Securities and Exchange Board of India (SEBI) recently issued an order for Diwan Housing Finance Corporation Limited (DHFL), its promoters Kapil and Dheeraj Wadhawan and their families, banning them from trading in the stock market. In 2019, Enforcement Directorate (ED) had raided DHFL and alleged cases of money laundering against it. Did you know that the company siphoned off money for almost 10 years through a virtual branch and no one got a sniff of it? Let’s find out how did it carry out this fraud.
Crux of the Matter
DHFL is a housing finance company that also takes deposits. In October 2019, the Enforcement Directorate (ED) raided several company offices and promoters’ residences. They found links of loans given to entities linked to the promoters of DHFL – a case of money laundering. Here are the details of how it was carried out:
The Curious Case of ‘Bandra Book’
- DHFL set up a virtual branch called the Bandra Branch Book, which had been a part of the Company records for 10 years.
- It added this ‘virtual’ branch in the ERP system and loans from it were approved by promoter Kapil Wadhawan.
- SEBI in its reports finds all accounts in the Bandra branch non-genuine as this dummy branch disbursed loans to dummy people.
- Hence, the fraud has also been termed as “Bandra Book Fraud”.
Who Are The 91 Companies?
Of the 91 companies that were given loans through the Bandra Branch, 50 companies’ financial statements were verified by the auditor. These 50 companies amounted to 70% of the ₹11,755.8 crores of the loan disbursal. And 34 out of those 50 invested a portion of the loan received in companies linked to the promoters of DHFL.
The companies linked to the promoters were financially weak, and hence the loans were doubtful to be repaid. Moreover, these loans were unsecured and given without taking any collateral.
The auditors also note that the interest charged on these loans was lower than others, resulting in a notional loss of ₹3,384 crores. If the interest income from Bandra Branch loans were deducted from DHFL’s total income from interest, the entity would have made loss from FY 2008 to FY 2019 except in FY 2018.
Other Links Of Wadhawans
The Yes Bank Connection
On 7 March 2020, the Central Bureau of Investigation (CBI) registered a case alleged in the connection between Rana Kapoor and Wadhawans in connection to the suspicious granting of a loan by Yes Bank.
In July 2020, the owners of DHFL Dheeraj Wadhawan and Kapil Wadhawan found to have some connection in the ₹3,642 crores Yes Bank money laundering case. The Director of Head of Enforcement Directorate (ED), SK Mishra, confirmed finding properties worth ₹2,600 crores associated with Rana Kapoor and the Wadhawans.
The Dubai Connection
In October 2019, an investigation conducted by ED revealed DHFL to be the mysterious entity that routed funds in the form of loans to Sunblink Real Estate in 2010. Sunblink is reportedly owned by Dubai-based gangster Iqbal Memon, who also goes by the name, Iqbal Mirchi and is said to have links with India’s most wanted criminal, Dawood Ibrahim.
ED alleges that the ₹2,186 crores ‘loaned’ to Iqbal were used to purchase property in the Middle East and for ‘terror financing’.
- In January 2019, Cobrapost published an exposé of DHFL for using various shell corporations to siphon more than ₹31,000 crores of public money for the personal gains of the DHFL’s primary stakeholders. Cobrapost is an Indian investigative journalist group.
- The Directorate of Enforcement (ED) is a law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India. It is part of the Department of Revenue, Ministry of Finance, Government Of India.
- DHFL is the second housing finance company to be established in the country and amongst the 50 biggest financial companies in India.
- CapitalMind – DHFL’s “Bandra Book” – How To Make 11,000 Cr. Appear And Disappear
- Live Mint – DHFL Case: Auditor Flags Fraudulent Transactions Worth Rs17,394 Crore
- The Economic Times – CBI Books Rana Kapoor, DHFL And Others
- The Economic Times – DHFL Lent Rs 2,186 Crore To Company Under Lens For Mirchi Links, ED Investigations Reveal
- SEBI – Interim Ex Parte Order In The Matter Of Dewan Housing Finance Corporation Limited