After its sting operation rattled the nation last year and brought to light how big media houses led by stalwarts like Times of India etc were ready to peddle Hindutva propaganda as “news”, Cobrapost is back with what they’re calling “India’s biggest financial scam”. The press conference today announcing the sting had a panel that included Cobrapost editor Aniruddha Bahal, BJP leader Yashwant Sinha, lawyer Prashant Bhushan, IT professional and former AAP member Neil Terrence, journalists Paranjoy Guha Thakurta, and Prem Shankar Jha.

According to the Cobrapost story published on January 29, 2019, the primary promoters of a Non-Banking Financial Company (NBFC) called Dewan Housing Financial Limited (DHFL) siphoned more than ₹31,000 crore of public money. The story alleges that the scam was mainly pulled off through grants of loans and advances to shell companies. The same money was then re-routed via these dubious companies and parked outside India so as to acquire assets.

The organisation said: “Cobrapost has unearthed the scam by closely analyzing documents available with public authorities and information available in public domain.”

But how does one flawlessly carry out a scam of such an astronomical amount without being apprehended by the authorities? According to Cobrapost, the scam was pulled off mainly by sanctioning and disbursing astronomical amounts in secured and unsecured loans to dubious shell/pass-through companies—all of which related to DHFL’s primary stakeholders: Kapil Wadhawan, Aruna Wadhawan and Dheeraj Wadhawan. The story alleges that the Wadhawans, through their proxies and associates, had, in turn, passed the money on to companies controlled by them. Cobrapost alleges that this money was used to buy shares/equity and other private assets in India and in other countries like the UK, Dubai, Sri Lanka and Mauritius.

According to the story, what helped Kapil and Dheeraj Wadhawan pull off the scam is the position of power and influence they’ve held since they occupied positions as majority members in the Finance Committee of DHFL—“which approves loans of ₹200 crore and above to any entity”. The story alleges that the Wadhwans ensured “loans were granted to shell/pass-through entities and the money ultimately ended up in the companies owned or controlled by the Wadhawans”.

Shahrukh Khan's makeover image for DHFL
Though people have often contradicted the false claims, DHFL has used Shahrukh Khan’s brand image to wipe off many of its wrong doings in public domain

The story alleges that DHFL and its primary promoters created dozens of shell companies with a nominal capital of ₹1 lakh, and divided them into smaller groups of 2-4 companies. A lot of these companies have the same or similar addresses and the same set of initial directors, as well as the same group of auditors to cover up the financial details of these companies. It has been alleged that DHFL’s primary promoters disbursed huge loans to these groups of shell companies—mostly without any kind of collateral— the proceeds from which “appear to have been used for creation of private assets both offshore and in India”. The story claims that DHFL’s primary promoters disbursed thousands of crores worth of loans to these shell companies in the name of secured loans against slum development projects, without any due diligence or maintaining an equity ratio.

Apart from these irregularities, the story further alleges that these loans were disbursed in a single tranche rather than following the established norm of carrying out this process in stages against the progress of the project works. Cobrapost also observed in its story that the Wadhawans bought a Sri Lankan Premier League cricket team by using loan money dubiously advanced by DHFL.

To give readers a mental image of the scale of the fraud, DHFL’s net worth according to its audited financials for 2017-18 is ₹8,795 crore. However, the company has taken loans from banks (both Indian and foreign) as well as financial institutions to the tune of ₹96,880 crore. This includes Convertible Debentures (NCD) worth ₹31,312 crore, loans from banks worth ₹36,963 crore, External Commercial Borrowings (ECB) worth ₹2,965 crore, loans from National Housing Board (NHB) worth ₹2,848 crore, Public Deposits worth ₹9,225 crore and other loans amounting to a total of ₹13,567 crore.

What is notable is that according to a copy of DHFL’s annual report, the company has secured loans from at least 36 banks in total—32 nationalised and private banks and six foreign banks. Of the 32 nationalised banks, State Bank of India had sanctioned the highest amount of loan to DHFL as on April 6, 2018, amounting to nearly ₹12,000 crore, followed by Bank of Baroda (₹4,396 crore), Bank of India (₹4,150 crore) and Canara Bank (₹3,100 crore). When it came to foreign banks, these included CTBC Bank Co Ltd, which had loaned DHFL a whopping $10,0000,00, Taiwan Business ($5,000,000), and Barclays Bank PLC ($30,000,000). This data was filed by DHFL on the MCA website.

