PROJECT REPORT ON FAMILIAR FACES IN FINANCIAL MARKET

UNIVERSITY OF MUMBAI

BACHELOR OF COMMERCE (FINANCIAL MARKETS) SEMESTER V 2011-12

SUBMITTED BY NIRAV JAIN

PROJECT GUIDE SAIRA BANOO SHAIKH

K.P.B HINDUJA COLLEGE OF COMMERCE 315, NEW CHARNI ROAD, MUMBAI- 400 004 B.Com (Financial Markets) 5 t h SEMESTER

FAMILIAR FACES IN FINANCIAL MARKET

SUBMITTED BY NIRAV JAIN ROLL.NO: 45 CERTIFICATE

This is to certify that Mr. NIRAV JAIN of B.Com Financial Markets Semester 5 t h [2011-2012] has successfully completed the Project on FAMILIAR FACES IN FINANCIAL MARKET under the guidance of Ms. SAIRA BANOO SHAIKH

Project Guide

________________

Course Coordinator

________________

Internal Examiner

________________

External Examiner

________________

Principal

________________

DECLARATION

I Mr. NIRAV JAIN student of B.Com-Financial Markets, 5 t h semester (2011-2012), hereby declare that I have completed the project on FAMILIAR FACES IN FINANCIAL MARKET

The information submitted is true and original copy to the best of our knowledge.

NIRAV JAIN

(Signature)

ACKNOWLEDGEMENTS I feel the pleasure to have an opportunity to express my deep and sincere feelings of gratitude towards all the personalities who have helped me to convert my dreams into the reality.

Sincere thanks to our Course Co-ordinator, Prof. Khyati Vora, for making this experience. The learning from this experience has been immense and would be cherished throughout life.

Thankful to my Project Mentor Prof. Saira Banoo Shaikh for her guidance and support at every step while completing this project and providing me the accurate and detailed information to complete this report as part of my curriculum. Without her continuous help and enthusiasm the project would not have been materialized in the present form.

I pay my sincere regards to my parents and friends who always encouraged and helped me in the preparation of this project.

NIRAV JAIN

INDEX
CONTENTS

1.

INTRODUCTION 1.1 Abstract 1.2 Research methodology

2. 3. 4. 5. 6. 7. 8.

FINANCIAL MARKET SEGMENT OF FINANCIAL MARKET FUNCTION AND SCOPE HARSHAD METHA RAJU RAMALINGA A. RAJA DHIRUBHAI AMBANI

9.

KETAN PAREKH

CONCLUSION

BIBLIOGRAPHY

CHAPTER 1 INTRODUCTION

1.1 Abstract
The word "system", in the term "financial system", implies a set of complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the

economy. The financial system is concerned about money, credit and finance-the three terms are intimately related yet are somewhat different from each other. Indian financial system consists of financial market, financial instrument, financial intermediation..and financial A financial is an institution that facilitate the purchase and sale of good and service and also the function of bringing the scattered buyers and sellers together at one place. an financial market is an institution

that facilitate the exchange of financial instrument, including deposit and loan, corporate stock and bond, government bond.

1.2 Research Methodology

Data Collection Method Secondary Data Secondary data is one which already exists and is collected from the published sources. The sources from which secondary data was collected are: Books, Journals, Newspapers, Magazines and Internet

CHAPTER 2

FINANCIAL MARKET
2.1 Introduction of Financial Market

We know that, money always flows from surplus sector to deficit sector. That means persons having excess of money lend it to those who need money to fulfill their requirement. Senior Secondary Business Finance Similarly, in business sectors the surplus money flows from the investors or lenders to the businessmen for the purpose of production or sale of goods and services. So, we find two different groups, one who invest money or lend money and the others, who borrow or use the money. Now you think, how these two groups meet and transact with each other. The financial markets act as a link between these two different groups. It facilitates this function by acting as an intermediary between the borrowers and lenders of money. So, financial market may be defined as a transmission mechanism between investors (or lenders) and the borrowers (or users) through which transfer of funds is facilitated. It consists of individual investors, financial institutions and other intermediaries who are linked by a formal trading rules and communication network for trading the various financial assets and credit instruments The India Financial market comprise of the primary market, With all these elements in the India Financial market, it happens to be one of the oldest growing and economies. across the globe and is definitely the fastest all the financial markets of the emerging

best among

2.2 History of Indian Financial Market

The history of Indian capital markets dates back 200 years toward the end of the 18th century when India was under the rule of the East India Company. The development of the capital market in India concentrated around Mumbai where not less than 200 to 250 securities brokers were active during the second half of the 19th century. Today it is more developed than many other sectors because it was organized long before with the securities exchanges of Mumbai, Ahmedabad and Kolkata were established as early as the 19th century. By the early 1960s the total number of securities exchanges in India rose to eight, including Mumbai, Ahmedabad and Kolkata apart from Madras, Kanpur, Delhi, Bangalore and Pune. Today there are 21 regional securities exchanges in India in addition to the centralized NSE (National Stock Exchange) and OTCEI (Over the Counter Exchange of India). However the stock markets in India remained stagnant due to stringent controls on the market economy that allowed only a handful of monopolies to dominate their respective sectors. The corporate sector wasn't allowed into many industry segments, which were

dominated by the state controlled public sector resulting in stagnation of the economy right up to the early 1990s. Thereafter when the Indian economy began liberalizing and the controls began to be dismantled or

eased out, the securities markets witnessed a flurry of IPOs that were launched. This resulted in many new companies across different industry segments to come up with newer products and services. A remarkable feature of the growth of the Indian economy in recent years has been the role played by its securities markets in assisting and fuelling that growth with money rose within the economy. This was in marked contrast to the initial phase of growth in many of the fast growing economies of East Asia

2.3 Role of Financial Market One of the important requisite for the accelerated development of an economy is the existence of a dynamic and a resilient financial market. A financial market is of great use for a country as it helps the economy in the following manner: Saving mobilization Obtaining from the saver or surplus unit such as house hold India business firm public sector unit, Central Government State

government, Local government etc is an important role played in by financial market . National growth

An important role played by the financial market is that they contribute to a nation growth be ensuring an unfettered flow of fund to deficit

unit . Entrepreneurship growth: Financial market contribute to the development of the entrepreneurial class by making available the necessary financial resources. Industrial development The different component of financial market help an accelerated growth of industrial and economic development of a country thus raising the standard of living.

