In the year 1980, a young man named Harshad Mehta, enters Bombay Stock Exchange for the first time. Totally unaware that in the next ten years he would become The Big Bull of Indian Stock Market from an ordinary jobber. Those fifteen thousand square feet houses, luxury cars and a luxury offices he was going to own.
But as quick as Harshad's rise was, his downfall was going to be equally painful. This is the story of India's biggest financial scandal. In the year 1973, City Raipur, eighteen-year-old Harshad was frustrated with his life.
Father's business and health, both were failing. But Harshad wanted to change this situation. That is why to try his luck, he set out on a journey to a city that would change his life.
Mumbai, the city of dreams. He got admission in Lala Lajpat Rai College in Mumbai. Along with that he started doing small jobs.
He started with collecting and selling plastic scrap, and traded even cement. Lots of times, to save money he carried the material himself and delivered it. In the next few years Harshad's whole family also shifted from Raipur to Mumbai.
In 1977, after finishing college, At New India Assurance company, Harshad took a job of Clerk for Rs. 600 per month, and his brother Ashwin Mehta started working in ICICI. They both used to do side businesses along with their jobs.
But after trying many businesses in the next two year, they could not build a big business. So one day they both decided that they will now try their luck in the stock market. At that time there was a trading ring in BSE, It used to be a place where the shares were sold and bought manually.
Because at that time electronic trading was not introduced. In this trading ring only jobbers and brokers were allowed. A jobbers responsibility was to buy and sell shares on their clients' behalf.
After seeing the trading happening, Harshad decided that he too, will enter this ring and do deals. But for this, it was necessary for him to be a jobber. He went to a broker named P Ambalal and requested to be a jobber And after a lot of effort he got the badge of a jobber.
But as a jobber, his first day was very bad. He lost 2000 rupees. But instead of feeling sad, he learned from this loss.
For the next few months, he worked very hard on his skills very soon he became one of the most skilled jobbers in the market. Harshad understood that to earn more money in the the stock market, they will need internal information about the company that too more than others and before others. He started building connections with such people that could give him inside information about the companies.
For example, he built connections with the leaders of labor unions. so that he could get the daily production data of the companies. When the production increased, he would buy the shares of that company.
And when it decreased or when there's a labor strike situation, he sold shares. To trade on this kind of insider information is called insider trading. And it is illegal today.
But it was legal at that time. Not only did he trade for others as a jobber but he also invested his own money in the market. By 1982, he earned a lot of money on the basis of insider trading.
And had shifted to a bigger house. But now he was thinking of trying another technique besides insider trading. Pump and dump.
With this Harshad used to identify one such stock which was not bought or sold much. Then he used to buy high amount of shares in very less time with his colleagues. The supply of shares in the market would reduce drastically and the prices would increase drastically.
After which Harshad would sell part holdings of those shares, and earn a lot of profit. Due to Harshad's innovative strategies, his profits were continuously increasing. And he started feeling that now no one can beat him in the market.
But then something happened which completely ruined Harshad. Black Thursday. On 18th March, 1982, the stock market started normally.
But then around two o'clock the market started crashing rapidly, and seeing the crash, everyone started panic selling. Within fifteen minutes, market saw the fastest fall of the century. Harshad was almost ruined with a loss of Rs 10 lakh.
Harshad had to mortgage his wife's jewellery to pay the brokers. For the next few months, Ashwin's wife bore all the household expenses. She was a freelance beautician.
But then in June 1982, Harshad and Ashwin decided that they will enter the market again. And this time they will open their own stock broking firm. And will offer stock market consulting to people.
He started with a very small office. Grow More Consultants. I remembered by small beginning as a content creator, my own beginning was very simple.
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You must try it yourself. Now let's come back to the story. Grow More's objective was to provide portfolio management service to wealthy people.
Basically investing their surplus money in the market and getting them high returns. Ashwin's father in law had given them four lakh rupees, and they got 1 lakh from a CA. And in this way Grow More consultant's business started.
Harshad noticed that tea leaves' rates were growing by 3-4 rupees per KG in the market. That means the companies selling tea leaves were going to have an extra profit. But even after that the shares of the tea companies were quite undervalued in the market.
That is why Harshad started to heavily buy the shares of companies companies like McLeod Russel, TATA Tea, Harrison and Malayalam. In just a year share prices of these companies started growing rapidly. With which Harshad and Grow More's clients made a lot of money.
