Dewan Housing Finance Corporation Ltd.
|BSE: 511072||Sector: Financials|
|NSE: DHFL||ISIN Code: INE202B01012|
|BSE 00:00 | 11 Jun||Dewan Housing Finance Corporation Ltd|
|NSE 05:30 | 01 Jan||Dewan Housing Finance Corporation Ltd|
|BSE: 511072||Sector: Financials|
|NSE: DHFL||ISIN Code: INE202B01012|
|BSE 00:00 | 11 Jun||Dewan Housing Finance Corporation Ltd|
|NSE 05:30 | 01 Jan||Dewan Housing Finance Corporation Ltd|
(Report of Advisory Committee Chaired by the Administrator)
The Reserve Bank of India (RBI) vide Press Release dated November 20 2019 in exerciseof the powers conferred under Section 45-1E (1) of the Reserve Bank of India Act 1934(RBI Act) superseded the Board of Directors of your Company on November 20 2019 owingto governance concerns and defaults by your Company in meeting various payment obligationsand the RBI appointed Mr. R. Subramaniakumar ex-MD and CEO of Indian Overseas Bank as theAdministrator of your Company under Section 45-IE (2) of the RBI Act. Thereafter RBI videits Press Release dated November 22 2019 in exercise of the powers conferred underSection 45-IE 5(a) of the RBI Act constituted a three (3) member Advisory Committee toassist the Administrator in discharge of his duties and to advise the Administrator in theoperations of your Company during the Corporate Insolvency Resolution Process (CIRP). Asper the framework of the Advisory Committee as approved by RBI primary responsibility ofthe Advisory Committee is to guide the Administrator to undertake all steps that willmaximize the value for all stakeholders of your Company through asuccessful resolution.Since the Administrator also takes over the responsibility of the Board of Directors ofyour Company the Advisory Committee will support the Administrator in fulfillment of hisrole and responsibilities. The members of the Advisory Committee are Dr Rajiv Lai Ierstwhile Non-Executive Chairman IDFC First Bank Ltd. Mr. N S Kannan Managing Directorand CEO ICICI Prudential Life Insurance Co. Ltd. and Mr. NS Venkatesh ChiefExecutive Association of Mutual Funds in India.
On November 29 2019 the RBI filed a Petition before the Hon'ble National Company LawTribunal Mumbai Bench (Hon'ble NCLT/ Adjudicating Authority) under Section 227 read withSection 239(2)(zk) of the Insolvency and Bankruptcy Code 2016 (IBC / IBC Code / Code)read with Rules 5 and 6 of the Insolvency and Bankruptcy (Insolvency and LiquidationProceedings of Financial Service Providers and Application to Adjudication Authority)Rules 2019 (FSP Rules) to initiate CIRP against your Company. Accordingly in terms ofRule 5(b)(i) of the FSP Rules an interim moratorium came into effect on the date offiling of the application to initiate CIRP. Thereafter CIRP was initiated against yourCompany by an Order dated December 3 2019 of the Hon'ble NCLT. The Hon'ble NCLT vide thesaid Order confirmed the appointment of the Administrator to perform the functions of anInterim Resolution Professional / Resolution Professional to complete the CIRP of yourCompany as required under the provisions of the Code and also announced commencement ofthe moratorium under Section 14 of the Code with effect from November 29 2019.
Accordingly your Company is presently undergoing CIRP under the provisions of the Codealong with the Regulations and Rules thereunder and the Administrator performing theduties of the Resolution Professional under the Code along with the Advisory Committee ispresenting this Report.
In consequence of the aforesaid changes the Advisory Committee is presenting theStandalone and Consolidated Reports on the operations and business performance along withthe audited financial statements for the financial year ended March 312020.
During the financial year 2018-19 your Company adopted Indian Accounting Standards(Ind AS) notified under Section 133 of the Companies Act 2013 (the Act) read with theCompanies (Indian Accounting Standards) Rules 2015. Accordingly the financial statementsfor the year ended March 31 2020 have been prepared as per the Ind AS.
The financial performance of your Company for the financial year ended March 312020 issummarized below:
Appropriations from Net Profit are as detailed in the table given above
TRANSFER TO RESERVES
During the year under review your Company incurred a net loss of Rs 13612.32 croremainly on account of increased provisioning and higher impact of impairment on financialinstruments and consequently no transfers were made to the reserves out of the amountavailable for appropriation.
CORPORATE INSOLVENCY RESOLUTION PROCESS
The Administrator under Section 13 of the Code read with Regulation 6 of the CorporateInsolvency Resolution Process (CIRP) Regulations had issued a public announcement asprescribed in Form A on December 5 2019 for attention of the creditors of your Company tosubmit their claims against your Company. The Administrator on receipt of the claims fromthe creditors has prepared a list of creditors (including Financial Operational Workmen& Employees and Other Creditors) along with their security Interest therein pursuantto Regulation 13(2)(c) of the CIRP Regulations and such list of creditors has been madeavailable to the stakeholders of your Company on your Company's website. The claims havebeen admitted based on the information available in the books of accounts and recordsavailable with your Company and the information provided by the respective creditors inthis regard.
It is pertinent to note that the admission of claims is a part of the CIRP and the sameare subject to revision / modification till such date they are finalized.
The Administrator after preparing the list of claims of the creditors of the claims hasconstituted of the Committee of Creditors (COC) of your Company u/s 21 of the Code readwith Regulation 17 of the CIRP Regulations. The Committee of Creditors is comprised offinancial creditors of your Company as per Section 21 of the Code read with Regulation 17of the CIRP Regulations. The Committee of Creditors has met 6 (six) times since initiationof CIRP till the date of this Report.
The Administrator after his appointment and with the approval / ratification ofCommittee of Creditors of your Company as constituted by him in accordance with Section18(c) and 21(1) of the Code and the Regulation 17(1) of the CIRP regulations appointedMr. Sunil Kumar Bansal as the Chief Financial Officer (CFO) of your Company and Mr. SatyaNarayan Baheti as the Company Secretary (CS) of your Company. Mr. Vaijinath M Gavarshettywas appointed as the Chief Executive Officer (CEO) of your Company by the erstwhile Boardof Directors at its meeting held on September 28 2019 on the recommendations of theerstwhile Nomination & Remuneration Committee of your Company and pursuant to theapproval and recommendations of the erstwhile core committee of the lenders of yourCompany constituted pursuant to the Inter-Creditor Agreement executed amongst certainlenders of your Company in terms of the June 7 2019 circular issued by RBI. While Mr.Vaijinath M Gavarshetty was appointed with effect from October 1 2019 he assumed theoffice as CEO of your Company with effect from November 21 2019. As part of the CIRP ofyour Company the Administrator Advisory Committee and the present management team havetaken various initiatives to ensure going concern' status of your Company asrequired u/s 20 of the Code. Further the Code and Regulations thereunder stipulate priorapproval by the Committee of Creditors for certain actions to be taken during the processincluding as provided u/s 28 of the Code. The Administrator and the Advisory Committee asset up by the RBI to assist the Administrator in discharge of his duties exerciseoversight on the operations of your Company apart from running the CIRP in accordance withthe provisions of the Code and Regulations under IBC 2016. The Administrator appointedErnst & Young LLP and AZB Partners as Process and Legal advisors respectively toassist him in completion of the CIRP of your Company.
The present management under the guidance of the Administrator has undertaken variousinitiatives recently including efforts to strengthen the policies and processesfunctioning of the IT System; loan/security documentation legal internal audit internalfinancial controls and updating risk control matrices information security operationaland credit management risk and fraud risk management through in-house resources andengagement of external professional experts/consultants. The management team has alsoinitiated steps for comprehensive compliance of various applicable rules and regulationswithin your Company. The improvement process is a continuous effort and the same has beenextended due to the operational issues arising out of the COVID-19 pandemic and theresultant lockdown.
These initiatives will strengthen your Company's overall governance structure andcontrol environment. On conclusion and implementation of all such initiatives it isexpected that the operational efficiency will improve and operational issues will getaddressed.
The Administrator acting as the Resolution Professional under the provisions of theCode has appointed a Transaction Avoidance Auditor (referred as TAA) - GrantThornton India LLP to ascertain if your Company has entered into transactions as specifiedin terms of provisions of the Code specifically u/s 43 45 50 66 of the Code.
As per the terms of the order issued to the TAA the three (3) reports are required tobe submitted by the TAA -
(a) Report 1: Transaction Audit Report for preferential undervalued intent todefraud fraudulent and wrongful trading and extortionate credit transactions to beconducted within the relevant time period as prescribed under the Insolvency andBankruptcy Code 2016
Transactions to be conducted in accordance with the following time periods.
i. Transactions made with any person within the period of 1 year preceding theinsolvency commencement date; and
ii. Transactions made with a related party within the period of 2 years preceding theinsolvency commencement date.
(b) Report 2: Transaction audit report for
i. Preferential undervalued and extortionate credit transactions to be conducted inaccordance with the following time periods
a) Transaction made with any person within the period of 3 years preceding theinsolvency commencement date; and
b) Transaction made with a related party within the period of 5 years preceding theinsolvency commencement date.
ii. Transactions with intent to defraud and fraudulent and wrongful trading.
(c) Report 3: Report as stipulated under scope of work identify and review irregularaccounts from the angle of possible fraud. Further specifically review the underlyingdocuments and security made available and its enforceability in the aforesaid scope ofwork.
The Administrator on the advise of the Advisory Committee and in consultation with theprocess advisors and legal advisors will file necessary applications before the Hon'bleNCLT as and when reports under the above sections are submitted by the TAA. First of suchfiling was done on August 30 2020 with the Hon'ble NCLT based on the TAA Report receivedin the regard and application prepared by the legal advisors. The disclosure in relationto said filing as approved by the Advisory Committee on the advise of the legal advisorsand the process advisors and submitted by your Company to the stock exchanges pursuant tothe provisions of Regulation 30 of the SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015 (SEBI Listing Regulations) is annexed at Annexure -1 to this Report. Further the Statutory Auditor has expressed their concern inthis matter in para 4 of the Audit Report issued with a Disclaimer of Opinion for theFinancial Year ended March 31 2020.
While in major part of the financial year under review the business of your Company wasminuscule at a low level by February 2020 the retail lending operations were recommencedprimarily to cater to the Lower and Middle Income segment however the same also gotimpacted due to the COVID-19 pandemic and consequent extended lock-down.
RBI on June 7 2019 had issued Prudential Framework for Resolution of StressedAssets for early resolution of stressed assets in a transparent and time-boundmanner giving complete discretion to lenders with regard to design and implementation ofResolution Plans. As your Company was under stress due to liquidity issue of the industryas well its own and also due to various adverse media reports on the functioning of yourCompany the lenders initiated appropriate action.
As per this framework lenders shall undertake a prima facie review of the borroweraccount within thirty days from such default (Review Period). During this Review Period ofthirty days lenders may decide on the resolution strategy including the nature of theResolution Plan (RP) the approach for implementation of the RP etc. In cases where RP isto be implemented all lenders shall enter into an Inter Creditor Agreement (ICA) duringthe above- said Review Period to provide for ground rules for finalization andimplementation of the RP. RP shall be implemented within 180 days from the end of ReviewPeriod. The ICA shall provide that any decision agreed by lenders representing 75% byvalue of total outstanding and 60% of lenders by number shall be binding upon all thelenders. The RP may involve any action / plan / reorganization including but not limitedto regularization of the account by payment of all over dues by the borrower entity saleof the exposures to other entities / investors change in ownership and restructuring.
Your Company which was already working with creditors for a restructuring plan withpossible stake sale to strategic investors was brought under the new guidelines of RBIand an ICA process was set into motion. By July 5 2019 all major banks signed the ICAand RP process could be initiated immediately thereafter. 27 banks including all termlending banks and banks holding Non-Convertible Debentures (NCDs) NHB LIC and NABARDsigned the ICA in due course of time. Your Company and lenders each appointed leading RPadvisors to help draft the Plan. All key processes for drafting RP including valuation /liquidation valuation legal due diligence and rating process for RP rating wereundertaken. Over the next 90 days during July and September 2019 multiple sittings wereorganized with ICA members. Joint Lenders Forum (JLF) including Non-Convertible Debentures(NCDs) and Fixed Deposit holders were held to explain the RP framework underconsideration. Voting process was undertaken to obtain mandate from NCD holders throughthe Trustee. Enabling a change in the management control was a key aspect of the RP inmaking including a possible lenders' led stake buy-out as an interim arrangement werekept open as options to be explored.
