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HomeThePrint Profile‘Scapegoat’ or mastermind of 1992 scam? Harshad Mehta's fall from grace still...

‘Scapegoat’ or mastermind of 1992 scam? Harshad Mehta’s fall from grace still haunts family

Harshad Mehta’s wife Jyoti has launched a website in her late husband’s name, to publicly share the ‘harassment’ their family is being subjected to.

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Earlier this month, Jyoti—wife of erstwhile stock market ‘Big Bull’ Harshad Shantilal Mehta—and her family launched a website in his name. The purpose was to publicly share the alleged harassment that she and her family have been facing from the Income Tax Department, even after her husband’s death, for nearly three decades, despite winning more than 1,200 cases filed against them in various judicial forums.

Most of these cases are a result of the famous—almost immortalised—scam of 1992, for
which Harshad Mehta is accused. What he pulled off in 1992 was nearly inconceivable.
Without possessing the money to buy stocks in the market, he made millions, and in the
process jacked up stock prices of some of the most prominent listed companies. He found loopholes in the system to pull off the scam.

To put it simply, a trader on the Bombay Stock Exchange (BSE) could place an order to buy stocks on a Monday and square off positions between Tuesday and Thursday. Friday would usually be the settlement day, when the order would be complete. Mehta, in connivance with some banks, manipulated the securities market, and colluded with some to get fake bank receipts (BRs) issued. He used them to raise money from other banks to invest in the stock market. Banks would lend him money as they thought the receipts were backed by underlying government securities. In this way, he manipulated the stock market, driving it up by as much as four times in a short span. A committee under then Reserve Bank of India (RBI) deputy governor R. Janakiraman estimated the size of the scam at Rs 4,024 crore.

Had he lived, he would have been 68 years old today.

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An unforgettable name

Harshad Mehta’s name resonates with every new and young investor who enters
the stock market. He had famously earned the monikers ‘Big Bull’ and ‘Amitabh Bachchan
of the stock market’. His is a name that divides opinion: some still see him as a mastermind of the financial markets, while others left with flotsam and jetsam in the aftermath, see him as a scammer.

Born on 29 July 1954 in a middle-class Gujarati family based in Paneli Moti—a village in tehsil Upleta of Gujarat’s Rajkot district—Mehta spent his childhood in the suburbs of Mumbai’s Borivali, where his father Shantilal Mehta ran a textile business. A few years later, his family moved to Raipur in Chhattisgarh before returning to Mumbai in the 1970s.

A cricket enthusiast, Mehta was part of his school cricket team in Raipur. He graduated in commerce from Mumbai’s Lala Lajpatrai College in 1976 and then worked for a few years in different jobs—sometimes as a cement contractor or a hosiery seller. Other times as an insurance clerk or a diamond sorter, and eventually a jobber. He obtained a stock broking license in 1984, subsequently started his own brokerage firm named Grow More Research and Asset Management.

In just two years, Mehta was actively trading in the stock market. By 1992, Mehta
was among the highest income taxpayers in India.

No one had a clue on where he was securing the funds to invest in stocks. Mehta took over
closed companies, pumped in cash and boosted their shares on the market. His growing
popularity in the markets started getting media attention.

Mehta’s pull grew to a point where investors followed him blindly—funneling money
wherever he did. Giants like Associated Cement Companies Limited (ACC), Southern
Petrochemical Industries Corporation, Videocon Industries and Apollo Tyres were some of his best picks, which are relevant even in today’s stock market.

A stockbroker, who worked in a firm which had business with Mehta told ThePrint on condition of anonymity that Mehta managed to convince financial institutions to buy the
stocks he was bullish on.

“Harshad had close links with the power corridors in Delhi and through that channel he could convince a lot of banks and financial institutions to grant him funds for investing in stocks for immediate profits,” the broker said. At the time, banks were not allowed to invest directly in the equity markets.

Mehta once famously said, “India is a turnaround scrip on the Global Stock Exchange. We are a product of a historic time.”

He was also featured by a television channel feeding peanuts to bears at Mumbai Zoo to symbolise his victory over the stock market’s ‘bear cartel’—a syndicate of banks and brokers who, as per Mehta, monopolised the market. In an interview with India Today, Mehta went on to call them “prophets of gloom,” whose sole objective was to eliminate him from the market. A bull market occurs when securities are on the rise, while a bear market occurs when securities fall for a sustained period of time.

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Mehta’s fall from grace

Noted journalist Sucheta Dalal, who broke the bank security scam story, explained in her
book, The Scam: From Harshad Mehta to Ketan Parekh, that the money that Harshad Mehta had secured to pump in the stock markets actually came from banks and financial institutions.

And at the heart of this scam was the State Bank of India (SBI), which connived with
Mehta and extended funds of Rs 500 crore to him. This is when Mehta did not have the credibility to pay it back. According to Dalal, SBI’s vigilance department and its
then chairman D.N. Ghosh had called Mehta to their office to recover the money.

SBI had extended the funds as Mehta promised that he had bank receipts worth Rs 500 crore, which were backed by government securities against which the funds could be extended. Mehta took the Rs 500 crore, invested in stocks which he wanted people to go after, leading to soaring prices of that stock and making immediate profits from the rise. He would take this profit and invest in more stocks.

While Rs 500 crore from SBI was one transaction, the actual quantum of the money that was secured from banks and financial institutions was over Rs 4,000 crore.

Mehta’s alleged siphoning couldn’t remain a secret for long—the scam became apparent in
1992, after the SBI reported a shortfall in government securities. As a result of this exposé,
the stock exchange crashed by a whopping 72 per cent, and a bear spell loomed over the
market for two years.

Mehta was arrested by the Central Bureau of Investigation (CBI) on 9 November 1992 for
“misappropriating 2.8 million shares of approximately 90 companies” and subsequently
banned from trading. Mehta continued to maintain that he was being used as a “scapegoat to serve ulterior motives”, living “hour-to-hour” as a consequence. Though he made a brief
comeback as a stock market ‘guru’ in 1995, Mehta was jailed again in 1999. He passed away from cardiac arrest in 2001, while still on trial. Ironically, says India Today, Sensex rose by 77 points on his death—almost as if in tribute.

(Edited by Zoya Bhatti)

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