The Harshad Mehta scam, also known as the 1992 Indian stock market scam, is one of the most notorious financial frauds in India’s history. This massive scheme involved the embezzlement of approximately ₹4,000 crores (around $3 billion at that time), leading to a significant crash in the stock market and devastating losses for countless investors.
In the early 1990s, India was undergoing economic reforms that liberalised its financial markets. Harshad Mehta, a stockbroker often referred to as the "Big Bull," seized this opportunity to exploit weaknesses in the banking system. He manipulated stock prices through a series of fraudulent transactions involving fake bank receipts and unsecured loans.
Mehta's strategy revolved around Bank Receipts (BRs) and Ready Forward (RF) deals. He convinced banks to issue fake BRs, which acted as collateral for short-term loans. These funds were then funnelled into the stock market, artificially inflating prices, particularly for stocks like Associated Cement Company (ACC), which skyrocketed from ₹200 to ₹9,000.
The frenzy created by Mehta’s trading drew in numerous retail investors who followed his lead, further inflating stock prices. This manipulation created a false sense of security in the market, leading many to invest their life savings based on Mehta’s seemingly successful strategies.
The scam unravelled when journalist Sucheta Dalal exposed Mehta's fraudulent activities in 1992. Her investigative reporting revealed the extent of the deception, leading to a market crash that wiped out investor wealth estimated at ₹3,542 crores (about $7 billion). Following this exposure, Mehta was arrested and faced numerous legal battles.
Harshad Mehta was charged with over 70 criminal cases but was convicted in only four instances before his death in 2001. The fallout from the scam led to significant reforms in India’s financial regulations, emphasizing the need for stricter oversight and transparency in banking and stock trading.
The Harshad Mehta scam remains a pivotal moment in Indian financial history, serving as a cautionary tale about greed and the importance of regulatory frameworks. It highlighted systemic vulnerabilities within India's financial institutions and led to lasting changes aimed at preventing similar frauds in the future.
In summary, the Harshad Mehta scam was not just a case of individual greed; it exposed deep-rooted issues within India's financial system that continue to resonate today.
