Harshad Mehta securities scam: 3-year prison term for 4 former bank officials
In 1991, all banks were required to park a certain percentage of their deposits on a fortnightly basis with the Reserve Bank of India without interest — known as the Cash Reserve Ratio.
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OVER 25 years after the securities scam involving Harshad Mehta came to light, a special CBI court on Tuesday convicted four former bank officials for their involvement in a conspiracy in one of the cases. Special Judge HS Mahajan said that 13 transactions were carried out at two state-owned banks in 1991 for the benefit of ‘Harshad Mehta alone’.
Former bank officials-all aged between 64-69 years-Mayuram Srinivasan, former chief manager of State Bank of Saurashtra’s Fund Management Cell, R Sitharaman, attached to the securities division of State Bank of India, Vinayak Deosthali, assistant manager of UCO Bank and PA Karkhanis, former senior manager of UCO Bank were convicted and sentenced to a three-year rigorous imprisonment term. One other official -PS Gokhale, 67, was acquitted. The case against Mehta and MV Shidhaye, named as accused, was abated after their deaths. Mehta died at the age of 48 on December 31, 2001.
Multiple cases were filed in 1992 following a probe into irregularities in securities transactions and fund management by banks and other financial institutions. The government had then appointed a Joint Parliamentary Committee to investigate and take action on the basis of its report.
In 1991, all banks were required to park a certain percentage of their deposits on a fortnightly basis with the Reserve Bank of India without interest — known as the Cash Reserve Ratio. Each bank was also required to invest its deposits in securities – known as Statutory Liquidity Ratio. To maintain these two ratios, banks could borrow or lend from each other in the call money market without the involvement of brokers or any third party.
Under the RBI rules, each bank could authorise one branch for the lending and borrowing transactions. The CBI claimed that the State Bank of Saurashtra, DN Road branch and UCO bank, Hamam Street branch were authorised for such transactions. The CBI claimed that officials of the Fund Management Cell of these banks, under the guise of CMTs, “debited and credited personal current accounts of Mehta” who had an account in UCO Bank.
The court observed that the accused could not substantiate the security transactions as they could not show the profits resulting out of those. With interest rates for these transactions at 40 per cent during the time, the illegal transactions led to losses to the banks running into crores of rupees, the court said.
The court convicted the four officials under section 409 (criminal breach of trust by public servant or by banker, etc), 477 (fraudulent cancellation, destruction), 120B (criminal conspiracy) of the Indian Penal Code and relevant sections of the Prevention of Corruption Act.
The court ordered the suspension of the sentence as the men intend to file an appeal before the High Court. They were released on a surety bond of Rs 15000.
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