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Auditor points to unwarranted transactions at Dewan Housing

Grant Thornton indicates instances of ‘avoidance transactions’ by mortgage lender, informs creditors.Some deals may be related to preferential, undervalued and extortionate (on unfair terms) transactions

Updated: Feb 24, 2020 19:34 IST

By Shayan Ghosh, Livemint

The auditor informed DHFL’s creditors about the transactions at the last meeting on 20 February. (Reuters)

An audit of Dewan Housing Finance Corp. Ltd (DHFL) by Grant Thornton has indicated instances of “avoidance transactions” by the company and the auditor has informed the creditors about it at the last meeting on 20 February, said a person aware of the development.

The Reserve Bank of India-appointed administrator, who received the Grant Thornton report on 12 February, believes certain transactions are related to Sections 43, 45, 50 and 66 of the Insolvency and Bankruptcy Code (IBC), the person cited above said. These sections deal with preferential transactions, undervalued transactions, extortionate (on unfair terms) transactions and fraudulent trading, respectively and are collectively termed avoidance transactions.

The person, who spoke on the condition of anonymity, said that Grant Thornton presented some of the initial findings of the transaction audit, which has so far looked at the project finance portfolio. The slum rehabilitation authority (SRA) project loans are still being looked into by the auditor. DHFL’s assets under management were at Rs 1.19 trillion, of which Rs 63,690 crore is in retail loans and the rest in wholesale.

R. Subramaniakumar, a former managing director and chief executive of Indian Overseas Bank, was appointed by the Reserve Bank of India (RBI) as DHFL’s administrator.



“We were told that these transactions were undervalued and preferential in nature. However, the auditor is still reviewing some of the documents and the final report shall come after that is completed,” said the person cited above.

A resolution professional orders a transaction audit of a company under Section 25 (2) (j) of the IBC to find if it engaged in certain kinds of forbidden transactions. In a notice to stock exchanges on 6 January, the administrator-managed company said, “The transaction auditor under the scope of work is also required to identify and review irregular borrower accounts from the angle of possible fraud”.

Interestingly, the administrator has also got in touch with former employees and directors of DHFL to check if they are aware of any such transactions. According to the person cited above, these employees have requested to meet the administrator and once their responses come, those will be shared with creditors. “It is a very novel way of finding out details of avoidance transactions by tapping former employees, some of whom might be disgruntled and are therefore likelier to spill the beans,” said the person.

Meanwhile, the current management of the company told creditors that it will begin disbursing new loans beginning 24 February. Mint reported on 5 January that the committee of creditors (CoC) to DHFL approved a plan under which the mortgage lender will resume advancing home loans beginning with Rs 500 crore a month to arrest the decline in its loan book.

While fixed deposit (FD) holders had approached the Supreme Court seeking a stay on the company’s plans to resume lending, it was dismissed by the court.

On 20 November, the RBI superseded DHFL’s board and later referred the mortgage lender to the National Company Law Tribunal (NCLT). RBI had cited governance concerns and payment defaults by DHFL as reasons for superseding the board. DHFL is the first non-bank lender to be referred to NCLT under new rules notified by the government on 15 November.

According to the RBI order cited by DHFL in a regulatory filing in November, a statutory inspection of DHFL conducted by National Housing Bank with reference to its position as on 31 March 2018 revealed serious deterioration in its financial position.

DHFL reported a surprise standalone profit of Rs 934 crore for the December quarter, thanks primarily to a one-time tax adjustment. The company, now in bankruptcy court, had posted a net profit of Rs 314 crore in the same period last year. During the quarter, DHFL benefited from a deferred tax adjustment of Rs 1,102 crore, without which it would have posted a loss of Rs 168 crore.

Emails sent to Subramaniakumar and Grant Thornton seeking comments on the story remained unanswered till the time of going to press.

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