DHFL Case: Madras High Court Issues Notice to SEBI on a PIL
Moneylife Digital Team 30 June 2021
A public interest litigation (PIL) filed against the Securities and Exchange Board of India (SEBI) in the Dewan Housing Finance Ltd (DHFL) matter came up before the bench of chief justice Sanjib Banerjee and justice Senthilkumar Ramamoorthy of the Madras High Court (HC) on Tuesday. The Madras HC has issued a notice to SEBI and the matter has been listed for hearing on 13th July. In his petition, Ranganathan V (the petitioner and Moneylife columnist) has said that SEBI, credit rating agencies, auditors and others were lax in performing  their role, i.e., to vet DHFL's functioning, due to which investors lost money in excess of Rs40,000 crore.
The petition urges the Court to direct  SEBI to investigate, solve and settle the crisis that arose out of the fraudulent affairs of the DHFL and its key managerial personnel (KMP). 
The petition has prayed for a direction to SEBI to statutorily perform its duty by taking action in furtherance to his representation (submitted on SCORES platform) dated 15th June as per SEBI (Prohibition Fraudulent and Unfair Trade Practices Regulations), SEBI (Issue and Listing of Debt Securities) Regulations, Securities Contracts (Regulation) Act, SEBI (Listing Obligations and Disclosure Requirements) Regulations read with Securities Exchange Board of India Act and allied rules and regulations issued thereunder.
Mr Ranganathan, who retired as a partner at Ernst & Young, Chennai, heading the tax and regulatory advisory practice, has said in his petition “It is in the common knowledge that the DHFL scam is one of the India’s largest scam in the history of the independent India and there are several thousands of depositors who have lost monies by investing on the platform of the DHFL ... investors were made to believe that DHFL has a sound financial health and that the investors will yield profit in the platform floated by the DHFL.” 
The scam has caused a gargantuan loss to the exchequer as well as the general public investors who had reposed the entire trust and faith to invest in the non-convertible debentures (NCDs) of the DHFL, the petition asserted .
Therefore, this scam-ridden entity along with the key managerial personnel ought to be proceeded against under the provisions of the SEBI Act, 1992 considering the enormous powers available to the SEBI, the plea appealed.
In 2019, an exposé by investigative media outlet, Cobrapost highlighted how DHFL used Credit Rating Agencies and statutory auditors as deceptive tools to by-pass regulatory provisions under the SEBI Act and to defraud innocent investors and creditors, the petition recalls.
Despite wide-ranging powers being available to SEBI, there was no action forthcoming towards solving and settling the crisis arising out of the DHFL scam, the petitioner noted. As such, it is a fit case for the HC to exercise its powers under Article 226 of the Constitution to direct SEBI to conduct a probe in the matter and pass and order under Section 11 of the SEBI Act, the petition further argues.
The petition added “DHFL and its KMPs used Statutory Auditors and Credit Rating Agencies  as deceptive devices  in  contravention of  the  provisions of   SEBI Act 1992   and the other Rules and   Regulations   made thereunder for the sale of Debentures Listed on NSE. Further, DHFL and its KMPs used Statutory Auditors and Credit Rating Agencies as a vehicle to defraud in connection with issuance of debentures which are listed in NSE. The entire modus operandi adopted by the accused persons entails regulatory contraventions under the provisions of the SEBI Act thereby deceiving the innocent investors.”
Mr Ranganathan said in his petition, “As an investor, I wish to submit that the interest of the market ought be considered as pristine and its purity, credibility should not be put in jeopardy due to the fraud committed by the erring entity and its key managerial personnel. In any event, the interest of the investors ought to be treated as paramount in the cases of dealing with economic fraud. There are various investors who have suffered and I am one among the other investors who have lost monies due to the deceitful action committed by the erring entity namely -DHFL. It is further shocking to note that these key managerial personnel have also conspired to commit regulatory contradictions thereby putting the interest of the investors in jeopardy.”
