DEWAN HOUSING

FINANCE
CORPORATION
Key Points:
■ The primary promoters of DHFL and their associate companies have
committed a systemic fraud in broad daylight to siphon off public
money. have been found to have siphoned off more than Rs. 31,000
crore of public money.
■ Money has also been routed through these dubious companies (grants
of loans and advances to shell companies and by using other means) and parked
outside India, to acquire assets. The money has been used to buy
shares/equity and other private assets in India and abroad,
including in countries like UK, Dubai, Sri Lanka and Mauritius.

[ Cobrapost has unearthed the scam by closely analyzing documents

available with public authorities and information available in public domain.
]
Key points
■ Loans are advanced to companies and are secured by not only mortgaging the
properties of the borrower company but also by personal guarantees of promoters of
companies.
■ By lending to shell/pass-through companies without due diligence, DHFL has ensured
that the recovery of such dubious loans is impossible since the companies or their
directors themselves do not own any assets.
■ This way the private assets acquired by the Wadhawans and their associates by using
the funds from these dubious loans are completely ring-fenced from any recovery
process that may be initiated by authorities under the Insolvency and Bankruptcy Code
of India.
■ the only losers in the process would be the public sector banks, such as State Bank of
India and Bank of Baroda, with an exposure of over Rs. 11,000 crore and Rs. 4,000
crore, respectively, foreign banks and shareholders from among the public or investors of
DHFL.
■ Debt recovery is an important metric on which ease of doing business is judged. Such
scams, if not identified, resolved and persons responsible punished, will only damage
India’s prestige on the world stage. In case the Government of India takes over DHFL,
like IL&FS, without a thorough investigation into its affairs by investigating agencies
such as CBI, SFIO and Enforcement Directorate, then the Wadhawans who are principal
beneficiaries of the scam will go scot free.
 What helped Kapil Wadhawan and Dheeraj Wadhawan to
pull off the scam?
■ It is the position of power and influence they occupied as majority members in the Finance
Committee of DHFL, which approves loans of Rs 200 crore and above to any entity. They
ensured that loans were granted to shell/pass-through entities and the money ultimately
ended up in the companies owned or controlled by the Wadhawans
Created dozens of shell entities, largely with a nominal capital of Rs. 1 lakh, divided them into small groups of two–four companies, with a
lot of them having the same/similar addresses and having the same set of initial directors, and on many occasions having the same group
of auditors to mask the financial details;
Disbursed huge loans to these shell companies mostly without any security and/or collateral), and the proceeds appear to have been used
for creation of private assets both offshore and in India;
Disbursed loans amounting to thousands of crores to these shell companies in the name of secured loans against slum development
projects without any due diligence or checking of collateral or maintaining adequate debt–equity ratio;
Disbursed loans in a single tranche, rather than following the established norm of disbursal in stages against progress of the project works;
Ensured that most of the shell companies hid the name of the lender DHFL, the terms of loan and terms of repayment in their financial
statements to be submitted as required by the law;
Advanced monies to several companies (run from the same address) in Gujarat and Karnataka around state elections;
Given donations in crores to the Bharatiya Janta Party (BJP);
Been involved in illegal insider trading, and violation of Securities and Exchange Board of India (SEBI) takeover regulations, amounting to
approximately Rs. 1,000 crore;
Created offshore assets of approximately Rs 4,000 crore;
Bought Wayamba, a Sri Lanka Premier League cricket team, by using loan money dubiously advanced by DHFL.
The Wadhawans have violated several other laws:
■ Section 182 of Companies Act, 2013 for political donations.
■ Section 447 of Companies Act, 2013 for fraud.
■ Section 177 of Companies Act, 2013 for Audit Committee.
■ Section 186 of Companies Act, 2013 for breaching the limit of investment.
■ Section 185 of Companies Act, 2013 for investment in companies where directors have interests.
■ Section 45 of Income Tax Act, 1961 for escaping the Capital Gain Tax.
■ Section 68 of Income Tax Act, 1961 for unexplained investment.
■ Schedule III of Companies Act, 2013 for deviation in disclosure in financial statement.
■ Section 201 of Income Tax Act, 1961 for delay in deposit of Tax Deducted at Source (TDS).
■ Section 6 of the Foreign Exchange Management Act, 1999 (42 of 1999), read with Foreign Exchange Management (Transfer or
Issue of Any Foreign Security) Regulations, 2004 for foreign divestment of shares.
■ For misappropriating public money and converting it into various movable properties for their own use, under Section 403 of the
IPC.
■ For criminal conspiracy with various persons in concert and dishonestly disposing of properties in violation of several legal
contracts, under Section 405 of the IPC.
■ For having committed wilful “criminal breach of trust” and having fooled DHFL’s shareholders and common investors, under
Section 405 of the IPC.
■ For wilfully deceiving DHFL’s investors, and fraudulently influencing their decisions to invest in a corporation routing their money to
criminal agents, in violation of the investors’ legal rights and cause them material damage, under Section 415 of the IPC.
■ For criminal conspiracy to cheat and defraud investors and loot their hard earned money, under Section 420 of the IPC.
■ For misrepresenting important documents held sacrosanct by investors, such as government disclosures that give an overview of
DHFL and its various promoters’ net share in the company and its dealings in movable properties, under Section 467 of the IPC.
■ For money laundering, under Section 3 of the PMLA.
■ Surprisingly, all these violations have taken place right
under the nose of the Reserve Bank of India (RBI), the SEBI and
the Union Ministry of Finance, not to mention monitoring
mechanisms of the banks, the auditing agencies, the Income
Tax Department, the rating agency and so on. Not only does
the scam point fingers squarely at the inefficient corporate
governance of non-banking financial companies (NBFCs) as a
whole but it also questions the dubious role public bodies
have played in effecting the scam. It is a clear case of
complete connivance amongst public and private figures.

