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DHFL SCAM 2019

A report on the DHFL SCAM that came to light in 2019 done by the
following students of 4 BCOM C under the guidance of Dr. Lijeesh P:

2010305 Chaitanya Gopesh

2010315 Rounak Jalan
2010316 Sabirsh M
2010330 Mehak Bagrecha
2010331 Simran Mitra
2010341 Ansh Goel
2010385 Sri Sankalpa Sagar
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Table of Contents

Sl No. Topic Page

Number

1. About the Company 3

2. Background of the Case 4-6

3. Nature of Scam 7

4. Violation of the Provisions 8

5. Observations of the Court 9

6. Final Judgement 9-10

7. Similar Scams 10

8. References 11
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About the Company

Dewan Housing Finance Corporation or DHFL as it is widely known is now known as

Piramal Capital and Housing Finance Ltd. This company is a no deposit-taking housing
finance company. Headquartered in the capital of Mumbai, it has several branches all around
India. DHFL was established in order to provide middle-class urban and rural area residents with
an affordable housing finance plan. Being amongst the biggest 50 financial companies in the
country, DHFL was India’s second-ever housing finance company.

Apart from the focus on low-income earning people, DHFL also provided housing finance to
separate entities, cooperative societies, commercial organizations, and their members and they
also leased out premises to reputed firms or individuals for residential and commercial use.
1996 - The exhibition of the organization was unfavorably impacted due to the tight liquidity
situation and the overall decrease in the interest for land. The company is also known for giving
its employees special training in order to cope with the everyday changes occurring with the
commercialization and modernization of the economic world. The Company has presented
different government assistance measures including an 'Educational Loan Scheme' for
repaying employees who wish to go in for advanced education; 'Concessional Housing Loan
Conspire' for those representatives who need to secure a house.

In total DHFL has a total of 209 branches all over India and it is the largest family-owned
housing finance company. It is a part of the Wadhwani Group which shows diversified
interests including in the field of real estate. Dewan Housing Finance Corporation Ltd (DHFL)
has launched a double benefit scheme in which one gets accidental insurance as well as property
insurance while they are pursuing housing finance.

DHFL was the first to launch a home equity loan scheme. They were also first to introduce
home improvement schemes for the various house-related expenses like renovation and
extensions and other financing companies followed after them with similar schemes.
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Background of the Case

Introduction to the DHFL scam:

In recent years, India's economy has been

pummeling by one corporate marauder after
another. It's astounding how the individuals who are
in charge of an economy on any particular day may
suddenly leave the nation and go, renegade.

The Pradhan Mantri Awas Yojana(PMAY) is a scheme under the management of the housing
ministry that aims to grant loans to the weaker section of the society to buy lands and construct
houses. These loans carried interest subsidies, from 3% to 6.5%. It was also found that Dewan
Housing Finance Corporation Ltd (DHFL) claimed 1,887 crores as interest subsidy under this
Scheme.

The Crime Bureau Investigation (CBI) uncovered a trick worth many crores connected with the
Pradhan Mantri Awas Yojana (PMAY) on February 12 and recorded a criminal intrigue in
lodging an advance argument against Kapil and Dheeraj Wadhawan, the advertisers of the
emergency hit Dewan Housing Finance Limited (DHFL). The Wadhaman siblings built a "bogus
and fictitious" DHFL branch in Bandra, where they made fake lodging credit accounts worth
2.60 lakh for borrowers who had paid their loans before. Borrowers were given a flat payment of
Rs 14,046 crore, of which Rs 11,755.79 crore was transferred to multiple bogus organizations
known as Bandra Book Firms. Grant Thornton's forensic audit report revealed DHFL's
inconsistencies, prompting the CBI to file a complaint on March 15 of this year.
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People Involved:

Kapil Wadhawan, Dheeraj Wadhawan, Rakesh Kumar

Wadhawan, Sarang Wadhawan, Aruna Wadhawan, Malti
Wadhawan, Anu S Wadhawan, Pooja D Wadhawan were the
people involved.

What happened in the scam?

The advitisers of the company made shell accounts and covered 14000 crore and even claimed
1880 crore as aid.

In October 2015, the PMAY, a national plan to secure housing for all, was introduced. Housing
loans made to persons from the Economically Weaker Sections (EWS) and Low- and Middle-
Income Groups are eligible for credit-linked interest subsidies under the plan. Financing
institutions, such as DHFL, will be eligible to collect the subsidy. Another large NBFC, IL&FS,
went bankrupt in 2018, raising alarms across the sector. When it came to providing money to
NBFCs, banks became considerably more cautious. However, because credit was limited, this
resulted in a liquidity shortage.

