DHFL Promoters Siphoned off Rs31,000 Crore, Alleges Cobrapost
Moneylife Digital Team 29 January 2019
Dewan Housing Finance Corporation Ltd (DHFL) has siphoned off Rs31,000 crore into promoter companies to create private wealth through a network of shell companies, alleges Cobrapost. 
In a report, Cobrapost says "Promoters of DHFL siphoned off Rs33,000 crore in public money through secured and unsecured loans and advances to shell companies, illegal round tripping, tax avoidance and insider trading. Our probe reveals DHFL, the non-banking finance company (NBFC) under-reported Rs20 crore donation given to ruling Bharatiya Janata Party (BJP)."
"The scam has been pulled off mainly by sanctioning and disbursing astronomical amounts in secured and unsecured loans to dubious shell/pass-through companies, related to DHFL’s own primary stakeholders Kapil Wadhawan, Aruna Wadhawan and Dheeraj Wadhawan through their proxies and associates, which have in turn passed the money on to companies controlled by the Wadhawans. The money has been used to buy shares or equity and other private assets in India and abroad, including in countries like UK, Dubai, Sri Lanka and Mauritius," the Cobrapost report says.
Last month, Moneylife had exposed how loans to promoters and poor disclosure was used to boost net worth, loan book and valuation of DHFL. “DHFL's Promoters have a structured a deal that has allowed them to borrow from two mutual funds and indirectly inject the money into DHFL which boosted its net worth. A higher net worth of DHFL, in turn, has increased its borrowing and lending capacity and also boosted its valuation. In the process, the publicly held DHFL has underwritten a put option for the promoters the details of which have been kept a secret. But this put option has not been disclosed as a contingent liability,” we had said. (Read: How Loans to Promoters and Poor Disclosure Was Used To Boost Net Worth, Loan Book and Valuation of DHFL)
In November 2018, Moneylife had reported how Wadhawan Global Capital (WGCL), the holding company of DHFL had raised Rs2,125 crore through zero-coupon non-convertible debentures (ZCNCD) maturing in 2019, 2020 and 2021 from mutual funds including Aditya Birla Sun Life Mutual Fund and Franklin Templeton Mutual Fund among others. (Read: Mutual Funds Have Also Lent to DHFL Promoters' Holding Company Just Like Yes Bank’s Rana Kapoor)
Coming back to Cobrapost allegations which, according to its investigation of documents that are available with public authorities, says around Rs21,477 crore of DHFL funds were transferred into various shell companies as loans and investments without any terms declared to the ministry of corporate affairs (MCA). “…there are 45 companies which were used as vehicles to siphon off funds from DHFL. In all, these 45 companies were given loans in excess of Rs14,282 crore. Out of these, 34 shell companies, which are all within the interest of Wadhawan Group, the chief promoter of DHFL, have been given unsecured loans amounting to Rs10,493 crore. Of these, 11 companies belong to Sahana Group, which have been given Rs3,789 Crore in loans.”
"The trail disappears into dozens of shell companies and that is where the fun begins. The shell companies and destination of the siphoned-off money are linked to or owned by the Wadhawans—promoters of DHFL," it alleges.
As an industry practice, loans are advanced to companies and are secured by not only the properties of the borrower company but also by personal guarantees of promoters of companies. 
Cobrapost says, "By lending to shell or 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 properties or private wealth 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 SARFAESI Act or Insolvency and Bankruptcy Code of India." 
Lenders, including public sector banks (PSBs), have disbursed Rs37,000 crore the DHFL promoters, Cobrapost says adding State Bank of India (SBI) has the highest exposure at Rs11,500 crore, while Bank of Baroda has an exposure of Rs4,000 crore in the group.
Cobrapost alleges that DHFL has sanctioned and disbursed large sums, amounting to a total of Rs1,160 crore, to various companies based in Gujarat 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 sanctioned loans bad loans, which were sanctioned against no debt equity. 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.”
“…all the loan guarantees were given by the companies between January and May 2018. No annual returns were filed by them for the year in question. The loan by Satyasankalp Buildcon LLP, for instance, was taken for Swaminarayan Green City, whose environment clearance was taken for Rs150 crore, whereas the loan advanced by DHFL was for a sum of Rs680 crore,” it added.
According to Cobrapost, the case presented above is an illustration of complete and absolute failure of corporate governance (CG), and there is no way to even pretend that corporates are reliable and can commit to the best practices of the industry as required or expected by the law.