CHAPTER 3

SEGMENT OF FINANCIAL MARKETS and FINANCIAL INTERMEDIATERIES

A financial market consists of two major segments: (a) Money Market; (b) Capital Market; (c) Foreign Exchange market

3.1 Money Market

The money market is a market for short-term funds, which deals in financial assets whose period of maturity is upto one year. It should be noted that money market does not deal in cash or money as such but simply provides a market for credit instruments such as bills of exchange, promissory notes, commercial paper, treasury bills, etc. These instruments help the business units, other organizations and the Government to borrow the funds to meet their short-term requirement. Money market does not imply to any specific market place. Rather it refers to the whole networks of financial institutions dealing in shortterm funds, which provides an outlet to lenders and a source of supply for such funds to borrowers. Most of the money market transactions are

taken place on telephone, fax or Internet. The Indian money market consists of Reserve Bank of India, Commercial banks, Co-operative banks, and other specialized financial institutions. The Reserve Bank of India is the leader of the money market in India.

3.1.1 Money Market Instruments

Following are some of the important money market instruments or securities.

Call Money: Call money is mainly used by the banks to meet their temporary requirement of cash. They borrow and lend money from each other normally on a daily basis. It is repayable on demand and its maturity period varies in between one day to a fortnight. The rate of interest paid on call money loan is known as call rate.

Treasury Bill: A treasury bill is a promissory note issued by the RBI to meet the short-term requirement of funds. Treasury bills are highly liquid instruments, that means, at any time the holder of treasury bills can transfer of or get it discounted from RBI. These bills are normally issued at a price less than their face value; and redeemed at face value. So the difference between the issue price and the face value of the treasury bill represents the interest on the

investment. These bills are secured instruments and are issued for a period of not exceeding 364 days. Banks, Financial institutions and corporations normally play major role in the Treasury bill market.

Commercial Paper: Commercial paper (CP) is a popular instrument for financing working capital requirements of companies. The CP is an unsecured instrument issued in the form of promissory note. This instrument was introduced in 1990 to enable the corporate borrowers to raise short-term funds. It can be issued for period ranging from 15 days to one year. Commercial papers are transferable by endorsement and delivery. The highly reputed companies (Blue Chip companies) are the major player of commercial paper market.

Certificate of Deposit: Certificate of Deposit (CDs) are short-term instruments issued by Commercial Banks and Special Financial Institutions (SFIs), which are freely transferable from one party to another. year. The maturity period of CDs ranges from 91 days to one These can be issued to individuals, co-operatives and

companies.

3.2 Capital Market

Capital Market may be defined as a market dealing in medium and long-term funds. It is an institutional arrangement for borrowing medium and long-term funds and which provides facilities for

marketing and trading of securities. So it constitutes all long-term borrowings from banks and financial institutions, borrowings from foreign markets and raising of capital by issue various securities such as shares debentures, bonds, etc. In the present chapter let us discuss about the market for trading of securities. The market where securities are traded known as Securities market. It consists of two different segments namely primary and secondary market. The primary market deals with new or fresh issue of securities and is, therefore, also known as new issue market; whereas the secondary market provides a place for purchase and sale of existing securities and is often termed as stock market or stock exchange

3.2.1 Primary Market

The Primary Market consists of arrangements, which facilitate the procurement of long term funds by companies by making fresh issue of shares and debentures. You know that companies make fresh issue of shares and/or debentures at their formation stage and, if necessary, subsequently for the expansion of business. It is usually done through private placement to friends, relatives and financial institutions or by making public issue. In any Business Studies case, the companies have to follow a well-established legal procedure and involve a number of intermediaries such as underwriters, brokers, etc. who form an integral

part of the primary market. You must have learnt about many initial public offers (IPOs) made recently by a number of public sector undertakings such as ONGC, GAIL, NTPC and the private sector companies like Tata Consultancy Services (TCS), Biocon, Jet-Airways and so on.

3.2.2 Secondary Market

The secondary market known as stock market or stock exchange plays an equally important role in mobilizing long-term funds by providing the necessary liquidity to holdings in shares and debentures. It provides a place where these securities can be en cashed without any difficulty and delay. It is an organized market where shares, and debentures are traded regularly with high degree of transparency and security. In fact, an active secondary market facilitates the growth of primary market as the investors in the primary market are assured of a continuous market for liquidity of their holdings. The major players in the primary market are merchant bankers, mutual funds, financial institutions, and the individual investors; and in the secondary market you have all these and the stockbrokers who are members of the stock exchange who facilitate the trading.

3.3 Foreign Exchange Market

The foreign exchange market (forex, FX, or currency market) is a global, worldwide decentralized financial market for trading

currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies. The primary purpose of the foreign exchange is to assist international trade and investment, by allowing businesses to convert

one currency to another currency. For example, it permits a US business to import British goods and pay Pound Sterling, even though the business' income is in US dollars. It also supports direct

speculation in the value of currencies, and the carry trade, speculation on the change in interest rates in two currencies.

3.4 Financial Intermediaries in India Financial System

The financial system comprises the financial institutions/intermediaries (FIs). In contrast to the financial markets, the FIs are institutional sources of finance to industry. They act as a link between the savers and the investors which results in

institutionalization of personal savings. Their main function is to convert direct assets/instruments/securities issued by corporate into indirect securities. The indirect securities offer to the individual investors better investments alternative than the direct/primary security by pooling which it is created, for example, units of mutual funds, bank deposits, and insurance policies and so on.

Commercial Banks These collect savings primarily in the form of deposits and traditionally finance working capital requirements of corporate. Since the early nineties, banks have also gone into direct term-lending, particularly in the infrastructure sector. There are three groups of banks: public sector, private sector and foreign.

Non-Banking Financial Companies (NBFCs) They provide a variety of fund/asset based and non-fund based/ advisory services. Most of their funds are raised in the form of public deposits ranging between one year to five years of maturity. Depending on the nature and type of service provided, they are categorized, inter aha, into:

Leasing companies Hire purchase and consumer finance companies Housing finance companies Venture capital funds Merchant banking organizations Credit rating agencies

Insurance Organizations The LIC and GIC are public sector monolithic institutions. They have access to massive funds but an overwhelming part is pre-empted into directed investments in socially-oriented sectors. The recent opening up of the insurance sector to private enterprise and relaxation in the

stipulation governing their investments would hopefully enable the insurance organizations to become major players in the capital market as investment institutions.

Foreign Private Capital It played a rather marginal role in industrial financing in India till the eighties. A congenial climate for the sustained flow of foreign investment has been created through changes in the Government policies. Indian financial system is being integrated with the global financial system as a result of which foreign capital is poised to play a substantial and sustained role.