Considering the large investors base under NCD obtaining mandate from 60% of investorsby number proved challenging. First round of voting by NCD holders could garner only 28%in favor from public investors. Mutual Funds (MF) too could not sign ICA reportedly due tothe requirement to set aside your Company bonds in a side pocket prior to the defaultdate a condition which many MFs could not meet.
The ICA members and JLF however remained on consultative mode to find an acceptablesolution to different class of investors; a flexibility which ICA offered. Multiple RPmodels were carved out towards this end and to secure the mandate from the requisitemajority of lenders. Early September 2019 saw a leading MF moving Hon'ble High Court ofBombay restraining your Company from making any payments to any creditors. This wasfollowed by various litigations against your Company which impeded the ICA work frommoving in an environment of coordinated approach. Consultative process came to halt. Theoption was to go for a court led process.
With the introduction of Section 227 of the IBC on November 15 2019 by the CentralGovernment bringing Financial Institutions under the ambit of IBC process the actionshifted with RBI moving in and taking control of the affairs of your Company with thesupersession of the Board of Directors of your Company and appointment of Administrator asstated earlier in this Report.
During the financial year under review your Company made total loan disbursements ofRs 1553 crore as against Rs 28770.61 crore in the previous financial year. During thefinancial year under review the Gross NPAs as a percentage of the outstanding loans were62.97% as against 5.27% in the previous year. The net NPAs as a percentage of theoutstanding loans were 44.77% during the Financial Year under review as against 4.01% inthe previous year.
The standalone and consolidated financial statements for the year ended March 312020have been prepared as per the Ind AS.
For the financial year under review your Company suffered a Loss Before Taxes of Rs18247.99 crore as against Rs 1164.98 crore in the previous financial year and Loss AfterTax for the year under review is Rs 13612.32 crore as against Rs 1036.05 crore in theprevious financial year mainly on account of Net Loss on Fair Value Changes of Rs14996.48 crore and Rs 6241.13 crore towards impairment on financial instruments duringthe financial year under review.
During the financial year under review your Company's total revenue on consolidatedbasis stood at Rs 9578.85 crore lower than Rs 12911.66 crore in the previous financialyear. The overall operational expenses for the financial year under review were Rs27641.37 crore as against Rs 14015.67 crore in the previous financial year. OperatingLoss Before Tax for the year under review stood at Rs 18062.52 crore as compared to Rs1104.01 crore in the previous financial year. The Loss After Tax for year under reviewstood at Rs 13455.81 crore as against Rs 965.91 crore in the previous financial year.
MATERIAL CHANGES AND COMMITMENTS AFFECTING THE FINANCIAL POSITION OF YOUR COMPANY
No specific material changes and commitments unless as disclosed in this Reportaffecting the financial position of your Company have occurred between the end of thefinancial year under review i.e. March 312020 and the date of this Report.
Owing to the loss incurred by your Company for the financial year under review nodividend has been declared/recommended on Equity Shares for the financial year ended March312020.
The Dividend Distribution Policy is available on the website of your Company at the URLhttps://www.dhfl.com/docs/ default-source/investors/dividend-distribution-policy/dividend-distribution-policy-jan-2018.pdf and forms part of this Report as Annexure -2.
TRANSFER OF UNCLAIMED DIVIDEND / DEPOSITS AND SHARES TO INVESTOR EDUCATION &PROTECTION FUND (IEPF)
Pursuant to the provisions of Sections 124 and 125 of the Companies Act 2013 rulesmade thereunder and Investor
Education and Protection Fund Authority (Accounting Audit Transfer and Refund) Rules2016 read with the relevant circulars and amendments thereto the amount of dividend /deposits remaining unpaid or unclaimed for a period of 7 (seven) years from the due dateis required to be transferred to the Investor Education and Protection Fund (IEPF) asconstituted by the Central Government.
Further as per the provisions of Section 124(6) of the Companies Act 2013 read withthe Investor Education and Protection Fund Authority (Accounting Audit Transfer &Refund) Rules 2016 the shares in respect of which the dividend has not been claimed forseven (7) consecutive years are required to be transferred by your Company to thedesignated Demat account of the IEPF Authority.
Unpaid / Unclaimed Dividend
During the financial year under review in October 2019 your Company has transferredunclaimed final dividend of Rs 0.08 crore pertaining to the financial year 2011-12 to theInvestor Education and Protection Fund (IEPF) established by the Central Government afterthe expiry of seven years from the date of transfer to unpaid dividend account.
Transfer of Shares to IEPF
Pursuant to the provisions of Section 124(6) of the Companies Act 2013 and the rulesmade thereunder on September 30 2019 your Company transferred 14074 equity shares ofRs 10 each to Investor Education and Protection Fund (IEPF) established by the CentralGovernment in respect of which the dividend remained unpaid/unclaimed for a period ofseven consecutive years i.e. from 2011-12 till the due date of October 2 2019 afterfollowing the prescribed procedure.
During thefinancial year under reviewtill October 2019 an amount of Rs 0.14 crore wastransferred to the Investor Education and Protection Fund (IEPF) established by theCentral Government being the amount of deposits along with interest thereon thatremained unclaimed and unpaid for a period of seven years from the date it became firstdue for payment.
Pursuant to the Order dated December 3 2019 passed by the Hon'ble NCLT Mumbai theCIRP has been initiated for your Company and the moratorium has been commenced underSection 14 of the Code read with Rule 5(b)(i) of FSP Rules effective from November 292019.
As on March 312020 an amount equal to Rs 496780 pertaining to the Interim Dividend2012-13 was transferable by your Company to IEPF. Further 11208 equity shares of Rs 10each in respect of which the dividend remained unpaid/unclaimed for a period of sevenconsecutive years i.e. from interim dividend 2012- 13 till the due date of December 282019 were also required to be transferred to IEPF. Additionally as on March 31 2020amount due for transfer to IEPF was Rs 5927629 with respect to unpaid/ unclaimed matureddeposits along with the interest accrued thereon. However the same have not beentransferred as any alienation of the assets of your Company post insolvency commencementdate is prohibited by the moratorium under Section 14 of the Code as per the legal advisereceived by your Company from the legal advisor. Further as per Section 238 of the Codeprovisions of IBC prevail over any other law to the extent of any inconsistency.Therefore as per the legal advise received by your Company from the legal advisor ifthese amounts are transferred to IEPF post insolvency commencement date (i.e. afterDecember 3 2019) or any time during the moratorium period it would violate the provisionsof Section 14 of the Code read with Rule 5(b)(i) of FSP Rules. Accordingly your Companyhas requested the IEPF Authority vide its letter dated April 15 2020 to advise yourCompany on how the compliance with Section 125(2)(c) of the Companies Act 2013 may beachieved. It has also been brought to the notice of IEPF Authority that it may file aproof of claim in the relevant form of CIRP Regulations for the monetary claims againstyour Company arising prior to insolvency commencement date which will be duly evaluatedon merits by the Administrator. The dues arising from such claims will be addressed on thebasis of the outcome of the CIRP and considered in accordance with the due process as laidout in the Code read with the FSP Insolvency Rules.
Your Company did not undertake any major lending operation in the financial year dueto various external factors. However your Company has made significant efforts tostrengthen its base to commence retail lending activities by initiating review of itspolicies and processes to come out stronger and sharper.
However the COVID-19 pandemic outbreak and the resultant lockdown in the country hadimpacted various functions of your Company including Head Office and branch operationscollections and field visits and also new disbursements. During the initial phases oflockdown till about May 31 2020 wherein strict restrictions on mobility were in forceyour Company's Head Office and branches micro-branches remained shut and could notfunction in compliance with the Government guidelines. Due to swift adaption of alternatetechnology Work from Home (WFH) enablement and other functional and connectivity supporta large number of employees of your Company were able to carry on with the day-to-dayoperations even during the lockdown.
In the month of April 2020 and May 2020 about 32% and 36% of the retail borrowersrespectively availed moratorium. During this period the retail collections of yourCompany were impacted on account of the moratorium availed by the borrowers and due to therestricted movement of collections and field officers. In the month of April 2020 yourCompany's team contacted about 60% of its retail borrowers who had availed moratoriumfacility to explain them about the impact of moratorium on their loan accounts and alsoencouraged them to make the regular payments as per the monthly EMI payment cycle. In June2020 even while the moratorium was extended to the customers extensive awareness andcollections campaign helped your Company reduce its under-moratorium borrower positionfrom 36% in May 2020 to 27% in June 2020 in terms of count.
During the lockdown period your Company also undertook an exercise to identifypotentially stressed accounts and follow-up was ensured. With comprehensive efforts toimprove collections your Company has been able to significantly reduce the quantum of itsoverdue (irregular) retail accounts.
The retail disbursement process of your Company which was commenced in the end ofFebruary 2020 was impacted during the lockdown owing to the restriction on conductingfield visits for due-diligence and other verification processes. The outsourced callcentre activities of your Company were affected during the lockdown however the agencywas able to revive the operations with WFH enablement within 10 days and the teamscommenced the operations in limited way and gradually scaled to near full level by end ofMay 2020.
Your Company has been closely monitoring the prevalent situation and would continue totake all necessary steps as required to maximise the value of your Company and continuethe organisation as a going concern.
Moratorium of loans as per RBI Guidelines
To address and mitigate the burden of debt servicing owing to COVID - 19 andcontinuity of viable business the RBI issued guidelines on March 27 2020 permitting allcommercial banks co-operative banks all-India Financial Institutions and NBFCs includingHousing Finance Companies and micro-finance institutions to give moratorium to customerson payment of installments falling due between March 1 2020 to May 31 2020. Further inview of the extension of lockdown and continuity RBI has further extended the same forthree months i.e. from June 1 2020 to August 312020.
Accordingly as per your Company's policy on providing moratorium to the borrowers yourCompany started offering moratorium to the customers of your Company.
Further RBI vide Circular dated April 17 2020 has issued detailed instructions withregard to asset classification and provisioning norms.
Your Company has complied with the applicable guidelines issued by RBI from time totime in this regard.
Securitisation / Assignment of Loans
During the financial year under review your Company has sold/ assigned multiple poolsof Rs 6108.85 crore. Your Company will however continue to collect the Equated MonthlyInstallments (EMIs) receivable from the borrowers in most of the cases on behalf of theacquirer of the loans and remit the same to the latter after retaining its portion interms of the individual agreements.
In line with the Notification vide no. S.O. 464 (E) dated January 30 2020 issued bythe Ministry of Corporate Affairs (MCA) your Company continues to discharge itsobligations as a servicing or collection agent where it is contractually obliged to do so.As part of such obligation your Company continues to collect the Equated MonthlyInstallments (EMIs) receivable from the borrowers on behalf of the acquirer of the loansand remit the applicable amounts to the latter in line with the underlying transactiondocuments.
COST REDUCTION MEASURES
Cost has been another focus area for your Company during the CIRP period. Your Companyhas undertaken a comprehensive review of all cost elements and all unwanted costs havebeen eliminated while all necessary costs are being optimised. Your Company has formedvarious internal committees to look deeper into activities that have high cost outlaysand how can those costs be optimised. As a result most of the outsourcing agreementsand lease agreements have been reviewed and re-negotiated and there is a concerted focuson grooming employees in multitasking to ensure all non-technical vacancies are filledinternally. As a result of these concerted efforts your Company has not only been able toreduce costs significantly but more importantly your Company has been able to set inmotion a process that will reap rich dividends to your Company in the next few years.
Various officers of your Company have also voluntarily come forward to accept reductionin salary amount willingly because your Company was under CIRP and there was cost cuttingdrive all across.
A) Authorized Share Capital
During the financial year under review there has been change in the authorized sharecapital of your Company. The Authorized share capital of your Company as at March 31 2020stood at Rs 10903900240 divided into (i) 840390024 equity shares of Rs 10/- eachaggregating to Rs 8403900240 and (ii) 2500000 non-convertible redeemable cumulativepreference shares of Rs 1000/- each aggregating to Rs 2500000000.
B) Issued and Paid-up Share Capital
(1) Equity Share Capital
During the year under review there has not been any change in the issued and paid-upshare capital of your Company. The issued and paid-up equity share capital of your Companyas at March 31 2020 was Rs 3138230240 divided into 313823024 equity shares of Rs10/- each.
Your Company has neither issued any shares with differential voting rights nor anySweat Equity shares during the financial year under review.
(2) Preference Share Capital
No preference shares have been issued by your Company so far.
Your Company vide special resolution passed by the Members of your Company underSection 180(1)(c) of the Companies Act 2013 at the 33rd Annual GeneralMeeting held on July 21 2017 authorized the Board of Directors to borrow money upon suchterms and conditions as the Board may think fit in excess of the aggregate of paid-upshare capital and free reserves of your Company upto an amount of Rs 200000 crore andthe total amount so borrowed shall remain within the limits as prescribed by NationalHousing Bank.
