Sebi Cracks Down on DHFL 'Bandra Branch' Fraud: Wadhawans, Ex-Top Executives Banned; Rs 120 Crore Penalty Imposed

Markets regulator Sebi has barred Dewan Housing Finance Corporation Ltd’s (DHFL) former chairman and managing director Kapil Wadhawan, ex-director Dheeraj Wadhawan, and four others from the securities markets for up to five years.

The regulator has also imposed a total penalty of Rs 120 crore on them for diverting company funds and fabricating financial records.

Apart from market bans, Sebi has restrained all six individuals from holding any key managerial position in a listed company for up to five years. Those penalised include former non-executive chairman Rakesh Wadhawan, ex-non-executive director Sarang Wadhawan, former joint managing director and CEO Harshil Mehta, and former CFO Santosh Sharma.

DHFL Case: What Is The Matter? 

In a 181-page order, Sebi said that since 2006, DHFL’s promoters, directors, and top executives engaged in an “egregiously fraudulent scheme” to divert funds to “Bandra Book Entities” (BBEs)—companies linked to the Wadhawan family. By March 31, 2019, DHFL’s loans to BBEs had reached Rs 14,040.50 crore.

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According to the order, DHFL issued huge unsecured loans to these entities despite their lack of assets or business, bypassed due diligence, and falsely recorded them as retail housing loans. “To effect this elaborate deception, a fake virtual branch (‘Bandra branch’) and previously closed retail loan accounts were employed, alongside three different accounting software,” Sebi noted.

The regulator found that despite BBEs not repaying interest or principal, DHFL booked fictitious interest income between FY 2007-08 and FY 2015-16, which falsely boosted profits and misled shareholders.

The investigation revealed that Rs 5,662.44 crore in loans was disbursed to 39 BBEs, and 40% of this amount was routed to 48 other entities connected to the promoters.

What SEBI Said?

Sebi concluded that Kapil and Dheeraj Wadhawan were the main orchestrators, while Rakesh and Sarang Wadhawan were also involved through their board roles. Mehta and Sharma facilitated the scheme in their executive capacities.

The penalties are as follows: Kapil and Dheeraj — Rs 27 crore each; Rakesh and Sarang — Rs 20.75 crore each; Mehta — Rs 11.75 crore; Sharma — Rs 12.75 crore. The bans range from three to five years, depending on the individual.

In September 2020, Sebi had already passed an interim order imposing restrictions, but this latest ruling finalises the penalties and market bans.