A Financial Case Study Report

On

“Diwan housing Finance Limited”

Submitted By

Pratik Prakashrao Wankhede

MBA (II Semester)

Submitted to

Prof. Umesh Wagh

DEPARTMENT OF ADVANCE MANAGEMENT STUDIES

G.S. COLLEGE OF COMMERCE, WARDHA

2021-22
 Content

 SITUATION ANALYSIS

 PROBLEM STATEMENT

 OBSERVATIONS

 CONCLUSION

 SUGGESTIONS
SITUATION ANALYSIS OF DHFL

Dewan Housing Finance Corporation Ltd (DHFL) is a deposit-taking housing finance company,
headquartered in Mumbai with branches in major cities across India. DHFL was established to
enable access to affordable housing finance to the lower and middle-income groups in semi-
urban and rural parts of India. Transforming dreams to build a nation of proud homeowners. For
over three decades, DHFL has been providing easy access to affordable Housing Finance to
realise home-ownership aspirations of millions of Lower and Middle-income families in semi-
urban and rural India.

For over three decades, DHFL has been providing easy access to affordable Housing Finance to
realise home-ownership aspirations of millions of Lower and Middle-income families in semi-
urban and rural India. DHFL was established in 1984 with this goal, by a visionary leader Late
Shri Rajesh Kumar Wadhawan. He observed that most Indians were unable to buy their dream
home and committed himself to transforming the lives of Indian households by enabling access
to home ownership through the inception of DHFL.

Led by Chairman & Managing Director, Mr. Kapil Wadhawan, DHFL has strengthened its
position as one of India’s leading housing finance companies and has been benchmarked as a
model and a pioneer for expanding financial inclusion across India.

On Tuesday, January 29, 2019, Cobra-post, an investigative journalism company, held a press
conference to debut its coverage of a huge banking and finance scam in India. Titled “The
Anatomy of India’s Biggest Financial Scam,” the press conference held at the Press Club of
India was led by Cobra-post Editor Aniruddha Bahal, who discussed the findings of the
investigative report.

This case study focuses on recent issues at a company. Dhawan Housing Finance Corporation
Limited DHFL is a non-banking financial service provider and can be classified as a shadow
bank. DHFL recently faced issues regarding alleged frauds and allegations regarding money
laundering. DHFL is a well-known financial service provider in India and is among the biggest
in the sector it operates in. The case study is focusing on the background of the company,
timeline of frauds within the company, effectiveness of internal controls, external auditors,
effects of such frauds on the economy of the country, stakeholders' risk with such frauds, the
impact of corruption, corporate governance and how to fix such issues.

DHFL is a non-banking financial company. This means that all banks are supposed to lend a
certain portion of their funds to companies like DHFL. This is the reason that money deposited
by small depositors in bank accounts of State Bank of India, Bank of Baroda, etc. ends up in the
hands of NBFC’s like DHFL. As per recent data, the Indian banking sector had invested at least
$3 billion in DHFL. Along with this amount, DHFL has also borrowed heavily by issuing bonds
and other debt instruments. These instruments are also largely held by the retail investor.
PROBLEM STATEMENT

The Allegations against DHFL

1. Loans to Shell Companies

Loans to Shell Companies: Cobra post has alleged that DHFL has made dubious loans to shell
companies. Shell companies means that they are not the final destination of the money. Instead

they are just a stop on the complex route which is generally created to confuse tax and other

regulatory authorities. Cobra-post claims to have identified 34 such corporations. These

corporations have indirect links to the promoters of the DHFL group, and reports indicate that DHFL

has lent out close to $1.5 billion in unsecured loans to these companies.

The problem is that DHFL has lent money to these companies without taking inadequate security. In

the Indian banking industry, loans given to companies are secured via taking assets as collateral.

Also, promoters are supposed to give personal guarantees to further ensure the safety of these

loans.

DHFL has not followed these processes. As a result, public money has been lent out to people

without collateral. Since there is no collateral, this money cannot be easily recovered Cobra-post has

alleged that a lot of loans given to shell companies have now become non-performing assets (NPA’s)

Round Tripping: Loaning public money without following the proper process is just a part of the
problem. The bigger problem is that the money which was loaned out has later flown back into

entities which were owned by the DHFL group. In financial parlance, this is known as round-tripping.

Hence, in effect, DHFL gave an unsecured loan to its promoters. The shell companies and other
transactions were just paraphernalia which was used to cover up these blatantly illegal transactions.