Your Company had issued and allotted from time to time various non-convertibledebentures sub-ordinated debts perpetual debts by way of public issue and privateplacement basis However during the financial year under review your Company did notborrow through any instrument such as Non-Convertible Debentures External CommercialBorrowings Masala Bonds Subordinate Debt Perpetual Debt bank borrowings etc.
Upon commencement of the CIRP of your Company interim moratorium / moratorium underSection 14 of Insolvency and Bankruptcy Code 2016 (IBC Code) was imposed with effect fromNovember 29 2019. The moratorium on initiation and continuation of legal proceedingsincluding debt enforcement action ensures a stand-still period during which creditorscannot resort to individual enforcement action. The interest on the debt borrowed has alsoceased to accrue from the date of commencement of CIRP and no interest shall beapplicable for the CIRP period as per legal opinion obtained by your Company. Further anysuch payment of interest and principal may amount to according preferential treatment to aset of creditors to the prejudice of other stakeholders. In accordance with law allcreditors are bound by the process laid out under the IBC Code.
Your Company is a deposit accepting Housing Finance Company registered with NationalHousing Bank (NHB) however your Company has stopped accepting or renewing depositsw.e.f. May 20 2019 due to downgrading of its credit rating below the investment grade asprescribed under Housing Finance Companies (NHB) Directions 2010 and further directionsfrom authorities. The total deposits reduced by 23% to Rs 5355.72 crore as on March 312020 as compared to Rs 6915.55 crore as on March 312019.
Your Company has not borrowed any funds through Commercial Papers during the financialyear under review. As at March 31 2020 Commercial Papers outstanding amount stood at Rs100 crore (Face Value).
SECURITY COVERAGE FOR THE BORROWINGS
The security details of the aforesaid secured borrowings made by your Company arementioned at Note No. 17 and 18 in the Notes to accounts forming part of the audited(standalone) financial statements for the financial year ended March 312020.
Due to a series of defaults in repaying debts/ borrowings your Company sufferedconsistent downgrades in its credit ratings of various loan facilities/financialinstruments since February 2019. On June 5 2019 the credit rating was downgraded todefault grade.'
PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS
Your Company being a housing finance Company the disclosure regarding particulars ofloans made guarantees given and securities provided in the ordinary course of itsbusiness is exempted as per the provisions of Section 186(11) of the Companies Act 2013.Details of the investments made by your Company pursuant to the provisions of Section 186of the Companies Act 2013 are given in the Note No. 9 in the Notes to accounts formingpart of the audited (standalone) financial statements for the financial year ended March312020.
As required under Housing Finance Companies (NHB) Directions 2010 [NHB Directions2010] your Company is presently required to maintain a minimum capital adequacy of 13% ona stand-alone basis. The following table sets out your Company's Capital Adequacy Ratiosas at March 31 2018 2019 and 2020:
During the year under review the National Housing Bank amended the capital adequacyrequirements for Housing Finance Companies (HFCs). Accordingly the minimum stipulatedcapital adequacy ratio for the year ended March 312020 was increased from 12% to 13% andthe minimum Tier I capital was increased from 6% to 10%. Going forward as stipulated theminimum capital adequacy ratio for HFCs would increase to 14% on or before March 312021and 15% on or before March 312022.
The Capital Adequacy Ratio (CAR) of your Company was at -1.83 % as on March 31 2020as compared to the regulatory requirement of 13% as disclosed at point no. 69.3.1 in theNotes to Accounts Disclosure Required by the National Housing Bank.
The NHB Directions 2010 also require that your Company transfers minimum 20% of itsannual profits to a reserve fund. Due to net loss incurred during the financial year underreview no transfer was made by your Company.
Pursuant to Section 14 of the Code read with Rule 5(b)(ii) of the FSP Rules the licenseor registration which authorises the financial service provider to engage in the businessof providing financial services shall not be suspended or canceled during the moratoriumperiod and the Corporate Insolvency Resolution Process.
In view of the same while your Company could not fulfill the requirements of CAR andtransfer to reserve fund as per NHB requirements the licenses or similar grants given toyour Company to operate as a Housing Finance Company by any authority is not to besuspended or terminated on the grounds of insolvency during the CIRP.
NON-PERFORMING ASSETS AND PROVISIONS FOR CONTINGENCY
The following table sets forth your Company's gross NPAs net NPAs cumulativeprovisions and write-offs for the periods indicated:
Recovery & Collections
During the earlier management's tenure the follow up of wholesale accounts was onlyfrom Head Office. In the present CIRP period the wholesale accounts have been allotted tothe zonal heads where the Project is operational. Your Company has formed distinct teamsfor retail and wholesale with task-force consisting of legal credit operations andcollections with focused number of Projects. Under retail NPA monitoring and recoveryaction has been brought under separate vertical and the speciliased teams are workingtowards maximizing the recovery. Amongst various actions being taken now your Company isfocusing on actions such as asset tracing attachment of salary/cashflowof defaultersaction against guarantors willful defaulter actions repossession of properties andauctioning thereof under the Securitization and Reconstruction of Financial Assets andEnforcement of Security Interest Act 2002 (SARFAESI Act). Your Company has a very robustand comprehensive collections setup comprising of call centers field agents law firmsand auctioneers to deal with various stages of default while adhering to NHB guidelines.Your Company has been filing requisite particulars of mortgaged properties with CERSAI asper the prevailing guidelines issued by CERSAI. Major CERSAI registration action wasinitiated during the CIRP and the backlog left by the previous management is presentlybeing cleared.
Your Company has established a closed monitoring mechanism for all the Projectsfinanced by them and periodical visits are being initiated. The legal actions are beinginitiated against defaulting borrowers including the directors of the defaulting borrower.
The Investment Committee of your Company is responsible for approving investments inline with the Investment Policy and limits as set out by the erstwhile Board / theAdvisory Committee from time to time. The Investment Policy is reviewed and revised inline with the market conditions and business requirements from time to time. Theinvestment function is carried out primarily to support the core business of housingfinance to ensure adequate levels of liquidity and to maintain investment in approvedsecurities in respect of public deposits raised as per the norms of National Housing Bank.During the earlier management's tenure till October 2019 your Company was havingliquidity issues and hence the treasury functions were curtailed. During CIRP the riskappetite of your Company was assessed carefully by the Advisory Committee along with theCommittee of Creditors (CoC) and a conscious decision of parking the surplus funds withovernight fund schemes of mutual funds and/or deposits with banks has been taken.
During the financial year under review your Company made a loss of Rs 2 crore (preCIRP) from mutual fund and other treasury operations and earned Rs 204 crore by way ofinterest on bonds (including SLR bonds) and deposits placed with banks.
As per National Housing Bank guidelines Housing Finance Companies are required tomaintain Statutory Liquid Ratio (SLR) in respect of public deposits raised. Currently theSLR requirement is 13% of the public deposits. As at March 312020 your Company hasinvested Rs 721.28 crore (book value - gross) in approved securities comprising ofgovernment securities government guaranteed (State and Central) bonds State DevelopmentLoans and by way of bank deposits for Rs 588.86 crore. It is being maintained within thelimits prescribed by National Housing Bank.
SUBSIDIARIES JOINT VENTURES AND ASSOCIATE COMPANIES
As on March 31 2020 your Company has four (4) wholly owned subsidiaries viz. DHFLAdvisory & Investments Private Limited (DAIPL) DHFL Investments Limited (DIL) DHFLHoldings Limited (DHL) DHFL Changing Lives Foundation (DCLF) a Section 8 Company; one(1) joint venture viz. Pramerica Life Insurance Limited (PLIL) (formerly known as DHFLPramerica Life Insurance Company Limited) and one (1) associate Company viz. DHFLVentures Trustee Company Private Limited (DHFL Ventures).
Pursuant to the provisions of Section 129(3) of the Companies Act 2013 your Companyhas prepared Consolidated Financial Statements of your Company which forms part of thisAnnual Report. However based on an Agreement dated March 312017 executed by theerstwhile management the financial statements of DIL have never been consolidated withyour Company as per decision of erstwhile management of your Company. Further a Statementcontaining salient features of financial statements of the subsidiaries joint ventureentities and associate companies in the prescribed format AOC-1 pursuant to theprovisions of the Companies Act 2013 read with the Companies (Accounts) Rules 2014 formspart of this Report as Annexure - 3. The Statement also provides details ofperformance and financial position of each of these companies.
In accordance with the provisions of Section 136 of the Companies Act 2013 read withthe applicable rules the audited accounts of the subsidiary/ies joint venture entity andassociate Company are available on your Company's website i.e. www.dhfl.com.
These documents shall also be available for inspection till the date of the ensuingAnnual General Meeting.
During the financial year under review your Company under erstwhile management soldthe entire stake held by it in the Joint- Venture Company DHFL Pramerica Asset ManagersPrivate Limited (presently known as PGIM India Asset Management Private Limited) (i.e.17.12% directly and 32.88% through DAIPL) and DHFL Pramerica Trustees Private Limited(presently known as PGIM India Trustees Private Limited) to PGLH of Delaware and thetransaction was consummated on July 312019. Consequent upon said disinvestment on July31 2019 both DHFL Pramerica Asset Managers Private Limited and DHFL Pramerica TrusteesPrivate Limited ceased to be Joint Venture companies of your Company.
Further during the financial year under review your Company under erstwhilemanagement completed the sale/transfer of its entire stake held in Aadhar Housing FinanceLimited (AHFL) (formerly DHFL Vysya Housing Finance Limited) i.e. 2301090 equity shares(equivalent to 9.15% of AHFL) to BCP Topco VII Pte. Ltd. (BCP Topco) which is controlledby private equity funds managed by Blackstone and consummated the transaction on June 102019. Consequent upon sale/transfer on June 10 2019 AHFL ceased to be an associatecompany of your Company. BCP Topco had withheld certain amount from the total saleconsideration owing to alleged non-fulfillment of certain conditions by the erstwhilepromoters group. During the CIRP your Company has been making various efforts to recoverthe said withheld amount from BCP Topco.
Your Company under erstwhile management during the current financial year alsocompleted the sale/transfer of its entire stake held in Avanse Financial Services Limited(Avanse) i.e. 19250719 (30.63%) equity shares to Olive Vine Investment Limited anaffiliate of the Warburg Pincus group and consummated the transaction on July 30 2019.Consequent upon sale/transfer on July 30 2019 Avanse ceased to be an associate companyof your Company.
Your Company has a digital transformation program which comprises of technologyenablers for business growth and operational efficiency. The journey towards digitaltransformation involves enhancing customer and employee experience by strengtheningenterprise architecture and expanding the digital footprint to meet evolving businessneeds. Deposit part of the Tech 2.0 program was successfully implemented in 2017 whilerest of the application such as loan Accounting Treasury etc. were not implemented.Entire Tech 2.0 program was reviewed by third party in CIRP and it was decided toimplement some of the applications on the basis of cost stage of the implementation andtime to implement. Rest of the application where cost and time implication are high havebeen kept in abeyance.
As part of this program best-fit solutions were being implemented/ enhanced in theareas of (i) customer relationship management to achieve higher customer satisfaction andenhanced marketing and sales effectiveness; (ii) digital channels to provide for effectiveinteraction between your Company and its customers and business partners/agents (iii)enhancing deposits system (iv) complete digitization of processes and document managementto facilitate the centralization of processes (v) Mobility solutions for collectionsmanagement customer on-boarding and technical verifications (vi) loan origination andmanagement system middleware enhancements (viii) Integration with fintech solutions forimproving operational efficiency.
Your Company has established a multi level customer query and grievance redressalprocess which provides many alternative channels for the customer to approach yourCompany. Details of the same are regularly updated on your Company's web-site. Customerservice and monitoring process have been accorded a paramount importance across theorganizational hierarchy with the prime objective of prompt and efficient services to thecustomer.
