The Securities and Exchange Board of India (SEBI) has imposed a five-year ban on Kapil Wadhawan and Dheeraj Wadhawan, former promoters of Dewan Housing Finance Corporation Ltd (DHFL), barring them from accessing the capital markets.
The two have also been prohibited from holding key managerial positions in any listed company for the duration of the ban. Alongside, Rakesh Wadhawan and Sarang Wadhawan have been banned for four years each, while former CEO Harshil Mehta and CFO Santosh Sharma have been banned for three years each.
Heavy Penalties Imposed
SEBI has levied a total penalty of ₹120 crore on all the accused, with Kapil and Dheeraj Wadhawan fined ₹27 crore each, the highest among them. The action comes after SEBI’s investigation into the massive DHFL fund diversion scandal, often described as one of the largest financial scams in India’s housing finance sector.
The Bandra Book Entities (BBE) Scam
At the heart of the case lies a fraudulent scheme involving 87 shell-like companies referred to as “Bandra Book Entities” (BBE).
- SEBI alleged that 39 of these entities received ₹5,662.44 crore in loans from DHFL, of which about ₹2,265 crore (40%) was siphoned off to 48 companies linked to the Wadhawan promoters.
- By March 2019, the total outstanding loans to BBE stood at ₹14,040 crore, an alarming exposure hidden from regulators and investors.
- These loans were extended to related parties with weak financial profiles but deliberately misrepresented in financial statements as retail housing loans.
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SEBI Exposes the Accounting Trick
According to SEBI, DHFL’s promoters and senior executives engaged in a systematic cover-up:
- Fake virtual “Bandra Branch” accounts were created to route the loans.
- Retail loan accounts were closed and repurposed to disguise these large, unsecured loans.
- At least three different accounting software systems were used to mask the true nature of transactions.
- Fictitious interest income was booked to present an image of profitability.
SEBI revealed that if DHFL had reported its finances honestly, the company would have shown losses every year from 2007-08 to 2015-16 instead of the profits it declared.
Market Impact and Investor Deception
The fraudulent scheme misled shareholders, bondholders, and regulators for years. Investors were deceived into believing the company was performing strongly, artificially propping up DHFL’s share prices and market reputation.
SEBI member Anant Narayan noted that the concealed BBE loans delayed regulatory intervention and ultimately posed a threat to market stability.
Next Steps: Recovery of Illegal Gains
SEBI has said it will now determine the extent of illegal gains made by the accused through this fraudulent arrangement and may impose further disgorgement or penalties. The watchdog emphasized that the case is a reminder of how systemic fraud in financial institutions can erode market trust and put retail investors at risk.
Broader Implications
The DHFL scam, one of India’s biggest non-banking finance company (NBFC) frauds, has already triggered investigations by multiple agencies, including the Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI). SEBI’s latest action marks another step toward accountability, though questions remain about how such large-scale fraud escaped early detection.
