Team Cobrapost |
March 8, 2019

But more than exonerating the Wadhawans, the auditors implicate them for failures on many counts

New Delhi: In an apparent bid to wriggle out of the bind they find themselves in after the Cobrapost exposed the massive financial scam, the DHFL promoters hired an independent auditor and promptly submit to the Securities and Exchange Board of India (SEBI) an executive summary of the report filed by the auditors T.P. Ostwal & Associates LLP. Although an exercise in self-exoneration, the report leaves much more to be desired. A closer look at the report, which was submitted to the SEBI by DHFL Chairman and Managing Director Kapil Wadhawan on March 5, 2019, makes it clear that the audit carried out by T.P. Ostwal & Associates has left more questions than answered.

As the title “Executive Summary of Report on the Examination of the Allegations by Cobrapost Against Dewan Housing Finance Corporation Limited dated 5th March 2019” suggests, the purpose of the audit is to find faults with what Cobrapost exposed and not produce a document which could answer all the questions the expose had raised. For one, the scope of the audit, to quote the report, was “examination in respect of transaction relating to the Company only” (Annexure 1 Audit Report). The ambit of the audit was thus limited to DHFL only and does not include examination of other companies associated with the Wadhawans or shell companies which were used to siphon off the funds from DHFL. There is no attempt on part of the auditing company to source information from the Ministry of Company Affairs, the Registrar of Companies (RoC), the SEBI, the Income Tax Department or other bodies which could enlighten its report.

Second, the auditors have restricted their analysis to DHFL records and not the companies promoted by Wadhawans. Third, in a typical example of being all dressed up and nowhere to go, the report is at odds with the audited annual reports filed by DHFL with the Ministry of Company Affairs (MCA). To recall, Cobrapost had exposed the scam after analyzing these reports and information available in public domain only ( If the auditor’s report is to be believed, then the audited annual reports filed with the MCA are false and incorrect.

Adopting a selective approach, in a classical case of window shopping, the auditors “examined the transactions of DHFL with 26 entities for loans aggregating to INR 11,522 Crs (INR 10,960 as per the Company records)”, to quote the report, thus leaving out all the entities that were identified in the expose.

Although the express objective of the report is to defend and absolve the Wadhawans of any wrongdoing, the exercise miserably fails in doing so, for the report points out certain failures on part of the company, which are all too glaring to be ignored. Para 8.3 of the report, for instance, says it all. Talking of company policies with regard to “pre sanction due diligence”, the report says, “Certain lapses and departures from the SOPs [Standard Operating Procedures] and policies have been identified. These lapses point to deficiency in the adherence with the policies in several instances – the risk of which needs to be examined by the Company.”

Para 8.4 points to another major failure, on part of the company, to monitor the end use of loan thus disbursed to borrowers. “Though the Company is required to monitor post disbursal end use of funds by the borrowers, our examination indicates the monitoring in respect of 15 borrowers (loans amounting to INR 7,485 crores) is significantly inadequate.” Reporting on yet another failure, Para 8.5 of the audit says, “The records do not indicate the Risk Management Committee undertook ongoing monitoring of compliance with exposure ceilings prescribed by the Regulator.” The observation suggests that the rule book was thrown to wind while sanctioning huge sums of loans and disbursing the money.

Cobrapost had revealed that DHFL had sanctioned and disbursed huge sums of monies in loans without filing any charge documents with the MCA in most of the cases. Under the Companies Act, 2013, a lending institution or bank is mandated to file charge documents against securities furnished, if any, by borrowing companies. The audit report validates what we had observed. Para 8.8 of the audit report is unambiguous in its observation of DHFL’s failure in this regard, as it says, “There are also adverse implications resulting into invalidity of the charges created on assets of 4 borrowers (loans amounting to INR 2000 crores) due to non-registration of such charges. Under the provisions of the Companies Act 2013, such delayed registration of charges is not possible.” The observation makes it clear that such a failure may make recovery of such loans impossible if the borrower company goes bankrupt.

Covering a period between April 1, 2015 and December 31, 2018, the audit report also claims to have found Wadhawans to have nothing to do with shell companies. Para 8.1 of the report states, “The Company has not promoted any of the alleged 26 shell companies that are borrowers. Further, it does not have any directors in common, including members from the Promoter group, with any of these alleged “shell” companies. Further, the Company or Promoters do not have nay shareholding in these entities, nor are these entities shareholders of the Company. Accordingly, there are no indications to confirm the allegations that the Company has created shell companies to divert funds.” Cobrapost had based its findings on annual reports filed by all such shell companies with RoC, whereas the auditors give us no idea as to how they reached such conclusion. It is interesting to note here that many such shell companies which were granted and disbursed astronomical sums in loans had no net worth at all and had no business income to report.     

Para 8.6 exonerates Wadhawans of influencing the loan sanction decision-making process, as it states, “The composition of the Finance Committee which sanctions loans that exceed INR 200 Crores consists of Mr. Kapil Wadhawan & Mr. Dheeraj Wadhawan (Promoter-directors) and one independent director. Therefore, the Promoter-directors can be said to have significant influence in the loan sanction process of loans exceeding INR 200 crores. In absence of any evidence to suggest influence, we believe that their decisions are within the framework of the provisions of the Companies Act, 2013 and National Housing Bank (“NHB”). It should be noted that the minutes of the Finance Committee’s meetings are placed before the Board in subsequent meeting, or taking on record.” It is surprising to note that the auditors have not produced any tangible details on how they arrived at this conclusion.

