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HARSHAD

MEHTA

SUBMITTED BY –BALRAM(12/1023)RAKESH(12/1027)

SHIVA(12/965)ABHINAV(12/883)AKASH(12/1264)

KOUSHIK(12/1266)

PROJECT

REPORTON

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SUBMITTED TO – MISS GARIMA

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CONTENTSA. HISTORY OF HARSHAD MEHTA BEFORE SCAMB. EXPOSURE , TRIAL AND CONVICTIONC. FACTS OF SCAMD. BANKING FAULTS RESULTING IN SCAME. IMPACT ON PARTICIPATORIES IN SCAMF. IMPACT ON ECONOMIC MARKETSG. LIFE AFTER SCAMH. SOME POPULAR REFERENCESI. CONCLUSION

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A. HISTORY OF HARSHAD MEHTA BEFORE SCAM

Harshad Shantilal Mehta was born in a Gujarati Jain family of modest means. His early childhood was spent in Mumbai where his father was a small-time businessman. Later, the family moved to Raipur in Madhya Pradesh after doctors advised his father to move to a drier place on account of his indifferent health. But Raipur could not hold back Mehta for long and he was back in the city after completing his schooling, much against his father’s wishes.

Mehta first started working as a dispatch clerk in the New India Assurance Company. Over the years, he got interested in the stock markets and along with brother Ashwin, who by then had left his job with the Industrial Credit and Investment Corporation of India, started investing heavily in the stock market.

4ASHWIN MEHTA

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Harshad Mehta was making waves in the stock market. He had been buying shares heavily since the beginning of 1990. The shares which attracted attention were those of Associated Cement Company (ACC),” write the authors. The price of ACC was bid up to ₨ 10,000. For those who asked, Mehta had the 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. Mehta was the darling of the business media and earned the sobriquet of the ‘Big Bull’, who was said to have started the bull run. But, where was Mehta getting his endless supply of money from? Nobody had a clue.

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Mehta gradually rose to become a stock broker on the Bombay Stock Exchange, who did very well for himself. At his peak, he lived almost like a movie star in a 15,000 square feet house, which had a swimming pool as well as a golf patch. He also had a taste for flashy cars, which ultimately led to his downfall.

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B. EXPOSURE , TRIAL AND CONVICTION

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April 1992: Exposure of the Scam

•Sucheta Dalal, a veteran columnist, exposed the scam in The Times of India

•Mehta was alleged to dip illegally into the banking system to finance his stock buying

•He exploited the loopholes in the financial system through the Ready Forward Deal (RF) and the Bank Receipts (BR)•Bank of Karad and The Metropolitan Co-operative Bank were involved in the BR Scam

•Sensex tanked to 2,529 points in August, wiping off over Rs. 0.1mn crore in market capitalisations

•Banks were left with BRs bearing no value; banking system lost a huge Rs. 4,000 crore

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The Downfall•Arrested by CBI on Nov ‘92; charged with 72 criminal offences and over 600 civil actions suits.

• Also accused of offering Rs. 1 cr. Bribe to former PM PV Narsimha Rao, to cover up the scandal

• A decade later, Mehta died in a hospital, with 27 cases still pending against him

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C.FACTS OF SCAM

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CURRENTLY IT IS AT NO.6

“THROUGH OUT THE PAST YEARS MANY SCAMS HAS BROKE OUT BUT THIS SCAM HAS MAINTAINED ITS POSITION IN TOP TEN SCAMS IN INDIA” BY THIS WE CAN ESTIMATE HOW MUCH BIGGER THE SCAM WAS.

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FAVOURITE STOCKS OF HARSHAD MEHTA -

TATA IRON AND STEEL

COMPANYRELIANCE

ACC APOLO TYRES

VIDEOCON BPL

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D. BANKING FAULTS RESULTING IN SCAM

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• A secured short-term (typically 15-day) loan from one bank to another

• Bank lends against government securities

• A broker usually brings together two banks for which he is paid a commission

• The securities and payments were delivered through the broker in the settlement process

• In such settlement the banks may not know with whom they are dealing

Ready Forward Deal In a RF deal securities were not moved

back and forth in actuality

The borrower, i.e. the seller of securities, gave the buyer of the securities a Bank Receipt

Bank receipts serve three functions 1) Confirms the sale of securities 2) States that the securities are held by

the seller in trust for the buyer 3) 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

Bank Receipts

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BANK OF KARAD (BOK) AND THE METROPOLITAN COOPERATIVE BANK (MCB) AGREED TO ISSUE FAKE BRs.

BR PASSED TO ANOTHER BANK, MONEY ACQUIRED.