If Cobra-post is able to prove round-tripping, the problems of DHFL will be magnified. Without

round-tripping DHFL is just guilty of negligence. With round-tripping, DHFL has a hawala intent and

therefore becomes guilty of fraud.

Purchasing Assets: the money acquired by round tripping was used by DHFL in order to purchase
assets in other countries. It is a known fact that DHFL has invested money in start-up companies in

the United Kingdom. It is also known that DHFL has purchased a cricket team in the Sri Lankan

Premier League. It is alleged that the proceeds of these loans were used to make these transactions.

Cobra-post also alleges that other personal assets have also been created in countries like Mauritius

and Dubai by the owners of DHFL. Once again, this seems like a scam because all the assets have

been created in other jurisdictions. Hence the Indian government or the tax authority will not be

able to acquire the same.

from a consortium of 17 banks between 2010 and 2018. 

It said the company started defaulting in loan payments from 2019. 

The bank alleged that the promoters along with others siphoned off and misappropriated a

significant portion of the funds by falsifying the books of DHFL and dishonestly defaulted on

repayment of the legitimate dues of the said consortium banks. 

This caused a loss of Rs 34,615 crore to the 17 banks in the consortium. 

Earlier in 2019, Investigative platform Cobra-post alleged the primary promoters of DHFL and their

associate companies had committed a “systemic fraud” to siphon off public money.

Cobra-post alleged that the “scam” was committed by giving out funds in secured and unsecured

loans to “dubious” shell or pass-through entities, purportedly related to DHFL’s own primary

stakeholders through their proxies and associates. The funds, as alleged, were re-routed to the firms

allegedly controlled by them.

Responding to the charges, DHFL issued a statement saying: “This mischievous misadventure by

Cobra-post appears to have been done with a mala fide intent to cause damage to the goodwill and

reputation of DHFL and resulting in erosion in shareholder value. DHFL today (Tuesday) received an

email at 8.44 a.m., with a follow-up reminder one hour later, seeking answers to 64 questions from

Cobra-post, many of which were laced with political innuendos.”

Following this, the lender banks in February 2019 appointed KPMG to conduct a "special review

audit" of DHFL from April 1, 2015, to December 31, 2018.

KPMG found diversion of funds in the guise of loans and advances to related and interconnected

entities and individuals of DHFL and its directors. A forensic audit conducted by the KPMG observed

that “large amounts were disbursed as loans & advances by the borrower company to a number of

interconnected entities and individuals with commonalities to DHFL Promoter Entities, which were

used for the purchase of shares/debentures.”

disbursed Rs 29,100 crore against which Rs 29,849 crore remained outstanding. Another major

outstanding in DHFL accounts was Rs 11,909 crore due to loans and advances worth Rs 24,595 crore

given to 65 entities. DHFL and its promoters also disbursed Rs 14,000 crore as project finance but

showed the same as retail loans in their books.

The arbitrary loan advancement led to the creation of an inflated retail loans portfolio of 1,81,664

false and non-existent retail loans aggregating Rs 14,095 crore outstanding, UBI said.

The loans referred to as 'Bandra Books' were maintained in a separate database and subsequently

merged with other large project loans or OLPL.

The Central Bureau of Investigation unearthed on Wednesday said DHFL had over 1,81,660 ghost

retail loan accounts which had a liability of over Rs 14,000 crores.

These were kept in a 'separate database' called 'Bandra Books’.

“The aforesaid retail loans, referred to as ‘Bandra Books’, were maintained in a separate database in

Foxpro Software, against which loans were shown as disbursed by DHFL and were subsequently

merged with OLPL (Other Large Project Loans),” the bank has alleged.

The OLPL category loans were largely carved out of the non-existing retail loans amounting to Rs

14,000 crore, out of which Rs 11,000 crore was transferred to OLPL loans and Rs 3,018 crore was

retained under the retail portfolio as unsecured retail loans.

Billionaires like Nirav Modi, Mehul Choksi, Vijay Mallya, and Lalit Modi have all defrauded the banks

to the tune of thousands of crore.

Until now, ABG Shipyard loan fraud (Rs 20,000 crore) was considered to be the biggest banking fraud

case. In the biggest banking fraud till February this year, the ABG Shipyard Limited, a Gujarat-based

shipbuilding firm, defrauded a consortium of 28 banks including the State Bank of India (SBI), IDBI

Bank, and ICICI Bank for Rs 22,800 crores.

fraud for over Rs 14,000 crore, whereas the fraud by liquor baron Vijay Mallya accounted for for Rs

9,900 crore.