The Cobrapost investigation further alleged that substantial amounts have been lent by DHFL to shell companies, created simply to ship money out of DHFL and channelise it elsewhere—mostly in companies where Kapil Wadhawan, Aruna Wadhawan and Dheeraj Wadhawan have personal interests. “The list of violations, as already mentioned, is so varied and so outrageous that it puts any other scam of the same nature to shame. Compared to the DHFL, the Saradha and the Neerav Modi/PNB scam look like the work of amateurs.”

The most important question that arises is: where has all this money gone? According to the Cobrapost investigation, this long-term scam involves secured and unsecured loans to dubious entities and shell companies, illegal insider trading, creation of offshore assets and tax evasion, so as to “leak public money in large corpuses to be finally converted into private wealth of the chief beneficiaries of the scheme: the Wadhawan Group”.

According to the story, 34 shell companies—within the interest of Wadhawan Group and the chief promoters of DHFL— have been given unsecured loans amounting to ₹10,493 crore. Another 11 companies belonging to the Shahana Group have been given ₹3,789 crore. It is these shell corporations that are using loans in order to aid the Wadhawan Group and Shahana Group to convert public funds into private money. Most of the 34 mentioned shell companies have no business or income. Strangely enough, they are also, in most cases, audited by accounting agencies such as Thar and Co, who help conceal these fraudulent transactions.

It is interesting to note that out of the out of the total 45 companies mentioned above, six companies use the same official email address inform2co@gmail.com. Four companies use inform2ca@gmail.com. Three use inform12com@gmail.com. Ten others use sayalihs2102@gmail.com

The shells are merely corporate vehicles used to siphon funds from DHFL.

More importantly, nearly 35 shell companies have not filed any charge documents for loans on the MCA website which is a mandatory compliance. Most of the companies have endeavoured to hide the name of the lender company-DHFL.

According to the story, DHFL themselves hid the terms of the loan and terms of repayment in their financial statement. More importantly, all the shell companies have zero or very negligible income from business operations since their inception. Besides, more than a dozen companies have not filed balance sheets for FY 2017-18 in the ROC as of January 26, 2019.

According to the story: “Not only does the scam point fingers squarely at the inefficient corporate governance of NBFCs, it also asks serious questions about the amount of negligence or perhaps connivance and complicity of public bodies. It is clearly a case of complete connivance amongst public and private figures to misuse and illegally siphon off public money.”

An interesting part of the alleged scam uncovered by Cobrapost is that donations worth ₹19.5 crore had been given to the ruling BJP between 2014-15 and 2016-17 by three developers—all of whom are allegedly linked to the Wadhawans. These developers are RKW Developers Pvt. Ltd., Skill Realtors and Darshan Developers. These three companies are the ones whose names had come up several times during the Cobrapost investigation “as they are all promoted by the Wadhawans, Kapil and Dheeraj”.

Out of the three companies playing the role of alleged benefactor to the BJP, RKW and Darshan top the list when it comes to shelling out huge sums of money in the form of political charity. RKW allegedly donated ₹10 crore in 2014-15 while Darshan donated ₹7.5 crore in 2016-17. Skill Realtors allegedly donated ₹2 crore in 2014-15, but like RKW, it too showed no donation in its balance sheets for 2014-15. While receiving and reporting these donations, the ruling BJP also failed to provide PAN details of these particular donor companies. The Cobrapost story said: “These charities, however, flout the provisions of Section 182 of the Companies Act 2013, which govern corporate funding to political parties.”

What is even more interesting to note is that although RKW posted a loss of ₹8284772 in 2012-13, it had the resources to contribute ₹10 crore to BJP coffers in 2014-15. Skill Realtors did not mention their ₹2 crore donation in their balance sheets and failed to file a profit and loss account with the ROC, the story alleged. “Curiously, the Mumbai-based construction company made this huge donation out of a measly profit of ₹26,914.”

