(The following explainer from The Quint’s archives has been republished in the light of the upcoming release of Hansal Mehta’s series ‘Scam 1992’, which follows the life of Harshad Mehta. The series will premiere on SonyLIV on 9 October. The explainer was originally published in 2018.)
Georg Hegel, a German philosopher once said: “We learn from history what we do not learn from history.” This quote is very apt, especially in the light of the Rs 13,000-crore Nirav Modi-Punjab National Bank scam, among others. Why? Because back when India had just opened up its markets to the world in 1991, a stockbroker named Harshad Mehta had pulled off an even more audacious scam by exploiting the loopholes in the Indian banking system.
Adjusted for inflation today, Harshad Mehta fraudulently laundered over Rs 24,000 crore in the stock market over a three-year period.
What happened to those accused in the scam, including Harshad Mehta himself? Was the money ever recovered? Will the fraud cases that are still being contested in court today ever come to a meaningful conclusion?
Where is the Rs 24,000 Cr Lost in Harshad Mehta Securities Scam?
1. Who Was Harshad Mehta?
Harshad Mehta was a well-known stockbroker, alleged to have manipulated the stock market in 1992 by drawing funds from banks fraudulently with worthless bank receipts and subsequently using this liquidity to buy huge amounts of shares at a premium across many industry verticals.
Born as Harshad Shantilal Mehta in 1954 to a lower middle-class Gujarati family, Mehta spent his early childhood in Kandivali, Mumbai, whilst his father ran a small business. However, the family had to shift to Raipur in Chhattisgarh for medical reasons.
Mehta completed his schooling in Raipur but never showed much promise. He moved back to Mumbai alone after completing school, completed his BCom from Lajpat Rai College and took up odd jobs – from selling hosiery to sorting diamonds – for the next eight years.
His journey to becoming the ‘Big Bull’ Mehta began when he landed a job as a sales person at The New India Assurance Company. It is here that he got interested in the stock market, following which he quit and joined a brokerage firm in 1981. By the year 1990, Mehta had risen from rags to riches and had become a prominent name in the Indian stock market.
Expand2. What Was the Securities Scam?
The securities scam of 1991-92 refers to a diversion of bank funds worth Rs 3,500 crore to a group of stockbrokers, led by Harshad Mehta. These funds were then put into the stock market selectively, causing it to surge to over 4,500 points. It was first exposed by veteran journalist Sucheta Dalal in April 1992.
Mehta’s favourite stocks included Associated Cement Company (ACC), Apollo Tyres, Reliance, Hero Honda, Tata Iron and Steel Co (TISCO), BPL, Sterlite, and Videocon, to name a few. The ACC, India’s foremost cement firm, was Mehta’s favourite. He pumped money into its shares so aggressively that its stocks rose from Rs 200 a share to Rs 9,000 a share in three years... a 4,400 percent rise!
He had the touch of Midas: everything he touched became gold and thousands of gullible investors followed his lead. He was called ‘the Amitabh Bachchan of the stock market’ and ‘the Big Bull.’ His 12,000 sq ft sea-facing Worli penthouse, complete with a mini golf course and swimming pool and his fleet of two dozen luxury cars, marked his steep and sudden rise to riches and celebrity-status. Not a subtle or modest man, he even paid the Income Tax Department an advance tax of Rs 26 crore just weeks before the scandal broke.
Mehta’s illicit methods were exposed on 23 April 1992, when Sucheta Dalal wrote an article in The Times of India detailing the loopholes in the banking system that had been exploited by the stockbroker. She got the tip-off after she saw him pull up at the State Bank of India offices in a brand new Toyota Lexus, which had just been released internationally and costed more than Rs 40 lakh at the time.
Following this, the State Bank of India realised it was holding onto worthless bank receipts and was owed Rs 500 crore by Harshad Mehta. By the end of April 1992, he was accused of having diverted money from the public sector Maruti Udyog Limited (MUL) to his own accounts. From then until June 1992, revelations of misappropriations from banks and public sector units by Harshad kept coming to light. Parliament went into a frenzy; a joint parliamentary committee was formed to investigate the matter, investors lost a lot of money and the stock market crashed as quickly as it had risen, with banks demanding their money back.