Following the IL&FS crisis in September 2018, DHFL's shares dropped by up to 60%. Cobra
post then stated in January that the company's proprietors were implicated in a Rs 31,000 crore
money-laundering scheme. The corporation refuted the allegations and later stated that they were
proved to be false by an independent chartered accountant's investigation. Nonetheless, a variety
of reasons conspired to put DHFL in a precarious position, requiring it to sell a number of its
enterprises in order to repay its debt. Notwithstanding, the firm neglected to pay around Rs
900 crore in interest on June 4, constraining rating offices to minimize the entirety of the
organization's business paper.
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As indicated by the CBI, DHFL told financial backers in December 2018 that it had handled
88,651 advances under PMAY and got an aggregate of 539.4 crores in sponsorships, with
another 1,347.8-crore forthcoming.

How DHFL pulled off the scam:

DHFL told financial backers in December 2018 that it has handled 88,651 credits under PMAY
and got a sum of 539.4 crores in endowments, with another 1,347.8-crore extraordinary.
Notwithstanding, scientific examinations observed that Kapil and Dheeraj Wadhawan had set up
2.6 lakh counterfeit lodging advance records in a made-up Bandra office of the association, a
large number of which were under the PMAY conspire and gotten interest endowments
according to its rules. The CBI claims that somewhere in the range of 2007 and 2019, 'advances'
of Rs 14,046 crore were endorsed to these records, of which Rs 11,755.79 was diverted to other
fake substances. Following claims that Mr. Kapoor's family got pay-offs for putting resources
into DHFL, the CBI documented a charge sheet against the Wadhawan siblings and Yes
Bank author Rana Kapoor in June last year.

Yes Bank spent 3,700 crores of public money in DHFL's short-term debentures between April
and June of 2018, resulting in the scandal. Mr. Kapoor reportedly received a 600-crore kickback
from the Wadhawan’s in the shape of loans to a company run by his wife and children in
exchange.
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Nature of the DHFL Scam

· What exactly is money laundering?

Money laundering is a fraudulent

process used by criminals to launder
their black money into white money.
They turn the profit of illegal activity
into a legal activity. In this process,
the criminals can earn their income
whilst hiding the nature, source,
location, situation, and movement of
crime.

How exactly is money laundering the Nature of the 2019 DHFL Scam?

Through the money laundering process, one can see that the DHFL was a typical money
laundering scam:

● Placement: The settlement is the point at which unlawful money enters the financial
system for the first time. The Wadhawan Brothers used the financial organization to carry
out the scam.
● Layering: Using a sequence of transactions and bookkeeping to conceal the source of
funds.
● Integration: The 'laundered' money is withdrawn from the legitimate account, and the
money is transferred back to the criminal responsibility from the legitimate source of
transacting.
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Violation of the Provisions

Based on the report by Grant Thornton India, which revealed the fraudulent practices that were
taking place at the Dewan Housing Finance Limited (DHFL), the world came to know of the
many violations that took place in the hands of the company’s management. A number of civil
and criminal regulations and laws were violated. They are as follows:

● Section 177 of the Companies Act, 2013: The section deals with the general working and
duties of an audit committee in a company. This was violated when the internal control
and risk management of DHFL seemed to be compromised but the audit committee
picked up on no such thing even though it is one of their primary duties. The audit
committee should have picked up on the false implications painted by the Wadhwan
Brothers.
● Section 447 of the Companies Act, 2013: This provision is violated by the DHFL as they
commit fraud with the investors and banks through round-tripping.
● Section 403 of the Indian Penal Code: The directors used the money from round-
tripping to buy assets all over the world, therefore violating this section which holds
individuals responsible when they misappropriated public funds to obtain assets for
their own use.
● Section 405 of the Indian Penal Code: The Company fooled the shareholders and
investors by not revealing the true details of the loans given and committing criminal
conspiracy.

Observations of the Court

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Dewan Housing Finance Corporation Ltd (DHFL), with the assistance of its advertisers and local
officials, have skimmed a few thousand crores of rupees under the umbrella of Pradhan Mantri
Awas Yojana (PMAY). The Central Bureau of Investigation recorded a case as it observed that
Dewan Housing Finance Corporation Ltd (DHFL) had made a few phony credits represents
guarantee the Scheme's advantages.

