Introduction: Who Was Harshad Mehta?
Harshad Mehta was a stockbroker known as the Big Bull of the Indian stock market. He transformed from a middle-class individual to one of the most powerful figures in India's financial world. His rise was fueled by a combination of market manipulation, banking loopholes, and an unmatched risk-taking attitude. However, his empire collapsed when the biggest scam of the time—worth ₹4,000 crores (equivalent to ₹24,000 crores today)—was exposed.
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Harshad Mehta was actually born in Paneli Moti, Rajkot district, Gujarat on 29 July 1954. He spent his early childhood in Gujarat and later moved to Mumbai for work. However, his family briefly lived in Raipur, Chhattisgarh, where he completed his schooling. He moved to Mumbai in the late 1970s to pursue his career in stock trading.
Phase 1: The Rise of Harshad Mehta (1984-1991)
1984-1989: Early Days & Entry into the Stock Market
Harshad Mehta started as a jobber (a low-level trader) in the Bombay Stock Exchange (BSE).
He observed how stocks moved and learned market manipulation techniques from his mentors.
By 1986, he had built a reputation as a sharp trader and established his brokerage firm Growmore Research & Asset Management.
His philosophy: "The stock market is a zero-sum game – if you play it smart, you win big."
1990-1991: The Bull Run Begins
Mehta found a loophole in the Indian banking system.
He took advantage of the Ready Forward (RF) deal, a short-term loan facility between banks, to illegally siphon funds into the stock market.
Using this money, he started buying stocks in bulk, driving up prices artificially.
His favorite stocks included:
ACC Ltd. – Rose from ₹200 to ₹9,000 per share in a year.
Reliance, Tata Steel, and SBI – These also saw multi-fold jumps.
This created a false bull market, attracting thousands of retail investors, and making Mehta a financial superstar.
Phase 2: The Stock Market Manipulation (1991-1992)
How the Scam Worked: Banking Loophole Exploited
Mehta used a fraud technique now called the "circular trading scam":
1. Fake Bank Receipts (BRs):He convinced banks to issue fake BRs for government securities that did not exist.
These BRs were then used as collateral to get loans from other banks.
Example: If Bank A issued a fake BR of ₹500 crores, Mehta used it to get another ₹500 crores from Bank B.
With the massive cash inflow, he bought stocks aggressively, creating a demand surge.
Retail investors, seeing prices go up, started buying, further inflating prices.
Media hailed him as "The Amitabh Bachchan of the Stock Market."
Once the stock prices reached peak levels, he sold off his holdings at massive profits.
The money went back to the banks to create new fake BRs, repeating the cycle.
Peak of the Bull Run (January - March 1992)
January 1992: Sensex crossed 4,500 points for the first time.
February 1992: Stocks like ACC Ltd. and Reliance surged 400%-500% in months.
March 1992: Mehta was worth ₹2,500 crores (over ₹20,000 crores today) and owned luxury cars like Lexus LS 400 and Toyota Cressida.
Phase 3: The Downfall (April - May 1992)
April 23, 1992: The Scam is Exposed
Journalist Sucheta Dalal (Times of India) published an article exposing Mehta’s fraud.
The investigation revealed that banks were missing ₹3,500-₹4,000 crores due to fake transactions.
Stock market crashes immediately—Sensex falls over 40% in weeks.
Small investors lost their life savings overnight.
May 1992: Government & CBI Crackdown
RBI and SEBI launched an inquiry into fake bank receipts.
Mehta arrested on May 9, 1992, for financial fraud.
The scam also implicated top officials from SBI, NHB (National Housing Bank), and other financial institutions.
The initial Detection
The initial detection of irregularities in the banking system, which eventually led to the exposure of the 1992 securities scam involving Harshad Mehta, was made by R. Sitaraman, an Assistant Manager at the State Bank of India (SBI). In early 1992, during a routine check, Mr. Sitaraman discovered a significant shortfall of ₹574 crores in SBI's securities. This discrepancy indicated the absence of the corresponding securities, suggesting potential misconduct. Recognizing the gravity of the situation, SBI's vigilance chief promptly initiated an internal investigation. This internal probe laid the groundwork for journalist Sucheta Dalal's subsequent exposé on April 23, 1992, which brought the scam to public attention.
It's noteworthy that while Mr. Sitaraman played a pivotal role in uncovering the scam, he was later convicted for his involvement in facilitating Harshad Mehta's fraudulent activities. This underscores the complex interplay of internal oversight and complicity that characterized the scandal.
This sequence of events highlights the importance of vigilant internal controls within financial institutions and the critical role of investigative journalism in bringing financial malpractices to light.
Phase 4: The Aftermath (1993-2001)
Impact on the Stock Market & Banking Reforms
India’s first financial market scam exposed—led to major banking reforms.
SEBI strengthened its regulations, ensuring better stock market surveillance.
Introduction of computerized trading and demat accounts to curb fraud.
Legal Battle & Final Years of Harshad Mehta
1996: Mehta was sentenced to 5 years in jail in the first conviction.
1998: Out on bail, he re-entered the stock market, claiming he had new strategies.
2001: Died in Tihar Jail from a heart attack at the age of 47.
Final Numbers & Key Facts of the Scam
Lessons from the Harshad Mehta Scam
✅ 1. Stock Markets Can Be Manipulated – A single person can control stock prices through liquidity.
✅ 2. Always Do Due Diligence – If something seems too good to be true, it probably is.
✅ 3. SEBI & RBI Strengthened Regulations – The scam led to stricter financial laws in India.
✅ 4. No One is Too Big to Fail – Even a stock market superstar can lose everything overnight.
Conclusion: The Legacy of Harshad Mehta
Though Harshad Mehta is remembered as a financial fraudster, many still admire his deep understanding of the stock market. His story was immortalized in the web series “Scam 1992: The Harshad Mehta Story”, which became one of India’s highest-rated shows.
While his tactics were illegal, his influence on Indian markets and financial reforms remains significant even today.
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