Mutual Funds A mutual fund (MF) is a special type of investment institution which acts as an investment conduit. It pools the savings of relatively small investors and invests them in a well-diversified portfolio of sound investment, thus enabling them to participate indirectly in the benefits of investment in industrial securities. As an investment intermediary, it offers a variety of services/advantages to small investors such as diversification of portfolio and consequent reduction in risk, expert professional management, liquidity of investment, tax shelter and reduced c

Chapter 4 FUNCTION AND SCOPE OF FINANCIAL MARKET 4.1 Function of Financial Market

 To maintain monetary equilibrium. It means to keep a balance between the demand for and supply of money for short term monetary transactions. To promote economic growth. Financial market can do this by making funds available to various units in the economy such as agriculture, small scale industries, etc. To provide help to Trade and Industry. Financial market provides adequate finance to trade and industry. Similarly it also provides facility of discounting bills of exchange for trade and industry. To help in implementing Monetary Policy. It provides a mechanism for an effective implementation of the monetary policy. To help in Capital Formation. Financial market makes available investment avenues for short term period. It helps in generating savings and investments in the economy.

Financial market provides non-inflationary sources of finance to government. It is possible by issuing treasury bills in order to raise short loans. However this dose not leads to increases in the prices.

Finance market is an important source for mobilizing idle savings from the economy. It mobilizes funds from people for further investments in the productive channels of an economy.

 Capital market helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy.

Proper Regulation of Funds : Capital markets not only helps in fund mobilization, but it also helps in proper allocation of these resources. It can have regulation over the resources so that it can direct funds in a qualitative manner.

Capital market is an important source for mobilizing idle savings from the economy. It mobilizes funds from people for further investments in the productive channels of an economy. Capital market raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a long period of time. It provides suitable interest rate returns also to investors. Instruments such as bonds, equities, units of mutual funds, insurance policies, etc.

4.2 Scope and Potential of Financial Market The financial market in India at present is more advanced than many other sectors as it became organized as early as the 19th century with the securities exchanges in Mumbai, Ahmadabad and Kolkata. In the early 1960s, the number of securities exchanges in India became eight - including Mumbai, Ahmadabad and Kolkata. Apart from these three

exchanges, there was the Madras, Kanpur, Delhi, Bangalore and Pune exchanges as well. Today there are 23 regional securities exchanges in India. The launch of the NSE (National Stock Exchange) and the OTCEI (Over the Counter Exchange of India) in the mid 1990s helped in regulating a smooth and transparent form of securities trading. The regulatory body for the Indian capital markets was the SEBI

(Securities and Exchange Board of India). The capital markets in India experienced turbulence after which the SEBI came into prominence. The market loopholes had to be bridged by taking drastic measures.

India Financial Market helps in promoting the savings of the economy helping to adopt an effective sector channel to transmit various financial policies. The Indian financial sector is well-developed, competitive, efficient and integrated to face all shocks. In the India financial market there are various types of financial products whose prices are determined by the numerous buyers and sellers in the market. The other determinant factor of the prices of the financial products is the market forces of demand and supply. The various other types of Indian markets help in the functioning of the wide India financial.

CHAPTER 5
HARSHAD MEHTA

5.1 Earlier Life of Harshad Mehta

Harshad Mehta was an Indian stockbroker caught in a scandal beginning in 1992. He died of a massive heart attack in 2001, while the legal issues were still being litigated. Early life Harshad Shantilal Mehta was born in a Gujarati jain family of modest means. His father was a small businessman. His mother's name was Rasilaben Mehta. His early childhood was spent in the industrial city of Bombay. Due to

indifferent health of Harshads father in the humid environs of Bombay, the family shifted their residence in the mid-1960s to Raipur, then in Madhya Pradesh and currently the capital of Chattisgarh state.. After completing his secondary education Harshad left for Bombay. While doing odd jobs he joined Lala Lajpat Rai College for a

Bachelors degree in Commerce. After completing his graduation, Harshad Mehta started his working life as an employee of the New India Assurance Company. During this period his family relocated to Bombay and his brother Ashwin Mehta started to pursue graduation course in law at Lala Lajpat Rai College. They had rented a small flat in Ghatkopar for living.In the late seventies every evening Harshad and Ashwin started to analyze tips generated from respective offices and from cyclostyled investment letters, which had made their appearance during that time. In the early eighties he quit his job and sought a job with stock broker . Ambalal affiliated to Bombay Stock Exchange (BSE) before becoming a jobber on BSE for stock broker P.D. Shukla. In 1981 he became a sub-broker for stock brokers J.L. Shah and Nandalal Sheth. After a

while he was unable to sustain his overbought positions and decided to pay his dues by selling his house with consent of his mother Rasila ben and brother Ashwin. The next day Harshad went to his brokers and offered the papers of the house as guarantee. The brokers Shah and

Sheth were moved by his gesture and gave him sufficient time to overcome his position. After he came out of this big struggle for survival he became stronger and his brother quit his job to team with Harshad to start their venture Grow More Research and Asset Management Company Limited. While a brokers card at BSE was being auctioned, the company made a bid for the same with financial assistance from Shah and Sheth, who were Harshad's previous broker mentors. He rose and survived the bear runs, this earned him the nickname of the Big Bull of the trading floor, and his actions, actual or perceived, decided the course of the movement of the Sensex as well as scrip-specific activities. By the end of eighties the media started projecting him as "Stock Market Success", "Story of Rags to Riches" and he too started to fuel his own publicity. He felt proud of this accomplishments and showed off his success to journalists through his mansion "Madhuli", which included a billiards room, mini theatre and nine hole golf course. His brand new Toyota Lexus and a fleet of cars gave credibility to his show off. 5.2 Activities of Mr Harshd Mehta His favorite stocks included

Acc Apollo Tyres

Tata Iron and Steel Co. (TISCO) BPL Sterlite Videocon.

The extent The Harshad Mehta induced security scam, as the media sometimes termed it, adversely affected at least 10 major commercial banks of India, a number of foreign banks operating in India, and the National Housing Bank, a subsidiary of the Reserve Bank of India, which is the central bank of India. As an aftermath of the shockwaves which engulfed the Indian financial sector, a number of people holding key positions in the India's financial sector were adversely affected, which included arrest and sacking of K. M. Margabandhu, then CMD of the UCO Bank; removal from office of V. Mahadevan, one of the Managing Directors of Indias largest bank, the State Bank of India. The year was 1990. Years had gone by and the driving ambitions of a young man in the faceless crowd had been realized . Harshad Mehta was making waves in the stock market. He had been buying shares heavily since the beginning of 1990. The shares which attracted attention were those of Associated Cement Company (ACC), write the authors. The price of ACC was bid up to Rs 10,000. For those who asked, Mehta had the replacement cost theory as an explanation. The