Highlighting the plight of NCD-holders, Mr Ranganathan said that the “…default of interest of debentures was an outcome of various deliberate systematic and well planned fraud conducted by DHFL and its KMPs in collusion with each other over past several years”. He then explained in point-wise format how various rules and regulations were systematically and blatantly violated. 
The petition further stresses that DHFL and  its  KMPs  had  appointed  statutory auditors and credit rating agencies to paint a rosy picture of DHFL as a profitable organisation and used them as artifice to defraud in connection with issue or subscription of debentures which listed on BSE and NSE. Investors were, thus, induced into investing their hard-earned monies.
“DHFL and its KMP being the issuer completely failed to ensure that the security created to secure the debt securities is adequate to ensure 100% asset cover for the debt securities. Contrary to it, they further liquidated the secured assets of DHFL,”the petitioner pointed.
"According to the petitioner, investors may have lost in excess of Rs 40,000 crore, with regulators, credit-rating agencies, auditors and others who were required to vet and look into the functioning of DHFL, its activities and how the funds received from depositors were...lacking in their functioning," the bench said.
The bench issued notice to SEBI after hearing arguments by advocate Nithyaesh Nataraj who appeared for the petitioner, Mr Ranganathan who had invested Rs30 lakhs to purchase NCDs issued by DHFL.
The petition highlights that DHFL was given the highest 'AAA' rating by credit rating agencies. “If it is too good to be true, it is untrue,” the chief justice observed as he heard the submissions.
The bench asked if SEBI had taken any action in the matter and advocate Nataraj submitted that the SEBI, in a measure that was 'too little, too late', held the DHFL promoters as guilty under the SEBI PFUT regulations and restrained them from accessing the securities market. This does not help any of the investors, Mr Nataraj pointed out. 
Since SEBI was not represented in the hearing, the Court decided to issue a notice and adjourn the matter so that SEBI may give its response. Chief justice Banerjee noted that in matters such as this, the regulators could object to court interference.
Advocate Nataraj responded that 'commercial wisdom' and 'financial matters' are phrases used by regulators when they are asked questions in such cases to state that the court should not interfere. He contended that while people invest trusting the system, SEBI is seen outsourcing its work to others.
The petition was filed through advocates Nithyaesh Natraj, Vaibhav R Venkatesh and Anirudh A Sriram.
Enforcement Directorate (ED) is also conducting a detailed investigation of DHFL, and its former promoters Kapil Wadhawan and Dheeraj Wadhawan for their role in conducting various offences of money laundering. 
3 years ago
Dewan Housing Finance Limited has suffered from numerous controversies. The courts have ordered SEBI to investigate, settle and solve the crisis. In 2019, the company was accused of playing a deceptive role. These articles often require thorough research which can be provided by an essay writer online
3 years ago
SEBI is inefficient and corrupt otherwise why kept quite , why did not initiate action when share price started falling and fallen by 50 times (Rs 600 to below 10/-) and what action it has taken against the Credit Agency. SEBI must be party to proceedings before NCLT , what was its version in NCLT and it must compensate shareholders from IEPF.
3 years ago
What we need to do is since sebi/coc/nclt etc agencies seem more interested in getting their cuts in it and to quickly pass the resolution to show to govt they have done a great job patting themselves on their back for the bad work done by them.
It would be better if all small creditors join together and send details to the finance minister and prime minister highlighting our issues since these people are not interested in small/individual investors.Let us work collectively and send it to them what do you all say
3 years ago
How NCLT can take the decision without considering the small public investors who had invested theirs hard cash after saving the every penny rupees. And not prior notice as well. What is the SEBI is doing it's only helping in the piramal group not even bothering to provide the justice to everyone investors. It's a completely biggest cheating for public investors and how can the public share holders values can become zero over a night.
