DHFL – Reveal of India’s

Biggest Financial Scam

-CORPORATE
GOVERNANCE
Company Background Shareholding Pattern
Introduction
• Founded in 1984 by Mr. Rajesh Kumar Wadhawan, DHFL
was a prominent Non-Banking Financial Company (NBFC)
in India, specializing in housing finance solutions.
• Vital role in facilitating homeownership for individuals and
families nationwide.
• Ranked as India’s fourth-largest housing financier in 2018,
boasting a net worth of INR 8795 crore.

Reputation Major Shareholders

• Earned a commendable reputation for commitment to
providing affordable and accessible housing finance
options.
• Key player in the Indian mortgage market, offering a
diverse range of loan products.
• Mr. Kapil Wadhawan (Chairman and MD)
• Other Members Of Wadhawan Family
• Hemisphere Infrastructure Private Limited
• Galaxy Infrastructure Private Limited
• Silicon First Realtors Private Limited
How was the Scam Exposed?
FINANCIAL IRREGULARITIES
• From 2010 to 2018, DHFL promoters engaged in
aggressive borrowing, accumulating a staggering
INR 42,871 crore.
• When asked to repay the loans, promoters cited a
high volume of Non-Performing Assets (NPAs)
within the company.

COBRAPOST REVELATION THE TURNING POINT

• Allegations surfaced by a relatively unknown
media company, ‘’Cobra Post’’, that INR 31,000
crore of DHFL's funds were being misused by
promoters for personal wealth enhancement.
• Cobra post further exposed the company's
involvement in prohibited political donations under
the Company’s Act 2013.
• June 6, 2019: DHFL made its first-ever default,
failing to pay INR 960 crore in interest to
mutual funds and INR 1150 crore to
bondholders and investors.
• This default triggered a substantial decline of
about 97% in its stock price, causing
shockwaves in the financial markets

Start of the Investiagation
Trigger: Suggestions by Cobra post
Regulatory Response: Finance Ministry's
Directive
Auditors: Bank of Baroda, SBI, Union Bank;
KPMG appointed
Investigation
Corporate Governance Issues Loan Dispersal Irregularities Rebuilding Corporate Governance
Corporate Governance Breach: Allegations of Dispersed Loans: INR 19,000 crore to 40 Strengthening Controls: Improved oversight
fund diversion entities and due diligence
Lack of Transparency: Commonalities among Related Party Transactions: Entities connected Transparency Measures: Clear documentation
entities to DHFL promoters and disclosure
Regulatory Intervention: Finance Ministry's Minimal Operations: 25 entities with minimal Governance Reforms: Implementing changes
directive for audit business activities to prevent future irregularities
Transparency: Lack of clarity in fund utilization Red Flags: Shared addresses and email IDs
and loan disbursement
Accountability: Absence of proper
documentation and due diligence
Related Party Transactions: Interconnected
entities with commonalities
Oversight: Failure in ensuring proper valuation
for mortgaged assets
 Aftermath

Enforcement Directorate Raids Yes Bank's Entanglement Regulatory Aftermath and Reforms

ED raids DHFL promoters' residences and
offices, uncovering links to suspicious entities.
Allegations of loans to businesses connected with
criminal figures like Iqbal Memon and Chota Shakeel
surface.
Yes Bank emerges as another key player - having invested
heavily in DHFL bonds and extended loans.
Reciprocal loans between DHFL and Do It Urban
Ventures (linked to Yes Bank founder's family) raise
questions about interconnectedness.
Regulatory bodies impose fines, initiate legal
proceedings, and tighten norms for NBFCs.
Focus shifts towards strengthening oversight and
preventing similar scandals in the future.

November 2019 - Citing poor governance and loan
defaults, RBI takes the unprecedented step of removing
DHFL's entire board.
This marks a significant intervention by the
regulator, signaling the gravity of the situation.
March 2021 - CBI accuses DHFL of creating 2.6 lakh fake
borrowers under PMAY and diverting over INR 14,000
crore through shell companies.
This exposes a massive fraudulent scheme, raising
concerns about misuse of government housing initiatives.

RBI Steps In: Ousting the Board CBI Files Charges - Fake Loan Scheme
 Recent Developments

Take Over By Primal Penalty On Auditors Unrestricted Movement For

Capital and Housing
Corporation
The company acquired DHFL for INR
34,250 crore and delisted all the shares
of DHFL, wiping out all shareholder
wealth
National Financial Reporting Authority
(NFRA) held 4 CA’s who were working
for K Varghese and Co. guilty barred
them from practicing for a year and
levied a penalty of INR 1 Lakh each
Promoters
The brothers were booked under the
Prevention Of Money Laundering Act
by the CBI. Still, they were given bail
and now have unrestricted movement
wherein they can meet with their
families and business partners and use
mobile phones and laptops.
Role Of Various Agencies In This Fraud
1. Rating Agencies
• At the time of fraud, all the leading rating agencies regulated by SEBI assigned an AAA
rating to DHFL’s creditworthiness.
• This case raised questions on the credibility of these ratings, which had failed miserably to
identify their irregularities

2. Auditors
• The company had been taking loans and using them for their benefit since 2012, and the
auditors did not find any deviation from the statutes of law.
• The irregularities that seem to have been overlooked by auditors with surprising
consistency

3. Regulators
• Both RBI and SEBI had consistently overlooked the warning signs despite warning signs
and the recent failure of IL&FS
• The Ministry of Finance instead made the liquidity window for NBFCs easier and paved
the way for more scams such as this to emerge
Thank you!
References
• https://www.cobrapost.com/blog/biggest-financial-scam/1373

• https://business.outlookindia.com/news/nfra-has-retrospective-jurisdiction-over-offen
ces-by-delinquent-chartered-accountants-nclat#

• https://www.thehindu.com/news/national/dhfl-case-cbi-arrests-mumbai-based-busines
sman/article65636610.ece

• https://economictimes.indiatimes.com/industry/banking/finance/piramal-completes-ac
quisition-of-dhfl-for-rs-34250-crore-biggest-resolution-in-value-terms/articleshow/86
606213.cms

• https://www.fisdom.com/indias-biggest-banking-fraud-dhfl/

• https://www.managementstudyguide.com/what-is-the-dhfl-scam.htm

• https://indianexpress.com/article/cities/delhi/dhfl-loan-fraud-case-delhi-high-court-cbi
-bail-wadhawan-brothers-8638017/

• https://www.businesstoday.in/latest/corporate/story/kpmgs-special-audit-of-dhfl-red-fl
ags-fund-misuse-235909-2019-10-24