This book is dedicated to all the economist and citizen of India.

Harshad Mehta
Scam 1992
Table Of Content
1) Background of Harshad Mehta
2) Introduction - Case History
3) The Scam
4) The stamp paper scam
5) The bank receipt scam
6) Ready forward deal scam
7) Realization of scam and market cash
8) Legal perspectives
9) Arguments
10) Impacts
11) Major reforms
12) Changes in the financial structure
13) Measures to stop such kind of malpractices
14) Lessons unlearnt
15) Conclusion
16) Abbreviations
17) References
Background Of Harshad Mehta
Indian stock broker Harshad Shantilal Mehta was born on July 29, 1954, in Paneli Moti, Rajkot, and passed away on December 1, 2001, in Thane, Mumbai.
Mehta gained fame as a market manipulator as a result of his role in the 1992 Scam.
Apart from the fact that, according to the Economic Times, some financial experts,

Harshad Mehta had "just exploited loopholes in the system," rather than perpetrate any fraud. Before his death in 2001 at the age of 47, Mehta had only been found guilty of four of the 27 counts that had been made against him.
Mehta is accused of engaging in a significant stock manipulation operation that was funded by worthless bank receipts that his company arranged for "ready forward" bank transactions.
Mehta was found guilty by the Bombay High Court and the Supreme Court of India for his involvement in a financial scandal involving India that involved the Bombay Stock Exchange and involved Rs 100 billion (BSE).
Due to the scandal's exposure of flaws in the Indian banking system and the BSE's transaction system, the SEBI enacted new regulations to fix those gaps. He was on trial for nine years when he passed away in 2001.

Bombay Stock Exchange
Introduction To The Case
( History)
Harshad Mehta, along with other bank employees and politicians, used market manipulation to pull off the 1992 Indian Stock Market Fraud on the Bombay Stock Exchange. The scam defrauded stock brokers of over $1 billion USD and significantly disrupted the Indian stock market.
Harshad Mehta employed a variety of strategies, including forging checks, abusing legal loopholes, and price-fixing to increase costs by 40 times.
Stock traders who profited handsomely from the Scam were able to deceitfully get unsecured loans from the banks. The Indian Stock Market crashed in April 1992 when the Scam was uncovered.
The Scam
At an estimated value of Rs. 5000 crore, the fraud was the largest money market fraud ever to occur in India. Harshad Mehta, a stock and money market broker, was the scam's primary culprit. After being saved from bankruptcy by him, the Indian stock market crashed as a result of a systematic stock fraud utilizing bank receipts and stamp paper.
A whole new system of stock transactions, including the introduction of online security systems, was implemented as a result of the
scam, which revealed the underlying flaws in the Indian financial institutions.
The concept of diverting money from the banking system to different stockholders or brokers is known as a security fraud.
Mehta's systematic deception in the Indian stock market in 1992 caused the collapse of the whole financial system. He defrauded the banking system of almost $1 billion to purchase equities on the Bombay Stock Exchange stock market. As a result of the security system failing and investors losing thousands of rupees in the exchange system this had an effect on the entire exchange system.
The scam's breadth was so extensive that the net value of the stocks was greater than India's annual budgets for health and education combined.
Mehta failed to deliver the securities that he had obtained from the State Bank of India in exchange for fake checks signed by dishonest employees as part of the scheme.
The index dropped from 4500 to 2500, losing 1000 billion rupees in market capitalization. The 1992 fraud highlighted various issues with bank employees who were suspected of working with Mehta. Several top bank executives were
implicated, according to an interview with Montek Singh Ahluwalia (Secretary, economic affairs at the Ministry of Finance).
The Stamp Paper Scam
Indian banks were prohibited from making equities market investments in the early 1990s. Yet, they were required to turn a profit and keep a predetermined percentage (threshold) of their assets in fixed-interest government bonds.
To meet this need of banks, Mehta ripped capital out of the banking sector and poured it into the stock market. Under the pretence of purchasing securities for them from other banks, he offered the banks better rates of
interest while requesting that they transfer the funds into his personal account.
At that time, purchasing securities and forward bonds from other banks required a bank to work via a broker. Mehta temporarily placed this money in his account and used it to purchase shares, substantially increase demand for specific shares (such as those of ACC, Sterile, and Videocon), sell them, give the bank a portion of the earnings, and pocket the remainder for himself. This resulted in equities like ACC, which was trading in 1991 for Rs200/share, exploding to approximately Rs 9,000 in just 3 months.
The Bank Receipt
The bank receipt was another crucial tool (BR). Securities were not really exchanged back and forth in a ready-forward arrangement. Instead, the borrower—that is, the seller of the securities—gave a BR to the purchaser.
The BR guarantees that the buyer will receive the securities they have paid for at the end of the period and serves as a receipt from the selling bank. Knowing this, Mehta need banks that could issue BRs that were either fake or not backed by any government securities.
After the issue of these fake BRs, they were distributed to other banks, which then loaned money to Mehta under the mistaken belief that they were lending against government securities. He raised the cost of ACC by R$200 to R$9,000. That
was a 4,400% rise. The day he sold was the day the markets collapsed since he ultimately had to book profits.
Ready Forward Deal Scam
In a ready-forward agreement, one broker acts as a liaison between two banks. One bank approaches the broker when it wants to sell securities. To sell securities, this broker goes to a different bank, and the opposite is true to acquire securities. Mehta, a very well-known broker, had checks issued in his name rather than the bank's because of his reputation. He went to a different bank and went through the
same procedure when the bank demanded money for the securities, investing the bank's money in the stock market.
Mehta used the ready forward trade and implemented it in the Indian financial systems' Bank Receipts system.
The Janakiraman Committee overhauled the whole Bank Receipts system following the 1992 fraud, making it the system with the most flaws.
Mehta utilised fake BR's to get unsecured loans, and used multiple minor banks to issue BR on demand. Mehta kept the receipts in his possession for as long as he wanted because
because these banks were small.
The cheques in favour of both the banks were credited into the brokers' accounts which were the account of Mehta.
Banks invested heavily in BOK and MCB as a result since they were showing promising signals of growth. Mehta quickly increased the cost of ACC from Rs200 to Rs9000 using the BR scam.
This continued as long as Mehta's stock prices rose and nobody knew anything about his business dealings. The financial sector had been defrauded of a staggering Rs4,000 crore (approximately to US$3.5 billion in 2019) when

