The Securities and Exchange Board of India (Sebi) has barred Dewan Housing Finance Corporation Ltd’s (DHFL) former promoters Kapil and Dheeraj Wadhawan for five years from the securities market for alleged diversion of funds.
Photograph: Francis Mascarenhas/Reuters
They have also been barred from holding any key position in a listed company.
A four-year restraint has been imposed on Rakesh Wadhawan, who was non-executive chairman, and Sarang Wadhawan, former non-executive director, while former CEO & Joint MD Harshil Mehta and former CFO Santosh Sharma have been debarred for three years each.
The market regulator has also imposed a total penalty of ₹120 crore on all of them, the highest being ₹27 crore each on Kapil and Dheeraj.
The market regulator has alleged their involvement in perpetrating a fraudulent scheme by disbursing loans to 87 ‘Bandra Book Entities’ (BBEs), which were connected or related to each other as well as the promoter group of DHFL.
Sebi noted that 39 BBEs, to which ₹5,662.44 crore were disbursed by DHFL, have transferred 40 per cent of the amount received from DHFL into 48 companies connected to the DHFL promoters.
The market watchdog added that as of March 2019, the net outstanding loans to BBEs amounted to ₹14,040 crore.
Sebi has alleged that these large unsecured loans to related parties with extremely weak financials were “blatantly mischaracterised” as retail housing loans.
“The disguised nature of the BBE loans also delayed regulatory intervention and eventually threatened market stability,” noted Sebi’s whole-time member Ananth Narayan.
Sebi will determine the quantum of illegal gains or benefits made by the fraudulent scheme and may initiate further action.
The regulator added that had the company presented the real picture of its financial statements, and excluded the ‘fictitious’ interest income from loans to BBEs, the company would have reported losses every year between FY08 and FY16.
Instead, the company continued to report profit.
“To effect this elaborate deception, a fake virtual branch (Bandra branch) and previously closed retail loan accounts were employed alongside three different accounting softwares camouflaging the BBE loans as retail housing loans.
“In the initial years, well over 30 per cent of all loans of DHFL were to these BBEs,” notes the order.
The market regulator added that publication of false financials misled all stakeholders and interfered with the integrity of share price discovery, inducing investors to remain invested believing that “all was well” at DHFL.