theory basically argues that old companies should be valued on the basis of the amount of money which would be required to create another such company. Through the second half of 1991, Mehta was the darling of the business media and earned the sobriquet of the Big Bull, who was said to have started the bull run. But, where was Mehta getting his endless supply of money from? Nobody had a clue.On April 23, 1992, journalist Sucheta Dalal in a column in The Times of India, exposed the dubious ways of Harshad Metha. The broker was dipping illegally into the banking system to finance his buying.In 1992, when I broke the story about the Rs 600 crore that he had swiped from the State Bank of India, it was his visits to the banks headquarters in a flashy Toyota Lexus that was the tip-off. Those days, the Lexus had just been launched in the international market and importing it cost a neat package, Dalal wrote in one of her columns later. The authors explain: The crucial mechanism through which the scam was effected was the ready forward (RF) deal. The RF is in essence a secured short-term (typically 15-day) loan from one bank to another. Crudely put, the bank lends against government securities just as a pawnbroker lends against jewellery. The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan, typically at a slightly higher price.It was this ready forward deal that Harshad Mehta and his cronies used with

great success to channel money from the banking system. A typical ready forward deal involved two banks brought together by a broker in lieu of a commission. The broker handles neither the cash nor the securities, though that wasnt the case in the lead-up to the scam. Newsmakers of the week: View Slideshow The year was 1990. Years had gone by and the driving ambitions of a young man in the faceless crowd had been realised. Harshad Mehta was making waves in the

stock market. He had been buying shares heavily since the beginning of 1990. The shares which attracted attention were those of Associated Cement Company (ACC), write the authors. The price of ACC was bid up to Rs 10,000. For those who asked, Mehta had the replacement cost theory as an explanation. The theory basically argues that old companies should be valued on the basis of the amount of money which would be required to create another such company. Through the second half of 1991, Mehta was the darling of the business media and earned the sobriquet of the Big Bull, who was said to have started the bull run. But, where was Mehta getting his end less up ply of money from? Nobody had a clue. On April 23, 1992, journalist Sucheta Dalal in a column in The Times of India, exposed the dubious ways of Harshad Metha. The broker was dipping illegally into the banking system to finance his buying.In 1992, when I broke the story about the Rs 600 crore that he had swiped from the State Bank of India. It

was his visits to the banks headquarters in a flashy Toyota Lexus that was the tip-off. Those days, the Lexus had just been launched in the international market and importing it cost a neat package, Dalal wrote in one of her columns later. The authors explain: The crucial mechanism through which the scam was effected was the ready forward (RF) deal. The RF is in essence a secured short-term (typically 15-day) loan from one bank to another. Crudely put, the bank lends against government securities just as a pawnbroker lends against jewellery. The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan, typically at a slightly higher price.It was this ready forward deal that Harshad Mehta and his cronies used with great success to channel money from the banking system. A typical ready forward deal involved two banks brought together by a broker in lieu of a commission. The broker handles neither the cash nor the securities, though that wasnt the case in the lead-up to the scam In this settlement process, deliveries of securities and payments were made through the broker. That is, the seller handed over the securities to the broker, who passed them to the buyer, while the buyer gave the cheque to the broker, who then made the payment to the seller. In this settlement process, the buyer and the seller might not even know whom they had traded with, either being know only to the

broker.This the brokers could manage primarily because by now they had become market makers and had started trading on their account. To keep up a semblance of legality, they pretended to be undertaking the transactions on behalf of a bank. Another instrument used in a big way was the bank receipt (BR).

5.3 End of Harshad Mehta

The game went on as long as the stock prices kept going up, and no one had a clue about Mehtas modus operandi. Once the scam was exposed, though, a lot of banks were left holding BRs which did not have any value - the banking system had been swindled of a whopping Rs 4,000 crore. Mehta made a brief comeback as a stock market guru, giving tips on his own website as well as a weekly newspaper column. This time around, he was in cahoots with owners of a few companies and recommended only those shares. This game, too, did not last long Harshad Mehta was arrested and investigations continued for a decade. During his judicial custody, while he was in Thane Prison, Mumbai, he complained of chest pain, and was moved to a hospital, where he died on 31st December2001.His death remains a mystery. Some believe that he was murdered ruthlessly by an underworld nexus Interestingly,

however, by the time he died, Mehta had been convicted in only one of the many cases filed against him.

CHAPTER 6 RAJU RAMLINGA

Born: S

eptember 16, 1954

6.1 The

Ramlinga Introduction chairman and founder of

Satyam computer Ramalinga Raju is one of the pioneers of the Information Technology industry in India Ramalinga Raju was born on September 16, 1954 in a family of

farmers. He did his B. Com from Andhra Loyola College at Vijayawada and subsequently did his MBA from Ohio University, USA. Ramalinga Raju had a stint at Harvard too. He attended the Owner / President course at Harvard. After returning to India in 1977, Ramalinga Raju moved away from the traditional agriculture business and set up a spinning and weaving mill named Sri Satyam. . Thereafter he shifted to the real estate business and started a construction company called Satyam Constructions. In 1987, Ramalinga Raju founded Satyam Computer Services along with one of his brothers-inlaw, DVS Raju. The company went public in 1992. With the launch of Satyam Info way (Sify) Satyam became one of the first to enter Indian internet service market. Today, Satyam has a global presence and serves 44 Fortune 500 and over 390 multinational corporations. Ramalinga Raju has won several awards and honors. These include Ernst and Young Entrepreneur of the Year for financial service in India Services 1999 . 6.2 Company Introduction Satyam leading IT company, delivering consulting, system integration and out sourcing solutions to clients in over 20 industries. The company was started in 1987 by B. Ramalinga Raju. The network of the company covers 67 countries across six continents. In India 40,000

employees are associated with the company. Satyam uses strategic technology and marketing alliances with over 50 companies. Apart from the head office which is at Hydrabad the company also having development centers across various places of India like Kolkata, New Delhi, Mumbai, Bangalore etc. India's fourth-largest software services exporter, Satyam Computer Services received Golden a Peacock Global Award from a group of Indian directors for excellence in corporate governance.

6.3 The Starting of the scam: The Satyam fraud was was the biggest fraud of case one in or the two Indian single

corporate

history. It

not the

case

months the case was continuing since last 10 long years. The company chairman B. Ramalinga Raju was able to kept

everyone in the dark. The company had faced some inflated share price in the market which helped the people to hide the actual figures suddenly in the balance sheet. As share a result of this there was and

a huge

fall in the

price

of the

company

everything was crystal clear.