3R INITIATIVES TAKEN BY YOUR COMPANY
Your Company has taken up a project Mission 3R (Reassess ReorientRestructure) which has been launched to improve operational efficiency. Purpose ofthe mission is to enhance revenue of your Company achieve operational efficiency improveproductivity and to ensure compliance. Cross functional teams from following functions ofyour Company (with inputs from CIRP advisors) were formed to brainstorm on ideas toachieve the program objectives:
- Sales Credit Operations;
- Collections/ Recovery RCU Compliance Legal;
- Wholesale Technical Liabilities Accounts;
- HR Admin IT Audit Treasury
The initiatives would be implemented and prioritized based on impact of initiativeease of implementation and cost of implementation. Outcomes expected are as follows:
- Enhanced productivity and utilization of manpower across functions;
- Leaner Organization Structure;
- Cost Reduction / Lower cost to serve;
- Lesser redundancy and repetition of tasks;
- Automation / Digitization of manual tasks
Human Resources are the most important asset of any financial services organization. Inthe backdrop of the crisis that your Company was in your Company faced increasedattrition during the first half of the financial year. While the challenges ensued yourCompany conducted various restructuring activities internally to manage the people crisis.For all key exists the succession plan triggered in and your Company was able toimmediately fill all key leadership positions ensuring continuity and stability. Theerstwhile management was unable to fill up the KMPs and the positions vacated by thesenior management who left your Company in the first half of the financial year. Duringthe CIRR your Company was also able to attract talent through lateral hiring to fill keymanagement positions which have enabled your Company to bring in best Industry practicesof governance and compliance.
Your Company also undertook proactive measures to ring-fence critical talent through aDeferred Incentive Plan which was initiated during the ICA process and effectivelyfinalized during the CIRP This has helped your Company to reduce attrition significantlyand has also created a positive impact on business operations and continuity.
Your Company also actively encouraged cross utilization of resources to avoid the needof hiring from the market and also to nurture multi-tasking skills in employees. Thisensured that all employees of your Company were productively employed and also helpedyour Company save on hiring costs and wherever necessary strengthened its hiring processto ensure economical quality hires.
While being cost conscious during the CIRP period your Company implemented projectsthrough cross functional teams to help it move into the next phase of leadership andstrategic partnership. This ensures the system and its machinery to remain active for thebusiness continuity and growth. Furthermore your Company has also drawn out its asuccession plans to maintain business readiness for the next stages of change.
During this period your Company re-assessed all its internal policies and practicesand brought in measures to make them more compliant as well as mitigate risks that it wasbeing exposed to.
During the end of the fiscal your Company along with the entire globe faced anunprecedented situation of a pandemic. Business Continuity and Employee Safety Plan wasactivated to ensure compliance with all national and local guidelines at the same timemaintaining continuity of business operations specific functional guidelines weredesigned. Continuity of all functions was ensured without any downtime through a robustBCP strategy and collaborative cross-functional efforts.
Engagement through effective communication
Your Company also enhanced its internal communication channels to ensure effectivetwo-way communication for information to reach the last mile. This was done to ensure allinformation about large changes in your Company are available to employees from managementfirst rather than external information sources which may not always be reliable.
Engagement programs focusing on learning and alignment of your Company to the largercommunity were put together for employees of your Company to foster confidence amongemployees as well as cross-functional programs to boost team- spirit among peers.
With the commencement of CIRP the continuous engagement with the entire workforcethrough Webinar/Townhall meetings was initiated to ensure constant flow of information andkeep the morale of the workforce high and reduce attrition.
With the various interventions throughout the functions your Company saw a sharpdecrease in attrition. As on March 31 2020 your Company's total workforce was 2179 asagainst 3320 on March 312019. The manpower is in line with your Company's operations andgeographical reach especially in Tier II and Tier III cities towns and peripheralsuburbs.
Learning and Development
The Learning and Development (L&D) department's role is to align employee goals andperformance with that of your Company's. The department is responsible for identifyingskill gaps among employees and teams and then develop training modules and deliver them tobridge those gaps basis your Company's learning strategy.
The department operates on the foundation that your Company's employees are thegreatest asset. The department plays a critical role liaising with cross functional teamsto identify employee learning needs ensure the employees are able to meet the challengesof their jobs and that they are aligned to the business goals of your Company. It has beenworking closely with the learners to ensure the training interventions improveproductivity and motivate them to perform with renewed vigor and zeal. The L&D team isevolving to constantly upgrade their skills and knowledge and utilize the knowledge andexpertise of Subject Matter Experts from the different functions to meet your Company'sgoal. The team has utilized their in-house capability to develop content and train theemployees on their online learning management system classroom and virtually through thewebex platform. The L&D team has been constantly training the employees on the changesin the policies and documentation process to ensure all operate with the new plans.
In the last financial year training was imparted to 2100 on roll employees and 2543off roll employees covering all Mandatory Modules which ensures the employees are awareand updated on important policy guidelines namely Information Security Know Your Customer& Anti Money Laundering Prevention of Sexual Harassment and Code of Business Ethics.
The Mandatory Induction program forthe new joinees is conducted Online as part of theemployee on boarding it provides an overall view of your Company's vision and missionensures the new joinee is aware and updated of the important policy guidelines namelyInformation Security Know your Customer and Anti Money Laundering Prevention of SexualHarassment and Code of Business Ethics.
In keeping with its importance and in compliance with National Housing Bank normstrainings on Know Your Customer Anti Money Laundering with a total coverage of 2075employees were also imparted at all levels within your Company.
Taking concrete steps based on the study findings is helping your Company in buildinga stronger and more engaged workforce. Customer focus remains at the core of all L&Dinitiatives.
Your Company's Human Resources initiatives and L&D systems are designed to ensurean active employee engagement process leading to better organizational capability andvitality for maintaining a competitive edge and in pursuing its ambitious growth plans.
To further enable insurance product solicitation procuring and servicing on behalf ofyour Company 203 employees were identified across Branch Network of your Company to bethe Insurance - Specified Person(s)' who were sponsored post commencement of CIRPto undergo Insurance Regulatory and Development Authority of India (IRDAI) prescribedmandatory 75 Hours of Training and Examination to fulfill requirements of obtainingCertificate of Registration with IRDAI.
The Board of Directors of your Company has been superseded by the Reserve Bank of Indiaon November 20 2019 as noted above. The ratio of the remuneration of each erstwhiledirector holding position of director during the year under review to the medianemployees' remuneration and other details in terms of Section 197(12) of the CompaniesAct 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 as amended by the Companies (Appointment and Remuneration ofManagerial Personnel) Amendment Rules 2016 forms part of this Report as Annexure -4.
The statement containing particulars of employees as required under Section 197(12) ofthe Companies Act 2013 read with Rule 5(2) and Rule 5(3) of the Companies (Appointmentand Remuneration of Managerial Personnel) Rules 2014 as amended by the Companies(Appointment and Remuneration of Managerial Personnel) Amendment Rules 2016 forms part ofthis Report. However as per first proviso to Section 136(1) of the Act and second provisoof Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel)Rules 2014 the Report and Financial Statements are being sent to the Members of yourCompany excluding the said statement. Any Member interested in obtaining a copy of thesaid statement may write to the Secretarial Department at the Registered Office of yourCompany.
EMPLOYEES STOCK OPTION SCHEME (ESOP)/ EMPLOYEE STOCK APPRECIATION RIGHTS (ESARs)
Your Company had formulated employee stock option schemes/ employee stock appreciationrights plan with an intent to reward the employees of your Company for their performanceand to motivate them to contribute to the growth and profitability of your Company.
During the financial year under review all the Employee Stock Appreciation Rights(ESARs) granted under Grant IV and Grant VI of the ESAR Plan 2015 were completed onaccount of exercise/ lapse from time to time of all the options granted thereunder. Theapplicable disclosures as stipulated under SEBI (Share Based Employee Benefits)Regulations 2014 (SEBI SBEB Regulations) for the financial year under review form partof this Report as Annexure - 5 and in terms of Regulation 14 of SEBI SBEBRegulations the said details are also available on the website of your Company at the URL:https://www.dhfl.com/investors/esos- esar-disclosures
Your Company has received a certificate from its auditors confirming that the EmployeeStock Options Schemes/ Employee Stock Appreciation Rights Plan have been implemented inaccordance with SEBI SBEB Regulations and is as per the respective resolutions passed bythe Members of your Company. The said certificate would be available for the inspection bythe Members of your Company.
DISCLOSURE UNDER SUB-SECTION (3) OF SECTION 134 OF COMPANIES ACT 2013 READ WITH RULE8(3) OF THE COMPANIES (ACCOUNTS) RULES 2014
A. Conservation of Energy
The operations of your Company are not energy intensive. However your Company hasalways been conscious of the need for conservation of energy and has been sensitive inmaking progress towards this initiative. Adequate measures are always taken to ensureoptimum utilisation and maximum possible saving of energy at the offices and branches ofyour Company.
Your Company constantly improves on and installs various energy saving devices. YourCompany replaces old electrical drives and has been switching from conventional lightingsystems to LED lights at most of the branches in metro areas which also conserve energy.
B. Technology Absorption
Your Company has taken positive steps towards digital transformation to enhancecustomer experience provide superior customer service improve operational efficiency tosupport evolving business needs. However during CIRP an end-to-end InformationTechnology review was undertaken through a third party expert and the gaps were identifiedin the legacy as well Tech 2.0 which has been under implementation for past 5 years.During the CIRP period some of the gaps are being addressed by initiating appropriate BPRmeasures and enhancing the current systems.
By expanding digital footprint your Company has embraced various mobility solutions toimprove productivity and efficiency in customer on boarding collections and technicalverification processes. In addition your Company is doing continuous enhancement of thecore technology architecture to provide a scalable future ready platform to support andenable your Company's growth. The newtechnology platform covers all functions startingfrom sales to loan underwriting and management customer relationship managementfinancial accounting and collections management.
Your Company is also adopting various analytics solutions to provide better insightsabout its customers and internal operations and take informed decisions based on advancedand predictive analytics especially during the CIRP.
C. Foreign Exchange Earnings and Outgo
There were no foreign exchange earnings during the year.
During the financial year under review your Company's expenditure in foreign currencydecreased by 57.09% from Rs 198.79 crore in the financial year ended March 312019 to Rs85.30 crore for the financial year ended March 31 2020. The decrease in foreign exchangeexpenses was due to non payment of interest on external commercial borrowings.
Your Company has insured its various properties and facilities against the risk offire theft risk of financial loss due to fraud and other perils etc. and has alsoobtained Directors' and Officers' Liability Insurance Policy which covers your Company'sDirectors and Officers (employees in managerial or supervisory position) against the riskof financial loss including the expenses pertaining to legal representation expensesarising in the normal course of business. Also the Public Liability policy availed coversthe legal liability arising out of third party bodily injury or third party propertydamage in Company premises.
Further your Company has obtained money policy to cover money in safe and tillcounter and money in transit for your Company's branches and various offices. Allthe vehicles owned by your Company are also duly insured.
Your Company also has in place a group mediclaim policy for its employees and theirdependent family members as well as group term life and group personal accident policieswhich provide uniform benefits to all the employees.
Your Company is registered with Insurance and Regulatory Development Authority of India(IRDAI)to act as a Corporate Agent (Composite) for distribution and solicitation of lifeand general insurance products of Pramerica Life Insurance Limited (formerly DHFLPramerica Life Insurance Limited) Cholamandalam MS General Insurance Company Limited andNavi General Insurance Limited (formerly DHFL General Insurance Limited) respectively.However duringtheCIRP all the above engagements are being reviewed.
Your Company serves as group administrator for group health and/or personal accidentinsurance policy for its customers and also solicits property (fire & standard perils)retail general insurance product to ensure adequate insurance coverage for the propertiesfinanced during the tenure of the loan.
Your Company also has in place a policy on Open Architecture for Retail InsuranceBusiness in terms of the Insurance Regulatory and Development Authority of India(Registration of Corporate Agents) Regulations 2015 which lays down the manner ofsoliciting and servicing insurance products and addresses the manner of adopting thephilosophy of open architecture and its implementation.
VIGIL MECHANISM (WHISTLE BLOWER POLICY)
Pursuant to the provisions of Section 177 (9) and (10) of the Companies Act 2013 readwith Rule 7 of Companies (Meetings of Board and its Powers) Rules 2014 and Securities andExchange Board of India (Listing Obligations and Disclosure Requirements) Regulations2015 your Company has in place a Whistle Blower Policy which provides for a vigilmechanism that encourages and supports its Directors and employees to report instances ofillegal activities unethical behavior actual or suspected fraud or violation of yourCompany's Code of Conduct and Code of Business Ethics.
The said policy is available on the website of your Company at the URL:https://www.dhfl.com/docs/default-source/investors/whistle-blower-policy/whistle-blower-policy-revised.pdf
During the CIRP your Company appointed a Vigilance Officer and reviewed the StaffAccountability Policy with the intent to implement the relevant guidelines in true spirit.
PREVENTION PROHIBITION & REDRESSAL OF SEXUAL HARASSMENT OF WOMEN AT WORKPLACE
As per the requirements of the Sexual Harassment of Women at Workplace (PreventionProhibition and Redressal) Act 2013 your Company has in place a Policy on PreventionProhibition & Redressal of Sexual Harassment of Women at Workplace and has a robustmechanism to redress the complaints reported thereunder. An Internal Complaints Committeehas been constituted which comprises of internal members and an external member who hasexperience in the subject field.
