The Securities and Exchange Board of India (SEBI) has imposed fines of Rs 20 lakh each on Kapil Wadhawan and Dheeraj Wadhawan, former promoters of Dewan Housing Finance Corp Ltd (DHFL), for their failure to comply with disclosure norms. The regulatory action was taken after an investigation into the transfer of shares from DHFL to its subsidiary, DHFL Investments, and other related transactions during the period from February to March 2017. SEBI found significant shortcomings in disclosing crucial information to DHFL shareholders, particularly in the postal ballot notice and draft share purchase agreement.
The Securities and Exchange Board of India (SEBI), the capital markets regulator, has imposed fines amounting to Rs 20 lakh on two former promoters of Dewan Housing Finance Corp Ltd (DHFL) for their failure to adhere to disclosure norms. In individual penalties, Kapil Wadhawan and Dheeraj Wadhawan, who held prominent roles as promoters of DHFL (now known as Piramal Finance), were each fined Rs 10 lakh.
The regulatory action follows an investigation conducted by SEBI into the transfer of shares owned by DHFL in DHFL Pramerica Life Insurance (previously known as DLF Pramerica Life Insurance) to its wholly-owned subsidiary DHFL Investments, along with other related transactions. The investigation covered the period from February to March 2017.
In a detailed 45-page order, Prasanta Mahapatra, SEBI's Adjudicating Officer, highlighted that there were significant shortcomings in the disclosure of crucial information to the shareholders of the company. The deficiencies were evident in the postal ballot notice and draft share purchase agreement (SPA), which were the responsibility of Kapil Wadhawan and Dheeraj Wadhawan. The deficiencies encompassed aspects of the option agreement, such as associated costs, the process of transferring compulsorily convertible debentures (CCDs) to DHFL, and the potential impact on DHFL shareholders if options were exercised by Wadhawan Global Capital (WGC).
Mahapatra emphasized that the sequence of events seemed strategically designed to benefit the promoters of the company, WGC, potentially resulting in future losses for minority shareholders of DHFL. He further stated that incomplete disclosure undermined the purpose of obtaining shareholder approval and stood contrary to principles of sound corporate governance.
Kapil Wadhawan, who held the position of Chairman and Managing Director at DHFL, and Dheeraj Wadhawan, his brother and a non-executive director, were both members of the company's board. The draft postal ballot notice, which was a subject of the investigation, was initiated by Kapil as the chairman. The draft notice included a resolution related to a transaction with WGC, a promoter entity and a wholly-owned subsidiary of DHFL Investments Ltd.
Dheeraj was present at the board meeting where the draft postal ballot notice received approval. Given their roles as promoters and directors within DHFL, both Kapil and Dheeraj Wadhawan were held responsible for the inadequacy of information provided in the postal ballot notice.
SEBI's findings revealed that the notices had violated market norms by not adequately disclosing information concerning CCDs and put options in the postal ballot notice during the approval process for the related party transaction.
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