Monies paid by banks to M/s. Harshad S. Mehta could not have been deposited in his bank accounts as that amounted to siphoning monies from the banks and by such a deposit Harshad committed a crime.
In terms of notification issued by the Government u/s 16(1) of the Securities Contract (Regulation) Act, 1956 on 27.06.1969 “no person in the territory to which the said Act extends, shall enter into any contract or the sale or purchase of securities other than spot delivery contract or contract for cash or hand delivery or special delivery in any securities as is permissible under the said Act and the Rules, Bye-laws and Regulations of a recognized stock exchange. Thus, banks were legally required to engage the services of a registered members of a Stock Exchange in order to purchase and sell Government Securities, Public Sector Bonds, Units of Unit Trust of India as per the provisions of Securities Contract Regulations Act, 1956 (SCRA) and Rules, Regulations and Bye-laws framed by the Bombay Stock Exchange (BSE). In fact, these securities were listed on BSE and therefore a valid contract in them could be entered into only by engaging services of a registered member of a stock exchange.
That M/s Harshad Mehta was governed by SCRA and Rules, Regulations and Bye-laws of BSE and which permitted him to act both as principal and as broker. Harshad had expertise in market making (jobbing) and to impart liquidity in money market he was undertaking large number of transactions as principal (for self) and was not being paid any brokerage by the banks and Financial Institutions (FIs) who always knew that M/s Harshad Mehta was acting as principal and was the true counterparty in most of his transactions.
Several banks had extended facilities to the leading brokerage firms what was commonly called as “Routing Facility” under which the banks were receiving Pay Orders in its name and giving the credits in respect of the same to their clients like M/s Harshad Mehta. When the banks and FIs entered into contracts with M/s Harshad Mehta they were handing over the Pay Orders to Harshad drawn in the name of his bankers against which under above Routing Facility the banks were giving credit and this practice was in existence atleast for 2 decades before Harshad entered into money market business. RBI always knew of such a practice widely prevalent in the market and to regulate the same RBI had also issued Private & Confidential Circular on all the banks on 26.07.1991, copy of which is enclosed.
That therefore any amounts credited into the bank account of M/s. Harshad S. Mehta against the contracts entered into by his brokerage firm did not amount to siphoning of monies from banks much less it was any crime or scam as falsely reported in the media. The CBI filed all cases completely ignoring the fact that M/s Harshad Mehta was governed by the Rules, Regulations and Bye-laws of the BSE and it never brought them on the record of charge-sheets filed by it. It was falsely presumed that crediting of cheques in the account of brokers was illegal.
The CBI investigated on pre-determined lines without disclosing the material fact that Harshad was governed only by the Rules, Regulations and Bye-laws of BSE and therefore could not be proceeded against any violations committed by banks and PSUs of Private and Confidential Circulars issued on banks by RBI and issued on PSUs by Ministry of Finance. In fact, almost all his transactions were reduced to written contracts specifying that they were governed only by the Rules, Regulations and Bye-laws of BSE and a sample of Contract Note are enclosed.
In all charge sheets registered by CBI it did not place the above Rules, Regulations and Bye-laws of BSE on record but instead made baseless allegations on Harshad for violation of Private and Confidential Circulars issued on banks and on PSUs as above without adducing an iota of evidence establishing Harshad’s knowledge of such Circulars. In any event, they were not binding on Harshad. The banks and PSUs have been found to have violated these Circulars in order to earn profits. As per law laid down by Hon’ble Supreme Court in BOI Finance vs Custodian reported as (1997) 10 SCC 488, such private and confidential circulars could not be binding to HSM, even for civil liabilities much for criminal cases.
There was no requirement for M/s Harshad S Mehta to disclose the name of counterparty and only therefore the above Contract Notes did not specify any names. In any event, banks and PSUs always knew that their Contracts were with M/s. Harshad S Mehta on a principal to principal basis which gets confirmed by the fact that they have not paid any brokerage to M/s Harshad S Mehta. The Hon’ble Special Court has passed several orders about falsification of records by banks showing transactions with HSM as a broker. A list of which orders is enclosed.
That only on the date of delivery, the banks and PSUs were given delivery orders, sample of one delivery order is enclosed. The delivery orders conveyed the name of the banks from whom delivery would be received and payment would be required to be made to that bank. For transactions entered into by M/s Harshad S Mehta as a principal in most cases they were performed after netting out several transactions through the routing banks whose names were always known to the banks and PSUs.