Expand3. What Happened to Harshad Mehta?
Harshad Mehta was arrested by the Central Bureau of Investigation (CBI) in November 1992, along with his brothers Ashwin and Sudhir, who masterminded and executed this scam together.
The CBI charged Mehta specifically with 72 criminal cases (bribery, cheating, forgery, criminal conspiracy and falsification of accounts) and over 600 civil action suits by banks and institutions pertaining to monies he owed them. Other brokers such as his brothers and AD Narottam, Bhupen Dalal, Hiten Dalal and Naresh Aggarwal, among others, were also charged for taking part in the scam, but for much smaller sums.
Alongside, the Reserve Bank of India appointed a joint parliamentary committee (JPC), also known as the Janakiraman Committee, to provide a comprehensive picture of the extent and mechanics of the fraud. The government, through an ordinance, set up a Special Court for the trial of offences in the case and also created an Office of the Custodian, occupied by a bureaucrat and appointed by the court, to manage the assets of the scam-accused during the trial and for the disbursement of dues to banks and the Income Tax Department.
Mehta and his brothers were released on bail after three months in custody, weeks after which he publicly claimed, along with his lawyer Ram Jethmalani, that he had paid Rs 1 crore to then Prime Minister PV Narasimha Rao as donation to the Congress to get him “off the hook.” He even displayed the suitcase in which he allegedly carried the cash. Rao denied it, and later, a CBI probe also found no concrete evidence of this bribery claim.
Harshad Mehta and his legal team with the briefcase in which they allegedly paid then PM Narasimha Rao money as “insurance.” (Photo Courtesy: Twitter/Sanjeev Goyal) Once out on bail, several stock market investors gave Mehta a hero’s welcome. He made several comebacks after that as a “new age” stock market guru, and by 1997, he had his own website and newspaper column where he would advise people about what stock to buy and sell. Rigging was alleged here as well in return for favour and money from the top brass of Sterlite, Videocon and some other firms.
Despite the promptness shown by the CBI and the JPC in uncovering this fraud, it took a while to put together criminal evidence against Mehta. It was only in October 1997 that the Special Court set up to hear the bevy of cases related to the securities scam approved 34 of the 72 charges brought forward by the CBI against him.
In September 1999, the Bombay High Court awarded five years rigorous imprisonment to Mehta and three others in the Rs 380.97 million Maruti Udyog Ltd fraud case (MUL), one of the many individual cases within the larger securities scam.
He secured bail in all cases, including the MUL conviction, but was arrested again in 2001 for misappropriating Rs 2.5 billion from 2.7 million “missing shares” of 90 blue chip companies. He was denied bail this time, and on 31 December 2001, at the age of 47, he passed away in Tihar jail after a heart attack.
By the time he died, he had been convicted in only one (the MUL fraud) case, his appeal against which was dismissed by the Supreme Court in 2003. The rest of the criminal cases were abated due to his passing away, but the civil suits for the recovery of crores of money remained.
Expand4. What Was the Extent of the Scam and What Is its Status Today?
Following the scam, the Reserve Bank of India had appointed the Janakiraman Committee to probe it. In its first report, the committee quantified the scam amount at Rs 4,300 crore involving units of the Unit Trust of India (UTI). Adjusted for inflation, this amount stands at over Rs 24,000 crore today.
According to a report released by the Office of the Custodian on 8 January 2016, the Harshad Mehta family owns assets worth Rs 1,723.84 crore and has total liabilities of Rs 16,044 crore.
Of these liabilities, Mehta’s family has to pay Rs 4,662 crore to various banks (mainly interest charged over the years) and Rs 11,174 crore to the I-T Department.
The assets worth Rs 1,723 crore belong to 27 associates and family members of Mehta, who were finally clubbed as an entity and held liable along with Mehta by the special court. It was challenged by Mehta’s family but the Supreme Court upheld the decision of the custodian in May 2017.
