Author: Sharanya Das
College: Symbiosis Law School, Pune
To the Point
Dewan Housing Finance Corporation Limited (DHFL), once India’s second-largest housing finance company, collapsed under the weight of an alleged bank-loan fraud amounting to Rs 34,615 crore, the largest such case ever registered by the Central Bureau of Investigation (CBI). Promoted by Kapil Wadhawan and Dheeraj Wadhawan, DHFL had drawn credit facilities worth Rs 42,871 crore between 2010 and 2018 from a seventeen-bank consortium led by Union Bank of India. Forensic audits by KPMG and Grant Thornton revealed a parallel, undisclosed ledger internally referred to as the “Bandra Book,” through which loans were routed to dozens of promoter-linked shell entities engaged mainly in land and property transactions, with little or no underlying security or documentation.
The fraud unravelled publicly in early 2019, prompting the Reserve Bank of India (RBI) to supersede DHFL’s board in November 2019 and refer the company to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IBC) — the first such reference for a non-banking financial company (NBFC). The Committee of Creditors eventually approved a resolution plan by Piramal Capital and Housing Finance Limited in 2021, while criminal, regulatory and money-laundering proceedings against the promoters continued well beyond the resolution. This article examines the legal architecture of the case: the statutory provisions invoked, the evidentiary trail, the resulting case law, and the regulatory reforms it triggered in India’s housing finance sector.
Use of Legal Jargon
The DHFL matter draws on a wide cross-section of Indian financial and criminal law, and an appreciation of its terminology is essential to understanding the case:
Criminal Conspiracy: Section 120-B of the Indian Penal Code (IPC), 1860, was invoked against the Wadhawans and co-accused for allegedly acting in concert to defraud the lender consortium.
Criminal Breach of Trust: Section 409 IPC (breach of trust by a person in a position analogous to a public servant or banker) was applied, given the fiduciary character of funds entrusted to DHFL by the consortium banks.
Cheating: Section 420 IPC was invoked for allegedly inducing the banks to sanction and disburse credit facilities on the basis of misrepresented financial statements.
Falsification of Accounts: Section 477-A IPC addresses the deliberate falsification of books of account, relevant to the “Bandra Book” ledger that allegedly misstated DHFL’s true loan exposures.
Prevention of Corruption Act, 1988: Sections 13(1)(d) read with 13(2) criminalise obtaining pecuniary advantage through corrupt or illegal means by, or in collusion with, public servants; the CBI’s First Information Report (FIR) names unidentified public servants as co-conspirators.
Corporate Insolvency Resolution Process (CIRP): The statutory mechanism under the IBC by which a financially distressed corporate debtor, here DHFL, is resolved through a resolution plan approved by its Committee of Creditors (CoC) and the NCLT.
Avoidance Transactions: Sections 43, 45, 49 and 66 of the IBC empower a resolution professional to claw back preferential, undervalued, fraudulent or wrongful transactions entered into before insolvency, a mechanism central to the DHFL litigation before the NCLAT and Supreme Court.
Superseding the Board: Under the RBI Act, 1934, as amended, and the Insolvency and Bankruptcy (Amendment) Ordinance, 2019, the RBI acquired power to supersede the board of a systemically important NBFC and directly initiate insolvency proceedings against it.
Money Laundering and Attachment of Proceeds of Crime: Under the Prevention of Money Laundering Act (PMLA), 2002, the Enforcement Directorate (ED) has provisionally attached assets — including real estate, artwork and vehicles — traceable to the alleged fraud.
Fraudulent and Unfair Trade Practices: The Securities and Exchange Board of India (SEBI) invoked its Prohibition of Fraudulent and Unfair Trade Practices Regulations and Section 24 of the SEBI Act, 1992, to penalise the promoters for allegedly inflating interest income and diverting funds to related entities.
Related-Party Transactions: Section 188 of the Companies Act, 2013, governs disclosure and board or shareholder approval for transactions between a company and its related parties, several of which are alleged to have been circumvented in the Bandra Book dealings.
