Scam 1992: Big Bull - Harshad Mehta alleged he paid Rs 1 cr to PM Narasimha Rao | Once upon a time

Because of the new web series 'Scam 1992', the name Harshad Mehta has once again occupied some news headlines. The man who was responsible for one of India's largest stock market scams and the 1992 market crash is getting some attention again.

Scam 1992: Big Bull - Harshad Mehta alleged he paid Rs 1 cr to PM Narasimha Rao | Once upon a time
Image subjected to copyright.

New Delhi: Because of the new web series 'Scam 1992', the name Harshad Mehta has once again occupied some news headlines. The man who was responsible for one of India's largest stock market scams and the 1992 market crash is getting some attention again. For those who are not aware, the Harshad Mehta-led Securities Scam of 1992 is India's largest stock market scam that rattled the stock market, the banking system, and the stockholders. 

Known as the 'Big Bull' at that time, Harshad Mehta took advantage of the loopholes in the Indian banking system to defraud the banks of thousands of crores. The scale of this fraud is still unmatched. Mehta laundered over Rs 24,000 crore fraudulently within three years. He pumped so much money in the stock market that Sensex surged from 1,000 to 4,500 points within a year. 

How Mehta found loopholes in banking and used them as fraud instruments which led to the stock market crash of 1992:

Harshad Mehta's scam involved government securities and Ready-forward bank deals. Government bonds are securities issued by the government. Government raises funds to cover its expenses through these bonds. The government pays interest to the investors who invest in these bonds. At the time when the scam happened, banks needed to invest in government securities. For this, ready forward deals helped.

According to a report by Business Standard, Harshad Mehta's son Atur Mehta bought a significant stake in Fair Deal Filaments, a BSE-listed textile company. According to ScoopWhoop, the Income Tax tribunal scrapped almost the entire tax demand of Rs 2.014 crore on late Harshad Mehta, his wife, and brother in the year 2019. As reported, in the same year, Harshad Mehta's wife, Jyoti Mehta won a case against stockbroker Kishore Janani and Federal Bank who owed Rs 6 crore to Harshad Mehta since 1992. The report stated that Jyoti was entitled to receive the entire amount with 18 percent interest.

All About The 1992 Securities Scam

The Indian Stock Market witnessed rapid growth during 1991 and early 1992. It was assumed by the economists that the growth in the market was because of the growth story of India at that time. However, by April 1992, it came to light that certain groups of stockbrokers were defrauding the banks of their funds in the name of securities transactions and diverting the funds to the stock market through their accounts.

The Central Bureau of Investigation (CBI) registered several cases against various groups of stockbrokers. Further, a Joint Parliamentary Committee (JPC) was also appointed to look into the scam. The JPC observed, “The scam is a deliberate misuse of public funds through various types of securities transactions with the aim of illegal siphoning off funds of banks and PSUs to select brokers for speculative transactions.” The major groups of brokers involved were – Harshad S. Mehta Group, Bhupen Dalal Group, Hiten Dalal Group, and Ajay Kayan Group.

The above brokers used to commit frauds in the securities transactions with banks like SBI, NHB, UCO Bank and certain cooperative banks, etc. in Ready Forward/ Double Ready Forward/ Switch Deals, etc. by furnishing bogus securities papers like BRs and SGL forms, which did not have any securities backing. The funds deployed by such banks were diverted to the stock market for the personal transactions of the brokers, whereby they enriched themselves.

As per the Janakiraman Committee Report of RBI, the scam was of the magnitude of Rs.4025 crore. CBI registered several cases against the above group of brokers for defrauding the banks in the names of securities transactions and charge-sheeted those cases. CBI, BS&FC, Mumbai Branch registered 17 cases, out of which 15 were charge-sheeted. Of these 15, 11 cases have been disposed of by the TORTS Court in Mumbai.

How The Scam Came to Light, What Happened to Mehta Then

The case was unraveled after journalize Sucheta Dalal, through her column in the newspaper Times of India exposed the modus operandi of the securities scam. Her report was published on April 23, 1992, and subsequently, the market regulators and probing agencies took cognizance of the case.

Mehta and his brothers, Ashwin Mehta and Sudhir Mehta, were arrested in 1992. Their properties were taken into custody by the Custodian appointed under TORTS Act. On completion of the investigation, a charge sheet was filed in the TORTS Court in 1996 against Harshad Mehta, his associates, and certain bankers. This case ended in conviction in April 2006.

Mehta, however, died on December 31, 2001, due to a heart-related ailment. Before being rushed to the Thane Civil Hospital, where he breathed his last, Mehta was lodged in Thane jail. He was taken to the medical facility after he had complained of chest pain. The man who was once considered the single-biggest influencer of the stock market died at the age of 47.