Original Sin of Independent India

  •   Fri, Feb 06 2026
  •   By David Pinto Prabhu

February 6, 2026

Today we see the Indian investor investing in Mutual Funds, direct equities and other capital market instruments with ease and more importantly with utmost credence. The current stock markets are well regulated and have SEBI at the core of its compliance. Securities and Exchange Board of India (SEBI), even though it was conceived in 1988, came into effect as a governing entity only in 1992. Today when we are looking from hindsight, the pre 1992 era was a period of pure uncertainty. An epic era without a regulator, no major domestic institutional investor like the Mutual Fund industry, stock exchange controlled by the stock brokers and amongst other drawbacks. If you had to buy a share, you had to walk into a stock broker's office, pay the amount and then wait for the delivery of the physical shares, which sometimes took months and in some cases infinity. Let’s look at one episode which occurred in the 1950’s.

Just after Independence, India was on a mission on many quests. It had embarked on infrastructure projects through the famous five-year plans, was courting the Soviets and yet proposing to the United States. It was also a time when the stock markets were extremely shallow. Most of the corporate funding came from internal generation of funds by the promoter and from the private network. Only 10% came from equities.  

Here there was a small-time businessman from the erstwhile Calcutta who had developed a knack of identifying gaps in the system. The name was Mundhra, Haridas Mundhra. His reference here is similar to the life of Frank Abagnale Jr played by Leonardo Di Caprio in the movie, Catch Me if you Can. Back in the 1950’s, Mundhra had acquired controlling stake in many dubious companies and had also duplicated the share certificates. He would then pledge these homemade share certificates along with the original ones with Banks to raise money. Mr. Mundhra’s own way of generating liquidity. 100% indigenous and enterprising indeed! Frank had his perfect coterie in Bombay!

One fine day when Mundhra was not able to pay back the Banks, the Banks promptly invoked the pledged share certificates. In this process it was discovered that a few certificates were indeed fake. Mundhra was then indicted by BSE for peddling fake certificates. Mundhra in the need of the hour, then came up with an equally daring scheme to find a way out. He approached the newly formed LIC (Life Insurance Corporation of India) and struck a deal with them. LIC would buy some of his shareholdings at an inflated price. This new found cash was enough for Mundhra to pay the Banks for his dues.

On its part, LIC even bypassed its investment committee for this act of deviltry. News eventually got leaked to the press, this in spite of the then PM, Mr. Nehru, suggesting this matter to be kept under wraps. This incident then blew up into a full-blown scandal, first of its kind in an Independent India, thanks to Mr. Nehru’s son in law, Mr. Feroze Gandhi, the MP from Rae Bareli.

Thanks to all the media blaze, this scandal led to a lot of fallouts. The then FM, Mr. T. T. Krishnamachari had to resign. Mr. Gandhi who was an anti-corruption drive since 1956 found this Original Sin to be his masterpiece for dissecting the facts. By then he had the one of the wealthiest industrialists, Mr. Ramkrishna Dalmia already put behind bars for defaulting on his insurance companies. This very default had led to the nationalisation of the insurance companies and birthing of LIC via a Parliament Act. Mr. Gandhi had famously dubbed LIC as the Baby of the Parliament.

Meanwhile, Mr. Mundhra was summoned into an enquiry which lasted 24 days, quite a contrast for the 28 yrs on Harshad Mehta. The reason why Mundhra could then pull this off with LIC was because, the equity markets has very few participants then. Land & Jewellery were the preferred investment options. In the absence of a regulator, insider trading, market cornering/squeezing was rampant.

Every stock market evolves over a period of time. BSE was formed way back in 1875 and India today in 2026 is looking stable, credible & promising but still remains the oldest emerging market. With a regulator in place as an investor, you are in a much better and safer environment.  Hence non-regulated instruments need special attention before you explore them. Safety first, returns later and compliance foremost.

 

 

 
By David Pinto Prabhu
David Pinto Prabhu, Partner at Fisdom Private Wealth, is on a mission to simplify the clutter surrounding the dynamic nature of investments. He has over 20 years of experience in the field of investments. After starting his career with ING Investment Management (2004), he moved to J P Morgan Asset Management (2008), and was heading South India for its institutional business. He holds a PGDM degree from St Joseph’s College of Business Administration, Bengaluru, and a B Com degree from St Aloysius College, Mangaluru, where he is currently based. David can be contacted on LinkedIn: linkedin.com/in/david-pinto-29037a33 and Email: davidcasmir@gmail.com.
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Comment on this article

  • Rudolf Rodrigues, Mumbai-Mangalauru

    Fri, Feb 06 2026

    Dear David good writeup; however much the markets might have evolved; but at the same time, dubious activities of various types too have evolved at the same pace, with the so called regulator turning a blind eye to many such jhumlas which are being blatantly carried out! Sorry for being a cynic! Keep writing!


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