantilal Mehta was a small businessman.

After pursuing a degree in B.Com in 1976 from Lajpatrai College Mumbai, he started searching for odd jobs for the next few years.

During his early career, he tried various jobs related to selling cement, diamonds, etc. He got interested in the Stock Market when he started his career as a salesperson in New Indian Assurance Company Limited (NIACL).

In initial days he worked as a jobber at Harjivandas Nemidas Securities brokerage firm. He considered Prasann Pranjivandas Broker as his ‘Guru’.

Bombay Stock Exchange

In the year 1984, Harshad Mehta joined the Bombay Stock Exchange (BSE) as a broker. He established his firm “GrowMore Research and Asset Management”.

Over 10 years from 1980 to 1990 he gained a prominent position in the stock market. Popular Magazine ‘Business Today’ called him “The Amitabh Bachchan of the stock market”. He was even covered in a cover page of famous publications and magazines.

The Big Bull

During 1990-1991, the media started calling him “The Big Bull”. He bought a 15,000 feet penthouse with a complete swimming pool and golf course in Worli (the place in South Mumbai, Maharashtra, India).

He even bought expensive luxury cars such as Lexus Starlet, Toyota Corolla, Toyota Sera, and many more. These cars were so expensive that only a few richest people could afford it.

What was the Harshad Mehta Scam (Security Scam of 1992)?

Harshad Mehta Scam is the biggest scam of the stock market of India till date. The scam amount is estimated to be about 4,000 crores (the present value being over 24,000 crores). This scam exposed various loopholes in the Indian Banking system.

RBI had a mandate to all the banks to have certain levels of government bonds else RBI would penalize them. Strong banks had no struggle for keeping the government bonds, but weaker banks always struggled. So, weak banks have to borrow government bonds from stronger banks.

If you don’t know what a government bond (securities) is? No Worries, I will tell what this is.

The government issues government bonds (securities) to raise money from the banks.

Up to early 1990, Indian Banks could not invest in the equity markets and had to go to a dealer (broker) to purchase securities (government bonds).

How Harshad did this scam (scandal)?

Harshad Mehta Scam

So Let's start How he did this scam?

Mehta would approach Bank X (the bank who wants to sell their securities). and ask them to give some time so he can find other banks who want to buy securities.

Now this time Harshad Mehta as a broker approached the Bank Y (the bank that wants to buy securities) and told them he would give him the securities they needed and to get those securities they had to issue a cheque in his name.

Here in this case also, Mehta asked for some time.

Note: According to RBI guidelines, no bank can issue the cheque on the name of the broker. The lending bank has to issue the cheque on the name of the borrowing bank. But in this scam, banks issued the cheque in the name of Harshad Mehta (this was one loophole of this scam). alert-success

So, How Mehta got benefited.

Do you remember that Mehta asked the bank for extra time?

In this time he was investing the money from the Bank into the stock market. He picked shares of certain companies such as ACC, Videocon, Sterlite Industries, and just bought those shares aggressively, thus hiking up the demand of shares dramatically. He then sells those shares and returns the money to the bank and keeps the profit with himself.

How Harshad Mehta Got Benefited

But when Bank X asks for the money of their securities, Harshad Mehta approaches another Bank Z who wants to buy securities and from the money of bank Z, he gives it to Bank X.

Banking System Chain

He used to approach various banks who wanted to buy or sell their securities. He did the same thing with these banks as did with Bank X, Y, and Z. So, he scaled this as a chain.

But his desire for money was not taking the name of an ending. He became more greedy and wanted more money. So, he scaled this scam to the next level. He approached the banks who were ready to help him out in printing fake Bank Receipts (BR receipt).

Fake Bank Receipt

When a bank sells securities, they actually give a Bank receipt (BR receipt) to the bank who is buying securities which confirms the selling of securities to the bank.

Now, when a bank wants to have some securities, Mehta gives him a fake bank receipt and the bank in return gives money on the behalf that they have got the bank securities.

And with the help of that money, he heavily invested in the stock market and because of this, the share price of the money went high.

When the stock market reaches its peak, Harshad then sells his shares keeping the profit with himself and returns the money to the bank, and then takes back his fake BRs.

ACC Stock Price in 1992

He invested so heavily in the ACC share that the share price of the ACC share rose from 200 Rupees to 9,000 rupees in just 3 months.

Bear Run
Source: businesstoday

This continued for a very long time but when the bear run came, the stock prices started decreasing and Harshad Mehta lost money and he could not return the money to the bank.

Who exposed Harshad Mehta Scam?

Sucheta Dalal

On 23 April 1992, Sucheta Dalal, the column editor at The Times of India, exposed this scam. And then the bank came to know that their bank receipts are fake which have no value and in return Harshad Mehta had frauded crores of money.

Banking System Loss

The Banking system got the loss of about 3,500 crores to 4,000 crores rupees. When this scam was exposed, the stock market was crashed, and many investors lost their money.

The chairman of Vijaya Bank committed suicide by jumping off the building because he had issued an enormous amount of money on the name of Harshad Mehta. Many banks asked Harshad for their money back, but because of the bear run, Harshad could not give their money back.

Who arrested Harshad Mehta?

On 9 November 1992, the Central Bureau of Investigation (CBI) arrested Harshad Mehta. He was charged with 600 civil action suits and 70 criminal cases. Securities and Exchange Board of India (SEBI) even banned him from permanent trading in the stock market.

Harshad Mehta Again Arrested

But after 3 months in jail, he was released from Jail, but In 1997 he was again arrested and had been put in the Thane Jail.

On 31, December 2001, when everyone was celebrating the Happy New Year, he complained of pain in his chest pain and was admitted to Thane Civil Hospital. But he lost the fight against life and died.

Before his death, out of 27 criminal cases, he was only convicted of four cases.

Here is a YouTube video, you can watch this for more clearance.

English Video:

Frequently Asked Questions- FAQs?

Question: Is Harshad Mehta Still Alive?
Answer: No, he died in 2001
Question: When Harshad Mehta died?
Answer: He died on 31 December 2001.
Question: At what age did Harshad Mehta Die?
Answer: 47
Question: What was the reason for the death of Harshad Mehta?
Answer: Heart Ailment
Question: Which cars did Harshad Mehta have?
Answer: Lexus Starlet, Toyota Corolla, Toyota Sera, and many more luxury cars.
Question: In which year Harshad Mehta Scam was exposed?
Answer: 1992
Question: How much was the Harshad Mehta fraud Amount?
Answer: 4,000 crores (the present value being over 24,000 crores)
Question: Where was Harshad Mehta Bungalow Located?
Answer: Worli (the place in South Mumbai, Maharashtra, India)
Question: What is the name of the Harshad Mehta's son?
Answer: Atul Mehta
Question: Harshad Mehta family members
Answer: Wife- Jyoti Mehta
Son- Atul Mehta
Father- Shantilal Mehta
Mother- Rasilaben Mehta
Brother- Ashwin Mehta, Hitesh Mehta, Sudhir Mehta