Harshad Mehta securities scam ₹ 5000 Carores 1992

The banks at that time were not allowed to invest in the equity markets. Harshad Mehta had very cleverly squeezed some capital out of the banking system. Another instrument used in a big way was the bank receipt (BR). In a ready forward deal, securities were not moved back and forth in actuality. Instead, the borrower, i.e. the seller of securities, gave the buyer of the securities a BR. The BR confirms the sale of securities. It acts as a receipt for the money received by the selling bank. Hence the name - bank receipt. It promises to deliver the securities to the buyer. It also states that in the mean time, the seller holds the securities in trust of the buyer.

Having figured this out, Mehta needed banks, which could issue fake BRs, or BRs not backed by any government securities. Two small and little known banks - the Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB) - came in handy for this purpose.

Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta, plainly assuming that they were lending against government securities when this was not really the case. He took the price of ACC from Rs. 200 to Rs. 9,000. That was an increase of 4,400%.The stock markets were overheated and the bulls were on a mad run. Since he had to book profits in the end, the day he sold was the day when the markets crashed.

Mehta again raised a furore on 16 June 1993 when he made a public announcement that he had paid Rupees 1 Crore to the then Congress president and prime minister, Mr P.V. Narasimha Rao, as donation to the party, for getting him off the scandal case

Harshad Mehta was an Indian stockbroker, well known for his wealth and for having been charged with numerous financial crimes that took place in 1992. Of the 27 criminal charges brought against him, he was only convicted of four, before his death at age 47 in 2001. It was alleged that Mehta engaged in a massive stock manipulation scheme financed by worthless bank receipts, which his firm brokered in "ready forward" transactions between banks. Mehta was convicted by the Bombay High Court and Supreme Court of India^[2] for his part in a financial scandal valued at ₹49.99 billion (US$740 million) which took place on the Bombay Stock Exchange (BSE). The scandal exposed the loopholes in the Bombay Stock Exchange (BSE) transaction system