Market regulator Securities and Exchange Board of India (SEBI) has barred promoters and directors of Dewan Housing Finance Corporation Ltd (DHFL), including eight members from the Wadhawan family and four of their companies for issuing fraudulent statements and cooking the books since 2006 and making corporate announcements based on this fraud.
G Malalingam, whole-time member (WTM) of SEBI has issued an interim order barring 12 persons who were promoters of DHFL since 1 April 2006 to 31 March 2019. Those barred from market include: Kapil Wadhawan, chairman and managing director DHFL, Dheeraj Wadhawan, Rakesh Kumar Wadhawan, Sarang Wadhawan, Aruna Wadhawan, Malti Wadhawan, Anu S Wadhawan, Pooja D Wadhawan, as well as 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).
The order refers to a forensic audit by Grant Thornton, which refers to 'the Bandra Books Entities' which were the crux of the large-scale fraud that was revealed before the National Company Law Tribunal (NCLT) as well. The findings of the audit report are astounding and reproduced by the SEBI order. It says,
“The company created a ‘logical partition’ in the Enterprise Resource Planning (ERP) Software used for bookkeeping and loan management purposes” to store data pertaining to only one branch – Bandra, which simply did not exist." It is referred to as a virtual branch.
The forensic audit says, a “parallel set of books of accounts (were) maintained by the Company” and all accounts in this module were fake. These accounts have been collectively called as ‘Bandra Books’. The totally fraudulent approvals and fund disbursal in respect of 'Bandra Book' accounts were provided by the Chairman and Managing Director of the DHFL- Kapil Wadhawan, personally.
The forensic report report states “that out of the Rs23,815 crores shown as disbursed to Bandra Book entities in the accounts of the Company, only Rs11,755.79 crores was actually disbursed” to 91 entities, but was portrayed as comprising 2,60,315 home loan accounts. “The closing balance outstanding in the books of the company towards such accounts as of 30 June 2019 was Rs14,046 crores.”
Further, the 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” back in DHFL linked companies – what is worse, they were weak companies with doubtful repayment capacity.
What is worse, by charging lower interest to these entities, the company suffered a notional loss of Rs. 3,348 crore! According to SEBI, if the fictitious income from these Bandra entities were removed from the accounts then DHFL has been making losses “in all years except FY2018.”
The SEBI order says: “The financial impact of the “fraudulent transactions” covered in the Application was disclosed by the Company in the aforementioned corporate announcement as under, -
(a) Rs14,046 Crores, being the amount outstanding in the books of the Company as on 30 June 2019;
(b) Rs3,348 Crores being amount considered as due and outstanding towards notional loss to the Company on account of fraudulently charging lower rate of interest to certain entities referred to in the Application as the Bandra Book Entities.”
As a result of this brazen fraud and fiction in the accounts, DHFL was able to raise a massive Rs24,000 crores through public issue of debt securities during this period, notes the SEBI order.
During the period of the fraud, which was FY06-07 to FY18-19 the following entities were listed as promoters:
"Kapil Wadhawan and Rakesh Wadhawan, being the chairman and MD of the company for the past several years, were responsible for ensuring the integrity of DHFL’s accounting and financial reporting systems and based on the findings of the initial report, it appears that they were, prima facie, involved in the aforesaid manipulation or falsification in books of accounts and, thereby, misrepresented to the investors and other stakeholders the financial information pertaining to the company," the SEBI order says.
Holding promoters of DHFL responsible for violations of SEBI regulations, Mr Mahalingam further says, "The investors in debt securities issued by the company and investors who dealt with the company’s equity shares during this period were induced into these transactions based on the untrue information disseminated by the company. The interest of investors who take the decision of investing in the securities of the company on the basis of financial position of the company and disclosures made in the financial statements have been, prima facie, affected adversely due to the aforesaid transactions entered into by the company and the consequent fraudulent misstatements in the financial statements of the company."
Earlier this month, the Supreme Court on Thursday stayed default bail granted to Kapil and Dheeraj Wadhawan by Bombay High Court in the Yes Bank fraud case. Kapil Wadhawan, chairman and managing director of Dewan Housing Finance Ltd (DHFL), and Dheeraj Wadhawan, are being investigated in several cases of fraud and mismanagement. The Wadhawans, along with their beleaguered DHFL, are also co-accused in a cheating and money laundering case registered against Yes Bank co-founder, Rana Kapoor.
Last month, granting the Wadhawan brothers 'default' bail, Justice Bharati Dangre of the Bombay HC directed them to surrender their passports and deposit Rs1 lakh each as surety.
The default bail was granted citing failure of Enforcement Directorate (ED) in filing charge-sheet against the Wadhawan brothers within the mandatory 60-day period after the arrest.
The Wadhawans had moved the Bombay HC seeking bail on grounds that the ED failed to file the charge-sheet within the stipulated 60-day period after the ED arrested them on money-laundering charges on 14 May 2020.
The Wadhawan brothers have contended before the HC that the ED had filed its charge-sheet a day after the deadline—on 15th July—against them as well as Yes Bank founder Rana Kapoor, his wife Bindu Kapoor and their daughters Roshni and Rekha, besides others.
The ED launched its probe in the case after the Central Bureau of Investigation (CBI) filed its first information report (FIR) in the case on 7 March 2020 before the lock-down, over dubious loans granted by the Yes Bank and alleged quid pro quo between Kapoor and the Wadhawans.
In its charge-sheet, the ED has claimed that Dheeraj Wadhawan, the then non-executive director of DHFL, owned 44 companies of the Wadhawan group and also managed the works of the real estate business of the Wadhawan group.
The ED investigation into the Yes Bank-Rana Kapoor money-laundering probe had also found that Kapil Wadhawan, started his realty business in 2007-08, pursued it in United Arab Emirates (UAE) by forming Wadhawan International Investments Ltd (WIIL), and the company has some assets in Australia worth Rs1,000 crore.