Grow more's name got popular because of their high returns. People started to form queues to invest in Grow More's schemes. And in this way by 1985, Harshad had become a magician of the stock market.
But seeing their success, an old legend of market was not happy. And that legend was Manu Manek. Manu Manek was an old player in the market and he was a bear in the language of the stock market.
Meaning, I used to make money by short selling. Short selling is a trading strategy in which the shares are borrowed so that it can be sold at a high price now. And later, when the price falls, it can be bought back and returned.
In this case, the difference in price becomes the profit. Simply speaking, bears like Manu Manek profits when the prices of these shares fall. Manu Manik was looking for a chance to destroy Harshad Mehta for a long time.
And he got that chance in 1986, finance minister V P Singh took a few such decisions in budget announcement, which were not considered good for businesses. And ultimately, the stock market started to fall. Harshad bought SPIC company's shares in a heavy quantity.
And now its price was also falling. But looking at the opportunity, Manu Manek and their bear gang did a heavy short selling in SPIC. And it's price fell further.
Harshad took margin, basically loan, from BSE and put money in SPIC. That is why a rumour was spread that Harshad was lost more than one crore. And now he cannot repay the dues of stock market.
Basically the news spread in the market that Harshad and Grow More Consultants are going bankrupt. But in reality Harshad had the sufficient money to return. To save his and Grow More consultant's reputation, Harshad had to do something soon.
They had 14 days of time to return dues. But Harshad thought the best way to counter rumor was to simply pay before time. That's why he cleared all payments in 14 days advance.
And from tea stall to trading ring, he spread the news of his advance payment. This increased his reputation even more and bears got shocked. But in this incident Harshad incurred a loss of 1.
5 crore rupees. Which was a significant setback for him. But soon he bounced back.
Along with small investors, Grow More started to work with institutional investors. He soon became one of the largest institutional brokers in India. But one thing was bothering Harshad's mind.
He did not want to be a broker all his life and invest other people's money in the stock market. He wanted to become a big investor himself. He wanted both the money and the profit to be his, but for this for this he needed several hundred crores of capital.
Harshad decided to enter a new market for this capital. The money market. The money market was basically an arrangement in which one bank could take short term loan from another bank.
The duration of this loan was usually for 15 days. Generally banks used to give loans to each other so that they could earn extra income as interest. And generally any bank used to take this loan when they needed cash for short term.
Let's understand this with an example, Citibank has an extra rupees of 100 crores, they want to give it as a loan to the other bank. On the other hand, there is Bank Of America which needs 100 crores. Now Citibank will transfer Bank Of America 100 crores.
In return, Bank Of America needs to put it's 100 crores of assets as collateral as mortgage to Citibank. And these assets are generally government security and bonds. After 15 days Bank Of America will return 100 crores plus interest amount to Citibank.
And will withdraw the mortgaged securities. But there is a catch. In reality, the banks didn't really transfer collateral to the other bank.
Instead they used to issue Bank Receipts, that means BR. As in this case, on 100 crore of loan Bank of America didn't really give Citibank, it's assets or securities. But, they gave a BR, which means Bank Receipt.
Basically this BR was a promise of Bank Of America to Citibank, that if we won't be able to repay the loan, then you'll get our assets. The use of BRs was to make this process smooth and convenient. The transaction happened between two banks is called RFD means Ready Forward Deals.
These ready forward deals were facilitated by money market brokers for which they used to get a brokerage which means a fee. And now Harshad Mehta wanted to become this broker. Harshad saw that a cartel is being run in money market by Citibank and people like Ajay Kayan and Hemandra Kothari.
And they control the whole market. Basically this cartel didn't allow any new broker into money market. To deal with them, Harshad identified such banks which were not happy with the control of the cartel.
Like Bank of America and ANZ Grindlays bank. Harshad offered them his brokering services and formed a kind of cartel along with these banks. Within two years, Harshad became a top broker of money market as well.
And he was earning good money in brokerage. But he didn't enter in the money market to do brokerage. He had a plan to use money market and earn thousands of crores in the stock market.
And this plan was going to be the face of India's biggest financial scam. To save time in money market, lots of banks used to transfer money to brokers accounts in advance. So that broker may transfer the money to the other bank as soon as he gets the best deal and give them securities, which means BR.
Harshad saw a big loophole here. He noticed that when banks transfer them money in advance, then before the deal is done, the money just sits their banks for 10-15 days. Harshad started investing this money in the stock market.
