On Tuesday, the Delhi High Court agreed to hear the Central Bureau of Investigation’s (CBI) appeal challenging the trial court’s decision granting statutory bail to former DHFL promoters Dheeraj and Kapil Wadhawan because the investigation agency had not filed a complete charge sheet in the country’s largest bank fraud case, which involved fraud totaling Rs 34,926.77 crore.
After carefully reviewing the arguments, Justice Amit Sharma scheduled a hearing for Wednesday because “this subject demands a meticulous assessment.” The CBI motion contested the trial court’s ruling and asked for guidance on how to maintain the previous ruling.
CBI attorney Anupam Sharma argued during the hearing in the high court that the special judge of the trial court had disregarded several CBI representations while requesting that the court postpone the judgment awarding bail to the two accused.
In his argument on behalf of Kapil Wadhawan, senior attorney Mahesh Jethmalani stated that he was vehemently opposed to the stay motion and argued that they should be given more time to respond to the CBI’s plea and demonstrate how the charge sheet was insufficient. Dheeraj Wadhawan’s attorney, Vijay Aggarwal, stated that although his client is suspected of plotting and conducting the crime with the assistance of bank employees, the CBI has not named any bank officials as suspects.
There were several other cases ongoing against the two defendants, according to advocate Aggarwal; hence, there was no reason to delay the bail ruling. On December 3, the trial court’s special judge issued an order in which she noted that due to an incomplete charge sheet, the accused—Kapil and Dheeraj Wadhawan—were determined to be eligible for statutory release and did not consider the case’s merits.
The trial court judge stated that given the gravity and seriousness of the case, it is possible that the accused do not qualify for bail; however, due to an incomplete charge sheet, the court is required by statute to release them from custody by granting a mandatory concession of default bail.
According to the trial court, the CBI cannot be entirely blamed for filing an incomplete charge sheet because it was both practically and humanly impossible to complete the extensive investigation task within 90 days, especially given that the accused individuals took several years to complete the offenses as a whole.
The court noted that, given that a portion of the investigation had to be conducted outside of the country, it was not reasonable to expect the CBI to identify every accused person, identify every aspect of the conspiracy, gather all available evidence, identify the significant amount of money that had been embezzled, etc., in the allotted 90 days.
“If the investigative agency’s practical challenges and the fact that there was a lack of time are taken into account, we do not hold the agency responsible for any errors, deliberate delays, sluggishness, negligence, or for failing to do its due diligence before filing a charge sheet.” Otherwise, it would be highly unreasonable to expect investigating officers, who are also living creatures, to work nonstop for an entire week while constantly running from one place to another “said the trial court.
The court also noted that although both of the accused were formally detained on July 19 in the current case, they had been detained since April 2020 in connection with other cases that were still pending in Lucknow and Mumbai. On October 15, the CBI submitted the approximately 55,000-page charge sheet to the court.
The Wadhawan brothers’ attorney, Vijay Aggarwal, testified before the trial court that the charge sheet was incomplete and that his clients were entitled to statutory bail because the CBI had not conducted further investigation into several material issues. He added that there are currently only 75 accused parties listed on the charge sheet, but that number may increase by more than ten times after the conclusion of the investigation. In that case, he argued, it might be necessary to have just one court hear this case alone.
Additionally, he said that the CBI has only been able to collect less than 2% of the alleged embezzlement by the accused of Rs 34,926 crore. The prosecution’s ability to conduct a further investigation cannot be disputed, but Advocate Aggarwal argued that this power only becomes relevant when new evidence is found during the investigation and when a charge sheet has been filed that is comprehensive in terms of all the allegations made in the FIR and about which information has been provided to the investigating agency.
The FIR states that M/s Dewan Housing Finance Corporation Ltd., Kapil Wadhawan, the then-CEO, Dheeraj Wadhwan, the then-Director, both of DHFL, and other accused persons engaged in a criminal conspiracy to defraud the consortium of 17 banks led by Union Bank of India. As part of the said criminal conspiracy, the accused, Kapil Wadhwan, and others persuaded the consortium banks to sanction huge loans.
A significant portion of this sum is said to have been stolen and misappropriated through alleged DHFL bookkeeping fraud and dishonest underpayment of the consortium banks’ legal debts. The complainant claimed that the consortium banks suffered an unjustified loss of Rs 34,615 crore as a result of the quantification of the unpaid debt as of July 31, 2020, according to the CBI.
The leading banking scam in India: DHFL
One of the best and biggest in developing economies, the Indian banking sector is a global leader in the field. However, we frequently read about the financial sector suffering losses due to scams. These scams, which deplete the nation’s riches and impede its development, total thousands of crores. India was still recovering from the financial fraud committed by Vijay Mallya, Nirav Modi, and Mehul Choksi when the banking system took another significant hit from what may have been the worst financial scam in the system’s history.
While Vijay Mallya and Nirav Modi’s frauds, which totaled Rs. 9,000 crores and Rs. 14,000 crores, respectively, rocked the Indian banking system, the most recent addition to the banking frauds is significantly higher than the sum of the two.
According to reports, DHFL committed the most recent financial fraud in India, allegedly to the tune of almost Rs. 34,000 crores, a sum much beyond the means of the common Indian. The CBI has now charged the owners of the NBFC DHFL (Dewan Housing Finance Limited) with cheating a group of 17 banks headed by UBI (Union Bank of India).
How and when was the DHFL fraud uncovered?
When it was claimed that the company routinely defrauded the banks by siphoning off the funds, the fraud was first discovered in 2019. The banks’ credit was routinely providing money in the form of secured and unsecured loans to fictitious or pass-through entities that purportedly had ties to the main stakeholders in DHFL through associates or proxies.
Later, this money was transferred to the DHFL promoters through companies under their control. Cobrapost made the original claim in February 2019, and the lending banks later recruited KPMG for a “special audit review” based on this accusation. According to KPMG’s findings, significant funds were improperly transferred to several businesses (in the form of loans and advances) that shared “interconnected entities and similarities” with the DHFL promoters. Later, shares and debentures were purchased using these monies.
The KMPG special audit review also uncovered that of the Rs 29,100 crore that had been given to 66 firms with connections to the DHFL founders, Rs 29,849 crore is still owed. The majority of these parties’ dealings involved investments in real estate and other types of properties. Additionally, DHFL has a significant outstanding balance of Rs 11,909 crore, which was due to loans and advances made to 65 organizations between April 1, 2015, and December 31, 2018, totaling Rs 24,595 crore.
The DHFL founders also disbursed Rs 14,000 crore in project funding, although the amount was recorded in the company’s accounts as retail loans. Additionally, the corporation displayed an inflated portfolio of retail loans consisting of 1,81,664 fictitious and nonexistent retail loan accounts with a combined outstanding balance of Rs 14,095 crore. These loans’ records were kept in separate “Bandra Books” in a different database, and they were subsequently combined with OLPL (Other Large Project Loan) accounts.
Further research revealed that the Rs 14,000 crore in nonexistent retail loans, which made up the majority of the OLPL category, was created. These accounts were used to transfer Rs 11,000 crore to OLPL loans, and Rs 3,018 crore was kept in the retail portfolio under the guise of unsecured retail loans.
The news of this scam shook the financial industry, and the stock markets also suffered as a result. The complaint was ultimately filed against the Wadhawan brothers by the UBI-led consortium of banks after months of the firm giving false pledges. They are currently being held in custody due to cases that the CBI and ED have filed.
edited and proofread by nikita sharma