CONCLUSION:

Without round-tripping DHFL is just guilty of negligence. With round-tripping, DHFL has a malafide

intent and therefore becomes guilty of fraud. Purchasing Assets: Lastly, the money acquired by

round tripping was used by DHFL in order to purchase assets in other countries.

SUGGESTIONS:

I suggested to retail investor whenever you want to invest in a company do your own research or

analysis and specially focus on fundamentals and shares holding patterns of company because

whenever FDI, FPI & DII'S pulling out his fands from a company this is an indication of problems in

this company and also suggest every time average out method is not working.

keep investing, safe investing.

Thank You………….

Pratik Prakashrao Wankhede

MBA 2nd SEM

On

“Harshad Mehta Scam”

Submitted By

Pratik Prakashrao Wankhede

MBA (II Semester)

Submitted to

Prof. Umesh Wagh

DEPARTMENT OF ADVANCE MANAGEMENT STUDIES

G.S. COLLEGE OF COMMERCE, WARDHA

2021-22
 Content

 SITUATION ANALYSIS

 PROBLEM STATEMENT

 OBSERVATIONS

 CONCLUSION

 SUGGESTIONS
SITUATION ANALYSIS
Harshad Shantilal Mehta was born on 29 July 1954, at Paneli Moti, Rajkot district, in a Gujarati Jain

family. His early childhood was spent in Kandivali, Mumbai, where his father was a small- time

businessman. He completed his B.Com in 1976 from Lajpatrai college Mumbai and worked a

number of odd jobs for the next eight years.

After graduation, Mehta tried his hand at various jobs, often related to sales, including selling

hosiery, cement, and sorting diamonds. Mehta started his career as a sales person in the Mumbai

office of New India Assurance Company Limited (NIACL). During this time, he got interested in the

share market and after a few years, resigned and joined a brokerage firm. In the early 1980s, he

moved to a lower level clerical job at the brokerage firm B.Ambalal & Sons where he worked as a

jobber for the broker P.D. Shukla. Over a period of ten years, beginning 1980, he served in positions

of increasing responsibility at a series of brokerage firms. By 1990, he had risen to a position of

prominence in the Indian securities industry, with the media (including popular magazines such as

Business Today) touting him as "The Amitabh Bachchan of the Stock market". In 1984, Mehta was

able to become a member of the Bombay Stock Exchange as a broker and established his own firm

called Grow More Research and Asset Management, with the financial assistance of associates,

when the BSE auctioned a broker's card. He actively started to trade in 1986.

By early 1990, a number of eminent people began to invest in his firm, and utilize his services. It was

at this time that he began trading heavily in the shares of Associated Cement Company (ACC). The

price of shares in the cement company eventually rose from ₹200 to nearly ₹9,000 due to a massive

spate of buying from a set of brokers including Mehta. Mehta justified this excessive trading in ACC

shares by stating that the stock had been undervalued, and that the market had simply corrected

when it revalued the company at a price equivalent to the cost of building a similar enterprise; the

so-called "replacement cost theory" that he had put forward.

During this period, especially in 1990–1991, the media portrayed a heightened deified image of

Mehta, calling him "The Big Bull". He was covered in a cover page article of a number of publications

including the popular economic magazine Business Today, in an article titled "Raging Bull". His flashy

lifestyle of a sea facing 15,000 square feet penthouse in the tony area of Worli complete with a mini
golf course and swimming pool, and his fleet of cars including a Toyota Corolla, Lexus LS400, and

Toyota Sera were flashed in publications. These further exemplified his image at a time when these

were rarities even for the rich people of India.

In criminal indictments later brought by the authorities, it was alleged that Mehta and his associates

then undertook a much broader scheme, which resulted in manipulating the rise in the Bombay

Stock Exchange. The scheme was financed by supposedly collateralised bank receipts, which were in

fact uncollateralised. The bank receipts were used in short-term bank-to-bank lending, known as

"ready forward" transactions, which Mehta's firm brokered. By the second half of 1991 Mehta had

earned the nickname of the "Big Bull", because he was said to have started the bull run in the stock

market. Some of the people who worked in his firm included Ketan Parekh, who later would be

involved in his own replicate scam.

bank accounts as that amounted to siphoning monies from the banks and by such a

deposit Harshad committed a crime.

 The CBI registered a number of criminal cases against Harshad in respect of

completed transactions where large profits were earned by banks and PSUs even

when no FIRs were filed against him. The cases were registered by CBI on suo-motu

basis just to multiply cases against him. That out of 25 cases, 21 were registered suo-

moto by CBI. List os which is enclosed.

