Recognized as India’s most notorious financial fraud, Harshad Mehta masterminded a massive stock market fraud in the early 1990s that led to massive financial problems. Using his deep knowledge of the stock and financial markets, Mehta defrauded many wealthy individuals and banks, causing significant financial loss and even suicide to his victims. His sophisticated fraud involved manipulating stock prices with significant investments financed by fraudulent bank income and misappropriation of bank funds. Journalist Sucheta Dalal exposed his fraud in 1992, which led to his arrest and subsequent trial, revealing significant flaws in India’s financial regulatory system. Despite his conviction and prison sentence, Mehta continued to influence the stock market until his death in 2001. His case led to significant reforms in India’s financial regulations to prevent future fraud. Mehta’s story is a cautionary tale that underscores the need for transparency and strong oversight in financial markets to guard against such frauds.


Harshad Mehta is India’s biggest financial and stock market fraudster. Many rich people suffered because of this man’s fraud and some committed suicide because of his manipulation. Many banks suffered losses and went bankrupt because of his actions. He was an intelligent man who knew how to deceive people in the stock and financial markets. At the beginning of 1991-1992, he became known in India for his expertise in the stock and financial markets. Today it is easy, and people are more diligent to check and learn about their stock market through internet. That was not the case in 1991-1992 because the Internet was not popular at that time.

In 1991-1992, Harshad was the richest man competing with actors and other wealthy professionals. This person is known for his many scams. He cheated many wealthy individuals and even got political support. He was arrested twice. He lived a lavish lifestyle in India, defrauding banks and stealing money, as well as defrauding stock traders. He knew all aspects of stock marketing and financial marketing. He was a financial intermediary that connected banks with other banks.

Facts about Harshad Mehta’s infamous 1992 scam

Banks were allowed to trade on the stock market until the early 1990s. Harshad, who had connections with bank executives, offered banks higher interest rates in exchange for depositing money directly into his personal bank account. Banks also produced fake money receipts in his name. After he fraudulently obtained cash from the banks, he used the huge sum of money to buy some select stocks, causing their stock prices to rise. This would encourage other investors to buy those shares, causing the price of those shares to rise rapidly. He then secretly sold his shares to pocket a large profit.

For example, in 1991, Harshad started investing in shares of Associated Cement Company and increased their value to Rs. 200 to 9000 rupees in less than three months. Many people questioned Harshad’s lavish lifestyle, but journalist Sucheta Dalal decided to go a step further and investigate how Harshad acquired such wealth in such a short span of time. Harshad Mehta’s fraud finally came to an end on April 23, 1992, when Sucheta published an article in the Times of India detailing Mehta’s fraudulent strategies to control stock prices. Harshad Mehta defrauded State Bank of India of Rs. 5 billion producing SGL receipt which he said has disappeared.

After that people started looking for Harshad. On February 28, 1992, the tax office conducted searches. The Janakiraman Commission was set up by the RBI and he was found guilty and charged with 74 offences. In November 1992, the Central Criminal Police arrested him and his brother, who planned and carried out the operation together. The fraud led to several changes in India’s financial regulatory system. The Security Law Amendment Law of 1995 was realized. After three months in jail, Harshad and his brother were released on bail and weeks later, he and lawyer Ram Jethmalani publicly revealed that he had given Rs 1 lakh to Prime Minister PV Narasimha Rao as a member of the Congress.

After Mehta’s release, he was enthusiastically received by some stock market investors. He returned several times after that as a “new age” stock expert, and by 1997 even had his own website and newspaper column advising readers on buying and selling stocks. Another criminal complaint has been filed against Mehta. A special court set up to investigate the securities fraud case accepted only 34 of the 72 charges against Mehta by the CBI in October 1997. In September 1999, the Bombay High Court sentenced him and three others to five years in prison. A fraud of Rs. 380.97 crore in the Maruti Udyog Ltd fraud case, which was part of a larger securities fraud.

He was again acquitted of all charges, but in 2001 he was found guilty of embezzling Rs. 2.5 billion of the 2.7 million “missing shares” of 90 companies. He was not granted bail this time and died of a heart attack on 31 December 2001 at the age of 47 in Tihar Jail. After his death in 2003, his appeal was rejected. His other criminal charges were dropped as a result of his death, but his civil right to recover money continued.

Crimes Committed by Harshad Mehta

Fraud is a capital market fraud where facts are manipulated to increase profits. This deception has four main features.

Diversion of funds

The banking system misdirects funds to intermediaries to support securities market operations.

Intraday Trading

The basic strategy involved investing heavily in certain stocks at the beginning of the day, leading to a sharp rise in the stock price, and then selling at a large profit at the end of the day.

Using Ready Forward (RF) to maintain statutory liquidity (SLR)

A ready loan is a short-term loan from one bank to another, usually for a maximum of 15 days. It is like one bank selling its securities to another and guaranteeing to buy them back at a certain price. In the early 1990s, Indian banks were required to hold a certain percentage of their deposits in government securities according to the Statutory Liquidity Ratio (SLR). Brokers handled the entire process of buying and selling bonds, and brokers were aware of both parties. During the transaction, the individual banks had no idea who the other party was. There are three steps in this process:

Payment Process

In the normal government securities process, transaction banks make payments and transfer securities directly to each other. Securities are delivered and payments are made through a broker in this settlement process. The seller then sends the securities to the broker, who forwards them to the buyer, and after the payment is made, the broker pays the money to the seller. Both the buyer and the seller may have no idea who they are dealing with, only the broker.

