MUMBAI : Auditors of Dewan Housing and Finance Corp. Ltd filed a fraud complaint with the corporate affairs ministry as early as August, a crucial piece of information that the lender’s management withheld from bank and shareholders, two people with direct knowledge said.

The ministry has since ordered the Serious Fraud Investigation Office (SFIO) to probe the case. The reference by statutory auditors Deloitte Haskins and Sells and Chaturvedi and Shah was made under Section 143(12) of the Companies Act, 2013 that mandates them to inform the ministry if they suspect fraud, one of the two people cited above said on condition of anonymity.

“The auditors are not obligated to let the company know if they are making a fraud reference, but DHFL was apprised of the same," said the second person, who also declined to be named.

Without knowledge of the suspected fraud, lenders proceeded to work on a resolution plan to revive the debt-laden home financier. The debt recast plan stands scuttled after information about the fraud and the SFIO probe trickled in. Out of DHFL’s total debt of about 83,873 crore, it owes 38,342 crore to banks.

Under the proposed restructuring plan, banks were to take a 51% stake in the company by converting a portion of DHFL’s debt into equity. The lenders are waiting for the SFIO probe to get over before they can work on the resolution plan. The earlier resolution plan will be pursued only if it is found that there was no mala fide intent on the part of the promoters.

“During the course of the audit, the auditors had also raised concerns on certain repayments," the first person said. “Repayments by some entities could not be traced in the financial statements of DHFL."

“There was no such observation. And even the audit report was with disclaimers," a person close to the DHFL management said. “The company also made provisions for losses, according to the audited financials. And that was made public in the management notes and the financials submitted to banks."

A special audit by accounting firm KPMG also made similar observations in a report, portions of which have been reviewed by Mint. The KPMG report cites alleged fraudulent transactions worth 31,000 crore.

The KPMG report cited repayments by 28 entities amounting to 1,941 crore, which could not be traced in DHFL’s bank statements.

In fact, the statutory auditors in their report had pointed to transactions of over 40,000 crore that were problematic and for which the management failed to provide satisfactory responses.

These transactions included intercorporate deposits of 5,652 crore, certain loans and pass-through certificates amounting to 32,425 crore and 257 crore, respectively. These were due to deficiency of documents and accounting entries without depositing of cheques.

“Multiple accounting entries were initially recorded in certain customer accounts for receipts despite the cheques or negotiable instrument not been deposited in the bank(s) and these have been subsequently reversed," said the auditors in their report on 22 July.

In fact, the auditors also issued a “disclaimer of opinion", which in audit parlance means no opinion is being given regarding the financial statements of a client, whether the accounts are fair or true.

Soon after that, on 4 August, Deloitte quit as auditor for DHFL on the basis of the disclaimer.

Meanwhile, SFIO, under the corporate affairs ministry, has started examining the role of the promoters and management of DHFL.

“Auditors would soon be called to record their opinion on DHFL," said a regulatory official, who declined to be named.

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