3 years ago
Thank you Sir for highlighting the plight of investors. Why is it that the public always has to suffer... Is it because they had made the blunder of entrusting these people with their hard earned money!
We really need our money back
Replied to milan.mitra181255 comment 3 years ago
Yes you are right I'm with you
Replied to yashvaibhav123 comment 3 years ago
I'm putting my hard earned money in DHFL, DHFL shame on you,why you want public money,who trust in you,if you don't pay our money, please kill your self or hang till death
3 years ago
Great work sir,
Thankyou Renganathan sir for your efforts in this regard. Who gave them the power to write off investor's money. Then what is the accountability of SEBI. How did SEBI allowed DHFL to be delisted without guarantee for investors money? All the responsible persons in this fradulant practice have to be taken in front of the legal scrutiny and the investers' deposits should be safegaurded.
Replied to Pcmohan comment 3 years ago
Yes serious issue required investigation by CVC and CBI , how come such big fraud allowed to happen. What SEBI officials and machinery doing. Busy collectings tips, market operators and players

3 years ago
DHFL is being purposely sold at such a lower value approx 37.5% of the book value and the decisions are being made by the persons who already are the culprit behind the scam. Promoter scam worth Rs 20000 crores. And COC scam worth Rs 50000 crores. Sufferers are common man . Don't know when these will stop. Still commercial wisdom of the justice is not getting clicked that when promoter is offering 91000 crores how Piramal can be allowed to buy at 38500 crores. This SEBI so called regulatory body has suspended the trading in script after two years of admission in NCLT why ? We need to enquire SEBI first not DHFL. Market cap of the company get doubled and tribbled whenever the promoter or operator plays and SEBI is busy in collecting commission called as STT etc.
3 years ago
Dear Sir, SEBI has failed to protect the investor money. My sincere thanks to Mr. Ranganathan Sir for moving court on our behalf, and also to Honorable High court to hear our petition.
3 years ago
I am being a senior citizen, retail investor got trapped in this DHFL fiasco. After putting my heard earn money putting effort throughout my life. It should be the credit rating agency who are primarily responsible for misleading the investors and they must be penalise and balance amount of money they should pay from their pocket to the investors.
3 years ago
SEBI has an investor protection fund. Return of deposits/ ncds partially can be explored through this fund. ED can transfer recovered assets to this fund
Replied to srinivasans64 comment 3 years ago
When SEBI is going to use investor protection fund?Shocking part that even secured NCDs have been brought at par with unsecured NCD and deposits!
3 years ago
Dear Sir, Thanks for taking care of on DHFL shareholders. My self having 1000 shares purchased during June 2021. Suddenly shares were not trading in exchange viz:BASE,NSE. It is delisted and value is zero. Kindly help us and update in the matter. I am a Sr. Citizen.
3 years ago
I remember the Satyam Scam, the Indian shareholders could not claim any money while US courts provided relief to the American investors through class action suits. It happened in 2009. 12 years later our regulators are in the same state of affairs
We need knowledgeable people like Mr. Ranganathan to safeguard the interest of retail investors
Replied to pssankar1848 comment 3 years ago
Thanks a lot of Mr rangnathji
3 years ago
My sincere thanks to Mr Ranganathan for moving court on our behalf, and also to Honourable High court to hear our petition.
Replied to ena.sarin comment 3 years ago
Mr Ranganathan, u r torch bearer. Sincere Appreciation and salute. i think SEBI is inefficient and corrupt busy supporting political bosses at the cost of investors. Shareholders right and investment ...?
3 years ago
The step by Honourable High Court is highly appreciated in the interest of retail investors who rely on the ratings of these agencies, if these too can be sold out the God only can save the small investor, these sharks will always find ways to usurpe the poor man's life savings
3 years ago
The step by Honourable High Court is highly appreciated in the interest of retail investors who rely on the ratings of these agencies, if these too can be sold out the God only can save the small investor, these sharks will always find ways to usurpe the poor man's life
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