Finally, Darshan Developers, who donated ₹7.5 crore to the BJP in 2016-17, incurred losses of ₹5,13,406 in 2013-14. They are therefore completely ineligible to make donations to any party in such large sums, as the amount far exceeds the 7.5 per cent of its profits as stipulated by law. As per the Act, every officer in the company who is in default is punishable by law with six months’ imprisonment and may be fined up to five times the amount of the donation.

However, the bigger question that arises is: how did they do it? According to the story, DHFL’s modus operandi is to loan out large sums of money under various project heads to companies of no standing. The exact scheme of transactions has been replicated multiple times while giving out loans to six sets of shell companies. Furthermore, all the companies have common initial directors—Aparna, Sachin Bhatuse and Santosh Krishna Acharya—as well as shareholders who do not have any financial background. According to the Cobrapost investigation, “no NBFC could have given loans to such entities without any background check or due diligence”.

The story also alleges that DHFL had sanctioned and disbursed loans to companies in Gujarat and Karnataka close to their respective state elections. In Gujarat, DHFL had allegedly sanctioned and disbursed a total of ₹1,160 crore to various Gujarat-based companies under multiple schemes and projects. All the said projects are currently and have been on hold from the municipal corporation, and most projects bear the status of having been suspended—which in itself makes all the sanctioned loans bad loans. The loans have been sanctioned against no debt equity and the companies involved have filed no annual returns.

The story observes: “Interestingly, the entire sum of the loans has been disbursed very close to the time of the Gujarat elections, which is a coincidence one cannot entirely ignore.”

In one of its last blows, Cobrapost alleged that DHFL had indirectly funded the Wadhawan Cricket Lanka (Private) Limited, a cricket team owned by the Wadhawan Group through the one furnished by RKW Developers—whose primary source of income is the huge number of shares bought at a phenomenally high premium by all the shell companies which were given loans by DHFL.

DHFL responds

Here is DHFL’s statement in full:

DHFL is a publicly listed Housing Finance Company and is regulated by the National Housing Bank and the Securities and Exchange Board of India, amongst other regulators. This mischievous misadventure by CobraPost appears to have been done with a mala fide intent to cause damage to the goodwill and reputation of DHFL and resulting in erosion in shareholder value.

DHFL today received an email at 8.44 a.m. in the morning, with a follow-up reminder one hour later, seeking answers to 64 questions from Cobra Post, many of which were laced with political innuendos. We are shocked and surprised to receive this inquiry this morning, although Cobra Post had announced its press conference last Friday, i.e. 25 January 2019, to disclose an alleged financial scam. One would have expected as a responsible media house CobraPost would have asked these questions during their investigations and not on the day of the press conference.

Their entire approach raises serious concerns about the motivation of this so-called expose. It is necessary in public interest that if they believed in the genuineness of their issues to have given DHFL an opportunity to explain the facts that are in any case available in the public domain.

DHFL is one of the leading and most respected housing finance companies in India with over ₹1,11,000 crores of assets under management and a large customer based across the country. Despite the recent liquidity regime, DHFL as a responsible corporate has met all its obligations to the lenders and has paid back to them in excess of ₹17,000 crores in the last three months. DHFL has a strong corporate governance regime and has received AAA credit rating from leading credit agencies. The company is fully tax compliant and its books are audited by global auditors.

We understand, for the last several weeks, an anonymous note has been making the rounds with similar defamatory and scurrilous allegations. The real intent of this exercise appears to be to destabilize the company and the market equilibrium besides hampering our meeting the on-going obligations. We are also concerned about the timing and the holding of the press conference before the stock market close and days before the interim budget.

DHFL is a responsible and law-abiding corporate citizen and all loans are disbursed in the normal course of business in accordance with industry best practices and in compliance with all regulatory norms. The company’s financial statements are submitted to the Stock Exchanges and are in the public domain.

DHFL and its group companies are confident of meeting any scrutiny on any aspect of our operations and will pursue these frivolous allegations to its logical conclusion.

Cobrapost reached out to the Wadhwans for their side of the story but they have not responded to any of the specific questions, according to Aniruddha Bahal. 

For further details on the expose, vistit Cobrapost link:
http://cobrapost.com/blog/biggest-financial-scam/1373

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