Independent Auditor Says Money Lent By DHFL May Have Found Its Way To Promoter Entities

Dewan Housing Finance Corporation Ltd.'s independent audit firm T. P. Ostwal & Associates said the money disbursed for the purpose of slum rehabilitation projects may have found its way to promoter entity—Kyta Advisors Pvt. Ltd., previously known as Wadhawan Realtors Pvt. Ltd.

“Our examination of available financial statements of Darshan Developers indicates that the shareholding has indeed undergone a change during the period of our review,” the chartered accountant firm said. “It is highly probable that certain amounts lent to the four companies may have been used to purchase shares of Darshan Developers aggregating to Rs 1,424.16 crore from Kyta Advisors and other instruments worth Rs 299.28 crore (total Rs 1,723.44 crore).”

In January, investigative portal Cobrapost had alleged a Rs 31,000-crore scam by the promoters of the non-banking finance company.

Kyta Advisors was wholly-owned by the promoters of DHFL—Kapil Wadhawan, Dheeraj Wadhawan and Aruna Wadhawan—till March 2015, according to its filings with the Ministry of Corporate Affairs which were reviewed by BloombergQuint. During 2014-2015, Kyta's ownership changed, with 23 investment companies acquiring 95.5 percent equity stake from Wadhawans. While 96-98 percent stake is mostly held between the 22 remaining companies, the Wadhawan family or its members own 2-4 percent each. All 23 entities have the same registered address, according to MCA filings.

The auditor, in its report, said it conducted an examination of all the relevant documents and records maintained by DHFL to ascertain the correctness of the allegations levelled against the housing finance company.

The audit only investigated 39 of the 64 allegations by Cobrapost and was confined to DHFL and its practices as per the scope of examination, the auditor said, adding that DHFL did not promote any of the shell companies as alleged by Cobrapost.

The auditor, however, said there have been some shortcomings in the due diligence process related to loan sanctions and monitoring of the funds used by the borrowers. It examined transactions with 26 entities aggregating to Rs 10,960 crore as per company records. The examination of 15 borrowers for loan amounting to Rs 7,485 crore was inadequate, the auditor said.

Key Highlights From The Auditor Report

• DHFL has not created the alleged 26 shell companies that are borrowers. The company does not have any directors in common with any of the alleged 26 shell companies.
• Did not find evidence of insider trading or concealing shareholder information.
• Company has policies in place to undertake pre-sanction due diligence but certain lapses have been identified.
• Monitoring of 15 borrowers worth Rs 7,485 crore is significantly inadequate.
• Certain instances of deviations and non-adherence to the terms of sanction of loans.
• See adverse implications resulting into invalidity of the charges created on assets of four borrowers due to non-registration of such charges.
• Do not find merit in allegations in respect to loans given to Sahana group and Wadhawan group.
• No nexus between loans sanctioned and timing of the elections.
• No evidence was found to corroborate or support allegations of tax fraud.
• Company has sanctioned and disbursed loans aggregating to Rs 2,000 crore to four real estate companies for slum rehabilitation. Highly probable that certain amounts lent to the four companies may have been used to purchase shares of Darshan Developers worth Rs 1,723 crore.