The Proof
The evidence against DHFL’s promoters is largely documentary and forensic, assembled through multiple, overlapping investigations:
Forensic Audit Findings: KPMG’s special review, commissioned by the lender consortium in 2019, and a subsequent Grant Thornton audit found that DHFL had disbursed roughly Rs 29,100 crore to 66 entities bearing commonalities with the promoters, of which about Rs 29,849 crore remained outstanding, with internal e-mails reportedly indicating that Kapil Wadhawan controlled around 40 of them.
The “Bandra Book”: Investigators identified an undisclosed, parallel set of records — named after DHFL’s Bandra office — that tracked loans to these promoter-linked entities separately from the company’s official books, allegedly to conceal the true scale of related-party lending from auditors, rating agencies and lenders.
Absence of Loan Documentation: Auditors found instances in which large-value loans were sanctioned and disbursed purely on the basis of e-mail instructions, with no loan files, security documents or collateral on record, undermining DHFL’s claim that these were bona fide commercial advances.
The Union Bank of India Complaint: The FIR-triggering complaint alleged that the promoters misrepresented and concealed facts, committed criminal breach of trust, and defaulted on repayment obligations from May 2019 onward, causing a loss of Rs 34,615 crore out of the Rs 42,871 crore extended.
Seizure of Assets: During searches, the CBI recovered items including luxury watches and paintings valued at several crores of rupees and, later, seized a helicopter linked to a promoter-controlled entity, cited by
investigators as proof that diverted funds were used for personal enrichment rather than housing-finance operations.
SEBI’s 2025 Final Order: SEBI’s adjudication order detailed how thousands of crores were allegedly routed to promoter-linked entities through the Bandra Book mechanism and how interest income on these advances was allegedly overstated in DHFL’s financial statements, resulting in five-year trading bans and monetary penalties on Kapil and Dheeraj Wadhawan.
Regulatory and Audit Trail: The RBI’s own supervisory findings, culminating in the supersession of DHFL’s board in November 2019, corroborated the consortium banks’ allegations of systemic concealment and non-performing asset classification failures.
Abstract
The DHFL scam represents one of the most consequential episodes in India’s post-2018 shadow-banking crisis, exposing how a systemically important housing finance company could allegedly divert public and depositor money through a web of related-party entities while evading the scrutiny of auditors, credit rating agencies and lenders for nearly a decade. Between 2010 and 2018, a seventeen-bank consortium extended credit facilities of Rs 42,871 crore to DHFL; forensic audits later traced a substantial share of these funds to 66 promoter-linked entities transacting chiefly in land and property, recorded in an undisclosed parallel ledger known as the “Bandra Book.” The default, once it surfaced in 2019, forced the RBI to supersede DHFL’s board and refer it to insolvency — a first for an NBFC — culminating in the Committee of Creditors’ approval of Piramal Capital’s resolution plan in 2021.
In parallel, the CBI registered what it called its largest-ever bank fraud case in 2022, the Enforcement Directorate pursued money-laundering charges, and SEBI’s 2025 order imposed trading bans and penalties on the promoters. This article traces the legal provisions engaged across criminal, insolvency and securities law, the documentary and forensic proof relied upon by investigators, and the jurisprudence the case has generated, particularly on the treatment of insolvency avoidance recoveries, concluding with an assessment of the regulatory reforms the episode has prompted in Indian housing finance.
Case Laws
The DHFL affair has generated, and drawn upon, significant jurisprudence:
1. Piramal Capital and Housing Finance Ltd v. 63 Moons Technologies Ltd (2025 INSC 421)
The Supreme Court set aside an NCLAT order that had modified the CoC-approved resolution plan’s treatment of recoveries from Section 66 IBC avoidance applications. The Court held that the NCLAT had exceeded its limited jurisdiction under Section 61 of the IBC by interfering with a commercially negotiated clause approved by an overwhelming majority (93.65 per cent) of the Committee of Creditors, restoring Piramal’s plan and directing the NCLT to independently adjudicate the pending avoidance applications.