Pursuant to the provisions of Section 22 of the Sexual Harassment of Women at Workplace(Prevention Prohibition and Redressal) Act 2013 the complaints received thereunder andthe details relating thereto are as follows:
a. Number of complaints received in the year: Nil
b. Number of complaints disposed of during the year: Nil
c. Number of cases pending more than ninety days: Nil
d. Number of workshops or awareness programmes against sexual harassment carried out:Your Company on a regular basis sensitizes its employees on prevention of sexualharassment through various workshops awareness programmes which are conducted at branchregional zonal and national level.
e. Nature of action taken by the employer or district officer: Nil
Your Company's Risk management setup was strengthened and made effective with thecommencement of CIRR
Your Company has a Risk Management Committee (RMC) which post commencement of the CIRPhas been revived with the approval of the Advisory Committee. CRO was made to report tothe Chief Executive Officer and directed to establish Operational Risk ManagementCommittee (ORMC) Credit Risk Management Committee (CRMC) and Information SecurityCommittee that comprises of members of its senior management team and these wereestablished during CIRP. These committees meet on a periodic basis to assess the riskmanagement system and the emergent risks your Company is exposed to.
Your Company is striving to manage its risk in a proactive manner and has adoptedstructured and disciplined approach to risk management by developing and implementing riskmanagement framework. With a view to manage its risk effectively your Company has put inplace an Enterprise Risk Management Policy which covers a formalized Risk ManagementStructure along with other aspects of Risk Management i.e. Credit Risk ManagementOperational Risk Management and Fraud Risk Management. The Risk Management Committee ofyour Company on periodic basis assess the risk management systems processes andminimization procedures of your Company. During the financial year under review duringthe CIRP period the risk management policy of your Company was revised to align the samewith the changing business environment.
During thefinancial year under review as per the NHB requirement your Companyappointed the Chief Risk Officer (CRO) in July 2019 and set-up the Enterprise Risk team inSeptember 2019. The Internal Audit function continues to report to the CRO as an interimarrangement during the presently ongoing CIRP process.
The Comprehensive Risk Management Policy was amended on October 17 2019 to create theEnterprise Risk Management Policy to establish the Risk Management structure and spell outthe roles and responsibility of ORMC and CRMC. Further the details of various aspects ofOperational and Credit Risk Management along with assessment process and procedures wereincluded in the subject policy.
BUSINESS CONTINUITY PLAN
Your Company has put in place a new Business Continuity Policy (BCP) framework in placewhich is based on the 4 pillars viz. People Processes Information Technology &Infrastructure and Vendor Management. As per the new Policy the BCP structure has beenmade more clear and precise. The new policy framework encompasses a wide range of subjectmatters as follows:
- BCP planning and readiness for all types and levels of disasters;
- BCP Invoking - redefined communication structure to remove the funnel approach andenable real-time action and reporting;
- Business Impact Analysis (BIA) - with details of activities and processes that wouldbe carried out during disaster;
- Function Continuity Plan - to ensure continuity of each function's operations againstthe Business Impact Analysis (BIA);
- End-to-end BCP Management through R A C I matrix (Responsible AccountableConsult Inform) to cover People Processes Information Technology & Infrastructureand Vendor Management;
- Vendor Contingency Plan - Vendor Readiness and BCP management;
- BCP Information - Version Control; Common FTP Server (restricted users) Knowledgebase on Policy (workline for all employees) Policy extract on website (all stakeholders).
Adherence to NHB guidelines - Circular-90-2017-18 on presence of BCP for IT;
- A BCP Committee comprising of top management team of your Company has been formed tooversee the BCP implementation and monitoring.
NOMINATION (INCLUDING BOARDS' DIVERSITY) REMUNERATION & EVALUATION POLICY (NREPOLICY) & PERFORMANCE EVALUATION
Priorto supersession of the Board of Directors of your Company by the RBI on November20 2019 your Company had combination of Executive and Non-Executive Directors as well asIndependent Directors including a Woman Independent Director on its Board of Directors.
The Nomination (including Boards' Diversity) Remuneration & Evaluation Policy (NREPolicy) of your Company has been formulated as per the provisions of Section 178 ofCompanies Act 2013 and Securities and Exchange Board of India (Listing Obligations andDisclosure Requirements) Regulations 2015. Additional details with respect to the saidpolicy are given in the Report on Corporate Governance forming part of this Annual Report.
The said policy is available on the website of your Company at the URL:https://www.dhfl.com/docs/default-source/investors/ nomi nation-/in cluding-boards-diversity)-remune ratio n-and- evaluat ion-policy-of-the-company/nomination-remuneration- evaluation-policy-revised pdf
The Board of Directors of your Company was superseded by RBI on November 20 2019 asnoted above. No separate meeting of the Independent Directors was held during thefinancial year under review nor has the evaluation of performance of Directors Board orthe Committees thereof was carried out till the appointment of Administrator by RBI.
Since your Company is undergoing Corporate Insolvency Resolution Process under the IBCCode the role of the Board and Committees is being fulfilled by the Administratorsupported by the Advisory Committee.
CORPORATE SOCIAL RESPONSIBILITY
Your Company has in place a Corporate Social Responsibility Policy (CSR Policy) as perthe provisions of the Companies Act 2013 and Companies (Corporate Social ResponsibilityPolicy) Rules 2014 as amended which inter-alia lays down the guidelines and mechanismfor undertaking socially useful projects for welfare and sustainable development of thecommunity at large.
Education being the key to social empowerment your Company had adopted Early ChildhoodCare and Education (ECCE) as a core thematic area for its CSR and implemented it throughthe wholly owned subsidiary of your Company viz. DHFL Changing Lives Foundation. Furtherin keeping with its presence in the financial sector of the country and the sectorsresponsibility to help the lower income segment your Company adopted FinancialLiteracy and Skills Development as two other key areas for its CSRinvestments.
Your Company has been incurring losses during the last two financial years. The losssuffered by your Company during the year under review was Rs 13612.32 crore vis-a-visloss of Rs 1036.05 crore for the financial year 2018-19. During the year under reviewyour Company faced severe liquidity crunch which inter-alia resulted in defaults inpayment of dues to the deposit holders lenders etc. consequently the credit rating ofyour Company has been downgraded to the default rating in June 2019.
The Reserve Bank of India (RBI) superseded the Board of Directors of your Company asmentioned earlier in the Report.
In view of the above your Company could spend only Rs 0.06 crore during the year underreview and it was not possible to spend the full amount as required under Section 135 ofthe Companies Act 2013. Your Company is however committed to remain a sociallyresponsible organization supporting the national aspirations and missions. The AnnualReport on CSR activities forms part of this Report as Annexure - 6.
LISTING OF SHARES
The Equity Shares of your Company continue to remain listed on BSE Limited and theNational Stock Exchange of India Limited.
The distribution network of your Company is designed to reach out to the Lower andMiddle Income (LMI) segment and tap a growing potential customer base throughout India.Your Company maintains a pan-India marketing and distribution network with a presenceacross at 305 locations throughout India including 182 Branches 99 Micro Branches 17Zonal/ Regional/CPU Offices 4 Disbursement Hubs 1 Registered Office 1 Corporate Officeand 1 National Office as on March 31 2020. Additionally as on March 31 2020 yourCompany had international representative offices located in London and Dubai. However aspart of expenditure control and efficicency improvement these overseas representativeoffcies are in the process of being closed during the CIRP period.
DIRECTORS AND KEY MANAGERIAL PERSONNEL
The Reserve Bank of India superseded the Board of Directors of your Company andappointed Mr. R. Subramaniakumar as the Administrator (the Administrator) of your Companyon November 20 2019 and accordingly powers of the Board are vested in the Administrator.Further RBI in exercise of powers conferred under Section 45-IE 5(a) of the RBI Act1934 on November 22 2019 constituted a three member Advisory Committee to assist theAdministrator of your Company in discharge of his duties. The members of the AdvisoryCommittee are Dr Rajiv Lai I erstwhile Non-Executive Chairman IDFC First Bank Ltd. Mr.N S Kannan Managing Director and CEO ICICI Prudential Life Insurance Co. Ltd. and Mr.NS Venkatesh Chief Executive Association of Mutual Funds of India.
The Board of Directors of your Company as at November 20 2019 (i.e. the date ofsupersession of the erstwhile board of directors) consisted of six Directors out of whichthree were Independent Directors two were Non-Executive Directors and one was ExecutiveDirector designated as a Chairman & Managing Director.
The following changes occurred in the composition of the erstwhile Board of Directorsand Key Managerial Personnel during the financial year under review and until the date ofthis Report in addition to the changes as mentioned above:
Members of your Company at the 35th Annual General Meeting (AGM) held onSeptember 28 2019 had approved the appointment of the following as directors (1) Mr. AlokKumar Misra (DIN: 00163959) Mr. Sunjoy Joshi (DIN: 00449318) both effective from March26 2019 and Dr. Deepali Pant Joshi (DIN: 07139051) effective from May 8 2019 wereappointed as Independent Directors of your Company for a period of five consecutive years(2) Mr. Srinath Sridharan (DIN: 03359570) was appointed as a Non-Executive Director ofyour Company effective from March 26 2019 liable to retire by rotation; and (3) Mr.Dheeraj Wadhawan (DIN: 00096026) Non-Executive Director who retired by rotation at thesaid AGM and being eligible offered himself for re-appointment and was re-appointed. Allthese directors were superseded by RBI exercising the powers vested with RBI as explainedearlier in the Report.
During the year under review no stock options were issued to any of the Directors ofyour Company.
During the year under review Mr. Vaijinath M Gavarshetty was appointed as the ChiefExecutive Officer (CEO) of your Company effective from October 12019 by the erstwhileBoard of Directors of your Company. Mr. Vaijinath M Gavarshetty assumed his office as CEOof your Company with effect from November 21 2019.
The positions of Chief Financial Officer and Company Secretary were vacant for long andthe following were appointed by Administrator and confirmed / ratified by Committee ofCreditors (COC) as the power for appointment is vested with COC.
Mr. Sunil Kumar Bansal was appointed as the Chief Financial Officer of your Companywith effect from December 4 2019 and Mr. Satya Narayan Baheti was appointed as theCompany Secretary of your Company with effect from December 9 2019.
During the year 2019-20 prior to supersession of Board of Directors by RBI 10 (Ten)Board Meetings were convened and held. The intervening gap between the said Board Meetingswas within the period prescribed under the Companies Act 2013 and the Securities andExchange Board of India (Listing Obligations and Disclosure Requirements) Regulations2015. The details of the Board composition its meetings held during the year along withthe attendance of the respective Directors thereat are set out in the Report on CorporateGovernance forming part of this Annual Report.
Prior to the supersession of the Board of Directors by the RBI your Company had a dulyconstituted Audit Committee as per the provisions of Section 177 of the Companies Act2013 and provisions of the Securities and Exchange Board of India (Listing Obligations andDisclosure Requirements) Regulations 2015. The erstwhile Board of Directors also hadother committees which included Nomination and Remuneration Committee Stakeholders'Relationship Committee Risk Management Committee Finance Committee Corporate SocialResponsibility Committee Review Committee for Declaration of Wilful Defaulters to CreditInformation Companies (CICs) Special Committee for Sale of Strategic Investments andSpecial Committee for Resolution Plan.
The details of the composition of the erstwhile Committees of the Board including theirrespective constitution role as existing till November 20 2019 are included in theReport on Corporate Governance forming part of this Annual Report.
With the Corporate Insolvency Resolution Process (CIRP) Advisory Committee functionsas various sub committees as well excepting those exempted for Company under CIRP. Manyitems which were not regularly monitored by erstwhile Board has also been taken up fordiscussion in the advisory Committee Meeting.
RBI vide its Press Release dated November 22 2019 in exercise of the powers conferredunder Section 45 IE 5(a) of the RBI Act constituted a three (3) member Advisory Committeeto assist the Administrator in discharge of his duties and to advise the Administrator inthe operations of the your Company during the Corporate Insolvency Resolution Process(CIRP).
Further RBI vide Press Release dated December 4 2019 notified that RBI has decidedthat even after initiation of CIRP of your Company vide NCLT order dated December 3 2019the Advisory Committee shall continue as the Advisory Committee constituted under Rule 5(c) of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of FinancialService Providers and Application to Adjudicating Authority) Rules 2019. The AdvisoryCommittee shall advise the Administrator in the operations of your Company during theCorporate Insolvency Resolution Process (CIRP).