6.4 The Phases of the Satyam Scam

An analysis of the report by the Serious Fraud Investigation Office (SFIO) on the swindle at Satyam Computer Services Ltd rode on the Y2K phenomenon, which saw Indias software industry get huge orders and earn good profits. The second phase began in 2001. According to the SFIO report, the falsification of accounts started then to keep Satyams share price high. The company had gone public in 1992.Riding on the high price, Satyam promoters offloaded their shareholding in the market and used the proceeds to buy land. In fact, founder B.Ramalinga Raju had set up as many as 374 infrastructure firms and eight investment companies to help him become a land baron, the report has found. This phase continued till 2004, which was when things started going wrong.The third and final phase started sometime in mid-2007 and continued till Rajus confession on 7 January this year10. During this period, the company showed huge cash balances and fixed deposits in several banks of international repute. It was, however, actually starved of funds and the promoters were desperate to raise money to keep the company a float. On 18 December last year, two days after the Satyam board met and decided to acquire two group firmsMaytas Infra Ltd and Maytas Properties Ltdindependent director Krishna Palepu

received ananonymous

email. The writer went by an alias, Joseph

Abraham, and has been declared the whistle blower in the case. This

email laid bare the fraud. Palepu forwarded the email to another independent director, M.RammohanRao, who chaired the Satyam audit committee. Rao for warded this email to S.Gopalakrishnan, partner at Price Waterhouse, the companys auditors. Gopalakrishnan told Rao over phone that there was no truth to the allegations and assured him of a detailed reply in a proposed presentation before the audit committee on 29 December

6.5 Financial Details of the scam: Accrued interest of Rs 376 cr. which is non-existent.

An understated liability of Rs 1,230 cr. on account of funds arranged by me. (The chairman B. Ramalinga Raju itself).

An understated liability of Rs 1,230 cr. on account of funds arranged by him.

For the September quarter(Q2) they reported a revenue of Rs 2,700 cr. and an operating margin of Rs 649 cr. (24per cent of revenue) as against the actual revenues of Rs 2,112 cr. and an actual operating margin of Rs 61 cr. (3per cent of revenues).This has resulted in artificial cash and bank balances going up by Rs 588 cr. inQ2 alone. The main cause of the differences in the figures of the balance sheet was the inflated profits since several last years. It

created a significant difference in the shown figure and the actual figure of the balance sheet. The total fraud case was of Rs

7,800 cr. (Rs 78 billion). According to the company statement there was Rs 5000 cr. In the bank when this was not the right picture . Some Insights on the company balance sheet as on 31 Inflated (non-existent) cash and bank balances of Rs 5,040 cr. (as against Rs5,361 cr. reflected in the

6.6 Impact of the Scam

SEBIs chairman C.B. Bhave described the financial wrongdoing in Satyam as an event of "horrifying magnitude". The scam has dominated the India media and what is ironical is that the Indian word "Satyam" translates as "truth". Rajus announcement had knocked the companys stock down a crippling 78 percent and sent the sensitive index of the stock exchange at Mumbai, Indias financial capital, plummeting by a substantial 7.3 percent. The share price came down further on Friday. This scandal came barely a week after the government in New Delhi announced an economic stimulus package to revive the markets that have been adversely impacted by the ongoing worldwide

recession. Until recently, Satyam used to be Indias fourth-largest IT company, specialising in developing computer software and business

process outsourcing. Satyam's stock is listed on the New York Stock Exchange, it had business operations in 66 countries and counted 185companies in the Fortune 500 list as its clients and customers. "Its a wake-up call for the Indian corporate sector," "Companies have to stick to the rule-book commented Sebi chairman C B Bhave Many of Satyams 53,000 employees are expecting unemployment as the dimensions of the scandal unfold, investors withdraw and it is discovered how the companys coffers are almost empty. The 1.5 billion dollar fraud outweighs the companys entire salary bill for the last year of a little over one billion dollars. Many of Satyams 53,000 employees are expecting unemployment as the dimensions of the scandal unfold, investors withdraw and it is discovered how the companys coffers are almost empty. The 1.5 billion dollar fraud outweighs the companys entire salary bill for the last year of a little over one billion dollars. Shortly thereafter, on Dec. 23, the World Bank barred Satyam from offering its computer services for eight years citing a potential trail of corruption - data theft and bribery

Chapter 7 A . RAJA

One of the main person behind the Indias Largest Corporate Fraud

7.1 A. RAJA
A. Raja (Born May 10, 1963, Perambalur, Tamil Nadu, India) is Indian politician from the Dravida Munnetra an

Kazhagam(DMK)

political party. He is a member of the15th Lok Sabh are prese nting the

Nilgiris constituency of Tamil Nadu. Raja was first elected to the Lok Sabhain1996 and first served as minister of state from 1999 to 2003. On being re-elected to the Lok Sabha in 2004, he became a cabinet minister in the UPA government. In 2007, he became cabinet minister for communication and information technology. On being re-elected in2009 he was again appointed cabinet minister for communication and information technology until being tainted in the2G spectrum scam and resigning in 2001

7.2 The story of 2G scam

The 2G Spectrum allocation scam, considered as the mother of all scam in India, caused more than Rs. 60,000 crores loss to

public exchequer exposes the vulnerability of prevailing laws of the Nation, at the whims and fancies of political-middlemen nexus. The word Spectrum simply means the allotment of Electro Magnetic Waves, the property of a Nation to the mobile telephone operators as well as to the others in the communication industry. The entire scam broke out during the dubious decisions taken by the Telecom Minister A.Raja, by allotting 2G(second generation) spectrum to new entrants in the telecom sector at damn cheap price. The whole procedure lacks cabinet approval, while such a huge deal seeks mandatory approval of Cabinet

Committee on Economic Affairs. The Spectrum was allotted in 2008 beginning at price fixed in 2001, violating the Telecom

Regulatory Authority of India's vehement objection. More over there was no auction, the license were gifted on a shabby 'first come first serve method'. The license fee fixed in 2001, where India had only four million subscribers, were simply applied to when spectrum licenses were granted in 2008 also, ignoring the fact that the subscribers number had crossed 300 million. Nothing prevented Minister Raja to 'gift' licenses to the mobile companies at a throw away prices, though TRAI Chairman Nripendra Mishra and Finance Ministry made

objections. When Dayanidhi Maran was thrown out of the Telecom Ministry on May 2007, the then Minister for Environment and Forests Raja entered the Sanchar Bhavan, the head quarters of the Telecom Ministry along with the real-estate brokers of Parayavaran

