Harshad Shantila Mehta was born on July 29, 1953, at Paneli Moti, Rajkot District. His Early Childhood was spent in Kandivali, Mumbai, where his father was a small time businessman. Later, the family moved to Raipur, Chhattisgarh.
Mehta had started his working life as an employee of the New India Assurance Company. In the late Seventies every evening Harshad and his brother 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 P. Ambalal affiliated to BSE. Than 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 Rasilaben and brother. 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. He became stronger after this incident and his brother quit his job to team with Harshad to start their venture GrowMore Research and Asset management Company Limited.
By the end of Eighties Mehta rose to prominence in the stock market and media started projecting him as “The BIG BULL” of the Trading Floor and he too started to fuel his own publicity. He felt Proud of these accomplishments and showed off his success to journalists through his mansion “Madhuli”, which included a billiards room, mini theatre and nine golf courses. This in no time made him the nondescript broker to superstar of financial world. He paid 28 crore as advance tax for the F.Y. 1991-92. In the early 1990s Harshad Mehta led the Dreams of every middle class family and lived the life of KING of DALAL STREET with his fleet of Cars.
By 1990 Harshad Mehta had risen to prominence in the stock market. He had been buying shares heavily. The shares which attracted his attention were:
- Associated Cement Co. (ACC),
- Apollo Tyres,
- Reliance,
- Tata Iron and Steel Co. ( TISCO ),
- BPL,
- Sterlite,
- Videocon.
He took the price of ACC from 200 to 9000. That’s an increase of 4400%!!! The market went up like crazy and the bulls were on a mad run. Mehta had 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.
On April 23, 1992, journalist Sucheta Dalal in a column in The Times of India, exposed the dubious ways of Harshad Mehta. The broker was dipping illegally into the banking system to finance buying. The Author explain : “ The crucial mechanism through which the scam was effected was the READY FORWARD (R.F.) DEAL. The RF Deal is in essence a secured short term (typically 15 days) loan from one bank to another. Crudely put, the Bank lends against government securities just as a pawnbroker lends against jeweler. 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 RF deal that Harshad and his cronies used with great success to channel money from the banking system.
A typical RF 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 was not the case in 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 known only to the broker.
Another instrument used in a big way was the Bank Receipt (BR). In a Ready Forward Deal, securities were not moved back and forth in actuality. Instead, the Borrower i.e. the Seller of Securities gave the Buyer of the securities a BR.
As the author write, a BR confirms the sale of securities. It acts as a receipt for the money received by the selling Bank. Hence the name- Bank receipt. It promises to deliver the securities to the buyer. It also states that in the mean time, the seller holds the securities in trust of the buyer. Having figured this out, Mehta needed Banks, which issue fake BRs or BRs not backed by any government securities. “Two small and little known Banks- the Bank of Karad (BOK) and The Metropolitan Co-operative Bank (MCB) – came in handy for this purpose. These Banks were willing to issue BRs as and when required, for a fee,” the authors point out. Once these fake BRs were issued, they were passed on to other Banks and the Banks in turn gave money to Mehta, assuming that they were lending against government securities when this was not really the case. This money was used to drive up the prices of stocks in the stock market. When time came to return the money, the shares were sold for a profit and the BR was retired. The money due to the Bank was returned.
Since Mehta had to book profits in the end, the day he sold was the day when the market crashed. When the scam was revealed the chairman of the Vijaya Bank committed suicide by jumping from his office roof. He knew that he would be accused if people came to know about his involvement in issuing cheques to Mehta. M. J. Pherwani of UTI also died in the scandal. K. M. Margabandhu, then CMD of UCO Bank was arrested. V. Mahadevan, one of the M.D. of India’s largest Bank, the S.B.I., were removed from his office. Mehta and his brother were arrested by CBI on November 9, 1992 for allegedly misappropriationg more than 27 lacs shares of about 90 companies. He was later charged with 72 criminal offences and more than 600 civil action suits were filed against him.
Mehta again raised a controversy in 1995 when he made a public announcement that he had paid Rs. 1 crore to the then congress President and Prime Minister, Mr. P. V. Narsimha Rao as the donation to the party for getting him off the scandal case.
One rather unknown fact about the scam is that there was a very important player in this scam who managed to keep a very low profile. That man was Nimesh Shah. He was just as involved as Harshad Mehta but he knew how to keep out of the hands of the Law. Nimesh Shah still deals in the stock market and is known to be a heavy player.
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, at the age of 47, 31st Dec. 2001. Mehta’s death remains a mystery. Some believe that he was murdered ruthlessly by an underworld nexus.In this context, it might be noteworthy that a certain criminal allegedly connected with this nexus had inexplicably surrendered just days after Harshad Mehta was moved to Thane Jail and landed up in imprisonment in the same Jail, in the cell next to Harshad Mehta.
Mehta died on with many litigations still pending against him. The trials of all except one are still continuing in various courts in the country. Market watchdog, SEBI, had banned him for life from stock market related activity.
I.T.-P.S.B.s recover dues Nine years after Mehta’s Death :
Nine years after Harshad Mehta died; The Income Tax Department and Public Sector Banks have successfully recovered a significant portion of their claims emerging out of the securities scam from his liquidated assets.
The Supreme Court directed the ‘Custodian of the attached Properties and Assets of the Harshad Mehta Group (HMG) in march,2011 to make payments of Rs. 1995.66 crore to the I.T. dept. and 199.25 crore to S.B.I., making the two institutions, two of the earliest claimants to recover their dues.
While the S.B.I.’s total principle amounts claim for Rs. 1000 crore have been largely setteled, Other Financial Institution also received some money. However, Standard Chartered Bank, which had claimed 500 crore Rs. has yet to recover its dues, since it was one of the late claimants. Although, the total claim over the HMG is of more than Rs. 20000 crore, The Apex court has said that for the present, it would only consider claims towards the principle amount.
Note : The content of this article has been derived from various websites-Blogs and articles published in various newspapers. The information could be otherwise also.
Source: casansar.com only for knowledge purpose.
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