Biography of Harshad Mehta: The Visionary Misunderstood A Reflection Beyond the Scam

Chapter 4: The Visionary or the Rule-Breaker?

As Harshad Mehta’s influence grew, so did his ambition, leading him to explore and ultimately exploit the systemic weaknesses within India’s financial infrastructure. Central to his controversial rise was his ingenious, albeit illicit, manipulation of the Bank Receipt (BR) system. To understand the mechanics of what transpired, it’s crucial to grasp the context of the Indian banking system in the early 1990s. Banks were mandated to maintain a certain percentage of their deposits in government securities. These securities were frequently traded among banks through what were known as ‘ready forward’ deals – essentially, short-term lending arrangements. In lieu of physically moving securities, banks would issue Bank Receipts (BRs) as proof of transaction, a system designed for convenience and efficiency.

Mehta, with his sharp intellect and keen eye for loopholes, identified a critical vulnerability: the trust-based nature of the BR system. He managed to persuade certain banks, notably smaller cooperative banks and even some public sector banks, to issue BRs to him without actually holding the underlying securities. These were, in essence, fraudulent BRs, representing non-existent assets. Once in possession of these fake BRs, Mehta would then use them to obtain funds from other banks, effectively borrowing against phantom securities. The money thus acquired, instead of being used for legitimate security transactions, was diverted directly into the stock market.

Harshad Mehta took the illegal money he got from banks and poured it into just a few chosen stocks, making their prices soar far beyond what they were really worth. For example, he pushed the share price of Associated Cement Company (ACC) up from around ₹200 to almost ₹9,000 in only a few months. As those shares shot up in value, he used them as proof of his wealth—called “collateral”—to borrow even more cash from banks. With that extra money, he bought even more of the same stocks, which drove prices up further. At the same time, he fought against another group of traders known as the “bear cartel.” These bears were betting that stock prices would fall, so they had borrowed shares to sell at low prices and then hoped to buy them back cheaper. But because Harshad kept buying huge amounts, the bears were forced to buy back their shares at much higher prices to close their bets. That one-two punch—borrowing on overvalued shares and squeezing out the bears—sent not just ACC but the entire market into an explosive upward spiral.

From my point of view, what Harshad Mehta did was not just a simple fraud like people usually think. I believe it was more like a “stress test” for India’s financial system. He showed how weak and full of holes the system was. Harshad was not just someone who cheated—he was someone smart enough to find those weak spots and use them in a way no one had done before. He proved that even the biggest banks and the financial rules could be fooled by one clever person. I feel that he wasn’t only punished for doing wrong, but also because he exposed how easily the system could be broken. Yes, he did things that were against the law, but I also think many others did similar things and were never caught or punished. That’s what feels unfair—it seems like the law was harder on him while others got away.

This view questions the idea that Harshad Mehta was simply a villain. It suggests that even though what he did was wrong, his actions showed how weak and unprepared the financial system was at the time. It makes us think—was he a smart thinker who pushed the system to change, or just someone who broke the rules to become rich? Maybe he was both. As I see it, the truth is not black and white. We have to look deeper than just calling it a scam. His story is a mix of big dreams, risky moves, and a system that wasn’t ready to handle someone like him.

Humbly presented by — Vaibhav (LinkedIn)