the scam was revealed, but many banks were left with BRs that had no value.
He was aware that if anyone found out about his role in writing checks to Mehta, he would be implicated.
Later, it was discovered that a lot of people had contributed to Mehta's share market manipulation, including politicians, brokers like Pallay Sheth and Ajay Kayan, industrialists like Aditya Birla and Hemendra Kothari, and RBI Governor S. Venkitaramanan.
Realization of scam and market cash
When it became clear that Mehta was a disproportionately significant investor in government securities in late April 1992, the scheme first came to light. Mehta was operating more than a third of India's entire securities business at the time.
The public went on the rampage to sell Mehta's equities after realising that his investments were fraudulent and that they were probably worthless.

Unsecured loans totaling hundreds of millions were suddenly held by the banks that had lent money to Mehta.
With prices falling 40% in an instant, the Indian stock market crashed as a result of the selling frenzy and widespread bank fraud. Equities eventually plunged 72%, and a bear market lasted for about 2 years. This table shows how much money specific banks lost.
Legal Perspectives
1) Prevention of Corruption Act 1988
2) Section 120-BOfThe PVC Act 1988
3) Section 13 (2)
4) Section 13 (1) (c) (d)
Arguments
Mehta and his friends stole money through interbank transfers by taking advantage of multiple banking system flaws and purchasing shares at a premium in a variety of industries. causing the BSE SENSEX to increase.
Banks started demanding their money back after the fraud was discovered, which led to the collapse. Afterwards, he was accused of 72 criminal offences and was the target of more than 600 civil lawsuits.
Investors accused him of inflicting losses to numerous organizations, leading to his arrest and expulsion from the stock market. The CBI detained Mehta and his siblings on 9
November 1992 for allegedly using fake share transfer documents to steal more than 2.8 million shares of around 90 companies.
The misappropriated shares were valued at R$250 crore, which, in 2019 dollars, is comparable to US$220 million or Rs15 billion. Mehta briefly made a comeback as a stock market expert, offering advice on both his
personal website and a weekly newspaper column. But in September 1999, the Bombay High Court found him guilty and gave him a five-year prison term with hard labour and a R$25,000 (US$350) fine. In a 2-1 verdict on January 14, 2003, the Supreme Court of India upheld the decision of the High Court. Judge M.B. Shah decided to acquit him, while Justices B.N. Agrawal and Arijit Pasayat supported the conviction.
Mehta caused a stir when he revealed that he had given $10 million as a party donation
to P.V. Narasimha Rao, the then-Congress President and Prime Minister, in exchange for his release from the scandal case.
Impacts
The market index and share prices fell precipitously immediately, which led to a breakdown in the operation of the RBI's and commercial banks' securities control system. The withdrawal of about R$35 billion from the Rs 2,500 billion market caused the share market to crash. The Bombay Stock Shares employed records manipulation in the trading system, which greatly harmed banks and generated public panic.
Banks including Standard Chartered and ANZ Grindlays were linked to the scam since they forwarded money into Mehta's personal account while forging bank receipts. The lack of computerized systems, which had an effect on the entire stock market, was the underlying issue with the financial structure of the stock markets, the government understood.
Various bank officers were investigated and implicated in fraudulent charges. The five main accused officials were related to the Financial Fairgrowth Services Limited (FFSL) and Andhra Bank Financial Services Ltd (ABFSL).
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This book is dedicated to all the economist and citizen of India.

Harshad Mehta
Scam 1992
Table Of Content
1) Background of Harshad Mehta
2) Introduction - Case History
3) The Scam
4) The stamp paper scam
5) The bank receipt scam
6) Ready forward deal scam
7) Realization of scam and market cash
8) Legal perspectives
9) Arguments
10) Impacts
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