Bhavan(head quarters of Environment Ministry). According to telecom officials, this spectrum scam is the entry of real estate brokers in the telecom sector or tussle in sharing of the scarce electro magnetic waves (spectrum) between the existing telecom brokers and new real estate brokers. The Swan Telecom bagged the license for Rs.1537 crore for operating in 13circles. Within months (September) it sold its 45 per cent of shares to Etisalat, the telecom giant in UAE for 900 million US dollars. Similarly, the Unitech, another real estate company too entered

into

bumper

deal, without

investing anything in

telecom infrastructure. The company got license to operate in 22 circles for Rs.1651 crore. Within weeks, it sold 60 per cent shares for Rs.6120 to the Norwegian company Telenor, who

is currently a major telecom.... The way on which these two controversial real estate companies bagged the telecom licenses can be compares to the DDA flat allotments or other real estate allotments in fictitious names. In a crucial strategic sector like telecom the Unitech gave application for licenses in several names. They had applied in the names of Unitech Infrastructure, Unitech Builders and Estates, Aska Projects, Nahan Properties, Hudson properties, Volga Properties, Adonis Projects and Azare properties. But they were able to merge all their licenses, when Raja notified another dubious notification .Swan Telecom, floated just two years ago, earlier known, Swan Capital .Anil Ambani earlier owned this company. Ambani had submitted for GSM license

in January 2007, when his Reliance Mobile was permitted to operate only CDMA system. When dual policy was declared, Ambani lost interest in Swan, as he can operate both technologies through Reliance. This company was taken over by Maharashtra based real estate entrepreneurs Shahid Balwa and Vinod Goenka of Dynamic

Balwagroup. He justified his acts for breaking the cartelization in the

telecom sector and claimed 'aam admi' would be benefited by his decisions.

7.3 CHARGE SHEET AFTER THE SCAM

On April 2, 2011, the CBI filed its first 80,000 page charge sheet in the 2Gspectrum scam before a Special Court in Delhi naming nine individuals and three companies. It said the wrongful acts of the accused deprived the government exchequer of possible revenues amounting to INR Rs 30,985 crore (USD $6,983,322,233). Raja, arrested former Telecom minister Siddharth Behura, arrested former Telecom Secretary R.K. Chandolia, A. Raja's arrested former personal secretary

Shahid Usman Balwa, arrested former Director 7.3 Arrest and charge sheet after the scam of Swan Telecom(nowEtisalat DB)

Sanjay Chandra, Managing Director of UnitechLtd and Unitech Wireless Gautam Doshi, Group MD, Reliance Anil Dhirubhai Ambani

7.4 Impact on stock market

The first casualty in Stock Markets once Raja was arrested was DB Realty.

20per cent fall in the stock prices of DB Realty. Sun TV had its shares fall by10per cent. SwanTelecom Chief Balwa was arrested on Feb 8and this led to rumours of links with Anil Ambani's Reliance ADAG and it led to 20per cent fall of his stocks Spice jet stocks went down after reports of investigation on Maran's recent takeover of Spice jet.

Chapter 8 DHIRUBHAI AMBANI

Purse yours goals even in the face of difficulties, and convert adversities into opportunities.- Dhirajlal Hirachand Ambani

6.1 Mr. Dhirubhai Ambani in Brief

Born 28 December 1932,Chorwad,BritishRaj(now Mumbai, Maharashtra Gujarat, India)

Died 6 July 2002 (aged 69)India

Nationality

Indian Occupation Business Magnate Nationality Indian Occupation Business Magnate ; Chairman of Reliance ..Industries Networth

US$6.10billionReligion HinduismSpouse

Kokilaben Ambani Children

MukeshAmbani,AnilAmbani,Nina Kothari,DeeptiSalgaonkar Dhirubhai started off as a small time worker with Arab merchants in the 1950s. In

the 1950s, the Yemini administration realized that their main unit of currency, the Rial, was disappearing fast. It was found that a young man in his twenties was placing unlimited buy orders for Yemini Rials . Rials, pure silver coins and was in much demand at the London Bullion Exchange. Young Dhirubhai bought the Rials, melted them into pure silver and sold it to the bullion traders in London. In 1962, Dhirubhai started the Reliance Commercial Corporation with a capital of Rs. 15, 000.00The primary business of Reliance Commercial Corporation was to import polyester yarn and export spices. Dhirubhai was able to convince people of rural Gujarat that being shareholders of his company will only bring returns to their investment.

8.2 Achievements

November 2000 Conferred 'Man of the Century' award by Chemtech Foundation and Chemical Engineering World in recognition of his outstanding contribution to the growth and development of the chemical industry in India.

2000, 1998 and 1996 Featured among 'Power 50 - the most powerful people in Asia by Asia Week magazine.

June 1998 Dean's Medal by The Wharton School, University of Pennsylvania, for setting an outstanding example of leadership. Dhirubhai Ambani has the rare distinction of being the first Indian to get Wharton School

August 2001 Economic Times Awards for Corporate Excellence for Lifetime Achievement

Dhirubhai Ambani was named the Man of 20th Century by the Federation of Indian Chambers of Commerce and Industry (FICCI).

A poll conducted by The Times of India in 2000 voted Him as a "Greatest Creator of Wealth in the Centuries". He is the true son

Of India

8.3 Reliance Textiles

Sensing a good opportunity in the textile business, Dhirubhai started his first textile mill at Naroda , in Ahmedabad in the year 1977. fibre yarn. Dhirubhai

Textiles were manufactured using polyester

started the brand "Vimal", which was named after his elder brother Ramaniklal Ambani's son, Vimal Ambani. Extensive marketing of India made it a household

the brand "Vimal"

in the interiors of

name. Franchise retail outlets were started and they used to sell "only Vimal" brand of textiles. In the year 1975, a Technical team from the World Bank visited the Reliance Textiles' Manufacturing unit. This unit as the rare distinction of being certified as" excellent even by developed country standards"

8.4 Initial public offering

Dhirubhai Ambani is awarded with starting the equity cult in India. More than 58,000investors from various parts of India subscribed to Reliance's IPO in 1977. Dhiru bhai was able to convince large number of small investors from rural Gujarat that being shareholders of his company would be profitable. Reliance Industries was the first private sector company whose Annual General Meetings were held in

stadiums . In 1986, The Annual General Meeting of Reliance Industries number of first-time retail investors to invest in Reliance. Ambani's net worth was estimated at about Rs.1 billion by early 1980s.

