Debashis Basu - The Scam: Who Won, Who Lost, Who Got Away From Harshad Mehta to Ketan Parekh

The Scam

From Harshad Mehta to Ketan Parekh

Debashis Basu

Sucheta Dalal

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Copyright Debashis Basu & Sucheta Dalal

First Published 1993

First Reprint 1994

Revised & Updated 2001

Third Revised Edition & Fourth Printing 2005

Third Edition, Fifth Printing 2006

Third Edition, Sixth Printing 2007

Third Edition, Seventh Printing 2009

Third Edition, Eighth Printing (updated introduction) 2014

ISBN 81-88154-09-1

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To Our Parents

W E had initially followed the scam while working for The Times of India and Business Today. The book partly derives its material from scores of interviews with most of the players who were directly or indirectly part of the scam, mainly top brokers and top bank officials. Overcoming their initial circumspection about talking to the press while the scam investigation was on, they eventually gave us a lot of their time to discuss, clarify and share important documents that helped our writing. Our deepest gratitude is to these numerous knowledgeable anonymous sources. Many others helped a lot by way of crucial information, introductions, and their moral support, but unfortunately, they too cannot be named.

Finally, this is the place to record our inestimable debt to our prime source, a wonderful human being and now a dear friend and guide. He cannot unfortunately be identified (our notes and conversations unimaginatively refer to him as Deep Throat) because he is a part of the securities business himself. Our understanding of the complex transactions, the nature of the players, the specific deals and confidential conversations between top officials were all derived from the long hours he has so generously spent with us in nondescript restaurants in the suburbs, dropping us home in the dead of night and then driving back into town. Without Deep Throats help, this book, and much of the reporting we have done earlier, would have been inconceivable.

This book was a bestseller in 1992-93 when it was first published. For seven years the book had been out-of-print. We had innumerable requests for copies, so we decided to update the book after what was known as the Ketan Parekh scam in 2000. The book was then printed in 2001 under the KenSource imprint after extensive revisions and additions (the Scam of 2001). That edition was soon sold out. Encouraged by the continued demand we published a third expanded edition of the book, which has gone into multiple reprints. In this effort, as in the earlier edition, we received invaluable guidance, help and encouragement from the late Mr TN Shanbhag of The Strand Book Stall in Mumbai. Mr Shanbagh was an institution by himself and spent his life pursuing his mission to encourage people to read. His absence continues to be felt by book lovers in Mumbai. The book has also benefited immensely from the editing expertise of Dr. Nita Mukherjee.

Table Of Contents

April 23, 1992:The Times of India reports that the State Bank of India has asked the Big Bull to square up Rs 500 crores of irregularities.

April29-30: There is mayhem in Parliament. The finance minister, Manmohan Singh announces that the Reserve Bank of India will probe the scam. The government calls in the Central Bureau of Investigation (CBI).

April 30:TheIndian Express reports that the UCO Bank allowed Harshad Mehtas companies to use Rs 50.37 crores by discounting its bills.

May 5: The Reserve Bank of India forms a committee headed by deputy governor, R Janakiraman, to probe the scam.

May 6:TheIndian Express reports that the National Housing Bank, a wholly-owned subsidiary of the Reserve Bank of India has given money to Harshad Mehta to help him square up his outstanding with the State Bank of India.

May 9: M J Pherwani, the non-executive chairman of the National Housing Bank, quits. Two days later he leaves the chairmanship of the Maharashtra State Finance Corporation, the Stock Holding Corporation and the Infrastructure Leasing and Financial Services.

May 10 : The Standard Chartered Bank learns about the securities gap in its books. The UCO Bank chairman, K Margabanthu, is asked to go on leave.

May 11 : The CBI led by K Madhavan, starts investigations.

May 14 : The CBI freezes Harshad Mehtas bank account and seizes his assets.

May 21 : M J Pherwani dies.

May 25 : The RBI asks Bhupen Dalal to step down from the Bank of Karad.

May 27 : The High Court orders the liquidation of the Bank of Karad. The order sparks a run on the bank.

May 29 : S P Sabapathy, chairman of the Bank of Madura, is dismissed by the Reserve Bank of India. There is a run on the State Bank of Saurashtra after rumours that it is stuck with false bank receipts.

May 30: First report of Janakariman published. The CBI registers a case against the State Bank of India officials after the first Janakiraman Committee report.

May 31-June 1 : Niranjan Shah, an associate of Harshad Mehta, is raided by the Income Tax department. He slips out of the country.

June 4 : Harshad Mehta, his brother Ashwin, the State Bank of India deputy managing director and others arrested.

June 6: Special Court Ordinance promulgated.

June 20 : The CBI files cases against Bhupen Dalal, J P Gandhi, Hiten Dalal, Abhay Narottam, T B Ruia and officials of Canbank Mutual and Canbank Financial Services.

June 23 : Bhupen Dalal, A D Narottam, Hiten Dalal and others are arrested.

June 29 : Ashok Kumar of Canbank Financial Services is arrested.

June 30: The RBI bans Fairgrowth from any transactions.

July 2 : Notification of Bhupen Dalal, T.B.Ruia and J.P.Gandhi

July 3-8 : John Docherty takes over from P S Nat as chief executive officer of the StanChart Bank. The bank sacks five employees - Arvind Lal, Jaideep Pathak, R K Iyer, V R Srinivasan and V Srinivas. The second report of the Janakiraman Committee comes out. Bhupen Dalal and others are further remanded to custody. The UCO Bank chairman, K Margabanthu, is sacked. The CBI registers two more cases against Harshad Mehta relating to SBI Capital Markets and State Bank of Saurashtra.

July 9 : P Chidambaram quits because his wife owned 25,000 shares in Fairgrowth. The CBI registers a case against the UCO Bank chairman, K Margabanthu. The government announces a probe by the Joint Parliamentary Committee.