Introduction –
The Harshad Mehta Scam in Stock Market, 1992 stock market manipulation involving fraudulent banking transactions, leading to a market crash. Harshad Mehta scam This is the biggest scam in the history of Indian stock market, which raised questions on the credibility of the stock market. All this happened because of the flaws in the government rules and the lack of transparency in the stock market. Even today, while investing in the stock market, it teaches us not to invest in the stock market on baseless news. Therefore, in order to understand the stock market properly, it is necessary for us to understand this Harshad Mehta scam.
Through this article, we will try to know who Harshad Mehta was and how he took advantage of the loopholes in the stock market and earned thousands of crores of rupees. We will try to understand how this scam came in front of the world and how Sucheta Dalal, who was a business reporter of Times of India, was informed about this stock market scam and will try to find the reason behind it. If this scam is not brought out by insiders, will the world never know about it?
Will try to study what happened next to Harshad Mehta’s family and what happened to the cases against him and based on the facts, was Harshad Mehta really the main facilitator of this scam or was he just a pawn? We have to understand this. Will try to see from political point of view that if he did not participate in this scam, could he have survived? Like insolvent businessmen like Vijay Mallya and Nirav Modi got the benefit of law and could use political relations? Will try to find many such questions.
Harshad Mehta Scam ? –
Harshad Mehta’s father was a cloth merchant and his childhood was spent in Borivali area of Mumbai. He completed his graduation in 1976 and after doing several jobs as a sales person for New India Assurance Company, interest in him developed. Started working for a broker in BSE stock market named Harijivandas Nemidas Securities and slowly started learning the nuances of the stock market.
Prasanna Pranjivandas, who was a broker, considered him a guru for the skills of the stock market. After starting his stock market career in 1980, in just ten years, he achieved such heights in the stock market, which influenced him to get media coverage and he was honored by the media with titles like Big Bull, Amitabh Bachchan of the stock market. And he was running so far ahead of the rest of the stockbrokers that his enemies started to build in this area, which were burning due to his race.
He did not know that this jealousy was going to be the reason for his downfall, so he started living his personal life so comfortably that everyone’s eyes started on him. It is not that the Reserve Bank was not aware of where the money was coming from in the stock market. But no one had imagined that this scam would be so big and in general, many brokers used to use the money of government banks in the stock market.
Harshad Mehta Scam and Sucheta Dalal –
Sucheta Dalal used to work as a business reporter for The Times of India and in 1992 she was first informed about something going wrong in the bank by some SBI officials. Such news was leaked out by some officials of the Reserve Bank as well as the amount of 500 crores of SBI Bank. Harshad Mehta had achieved this success very fast in the last ten years and his complete dominance in the market was seen, so many of his cooperative enemies became.
This news came to the world for the first time on 23 April 1992 and this news completely shook the entire stock market. Harshad Mehta, taking advantage of the shortcomings of government rules through a ready-forward deal, started using the money of banks in the stock market and involved everyone in it, showing the greed to earn money. When Sucheta Dalal first heard this news about her from her sources, she did not have any concrete evidence.
That’s why they started collecting evidence because writing news about such a big person without proof could mean facing defamation cases and that too could have claimed huge amount of money. That’s why he started investigating the news that how this scam was done. It is not that Harshad Mehta was only using the money in the whole market in a wrong way. But he was investing the most money in this and was taking the market completely up on his own accord which was illegal.
Therefore, when Sucheta Dalal ran this news for the first time in the Times of India, the stock market had to be taken cognizance of it and many government institutions like the government, the Reserve Bank and the Ministry of Finance were employed by them. Many big names were seen involved in this, but how many got the punishment, it is a matter of amendment.
Share Market Before 1992 –
1991 This year is considered to be a very important year for the Indian economy, where economic reforms were carried out and the policy of privatization was implemented in India. Earlier the Indian stock market was not digital so any transaction had to wait for 15 days to complete. One had to rely completely on the broker house for the behavior, which at times had full potential for fraud. Very few people were aware of investing in the stock market in India, so investing was a lot of work or a particular section of the society. This investment was from the class.