Only when CBI brought the records of the banks and PSUs in the charge sheets, it was discovered for the first time that they were making false entries in their books showing Harshad as broker and name of any bank or the delivering bank as the counterparty. The CBI levelled its allegations on the basis of such false entries which were made only to comply with Private and Confidential Circulars. The Special Court has passed several orders criticizing the banks for such falsification. A list of which orders is enclosed.
CBI made allegations by presuming that the records of banks and PSUs were true and it could complete trial in only one case of Maruti Udyog Ltd. In the said case, no amounts were outstanding and atleast on two occasions Harshad had lent money to Maruti Udyog Ltd. While his appeal challenging his conviction was pending before Hon’ble Supreme Court, he expired in judicial custody. The Hon’ble Supreme Court later reduced the sentences in case of all accused to time spent where one of the three Judges concluded that there was no criminal offence committed.
In terms of Bye-law 236 of BSE, a client purchasing securities had a legal obligation to make payment towards purchase of securities either to M/s. Harshad S. Mehta or to any third party on his behalf. That only after payments were first received, the securities would become deliverable to the clients. Likewise, as per Bye-law 237, a client selling securities had a obligation to deliver securities to M/s. Harshad S. Mehta and the amounts became payable later.
That once monies were deposited in the bank account of M/s. Harshad S. Mehta it would lose its identity and M/s. Harshad S. Mehta would have an obligation to deliver the securities. At the relevant time and until 1994, there were no Regulations to keep the monies and securities belonging to clients under a separate account which were later introduced by Securities & Exchange Board of India (SEBI).
On 23rd April 1992, Ms. Sucheta Dalal carried a front-page headline story in Times of India that “Big Bull” being broker of SBI was asked to square up securities of Rs.500 Crores without naming Harshad but using his sobriquet because Chairman of SBI had denied the truthfulness of her story. She alleged that it was a huge scam and since then has taken credit for discovering it through her “Investigative Journalism”. Later alongwith her husband Debashish Basu she wrote a book titled “The Scam Who Won, Who Lost, Who Got Away” in which she has revealed her source and how she broke the story despite denial of SBI. In this book which has been updated later even after 2000 she has made several crucial admissions. Ms. Sucheta Dalal also received Padma Shri Award in 2006.
Ms. Sucheta Dalal with her colleague deliberately published a completely false, libelous and mischievous story governed by the mala fide object to finish Harshad Mehta and to bring down the booming stock market by creating a panic around Harshad as he was a leading player of the market. The above allegations against her get conclusively established by the evidence being placed by me, by admissions she has made in her above book and also by the subsequent events including judgments and orders passed by Hon’ble Special Court all of which are explained hereinafter.
AMOUNT IN CRORES
Pay order of Grindlays Bank
3 Pay orders from Grindlays Bank
2 Pay orders from Grindlays Bank
2 Pay orders from Grindlays Bank
1 Pay order from Syndicate Bank
As per Page 5 & 6 of Ms. Sucheta Dalal’s book, Harshad was called by SBI on 11th Saturday and was asked to return the monies and on Pages 12, 13 & 14 of the book she has admitted the fact of above payments of Harshad to SBI and the relevant pages of the book are also enclosed.
In fact, Shri M.N. Goiporia, Chairman of SBI was asked by the Economic Times on 23rd April 1992 itself on the story of shortfall of securities carried by The Times of India to which he replied “that the reconciliation problem which had arisen regarding the purchase of Government securities by its investment department had been sorted out with the outstandings squared up. As of today, there are no outstandings”. The relevant media clipping is enclosed.
In Page 13 of her book she has admitted that on 22.04.1992 a former SBI employee picked up the gossip which he passed it on to the Times of India about problem of reconciliation. She has further admitted that only one cheque of Rs.6.35 Crores was pending which was delivered on 24.04.1992 by Harshad to SBI. On Page XV she has further admitted that “When on 22 April, the Times of India asked M.N. Goiporia, chairman of the State Bank, about Harshad’s problems in squaring up certain transactions, it denied it completely.”
“The 23rd of April was a day like any other. Except that the Times of India carried a three column story innocuously headlined, “Broker asked to square up Rs.500 Crores”. The broker was not named. He was referred to as the Big Bull. That was due to Goiporia’s stonewalling. When he was asked whether it was true that Harshad Mehta had large outstandings with the SBI, he came with an obfuscatory answer.
“Was there a problem of reconciliation with Harshad?” The Times of India asked Goiporia. “We deal in thousands of crores of securities. We do have reconciliation problems from time to time.”
“Is Harshad Mehta unable to pay Rs.500 Crores due to the SBI?” Goiporia responded “Harshad Mehta? The broker? I can’t comment” and he disconnected the phone.
