Press "Enter" to skip to content

DHFL fraud allegations: What happens to the over 1 lakh people who invested in FDs

Fraud
Vinay Kumar Mittal, an investor based in Delhi, is now contacting FD holders across the country and mobilising a group to be able to fight for their money.
Representative image
Mumbai-based Mithun Roy’s sister has been diagnosed with a rare Desmoid tumour in her abdomen, and requires immediate surgery. Mithun, his wife and mother – who suffers from a cardiac ailment – invested the family’s lifetime savings with Dewan Housing Finance Limited (DHFL) through three Fixed Deposits (FDs). Mithun has been trying to release their FD’s since August to get his sister operated and fund his mother’s treatment but to no avail.
Currently, DHFL is plagued by allegations of fraud and fund diversion, due to which nearly a lakh depositors, who are mostly senior citizens, stand to lose their savings. “We have been surviving on savings for regular medical expenses, and that has been exhausted in the last six months. We don’t have any savings left and are struggling to survive. We have been borrowing from friends and relatives. We deposited our entire family’s lifetime savings in good faith with DHFL due to their credentials, and today we are on the verge of extreme suffering as we can’t access our funds, which has been blocked by the lender’s consortium,” Mithun said.
Seventy-six-year-old S Kumar, a retired state government employee from Tamil Nadu, invested his entire retirement money and his life’s savings as FD in the names of his and his family members. When news of fraud at DHFL started doing the rounds, he decided to cash his FDs out. But Kumar claims that DHFL refused to return his money. With DHFL mired in allegations, these depositors have no clarity on the fate of their life’s savings.
What is happening with DHFL?
DHFL is a non-banking financial company, primarily involved in providing home loans. Signs of trouble brewing at DHFL began to show towards the end of 2018 when the Infrastructure Leasing & Financial Services (IL&FS) crisis came to light, which caused a major crunch in new investments coming into the NBFC sector. Rumours of a liquidity crisis at the company began doing the rounds, but DHFL denied the same at the time.
One of DHFL’s promoters is Wadhawan Global Capital Ltd, which holds 37.3% of shares in the company. Apart from this, Aruna Rajeshkumar Wadhawan holds 0.76%, Dheeraj Rajeshkumar Wadhawan holds 0.57% and Kapilkumar Wadhawan holds 0.57%.
The lid was blown off when CobraPost published a report in January 2019 with allegations of siphoning of funds and fraud at DHFL. Cobrapost claimed that it had unearthed a financial scam to the tune of over Rs 31,000 crore, where DHFL was siphoning off funds by sanctioning loans to shell companies related to the promoters of the company. Following this, the Finance Ministry asked lenders of DHFL to initiate a forensic audit into the company in February.
However, the real trouble began in June 2019 when DHFL delayed interest rate payments. It then faced downgrades from rating agencies. Around the same time, bankers led by Union Bank of India commissioned a forensic audit of DHFL’s books, which was done by KPMG.
In July, DHFL reported a net loss of Rs 2,223 crore in Q4FY19, as against a profit of Rs 134 crore in the same period last year.
As on July 6, DHFL owes Rs 83,873 crore to banks, the National Housing Board, mutual funds and all bondholders.
In a bid to recover their dues, Reliance Nippon AMC approached the Bombay High Court, which passed an interim order in September restraining the company from making payments or disbursements to any secured or unsecured creditors until further notice. Fixed Deposits fall under the unsecured category. Other mutual fund companies also approached the High Court. 
To make matters worse, DHFL came under the scanner of the Enforcement Directorate in October for giving loans to a real estate company called Sunblink Real Estate private limited. DHFL came on ED’s radar when the latter was investigating allegations of money laundering against gangster Iqbal Memon alias Iqbal Mirchi, known to be a close aide of gangster Dawood Ibrahim. The ED’s investigation revealed that DHFL gave a loan of Rs 2,186 to Sunblink and the same money was allegedly then siphoned to Dubai on Mirchi’s instructions.
Every DHFL creditor’s fears came true when findings of KPMG’s audit report came to light.
KPMG’s audit findings, first reported by Mint, revealed that the DHFL had raised around Rs 27,000 crore worth of loans from banks to then lend to homebuyers. The audit report revealed that DHFL had lent a total of Rs 14,000 crore to 25 of its group companies that had an average Profit After Tax (PAT) of around Rs 1 lakh. This raised suspicion that DHFL may indeed be siphoning off funds.
