DHFL Scam: SEBI Takes Action Against 12 DHFL Promoters for Fraudulent Transactions

On September 22, market regulator Securities and Exchange Board of India (SEBI) restrained 12 promoters of Dewan Housing Finance Ltd (DHFL) from accessing securities market and barred them from associating themselves as directors or promoters of any listed public company or associating with any intermediary registered with SEBI. 

The regulator noted that the promoters of DHFL during April 2006 to March 2019 had allegedly violated regulatory norms and were involved in fraudulent transactions worth thousands of crores during the period.

The promoters are -- Kapil Wadhawan, Dheeraj Wadhawan, Rakesh Kumar Wadhawan, Sarang Wadhawan, Aruna Wadhawan, Malti Wadhawan, Anu S Wadhawan, Pooja D Wadhawan, Wadhawan Holding Pvt Ltd, Wadhawan Consolidated Holding Pvt Ltd, Wadhawan Retail Venture Pvt Ltd and Wadhawan Global Capital Ltd (formerly known as Wadhawan Housing Pvt Ltd).

DHFL entities and its promoters have been mired in allegations of financial irregularities for some time now. In January last year, news portal Cobrapost had claimed that DHFL promoters have allegedly siphoned off Rs 31,000 crore of public money through a network of shell companies over years. The company ruled off the allegations as baseless, however, as the entity began defaulting and delaying payment of dues in the Financial Year 2019-20, rating agencies pointed out the mortgage lender’s deteriorating liquidity condition and downgraded its ratings.

Also read: Punjab National Bank Delayed Red Flagging Rs 3,688 Crore DHFL Loan as Fraud

In November last year, the Reserve Bank of India (RBI) filed an application to initiate a corporate insolvency resolution process against DHFL, which was admitted by the Mumbai Bench of National Company Law Tribunal (NCLT). Following this, in January this year, Subramaniakumar, resolution professional of DHFL appointed Grant Thornton India LLP (GT) to conduct a transaction audit of the company.

Reportedly, GT has submitted its initial report to the resolution professional and NCLT revealing that DHFL has been involved in siphoning off funds since 2006-07 through 91 non-existent entities operating from a branch in Bandra, Mumbai. The report, which termed the fictitious outfits as ‘Bandra Book Entities’, has revealed that there is a Rs 14,046 crore hole in DHFL accounts as on June 30. 

SEBI’s order came after the promoters failed to give response to the GT’s initial report pointing out fraudulent charges within the regulator’s stipulated time. In its order, SEBI stated that the transaction auditor “verified the financial statements of 50 of the said 91 entities, which accounted for 70% of the disbursals, and noted that 34 entities had invested a portion of the loan amount received from the lender in companies which were linked to the promoters of DHFL. The report also identified that such entities had weak financial strength and their repayment capacity was doubtful. These loans were unsecured and given without taking any collateral. The report concludes that the company suffered a notional loss of Rs 3,348 crore as the interest charged on such loans was lower than the interest charged for other similar entities by the Company in the normal course of business.”

It is to be noted that three investigative agencies -- Central Bureau of Investigation (CBI), the Enforcement Directorate (ED) and the Serious Fraud Investigation Office (SFIO) are currently probing the financial irregularities allegedly conducted by the promoters of DHFL. 

In March this year, the CBI and the ED began probing DHFL promoters related to their suspicious transactions with YES Bank. According to a Financial Express report, “The CBI probe revealed that YES Bank invested Rs 3,700 crore in DHFL’s short-term debentures that were not redeemed. Simultaneously, Kapil Wadhawan is said to have paid a kickback of Rs 600 crore to Kapoor and his family members in the garb of a builder loan from DHFL to DoIT Urban Ventures, which is owned by Rana Kapoor’s three daughters.” Rana Kapoor was the founder and former Managing Director of Yes Bank.

In another case being probed by the ED, it has been revealed that the allegedly siphoned funds worth Rs 2,267 crore were invested by the Uttar Pradesh Power Corporation Limited (UPPCL) which were invested in the company’s fixed deposits through two trusts between March 2017 and December 2018. 

Kapil Wadhawan and Dheeraj Wadhawan are currently in judicial custody at the Taloja jail. The Supreme Court has recently stayed a bail order granted to them by the Bombay High Court. 

The debt of DHFL is estimated at Rs 88,000 crore, including what it owes to banks, mutual funds and bond holders.

Also read: ED Probes Yes Bank’s Links with Bankrupt Companies Under PMLA