MONEY THUS USED TO ENHANCE PRICES IN THE STOCK MARKET, INITIATING BULL RUN.

SHARES SOLD FOR SIGNIFICANT PROFITS. BR RETIRED.

STAGE1

STAGE2

STAGE3

STAGE4

MECHANISM OF MEHTA’S TRADING

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MEHTA

FAKEBR

BANK

MONEY

SHARES BOUGHT

BRRETIRED

SOLD FOR

PROFIT

PROFIT KEPT

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Borrower bank Broker Harshad Mehta

Lender bank

Issue fake BR

Funds

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E. IMPACT ON PARTICIPATORIES IN SCAM

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• METROPOLITAN BANK AND BANK OF KARAD GOT SEVERELY AFFECTED AND THEIR MANAGERS COMMITED SUICIDE.

• K.M. MARGABANDHU, THEN CMD OF THE UCO BANK GOT ARRESTED IN THE CASE.

• V. MAHADEVAN HAVE TO VACATE OFFICE AS MANAGER OF SBI

• CHAIRMAN OF VIJYA BANK COMMITTED SUICIDE BEING GUILTY OF HAVING ISSUED CHEQUES TO MEHTA.

• MANY INDIAN AND FOREIGN BANK GOT AFFECTED INCLUDING NATIONAL HOUSING BANK

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F. IMPACT ON ECONOMIC MARKETS

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G. LIFE AFTER SCAM

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Steps taken by SEBI in response to the scam • DUE TO THE SCAM INSIDER TRADING IN BOMBAY STOCK

EXCHANGE HAVE BEEN SUSPENDED. IN ORDER TO PREVENT MISUSE OF PRICE SENSITIVE INFORMATION BY BROKER, DIRECTOR, STOCK MARKET.

• SEBI HAS IMPOSED AN ADDITIONAL 10% VOLATILITY MARGIN ON ALL THE A-GROUP SHARES AND ADDITIONAL MARGIN STOCKS IN AUTOMATIC LENDING AND BORROWING MECHANISM(ALBM) AND BORROWING AND LENDING OF SECURITI SCHEME(BLESS)

• THE SEBI HAS ALSO IMPOSED VOLATILITY MARGINS ON NET OUTSTANDING SALE POSITION OF FIIS(FINANCIAL INSTITUTION,BANKS AND MUTUAL FUNDS)• IN ORDER TO INCREASE LIQUIDITY,SEBI HAS ALLOWED

BANKS TO OFFER COLLATERALIZED LENDING ONLY THROUGH BSE AND NSE• ON MARCH 8,2001, THE SEBI BANNED SHORT SALES.IN

SIMPLE WORDS,IT MEANS THAT ALL SHORT SALES HAVE TO BE COVERED BY AN EQUAL AMOUNT OF LONG PURCHASES.

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H. SOME POPULAR REFERENCES

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• In the 1995 movie "Gambler" starring Govinda, Harshad Mehta is referred in the parody song "Stop That" at [ 02:13 ]

• The character Natwar Shah in movie Aankhein (released:1993), placed under scanner for a Rs. 50 billion scandal, was inspired by Harshad Mehta.

• The Mehta scandal was portrayed in the Hindi movie, Gafla. It was premiered in Times BFI 50th London Film Festival on 18 Oct 2006. The movie Gafla that was nominated globally in various important film events including at London by Mr. Bradshaw is based on the actualities and prevalent realities in the stock market and Harshad Mehta's scam.

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• Mehta scandal life is covered by Sucheta Dalal and Debashish Basu in their book The Scam: From Harshad Mehta To Ketan Parekh.

• Harshad Mehta's trial has been referred to in 2001 Bollywood movie Nayak.

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I. CONCLUSION

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MANY WILL LAUGH AT IT BUT THIS IS NOT A JOKE! THIS IS REALITY OF OUR COUNTRY . MANY OF THE SCAMS TOOK PLACE ONLY BECAUSE GOVERNMENT WAS INVOLVED . LEGAL AUTHORITES AND REGULATERIES WERE IGNORANT OF THE FACT THAT WHERE HARSHAD MEHTA WAS EARNING THIS HUGE AMOUNT OF MONEY AND EVEN AFTER DISCOVERING THE SCAM LEGAL PROCEEDING TOOK 10 YEARS TO GIVE DECISION ON THE CASE.IN LAST DECADE MANY SCAMS HAVE BROKEN OUT AND IN FUTURE ALSO MANY WILL ARISE IF WE DON’T IMPROVE.SO IN THIS NOTE WE ARE CONCLUDING THIS PRESENTATION.

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