The Administrator is the Chairman of the meetings and the minimum quorum is Chairmanand atleast two advisors. As on the date of this Report 41 Advisory Committee Meetingswere held covering a very wide range of agenda pertaining to the CIRP matters as well asyour Company's status as a going concern. The Advisory Committee oversees the operationsof your Company and also the CIRP. They undertake the task as otherwise vested with theBoard of your Company. They function akin to Board.
PARTICULARS OF CONTRACTS AND AGREEMENTS WITH RELATED PARTIES
Your Company has in place a Related Party Transaction Policy as per the provisions ofCompanies Act 2013 read with the rules made thereunder and Securities and Exchange Boardof India (Listing Obligations and Disclosure Requirements) Regulations 2015 whichdescribes the related party transactions requiring requisite approvals and requirements ofappropriate reporting and disclosure of transactions between your Company and its relatedparties. The said policy also defines the materiality of related party transactions andlays down the procedures of dealing with such transactions.
As per the records of your Company after the CIRP there were no material related partytransactions entered by your Company. Thus the disclosure of related party transaction asper Section 134(3)(b) of the Companies Act 2013 in the prescribed Form AOC - 2 is notapplicable for CIRP period.
For the financial year ended March 31 2020 the details of the related partytransactions entered into by your Company in the ordinary course of business at arm'slength basis are mentioned in the notes to the accounts forming part of the audited(standalone) financial statements.
As part of the CIRP your Company is required to undertake Related Party Transactionsafter approval of the Committee of Creditors as per the provisions of Section 28 of theCode. According your Company has identified related parties as per Section 5(24) of theCode and appropriate approvals are sought from CoC for such transactions. The TAAappointed in respect of the Company has also provided a list of Related Parties as perSec. 5(24) of the Code as part of his Report.
Pursuant to Housing Finance Companies-Corporate Governance (National Housing Bank)Directions 2016 the Related Party Transaction Policy of your Company forms part of thisReport as Annexure - 7. The said policy is available on the website of yourCompany at URL https://www.dhfl.com/docs/default-source/ investors/re Iated-party-transaction-po I icy-of-th e-company/related-party-transaction-policy_27-06-2018.pdf.
As RBI superseded the erstwhile Board of Directors of your Company owing to lack ofGovernance amongst various other reasons the present management emphasizes goodgovernance practices as paramount for your Company.
SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATOR OR COURT OR TRIBUNALS
There were no significant and material orders passed by any Regulator or Court orTribunal which would impact the going concern status of your Company and its futureoperations except as mentioned below:
An Order dated May 29 2020 was passed by the Adjudicating Officer(AO) of SEBI levyinga penalty of Rs 20 lakh on your Company in relation to shortfall / non creation ofDebenture Redemption Reserve during past 3 years (financial year 2016-17 onwards) /Debenture Reserve Fund (April- 2019) and late submission of financial results forfinancial year 2018-19 both pertaining to the period before initiation of CIRP. Based onadvice of the Legal Advisors your Company has filed an appeal in the matter with theHon'ble Securities Appellate Tribunal mainly on questions of jurisdiction andinterpretation of legal provisions while not defending the actions/inactions of theearlier management in the subject matter.
Further the interim moratorium / moratorium u/s 14 of IBC as declared in respect ofyour Company prohibits all of the following namely:
(a) the institution of suits or continuation of pending suits or proceedings againstthe corporate debtor including execution of any judgment decree or order in any court oflaw tribunal arbitration panel or other authority;
(b) transferring encumbering alienating or disposing off by the corporate debtor anyof its assets or any legal right or beneficial interest therein;
(c) any action to foreclose recover or enforce any security interest created by thecorporate debtor in respect of its property including any action under the Securitisationand Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (54of 2002);
(d) the recovery of any property by an owner or lessor where such property is occupiedby or in the possession of the corporate debtor.
INTERNAL AUDIT & INTERNAL FINANCIAL CONTROL AND ITS ADEQUACY
Your Company has an Internal Audit Department which provides comprehensive auditcoverage of functional areas and operations of your Company to examine the adequacy of andcompliance with policies procedures statutory and regulatory requirements. Annual auditplan is placed before the Audit Committee / Advisory Committee and adherence to the planis reported quarterly to the Audit Committee / Advisory Committee.
Compliance status of audit observations and follow up actions thereon are reported tothe Audit Committee / Advisory Committee. The Audit Committee / Advisory Committee reviewsand evaluates adequacy and effectiveness of your Company's internal control environmentand monitors the implementation of audit recommendations.
Internal Audit is an independent and objective assurance and consulting activitydesigned to add value and improve your Company's operations. The Internal Audit functioncontinues to report to the Chief Risk Officer (CRO) of your Company as an interimarrangement during the presently ongoing CIRP process. Internal Audit function isaccountable to the Board of Directors through the Chairman of the Audit Committee /Advisory Committee through the Administrator. Internal audit also assists the managementin identifying operational risks for revenue leakage and opportunities for cost savingsand revenue enhancements; ensures working within the regulatory and statutory frameworkand facilitates early detection and prevention of frauds.
However during the CIRP period it is observed that internal audit effectiveness waslacking during the earlier period and its independence is being established now with aview to prevent the lapses identified by the transaction avoidance auditor.
SECRETARIAL AUDIT REPORT ANNUAL SECRETARIAL COMPLIANCE AUDIT REPORT AND CORPORATEGOVERNANCE CERTIFICATE
Pursuant to the provisions of Section 204 of the Companies Act 2013 and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 and Regulation 24A ofthe SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (SEBI ListingRegulations) the management of your Company appointed M/s. Vinod Kothari & CompanyPracticing Company Secretaries to undertake the Secretarial Audit of your Company for thefinancial year 2019-20. The Secretarial Audit Report for the financial year 2019-20 formspart of this Report as Annexure - 8.
Pursuant to SEBI Circular ClR/CFD/CMD1/27/2019 dated February 8 2019 Amruta Giradkarand Associates Practicing Company Secretaries Mumbai undertook the Annual SecretarialCompliance Audit of your Company for the financial year 2019- 20 (ASCR). The ASCR has beensubmitted by your Company to BSE Limited and the National Stock Exchange of India Limitedon July 29 2020 and the same is available on the websites of Stock Exchanges and on thewebsite of your Company.
The certificate by Ms. Amruta Giradkar & Associates Practicing Company Secretarywith relation to compliance with the conditions of Corporate Governance as stipulated inSecurities and Exchange Board of India (Listing Obligations and Disclosure Requirements)Regulations 2015 forms part of this Report as Annexure - 9.
The Secretarial Audit Report contains certain observations at Annexure II and certainqualifications at Annexure III of the Report; similarly the ASCR and CGC also containcertain observations qualifications and remarks. The responses to all the aforesaidobservations qualifications and remarks are given herein below:
Response to para 1 of Annexure II and paras 1.3 3 5.1 5.2 6.2 6.3 6.4 of AnnexureIII to the Secretarial Audit Report: Pursuant to the provisions of Companies Act 2013(the Act) and the General Circular No. 08/2020 dated March 6 2020 issued by the Ministryof Corporate Affairs (MCA) your Company has duly filed the Order passed by the Hon'bleNCLT Mumbai on December 3 2019 with MCA in e-form INC-28. The said form is pending forapproval with the concerned ROC. Your Company has also requested the concerned ROC forapproval of the said form. After completion of the action with relation to the said e-formINC-28 by ROC and other relevant authorities your Company would be able to file otherpending forms with the MCA as mentioned in the aforesaid paras of the secretarial auditreport.
Response to para 2 of Annexure II to the Secretarial Audit Report: Pursuant to theaforementioned Order dated December 3 2019 passed by the Hon'ble NCLT Mumbai theCorporate Insolvency Resolution Process (CIRP) has been initiated for your Company and theinterim moratorium / moratorium has been commenced under Section 14 of the Code effectivefrom November 29 2019. As on March 31 2020 an amount equal to Rs 496780 wastransferable by your Company to IEPF pertaining to the Interim Dividend 2012-13. Furtheras on March 312020 amount due for transferto IEPF was Rs 5927629 with respect tounpaid/unclaimed matured deposits along with the interest accrued thereon. However thesame have not been transferred as any alienation of the assets of your Company postinsolvency commencement date is prohibited by the moratorium under Section 14 of the Codeas per the legal advise received by your Company from the legal advisor. Further as perSection 238 of the Code provisions of IBC prevail over any other law to the extent of anyinconsistency. Therefore as per the legal advise received by your Company from the legaladvisor if these amounts are transferred to IEPF post insolvency commencement date (i.e.after December 3 2019) or any time during the moratorium period it would violate theprovisions of Section 14 of the Code read with Rule 5(b)(i) of FSP Rules. Accordinglyyour Company has requested the IEPF Authority vide its letter dated April 15 2020 toadvise your Company on how the compliance with Section 125(2)(c) of the Companies Act2013 may be achieved. It has also been brought to the notice of IEPF Authority that it mayfile a proof of claim in the relevant form of CIRP Regulations for the monetary claimsagainst your Company arising prior to insolvency commencement date which will be dulyevaluated on merits by the Administrator. The dues arising from such claims will beaddressed on the basis of the outcome of the CIRP and considered in accordance with thedue process as laid out in the Code read with the FSP Insolvency Rules.
Response to para 3 of Annexure II to the Secretarial Audit Report: As per theprovisions of the Companies Act 2013 Independent Directors of your Company are requiredto hold at least one meeting in a financial year without the attendance ofnon-independent directors and members of management. The last meeting of the IndependentDirectors was held on January 25 2019. However as the board was superseded in the monthof November 2019 no such meeting was held after the last meeting held on January 252019.
Response to para 4 of Annexure II to the Secretarial Audit Report; and point no. 3(a)& 3(b) of CCG and paras (b)2 (b)5 (b)7 and (b)8 of the ASCR: Since the ComplianceOfficer i.e. Company Secretary Chief Executive Officer and Chief Financial Officer ofyour Company had resigned in the last quarter of the Financial Year 2018-19 the Board ofDirectors pursuant to resolution passed on March 29 2019 had inter-alia authorised theerstwhile Chairman & Managing Director of your Company to submit any filings orcommunications to the stock exchanges or any other authorities as may be required underapplicable laws and to sign any letters communications or any other related documents inthis connection.
Response to para 5 of Annexure II to the Secretarial Audit Report: As per Reg. 54(1) ofSEBI Listing Regulations in respect of listed NCDs your Company is required to maintainhundred per cent asset cover sufficient to discharge the principal amount at all times forthe non-convertible debt securities issued. Your Company having come under CIRP fromDecember 3 2019 the assets coverage shortage related aspects are expected to beaddressed under a resolution plan to be approved by NCLT which would provide forsettlement of dues of creditors as per the provisions of the IBC Code.
Response to para 6 of Annexure II to the Secretarial Audit Report and para (b)11 ofASCR: Your Company has made the disclosure by way of a letter to the Stock Exchanges withreference to para 3(C2) of SEBI Circular No. SEBI/HO/CFD/CMD1/CIR/P/2019/140 datedNovember 21 2019 to the effect that your Company is currently under moratorium pursuantto Section 14 of the IBC Code since November 29 2019 and hence your Company is not in aposition to make payment of interest or principal to any of the lenders of your Companyincluding the NCDs holders and that the payments to the lenders remains in abeyance andwill be subject to the outcome of the CIRP process.
Response to para 7 of Annexure II to the Secretarial Audit Report: As per theregulation 7(2)(a) & (b) of the SEBI (Prohibition of Insider Trading) Regulations2015 the promoters directors designated persons etc. are required to inform your Companyof trades falling under the said regulations and no provision of the said regulationsrequires your Company to follow specific process for the same. However your Company hastaken note of the observation and would endeavour to take appropriate action in thisregard subject to the financial and other constraints.
Response to para 8 of Annexure II to the Secretarial Audit Report: In response to NHB'sletter dated November 20 2019 with regard refinance recall notice and February 5 2020and February 24 2020 with regard to Assets of Third Party your Company vide its letterdated March 17 2020 submitted its clarifications and justification to NHB. Further NHBvide its letter dated May 4 2020 did not accept your Company's justification and on July27 2020 NHB filed a petition in the National Company Law Tribunal Mumbai in the subjectmatter which is being contested by your Company.
Response to para 9 of Annexure II to the Secretarial Audit Report: In response to theNHB Show Cause Notice dated September 2 2019 the erstwhile management of your Companyhad submitted its replies vide letters dated September 17 2019 and November 7 2019stating therein that there was no non-compliance and that sufficient liquid assets interms of NHB guidelines have been maintained.