In Para 8.9, the auditors exonerate the Wadhawans of any wrongdoing with regard to Sahana Group while misreading Cobrapost investigation which reported the DHFL to have disbursed a sum of Rs. 14,282 to 45 entities, out of which 34 were shells which together were given unsecured loans amounting to Rs. 10,493 crore. Of this sum, Rs. 3,789 crore was handed out to 11 Sahana Group companies. Our findings were based on annual reports all these entities had filed with the RoC. The auditors have failed to provide details of their information for arriving at this conclusion while giving both DHFL and the Sahana Group a clean chit.

We reproduce here a section of our original story which shows how the promoters of DHFL siphoned off monies to certain shell entities.


 As the table given below shows, there are 45 companies which were used as vehicles to siphon off funds from DHFL. In all, these 45 companies were given loans in excess of Rs 14,282 crore. Out of these, 34 shell companies, which are all within the interest of Wadhawan Group, the chief promoter of DHFL, have been given unsecured loans amounting to Rs. 10,493 crore. Of these, 11 companies belong to Sahana Group, which have been given Rs. 3,789 Crore in loans.

Companies 1 to 34 in the consolidated table are so dubious that most of them have no business or income. More often than not, they are audited by the same accounting agencies, such as Thar and Co, helping them hide all fraudulent transactions. Many of these companies operate from the same addresses and are run by the same group of initial directors. A large number of them are newly incorporated with nominal capital of around Rs. 1 lakh. Yet, these companies were extended unsecured loans, in single tranches, without any security and/or collateral.

Many of these companies not only share the addresses but they also have the same email addresses. Of the 45 companies, 6 are using the same official email address, while four are using and three are using Ten others are using

Interestingly, nearly 35 shell companies have not filed any charge documents for loans on the MCA website, which is a mandatory requirement. This suggests the loans are unsecured.  Most of the companies have also ensured to hide the name of the lender company, DHFL. In turn, DHFL has also hidden the terms of loan and terms of repayment in its financial statement. Importantly, all the shell companies have zero or very negligible income from their business operations since their inception. Besides, more than a dozen companies have not filed balance sheets for FY 2017–18 in the RoC as of January 26, 2019.

Companies at numbers 35 to 45 belong to Sahana group. One of of directors these companies, Jitendra Jain, is being investigated by the Economic Offences Wing with respect to various projects for certain offences committed by him in his professional capacity and is currently in judicial custody. Another prominent shareholder of the group is former Shiv Sena MLA Dalvi Shivram Gopal. Most of the loans extended to Sahana have become NPA.

Also, after our story broke DHFL panicked and changed the registered address of four of the above companies a few days after our expose. This they did after the Ministry of Corporate Affairs (MCA) started an enquiry on the shell entities and media reports mentioned how there was no office in many of the addresses mentioned.

Contrary to what the audit report claims, Cobrapost had reported at least four shell companies owned by the Sahana Group. Cobrapost had reported that Azinova Constructions, Manpreet Developers, Tenacity Real Estate and Fulgent Real Estate have been disbursed Rs. 498.67 crore, Rs. 640.48 crore, Rs. 519.03 crore and Rs. 381.58 crore, respectively, by DHFL, which comes to a total of Rs. 2039.76 crore. All these companies, as per the RoC records, were housed, respectively, in shops no. 1, 3, 5 and 2 of Milansar SRA Housing Society. Interestingly, shop no. 1 simply does not exist. A day after the Cobrapost expose, some henchmen allegedly from Sahana Group forcibly tried to occupy these shops ( When their repeated attempts failed to yield desired results, all these companies changed their registered office to Shop No. FF19, HDIL Harmony Mall, Goregaon Link Road, Goregaon (West), Mumbai. These companies have also their common email IDs. Please see the table below.

In Para 8.11, the auditors also claim to have found no connection between lending by DHFL and assembly elections in Gujarat and Karnataka, whereas what Cobrapost had found was based on annual reports filed with the RoC by respective companies. The auditors have again failed to provide information on which they have based this conclusion. The next para gives the company a clean chit for their alleged indulgence in tax frauds and other statues, which is simply an eyewash.

Para 8.12 of the audit report is worth quoting verbatim as it corroborates what Cobrapost had reported, “The Company has sanctioned and disbursed loans aggregating to Rs. 2,000 crores to Notion Real Estate Private Limited, Earleen Real Estate Developers Private Limited, Prashul Real Estate Private Limited, Edweena Real Estate Private Limited as project loans for SRA development. Further, our examination of available financial statements of Darshan Developers indicates that the shareholding has indeed undergone a change during the period of our review and it is highly probable that certain amounts lent to the 4 companies may have been used to purchase shares of Darshan Developers aggregating to INR 1,424.16 crores from Kyata Advisors and other instruments worth INR 299.28 crores (total INR 1,723.44 crores).”

In all fairness, Cobrapost had sent the DHFL management a questionnaire covering all important findings of our investigation regarding the scam (Annexure 2, Questionnaire here). There were in all 64 specific questions pertaining to shell companies, amounts disbursed to them by DHFL, the role the Wadhawans played in the scam, the assets they bought overseas such a Sri Lankan cricket league team, the tax frauds and other violations committed by them. The Wadhawans did not bother to answer them and instead hired T.P. Ostwal & Associates LLP to find answers to those queries.

As our analysis shows, the audit report is not trustworthy and has miserably failed to answer all our questions.


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