The Mehta family – led by Ashwin Mehta, who has been representing the family in court for decades now – is fighting this recovery amount at various levels, right from reducing their net liabilities to safeguarding family assets from recovery and liquidation.
In the Supreme Court, Ashwin Mehta had argued that the claims made by the I-T Department in its assessment reports were way too high and that the custodian had undervalued the Mehtas’ assets purely taking into account the revenues of Harshad Mehta (and his affiliate companies) and not his many incomes, such as TDS refunds. He also claimed that the custodian was yet to recover the family’s shares in companies like the ACC and Apollo Tyres worth Rs 300 crore and Rs 233 crore, respectively. He insisted that the family had more assets than liabilities and not the other way around.
As of May 2017, the custodian had disbursed Rs 6,310 crore to banks and the I-T Department by selling off assets of the Mehta, his family members, and associates. It had also identified additional assets worth more than Rs 2,000 crore to be auctioned, bringing the recovered amount (once these assets are successfully auctioned) to approximately Rs 8,000 crore.
What is to be kept in mind is that the total amount may never be recovered as Harshad Mehta also held shares worth over Rs 453 crore across 131 companies in benami accounts (value as on June 1995, as mentioned in a court submission). When the scam was exposed, the benami account holders sold their shares, leaving the custodian very little to connect those accounts with Harshad Mehta.
Will the Mehta family and associates be able to pay off their liabilities, only half of which has been recovered 25 years after the scam was exposed? Ashwin Mehta thinks so. In a detailed report in The Economic Times dated July 2016, he was quoted as saying to lawyers of the opposite camp: “Please do not worry… I’ll return all your money. Even after paying you all, I’ll have a little over Rs 1,000 crore to take home.”
Expand5. Whatever Happened to the All the Cases?
All criminal cases against Harshad Mehta got disposed off a few years ago, but there are several civil cases awaiting final closure.
Today, these cases are delayed to the point of irrelevance due to various reasons, among which are India’s notoriously slow judiciary, money forever lost through benami and unregistered shares, and frequent litigation by the Mehta family.
Up until May 2017, when the Supreme Court clubbed all of Harshad’s family together as the Harshad Mehta group, almost every individual member was approaching the courts for reprieves on various matters in an attempt to disassociate themselves from Mehta. Now that they have been grouped together, much to their chagrin, they are challenging the net liabilities and assets being stated by the custodian.
The back and forth continues.
The kingpin is dead and so are several more of the accused over the decades. The money is yet to be completely recovered. About 70 percent of all cases in the special court are still suits related to the Securities Scam, even 26 years later. Documents and evidences have become outdated. Witnesses and the country have moved on to the Nirav Modis of today, proving yet again that justice delayed is justice denied.
(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)
Expand
Who Was Harshad Mehta?
Harshad Mehta was a well-known stockbroker, alleged to have manipulated the stock market in 1992 by drawing funds from banks fraudulently with worthless bank receipts and subsequently using this liquidity to buy huge amounts of shares at a premium across many industry verticals.
Born as Harshad Shantilal Mehta in 1954 to a lower middle-class Gujarati family, Mehta spent his early childhood in Kandivali, Mumbai, whilst his father ran a small business. However, the family had to shift to Raipur in Chhattisgarh for medical reasons.
Mehta completed his schooling in Raipur but never showed much promise. He moved back to Mumbai alone after completing school, completed his BCom from Lajpat Rai College and took up odd jobs – from selling hosiery to sorting diamonds – for the next eight years.
His journey to becoming the ‘Big Bull’ Mehta began when he landed a job as a sales person at The New India Assurance Company. It is here that he got interested in the stock market, following which he quit and joined a brokerage firm in 1981. By the year 1990, Mehta had risen from rags to riches and had become a prominent name in the Indian stock market.
What Was the Securities Scam?
The securities scam of 1991-92 refers to a diversion of bank funds worth Rs 3,500 crore to a group of stockbrokers, led by Harshad Mehta. These funds were then put into the stock market selectively, causing it to surge to over 4,500 points. It was first exposed by veteran journalist Sucheta Dalal in April 1992.