SEBI existed before 1992 but it did not have much powers and the stock broker controlled the entire market and government representatives were seen only as nominal members. Most of the amount of Government banks was deposited in the Reserve Banks as security through SLR and CLR and these Government banks were running in losses and wanted to recover this loss in a short time, so through the stock broker they bought government securities. Started using money through the medium, which was the biggest drawback of the government rules.
As today, foreign investment was very low and foreign companies had to face stringent laws to register in India, hence their proof was also very less. Foreign banks were given some exemption to invest in the Indian stock market, which they tried to take advantage of through this scam, which caused a lot of damage to the Indian stock market, but due to political compulsions the Indian government could not do anything on these foreign companies. and only through investigation under investigation, some officers were removed from the bank.
BSE It completely controlled the Indian stock market and government intervention was a lot of work, due to which a lot of activities in the stock market were seen in an arbitrary manner.
Share Market After 1992 –
After 1992, due to economic reforms, many changes were seen in the stock market, in which the National Stock Exchange was established and digital system was brought in the stock market. For transparency, SEBI was established as a regulator by making a law in the Parliament and it was given a lot of powers. It is not that only Harshad Mehta scam was seen in the stock market, but many scams like Ketan Parekh were seen one after the other, which made it very difficult to restore the credibility of the stock market.
After setting up the digital stock market, it used to take 15 days before any transaction was completed, it was made only three days trying to prioritize the safety of the investor. In order to promote foreign investment, there have been many changes in the law, in which the financial institution has been made to invest in the Indian stock market to some extent. The reason for Harshad Mehta scam was the winning loophole in the laws, many changes were seen to reduce it.
Through the website, today we can get the information of all the broker houses of the stock market and can do the activities of the stock market ourselves through the demat account, which has started curbing the manipulation of money. In 2022, the stock market has reached its Sensex up to 54000 and NSE up to 16000, due to which the Government of India has succeeded in filling the loss due to the 1992 scam of the stock market.
Joint Parliament Committee Report –
People were not satisfied with the report of Janakiraman Committee and pressure on the government for more investigation started increasing in Parliament, due to which this committee was set up in which the officers of public sector banks to important officials of Reserve Banks were found guilty in this. The Chairman of the Janakiraman Committee was found guilty by this Parliamentary Committee who was an important functionary of the Reserve Bank. But in the Indian history till date, many parliamentary committees have been formed, but it is less that anyone has been punished, such allegations are made.
4000 crores of public sector banks and government companies were used by Harshad Mehta through Jankiraman committee and he had given the assertion that the company would no longer get it. The Joint Parliament Committee took 17 months to appreciate its report, due to which the changes in the economic reforms that the Government of India were to make were put on hold till the completion of this investigation. In whatever investigation was done, Harshad Mehta’s cases were also run by CBI or 34 cases of Harshad Mehta were run through special court.
Harshad Mehta was tried in 72 criminal cases and more than 600 civil cases, but the importance given to the parliamentary committee’s investigation is a matter of amendment. The Joint Parliamentary Committee was set up in August 1992, headed by Ram Niwas Mirdha, who had been a senior former Congress minister. All the suggestions given by this committee were never implemented and many big officials were involved in this investigation, but Harshad Mehta is said to have been made a scapegoat.
Janakiraman Committee Report –
When the Times of India through Sucheta Dalal first ran the news about Harshad Mehta, the government immediately acted and the Janakiraman Committee was set up through the Reserve Bank to investigate the scam. Through this committee, the extent of the damage caused to the government banks and government companies by this scam was the scope of this committee’s investigation, according to which the statistic that they came out with was about 4000 crores.
It is said that in this the people who have suffered losses in the stock market and how much loss has been caused to the government banks in reality, this data has not been shown by this committee. The parliamentary committee itself made such allegations that Janakiraman, who is the chief officer of the Reserve Bank under whose authority the matter did not come to the notice, also believed that the officials of the Reserve Bank were also participatory to some extent in this scam.
This scam is believed to be about Rs 15000 crores, in which the rest of the losses have been ignored. Harshad Mehta took advantage of many such rules which had shortcomings. While using the bank receipt, the amount given was deposited directly into Harshad Mehta’s account, this was seen as the biggest flaw of the government rules, which gave him an opportunity to use the money. Records of Government Securities Properly Checked by Reserve Bank Advantage Harshad Mehta through Ready Forward Deal.
