Harshad Mehta Stock Market Scam (1992): Harshad Mehta was a stockbroker known as the “Big Bull” of Dalal Street. He rose from humble beginnings, starting with small jobs before finding success in the booming stock market of the late 1980s. His flashy lifestyle, complete with luxury cars and a lavish Mumbai apartment, made headlines. However, behind the glamour, he was using illegal methods to move bank funds into specific stocks, pushing their prices to unrealistic levels.
How Did the Scam Unfold?
In 1991–92, India’s economy was opening up, and investor enthusiasm was high. Mehta took advantage by exploiting ready-forward deals—a system where banks lent money to each other against government securities. Instead of actual securities, Bank Receipts (BRs) were used as proof of these deals. Mehta convinced some bank officials to issue fake BRs, allowing him to draw large sums of money without providing genuine securities. He poured these funds into the stock market, buying shares of companies like ACC (Associated Cement Company), driving the price from around ₹200 to nearly ₹9,000.
Harshad Mehta Stock Market Scam (1992): Impact on the Indian Stock Market
When the fraud was exposed, it triggered a massive stock market crash. The Sensex tumbled from around 4500 points to nearly 2500, causing huge losses for investors. This event also revealed major gaps in India’s financial regulations. In response, the government strengthened the role of the Securities and Exchange Board of India (SEBI) and introduced stricter rules for banks. Over time, these reforms led to more transparent and modern trading systems, like electronic trading and dematerialization of shares.
Key Players and Aftermath
Harshad Mehta: The main architect of the scam.
Bank Officials: Some were complicit in issuing fake BRs, enabling Mehta’s fraudulent trades.
Regulators and Journalists: Figures like journalist Sucheta Dalal exposed the scam, pushing authorities to act.
The scandal caused widespread anger among the public. Many small investors lost their life savings. Confidence in the banking system was shaken, as people worried about the safety of their deposits. Politicians also faced scrutiny for possible involvement, though no top leader was formally charged.
Harshad Mehta Stock Market Scam (1992): Lessons Learned
Harshad Mehta Stock Market Scam (1992): The 1992 Harshad Mehta scam remains a turning point in India’s financial history. It taught regulators to close loopholes and promote transparency. While it led to heavy losses and shaken trust at first, it ultimately forced the system to mature. Today’s stronger regulations and oversight are a direct outcome of the reforms sparked by this notorious scam.
Also Read: Chennai Cryptocurrency Scam: Man Arrested for Fraud via Bitcoin India Software Services