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ED Finds DHFL Misappropriated Funds Worth Rs 25,000 Crore

DHFL is the first NBFC to be admitted to the National Company Law Tribunal under the Insolvency and Bankruptcy Code for resolution under the newly introduced Section 227.
ED Finds DHFL Misappropriated Funds Worth Rs 25,000 Crore

Image Courtesy: Business Standard

As the Dewan Housing Finance Limited (DHFL) is undergoing insolvency monitored by the Reserve Bank of India, an ongoing enforcement directorate (ED) probe has unearthed the scandalous affairs of the scam-hit non banking financial company.

It has been reported that ED’s probe pointed out misappropriation of funds to the tune of Rs 25,000 crore by the promoters of DHFL in the alleged financial fraud. Meanwhile, several forensic audits of the books of the shadow banking company have revealed details of illegal transactions.

Earlier, ED had suspected that DHFL has diverted thousands of crores of loans to “shadowy’’ companies allegedly associated with its promoters Kapil Wadhawan and Dheeraj Wadhawan between 2010 and 2015. This was substantiated by a forensic audit by KPMG that revealed that DHFL had disbursed loans and advances amounting to Rs 24,594 crore to 65 companies with minimal transactions and associated with the promoters.

Additionally, ED probe found that the company used over 100,000 bogus retail customer accounts to siphon off Rs 12,000 crore from the company. The Serious Fraud Investigation Office is separately probing the financial irregularities of DHFL.

Another forensic audit by Grant Thronton pointed out instances of “avoidance transactions” that looked at the company’s project finance portfolio. Preferential transactions, undervalued transactions, extortionate transactions and fraudulent trading are collectively termed avoidance transactions.

DHFL began defaulting on loans in mid 2019 that prompted the RBI to supercede the company’s board in November last year. The apex bank appointed R Subramaniakumar, the former managing director of Indian Overseas Bank, as the administrator of the stressed non-banking financial company who is supervising its resolution process. Moreover, DHFL is the first NBFC to be admitted to the National Company Law Tribunal under the Insolvency and Bankruptcy Code for resolution under the newly introduced Section 227.

According to reports, 24 local and foreign companies including KKR India Financial Services, Welspun Group, Adani Group, Oaktree Capital, ARCIL Asset Reconstruction Company and Bain Capitalhave recently submitted expressions of interest for acquiring DHFL.

However, the bidders are wary of the scandalous affairs in the books of DHFL.

The DHFL Committee of Creditors led by the State Bank of India have reportedly made claims of over Rs 86,892 crore against the company under IBC. Of this, over Rs 5,015 crore was towards 60,717 fixed deposit holders.

Surprisingly, DHFL reported a standalone profit of Rs 934 crore for the December quarter, thanks to the RBI supervision.

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