New Delhi: The CBI is probing what it believes could be India’s biggest bank fraud case to date, involving the alleged misappropriation of funds to the tune of Rs 34,615 crore by Dewan Housing Finance Limited (DHFL) in connivance with public servants and others.
In a fresh case filed Monday, the CBI accused Kapil and Dheeraj Wadhawan of DHFL, among others, of misappropriating a significant portion of a sum of approximately Rs 42,871 crore — allegedly sought from a consortium of 17 banks led by the Union Bank of India in the form of loans, advances, and subscription in non-convertible debentures.
Non-convertible debentures are a tool to raise long-term capital through public issue, while advances here refer to a credit facility given to a borrower, which the borrower may use to fulfil any short-term requirement.
These funds were allegedly diverted to DHFL entities as fraudulent loans “without due diligence, without obtaining securities, through falsification of book accounts”, according to the FIR, a copy of which has been accessed by ThePrint.
“DHFL deliberately and wilfully defaulted on the loans and advances availed from the consortium of banks, causing a wrongful loss of Rs 34,614.88 crore to the banks,” a CBI officer told ThePrint on condition of anonymity.
DHFL promoters, including the Wadhawan brothers, are also under investigation by both the CBI and the Enforcement Directorate (ED) in a case of alleged fraud involving Yes Bank. ThePrint reached their legal team by mail for a comment on the fresh investigation but was informed that the case has so far not been assigned to any counsel.
In the Yes Bank cases, the lawyers have said the brothers are cooperating with the agencies and have submitted all the documents required for the investigation.
In the current case, it is alleged that the DHFL promoters disbursed an amount of Rs 14,000 crore as “project finance”, but this sum was instead reflected in their books as “retail loans” to divert funds.
This led to the creation of an “inflated retail loans portfolio”, where over 1.8 lakh false and non-existent loans were created, according to the complaint on which the CBI FIR is based.
The records for these purported loans were kept in a database called the “Bandra Books”, it alleges, adding that they were “subsequently merged with OLPL loans (other large project loans)”.
Before this case, the biggest ever case of suspected bank fraud in India involved ABG Shipyard, in which a private firm has been accused of diverting funds to the tune of Rs 22,842 crore borrowed from banks.
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Complaint by Union Bank of India
According to the source in the CBI, a case was registered in this regard on the basis of a complaint dated 11 February 2022, filed by Vipin Kumar Shukla, Deputy General Manager with the Union Bank of India, against the Wadhawans and the director of Sahana Group, Sudhakar Shetty, along with the other accused.
“The offence committed here pertains to criminal conspiracy, cheating, criminal breach of trust, falsification of books and accounts and abuse of official position by public servants,” said the CBI officer.
According to the FIR, DHFL started defaulting on its debt payment obligations to the lenders from May 2019 onwards.
It was during a meeting of lenders on 1 February 2019 that a decision was taken to appoint committees to monitor DHFL’s cash flow, the FIR says. As a result, Alwarez & Marsal was appointed as the agency for “special monitoring”, it adds.
During the same meeting, the FIR says, the lenders appointed audit firm KPMG to conduct a special review audit of DHFL’s finances for the period from April 2015 to December 2018, to check for any diversion or siphoning of funds, or unethical practices. KPMG submitted its review report to the lenders in November 2019.
In February 2020, the FIR adds, the firm was re-engaged by the lenders to conduct an enhanced audit of DHFL’s finances, this time for the period from April 2015 to March 2019.
How audit ‘blew the lid off’
The CBI officer quoted above told ThePrint that a forensic audit by KPMG in January 2021 found that DHFL disbursed large amounts as loans and advances to as many as 66 “inter-connected entities”.
“Out of the 66, 35 such entities were disbursed loans and advances between 2015 and 2018. Out of these 35, 25 entities had minimal operations and were given loans,” the source said, adding that the other 31 connected entities were found later.
“In total, there were loans of Rs 29,100.33 crore,” said the CBI officer.
According to the FIR, loans and advance aggregating to Rs 24,595 crore were disbursed to 35 of these inter-connected entities from 2015-2018.
The source said “this is how the money was being diverted”.
“This money, disbursed as loans to entities that were connected with DHFL, was also used for purchase of shares and debentures. Most of the transactions of such entities and individuals were in the nature of investments in land and properties,” the source added.
According to the FIR, the audit also indicated “significant financial irregularities”, “diversion of funds through related parties”, “fabrication of books to show fraudulent non-existent retail loans”, “round-tripping of funds”, and “utilisation of diverted amounts for creation of assets by Kapil Wadhawan, Dheeraj Wadhawan and their associates”.
The CBI officer said “emails showing that Kapil Wadhawan was in control of multiple entities are also there”.
“It also shows that he appointed directors and auditors of these companies and handled secretarial records, managing overall finances of these companies,” the CBI officer added.
In its FIR, the probe agency said loans were “disbursed without adequate documentation, without valuation of mortgage securities” to borrowers with “minimal operations”, adding that funds were “diverted, utilised for investment in entities belonging to Sudhakar Shetty of Sahana Group in a number of instances”.
It added: “Funds were diverted for investments in NCDs (non-convertible debentures), preference shares of promoter group entities or in joint ventures. The ICD (inter-corporate deposit) loans were rolled over without classifying accounts as NPA (non-performing asset). Repayments towards interest, amounting to several hundred crore were not traceable in bank account statements in a number of instances.”
‘Bandra books’
It has also been alleged in the complaint filed with the CBI that DHFL and its promoters disbursed an amount of Rs 14,000 crore as “project finance” to their own entities, but the amount instead reflected as “retail loans in their books”.
“This led to creation of an inflated retail loans portfolio, whereby 1,81,664 false and non-existent retail loans aggregating to Rs 14,095 crore (outstanding as on 31 March 2019) were created,” according to the FIR.
“These retail loans, called ‘Bandra books’, were maintained in a separate database against which loans were shown as disbursed by DHFL and were subsequently merged with OLPL loans (other large project loans),” the FIR added.
Of the amount linked to ‘Bandra books’, Rs 11,000 crore was allegedly transferred to OLPL and the remaining Rs 3,018 crore was retained as part of the retail portfolio as “unsecured retail loans”.
“It is being investigated as to how large-value loans given as OLPL but reflected as small retail loans in Bandra books were not reported by the statutory auditors during audits. It is clear that no accountability was ascribed and thus, the role of public servants will also be probed,” said the CBI officer quoted above.
(Edited by Amrtansh Arora)
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Source: The Print
