A broker behind bars

Print edition : September 01, 2001

STOCKBROKER Hiten P. Dalal, the first person to be convicted in the 1992 securities scandal, surrendered before a Special Court in Mumbai on August 8. He was convicted in a Rs.78 crore cheque-bouncing case involving Standard Chartered Bank. There are several other charges pending against Hiten Dalal in connection with the scam which was characterised by illegal nexus between banks and stockbrokers.

Hiten Dalal had acted as a broker between Standard Chartered and other banks in security transactions in 1991. Standard Chartered filed a case against Hiten Dalal for failing to honour four cheques amounting to Rs.72 crores, which he had issued. Standard Chartered also filed a suit against Canara Bank (as trustees of Canbank Mutual Fund). It stated that the bank had purchased Government of India Securities 2008 from Canmutual for Rs.60 crores. Delivery of the securities was through the Security General Ledger (SGL) account of Canbank, which was maintained at the public debt office of the Reserve Bank of India.

Standard Chartered submitted that it had paid the full purchase price by RBI cheques and, in return, Canbank issued three SGL transfer forms transferring its interest in the securities to Standard Chartered. But the RBI dishonoured the SGLs. On checking with Canbank, it was told that Hiten Dalal had promised to replace the SGLs with fresh transfer forms from the Bank of Karad. Canbank eventually admitted to owing Standard Chartered approximately Rs.58.39 crores.

In its reply to Standard Chartered's demands for returning the security money, Canbank told the court that under Hiten Dalal's directions Standard Chartered had bought securities from other banks. He also negotiated the subsequent sale of these securities. The difference between the actual sale price and the desired sale price was either paid to or recovered from Dalal. It balanced out, hugely benefiting both.

Canbank also told the court that Dalal had informed it that transactions worth Rs.58.39 crores would be squared against the sale of transactions totaling Rs.60 crores which was outstanding between Standard Chartered and Canbank. In fact, in 1995 Standard Chartered withdrew its suit against Canbank. But it still held Dalal liable for the money it had invested in securities and lost.

On April 30, 1993, Special Judge S.N. Variava convicted Hiten Dalal under Section 138 of the Negotiable Instruments Act, 1881, and sentenced him to one year's imprisonment and a fine of Rs.1 lakh for defrauding Standard Chartered of over Rs.78 crores. On July 11, 2001, the Supreme Court confirmed the sentence.

Dalal has been charged with several other economic offences. The net amount under litigation in the'Big Bull' Harshad Mehta-led scam is Rs.2,662 crores. Over half the cases relate to Harshad Mehta.

In 1998, Dalal was convicted and sentenced to seven years' of rigorous imprisonment. The Central Bureau of Investigation had charged him with defrauding Andhra Bank and CanFin to the tune of Rs.33 crores. He was given time to appeal. This case is among the pending ones.

Anupama Katakam

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