Author: Hitesh, Chandigarh University
Linkedin Profile : https://www.linkedin.com/in/hitesh-dixit-b01604349?utm_source=share&utm_campaign=share_via&utm_content=profile&utm_medium=android_app
To the Point
Harshad Shantilal Mehta, was the renowned businessman of the share market. People gave him this name because he made a lot of money very quickly by buying and selling shares in a smart but illegal way. In 1992,
a journalist named Sucheta Dalal exposed a huge scam that he was running. This scam was worth about Rs. 4,000 crores at that time (which is equal to Rs. 30,000–40,000 crores today). Harshad Mehta cheated banks by using fake documents and took a huge amount of money from them. He then used that money to buy shares of some companies. Because he bought so many shares, the prices went up. Then he sold those shares at high prices and made big profits. But all this was done through cheating and wrong ways.
He was arrested in August 1992. Around 70 criminal cases were filed against him. This scam became the biggest in India and changed the rules of the banking and stock market systems forever.
Use of Legal Jargon
To understand the scam better, here are the meanings of some legal words in simple language.
Fraud: Cheating someone by lying or using fake documents.
Benami Transaction: When someone hides their money in someone else’s name.
Forgery: Creating fake documents or signatures.
Market Manipulation: Changing share prices on purpose to make profits.
Conspiracy: Planning something wrong or illegal with others.
Ready Forward Deal: A short-term loan between banks using government bonds.
Insider Trading: Using secret company information to buy or sell shares and make money.
These words were often used in the court cases against Harshad Mehta.
The Proof
Here is how Harshad Mehta did the scam step by step:
Fake Bank Receipts (BRs): Small banks created fake BRs, which are documents that claim a bank has government securities. But in reality, they had none.
Using Fake BRs to Get Loans: Harshad gave these fake BRs to big banks like SBI to get huge loans.
Buying Company Shares: He used this money to buy shares of some companies such as ACC, which made their prices go up fast.
Selling at High Prices: After the prices rose, he sold the shares and earned massive profits.
Repeating the Process: He kept doing this with different banks and different companies.
Caught by RBI and Sucheta Dalal: Finally, the RBI noticed something wrong. In 1992, The Harshad Mehta scam
was revealed via Times of India article written by Sucheta Dalal.
Abstract
Harshad Mehta used a weakness in the banking system to make fast money. Banks were giving and taking short-term loans using documents called Bank Receipts (BRs). These BRs were supposed to show that a bank had government bonds. But Harshad used fake BRs. So, he took a lot of money from banks without any real security or bonds.With that money, he bought large amounts of shares of specific companies.
This made the share prices rise
very quickly. Once the price was high, he sold the shares and made huge profits. He lived a very luxurious life, with expensive cars, a large house, and fame.But soon the scam was discovered. The RBI found that the BRs were fake, and Sucheta Dalal’s article made the public aware of the scam. The stock market crashed, and thousands of people lost their investments.Harshad Mehta was caught by the police and many chargesheets were filed against him.
Court Cases
CBI vs. Harshad Mehta (1999): He was found guilty of fraud and forgery. He was charged under different sections of the Indian Penal Code (IPC), including cheating, conspiracy, and using fake documents.
SEBI vs. Harshad Mehta: A full restriction was put on the Harshad Mehta for investing in stock by the SEBI(Security and exchange board of India).
Harshad Mehta vs. State of Maharashtra (1996): Harshad applied for bail, but the court denied it because the scam was very big and affected the entire country’s financial system.
Civil and Criminal Cases: More than 70 criminal cases and over 600 civil cases were filed against Harshad Mehta and his associates.
Effects and Changes After the Scam
The scam changed the way India’s financial system worked. It had a deep impact on investors and forced the government to bring reforms.
A. Immediate Effects: The share market crashed, and investors lost thousands of crores. Many middle-class families lost their savings. Public trust in the banking and stock systems was shaken.
