PMC Bank scam : DHFL, HDIL & Wadhawans update

Sindhi Colony, Mulund, Mumbai

The once-sprawling chawls of Mulund have largely made means for skyrises. This neighbourhood, nonetheless, residence to many Punjabi refugee households who got here to India within the wake of the bloody Partition of 1947, has remained a quaint middle-class settlement with a clutch of standalone homes. Almost everybody right here has an account with the native department of the Punjab and Maharashtra Cooperative Financial institution (PMC), which stands lower than a kilometer away.

On Thursday night, when all of Mumbai was nonetheless bedecked in Diwali lamps, basking within the cozy overhang of festivities, this colony felt like an island of distress. “Overlook celebrations, we haven’t lit a single diya,” says Bina Bhagtini, a 58-year-old retiree who lives along with her mom and two siblings. She needed to get an ulcer faraway from her abdomen. She needed to borrow Rs 1 lakh and lift one other Rs 50,000 from household for the process. She has Rs 20 lakh in deposits at PMC Financial institution, however is unable to entry it, because the banking regulator has restricted withdrawals from the fraud-hit financial institution.

A couple of homes from hers, mourners have lined up exterior the residence of Murlidhar Dhara, an 83-year-old PMC buyer whose household says they couldn’t increase cash for his coronary heart surgical procedure in time because of the restrictions. Dhara is survived by his spouse and kids. His heartbroken household is occupied with the rituals surrounding his loss of life. They aren’t hopeful they’ll ever see their cash.

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“What’s the purpose in becoming a member of these protests? Now we have already misplaced our beloved one and managing the every day bills will itself be an uphill job,” says his daughter, wearing a white salwar-kameez as she garlands her father’s image saved on the bottom within the centre of their lounge, the place guests have gathered to pay respects. Dhara’s is among the six deaths within the metropolis which have been attributed to PMC depositors’ incapacity to entry their life’s financial savings.

PMC Financial institution has 1.6 million such depositors. The Financial Offences Wing of the Mumbai Police says Rakesh Wadhawan and his son Sarang Wadhawan, aka Sunny Dewan, promoters of realty agency Housing Improvement and Infrastructure Ltd (HDIL), defrauded the financial institution to the tune of greater than Rs four,500 crore, in collusion with financial institution officers.

Worli, Mumbai

As soon as a middle-class Mumbai neighbourhood dotted with textile mills, Worli is now an upscale enclave with sunny, windswept promenades dotted with among the metropolis’s most wanted condominium complexes, residence to billionaires and film stars.

Alongside the seafront right here, not too removed from the revered Sufi shrine Haji Ali Dargah, is a plot of land that’s on the coronary heart of a high-voltage investigation into underworld financing by the Enforcement Directorate. Investigators are centered on three buildings that stood right here within the 1990s—Sea View, Marium Lodge and Rabina Mansion. These belonged to Sir Mohammad Yusuf Belief, named after the early 20th century Kutchi Memon businessman whose household is certainly one of Mumbai’s largest personal landowners. It was, nonetheless, illegally occupied by Iqbal Memon, a infamous drug smuggler also referred to as Iqbal Mirchi, as a result of his household owned a spice enterprise. He was a detailed aide of Dawood Ibrahim Kaskar, India’s most wished terrorist and the alleged mastermind of the 1993 Mumbai serial blasts that killed 317 folks.

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ED is involved in how Mirchi was compensated by an organization that later developed the plot of land the place the buildings stood. This cash, it believes, might need been used to fund underworld actions. Investigations led them to the door of an organization named Sunblink Actual Property, which had negotiated a cope with Mirchi with the assistance of a intermediary named Ranjit Bindra, in accordance with the company’s submissions earlier than a Justice of the Peace. A deal was apparently struck for Rs 225 crore and Bindra was paid Rs 30 crore for brokering the deal.

The little-known Sunblink was funded by Dewan Housing Finance Ltd (DHFL) by way of a mortgage of Rs 2,186 crore. In accordance with an official who spoke with ET Journal on the situation of anonymity, the company believes Sunblink was a entrance propped up by DHFL’s Dheeraj Wadhawan, identified in Mumbai’s social circles as Baba Dewan.

The underworld-related investigation has added to the woes of DHFL, as soon as counted amongst India’s largest housing finance corporations, which has fallen on unhealthy occasions and now represents a systemic danger to the monetary system, with plummeting asset worth and greater than Rs 80,000 crore in debt. Since September final 12 months, the corporate has misplaced 97.three% of its market capitalisation.

