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Wednesday, October 20, 2021

Footing The Bill

The chairman and a general manager of a nationalised bank, a stock broker by the name of Harshad Mehta and his brothers — all character...

Written by Smita Nair | Mumbai |
July 3, 2005

The chairman and a general manager of a nationalised bank, a stock broker by the name of Harshad Mehta and his brothers — all characters in one of the many scripts that took complete advantage of a system that was governed by little regulation.

Result: a securities scandal involving UCO bank and public money worth about Rs 50 crore. The year was 1992, and the supporting cast: a 4,000 mark sensex, largely the handiwork of Harshad Mehta. What followed the euphoria, was bank frauds, a trail of bankrupt investors and latticework of a series of scandals in the securities market.

This June as the sensex crossed 7,000, 1992 was re-visited. Dalal Street —with investors and their ‘‘profit-booked’’ smiles, brokers and their ‘‘bullish’’ takes — relieved that the bull run was backed largely by fundamentals rather than punters like Mehta.

And resembling a prelude just a week before, was a special court, across the street convicting the characters of the 1992 script. The conviction was in only one of the several cases in the Rs 5,000 crore securities scandal of 1992.

The case relates to misuse of discounting and rediscounting of bills. The trial that started in 1993, revolved around accused Kandaswamy Margbanthu, chairman of UCO bank, Ramaiya Vankatkrishnan, a general manager at UCO Bank, Harshad Mehta, his brothers Sudhir and Ashwin Mehta, and three executives of Harshad Mehta’s firms, and S.V. Ramanathan, a divisional manager of UCO Bank at Mumbai.

The special court gave Margbanthu a six month spell in prison and a fine of Rs 1 lakh. Vankatkrishnan got three months imprisonment and a Rs 50,000 fine. Ashwin Mehta and Sudhir Mehta have been given three months imprisonment and a fine of Rs 2 lakh.

The case against Harshad Mehta was discontinued after his death.

CASE FILE

Long run
The trial involving UCO Bank started
in 1993
Harshad Mehta’s brothers Ashwin and Sudhir are slapped with three months imprisonment and a fine of Rs 2 lakh
Former chairman of UCO Bank Kandaswamy Margbanthu gets six months imprisonment

On this recent conviction, Ajay Khandhar, lawyer for Ashwin Mehta, says: ‘‘The sentence imposed has been suspended as some of the convicted will be going in for an appeal.’’ Together, the Mehta brothers are involved in about six such cases.

ON trial, the prosecution pointed that the transactions — involving the bills of exchange between the bank and the Mehtas — were to siphon public funds and secure financial accommodation for their activities.

Simply put, the bank’s funds saw their way to two firms — Mazda Industries and Growmore Research — both controlled by Harshad Mehta through a channel of bill of exchanges and purchase of shares.

The trial made headlines as it was the first time that an officer of the stature of a CMD of a nationalised bank was held responsible as a prime conspirator.

Interestingly, the defence mentioned that the bank has only made profit and as such no loss was incurred — either in the transaction deal or on the purchase of shares. But since the transaction of discounting and re-discounting of bill of exchange took place without an agreement between the concerned banks, it is against the law.

‘‘The point that needs to be noted is UCO bank made substantial profit on their investment on the shares which they had purchased from Mehtas. The whole transaction was over before the complaint was registered by CBI,’’ says Khandhar.

The prosecution , meanwhile, said that the Mehta brothers were instrumental in drawing the bills of exchange and opening of accounts.

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