A spider’s web is seen near a burrow in the Svay district of Kampong Thom province, Cambodia. (Photographer: Brent Lewin/Bloomberg)

DHFL, Wadhawans And Ownership Webs

In financial year 2016-17, non-banking finance company Dewan Housing Finance Corporation Ltd. sanctioned loans worth Rs 2,000 crore to four private entities for slum rehabilitation projects in Vile Parle area of Mumbai.

  • Edweena Real Estate Pvt. Ltd.
  • Prashul Real Estate Pvt. Ltd.
  • Notion Real Estate Pvt. Ltd.
  • Earleen Real Estate Developers Pvt. Ltd.

According to filings with the registrar of companies, Edweena and Prashul were owned by Jaswant Khera and Dinesh Bhanushali.

Notion and Earleen were owned by Parag Sanghavi and Madhusudan Sanghavi.

Curiously, that same year, 2016-17, all four companies decided to invest in the equity of another developer - Darshan Developers Pvt. Ltd. They paid Rs 1,424 crore to purchase a total 50 percent stake in Darshan.

So far, except for the coincidence that all four companies decided to invest in the same developer, the transactions may seem to be in the ordinary course of business.

But they aren’t.

BloombergQuint dug into the financials of the four developers and Darshan’s shareholders.

Here’s what we found.


1. What Were The DHFL Loans Used For?

In that year funds available with Edweena, Prashul, Notion and Earleen would not have sufficed for the purchase of Darshan equity. That indicates they used the DHFL loan funds for the acquisition.

DHFL, Wadhawans And Ownership Webs

The filings indicate the loans have yet to be repaid. Emails seeking comments from these companies on the use of loan funds remain unanswered.


2. Who Owned Darshan?

Who did these four developers buy the 50 percent stake in Darshan from in FY17?

A company called Kyta Advisors Pvt. Ltd.

As detailed in the first story in this series—Kyta is a 36-year-old investment company promoted by DHFL founder Rajesh Wadhawan. It was incorporated as BIDCO Imports Exports Ltd., later renamed Wadhawan Realtors Private Ltd. and finally labelled Kyta. It’s shareholders changed as many times if not more but the ultimate owner seems to have remained the same all through—Wadhawan family members.

  • Between financial years 2003-04 and 2012-13, the company was owned by members of the Wadhawan family and some private entities.
  • In financial year 2013-14, ownership was consolidated in the hands of Rajesh’s son Kapil Wadhawan and, family members Dheeraj Wadhawan and Aruna Wadhawan. All three are also promoters of DHFL.
  • In 2014-15, 23 investment companies acquired 95.5 percent equity stake in Kyta from Wadhawans. But BloombergQuint found that these 23 were also connected to Wadhawans.
This makes clear that funds from loans issued by DHFL found their way to Kyta - a company owned/connected with Wadhawans, also promoters of DHFL.

But Darshan’s ownership saga is more interesting than just that. In 2013-14, Kyta bought the 50 percent stake in Darshan from four entities for Rs 1,424 crore. The entities were:

  • Resources Realty Pvt Ltd.,
  • Yardstick Developers Pvt. Ltd.,
  • Wadhawan Holdings Pvt Ltd.,
  • Infill Retail ventures Pvt Ltd.

Filings for FY14 show that in each of these four companies the Wadhawan family or its members directly owned 1.5 to 2.5 percent. The rest of the shareholding in each was distributed among a set of private companies, many of which were also listed as Kyta’s shareholders.

In summary - Kyta, owned by the Wadhawans, bought a stake in Darshan Developers from four companies that were also connected to the Wadhawans. Kyta then sold that stake in Darshan to four companies that bought it using loans funds from DHFL - a Wadhawan promoted company. Both transactions were for Rs 1,424 crore.
DHFL, Wadhawans And Ownership Webs


The Money Trail Between DHFL And Wadhawan Entities

The peculiarity and circular nature of transactions aside, this raises a significant question on the use of DHFL loan funds. Remember, the loans were given towards slum rehabilitation projects.

BloombergQuint raised the same point in the first story in this series—which showed how DHFL extended loans to another four developers for slum rehabilitation and other projects. And those borrowers used the money to purchase preference shares of a Wadhawan family company (Kyta) from companies connected to the Wadhawans (Resources Realty, Yardstick Developers, Wadhawan Holdings and Infill Retail).

Also read: How DHFL Loan Funds Made Their Way To Kyta - A Wadhawan Company

Such transactions were first reported by news website Cobrapost in January 2019. DHFL’s board then ordered an investigation by an independent chartered account firm. Last week, the investigation report made two important points.

  • It said “ it is highly probable” that Edweena, Prashul, Notion and Earleen used DHFL loans funds to purchase the Darshan stake.
  • It also said the monitoring of end use of funds by DHFL is “significantly inadequate”.

This BloombergQuint investigation exposes the modus operandi of how loan funds were misused and also establishes the financial trail between DHFL and Wadhawan-owned and associated entities.


Wadhawans And The Kyta Ownership Web

In order to uncover these transactions and money trails, BloombergQuint examined financials of over 40 entities filed with the registrar of companies. One pattern emerged repeatedly—that of a web of constantly changing cross-holdings.

For instance, Kyta Advisors was owned by the Wadhawans up to FY14. The next year Kyta’s ownership changed.

Twenty-three investment companies acquired 95.5 percent equity stake in Kyta from Wadhawans.

Of these 23, the Wadhawan family or its members owned 1.5 to 3 percent in all, except three—at the time. The remaining shareholding was distributed between the 23 companies i.e. they owned each other.

The web of cross-holdings makes it difficult to pinpoint exact ownership but the Wadhawans’ involvement is clear. And by the way, all 23 Kyta shareholders had the same registered address.


Where Did The Money Finally Go?

This story started with the loans made by DHFL to four developers. When the developers bought a stake in Darshan Developers, the money moved to Kyta. Kyta used most of the proceeds, Rs 1,324 crore, on a joint venture, details on which are not available in the company’s filings.

The remaining Rs 100 crore was used to repay unsecured loans it had received from unknown sources.

In February, BloombergQuint asked DHFL about the use of its loan funds by these developers and the connection with Wadhawan entities. The company said it was awaiting the outcome of an internal investigation into the Cobrapost allegations.

"You are aware that over the last two weeks, we have issued various media statements as also clarifications. The clarifications issued by us clearly sets out the motivation of the complainant, and also states that statements, allegations and accusations contained in the complaint are utterly false and baseless.

Further, you are aware that the Audit Committee has already appointed an Independent Expert to look into the allegations covered in the complaint. Recently, as per the advice of consortium of Bankers, the Company has also decided to add one more expert from the Indian Bankers Association (IBA) approved list of auditors to carry out a review. The Company is also fully co-operating with any and all authorities, who are seeking clarifications and information from the Company.

In view of the above, it would be inappropriate to make clarificatory statements in the public domain. We will await the findings of the Independent Experts to deal with all allegations in detail. In any event, the Chairman has issued a clarificatory statement on the complaint, which is available on our website."

Since then the investigation report has been released and we asked DHFL if it would like to revise its statement. The company has yet to respond.

Also read: How DHFL Loan Funds Made Their Way To Kyta - A Wadhawan Company