Sebi bans Wadhawan brothers, four others; slaps ₹120-cr fine

Mumbai: The Securities and Exchange Board of India (Sebi) has barred Dewan Housing Finance Corporation Ltd's (DHFL) former chairman Kapil Wadhawan, his brother Dheeraj Wadhawan and four others from accessing the securities market for five years, and imposed a cumulative penalty of ₹120 crore on them for diverting company funds to entities linked to its promoters.

The regulator has also prohibited Kapil and Dheeraj Wadhawan from serving as directors or key managerial personnel in any listed company for five years.

Sebi's probe found that the Wadhawan brothers orchestrated a scheme to defraud investors dealing in DHFL's shares and debentures by siphoning off funds to 87 Bandra Book Entities (BBEs) connected to the company's promoters between FY07 and FY19, and misrepresenting these as home loans in DHFL's financial statements.


Rakesh Wadhawan and Sarang Wadhawan, who were directors at DHFL between April 1, 2006, and July 28, 2009, signed off on the company's financial statements during this period and were beneficiaries of some siphoned funds. Sebi said they failed to ensure the accounts complied with accounting standards and presented a true and fair view of the company's affairs.

Former DHFL chief executive Harshil Mehta and ex-chief financial officer Santosh Sharma aided and abetted the Wadhawan brothers in manipulating the company's financial results, the order said.

As per DHFL's books, net outstanding loans to BBEs stood at ₹14,040 crore as on March 31, 2019.

Sebi described the scheme as elaborate: first, extending large unsecured loans to BBEs tied to the promoters, despite them having no net worth, assets, business or cash flows to justify any loan exposure; second, bypassing all standard loan appraisal processes; third, disguising these inter-corporate loans to financially weak related parties as retail housing loans, misleading all stakeholders, including investors.

"The publication of such egregiously false and misleading financials over several years misled all stakeholders, including thousands of public shareholders. It compromised the integrity of share price discovery, inducing investors to buy or hold the stock under the false impression that all was well with DHFL," Sebi whole-time member Ananth Narayan said in his 181-page order.