Khemani was more categorical. “There is no problem here. It is completely false. A reconciliation gap of Rs.20 to Rs.30 Crore is always there” he said, reducing the sum considerably.
Thus, Ms. Sucheta Dalal wrote the story despite clear denial of both the Chairman and the General Manager of SBI as her real intention was to finish Harshad even by writing a completely false story backed by no evidence at all. There is also no mention anywhere in her book whether she verified the facts with Harshad as she was bound to and to my knowledge, she has not made any call on Harshad to take his version. She has violated every law and regulations governing journalism which code is enclosed.
The book starting from the title is full of falsehood and written in presumptive language as if Harshad was a proved criminal. In fact, she has sensationalized and completely blown out of proportion the issues involved and Harshad caused the losses and defaults which were put on to Harshad. She has admitted in the Preface written to the book that she proceeded to write the story without evidence and wrote a sanitized version of truth. The book contains completely baseless allegations against Harshad in which Ms. Sucheta Dalal has acted as “the Judge, jury and the executioner”. The subsequent facts establish that for 9 years despite Harshad offering himself for trial the CBI did not prove him guilty of siphoning off of monies and not a single bank or PSU has lost a penny for transactions undertaken by them with Harshad. It is significant to note that SBI did not file any FIR against Harshad since according to it he had not committed any criminal offence as falsely alleged.
It must be admitted that Ms. Sucheta Dalal is a superwoman as she received the information (gossip) on 22.04.1992, made 2 calls on SBI who denied her story and yet in great haste on 22.04.1992 itself wrote a story and the Times of India gave her the space on the headline of front page. She also succeeded in finishing Harshad.
It has taken Mehta family almost 3 decades to make payments to banks even though Harshad had unconditionally offered to pay to banks in May 1992 itself to clear his name to prove that because of him no banks or PSUs will lose any money and a list is enclosed listing out our efforts making payments in past 30 years. Unfortunately, his offers were not responded to and to prevent him from making payments to bank the Income Tax department foisted upon our family illegal demands of about Rs.30,000 Crores. Thanks to Ms. Sucheta Dalal, the stock market languished for a few years in the after effect of her work and in money market all the banks and FIs locked up with each other for decades in prolonged litigation. Now even the web series was made giving a title “Scam 1992 The Harshad Mehta story” despite the fact that Harshad was not proved guilty and that no bank has lost even a penny and the real long term investors have made a fortune.
In support of above, I rely upon the judgment of Hon’ble Special Court dated 06.09.2013 in Special Case No.4 of 1998 (copy enclosed) as after examining the evidence of prosecution and defense the Hon’ble Court in Paras 28 and 36 held that not only the prosecution failed to establish its allegations but also held that taking into account the past track record of M/s. Harshad S. Mehta where all the contracts were fulfilled, the accused cannot be held guilty for failure to deliver securities to SBI Caps in respect of 4 outstanding transactions. Thus, non-delivery of security per se is not a criminal offence as Ms. Sucheta Dalal has presumed all along. Ms. Sucheta Dalal was a post-graduate in law having done LLM and would have known the law of the land that “Every person is innocent till proved guilty” whereas she has held Harshad guilty even before any trial.
Factually, a massive raid was carried out by Income Tax department on M/s. Harshad S. Mehta on 28.02.1992, in which a large part of his records, shares and securities and even computers were seized and sealed and the said raid continued till 02.06.1992. This raid paralyzed the business of M/s. Harshad S. Mehta and it became completely unsafe to keep the custody of clients’ securities in office premises to avoid their seizure since if they were seized they would not have been released for years by the IT department. Thus, during the period of IT raid no securities were either collected nor they were delivered by M/s Harshad S. Mehta particularly because there was no access to data. This was duly explained to SBI also.
It is not a job of a journalist to decide the correct levels of prices and indices of stock exchange and Ms. Sucheta Dalal had no expertise but only opinion. History has confirmed that 1991-92 was the best period to make investments and big bears of that era have turned into big bulls as markets have taught them its right side. Unfortunately, when small investors started coming in droves to make long term investments in 1992, they were driven away by Ms. Sucheta Dalal by creating panic and caused them huge losses. It is not Harshad who has caused any losses to them. The fame and awards showered on her needs to be critically reviewed as both investors and the country has heavily suffered because of her.
Thus, it was not any security scam but only a “Sucheta Dalal scam” which caused losses of lakhs of crores to investors whose hard-earned wealth melted away by the scare she single-handedly created in the market. The subsequent events have conclusively proved her wrong on each and every count as the banks and PSUs have not lost money, the investors suffered due to panic created by her, the Government and regulators went into overdrive being directly goaded by her and the so-called scam of the century has ended in a whimper.