SEBI Bars Former DHFL Promoters for 5 Years Over Alleged Fund Diversion

The Securities and Exchange Board of India (SEBI) has imposed a 5 -year ban on Kapil and Dheeraj Wadhawan, former promoters of Dewan Housing Finance Corporation Ltd (DHFL), prohibiting them from participating in the securities market due to their alleged involvement in a large-scale financial fraud.

In addition to the market ban, SEBI has also barred both Kapil and Dheeraj from holding any key managerial roles in listed companies.

The regulator's crackdown extended to other former executives as well:

• Rakesh Wadhawan (former Non-Executive Chairman) and Sarang Wadhawan (former Non-Executive Director) have been restrained for four years.
• Harshil Mehta (former CEO and Joint MD) and Santosh Sharma (former CFO) have each been debarred for three years.

A cumulative penalty of ₹120 crore has been levied on all 6 individuals, with the highest penalties of ₹27 crore each imposed on Kapil and Dheeraj Wadhawan.

DHFL Scam Background

SEBI’s investigation revealed that the Wadhawan-led management crated a fraudulent lending scheme, wherein DHFL disbursed loans to 87 entities collectively referred to as the ‘Bandra Book Entities’ (BBEs). These entities were either interlinked or had connections to the promoter group.

Out of ₹5,662.44 crore lent to 39 of these BBEs, nearly 40% was allegedly routed back into 48 companies related to the Wadhawan family—indicating a complex circular flow of funds to benefit insiders.

By March 2019, the total outstanding loan exposure to the BBEs had reached ₹14,040 crore.

Misrepresentation and Deception

According to SEBI, these loans were largely unsecured, given to entities with weak financials, and were falsely recorded as retail housing loans in DHFL’s books. The manipulation was further concealed using a fictitious "Bandra branch," previously closed retail accounts, and multiple accounting systems to mask the nature of these transactions.

“In the early years, more than 30% of DHFL’s entire loan book comprised these dubious BBE loans,” the regulator noted.

SEBI emphasised that the falsified classification delayed regulatory scrutiny and posed a serious threat to overall market stability. Ananth Narayan, SEBI's Whole-Time Member, remarked that the concealed nature of these loans significantly distorted the financial health portrayed by the company.

Also Read: SEBI Proposes to Reduce Retail Quota to 25% in IPO of Over ₹5,000 Crore

Future Action

SEBI has indicated that further proceedings may be initiated to determine the extent of unlawful gains derived from this fraudulent scheme. Additional enforcement measures could follow based on the findings.

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