HARSHAD MEHTA –

THE SCANDAL
GURU!!
BY,
Anand Kumar Adeppa
Alia Amreen
Ankit Rastogi
Ashwin Valsraj
Athina Abraham

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INTRODUCTION
 Harshad Shantilal Mehta
---- the magician during the
rise in the Bombay Stock
Exchange in 1992 ---- was
also the architect of India’s
biggest, largest and the most
devastating stock market scam.

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OBJECTIVE
To present a plausible reconstruction of how the
scam originated ,how it was perpetrated, and its
impact.

To discuss the government’s response to the scam.

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MECHANISM
The two important tools used in this scam are:

Ready forward deal: It is in essence a secured

short term (typically 15 day) loan from a bank to
another bank.

Bank receipt : It confirms the sale of securities. It

acts as a receipt for the money received by the
selling bank.

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READY FORWARD DEAL

ISSUE
BR
BR

BORROWER BROKER LENDER

BANK BANK

FUNDS FUNDS

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BORROWER
BANK ISSUED
FAKE BR
BANK OF FAKE
KARAD BRS BROKER
& HARSHAD
METROPOLITA MEHTA LENDER
N CO-
OPERATIVE
FUNDS BANKS
BANK (MCB)
SBI
UCO
STANDERED
CHARTERED
NHB
CANARA BANK
GROUP
ANDHRA BANK
GROUP

FUNDS

FUNDS RETURNED

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IMPACT OF THE SCAM
Stock market : There was a sharp fall in the share
prices. The index fell from 4500 to 2500
representing a paper loss of Rs.1.0 lac crores.

 Liberalization: SEBI postponed sanctioning of

private sector mutual funds. Implementation of
some aspects of the Narasimham Committee were
also delayed.

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MAJOR REASONS OF THE FALL
First was the phenomenon of tainted shares
which created panic in the market

 Second was the perceived slow down of the

reform process which destroyed the very
foundation on which the boom was based.

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GOVERNMENT’S ACTION
Government’s knee jerk response to the scam in
promulgating the special courts ordinance with
several draconian provisions.

 The concept of tainted shares.

 The liberalization policies of the government

were put on hold.
 JPC
 Ban on RF deals

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 WHAT COULD HAVE BEEN
DONE!!
RFs should be permitted and the entire settlement
and clearing system could have been streamlined
and computerized as recommended by Nadkarni
Committee.

The entire liberalization process could have been

brought to a logical conclusion by integrating the
various financial markets.

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CONCLUSION
There was a total lack of transparency in the
money market. Irregularities of all kind were so
common that no suspicion aroused even by highly
irregular transactions. This is the ideal
environment for a scam to germinate and grow to
alarming proportions.

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THANK YOU!!!

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