THE SECURITIES SCAM OF 1992
 

r1

Harshad Mehta

 

r2

Harshad Mehta in Police custody

 

 

 

 

 

 

 

 

The Indian Stock Market witnessed a rapid growth during 1991 and early 1992. It was assumed by the economists that the growth in the market was because of the growth story of India at that time. However, by April, 1992, it came to light that certain groups of stock brokers were defrauding the banks of their funds in the name of securities transactions and diverting the funds to stock market through their own accounts. CBI registered several cases against various groups of stock brokers. Further, a Joint Parliamentary Committee (JPC) was also appointed to look into the scam. The JPC observed, “The Scam is basically a deliberate misuse of public funds through various types of securities transactions with the aim of illegal siphoning off funds of banks and PSUs to select brokers for speculative transactions”. The major groups of brokers involved were -


a) Harshad S. Mehta Group.

b) Bhupen Dalal Group.

c) Hiten Dalal Group.

d) Ajay Kayan Group.


The above brokers used to commit frauds in the securities transactions with banks like SBI, NHB, UCO Bank and certain cooperative banks, etc. in Ready Forward/ Double Ready Forward/ Switch Deals, etc. by furnishing bogus securities papers like BRs and SGL forms, which did not have any securities backing. The funds deployed by such banks were diverted to the stock market for the personal transactions of the brokers, whereby they enriched themselves.


As per the Janakiraman Committee Report of RBI, the scam was of the magnitude of Rs.4025 crore. CBI registered several cases against the above group of brokers for defrauding the banks in the names of securities transactions and chargesheeted those cases. CBI, BS&FC, Mumbai Branch registered 17 cases, out of which 15 were chargesheeted. Of these 15, 11 cases have been disposed off by the TORTS Court in Mumbai.


The important case involving Harshad S. Mehta Group pertained to the defrauding of SBI for about Rs.600 crore. Shri Harshad S. Mehta and his brothers, Shri Ashwin Mehta and Shri Sudhir Mehta, were arrested in 1992. Their properties were taken into custody by the Custodian appointed under TORTS Act. On completion of the investigation, a chargesheet was filed in the TORTS Court in 1996 against Shri Harshad Mehta, his associates and certain bankers. This case ended in conviction in April, 2006. However, Shri Harshad S. Mehta, the main accused died during the course of trial in December, 2001 and the case against him got abated. But, his associates/accomplices viz. S/Shri Atul Parekh, Hiten Mehta, Sudhir Mehta and Pankaj Shah were convicted. Some of the bankers like S/Shri R. Sitaraman, Arun Bawdekar, V. N. Deosthali and M. V. Shidhaye were also convicted for different jail terms and fine.


The above mentioned persons have gone in Appeal and the Appeal is pending in the Supreme Court.

 

BSE Stock Exchange Building, Mumbai

r3