And started to increase the price of his favorite stocks artificially. And then when the deal was to be closed, then he sold the shares and kept the profit for himself and executed the money market deal with the rest of the money. Apart from this, Harshad found another loophole.
He saw that the BR bank used to give in return of loan, no one used to verify that. That means nobody used to check the BRs that were issued against the securities, do the banks that issue BR really had that kind of securities? Looking at this, Harshad bribed small banks like Bank Of Karad, and got them making fake BRs from them.
In this case, Harshad took a loan from a bank and sold the stock directly. And made Bank Of Karad prepare fake BR and gave them to the bank giving loan. In this way, Harshad would have had more money than before than before to invest in the stock market.
But he had it for longer period. Between 1990 and 1992, Harshad used this money and made the market reach sky. The Sensex which was at around 800 points in May 1990, the same Sensex reached to upto 4500 till April 1992.
That means 460% growth in just 2 years. Harshad Mehta's favorite stocks like ACC crossed price of 1000 from 300. But the price of Apollo Tyres also increased 10 times.
Manu Manek and the remaining bears tried a lot to bring the market down, but the market kept going up. Because Harshad had a whole treasure to bring the market up. As soon as the money came in, Harshad bought a lavish pent house of 15,000 square feet.
There were 29 cars in which India's first imported Lexus car was also present. Along with all this, Harshad got a new name. The Big Bull.
Harshad's influence in the market had increased to such an extent that the moment he put his hand on a share, its price started increasing. When he bought the shares of Mazda Industries. It's price increased anyway, but another company which was named Swaraj Mazda, it's prices also started increasing.
Simply because there was Mazda in it's name and people thought Harshad bought shares of this company. Media has started showing Harshad as larger than life. He started appearing on the covers of magazines like Business India and Business Today.
The media was showing his lavish terrace and cars' collections. And was showing him as India's highest income tax payer. But this money, fame and success were getting into Harshad's head, he started to consider himself a God.
Even after so much success he didn't want to stop. In fact, he set his targets to earn more profits than Global Investment Bank and Tata's Telco. But destiny had different plans for him.
Soon there was going to be a huge downfall for him. In 1991, RBI got a tip that BRs are being misused in the money market. That's why they order inquiry against a few banks.
And along with that, issued strict guidelines against BR's use. It was difficult to use fake BRs and operate money market. Even after that in December 1991, Harshad took 500 crores from SBI.
Like everytime he used this money in stock market to pump shares. But this time he was not able to provide fake BRs from another bank and give it to SBI. During this time, he bribed an SBI employee, R.
Sitaraman. And asked him to manipulate SBIs records. So that the senior SBI officers don't come to know about this 500 crore securities gap.
But even after all this, SBI officials got to know about 500 crores gap in their records in April 1992. SBI confronted Harshad and started to pressurize Harshad to return this money. Harshad really needed this money.
So that he could keep the stock market up. But it was also necessary to return the money on time because if SBI had taken legal action, then his entire scam would have been exposed to everyone. Ashwin suggested that Harshad sell his stocks and return the money to SBI.
But Harshad didn't want to do this so that he could be saved from capital gains tax. Harshad asked some time from SBI and took money from another bank, NHB. And started returning the money to SBI in installments.
But by then it was too late. Times of India's reporter Sucheta Dalal was informed about this whole case. And on April 23rd in 1992, the front page news was printed that 500 crores were missing from the SBI account.
And the big bull, Harshad Mehta was behind it. After this exposure, questions were raised in the parliament against the government. The government panicked and started income tax, RBI, and CBI investigation against Harshad.
One by one, money market and stock market scandal started coming out. The whole country came to know that how very cleverly bank's money was used to inflate stock market artificially for years. There was panick in Stock Market.
Harshad Mehta's stocks were worst. Retail investors also lost millions of crores. Bank Of Karad and Metropolitan Cooperative Bank, through which Harshad made fake BRs, those banks sunk.
And when the size of this whole scam was assessed, the number was more than 4000 crores. On 4th June 1992, Harshad Mehta and Ashwin Mehta were arrested. And their assets like home, bank accounts and cars got seized.
This legal battle went on for years. During this period, he remained in and out of jail for a long time. But in December 2001, at the age of 47, he took his last breath in police custody.
But years after his death, today his story is very controversial. Where some people see him as a scamster, on the other hand, his family says Harshad had been targeted unfairly for those practices which were very common in the market at that time. In my opinion, the truth is somewhere between the two views.
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