UNDER SECTIONS 11(1), 11(4) AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 AND REGULATION 11 OF THE SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES) REGULATIONS, 2003 AND THE SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015
1. Dewan Housing Finance Limited (“DHFL”), incorporated on April 11, 1984, has been carrying on the business of providing loans to retail customers for construction or purchase of residential property, loans against property, etc. The company is registered with National Housing Bank (NHB) under Section 29A of the National Housing Bank Act, 1987 bearing registration number 01.0014.01.
2. The equity shares of the Company are listed on BSE Limited and National Stock Exchange of India Limited. It is observed that the Company had also issued Non-Convertible Debentures (NCDs) through public issue as well as private placements, which are listed on the stock exchange(s). As on May 31, 2019, DHFL had more than Rs. 24000 crores worth of outstanding NCDs issued through public issue.
3. On January 29, 2019, Cobrapost, a media portal, published an article “Anatomy of India’s Biggest Financial Scam Pulled off by Dewan Housing”1. It was alleged in the article that the promoters of the Company-Mr Kapil Wadhawan and Mr Dheeraj Wadhawan, had siphoned off more than Rs. 31,000 crores of public money primarily through grants and advances to shell companies.
4. On the same day i.e. January 29, 2019, DHFL issued a press release2 raising concerns about the motivation of Cobrapost and stated that the allegations are baseless. Brief highlights of the press release were as follows:
(a) All loans were disbursed in the normal course of business in accordance with the industry best practices and in compliance of all regulatory norms.
(b) DHFL and its group companies are confident of meeting any scrutiny on any aspects of operations and will pursue these frivolous allegations to its logical conclusion.
(c) Despite liquidity concerns, DHFL as a responsible corporate, has met all its obligations to lenders and paid back in excess of Rs. 17,000 crores in the last three months.
(d) It has a strong corporate governance regime and has received AAA ratings from leading credit agencies. It is fully tax compliant and its books are audited by global auditors.
2 DHFL’s announcement on BSE and NSE on January 29, 2019
5. On November 20, 2019, Reserve Bank of India (“RBI”) vide its Order No. DOR NBFC(PD) 986/03.10.136/2019-20 issued under Section 45IE(1) of the Reserve Bank of India Act, 1934 (“RBI Act”) superseded the Board of Directors of DHFL and appointed Shri. R Subramaniakumar as the Administrator. Thereafter, on November 29, 2019, RBI filed an application to initiate corporate insolvency resolution process (“CIRP”) in respect of DHFL under Section 227 of the Insolvency and Bankruptcy Code, 2016 (“IBC”). On December 03, 2019, Hon’ble National Company Law Tribunal (“NCLT”), Mumbai Bench, passed an order admitting the application filed by RBI and confirming the appointment of Shri R Subramaniakumar as the administrator of the company to perform all the functions of a Resolution Professional(“RP”) in the CIRP of DHFL.
6. In terms of Section 25(2)(j) of the IBC, RP’s are required to file an application before NCLT for avoidance of transactions of the following nature:
(a) Preferential transactions under section 43;
(b) Undervalued transactions under section 45;
(c) Transactions defrauding creditors under section 49;
(d) Extortionate credit transactions under section 50; and
(e) Fraudulent transactions and wrongful trading under section 66 of the Code.
7. Vide disclosure made to Stock Exchanges on January 06, 2020 by DHFL, it was stated that in order to ascertain if DHFL had entered into the aforementioned transactions as mentioned in Para 6, Grant Thornton India LLP (“Transaction Auditor”) was appointed to assist the RP in conducting a transaction audit of the Company. The Transaction Auditor was also required to identify and review irregular borrower accounts from the angle of possible fraud and specifically review the underlying documents and security made available and its enforceability.
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