DFHL’s Forensic Audit Exposing Massive Fraud and Cooking of Books Leads to SEBI Order Banning DHFL Promoters
Moneylife Digital Team 23 September 2020
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 misstatements in the financial statements of the company since 2006. 
In an order, G Malalingam, whole time member of SEBI barred these 12 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).
"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."
The Bandra Books of Kapil Wadhawan!

In the order, the SEBI WTM also mentions how DHFL created a virtual branch at Bandra and maintained parallel accounts books. The 'Bandra Books' show Rs11,755.79 crore disbursed to 2.60 lakh borrowers for home loan, however, the entire money was given to just 91 entities with approval by DHFL's CMD Kapil Wadhawan.

Mr Malalingam says, "I note from Initial report that the Company had created a 'logical partition' in the enterprise resource planning (ERP) software used for bookkeeping and loan management purposes. This 'logical partition' stored data pertaining to only one branch - Bandra, which was a virtual branch. The report notes that this appears to be a parallel set of books of accounts maintained by the Company and all the loan accounts present in this module appear to be non-genuine. These accounts have been collectively called as 'Bandra Books' in the initial report. It is also stated in the report that approvals and fund disbursal in respect of "Bandra Book" accounts were provided by the chairman and managing director of the DHFL -Kapil Wadhawan."

"I note that the report states that out of the Rs23,815 crore shown as disbursed to Bandra Book entities in the accounts of the Company, only Rs11,755.79 crore was actually disbursed. This amount (Rs11,755.79 crore), the report notes, was disbursed to 91 entities, but was shown in the books of the company as comprising of 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 crore," the SEBI order says.
The market regulator had issued show-cause notices to all the promoters as to why suitable prohibitions under Sections 11(4) and 11B of the SEBI Act including the directions for restraining or prohibiting them from accessing the securities market and buying should not be imposed against them.
The Wadhawans need to file their respective replies with SEBI within 21 days from the date of receipt of the interim order-cum-show cause notice.
As DHFL is currently under insolvency, the SEBI order said: "This order is without prejudice to Direction(s) or Order that may be passed by the NCLT during the corporate insolvency resolution process of the Company under the Insolvency and Bankruptcy Code, 2016."
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.
While staying the default bail, a bench of justices SK Kaul, Ajay Rastogi and Aniruddha Bose posted the special leave petition (SPL) for hearing on 7 October 2020. 
During the hearing, the counsel for ED contended that the agency had sent an email about the chargesheet on the 58th day from the arrest of the Wadhawan brothers. 
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.
4 years ago
Seal and confiscate all the moveable and immovable assets, property, cash and everything remotely related to the wadhwans, Rana kapoor , auditors and everyone connected to this scam. They have not only cheated the innocent investors but have committed crimes against our national interest. They should be charged for financial terrorism and also for acts which have caused deaths of so many innocent depositors due to the shock suffered by them.
4 years ago
Such a huge fraud definitely involves most of the senior management, HO accounts / internal audit and IT teams - and especially, the external auditors.
DHFL adminstrator should immediately suspend those who were involved in this fraud and request CBI/ED to immediately initiate criminal action against them.
Further, he should initiate action against the external auditors who approved the accounts.
4 years ago
Shocking - in light of this, DHFL Adminstrator should immediately refund all the debentures issued thru public issues immediately.
4 years ago
Fraudulent Accounts now Transferred to ICICI Bank Limited to Serve the DHFL Customers and the Investors of the Private Sector Bank - ICICI Bank Limited - to Pay the Price or the MD of ICICI Bank Limited is a Question. I am Babubhai Vaghela. Thanks.
4 years ago
I don't know if investors, like me, will ever get back their money invested in DHFCL NCDS. May be if Government make some provision for refunding the investors' money by selling assets of DHFCL and its Directors .
4 years ago
DHFL-It is a demon in the country who swindled hard earned money of Indian public and banks. Every day some news about the WADWANS is disturbing the peace of the people of the country. Right from 2006, they are deceiving the people. No body or even the Government and its agencies have any doubt about the misdeeds of these fradusters. One wonders whether any business man in the country can be so greedy as these wadhwans. Definitely God punishes the entire famly with severest punishment.
4 years ago
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