B. Long-Term Changes and Reforms: SEBI Got More Powers: SEBI was made stronger to control the share market properly.
C. Introduction of DEMAT Accounts: Shares were now stored digitally to stop fraud.
D. Screen-Based Trading: The National Stock Exchange (NSE) started screen-based (online) trading.
E. Tighter RBI Controls: RBI created strict rules to monitor how banks give and take loans.
F. Insider Trading Made Illegal: New laws were made to punish people using secret company information.
G. KYC Becomes Mandatory: Customers now had to provide ID and address proof to open accounts.
Public and Media Reaction
The media played a big role in this case. A journalist of times of India, Sucheta Dalal expose the scams of Harshad Mehta and become a hero of the nation. Her article started the whole investigation. People were shocked when they learned that Harshad Mehta had cheated the banking system. He was living like a film star—with flashy cars like Lexus and Toyota, a huge apartment, and expensive clothes. Some people admired his smartness, but most felt angry and cheated. The scam affected common people, banks, and even politicians. Some leaders were accused of helping him, but no strong proof was found. The case also showed that India needed better laws and strong systems.
Family and Legal Struggles After His Death
Harshad Mehta died in the police custody by the heart attack in 1999. But even after his death, the legal battles continued.
His Family’s Situation: His wife and brother continued to fight legal cases and faced many financial difficulties.
Recovery of Money: The government tried to recover money from his assets, but most of it was stuck in legal processes.
Tax Disputes: There were also big tax claims of over Rs. 11,000 crore by the Income Tax Department, which his family had to fight.
Additional Details and Insights
Harshad Mehta’s Early Life: Harshad Mehta born as a middle class man in a family of Rajkot, Gujrat . He did odd jobs in Mumbai before entering the stock market. He worked as a salesperson before becoming a stockbroker.
Rise to Fame: He used the loopholes in the system, such as Ready Forward (RF) deals and poor internal checks, to make money. He was considered a financial wizard by many during his rise.
How He Gained Trust: Mehta gained the trust of banks by posing as a successful broker. He convinced many to give him large sums of money in return for fake government securities.
Political Links: Though no politician was officially convicted, reports claimed that Harshad Mehta once gave a suitcase of cash to the the former Prime Minister P.V. Narasimha Rao.
However, this claim could never be proven.
Role of Banks: Several banks failed to follow the proper process. They trusted Mehta and issued money without proper documentation, making the scam even bigger.
Stock Market Bubble: Due to his activities, the Sensex (stock index) rose from 1,200 to nearly 4,500 points in just a few months. After the scam, it crashed badly.
Impact on Economy: The Indian economy, which was already struggling with debt and inflation, took a hit. The scam made foreign investors cautious.
Documentaries and Web Series: The story was made into a web series called “Scam 1992” based on the book “The Scam” by Sucheta Dalal and Debashis Basu. This show educated millions about financial fraud.
Learning from the Scam: The Harshad Mehta scam taught India the need for strict financial governance. It helped improve financial knowledge and awareness among people.
Conclusion
Harshad Mehta used a flaw in the banking system to cheat banks and earn huge profits. He used fake documents called bank receipts to get loans without real government securities. Then he used that money to manipulate share prices and make big profits. But all this was illegal.
The scam was exposed by journalist Sucheta Dalal in 1992. Harshad was arrested, and many cases were filed against him. His actions caused a big market crash, and many people lost their savings.
However, the scam also forced India to make important changes. Rules became stricter, systems were improved, and investor protection became stronger. Today, Harshad Mehta’s name is a reminder of how one scam changed an entire country’s financial system.
FAQS
Q1. How much was the scam amount?
Around Rs. 4,000 crores in 1992 (equal to Rs. 30,000–40,000 crores today).
Q2. What is a Bank Receipt (BR)?
It is a paper that shows one bank gave government securities to another bank. Harshad used fake ones.
Q3. How did Harshad Mehta make money?
He used fake BRs to get money from banks and bought shares. He sold them at high prices to earn profit.
Q4. Who found out about the scam?
Journalist Sucheta Dalal exposed it in April 1992 in The Times of India.
Q5. What happened to Harshad Mehta?
He was arrested and faced many legal cases. He died in jail in 1999.
Q6. What changed after the scam?
SEBI got more power, DEMAT accounts were introduced, and digital trading started. KYC became compulsory.
Q7. How many cases were filed against him?
About 70 criminal cases and more than 600 civil cases.
Q8. Did Harshad Mehta work alone?
No, he had help from bank officials, brokers, and others. Many people were involved.
Q9. Was any politician involved?
Some names came out, but no one was strongly proven guilty.
Q10. Why is this scam still important today?
It showed the loopholes in India’s banking and stock system and led to major reforms.