Harshad Mehta Scam
He
was Born in 29 July 1953 and Died in 31 December 2001.
His Profession was Stockbroker. By
1991, Mr Mehta had become the most recognisable and revered icon of the stock
market. He wanted to become the most successful broker- there by he earned
the name of “THE BIG BULL”. He took advantages of loopholes in banking system. He
triggered SENSEX in 1992 & made the scam by diverting funds of Rs.4,000
crore. On April 23, 1992, journalist in Times of India Sucheta Dalal exposed Mehta's scam.
The Instruments were used
in Scam: Mehta had used 2 instruments in this scam
1)Ready Forward Deal: A secured short-term (typically 15-day) loan from one bank to another.
Bank lends against government securities. The securities and payments were
delivered through the broker in the settlement process
2)Bank Receipts: The borrower, i.e. the
seller of securities, gave the buyer of the securities a Bank Receipt. Bank receipts serve three functions: A) Confirms the sale of
securities. B) States that the securities are held by the seller in trust for
the buyer. C)
Acts as a receipt for the received money by the selling bank. In this scam Bank of Karad & Metropolitan Co-operative Bank had
issued fake BR
Impact after the scandal: The
first impact of the scam was a steep fall in the share prices. The index fell
from 4500 to 2500 representing a loss of Rs. 100,000 crores in market
capitalization. There was a lot of media coverage on the scam and the
political parties left no opportunity in criticizing the government for it. Br
was removed by RBI. Holding banks of fake BR had to face losses. step by the
government, the case was handed over to Central Bureau of Investigation and the
Joint Parliamentary Committee(JPC). Then
a special court was set up to facilitate speedy trial.
Regulatory Actions Taken
Against Mehta: He was later charged with 72 criminal
offenses, and more than 600 civil action suits were filed against him.He was arrested and banished from the stock market.
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