2. Committee of Creditors of Essar Steel India Ltd v. Satish Kumar Gupta (2019)
Cited extensively in the DHFL litigation, this earlier Supreme Court ruling affirmed the primacy of the CoC’s commercial wisdom in approving resolution plans and held that assigning a nominal value to uncertain future
recoveries is a legitimate and well-established practice, a principle Piramal relied upon regarding its treatment of Section 66 recoveries.
3. NCLT and NCLAT Proceedings on the Resolution Plan (2021-2022)
Before reaching the Supreme Court, 63 Moons Technologies, a non-convertible debenture holder, unsuccessfully challenged the resolution plan before the NCLT in 2021 and then succeeded before the NCLAT in 2022 in having a specific clause on avoidance recoveries remitted to the CoC, illustrating the layered appellate scrutiny insolvency resolutions of this scale attract.
4. The Yes Bank-DHFL Nexus
Related but separate proceedings against former Yes Bank promoter Rana Kapoor examined allegations that Yes Bank’s investment in DHFL debentures was linked to loans extended by DHFL entities to Kapoor’s family concerns, illustrating how the DHFL fraud intersected with, and helped expose, parallel misconduct at other regulated lenders.
5. SEBI Adjudication Order, 2025
SEBI’s own quasi-judicial order banned Kapil and Dheeraj Wadhawan from the securities markets for five years with a penalty of Rs 27 crore each, and imposed four-year bans on other promoter-family members, applying the Prohibition of Fraudulent and Unfair Trade Practices Regulations to conduct that had already been the subject of the CBI’s criminal investigation.
Conclusion
The DHFL scam is best understood not as an isolated act of individual fraud but as a systemic failure spanning corporate governance, statutory audit, credit rating and prudential regulation. The alleged diversion of consortium bank funds through undisclosed related-party lending, concealed for years behind a parallel ledger, caused a loss running into tens of thousands of crores of rupees and triggered the first insolvency reference of a systemically important NBFC under the IBC.
The resulting proceedings — criminal charges under the IPC and the Prevention of Corruption Act, an insolvency resolution culminating in the Supreme Court’s 2025 ruling in the 63 Moons case, a parallel money-laundering investigation, and SEBI’s securities-market bans — together illustrate how a single financial fraud can be pursued simultaneously across criminal, insolvency and securities jurisprudence. For India’s housing finance sector, the episode accelerated the RBI’s move toward scale-based regulation of NBFCs, tighter related-party transaction norms, and closer supervisory scrutiny of asset-liability mismatches. It remains a cautionary study in how gaps between statutory books, forensic reality and regulatory oversight can compound into one of the country’s largest financial frauds, and in why robust internal controls and vigilant lending due diligence remain indispensable in housing finance.
What was the DHFL scam?
It refers to allegations that Dewan Housing Finance Corporation Limited’s promoters diverted a substantial share of the Rs 42,871 crore extended by a seventeen-bank consortium into promoter-linked shell entities through an undisclosed parallel ledger, causing an alleged loss of Rs 34,615 crore.
Who were the main accused?
DHFL’s former Chairman and Managing Director Kapil Wadhawan, his brother and former Director Dheeraj Wadhawan, businessman Sudhakar Shetty, and several affiliated realty firms were named as accused by the CBI.
What legal provisions were invoked against the promoters?
The CBI’s FIR invoked Sections 120-B, 409, 420 and 477-A of the Indian Penal Code along with Sections 13(1)(d) and 13(2) of the Prevention of Corruption Act, 1988, while SEBI separately proceeded under its fraudulent trade practices regulations.
How was DHFL resolved as a company?
The RBI superseded DHFL’s board in November 2019 and referred it to the NCLT under the IBC; the Committee of Creditors approved a resolution plan by Piramal Capital and Housing Finance Limited, which the Supreme Court upheld in its 2025 ruling in Piramal Capital and Housing Finance Ltd v. 63 Moons Technologies Ltd.
What broader reforms followed the scam?
The episode contributed to the RBI’s Scale Based Regulation framework for NBFCs, tighter norms on related-party lending and asset classification, and reinforced the use of IBC avoidance provisions to claw back fraudulently diverted funds from corporate debtors.