 On 23rd April 1992, Ms. Sucheta Dalal carried a front-page headline story in Times of

India that “Big Bull” being broker of SBI was asked to square up securities of Rs.500

Crores without naming Harshad but using his sobriquet because Chairman of SBI had

denied the truthfulness of her story. She alleged that it was a huge scam and since

then has taken credit for discovering it through her “Investigative Journalism”. Later

along with her husband Debashish Basu she wrote a book titled “The Scam Who Won,

Who Lost, Who Got Away” in which she has revealed her source and how she broke the

story despite denial of SBI. In this book which has been updated later even after 2000

she has made several crucial admissions. Ms. Sucheta Dalal also received Padma Shri

Award in 2006.

 That because of Shri Harshad Mehta, lot of investors lost money in the stock market.

 That Harshad Mehta had issued forged Bankers Receipts (BRs) to raise money to play

the market. Ms. Sucheta Dalal falsely alleged that blank bank documents (BRs) were

stacked in broker’s offices. There were also false allegations made that Harshad

secured BRs from Bank of Karad and Bombay Mercantile Co-operative Bank.

 That Harshad Mehta had used the loopholes in the banking system to divert monies

from banks for self-use.

 Harshad Mehta did not deliver the securities to the banks and caused losses to them

and thereby he committed several criminal offences.

along with his partners by taking advantage of loopholes in the banking system.

Mehta allegedly colluded with bank employees to get fake bank receipts (BRs) issued. He used these

BRs to get other banks to lend him money under the impression that they were lending against

government securities (G-Secs).

This amount was then put into the stock market to juice up share prices by up to a staggering 4,400

percent. Mehta then sold these shares at a significant profit and the principal amount was returned

to the banks.

In all, Mehta defrauded the banks of nearly Rs 4,000 crore. Later, when his mode of operation in the

stock market was discovered and exposed, banks realised that they were in possession of fake BRs

holding no

As a result, the BSE Sensex rose from 2,000-mark in January to 4,000-mark in March 1992.

As the markets continued touching new highs, people started looking up to him as the ‘Big Bull’ and

started buying the stocks that he invested in. Many retail investors ended up investing substantial

amounts in stocks.

After the scam came to light, the tax department conducted a raid on the Mehta on February 28,

1992. Several documents and share certificates were seized.

On June 4, 1992, the CBI carried out a search on the Mehta. Subsequently, the tax return filed by

Harshad Mehta for the assessment year 1992-93 was rejected. Mehta was imprisoned in 1992.

The Reserve Bank of India formed Janakiraman Committee in 1992 to provide a comprehensive

picture of the scam. A joint parliamentary committee (JPC) was also constituted in 1993 to probe the

irregularities in securities and banking transactions in the aftermath of the Haeshad Mehta scam.
Mehta was convicted by both the Bombay High Court and the Supreme Court and charged with 74

criminal offences. His legal battles dragged on until 2001, when he passed away in jail from a cardiac

arrest. He was 47.

The Harshad Mehta scam triggered many changes in India's financial regulatory system. The

Securities Laws (Amendments) Act was passed in 1995, widening Sebi's jurisdiction and allowing it to

regulate depositories, FIIs, venture capital funds and credit-rating agencies. To secure investor

interest, Sebi could also make it mandatory for companies issuing securities to make disclosures.

The Indian stock market has come a long way since the scam. Over the years, there have been other

stock market scams that have cleaned out investors and left regulatory bodies red-faced. But Mehta

was the one who started it all. The events that he scripted continue to serve as a reminder to both

investors and regulators to remain vigilant at all times.

CONCLUSION:
Harshad Mehta was a brave stock broker. He knew the loopholes in banking system as well as to how to
explicit the loopholes. His whole intension was to raise the SENSEX. Some of the regulatory actions SEBI
undertook came under scathing criticism from some quarters who accused it of still being clueless about
its supervisory duties. Observers said the regulator still continued believing that its only priority was to
prevent a fall in stock prices.

SUGGESTIONS:

I suggested to retail investor whenever you want to invest in a company do your own research and

analysis and specially focus on fundamentals not on technical analysis (charts, trends, volume, news,

tips, etc) because operators can manipulate the stocks with the help of those methods even, I said

one famous quote that is “do not focus on growth investment focus on values investing”.

keep investing, safe investing.

Thank You………….

Pratik Prakashrao Wankhede