DHFL Promoters Accused Of Siphoning Off Rs 31,000 Cr Public Funds; Shell Companies Acted As Money Carrying Vehicles
Cobrapost, a non-profit journalism company, is back with another expose which they are claiming “India’s biggest financial scam’’. Cobrapost last year shed the spotlight on how big media houses were ready to sell Hindutva propaganda as “news’’. This year in a press conference held on January 29 in New Delhi, which 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, they exposed DHFL. DHFL has refuted the claims and filed complaint against the accuser.
According to the Cobrapost report published on January 29, 2019, the primary promoters of a Non-Banking Financial Company(NBFC) called Dewan Housing Financial Company (DHFL) siphoned more than Rs 31,000 crore of public money. The story states that the entire trading of funds took place under the blanket of loans and advances to shell companies. The story further alleged that this money was later re-routed through these dubious companies and was used to acquire assets outside of India.
Money used to buy foreign assets
The investigative portal alleged that the primary stakeholders of DHFL: Kapil Wadhawan, Dheeraj Wadhawan, and Aruna Wadhawan are all linked to the shell/dubious companies to whom DHFL has disbursed astronomical amounts of grants. They alleged that Wadhawans, with the help of their proxies and associates, had passed the money on to companies controlled by them. Cobrapost has allegedly said that this money was extensively used to buy shares/equity in other countries like the UK, Dubai, Mauritius, and Sri Lanka. Cobrapost editor Aniruddha Bahal alleged that Wadhawans also bought a cricket team in Sri Lanka with this money.
What are shell companies?
In recent years shell companies have become epidemic scourging the economy of the country. Shell companies are companies without active business operations or significant assets. One can set up these companies for both illegitimate and legitimate purposes. A businessperson can start a shell company to hide laundering of unaccounted money and to circumvent tax payment.
DHFL and primary promoters created numerous shell companies
Cobrapost in their report said that DHFL and its primary promoters created numerous shell companies with a nominal capital of Rs 1 lakh and further divided them into smaller groups of 2-4 companies. It further said that most of these companies have the same or alike address and the set of initial directors. These companies interestingly also have the same group of auditors to cover up the financial details of these companies.
Cobrapost claimed that around Rs 21,477 crore of DHFL’s funds were transferred into multiple shell companies as loans and investments without any declarations to the Ministry of Corporate Affairs.
According to DHFL’s audited financials for 2017-2018, the net worth of the company during the period was Rs 3,795 crore. However, the company has taken cumbersome loans from both Indian and foreign banks as well as financial institutions to the tune of Rs 96,880 crore. The company has secured loans from at least 36 banks in total. Of these banks, State Bank of India has sanctioned nearly Rs 12,000 crore.
Conversion of the public fund to private fund
The story said that DHFL had given unsecured loans amounting to Rs 10,493 crore to 34 shell companies within the interest of Wadhawan Group. Another 11 companies which fell under Shahana Group have been granted Rs 3,789 crore. Cobrapost alleged that these shell corporations are using loans to help the Wadhawan Group and Shahana Group to convert public funds into private money. The company also claimed that these 34 companies have no business or source of income. It also stated that nearly 35 companies had not filed any charge documents for loans on the MCA website which is mandatory compliance, to hide the name of the lender company. DHFL themselves hid the terms of the loan and terms of repayment in their financial statement.
DHFL refuted the allegations made by the Cobrapost and said that it is regulated by the National Housing Bank (NHB) and the Securities and Exchange Board of India (SEBI), among other regulators. It further said that Cobrapost’s main intention was to tarnish the goodwill and reputation of DHFL. It also noted that Cobrapost did not provide adequate time to respond to the allegations. Soon after the report by Cobrapost was made public, shares of DHFL took a plunge. On January 30, the company’s share fell by 9.73% and touched an intraday low of 153.50 even after management clarification.