DHFL was a deposit taking shadow financial institution. This implies fairly aside from lakhs of stockholders whose investments have evaporated, the its troubles might probably have an effect on lakhs of shoppers who’ve mounted deposits with them and holders of bonds and debentures, aside from banks which have lent very giant sums. State Financial institution of India, for example, has an publicity of Rs 11,000 crore to DHFL.

A draft forensic audit into the books of DHFL by auditor KPMG has made disturbing revelations. The corporate has made giant loans to entities associated to promoters and it has no system to trace repayments on these loans, leaked parts of that report says. A fund diversion amounting to Rs 20,000 crore is suspected, ET reported final week.

A septuagenarian depositor from Bardhaman (west) in West Bengal, says he rues the day he determined to deposit a big sum of cash (greater than Rs 20 lakh) with DHFL mounted deposits in 2016. The retired metallurgist, who requested to not be named, feels he has no choices however to attend, after the corporate stated it should cease paying out pursuits following an order of the Bombay Excessive Courtroom. “I have no idea what to do and easy methods to handle my funds. Neither do I understand how to method the courts for reduction,” he says. He says he attracts solace from a current Kapil Wadhawan interview the place he has promised to pay again all depositors. “My advisor right here says the court docket might carry its keep on November 10 and I hope and pray he’s proper.”

Second of Reckoning

DHFL and HDIL are realty and housing finance companies run by two branches of a household. Rakesh Wadhawan of HDIL is the youthful brother of the late Rajesh Wadhawan, whose youngsters Kapil and Dheeraj now run DHFL. Their father Dewan Kuldip Singh Wadhawan, who got here to Mumbai from Lahore after Partition, began the enterprise and constructed the foundations of an enormous realty growth and housing finance operation. The 2 sides of the household cut up in 2008 and a 2010 settlement formalised their separation.

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Simply how the 2 corporations, run by households that beloved the excessive life — Bollywood stars for social gathering visitors, a phalanx of luxurious automobiles, personal jets and yachts, vaunted thoroughbreds to sign standing, and Russian and Israeli physique guards to avert hurt — plunged lakhs of bizarre depositors into despair and destroy, is a well-known story that conjures up a way of déjà vu. Now we have seen this film earlier than. The situation and principal actors change. However the plotline and characters keep related— collusion, inept regulators, mute board members, celebrities in bit roles, court docket circumstances that drag on and vigorous passing of the buck. The climax is normally the identical—the small man loses.

Workplace of the Financial Offences Wing of Mumbai Police, Crawford Market, Mumbai Please maintain us in your custody, Rakesh Wadhawan requests Rajvardhan Sinha, head of the Financial Offences Wing (EoW). The request has a logic. EoW premises have centralized air-con. Whereas in police lock up, mosquitoes gave him and his son Sarang sleepless nights. The duo is at the moment lodged within the excessive safety Arthur Street jail in Mumbai.

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This alternate, relayed to an ET Journal reporter by a witness, is a far cry from the extra combative relationship that Wadhawans as soon as shared with Mumbai Police. A couple of years in the past, as a part of a safety evaluation, Mumbai Police axed the title of the Wadhawans from a listing of builders who had police safety.

The Wadhawans, for whom the police escort was a key insignia of their political capital, secured a court docket order to revive their safety, claiming there was imminent menace to their lives. Mumbai Police appealed the order, and acquired it quashed. To not be outdone in a staring match, Wadhawans acquired inventive. They acquired a jeep painted with blue and yellow stripes to resemble a Mumbai Police car, loaded it up with beefy personal guards clad in safari fits, and acquired the car to drive forward. The onlooker would by no means know they now not had police safety.

This tendency to outfox and discover a means is now evident within the circuitous transactions being probed by varied businesses in each Wadhawan teams. Within the case of PMC Financial institution, police says that HDIL administration colluded with financial institution officers to create 44 fraudulent debtors (corporations with crisscrossing shareholding sample and a typical pool of administrators) who in flip funneled cash to HDIL promoters by 21,000 fraudulent accounts.

Within the case of DHFL, businesses in addition to auditors are discovering quite a few corporations linked to at least one one other doing little enterprise however making and receiving loans, making a maze of shell companies that appear designed to cloak the supply, origins and locations of funds.

Talking on the probe, EoW chief Rajvardhan Sinha instructed ET Journal that the town police is within the strategy of gathering proof to file a ‘stable’ chargesheet that may stand the scrutiny of the courts. “Companies of a forensic auditor has been engaged to assist us in gathering proof in opposition to the arrested accused (within the HDIL-PMC case). The audits will reveal the bigger recreation of how the crimson flags weren’t raised by the erring administrators, auditors and even the regulators. It will change into the place to begin to hook up with the proof now we have gathered on the bigger felony conspiracy between the arrested promoters and the accused bankers, which might be detailed out within the chargesheet,” Sinha stated.