CBI found that 14,046 crores of money were taken out under this Scheme. CBI also routed the
source and found that about 11,000 crores were issued to several fictitious firms under Bandra
book firms.

It was also found that Dewan Housing Finance Corporation Ltd (DHFL) claimed 1,887 crores as
interest subsidy under this Scheme.

A legal review by Grant Thornton uncovered that Dewan Housing Finance Corporation Ltd
(DHFL) had opened an imaginary branch in Bandra where it made phony records of
individuals who had as of now paid their home credits.

Final Judgment

As DHFL was confronting a few anomalies and furthermore cheats were distinguished in the
organization the RBI in 2019 alluded (DHFL), which has an obligation of ₹83,873 crores, to the
National Company Law Tribunal (NCLT) for bankruptcy procedures. This was done under
Section 227 of the IBC (advised on November 15, 2020), which says assuming the Reserve Bank
thought that it is vital it could tell a monetary foundation for bankruptcy. R. Subramaniakumar,
who was CEO of Indian Overseas Bank and ex-MD has been named as the chairman under
Section 45-IE (2) of the Act.7 On 22 November 2019 RBI set up a three-part council to help
Subramaniakumar to guarantee that the organization's resource quality doesn't deteriorate.

On 20 November 2019, In exercise of the powers given under Section 45-IE (I) of the Reserve
Bank of India Act, 1934, the Reserve Bank supplanted the Board of Directors of Dewan
Housing Finance Corporation Limited (DHFL) inferable from administration concerns and
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defaults by DHFL in gathering different installment commitments. Shri R. Subramaniakumar,

ex-MD and CEO of Indian Overseas Bank has been designated as the Administrator under
Section 45-IE (2) of the Act. The Reserve Bank additionally expects to commence the course of
the goal of the organization under the Insolvency and Bankruptcy (Insolvency and Liquidation
Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules,
2019 and would likewise apply to the NCLT for designating the Administrator as the Insolvency
Resolution Professional.

As per the courts, no final judgment is out yet and court proceedings are still going on.

Similar Scams

This is not the first scam that independent India has seen. We’ve witnessed a lot of similar frauds
in our history such as -the Satyam scam when the founder of the company misstated the
financials and inflated the profit margins to meet market expectations; the Punjab National
Bank case where the Modis and Choksis were involved in the issuance of fraudulent Letter of
Undertaking with the Punjab National bank and were accused of money laundering; the Sahara
Scam in which the company was caught raising funds in the wrong way which pointed out
towards the possibility of money laundering and hiding black money. Besides these, there
have been many such cases like the ILFS which involved overstating profits, round-tripping,
non-disclosure of important information, and the 2G Scam which took the entire nation by
surprise. All these scams point out the ineffective corporate governance in the top management
of companies which often lead to unaccountability, violation of ethics and law, and lack of
transparency which further encourages such frauds and scams.

The occurrence of these scams shows us the true importance of auditing and how it can really
save the company from fraudulent practices and the investor’s money. Proper and efficient
auditing can help in detecting frauds at early stages or even better stop them from happening in
the first place altogether.
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References

● Dewan housing finance Corporation. (n.d.). Venture Capital, Private Equity and M&A Database
| PitchBook. https://pitchbook.com/profiles/company/53907-31#overview

● DHFL scam and the entire rigmarole. (2021, July 2). International Journal of Law Management
& Humanities. https://www.ijlmh.com/paper/dhfl-scam-and-the-entire-rigmarole/

● Sarin, R. (2020, October 5). Grant Thornton’s report: Fake accounts, fraud borrowers used to
divert funds in DHFL, finds forensic audit. The Indian Express.
https://indianexpress.com/article/business/companies/fake-accounts-fraud-borrowers-used-to-
divert-funds-in-dhfl-finds-forensic-audit-6703103/

● What is the money laundering? (n.d.). Sanction Scanner: Anti-Money Laundering Solutions -
Sanction Scanner. https://sanctionscanner.com/knowledge-base/money-laundering-
122#:~:text=Money%20Laundering%20is%20to%20ensure,activity%20into%20a%20legitimate
%20income

● 9 major corporate frauds in India. (2021, March 10). The Company Ninja.
https://thecompany.ninja/9-major-corporate-frauds-in-india/#Kingfisher_Airlines