8.5 Dhirubhai's control over stock exchange

In 1982, Reliance Industries came up against a rights issue regarding partly convertible debentures. It was rumored that company was making all efforts to ensure that their stock prices did not slide an inch. Sensing an opportunity, a bear cartel which was a group of

stock brokers from Calcutta started to short sell the shares of Reliance. To counter this, a group of stock brokers till recently referred to as "Friends of Reliance" started to buy the short sold shares of Reliance Industries on the Bombay Stock Exchange . The Bear Cartel was acting on the belief that the Bulls would be short of cash to complete the transactions and would be ready for settlement under the "Badla " trading system operative in the Bombay Stock Exchange . The bulls kept on buying and a price of Rs.152 per share was maintained till the day of settlement. On the day of settlement, the Bear Cartel was taken aback when the Bulls demanded a physical delivery of shares. To complete the transaction, the much needed cash was provided to the stock brokers who had bought shares of Reliance, by none other than Dhirubhai Ambani. In the case of non-settlement, the Bulls demanded an "Unbadla" (a penalty sum) of Rs. 35 per share. With this, the demand increased and the shares of Reliance shot above 180 rupees in minutes. The settlement caused an enormous uproar in the market. To find a solution to this situation, the Bombay Stock Exchange was closed for three business days. Authorities from the Bombay Stock

Exchange (BSE) intervened in the matter and brought down the "Unbadla" rate to Rs. 2 with a stipulation that the Bear Cartel had to deliver the shares within the next few days. The Bear Cartel bought

shares of Reliance from the market at higher price levels and it was also learnt that Dhirubhai Ambani himself supplied those shares to the Bear Cartel and earned a healthy profit out of The Bear Cartel's adventure

8.6 CORPORATE BATTLES OF DHIRUBHAI AMBANI Despite his unprecedented corporate valour, some corporate bigwigs considered Ambani to be a manipulator. Critics accused him of using the more than the usual ways of obtaining licenses, getting quick approvals for public issues and capital goods imports, and of getting policies formulated in favour of Reliance. Dhirubhai and Reliance were accused of manipulating tariffs to Sui their needs and outsmart their rivals. He was considered to be a symbol of all that was wrong with the Indian economy. It is said that Ambani used his connections with key politicians and bureaucrats to obtain licenses and approvals for projects. He is also said to have induced government intervention by offering bribes and using other forms of lobbying prevalent in the US. Reliance was known to engage politicians, journalists, and others to increase its sphere of influence.Some businessmen described Reliance as an out of control monster, a bubble that would burst any moment.

Dyeing

chief

and

Dhirubhai

is

well

known

in the

Indian

business circles. Both of them were adept in using their business and political connections to suit their ends. During the Janata Party rule (1977- 1979), Nusli Wadia obtained the permission to build a 60000 di-methy lterephtalate (DMT) plant .However, before his letter of intent could be converted into a license, the government changed and when the Congress government came to power, his license was being delayed (until 1981) with one pretext or the other. This was the same time when Dhirubhai obtained license to build a PTA plant.

Dhirubhai was also contemplating on building a Paraxylene facility. All this infuriated Nusli Wadiaand marked the beginning of one of the major battles in the history of Indian business which lasted for several years. In the 80s, Ramnath Goenka, (Goenka) the proprietor of the Indian Express Group which was into news publication, had often tried to act as a mediator and solve the conflict between the two corporate giants; but in vain. Goenka backed Nusli Wadia. He considered the latter his son and at times, urged Dhirubhai to bring the rivalry to an end. Even though Dhirubhai promised to do so, he continued his fight with Wadia and Goenka and felt betrayed. a series Soon, Goenka turned against against

Dhirubhai

launched

of press

campaigns

Reliance. Goenka always promised Dhirubhai that he would put an end

to the campaigns being held against him in the press. But the very next moment, he would scheme another plot against him. The assaults did not stop even when Dhirubhai was hospitalized after his first stroke in 1986.Newspapers, magazines and weekend tabloids continually

attacked Dhirubhai. To counter these attacks, a few weeks later, Reliance issued 15 advertisements in leading newspapers of the country including the Indian Express. The advertisements contained key statements like "concern for truth allegiance to ethics", and

"commitment to growth". Goenka formulated a fresh assault issuing a statement that Reliance had smuggled extra machines into the country, and therefore had excess built capacity. This resulted in a show cause notice from the customs, and a duty and penalty claim of Rs. 1.19 billion on Reliance. In spite of all these attacks, Dhirubhai never failed to retain public confidence. Slowly, tables started turning against Goenka. In September 1987, there was a nationwide raid on the Express group, and a number of cases were filed against it. Dhirubhai was victorious for once. After Goenka's death in 1991, his son, Vivek Goenka took over. But he did not see much sense in lobbying against Dhirubhai and this brought to an end the big battle. Reliance Mobile, the new venture of Reliance provides cellular telephony services in 13 Indian States

8.7 Last Journey of Mr. Ambani

Dhirubhai Ambani's funeral saw thousands of people attending.

Mukesh Ambani and Anil Ambani can be seen carrying their father's body as per Hindu traditions. Dhirubhai Ambani was admitted to

the Breach Candy Hospital in Mumbai on June 24,2002 after he suffered a major stroke. This was his second stroke, the first one had occurred in February 1986 and had kept his right hand paralyzed. He was in a state of coma for more than a week. A battery of doctors were unable to save his life. He died on July 6, 2002, at around 11:50 P.M. (Indian Standard Time).His funeral procession was not only

attended by business people, politicians and celebrities but also by thousands of ordinary people. He is survived by Kokilaben

Ambani, his wife, two sons, Mukesh Ambani and Anil Ambani , and two daughters, Nina Kothari and Deepti Salgaonkar. Dhirubhai

Ambani started his long journey in Bombay from the Mulji-Jetha

Textile Market, where he started as a small-trader. As a mark of respect to this great businessman, The Mumbai Textile Merchants' decided to keep the market closed on July8, 2002. At the time of Dhirubhai's death, Reliance Group had a gross turnover of Rs. 75,000 Crore or USD $ 15 Billion. In 1976-77, the Reliance group had an annual turnover of Rs 70 crore and it is to be remembered that Dhirubhai had started the business with justRs. 15,000 (US$350)The country has lost iconic proof of what an ordinary Indian fired by the spirit of enterprise and driven by determination can achieve in his own lifetime

CHAPTER 9 THE KETAN PAREKH SCAM

"All my lifetime's savings are gone. I don't know how to feed my family." - A small investor hit by the Ketan Parekh scam, in April 2001

9.1 The Crash that Shook the Nation The 176- point Sensex crash on March 1, 2001 came as a major shock for the Government of India, the stock markets and the investors alike. More so, as the Union budget tabled a day earlier had been acclaimed for its growth initiatives and had prompted a 177-point increase in the

