It was in March 1991- April 92 that the country was rocked by what has come to be known as the Share-market Scandal. It was all the result of the antics of Harshad Mehta, the “big bull” of the Bombay Stock-Exchange. He lived in a palatial residence, maintained a fleet of about 40 cars and a large number of attendants. His lavish living reminds one of Moghul splendour. His wife, his brothers and other close associates were all in the share-business. They had floated a number of financial companies including fair growth Financial Services Ltd. Harshad Mehta himself had wide contacts with the high ups in Indian Banks, and in Foreign Banks operating in India, and in other financial concerns. Over the years he had been obliging those high ups and by making it possible for them to make high yielding investment of their money. He himself made lots of money in the share-business.
The crash came early in April 1992. Over thirty thousand five-hundred crores were involved. Harshad Mehta Could corners the majority of shares in a number of leading industrial concerns. The result was the prices of these shares shot up to unprecedented height. Thousands of others all over the country, for whom the lure of money was too much, purchased these shares. Harshad Mehta and his associates made lots of money. He controlled the share-market and so the prices crashed down. Thousands were ruined and a few had heart attacks or committed suicide, Haldi Ram of Delhi being one of them.
How did Harshad Mehta come to have so much of money?
The question was in the air, so to say. It was asked in the Bazars, in the clubs, in the courts, in business circles, and none could give a satisfactory answer. Throughout it seemed that Harshad Mehta had acted quite fairly. The money he had borrowed from banks was retuned in full in the stipulated date, or, if demanded, even earlier. His record with the Income Tax department was quite clean. Indeed he paid an account payee’s cheque for the highest amount ever paid to the department. However, it was unconvincing that anyone can invest a whooping over thirty-five thousand cores, and still continue to maintain a levish style of living as this ‘big bull’ did. There must be some irregularity somewhere.
There was a hue and cry and a thorough probe into the while affair was demanded. The result was that Shri Jankiraman, the deputy governor of the Reserve Bank of India, was deputed to inquire into the whole affair. He submitted first an interim report, and then after a month a second report, and a third and final report later. The result of the inquiry was that a number of high ups in the scheduled Banks like the S.B.I., the Canara Bank, the U.C.O. Bank, the Bank of Maharashtra, Karad Bank etc. had either to go on long leave or were suspended pending the completion of the inquiry. A number of prestigious foreign banks, like the City Bank, the Bank of America, Grendlays Bank, were also involved. Irregularities were also detected in the dealings of Harshad Mehta and his associates and their financial concerns. The accounts of Harshad Mehta and his wife were frozen and Harshad Mehta himself was remanded to police custody for interrogation. The result of the police-interrogation is yet to be made public.
Serious irregularities on the part of high-ranking bank-officials were also detected. No doubt Bank Mangers have wide discretionary powers, but while advancing money even to a known party this power have to be exercised with due caution, prudence and far-sightedness. No risks should be taken for; after all, it is the money of the depositors that is lent out. But it was revealed that in the case of Harshad Mehta, Bank Managers used their powers rather hastily and without proper care and prudence. In several cases money was advanced even without proper bank receipts, A/C payee cheques drawn in favor of other banks were encashed by those banks, ands the amount was later transferred to the Account of Harshad Mehta and members of his family. Many fake shares were also bought and sold, as if they were genuine. The Bank of Karad was so deeply involved in such irregularities that it had to go into liquidation. However, it is a private bank and not a scheduled bank. The magnitude of the scandal can be judged from the fact that the then Union Commerce Minister Mr. Chidambran had to resign, and an important member of the planning Commission has followed suit.
The “securities scandal” has made one thing quite clear. There are serious lacunas in the working of Indian banks of which unscrupulous but intelligent people like Harshad Mehta can take full advantage to serve their selfish ends. The Bank Act should be suitably modified to plug such loopholes which put the hard earned money of the depositors in jeopardy. It should be made impossible for Harshad Mehta and his like to defraud the banks as has been done in the present case. This is the urgent need of the hour to restore the credibility of Indian institutions.