It says, "The Reserve Bank of India (RBI) washed its hands of by stating that every NBFC must have a mandatory risk management committee and a Finance Committee. The risk management committee of the Board is required to be constituted in compliance with the provisions of Regulation 21 of the SEBI listing regulations and the same is in line with the provisions of NHB CG direction. 
"The self-regulatory mechanism is clearly farcical. It may be observed that Kapil Wadhawan is a member of the risk management committee in DHFL. The person responsible for influencing a board’s decisions about the company’s policies with respect to risk monitoring is himself a party to siphoning off public funds to the tune of thousands of crores," it added.
According to Cobrapost, the finance committee holds the power to grant approval of loans above Rs200 crore up to prudential exposure norms as per NHB guidelines to any person, firm or body corporate at any time or from time to time and to grant approval for issuance of corporate guarantee/s by the company in favour of the body corporates as per the provisions of companies act and guidelines from the National Housing Bank (NHB). 
"Kapil Wadhawan and Dheeraj Wadhawan are also members of the finance committee, and are directly in a position to influence decisions to grant loans by exerting influence. Guidelines of corporate governance provide no protection against people inclined to push their personal agenda, who may easily use their position to siphon public funds," it says.
Raising question on the role of rating agencies in assigning AAA ratings, Cobrapost says DHFL’s inner workings raise questions about the credibility and conduct of all the country’s rating agencies, which have failed miserably to identify its irregularities, as unearthed in the course of this investigation.
It also raises a question on the role of DHFL auditors. Cobrapost says, "In the cases of the shell companies investigated, of DHFL and Wadhawan’s own companies, auditors have consistently failed to bring serious irregularities in their audit reports, which are meant to ensure that the financial statements of companies are free from any irregular activities. The irregularities that seem to have been overlooked by auditors with surprising consistency uncover the possibility of collusion between multiple auditors and the companies in question."
"With all these authorities, agencies and regulatory bodies either acting blind or inefficiently, the future of NBFCs in India itself is in jeopardy. The DHFL and its ilk have further weakened the economy from within, and it shall take a long time for the market to gain back the confidence it has lost after cases like IL&FS and DHFL," Cobrapost concluded.
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5 years ago
SunPharma, Zee, DHFL. ILFS, ICICI skeletons are coming out.
How many more in line.
Dayananda Kamath
5 years ago
I attended the press conference but it appeared more as stage managed event just to reiterate Chowkidar Chor Hai. There may be truth in the report. But inferences are drawn based on the data observed. But yes it shows the failure of RBI which is regulator for Banks as well as NBFC. As well as Monitoring agency for FEMA which monitors remittances abroad. But they still pin the blame and say RBI is discredited. So they criticise when action is taken or not taken. So may be it is a staged event to divert attention of chowkidar so that chorus can have his way.
This is the legacy continued from time immemorial and can't be changed in such a short time. When such events are used for politicising by these Modi phobia bitten people nothing concrete can materialise. It is really sorry state of affairs.
Replied to Dayananda Kamath comment 5 years ago
"Bhakts" have this trait. Whenever an allegation/accusation is made against an entity, they question the integrity of the person raising the question rather than question the activities of the accused.
Ajay Sharma
Replied to Dayananda Kamath comment 5 years ago
Interesting observations. I find it frustrating how literally every single news outlet has just written a story about this story. No independent thought or verification of the facts.
Sucheta Dalal
Replied to Ajay Sharma comment 5 years ago
When there is a detailed investigation on the cobrapost website, why would all of us - other media outlets - go back and re-verify the information? I am surprised and curious at the expectation?
Neil Terrance Haslam
Replied to Sucheta Dalal comment 5 years ago
Ajay I conducted this investigation. There are no questions asked when I build raid cases against app MLS and ministers?

5 years ago
The financial affairs at DHFL suggest total failure of financial governance. ILFS, and now DHFL where is our financial markets headed in terms of poor show of management? All these are due to the culprits getting scott free treatment in India. Let at least a bunch of promoters taste the punishment that will spread the message of fear. Lack of accountability and transparency and tendency of regulators washing their hands. Cobra Post has given so much details that we need to simply follow up.
Meenal Mamdani
Replied to K V RAO comment 5 years ago
I agree with you. Just a few months in jail, not the VIP but the regular, will make the businessmen think twice about this chicanery.
Om Prakash Arora
Replied to Meenal Mamdani comment 5 years ago
Rating agencies who maintained AAA rating appear to be teflon coated.They should also be on the dock as investors base decisions on the rating.
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