Mehta’s favourite stocks included Associated Cement Company (ACC), Apollo Tyres, Reliance, Hero Honda, Tata Iron and Steel Co (TISCO), BPL, Sterlite, and Videocon, to name a few. The ACC, India’s foremost cement firm, was Mehta’s favourite. He pumped money into its shares so aggressively that its stocks rose from Rs 200 a share to Rs 9,000 a share in three years... a 4,400 percent rise!
He had the touch of Midas: everything he touched became gold and thousands of gullible investors followed his lead. He was called ‘the Amitabh Bachchan of the stock market’ and ‘the Big Bull.’ His 12,000 sq ft sea-facing Worli penthouse, complete with a mini golf course and swimming pool and his fleet of two dozen luxury cars, marked his steep and sudden rise to riches and celebrity-status. Not a subtle or modest man, he even paid the Income Tax Department an advance tax of Rs 26 crore just weeks before the scandal broke.
Mehta’s illicit methods were exposed on 23 April 1992, when Sucheta Dalal wrote an article in The Times of India detailing the loopholes in the banking system that had been exploited by the stockbroker. She got the tip-off after she saw him pull up at the State Bank of India offices in a brand new Toyota Lexus, which had just been released internationally and costed more than Rs 40 lakh at the time.
Following this, the State Bank of India realised it was holding onto worthless bank receipts and was owed Rs 500 crore by Harshad Mehta. By the end of April 1992, he was accused of having diverted money from the public sector Maruti Udyog Limited (MUL) to his own accounts. From then until June 1992, revelations of misappropriations from banks and public sector units by Harshad kept coming to light. Parliament went into a frenzy; a joint parliamentary committee was formed to investigate the matter, investors lost a lot of money and the stock market crashed as quickly as it had risen, with banks demanding their money back.
What Happened to Harshad Mehta?
Harshad Mehta was arrested by the Central Bureau of Investigation (CBI) in November 1992, along with his brothers Ashwin and Sudhir, who masterminded and executed this scam together.
The CBI charged Mehta specifically with 72 criminal cases (bribery, cheating, forgery, criminal conspiracy and falsification of accounts) and over 600 civil action suits by banks and institutions pertaining to monies he owed them. Other brokers such as his brothers and AD Narottam, Bhupen Dalal, Hiten Dalal and Naresh Aggarwal, among others, were also charged for taking part in the scam, but for much smaller sums.
Alongside, the Reserve Bank of India appointed a joint parliamentary committee (JPC), also known as the Janakiraman Committee, to provide a comprehensive picture of the extent and mechanics of the fraud. The government, through an ordinance, set up a Special Court for the trial of offences in the case and also created an Office of the Custodian, occupied by a bureaucrat and appointed by the court, to manage the assets of the scam-accused during the trial and for the disbursement of dues to banks and the Income Tax Department.
Mehta and his brothers were released on bail after three months in custody, weeks after which he publicly claimed, along with his lawyer Ram Jethmalani, that he had paid Rs 1 crore to then Prime Minister PV Narasimha Rao as donation to the Congress to get him “off the hook.” He even displayed the suitcase in which he allegedly carried the cash. Rao denied it, and later, a CBI probe also found no concrete evidence of this bribery claim.
Once out on bail, several stock market investors gave Mehta a hero’s welcome. He made several comebacks after that as a “new age” stock market guru, and by 1997, he had his own website and newspaper column where he would advise people about what stock to buy and sell. Rigging was alleged here as well in return for favour and money from the top brass of Sterlite, Videocon and some other firms.
Despite the promptness shown by the CBI and the JPC in uncovering this fraud, it took a while to put together criminal evidence against Mehta. It was only in October 1997 that the Special Court set up to hear the bevy of cases related to the securities scam approved 34 of the 72 charges brought forward by the CBI against him.
In September 1999, the Bombay High Court awarded five years rigorous imprisonment to Mehta and three others in the Rs 380.97 million Maruti Udyog Ltd fraud case (MUL), one of the many individual cases within the larger securities scam.