And of the Rs 27,000 crore raised, DHFL invested roughly Rs 10,000 crore in mutual funds, which is not what it had raised the amount for.
Current status
After they defaulted on their payments in June, DHFL proposed a debt resolution plan in July where lenders could take a 51% stake in DHFL by converting part of its debt into equity. DHFL has also been trying hard to monetise its assets and has been in talks with some private equity players. However, the latest revelations of fraud and fund diversion at the company could come at a major setback, and the company may find it difficult to find buyers for its assets.
Moreover, it was recently reported that the union government may ask the Serious Fraud Investigation Office (SFIO) to probe into irregularities at DHFL. If the SFIO starts an investigation, all repayments are likely to be frozen, a Mint report states.
What will happen to FD holders?
Of the Rs 83,873 crore that DHFL owes to all creditors, FD holders are owed around Rs 6,000 crore. With the company halting disbursements after the Bombay HC’s interim order, over one lakh FD holders have been left in the lurch.
“Mutual fund companies have been able to approach the Bombay High Court, but us FD holders are scattered across the country. Us filing individual complaints will not hold enough weight. That is the feedback we have been receiving from lawyers,” said Delhi-based Vinay Kumar Mittal, who is now contacting FD holders across the country and mobilising a group to be able to fight for their money.
Vinay Kumar Mittal, a retired government professional who has been investing in DHFL for the past 11 years, said that his financial advisor assured him of good returns, given DHFL was a AAA-rated company. AAA ratings are given to a company that has a high level of creditworthiness with the strongest capacity to repay investors.
“My wife and I, both retired, have been investing for the past 11 years. I get a pension from the government, but my wife doesn’t. To supplement our earnings, we invested a significant amount of our retirement benefits in DHFL. While we had been receiving our interest payouts, the company suddenly went bust over the past two months and we have neither received our interest payments, not the maturity amount,” he said.
Vinay Kumar stated that he wrote to the Prime Minister’s office, the Finance Ministry and the National Housing Bank (the regulator for housing finance companies) but received no response.
S Kumar too filed a complaint with the Consumer Education and Protection Cell (CPEC) of the Reserve Bank of India (RBI) on September 6 but received no response. He even forwarded the same to NHB on September 22, but to no avail. This came after multiple attempts to contact DHFL, which refused to return his money.
Vinay Kumar, Mithun and several other FD holders, have since formed a WhatsApp group to mobilise support from across the country to be able to approach the Supreme Court with a complaint that has a pan-India character.
According to Vinay Kumar, the WhatsApp group has members from across the country, and a member from Uganda as well.
They said that any attempt to contact DHFL regarding their repayment is met with the same response: “We would like to inform you that as per the order dated 30/09/2019 passed by the Hon’ble High Court of Judicature, Bombay in Suit No.1034 of 2019, DHFL has been restrained from making all the payments/pay-outs of Fixed Deposit without permission of Hon’ble High Court. Please note that we will process your successfully scrutinized request as soon as the injunction order is vacated.”
The FD holders now say that before approaching the Supreme Court, they are waiting for the Bombay High Court hearing on November 11 for clarity.
However, an SFIO probe casts further doubt on the fate of their hard-earned life savings.
“Banks are failing, as seen with PMC Bank, so we are scared to keep our money there. Clearly, AAA-rated companies are not as safe, as seen with IL&FS and DHFL crisis. The only option available then is to keep our money safe at home, but what if demonetisation happens again?  Where can one safely park their funds? It doesn’t seem to be safe anywhere,” Vinay Kumar lamented.
Meanwhile, DHFL has responded by saying, “The funds collected by the Company in its capacity as the collection / servicing agent are with the Company, however, in light of the interim order granted by the High Court of Bombay in the case of Reliance Nippon Life Insurance Limited vis DHFL (“High Court Order”), the Company has been unable to remit the funds collected to the assignee / buyer of the securitized / assigned pool resulting in a non-payment on the due date. The High Court Order restrains the Company from making any payments except day to day operational expenses and accordingly, in compliance with the order, these payments have not been made by the Company.” 
Body 2: 

Source: TheNewsMinute.com