Sensex. This sudden crash in the stock markets prompted the Securities Exchange Board of India (SEBI) to launch immediate investigations into the volatility of stock markets. SEBI also decided to inspect the books of several brokers who were suspected of triggering the crash. Meanwhile, the Reserve Bank of India (RBI) ordered some banks to furnish data related to their capital market exposure. This was after media reports appeared regarding a private sector bank having exceeded its prudential norms of capital exposure, thereby contributing to the stock market volatility. The panic runs on the bourses continued and the Bombay Stock Exchange (BSE) President Anand Rathi's (Rathi) resignation added to the downfall. Rathi had to resign following allegations that he had used some privileged information, which contributed to the crash. The scam shook the investor's confidence in the overall functioning of the stock markets. By the end of March 2001, at least eight people were reported to have committed suicide and hundreds of investors were driven to the brink of bankruptcy. The scam opened up the debate over banks funding capital market operations and lending funds against collateral security. It also raised questions about the validity of dual control of co-operative banks. 9.2 The Man who triggered the Cash

Ketan Parekh [KP] was a chartered accountant by profession and used to manage a family business, NH Securities started by his father. Known for maintaining a low profile, KP's only dubious claim to fame was in 1992, when he was accused in the stock exchange scam. He was known as the 'Bombay Bull' and had connections with movie stars, politicians and even leading international entrepreneurs like Australian media tycoon Kerry Packer, who partnered KP in KPV Ventures, a $250 million venture capital fund that invested mainly in new economy companies. Over the years, KP built a network of companies, mainly in Mumbai, involved in stock market operations. The rise of ICE (Information, Communications, and Entertainment) stocks all over the world in early 1999 led to a rise of the Indian stock markets as well. The dotcom boom contributed to the Bull Run led by an upward trend in the NASDAQ. The companies in which KP held stakes included Amitabh Bachchan Corporation Limited (ABCL), MuktaArts, Tips and Pritish Nandy Communications. He also had stakes in HFCL, Global Tele systems (Global), Zee Tele films, Crest Communications, companies whichlisted for high and PentaMedia with GraphicsKP from his selected research capital these team, base.

investment growth

help

companies

with

a small

According to media reports, KP took advantage of low liquidity in these stocks, which eventually came to be known as the 'K-10' stocks.

The shares were held through KP's company, Triumph International. In July 1999, heheld around 1.2 million shares in Global. KP controlled around 16per cent of Global's floating stock, 25per cent of Aftek Infosys, and 15per cent each in Zee and HFCL. The buoyant stock markets from January to July 1999 helped the K-10 stocks increase in value substantially (Refer Exhibit I for BSE Index movements). HFCL soared by 57per cent while Global increased by200per cent. As a result, brokers and fund managers started investing heavily in K-10 stocks. Mutual funds like Alliance Capital, ICICI Prudential Fund and UTI also invested in K-10stocks, and saw their net asset value soaring. By January 2000, K-10 stocks regularly featured in the top five traded stocks in the exchanges (Refer Exhibit II for the price movements of K-10 stocks). HFCL's traded volumes shot up from 80,000 to 1,047,000shares. Global's total traded value in the Sensex was Rs 51.8 billion. As such huge amounts of money were being pumped into the markets, it became tough for KP to control the movements of the scripts. Also, it was reported that the volumes got too big for him to handle. Analysts and regulators wondered how KP had managed to buy such large stakes.

9.3 The Factors that Helped the Mr. Ketan Parekh

According to market sources, though KP was a successful broker, he did not have the money to buy large stakes. According to a report, 12 lakh shares of Global in July 1999 would have cost KP around Rs 200 million. The stake in Aftek Infosys would have cost him Rs 50 million, while the Zee and HFCL stakes would have cost Rs 250 million each. Analysts claimed that KP borrowed from various companies and banks for this purpose. His financing methods were fairly simple .He bought shares when they were trading at low prices and saw the prices go up in the bull market while continuously trading. When the price was high enough In September 2002, Rs 48 equalled 1 US $.Business world, 16 April, 2001.pledged the shares with banks as collateral for funds. He also borrowed from companies like HFCL. This could not have been possible out without the involvement of banks. A small Ahmedabad -based bank, Madhavapura Mercantile Cooperative Bank (MMCB)was KP's main ally in the scam. KP and his associates started tapping the MMCB for funds in early 2000. In December 2000, when KP faced liquidity problems in settlements he used MMCB in two different ways. First was the pay order route, wherein KP issued cheques drawn on BoI to MMCB, against which MMCB issued pay orders. The pay orders were discounted at BoI. It was alleged that MMCB issued funds

to KP without proper collateral security and even crossed its capital market exposure limits. As per a RBI inspection report, MMCB's loans to stock markets were around Rs 10 billion of which over Rs 8 billion were lent to KP and his firms .The second route was borrowing from a MMCB branch at Mandvi (Mumbai),where different companies owned by KP and his associates had accounts. KP used around 16 such accounts, either directly or through other broker firms, to obtain funds. Apart from direct borrowings by KP-owned finance companies, a few brokers were also believed to have taken loans on his behalf. It was alleged that Madhur Capital, a company run by Vinit Parikh, the son of MMCB Chairman Ramesh Parikh, had acted on behalf of KP to borrow funds. KP reportedly used his BoI accounts to discount 248 pay orders worth about Rs 24 billion between January and March 2001. BoI's losses eventually amounted to well above Rs 1.2billio n. A bank issues a pay order after it is clear that the customer's account has sufficient funds. Interestingly enough, there were reports that the arrest was motivated by the government's efforts to diffuse the Tehelka controversy. Many exchanges were not happy with the decision of banning the badla system as they felt it would rig the liquidity in the market. Analysts who opposed the ban argued that the ban on badla without a suitable alternative for all the scripts, which were being moved to rolling settlement,would rig the volatility in the markets.

CONCLUSION

From the project, the researcher comes to the conclusion that due to the big faces and their activities in the financial market the Indian financial system has been affected a lot. Innocent Indian investor has lost a large number of resources who have got trapped in their activities. Even the Investor have lost trust in the market. Due to the familiar names the Indian financial market have seen a number of down trends and up trends. The Indian financial market is a highly sensitive market and gets affected very easily due to the scam performed by the faces and it leads to loss of large number of resources and also time which is needed to recover the market. Thus in short due to their activities

there is a loss to the whole country in monetary term as well as economic term. So the regulatory body should strive to avoid the activities performed

by the biggies in the financial market. They should strengthen their control in the financial market so that the activities does not affect the Indian financial market.

BIBLOGRAPHY BOOKS:

DR. S. Guruswamy in book, Financial markets and institution Press journal, july 8,2002 Pranay Guha Thakurta in book, The Two Phase of dhirubhai ambani

S.K. Barua in book, The Great Indian Scam, Story of Missing Rs. 4000 crore

WEBSITE: www.equitymaster.com

 www.indiainfoline .com

http://www.atimes.com/atimes/south_asia/DG091fo1.html http://en.wikipedia.org/dhirubhai-ambani

www.askme.com

www.scribd.com project on Ketan Parekh