Social Elites

It’s commonplace for Mumbai’s elite social circles to find good friend has defrauded a financial institution. It has occurred earlier than. However the Dewans’ troubles, particularly on the HDIL aspect, certainly have impressed disbelief. No one is keen to talk on the report, and there’s an eagerness to underplay hyperlinks.

When India Couture Week began in Mumbai in September 2008, a day after Lehman Brothers collapsed within the US within the throes of the sub-prime disaster, Sunny Dewan and his spouse Anu had been the cynosure of all eyes, as sponsors and hosts. The four-day occasion noticed Anu sporting designer garments from labels reminiscent of Alexander McQueen, Dolce & Gabbana and Oscar De La Renta, pairing them with Bottega Veneta and Louis Vuitton clutches. Within the off probability that you’re not carefully conversant in them, know that these manufacturers supply fabulous trend merchandise that value a small fortune.

“Sunny and Anu long-established themselves as an ‘it’ couple. They wished to be seen as a core a part of the Bollywood circuit, with out being part of the trade. Their residence in Alibaug was nearly constructed solely to entertain their filmi buddies. They might ferry these ‘buddies’ on sail boats, fly them there in choppers—something to get them there. The truth is, the Dewan home in Alibaug was accessible to their Bollywood buddies 24/7. If somebody wished to throw a celebration, the venue was prepared. All you needed to do was make the decision and Sunny and Anu would deal with the preparations,” stated a widely known Mumbai-based socialite, conversant in the circuit, talking on the situation of anonymity.

“It’s widespread to see glamorous wives of wealthy businessmen hang around with Bollywood actors right now. However Anu could be the one who kickstarted the pattern greater than a decade again, throwing lavish events, hanging out with everybody from Abhishek and Aishwarya Bachchan to the Kareena Kapoor-Karishma Kapoor lady gang. She is a predecessor to the present crop of wealthy housewives snuggling as much as Bollywood starlets,” stated one other supply.

Anu Dewan’s verified Instagram account chronicles her fabulous life and proximity to Bollywood idols. She hasn’t posted since August 19. Rakesh Wadhawan was into horses and was an influential thoroughbred proprietor until about 2013, when he owned about 150 horses, in accordance with folks conversant in the racing scene in Mumbai. Between 2008 and 2012, a number of of his thoroughbreds registered first-place finishes and even gained derbies. Wadhawan filly Moonlight Romance gained the Indian Derby in 2011, whereas steady compatriot Ocean & Past completed second.

“For a very long time, he dictated how Mumbai’s Royal Western India Turf Membership (RWITC) is run… He would throw tantrums at administration choices that weren’t beneficial to homeowners,” recalled an influential member of the RWITC. On the DHFL aspect, Kapil is the skilled, sober face of the corporate, and might be seen fielding questions on enterprise tv and analyst calls. Youthful brother Dheeraj Dewan is well-known in Mumbai as Baba Dewan, for his shut friendships with Bollywood stars and amongst auto fanatics for the fabulous automobiles he’s seen in, additionally flanked by physique guards.

Baba Dewan’s events — for Diwali, New 12 months and his birthday, sometimes—had been attended by a galaxy of Bollywood heavyweights. “Baba has come for Baba’s birthday,” a smiling Sanjay Dutt is heard telling a reporter at one such social gathering, in a video of the superstar protection on YouTube. Dutt can also be identified by the moniker Baba.

The associated growth that has additionally stunned many prosperous Mumbaikars is the arrest of Ranjit Bindra on expenses that he brokered the property deal between Mirchi and Sunblink. Bindra is the promoter of certainly one of Mumbai’s most stylish eating places—Bastian— a classy haven beloved by actors and fashions who put up photographs of the institution’s mud crab benedict or bulgogi bowl on Instagram. Actor Shilpa Shetty and husband Raj Kundra purchased an fairness stake within the restaurant earlier this 12 months. ED questioned Kundra for 9 hours final week about his transactions with Bindra and Wadhawan corporations. Bindra’s brother-in-law is the influential Mumbai politician Baba Siddique, who has been elected as MLA from Bandra West thrice.

Housing Crash

The graph of the housing demand in Mumbai is carefully tied to the graph of Wadhawans’ fortunes. HDIL, for example, was born a 12 months after Maharashtra authorities modified its method to the long-standing drawback of Mumbai slums. These settlements took up house in prime land and proved politically risky to vacate. In 1995, the state modified its method, introduced in new laws and created a brand new physique referred to as the Slum Redevelopment Authority.

