Sebi debars 12 DHFL promoters for frauds causing ₹17,000-cr impact on accounts

Sebi restrained Kapil Wadhawan, Dheeraj Wadhawan, Rakesh Kumar Wadhawan, Sarang Wadhawan, Aruna Wadhawan, Malti Wadhawan, Anu S Wadhawan, Pooja Wadhawan, and four Wadhawan Group companies from dealing in any kind of transaction in any type of securities until further orders.

Sebi, in an interim ex-parte order, said that the violations by the 12 entities are very grave in nature and the amount involved in the fraudulent transactions is very high.

Damage caused to investors

In order to minimise the damage caused to the interests of the investors and to protect market integrity, Sebi imposed the ban, the order said.

The promoters of DHFL, for their alleged involvement in fraudulent transactions during 1 April, 2006 to 31 March, 2019, have been also restrained from associating themselves with any listed public company and any public firm as directors or promoters that intends to raise money from the public, said the order.

The financial impact of the “fraudulent transactions" has been to the tune of ₹14,046 crore, which is the outstanding amount in the books of the company (DHFL) as on 30 June, 2019, said Sebi.

Also, Sebi said an amount worth ₹3,348 crore is due towards notional loss to the company (DHFL) on account of fraudulently charging lower rate of interest to certain entities referred to in the “Application as the Bandra Book Entities", said the order.

DHFL had shown in its accounts that ₹23,815 crore was disbursed to “Bandra Book" entities in the accounts. But, out of this, only ₹11,755.79 crore was actually disbursed, said the Sebi order on the basis of an initial report prepared by Grant Thornton India Llp, which was appointed as transaction auditor in order to scrutinise the authenticity of transactions done by the Wadhawans.

“This amount ( ₹11,755.79 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 ₹14,046 crore," said Sebi.

The transaction 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 received from the lender in companies which were linked to the promoters of DHFL.

What the Grant Thornton report says

The Grant Thornton report also identified that such entities had weak financial strength and their repayment capacity was doubtful. These loans were unsecured and given without taking any collateral.

“By indulging in such fraudulent transactions, which were shown as bonafide transactions in the published financial statements and by issuing corporate announcements in the public domain, the promoters of the company have, prima-facie, defrauded the investors in securities of DHFL," said Sebi.

The “initial report" (compiled by Grant Thornton) raises serious concerns over authenticity and reliability of DHFL’s financial statements for the period FY 2007 to FY 2019.

“…The interests of investors who bought equity shares of the Company during this period have also been prejudiced because the financial statements of the company did not state the true and fair picture of the affairs of the Company," said the Sebi order.

On 20 November last year, the Reserve Bank of India superseded the board of DHFL and appointed R Subramaniakumar as the administrator.

Subsequently, RBI filed an application to initiate corporate insolvency resolution process in respect of DHFL. In December last year, National Company Law Tribunal (“NCLT"), Mumbai Bench, passed an order confirming the appointment of the administrator to perform all the functions of a resolution professional.

In January, Grant Thornton India LLP(“Transaction Auditor") was appointed to assist the RP in conducting a transaction audit of DHFL, following which the initial report indicated that certain transactions entered into by DHFL during the period FY 2006-07 to FY 2018-19 are fraudulent in nature.

On 26 August , public sector lender Punjab and Sind Bank said it has declared its exposure of ₹815.44 crore to DHFL as fraud.

In July, India’s second-largest public sector lender Punjab National Bank (PNB) had declared its ₹3,688.58 crore exposure to the mortgage lender as fraud.

Once an account is declared fraud, banks need to set aside 100% of the outstanding loans as provisions, either in one go or over four quarters, according to RBI rules.

Even before PNB, private sector lender Karnataka Bank had taken similar action in June.