Response to para 10 of Annexure II to the Secretarial Audit Report: Statutory Auditorscertifies on annual basis with regard adherence to Para 3 of the NHB Directions whichimpose limits on public deposits vis-a-vis the net owned funds. The statutory auditorshave certified Schedule II for half year ended September 2019 based on the unauditedfinancial statement as on September 30 2019. It may be added here that the net ownedfunds figure as on March 312020 was negative.
Response to para 1.1 of Annexure III to the Secretarial Audit Report: Since the boardresolution passed was subject to approval of the Members of your Company and Board ofDirectors did not have final authority to implement the action stated in the resolutionForm MGT 14 in respect of the said board resolution was not filed.
Response to para 1.2 of Annexure III to the Secretarial Audit Report: Your Companyvide letter dated April 17 2020 has advised the erstwhile director to sign the minutesbeing related to pre-CIRP period and the communication and co-ordination with theerstwhile directors for signing the same is in process. Further as per the provisions ofthe Companies Act 2013 read with the Secretarial Standards issued by the Institute ofCompany Secretaries of India (ICSI) if a director does not comment on the draft minutesof the Board / Board Committees within 7 days of such circulation of draft minutes thesaid minutes shall be deemed to have been approved by such director.
Response to para 1.4 of Annexure III to the Secretarial Audit Report: The permission ofBoard of Directors was not sought as required under the provisions of Companies Act 2013as the matter was not bought to the notice of the board by the concerned director periodpertain to erstwhile management Response to para 1.5 1.6 and 8.1 (ii) of Annexure III tothe Secretarial Audit Report and para (b) 1 (d)3 (d)4 of the ASCR: The erstwhilemanagement of your Company could not appoint within the prescribed time limit owing tovarious factors hence there was a delay. However they appointed Mr. Vaijinath MGavarshetty as CEO vide their appointment letter dated October 1 2019. The Administratorafter assuming his office upon supersession of Board of Directors by RBI appointed theChief Financial Officer and Company Secretary with the approval / ratification of COC.
Response to para 2.1 of Annexure III to the Secretarial Audit Report and para (b)6 ofASCR and point no. 3(c) of CCG: During the financial year 2018-19 i.e. prior tosupersession of the Board of Directors by the RBI your Company had granted short termloan of Rs 30 crore to Wadhawan Global Capital Limited (WGC). However instead ofobtaining prior approval of the Audit Committee the said related party transaction wasratified by the erstwhile Audit Committee members on May 3 2019 and by the erstwhileBoard of Directors on May 5 2019 i.e. within the period of three months prescribed underthe Companies Act 2013.
Response to para 2.2 of Annexure III to the Secretarial Audit Report: In March 2018your Company had granted a Property Term Loan of Rs 27.97 crore to Wadhawan HoldingsPrivate Limited a related party of your Company without taking prior approval of AuditCommittee/Board of Directors. The said transaction was ratified by the erstwhile AuditCommittee members and the erstwhile Board of Directors on July 13 2019.
Response to para 4.1 i and 8.4 of Annexure III to the Secretarial Audit Report: YourCompany has filed an appeal before Securities Appellate Tribunal (SAT) against the OrderNo. Order/SR/SM/2020- 21/7991/25 dated May 29 2020 passed by Adjudicating Officer of SEBIimposing the penalty on your Company the same is pending before the SAT. SAT vide itsOrder dated July 15 2020 has inter-alia directed that the matter to be listed onSeptember 15 2020 and that no recovery shall be made for your Company until furtherorder.
Response to para 4.1.ii of Annexure III to the Secretarial Audit Report: Your Companyhad defaulted in its repayment obligations in June 2019 and as a result the nodefault statement' was not applicable. However post discussions with rating agencies thestatement in a suitably modified format was submitted regularly.
Response to para 4.2 of Annexure III to the Secretarial Audit Report: Post March 2019upon resignation of CEO and CFO of your Company CEO/CFO certificate to the concernedissuing and paying agent (IPA) could not be issued. Your Company had made relevantdisclosures in the public domain (through stock exchanges) about the default in payment ofcommercial paper on June 25 2019. Post that your Company had also made relevantdisclosures about working on a resolution plan under June 7 2019 circular of RBI.
Response to para 4.3.i of Annexure III to the Secretarial Audit Report: The delay insubmission was due to discussions and coordination with AD Bank regarding the complianceand also due to required operational clarity.
Response to para 4.3.ii of Annexure III to the Secretarial Audit Report: Your Company'sECBs had been fully hedged. However starting June 2019 banks with whom your Company hadhedging contracts started pre-terminating the derivative contracts. Your Company hadapproached few banks to get limits / enter into fresh contracts to cover up the unhedgedexposures but was unable to get fresh derivative limits.
Response to para 5.3 8.1 (i) of Annexure III to the Secretarial Audit Report and paras(b)9 (d)1 (d)2 of ASCR: The reasons for delayed submissions of the financial results forthe quarter and financial year ended March 31 2019 June 30 2019 September 30 2019 andDecember 31 2020 as per the letters submitted by your Company to the stock exchanges areas follows:- (a) For March 312019: In view of the requirement of submission of the IndAScompliant Audited Standalone and Consolidated Financial Results for the first timerequiring additional resources time and effort as also full time engagement of accountsand finance team in various non-routine audits and due diligence by various parties therewas a delay in submission (b) For June 30 2019: In view of the requirement of submissionof the quarterly consolidated financial statements becoming applicable from the quarterended June 30 2019 requiring additional time and effort as also full time engagement ofaccounts and finance teams in various non-routine audits and the due diligence by variousparties there was a delay in submission (c) For September 30 2019: For the delay insubmission of the said financial results by your Company was on account of resignation ofthe erstwhile Statutory Auditors and reasonable time required by the new StatutoryAuditors to review the financial results (d) For December 31 2019: Since your Companyhad submitted the financial results for the quarter/ half year ended September 30 2019 onJanuary 22 2020 with a delay hence there was a delay in finalization of financialresults for the quarter and nine months ended December 312019.
Response to para 5.4 of Annexure III to the Secretarial Audit Report and para (b) 10 ofASCR: The Notice sent to the Members of your Company convening the 35th AnnualGeneral Meeting contained the resolution seeking approval of the members of your Companyinter-alia for appointment of the M/s. K. K. Mankeshwar & Co. as Statutory Auditors ofyour Company. The said resolution provided that the appointment of the said auditors shallbe at such remuneration taxes and out of pocket expenses as may be determined andrecommended by the Audit Committee in consultation with the Statutory Auditors andapproved by the Board of Directors of your Company hence the details of the remunerationwere not included in the said Notice.
Response to para 6.1 of Annexure III to the Secretarial Audit Report and para (b)3 ofASCR: There was an inadvertent delay of one day in filing the intimation pursuant toregulation 13 (3) of SEBI Listing Regulations and the said intimation was filed with stockexchanges on October 22 2019 instead of October 21 2019.
Response to para 7.1 of Annexure III to the Secretarial Audit Report: The statutoryauditors have certified Schedule II for half year ended September 2019 based on theunaudited financial statement as on September 30 2019.
Response to para 7.2 of Annexure III to the Secretarial Audit Report: Your Companyholds 100% of equity share capital of DHFL Investments Limited (DIL) however based onthe agreement dated March 31 2017 your Company does not exercise control over DIL andhence is not considered as a subsidiary company for the purpose of preparation of the IndAS Financial Statements as per the opinion received by your Company.
Response to para 7.3 of Annexure III to the Secretarial Audit Report: Due toresignation of erstwhile Joint Statutory Auditors of your Company the audit of the annualreturns i.e. return under HFC (NHB) Directions along with the Auditors' Certificate -Schedule I and return on prudential norms Schedule II (Capital Adequacy Ratio) for thefinancial year ended March 31 2019 could not be completed and hence your Company was notable to submit the same to NHB. However both provisional returns were submitted to NHB. Inlight of the above and other unavoidable circumstances the declaration of subsequentquarterly financial results of your Company during the financial year 2019-20 were alsodelayed as a result of which there were delays in filing of certain regulatory returnswith NHB. Howeverthe March 2020 results were published well within the time despite thecomplications and your Company being under CIRP.
Response to para 7.4 of Annexure III to the Secretarial Audit Report: As per the ALMPolicy of your Company the Asset-Liability Committee (ALCO) meetings are required to bechaired by the CEO and in his absence the meeting is required to be chaired by the CFO.Owing to the resignations of both CEO and CFO of your Company during the quarter endedMarch 31 2019 and continuing vacancies in the said positions the ALCO meetings wereheaded by a Senior Management Personnel designated as Senior Vice President &Executive Assistant to the Chairman who was a member of the ALCO committee. Howeverduring the CIRP post November 2019 the meetings are chaired by CEO.
Response to para 7.5 of Annexure III to the Secretarial Audit Report: Your Company hadduly registered on the Central Know Your Customer Registry (CKYC) portal and subsequentlycompleted the testing requirements. However prior to proposed deployment due to certaininternal developments and pending process approvals followed by revisions in the KYCGuidelines and CKYC reporting format requirements the overall activity was put on holdtill further notice. Further your Company has since concluded on the revised SOPrequirements and your Company is coordinating with the CKYC authorities to proceed withretesting your Company's readiness for the process prior to final deployment. All theseefforts are being taken only during CIRP period.
Response to para 8.2 of Annexure III to the Secretarial Audit Report: NHB had issued toyour Company the Show Cause Notice dated April 12 2019 and in reply thereto your Companyhad inter- alia submitted to NHB that the resignation of Mr. Harshil Mehta theerstwhile Joint Managing Director & CEO of your Company with effect from February 132019 and appointment of Mr. Srinath Sridharan as Additional Director in the category ofNon-Executive Director of your Company with effect from March 26 2019 were in theordinary course of functioning of your Company and that there was no change in themanagement of your Company which resulted in change in more than 30% of the Directors andalso that since there was no non-compliance of Clause 3(i)(c) of Housing FinanceCompanies-Approval of Acquisition or Transfer of Control (NHB) Directions 2016 yourCompany had requested NHB that the said Show Cause Notice and the penalty proposed thereinmay kindly be withdrawn. However the said submission was not accepted by NHB and penaltyof Rs 5000 was levied on your Company by NHB which has been duly paid.
Response to para 8.3 of Annexure III to the Secretarial Audit Report: The NHB vide itsletter dated 26th September 2019 had issued a show- cause notice to yourCompany stating that your Company has breached para 2(b) of the Fair Practice Code issuedby your Company and also further violated the NHB Policy Circular NHB (ND)/DRS/Pol. No. 30dated September 23 2009. In terms of the said policy requires that the person mortgagingthe property need to disclose the name of HFC. The same was not found by NHB. Your Companyvide its letter dated October 7 2019 had requested NHB that the said Show Cause Noticeand the penalty proposed therein may kindly be withdrawn. However the said submission wasnot accepted by NHB and penalty of Rs 5000 was levied on your Company by NHB which hasbeen duly paid.
Response to para 8.5 of Annexure III to the Secretarial Audit Report: During theservice tax audit conducted in financial year 2019-20 for the period from 2013-14 to June2017 the service tax auditors highlighted that service tax was payable on notice payrecovered from employees. As per the view of your Company service tax is not payable onsuch notice pay recoveries. However as the said view of your Company was not agreed yourCompany paid the service tax along with applicable interest and penalty on the same.
Response to para (b)4 of ASCR: Provisions of SEBI Listing Regulations provide that anIndependent Director of the Company resigns or is removed from the Board of Directors ofthe listed entity shall be replaced by a new Independent Director at the earliest but notlater than the immediate next Board Meeting or three months of such vacancy whichever islater.
M/s. Deloitte Haskins & Sells LLP Chartered Accountants (Firm Registration Number117366W/W-100018) and M/s. Chaturvedi Shah LLP Chartered Accountants (Firm RegistrationNumber 101720W/W10035) had resigned as the Joint Statutory Auditors of your Company witheffect from August 2 2019 and August 22 2019 respectively. Members of your Company atthe 35th AGM held on September 28 2019 had appointed M/s. K. K. Mankeshwar& Co. Chartered Accountants (Firm Registration Number 106009W) as the StatutoryAuditors of your Company to fill the casual vacancy created upon resignation of theStatutory Auditors with effect from August 26 2019 till the conclusion of 35thAnnual General Meeting of your Company and also from the conclusion of the 35thAnnual General Meeting of your Company till the conclusion of the 40th AnnualGeneral Meeting of your Company. The same auditor is continued during the CIRP periodalso since any change require approval of COC also.