He secured bail in all cases, including the MUL conviction, but was arrested again in 2001 for misappropriating Rs 2.5 billion from 2.7 million “missing shares” of 90 blue chip companies. He was denied bail this time, and on 31 December 2001, at the age of 47, he passed away in Tihar jail after a heart attack.
By the time he died, he had been convicted in only one (the MUL fraud) case, his appeal against which was dismissed by the Supreme Court in 2003. The rest of the criminal cases were abated due to his passing away, but the civil suits for the recovery of crores of money remained.
What Was the Extent of the Scam and What Is its Status Today?
Following the scam, the Reserve Bank of India had appointed the Janakiraman Committee to probe it. In its first report, the committee quantified the scam amount at Rs 4,300 crore involving units of the Unit Trust of India (UTI). Adjusted for inflation, this amount stands at over Rs 24,000 crore today.
According to a report released by the Office of the Custodian on 8 January 2016, the Harshad Mehta family owns assets worth Rs 1,723.84 crore and has total liabilities of Rs 16,044 crore.
Of these liabilities, Mehta’s family has to pay Rs 4,662 crore to various banks (mainly interest charged over the years) and Rs 11,174 crore to the I-T Department.
The assets worth Rs 1,723 crore belong to 27 associates and family members of Mehta, who were finally clubbed as an entity and held liable along with Mehta by the special court. It was challenged by Mehta’s family but the Supreme Court upheld the decision of the custodian in May 2017.
The Mehta family – led by Ashwin Mehta, who has been representing the family in court for decades now – is fighting this recovery amount at various levels, right from reducing their net liabilities to safeguarding family assets from recovery and liquidation.
In the Supreme Court, Ashwin Mehta had argued that the claims made by the I-T Department in its assessment reports were way too high and that the custodian had undervalued the Mehtas’ assets purely taking into account the revenues of Harshad Mehta (and his affiliate companies) and not his many incomes, such as TDS refunds. He also claimed that the custodian was yet to recover the family’s shares in companies like the ACC and Apollo Tyres worth Rs 300 crore and Rs 233 crore, respectively. He insisted that the family had more assets than liabilities and not the other way around.
As of May 2017, the custodian had disbursed Rs 6,310 crore to banks and the I-T Department by selling off assets of the Mehta, his family members, and associates. It had also identified additional assets worth more than Rs 2,000 crore to be auctioned, bringing the recovered amount (once these assets are successfully auctioned) to approximately Rs 8,000 crore.
What is to be kept in mind is that the total amount may never be recovered as Harshad Mehta also held shares worth over Rs 453 crore across 131 companies in benami accounts (value as on June 1995, as mentioned in a court submission). When the scam was exposed, the benami account holders sold their shares, leaving the custodian very little to connect those accounts with Harshad Mehta.
Will the Mehta family and associates be able to pay off their liabilities, only half of which has been recovered 25 years after the scam was exposed? Ashwin Mehta thinks so. In a detailed report in The Economic Times dated July 2016, he was quoted as saying to lawyers of the opposite camp: “Please do not worry… I’ll return all your money. Even after paying you all, I’ll have a little over Rs 1,000 crore to take home.”
Whatever Happened to the All the Cases?
All criminal cases against Harshad Mehta got disposed off a few years ago, but there are several civil cases awaiting final closure.
Today, these cases are delayed to the point of irrelevance due to various reasons, among which are India’s notoriously slow judiciary, money forever lost through benami and unregistered shares, and frequent litigation by the Mehta family.
Up until May 2017, when the Supreme Court clubbed all of Harshad’s family together as the Harshad Mehta group, almost every individual member was approaching the courts for reprieves on various matters in an attempt to disassociate themselves from Mehta. Now that they have been grouped together, much to their chagrin, they are challenging the net liabilities and assets being stated by the custodian.
The back and forth continues.
The kingpin is dead and so are several more of the accused over the decades. The money is yet to be completely recovered. About 70 percent of all cases in the special court are still suits related to the Securities Scam, even 26 years later. Documents and evidences have become outdated. Witnesses and the country have moved on to the Nirav Modis of today, proving yet again that justice delayed is justice denied.
(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)