On July 24, 1998, Finance Minister Yashwant Sinha had responded to a starred question in Parliament assuring it that suitable action would be taken against those involved in the price manipulations of BPL, Sterlite and Videocon shares, that had resulted in a payment crisis in June 1998. The "suitable" action took place in April 2001 that too only after another larger scam had rocked the market, cheated investors and turned the heat on to the regulator.
Sebi had earlier suspended a dozen-odd brokers and sacked the former president and executive director of the Bombay Stock Exchange, as well as the board of trustees of Shriram Mutual Fund -- but the key players remained untouched until recently.
When BPL was finally barred last week, from accessing the capital market for four years, many people wondered why Sebi's punishment to BPL was harsher than it was for Videocon and Sterlite.
The reason was simple. The punishment was commensurate with the extent of involvement with the former Big Bull. In fact, SEBI's report splits BPL's nexus into two parts -- the first was at the stage when Harshad was planning his price rigging operation and the second was in the context of the cover-up of the broker default.
BPL also provided Sebi with plenty of evidence. When Sebi searched Harshad's offices (or the Damayanti group offices at Maker V, Nariman Point, Bombay), they found a letter signed by R Balathandayutham, vice- president of BPL Sanyo Finance Ltd, an associate company of BPL, giving a mandate to Harshad's front company -- Digital Leasing & Finance to buy 500,000 shares of BPL at Rs 100 each. A bill was prepared for the transaction.
Further investigations revealed that BPL Ltd itself had made the payment, even though entries were made in the name of BPL Sanyo Finance -- after all a company is not allowed to buy its own shares. Later Digital, the broker, tried to claim that the BPL deal had been cancelled but could not explain why BPL had still paid him Rs 50 million for the purchase and the money was not returned to BPL.
Instead, BPL was given fully convertible debentures (1.18 million) and shares (3.8 million) of Money Television from the Damayanti group holdings, which was a Harshad company of dubious value even then. These shares were also transferred from Harshad's front companies such as Rijuta Finvest, Ikshu Finvest, Damayanti Finvest, Stable Constructions and New Prabhav Finvest.
Sebi discovered that the Money Television deal was fictitious because it had the same date and bill number as the earlier one for the cancelled purchase deal for BPL shares.
Sebi then found a second payment of Rs 86.2 million and Rs 7.56 million to Digital Finance indicating that a total sum of Rs 93.8 million was given by BPL for market manipulation.
The breakthrough was when Digital Finance's director finance stated on affidavit that he received instructions from Harshad Mehta for the transactions and that BPL would transfer the money for the operations. This money was transferred by Digital Finance to 20-odd companies on Harshad Mehta's instructions for further price manipulation.
Sebi has also traced extensive telephone calls between the Damayanti group companies and the BPL top brass including those from the direct line of T C Chauhan, a director on several BPL companies.
All this information had to be ferreted out through a maze of claims and contradictions by all the parties involved, often under oath. The truth began to emerge when they could not justify monetary payments for transactions claimed to have been done or cancelled by them. BPL also could not explain why no steps had been taken to recover money from the brokers, if the transactions had been cancelled as alleged. This was the first phase of BPL's messy involvement.
When the payment crisis occurred in June 1998, the company was again under pressure from BSE office bearers to help cover up the mess.
They approached a broking firm called SS Kantilal Ishwarlal Securities Pvt Ltd to negotiate with the BPL group and asked it to bail out the brokers.
A deal was worked out where brokers who needed to pay for shares purchased on Harshad Mehta's instructions were told to sell them to two broking firms -- SSKI and Jayantilal Khandwala.
Before this, SSKI's intervention led to Rs 470 million being transferred from "entities connected with BPL" in the garb of application money for 15 per cent preferential shares of Monoplan, a loss-making associate company of SSKI. The money was used to transact in shares by synchronising the timing of logging in of trades by buyer and sellers, and bailed out the very same brokers who were dealing for Harshad Mehta's Damayanti group.
These are the transactions that were put through in connivance with the BSE president, vice-president and executive director by opening the trading system late in the night of June 17, 1998 and June 19, 1998. The brokers who benefited from this bail out package were: Mahico Pvt Ltd, R R Mohta, GNH Global Securities, B R Jalan, Sanghvi Brothers Brokerage, N C Jain, Mefcom Securities, SVS Securities, Lalkar Securities, Ramakrishna Sekhsaria, S N Tara, S N Nangalia, S G Mantri, Angel Broking and P R Shah.