Cobrapost claims Rs 31,000-crore financial fraud, including illegal donations to the BJP

A group of real estate companies linked to Dewan Housing Finance Corporation Limited, or DHFCL, a Mumbai-based company, have been making conspicuously hefty donations to the Bharatiya Janata Party, a report published by the investigative-news website Cobrapost has alleged. The report alleges that companies associated with the DHFCL—such as RKW Developers, Skill Realtors and Darshana Developers—are “shell companies and dubious firms” engaged in financial fraud to the tune of Rs 31,000 crore. The Cobrapost investigation also claims that between 2014 and 2017, these three companies illegally donated around Rs 20 crore to the BJP. On 29 January, Cobrapost held a press conference in Delhi to share the findings of their latest report, titled, “The anatomy of India’s biggest scam.” The publication’s editor Aniruddha Bahal, the former BJP leader Yashwant Sinha, the journalists Josy Joseph and Paranjoy Guha Thakurta, and the advocate Prashant Bhushan spoke at the press meet.

The DHFCL is a publicly listed non-banking finance company owned by Wadhawan Global Capital, a conglomerate holding company that manages a portfolio of businesses, including asset management, lending, and housing finance. According to the Cobrapost report, the promoters of the DHFCL allegedly borrowed thousands of crore in loans from public and private sector banks to grant unsecured credit, in violation of financial regulations, to shell companies owned by the Wadhawan Group. The report claims that the DHFCL released over Rs 10,000 crore to companies controlled by the Wadhawan Group. In turn, the report alleges, these companies then used the money to acquire shares, equity and other private assets in India and other countries such as United Kingdom, United Arab Emirates, Sri Lanka and Mauritius.

The Cobrapost report alleged that a web of companies interlinked with the DHFCL and the Wadhawan Group are involved in the network of financial fraud. According to the Cobrapost report, the DHFCL raised funds by borrowing a sum of Rs 96,880 crore from public and private sector banks—including foreign banks—and financial institutions. This includes a loan of Rs 11,500 crore from the State Bank of India and another of Rs 5,000 crore from the Bank of Baroda. In addition, it also raised Rs 9,225 crore from public deposits—unsecured deposits that companies invite from the public to finance itself. Of the total amount of Rs 106,105 crore, Cobrapost reported that the company loaned out Rs 84,892 crore, or 80 percent—primarily to its own shell companies.

Further, the report claims, Placid Noronha and Bhagwat Sharma, two promoters of the DHFCL, are also listed as promoters of RKW Developers. The primary promoters of the DHFCL are Kapil Wadhawan, Aruna Wadhawan and Dheeraj Wadhawan—Noronha and Dheeraj also serve as directors of both RKW Developers and Darshan Developers.

The Cobrapost investigation also states that, according to BJP’s declarations to the Election Commission of India, RKW, Darshan, and Skill Realtors have donated a combined total of approximately Rs 20 crore to the BJP during the financial years 2014–17, which would be in violation of Section 182 of the Companies Act, 2013. Section 182 deals with prohibitions and restrictions on political contributions by companies, and states that a company can contribute only up to 7.5 percent of the average net profit it earned during the three preceding financial years. But the Cobrapost report shows that RKW Developers contributed Rs 10 crore to the BJP in the financial year 2014–15, despite incurring a loss of around Rs 25 lakh in the financial year 2012–13 and an average net profit of around Rs 18 lakh in the preceding three years.

Similarly, the Cobrapost report claims that Skill Realtors contributed Rs 2 crore to the BJP in 2014–15, despite recording a profit of only around Rs 27,000 that financial year, and an average of around Rs 4,500. Darshan Developers contributed Rs 7.5 crore in 2016–17—again, in violation of the Companies Act. The company had reported successive losses of Rs 5.13 lakh in the financial years 2013–14 and Rs 4,650 in 2014–15. Though it recorded a profit of around Rs 2.83 lakh in the financial year 2016–17, the Cobrapost report claims, its contributions clearly exceed the amount permitted under the Companies Act.

Section 182 also mandates that every company must “disclose in its profit and loss account any amount … contributed by it to any political party” and that it must state the “particulars of the total amount contributed and the name of the party.” The Cobrapost report alleged that none of the three companies disclosed their donations in their balance sheets. The Companies Act stipulates that a violation of Section 182 attracts a fine of up to five times the amount contributed, and that every officer of the company defaulting on the provision could face up to six months of imprisonment.

The DHFCL is registered with the National Housing Bank—a fully owned subsidiary of the Reserve Bank of India that regulates India’s housing finance companies—which primarily lends money to businesses engaged in slum rehabilitation, housing development and other real estate. The company was incorporated in 1984, and in the financial year 2017–18, it recorded a net worth of Rs 8,795. The Cobrapost report claims that the company has secured and disbursed loans over ten times this amount to companies owned or controlled by its own promoters.

The DHFCL and its primary promoters allegedly created a number of shell companies with authorised capital of Rs 1 lakh. The Cobrapost investigation examined 45 companies, which were given a sum of Rs 14,282 crore in loans. This included disbursed unsecured loans worth Rs 10,493 crore that the DHFCL allegedly disbursed to 34 shell companies linked with the Wadhawan Group. The other 11 companies are a part of the Sahana Group.

The Cobrapost report claims that these companies share the same official email IDs, have similar registered addresses as well as overlaps in the initial list of directors, and on many occasions, the same group of financial auditors. According to the report, the DHFCL then dispersed huge loans to these companies without the required security or collateral. Kapil and Dheeraj, the promoters of the DHFCL, are also members of the company’s finance committee, which is responsible for approving loans worth Rs 200 crore and above. It further claims that the two promoters used this privileged position to ensure that the DHFCL granted loans to their preferred companies.

This money was allegedly disbursed most often in a single tranche, in deviation from the norm of releasing loan amounts in installments against the progress of the relevant project. The Cobrapost report claims that several of these companies, in turn, used the loan to purchase shares of other companies owned by the promoters of the DHFCL. The report further claims that, according to documents accessed by Cobrapost, several companies also used the loaned amounts for the creation of private assets in India and abroad. Most of the shell companies allegedly hid the name of the lender—DHFCL—and the terms of the loan and repayment in their financial statements.

The Cobrapost report alleges that a part of this fraud was committed under the guise of funding to projects for slum-development programmes in Maharashtra. According to the report, the identified shell companies that procured loans for slum rehabilitation projects include Wamika Real Estate and Prithivi Residency, both of which allegedly received Rs 485 crore each; Kanitha Real Estate, which allegedly received Rs.475 crore; and Rip Developers, which allegedly received Rs.725 crore. But, the Cobrapost report states, none of these companies have projects mentioned in the official list of Slum Rehabilitation Authority of Maharashtra.

The Cobrapost investigation further claims that the DHFCL sanctioned loans worth Rs 1,160 crore to shell companies in Gujarat and Karnataka just before the states’ respective assembly elections. The report also claims that most of the projects have been put on hold or suspended and the loans are turning into NPA.

The report claims that through its dubious dealings, the DHFCL and the Wadhawan Group’s shell companies have violated SEBI regulations on disclosure requirements, risk-management guidelines, directions of the NHB, corporate governance norms and foreign-exchange regulations. If the DHFCL sinks from bad loans, the public and private banks who have lent money to it would be left in a difficult position, the report states, because the smaller shell company owners would neither have enough money or property to show as guarantee, nor any assets to freeze till debt recovery.