No matter how adversely one judges the extraordinary tale of one of India’s biggest financial frauds – the 1992 Indian stock market scam – one often gets engulfed with the mystique surrounding the personality of the Big Bull of the Dalal Street, a moniker given by the media to Harshad Mehta.
The Harshad Mehta scam is the tale of a man who came from humble beginnings, who had an extraordinary rise and an even more extraordinary fall. Mehta made and lost his fortune in the stock market and ultimately died while serving a jail term in Thane prison for acting as a key conspirator in the 1992 Indian securities scam that brought about a stock market crash.
Harshad Mehta, who during his prime was referred to as the Amitabh Bachchan of the stock market, and his life story have been the topic of several film and play adaptations and books. To columnist Bachi Karkaria, the humble man from Rajkot, Gujarat, was ‘the man who put money into the poor man’s pocket even while allowing the rich to rob’. Mehta has the distinction of single-handedly leading the rise of the bull market in the 1990s, prompting the Bombay Stock Exchange (BSE) Sensex to jump from 1,300 in June 1991 to 4,500 in April 1992. Even though he died unceremoniously at the Thane Civil Hospital following chest pain, Harshad Mehta had enjoyed a mass following that nobody before or after him got. All cases against the Big Bull were disposed of, shortly after his death in 2001.
Harshad Mehta: Key facts
Full name: Harshad Shantilal Mehta
Death: 2001 (at the age of 47)
Place of death: Thane Civil Hospital
Cause of death: Heart attack
Education: B Com from Mumbai’s Lala Lajpat Rai College
Wife: Jyoti Mehta
Son: Aatur Mehta
Father: Shantilal Mehta
Mother: Rasilaben Mehta
Brother: Ashwin Mehta
Cars: Lexus Starlet, Toyota Corolla, Toyota Sera
Home: Madhuli Cooperative Housing Society at Worli
Harshad Mehta properties
The Harshad Mehta financial fraud was valued at $1.4 billion, at a time when India did not have a law that penalised insider trading. The scam 1992 led to the widening of the jurisdiction of the Securities and Exchange Board of India (SEBI). Harshad Mehta largely focused his energy on making the most of the loopholes in the country’s banking system. However, Harshad Mehta’s property investments were also fitting for a man for his stature then.
Harshad Mehta Worli penthouse
Often characterised as a fast-talking (despite the typical soft and persuasive whispering of his manner), fast-playing braggadocio, among Harshad Mehta net worth was a 15,000-sq ft penthouse in Mumbai’s Worli Sea Face area that boasted of amenities such as a billiards room, a nine-hole putting golf course and a mini-theatre.
This penthouse was created by interconnecting nine flats on the third and fourth floor of the 14-storeyed Madhuli Cooperative Housing Society at Worli. These amenities in his penthouse were completely unheard of in India, in the 1990s, when the economy had started to just open up.
To those familiar with the space crunch in Mumbai and its impact on the city’s housing prices, Harshad Mehta’s home, which housed his entire extended family, was awe inspiring.
His property possession was a big deal and Harshad Mehta, whose chutzpah and tenacity impressed and offended in equal proportion those who knew him, made a point of flaunting it. Along with his fancy fleet of around 29 imported luxury cars (some of them were worth as much as Rs 40 lakhs), he lent his swanky property for photography to the media. This is the house from where the detectives of the Central Bureau of Investigation (CBI) took him away on November 9, 1991, after the scam was unearned.
Harshad Mehta came close to selling his family’s swanky property to repay his broker, because of the severe losses he made in the stock market at one point.
In 2009, the custodian appointed by the Supreme Court to manage Harshad Mehta assets started the process to auction eight out of the nine flats to pay off his debt to banks and the Income Tax (IT) department. While paying a price much lower than the predicted market rate, Mumbai-based stock broker Ashok Samani tried to buy the eight flats for Rs 32.6 crores.
However, the Mehta family later challenged the custodian move to auction the family-owned properties, saying that Harshad Mehta was not the owner of the property.
While rejecting the Mehta family plea, the court said, “What is pertinent is that the principal business of the family was dealing in shares and securities. The liabilities are arising out of the transactions in securities and shares. The properties have been purchased also by using the funds from the same business. Therefore, for clearing the liabilities (of Mehta) that have arisen, because of the transactions undertaken, the properties of all the members of the family who are notified will also have to be disposed of.”
Subsequently, Ashok Samani’s bid was cancelled and the matter became stuck in litigation.
See also: All about the SARFAESI Act
What did Harshad Mehta do?
At the time when Harshad Mehta perpetrated arguably the biggest securities fraud in India, the settlement cycle, the time within which brokers had to pay full money and take delivery of stocks or deliver stocks if sold, was 14 days. (The settlement cycle is now two days.) Also, a customer did not need to maintain a minimum balance to buy stocks and a broker did not need a Demat account to sell stock. All these loopholes in the system acted as an enabler for Harshad Mehta.
Harshad Mehta manipulated stocks by illegally procuring funds from several high-profile banks, including State Bank of India, UCO Bank and National Housing Bank, using fake bank receipts. Since banking norms at that time did not allow stock brokers to borrow funds from banks for trading purposes, Harshad Mehta found a way to work around this system. He got in touch with several banks, bought and sold government securities using a timeframe, during which he used the funds thus collected to buy shares of companies, fuelling prices. It is believed that even if one of his associates simply asked for the share price of a company stock, it was enough to shoot up the share price. Remarkably impressed with the success of his scheme, Harshad Mehta scaled up his fraud by asking banks to help him print fake bank receipts.
What is a bank receipt (BR)?
While selling securities, banks have to provide bank receipts to those buying these securities. These bank receipts act as a proof that the transaction has taken place. Since Harshad Mehta colluded with banks and was able to print fake bank receipts, anytime a bank wanted to have some securities, he provided fake bank receipts. In exchange, the bank would give money to Harshad Mehta. Using that money, Harshad Mehta invested in the stock market, dramatically shooting up the share price of some companies. When the stock price was at its peak, Harshad Mehta would sell the stock, making huge gains. Once this cycle was over, Harshad Mehta would return the bank’s money and take back his fake bank receipts.
Harshad Mehta had to face over 600 civil action suits and 70 criminal cases for the fraud he committed.
When did Harshad Mehta die?
Harshad Mehta died in 2001.
What cars did Harshad Mehta own?
Among the many cars Harshad Mehta owned included the Lexus Starlet, Toyota Corolla and Toyota Sera.
Where did Harshad Mehta work as a jobber?
Placed at a lower level clerical job at the brokerage firm Harjivandas Nemidas Securities, Harshad Mehta worked as a jobber for the broker Prasann Pranjivandas Broker.
Who revealed the Harshad Mehta scam?
Journalist Sucheta Dalal, working for The Times of India at that time, revealed the Harshad Mehta scam.
(Header image courtesy Soujanya Raj, Wikimedia Commons)