NEW DELHI: In the ever crowded room of Press Club of India, Aniruddha Bahal, founder of the website CobraPost, on January 29 exposed what many term as the biggest financial scam in Indian history. Senior journalist Prem Shankar Jha, former finance minister Yashwant Sinha, and senior advocate Prashant Bhushan were also panelists at the conference.

According to Bahal, an investigation led by CobraPost has unearthed a scam by the primary promoters of the Dewan Housing Finance Corporation (DHFL), involving public sector banks, political parties and central regulatory agencies.

DHFL

The Dewan Housing Finance Corporation Ltd. is a deposit-taking non-banking finance company or NBFC, headquartered in Mumbai with branches spread across various major cities in India. Established to enable access to affordable housing finance to lower and middle income households in semi-urban and rural India, DHFL is headed by Kapil Wadhawan, its chairman and managing director.

The Shells of DHFL

CobraPost alleges that DHFL created various shell companies, most of them with a nominal fee of Rs.1 lakh, and disbursed many loans of astronomical amounts to these shell companies, without any collateral.

Many of these shell companies reportedly declared the same address and/or directors’ names.

The proceeds were used to create private assets in India and abroad. “Offshore assets lie in countries such as the United Kingdom, Sri Lanka, Dubai and Mauritius. One of the most notable proceeds was the purchase of Wayamba, a Sri Lankan Premier League cricket team,” Bahal said.

The Loans of the Shells of DHFL

According to Bahal, DHFL funded the Bharatiya Janta Party to the tune of crores of rupees. DHFL also interfered in the state elections in Gujarat and Karnataka by selectively disbursing several well-timed loans:

“Some of the loans disbursed to Gujarat based companies under various schemes and projects, all of which are on hold or suspended, came very close to the Gujarat elections. Similarly, DHFL disbursed large sums of loans, totalling around Rs.1320 crore, to various companies in Karnataka under schemes and projects before the state election there.”

The Banks for the Loans of the Shells of DHFL

The scam involved 32 other banks and NBFCs, according to CobraPost, most notably the State Bank of India, Punjab National Bank, the Bank of Baroda and Syndicate Bank among others.

“Thus the only losers in the whole process would be the various public sector banks, such as SBI and Bank of Baroda, with an exposure over Rs.11,000 crores and Rs.4,000 crores respectively,” said Bahal.

In the process, according to CobraPost, DHFL violated several civil and criminal laws under the Indian Penal Code, and illegally evaded regulations laid down by the Reserve Bank of India, the Securities and Exchange Board of India, the Income Tax Act and the Companies Act, 2013.

The Regulators of the Banks for the Loans of the Shells of DHFL

“Surprisingly, all these violations took place under the nose of the RBI, SEBI and the Union Ministry of Finance. The scam exposes the fragile electoral system in the country. It is totally corrupted,” said Prem Shankhar Jha.

Jha added that the scam raises a huge question mark over the inefficient corporate government of NBFCs as a whole, and also shows the spinelessness of public bodies have shown in effecting the scam.

Yashwant Sinha said the scam shows how “the whole payment system has collapsed, which is why the government is pressurising the RBI to lend more money to these NBFCs. Clearly, this is not about one company but about the whole payment system.”

How does DHFL respond to these allegations?

DHFL share prices fell in early trading today. The company soon released an official statement saying it is a publicly listed housing finance company regulated by the National Housing Bank and SEBI among others.

“The mischievous misadventure by CobraPost appears to have been done with a mala fide intent to cause damage to the goodwill and reputation of DHFL and has resulted in the erosion in shareholder value,” the statement read.

According to DHFL, the investigative website’s “entire approach raises serious concerns about the motivation of this so-called expose. They have to give DHFL an opportunity to explain the facts that are in any case, available in the public domain.”

The statement adds that “DHFL is a responsible and law abiding corporate citizen and all loans have been disbursed in the normal course of business in accordance with the regulatory norms.”

The Democracy that We Built

Conspicuously well timed, the CobraPost revelation could have more than just electoral ramifications, and it will certainly be interesting to see how the BJP-led government counters these allegations.

As Jha asked at the press conference, “What kind of democracy have we created?”

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SAHIL PHILIP