Payment Checks

A run settlement allowed an agent to hold a check as it moved from one bank to another. Now the problem was that the check was deposited into the broker’s account even though it was written in favour of the bank and the account had a checking account. The brokers asked the banks to issue checks in their name and note that they paid directly to the other party. As a result, the broker must receive a check from the RBI to his bank, which receives the funds and deposits them into the broker’s account on the same day. This allowed brokers to receive money immediately after the trade, which could then be invested in the stock market.

Distribution of securities

Brokers used their reputation to persuade banks to write checks without obtaining the securities in exchange for a promise to receive the securities the next day at 15% interest for one day. Bank employees were bribed for this work because banks were forbidden to hand over their money without collateral.

Counterfeit Bank Receipts (BR)

Another device used in this scam was Bank Receipts (BR). Instead of the borrower sending the actual securities to the lender, the lending bank usually issues a bank receipt. Bank receipts serve three purposes:

It is confirmation of the sale of the security.

Guarantees the transfer of securities to the client. It specifies that the seller will keep the securities confidential to the buyer.

Acts as a cash receipt for the selling bank

At the time of the forgery, brokers were so good at forging BRs that they managed to obtain unsecured loans from several banks to issue BRs, which were then used to make collateral. companies’ other banks. As a result, several banks made large unsecured loans to these banks and gave loans to intermediaries.

Sections 465 and 467 of the Indian Penal Code 1860 make the above pecuniary offenses punishable by forgery.

Laws Relating to Harshad Mehta’s Offenses

Harshad Mehta was criminally punished under the provisions of the Indian Penal Code, 1860, which defined certain offenses and the associated penalties.

Penalties under Indian Penal Code

Harshad Mehta’s offenses are contained in Indian Penal Code Chapter 1860. The offense is under Section 463 while Sections 465 and 467 deal with forgery and forgery of securities, wills and other documents. This includes bribery, cheating, criminal conspiracy and falsification of accounts, all of which are Harshad Mehta offenses punishable under this Act.


• Section 465 deals with forgery. Anyone who creates a forged document or forged electronic document with intent to injure the public or any person or to support any claim or property right or to enter into any contract, express or implied, or with intent to commit fraud or the possibility of fraud, shall be deemed a forger.

• Forgery is dealt with under Section 465, which provides that any person who commits forgery shall be punished with imprisonment for a term which may extend to six months to four years and a fine of Rs.11.95 lakhs on the accused.

• Forgery of important guarantees, wills and other documents is dealt with under article 467. Anyone who falsifies a document claiming to be a valuable security, a will or permission to adopt a son, or who claims to authorize someone to give or issue a valuable security, receive capital, interest or dividends, or receive or transfer money, movable property, is punished with one year’s imprisonment with a maximum penalty of ten years and a fine.


Section 171E deals with the penalties for bribery. Bribery is an offense punishable by imprisonment up to one year or fine or both.


Cheating and dishonest transfer of property referred to in section 420. Who deceives and dishonestly induces the cheated person to transfer property to someone or to make, change or destroy a security or a part of a security or a part of it or a signed or sealed and changeable security, he will be punished with a financial penalty and deprivation of liberty for up to seven years.

Criminal Conspiracy

Section 120B deals with the punishment of conspiracy which states that anyone who is a party to a criminal conspiracy to commit an offense shall be punished with death, imprisonment for life or rigorous imprisonment for two years.

Falsification of accounts

Falsification of accounts is dealt with in section 477A. Whoever, while employed or acting as an officer, servant or servant, wilfully and wilfully defrauds, destroys, alters, mutilates or falsifies any valuable security or accounts in the possession of or obtained by or on behalf of his employer. in the name of his employer and fraudulently assist or encourage the making of a false entry or the omission or alteration of an accounting or electronic document is punished with imprisonment which may extend up to seven years or with a fine or with both.


Harshad Mehta was a smart man with big ambitions, but the path he took to get there was wrong. This path caused his downfall and ultimately his death. One loophole exposed by the fraud was the complete lack of transparency in the financial markets. Irregularities of all kinds were so widespread that even very irregular incidents generated very few investigations. This is the perfect place for fraud to develop and grow to dangerous proportions. The Harshad Mehta scam was the most public and horrific financial scandal ever to hit India. Many people were dead and some even committed suicide. All the rich suffer from mental and physical exhaustion from the scam. Consequently, he was a daring stockbroker and knew well both the weaknesses of the banking system and the ways to exploit them.


Who was Harshad Mehta?

Harshad Mehta was an Indian stockbroker known for his involvement in a major financial scandal in 1992, considered one of the largest financial frauds in Indian history.

What was the main method used by Harshad Mehta to commit the fraud?

Harshad Mehta manipulated the stock market by using bank funds to artificially inflate stock prices. He did this by exploiting loopholes in the banking system and using fake bank receipts.

How did Harshad Mehta get money from banks?

Mehta used his connections with bank officials to get banks to issue fake Bank Receipts (BR) and transfer money directly to his accounts. In return, he promised higher interest rates to the banks.

What is a Bank Receipt (BR) and how has it been misused?

Bank Receipt (BR) is a document that confirms the sale of securities. Mehta used fake BRs to obtain unsecured loans from banks, which he then invested in the stock market to boost share prices. 

What were the main stakes in Harshad Mehta’s deception?

One of the most important stocks was Associated Cement Company (ACC), the price of which was artificially inflated by Mehta to Rs. 200 Rs 9000.

Who exposed Harshad Mehta fraud?

Journalist Sucheta Dalal exposed Mehta’s fraud in an article published in The Times of India on 23 April 1992.

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