Scam 1992: The Harshad Mehta Story “The Big Bull of Dalal Street”

Harshad Mehta “The Big Bull”, a Bombay-based stockbroker become a Big Bull of Dalal Street during the early 1990s before he was charged with the securities scam in 1992. He was also referred as ‘Amitabh Bachchan’ of the Indian stock market a name that he earned due to his flamboyant lifestyle after becoming a celebrity status stockbroker.

Harshad Mehta successfully managed to manipulate stocks by illegally obtaining money from several banks using fake bank receipts that eventually led the stock market to crash. The scam hit the whole country and ultimately changed the laws of Dalal Street.

He created a cycle of fraud involving big bank names e.g. the State Bank of India (SBI) and the National Housing Bank (NHB).

Key Summary of Harshad Mehta Scam 1992

  1. Harshad Mehta, a registered and well-known broker, technically manipulated the stock prices at Bombay Stock Exchange (BSE) along with his partners by seeking advantage of loopholes in the banking system of India. There was no provision where Banks in India would be allowed to invest in the equity markets. However, they were allowed to invest of their assets in government fixed interest bonds through other banks. Mehta used this loopholes to bring funding out of the banking system and invested this huge money into the share market.
  2. Banks were required to go through a broker to buy government securities. Mehta illegally used this money temporarily in his account to buy shares, increasing demand of certain shares by floating money into stock market of companies like ACC cements, Videocon, Sterlite selling them off at higher prices, passing on a part of the proceeds to the bank and kept the rest for himself. This resulted in stocks like ACC which was trading in year 1991 for INR 200 per share skyrocketing to nearly INR 9,000 per share in just 3 months.
  3. He allegedly had a collusion with bank employees to obtain fake bank receipts (BRs) issued. He used these fake BRs to allow banks to lend him huge surplus money of banks under the impression that Banks were lending to other banks against government securities.
  4. He invested this huge money into stock market to inflate share prices upto a staggering 4400 %. He then sold these shares at a very significant profit and the principal amount was returned to the banks without letting them know about misuse of their money. For the first time in the history of stock market, the country saw its stock market prices manipulation by more than 4,000%. It is still one of the biggest frauds on the Indian stock market to date.
  5. There was quick rise in BSE Sensex from 2,000 points in January’ 1992 to 4,000 points in March 1992 which was beyond expectation in Indian stock market history.
  6. Harshad defrauded the entire banking system of nearly INR 4,000 crore. Later on, when he was exposed by famous journalist Sucheta Dalal about his manipulation of stock prices in the stock market, and banks realized the reconciliation differences in the money lended to Mehta, they discovered that they were in possession of fake BRs holding no value.
  7. Stock market was touching new highs, people started buying the same stocks in which he used to invest.
  8. Income Tax department conducted a raid on his office premises on February 28, 1992 and seized fake BRs, several documents and share certificates.
  9. The CBI carried out a search in his premise in June’1992. Tax return filed by him for the AY 1992-93 was also rejected by the income tax department and he was sent to imprisonment in 1992.
  10. He was convicted by Bombay High Court and the Supreme Court and charged with more than 74 criminal offences for this fraud. His legal battles dragged on until 2001, when he passed away in thane jail from a cardiac arrest at the age of 47.
  11. Had this fraud happened in today world, it would be equivalent to INR 250 billion or US$3.5 billion in 2020.
  12. Recently, there has been a release of Bollywood web series Scam 1992 starring Shreya Dhanwantary as Sucheta Dalal & Pratik Gandhi as Harshad Mehta.
  13. In 2021, there is another Bollywood movie “The Big Bull” also released starring Abhishek Bachchan as Hemant Shah (Harshad Mehta) and movie is very successful among people.

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