DHFL: alleged diversion and the first financial firm under the IBC

The allegations. In January 2019, an investigative report alleged that about ₹31,000 crore had been siphoned out of DHFL through shell companies. The company's management denied the claims.

The default. DHFL had relied on short-term borrowing, and after the IL&FS crisis in late 2018, that funding dried up. It defaulted on its debt in June 2019.

RBI steps in. On 20 November 2019, RBI superseded DHFL's board under Section 45-IE of the RBI Act, citing governance concerns and payment defaults, and appointed an administrator. It was the first time RBI used the Insolvency and Bankruptcy Code against a financial services provider.

The resolution. Through the committee of creditors process, Piramal Group acquired DHFL for a total consideration of ₹34,250 crore. The deal was completed in September 2021, through a reverse merger with Piramal Capital & Housing Finance.

The criminal cases. The promoters, Kapil and Dheeraj Wadhawan, face investigations by the CBI and the Enforcement Directorate. In March 2021, the CBI alleged that DHFL had created about 2.6 lakh fake home loan accounts to divert government housing subsidy funds. These are allegations, and no conviction had been reported at the time of this review.

• Short-term money for long-term loans. Like IL&FS, DHFL funded long-term housing loans partly with short-term borrowing.
• Large, opaque loans. Large loans to builders and entities with unclear links to the business were hard for outsiders to assess.
• Public allegations. When a detailed investigative report alleges diversion, the burden shifts to the company to provide independent proof, such as a forensic audit, rather than a denial.
• Fast rating downgrades. Several downgrades within weeks showed that the market had lost confidence well before the default.

• Funding structure matters as much as asset quality. Even a lender with a real loan book can fail if its funding disappears.
• Ask for independent verification. When serious allegations surface, look for a forensic audit by an outside firm reported to the audit committee.
• The IBC now covers large financial firms. DHFL showed that RBI can take a lender's board out of the promoters' hands and push it through insolvency.
• Watch the links between lenders and borrowers. Investigators have also examined DHFL's dealings with Yes Bank, showing how problems at one firm can be tied to another.