■ To just gauge the scale of fraud, DHFL’s net worth is Rs

8,795 crore. It has, however, taken loans from banks and
financial institutions to the tune of Rs 96,880 crore,
including Rs. 31,312 crore in the form of non-convertible
debentures, Rs. 36,963 crore from banks, Rs. 2,965 crore from
external commercial borrowings, Rs. 2,848 crore from the
National Housing Board (NHB), Rs. 9,225 crore in public
■ Cobrapost has identified 45 companies which were used by Wadhwans as vehicles to siphon off funds from DHFL. In all, these 45 companies were
given loans in excess of Rs 14,282 crore. Out of these, 34 shell companies, which are all within the interest of the Wadhawans, the chief promoters of
DHFL, have been given unsecured loans of Rs. 10,493 crore. Of these, 11 companies belong to Sahana Group, which have been given Rs. 3,789
crore in loans.
■ Of these, 34 companies are so dubious that most of them have no business or income. More often than not, they are audited by the same
accounting agencies, helping them hide all fraudulent transactions. Many of these companies operate from the same addresses and are run by the
same group of initial directors. A large number of them are newly incorporated with nominal capital of around Rs. 1 lakh. Yet, these companies
were extended unsecured loans, in single tranches, without any security or collateral. Many of these companies also share the same email
addresses.
■ Interestingly, nearly 35 shell companies have not filed any charge documents for loans on the MCA website, which is a mandatory requirement.
This suggests the loans are unsecured. Most of the companies have also ensured to hide the name of the lender company, DHFL. In turn, DHFL
has also hidden the terms of loan and terms of repayment in its financial statement. Importantly, all the shell companies have zero or very
negligible income from their business operations since their inception. Besides, more than a dozen companies have not filed balance sheets for FY
2017–18 in the RoC as of January 26, 2019.
■ Some of these companies belong to Sahana group. One of of directors of these companies, Jitendra Jain, is being investigated by the Economic
Offences Wing with respect to various projects for certain offences committed by him in his professional capacity and is currently in judicial
custody. Another prominent shareholder of the group is former Shiv Sena MLA Dalvi Shivram Gopal. Most of the loans extended to Sahana have
become NPA.
■ DHFL has disbursed large sums, amounting to a total of Rs 1,160 crore, to various Gujarat-based companies under various schemes and projects.
All of the said projects are on hold from the municipal corporations and most projects have been suspended. This fact in itself makes all the loans
suspecious. The companies have filed no annual returns. Interestingly, the entire sum of the loans has been disbursed very close to the time of the
Gujarat elections, which is a coincidence one cannot entirely ignore. DHFL also disbursed large sums of loans, totalling Rs. 1,320 crore, to various
companies of Karnataka under various schemes and projects before state elections.
■ The investigation has found three companies, Galaxy, Silicon and Hemisphere, linked to Wadhawans, which have been instrumental in the scam.
■ Our investigation also shows the failure of regulatory bodies such as the RBI and the SEBI, apart from the Ministry of Finance, which have
consistently been unable to discharge their duties, despite many warning signs and the recent failure of IL&FS, thus paving the way for more scams
such as this to emerge.
■ Given the debt exposure of the company to the tune of Rs 96,880 crore, what Cobrapost has unearthed may just be the tip of iceberg. The true
Special Element:
■ Interestingly, the government in 2017 brought a new amendment to Section 182 of the Companies Act,
which in effect enables such dubious political funding without any consequences. However, it is to be
noted that the above contributions were in violation of Section 182 as applied then.