HDIL was born the very subsequent 12 months and plunged headlong into slum redevelopment. This implies resettling slum dwellers in an condominium advanced constructed elsewhere, normally within the outskirts of the town, vacate the prime land the slum occupied, and redevelop that space. The scheme proved profitable and HDIL got here to be counted among the many high 5 listed actual property builders. It raised almost Rs 1,500 crore by an IPO in 2007. The corporate says within the final decade alone, it has accomplished 100 million sq. ft of development throughout varied actual property verticals and has rehabilitated 30,000 households.

Its issues began when the true property market began falling and demand for its redeveloped properties vanished. For HDIL, the slowdown meant it couldn’t promote the higher-end residential models it constructed, whereas it needed to go on constructing smaller models for resettling slum dwellers. Its want for funds went up, after it was unable to see by the Mumbai Airport slum resettlement programme. Pushed right into a debt entice steadily, it resorted to fraudulently in search of PMC funds.

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The corporate has been dealing with the wrath of homebuyers and its shoppers for the previous couple of years even earlier than the emergence of current Punjab & Maharashtra Co-operative financial institution rip-off. After approaching varied boards together with the Maharashtra Actual Property Regulatory Authority (MahaRERA), some aggrieved homebuyers of HDIL have even sought intervention of Prime Minister Narendra Modi to get possession of their flats in varied stalled initiatives throughout the Mumbai Metropolitan Area (MMR).

These homebuyers are of the view that the possibilities of the corporate delivering their already delayed houses are bleak now given the promoters’ involvement within the PMC Financial institution matter. DHFL however was on the different finish of the spectrum. As a deposit taking housing finance firm, it had entry to cash sources by mounted deposits, non-convertible debentures in addition to bonds. A take a look at DHFL’s lending reveals solely 57% of its loans had been retail residence loans, the remainder being loans in opposition to property and ‘others’. The ‘others’ add as much as nearly 22% of the mortgage e book and that is the place DHFL appears to have gotten into bother, lending to doubtful entities linked to its personal promoters and different associated events. A draft forensic audit report by KPMG indicated that a lot of the repayments couldn’t be traced.

DHFL’s troubles began after a Cobrapost sting operation alleged in January that the corporate had siphoned off cash to associated entities, and credit standing businesses began downgrading its paper in June 2019. DHFL began defaulting on its repayments in July. To this point a few circumstances have been filed in opposition to DHFL by depositors. One was filed by IAS officer Ashok Khemka on behalf of his spouse on the Chandigarh Excessive Courtroom whereas the opposite one was by Edelweiss AMC in Bombay Excessive Courtroom, with the latter asking DHFL to briefly cease repayments of its deposits. A tussle between banks and different collectors of the corporate is on the playing cards. Each corporations have denied wrongdoing. Neither responded to questions despatched by ET Journal for this story.

“DHFL had funded sure initiatives of assorted corporations,” the house financier stated in a submitting with the inventory exchanges. “Resulting from market situations, the debtors had streamlined their inside operations whereby they’ve, by sure company actions undertaken just lately, merged sure of their corporations into Sunblink. Because of this, as on date, Sunblink is talked about as a borrower.” A supply near DHFL instructed ET Journal that it was assured a couple of profitable debt decision. “DHFL is optimistic about efficiently closing the decision course of on the earliest with its proposal of no principal haircuts to collectors and conversion of partial debt to fairness supplied to permissible lessons of secured and unsecured collectors. It will enormously profit not solely the housing finance trade however the economic system as a complete.”

HDIL’s lawyer Subir Kumar, who additionally represents Rakesh and Sarang Wadhawan, instructed ET Journal: “Now we have already given consent for the sale of depreciable property instantly to guard the curiosity of the depositors of PMC Financial institution.

Now we have repeatedly stated there isn’t a fraud and all of the loans from PMC Financial institution are absolutely secured. The truth is the title deeds of the property are additionally with PMC financial institution. There isn’t any intention of the promoters to run away from obligations. The truth is, earlier than their arrest, the Wadhawans had been arising with a decision plan.”

The developments, coming as they’re a 12 months after the collapse of IL&FS, has solid a shadow on the NBFC sector and the state of monetary regulation. Nirmal Jain, chairman of monetary providers agency IIFL Finance, stated he was hopeful the NBFC sector will emerge unscathed. However laws want to alter.

“Many people might not have realised that there are greater than 5,000 cooperative banks, 15,000 NBFCs, and an uncounted variety of chit funds within the system. All of them must be introduced underneath the RBI’s regulatory rein. Nonetheless, to make them viable for RBI to control, the tiny ones have to be shut down. Even a minimal capital requirement of Rs 500 crore will cut back the quantity dramatically. As soon as the storm blows over and the mud settles, the NBFC sector will emerge stronger,” he stated.