Harshad Mehta Scam and Politics –
Harshad Mehta entrusted this case to Ram Jethmalani, a well-known lawyer of that time, to protect his charge, who invites politics, from which whatever advice Ram Jethmalani gave, Harshad Mehta went on doing it. While addressing the press, Harshad Mehta made allegations of directly entering the Prime Minister, for which he had to bear the brunt. Ram Jethmalani himself was a big leader of the opposition, due to which politics made a lot of impact in this case, in which he was a small person who could not understand this politics.
Harshad was definitely entitled to a crime, but all the people who supported him in this crime should have been educated, but this did not happen and he was punished with minor discipline like suspension, sending on leave. Apart from Harshad Mehta’s company, two broker houses were involved in this, in which P. Chitambaram’s company was involved but on a small scale, due to which political pressure is seen in this case.
In this, money of government banks and government companies was invested, which was given to these institutions from public tax. In a way, it is considered a plunder of public money, in which the involution was seen from government officials to ministers. Harshad Mehta had to pay the cost of having entered into the prime minister and a lawyer belonging to a political party. Otherwise, like Nirav Modi, Vijay Mallya, he could have gone abroad by misusing the law and using the network, the same can be said.
Harshad Mehta Scam Features –
- The main reason behind the Harshad Mehta scam was the deficiency of the Banking Regulatory Act, which was taken advantage of by him and the bank receipt was taken advantage of.
- Security General Ledger This record is kept by the Reserve Bank of the transactions of government securities, which was kept manually, which was one bank buying and the other selling it, but in this transaction money was sent to the account of agent Harshad Mehta.
- Harshad Mehta used to use the money of many such banks to lift the market, due to which the stock market increased four times from 1991 to 1992.
- According to the report of Janakiraman committee, this scam was of Rs 4000 crores but in reality it was only bank and financial institutions.
- Many brokerage houses were doing such behavior in the stock market since 1885 and Harshad Mehta was taking maximum advantage of this, so he came first in the eyes of the world.
- Illegal practices of bank receipts were observed by the Reserve Bank in 1986 in Andhra Bank and Bank’s dealings but more drastic measures should have been taken.
- Harshad Mehta was only a part in this scam of the stock market, but despite the entire syndicate being employed, no more strict action was taken on the rest of the people, in which the officials of the government banks, the officers of the Ministry of Finance and the officials of the Reserve Bank were negligent in their duty. was done.
- After this scam, many reforms were done in the stock market, in which SEBI was established as a regulator and National Stock Exchange was established.
- The stock market was computerized through digital share trading so that people’s confidence in the market could be built.
- The stock market was 1250 points on April 1991, which was 4467 by May 1992, which did not increase on fundamentals but on news.
- Harshad Mehta used the “replacement cost theory” to do this scam, in which the company’s share price should be as per today’s price of the company’s entire assets.
- Three major stock broking companies were found guilty in this scam, which included Harshad Mehta’s company, Dalal Group and Fair Growth Finance Services Company which was a company of P Chidambaram.
Conclusion –
Harshad Mehta This was only a part of this scam, but for this, the participation of many people of the government system was seen in the parliamentary committee report, but action was taken on very few people. Many questions arose on the credibility of the stock market, due to which its image was tarnished all over the world and due to the involvement of P. did not do.
Public banks suffered a lot in this scam, but private foreign banks made a lot of profit in it. Actually this scam should have been around 15000 crores which only the figures of Jankirman report were popularized by the media. This was the same period when the Indian economy was going through a bad phase, so they had to bring reforms and the policy of privatization was accepted.
Due to weak government laws and lack of transparency, this scam was done in the stock market. 1992 The stockbroker association was fully controlled and the government officials were only nominal, which was taken advantage of by the stockbroker houses. The evidence of investing in the stock market in India was very less till this period, so the question arises that who got benefit and who got the loss in all these activities? The money of the government banks was drowned, that is, the loss of the banks running on the money of government tax means the loss of the public, it is a matter of great sadness.