The Report of the Statutory Auditors to the members for the financial year under reviewcontains disclaimer of opinion and the management's response to the Basis for Disclaimerof Opinion contained in the Statutory Auditors' Report (hereinafter referred to asthe Basis for Disclaimer of Opinion) are as follows:-
The Reserve Bank of India (RBI) had superseded the Board of Directors of Dewan HousingFinance Corporation Limited (Company) and appointed Mr. R. Subramaniakumar as theAdministrator of your Company in terms of Section 45-IE of the Reserve Bank of India Act1934 (RBI Act). Accordingly the Administrator is vested with powers of the Board ofDirectors of your Company pursuant to the aforesaid press release of the RBI. The RBI inexercise of powers conferred under Section 45 IE 5(a) of the RBI Act had constituted athree member Advisory Committee to assist the Administrator of your Company in dischargeof his duties. Further pursuant to an order dated 3rd December 2019 of theNational Company Law Tribunal Mumbai Bench (NCLT) Corporate Insolvency ResolutionProcess (CIRP) has been initiated against your Company as per the provisions of theInsolvency and Bankruptcy Code 2016 (Code).
The Administrator (assisted by the Advisory Committee) at the Advisory CommitteeMeeting held on June 20 2020 have inter-alia considered and taken on record the Ind ASAudited Financial Results (Standalone & Consolidated) of your Company for financialyear ended March 312020 as per Regulation 33 52 and other applicable regulations of theSEBI Listing Regulations and in compliance with the Ind AS as per the provisions of theCompanies (Indian Accounting Standards) Rules 2015
Response to point No. 1 of the Basis for Disclaimer of Opinion: The Reserve Bank ofIndia (RBI) vide Press Release dated November 20 2019 in exercise of the powers conferredunder Section 45-IE (1) of the Reserve Bank of India Act 1934 (RBI Act) superseded theBoard of Directors of your Company and appointed an Administrator under Section 45-IE (2)of the RBI Act. Thereafter RBI vide its Press Release dated November 22 2019 inexercise of the powers conferred under Section 45 IE 5(a) of the RBI Act 1934 constitutedathree (3) Member Advisory Committee to assist the Administrator in the discharge of hisduties.
On November 29 2019 the RBI filed the Petition before the NCLT under Rule 5(a)(i) ofthe Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial ServiceProviders and Application to Adjudication Authority) Rules 2019 (FSP Rules) to initiateCIRP against your Company read with Section 227 of the Code. Accordingly in terms of Rule5(b)(i) of the FSP Rules an interim moratorium came into effect on the filing of theapplication to initiate CIRP.
Further CIRP was initiated against your Company under Section 227 read with of Section239(2)(zk) of the Code and read with Rules 5 and 6 of the FSP Rules by an Order datedDecember 3 2019 of the Hon'ble National Company Law Tribunal Mumbai Bench(NCLT/Adjudicating Authority). The Adjudicating Authority vide the above Order appointedthe Administrator to perform all the functions of a Resolution Professional to completethe CIRP of your Company as required under the provisions of the Code.
As per the said NCLT order dated December 3 2019 a moratorium in terms of the Sec. 14of the Code is applicable on your Company.
The Administrator Advisors and KMPs have not been able to analyze in depth theaccuracy validity completeness or authenticity of the information and figures mentionedin the audited financial statements as they have joined after November 20 2019.
Moreover the entire Present Management i.e. Administrator CEO CFO and CS has beeninvolved in the affairs of your Company for less than four months in the entire financialyear 2019-20. Further since March 25 2020 lockdown was imposed in the Country on accountof COVID-19 causing a complete shutdown of offices which extended beyond the financialyear 2020 till May 312020.
As a part of CIRP of your Company a Transaction Audit to determine avoidabletransactions in terms of Section 43 45 49 50 and 66 of the IBC Code and an exercise todetermine the liquidation value and fair valuation of your Company is underway. Theseactivities could not be conclusively completed till the signing of the financialstatements in view of the disruption caused due to the lockdown restrictions. The outcomeof such Transaction Audit may provide additional facts/information about the past datawith respect to your Company.
The Administrator has signed the audited financials solely for the purpose ofcompliance and discharging his duties during CIRP period of your Company and in accordancewith the provisions of the IBC read with the Regulations and Rules thereunder and basedon the explanations clarifications certifications representations and statements madeby the existing staff of your Company in relation to the data pertaining to the periodprior to the joining of the Present Management and does not have personal knowledge of thepast affairs finances and operations of your Company.
Response to point No. 2 of the Basis for Disclaimer of Opinion: The Administrator andthe Advisory Committee was set up by the RBI to assist the Administrator in discharge ofhis duties to exercise oversight on the operations of your Company apart from running theCIRP process in accordance with the provisions of the Code and Regulation under IBC 2016the Present Management has undertaken various steps and several initiatives recentlyincluding various efforts to strengthen the financial policies and processes functioningof the IT system loan / security documentation legal audit internal financial controlsand updating risk control matrices information security operational and creditmanagement risk and fraud risk management through in-house resources and engagement ofexternal professional experts/consultants. The management team has also initiated stepsfor comprehensive compliance of various applicable Rules and Regulations within yourCompany. The betterment process is a continuous effort however the same could not befully concluded and implemented by March 31 2020 due to the time essentially required;and the same is impacted due to the COVID-19 situation and the resultant lockdown ThePresent Management team believes that these initiatives will strengthen Company's overallgovernance structure and control environment. On conclusion and implementation of all suchinitiatives it is believed that the operational efficiency will improve and operationalissues will get addressed.
Your Company will continue to focus on affordable segment of housing and mid-tiersegment which will allow it to have a perfect asset mix. Your Company will keep exploringcross-selling opportunities which can play a major role in improving the overalldisbursement and profitability.
Response to point No. 3 of the Basis for Disclaimer of Opinion: The AdministratorAdvisors and KMPs have not been able to analyze in depth the accuracy validitycompleteness or authenticity of the information and figures mentioned in the auditedfinancial statements as they have joined after November 20 2019.
Moreover the entire Present Management has been involved in the affairs of yourCompany for less than four months in the entire financial year 2019-20. Further sinceMarch 23 2020 lockdown was imposed in the Country on account of COVID-19 causing acomplete shutdown of offices which extended beyond the financial year 2020 till May312020.
The standalone financial results of your Company for the year ended March 31 2020 havebeen taken on record by the Administrator while discharging the powers of the erstwhileBoard of Directors of your Company which were conferred upon him by the RBI vide its pressrelease November 20 2019 and subsequently powers conferred upon him in accordance withthe NCLT Order dated December 3 2019 to run your Company as a going concern during CIRP.Hence the financial statements for the year ended March 31 2020 have been prepared ongoing concern assumptions.
Response to point No. 4 of the Basis for Disclaimer of Opinion: The Ministry ofCorporate Affairs (MCA) has initiated investigation in the month of December 2019 intothe affairs of your Company under Section 212(1) of the Companies Act 2013 throughSerious Fraud Investigation Office (SFIO). Further Enforcement Directorate (ED) hasalso initiated investigation in connection with the loans given by your Company tocertain borrowers. Central Bureau of Investigation (CBI) has also started investigation inconnection with certain loan granted by your Company Apart from this CBI is alsoinvestigating into the matter of amounts invested by a state government entity - ProvidentFund in the Fixed Deposits of your Company. Your Company is fully co-operating with allthe investigating agencies.
Response to point No. 5 of the Basis for Disclaimer of Opinion: The investments/advances by way of unsecured Inter Corporate Deposit (ICD) aggregating Rs 565269 lakhwere outstanding as at March 31 2019. Of these ICDs aggregating Rs 93835 lakh havesince been repaid by the borrowers and ICDs aggregating to Rs 130661 lakh have beenconverted during the period of previous management into term loans during the period priorto November 20 2019 resulting in an outstanding of Rs 378624 lakh under ICDsincluding interest receivable as of March 31 2020. The recoverability or otherwise of theremaining amount is yet to be ascertained and hence the appropriate provision amountingto Rs 225032 lakh has been made as a prudent measure. Due to nonavailability of therecovery data your Company has considered the Loss Given Default Percentage (LGD%) asspecified in the guidelines issued by RBI in the circular Implementation of InternalRating Based Approached for Calculating of Capital Charge for Credit Risk as a proxyLGD%. This is based on the industry practice followed in the cases where the companies donot have the trend of recovery experience.
Response to point No. 6 of the Basis for Disclaimer of Opinion : In respect of certainProject / Mortgage Loans the Management is actively engaged with the loanees to remediatecertain lacunae in loan documentation wherever possible.
Response to point No. 7 of the Basis for Disclaimer of Opinion: The wholesale loanportfolio aggregating to Rs 4958544 lakh (pursuant to classification of this portfolioto held for sale in the previous year ended on March 312019) has beenfair valued as at March 31 2020 at Rs 3073231 lakh with the resulting fairvalue loss aggregating Rs 1885313 lakh. Out of this fair value loss aggregating Rs325629 lakh has been accounted up to March 31 2019 and balance loss of Rs 1559684lakh has been charged to the Statement of Profit and Loss for the year ended March312020. The basis of valuation of the portfolio is changed during the quarter ended March312020 by discounting the cash flow assessed by the external registered valuer as againstthe contractual cash flow used by the erstwhile management in the previous year and duringthe nine months ended on December 31 2019. Further as an outcome of valuation exerciseto be completed during the CIRP this may undergo change. However the said valuation willbe as on December 3 2019 the date of commencement of CIRP. The recoverability orotherwise of these loans is yet to be ascertained and hence the appropriate provision hasbeen made as a prudent measure on fair valuation method as per Ind AS provisions.
Response to point No. 8 of the Basis for Disclaimer of Opinion : The Present Managementin the process of analyzing and reconciling its total assets have observed that an amountof Rs 301868 lakh have not been reconciled and could not be mapped to any securityagainst which this amounts was disbursed in the past. The process of identifying andmapping of this amount to any scheme under which they were disbursed and further steps tobe taken basis the findings are being addressed as a part of CIRP and the same isunderway and the Transaction Audit report may reveal further details in this regard. Inthe light of the above position and in the absence of internal confirmations it has beendecided as a prudent measure to treat the amount as loss assets as per assetclassification norms and also due to non-availability of any security your Company hasfully provided for this amount while preparing the financials of your Company for the yearended March 312020. However the same has been identified as fraudulent transaction underSection 66 by Transaction Avoidance Auditor and now application has been filed in theHon'ble NCLT as per the code. Initial reporting has also been made to NHB.
Response to point No. 9 of the Basis for Disclaimer of Opinion : Your Company has madesubstantial amount of provisioning were made as of March 31 2020 as per prudential normsstipulated by NHB leading to negative net owned fund of Rs 4537 crore and adverse CRARof -1.83%. Further the loss aggregating Rs 13575.15 crore incurred by your Companyduring the year ended March 31 2020 has rendered your Company not being able to complywith the regulatory requirements of NHB in respect of the Net Owned Fund (NOF) and whichalso resulted in contraventions of the provisions of NHB Act 1987 Directions andGuidelines thereunder.
National Company Law Tribunal (NCLT) has admitted petition application filed by the RBIunder sub-Clause (i) of clause (a) of Rule 5 of the Insolvency and Bankruptcy (Insolvencyand Liquidation Proceedings of Financial Service Providers and Application to AdjudicationAuthority) Rules 2019 (FSP Rules) read with Section 227 of the Code. The purpose of theongoing CIRP is to find a resolution to your Company and carry on the day to dayoperations only to continue your Company as a going concern. Also actions being taken noware being shared with the Committee of Creditors (COC) which is represented by NHB aswell. Progress made under CIRP is regularly reported to the Committee of Creditors inwhich NHB is also duly represented. The Code provides for a Resolution Plan to be putforward by the prospective Resolution Applicants. The requirements for an acceptableResolution Plan as per CIRP Regulations (Regulation 38) inter-alia are as under:
A Resolution Plan shall provide for: (a) the term of the plan and its implementationschedule; (b) the management and control of the business of the corporate debtor duringits term; and (c) adequate means for supervising its implementation.
A Resolution Plan shall demonstrate that (a) it addresses the cause of default; (b) itis feasible and viable; (c) it has provisions for its effective implementation; (d) it hasprovisions for approvals required and the timeline for the same; and (e) the resolutionapplicant has the capability to implement the Resolution Plan.
Some of the critical adverse parameters like Capital Adequacy Asset Quality EarningsLiquidity etc. can be only addressed with successful implementation of a resolution planwhich is part of the CIRP being perused.
Therefore despite following a going concern approach the present management team hasa limited scope to effect improvements in the working of your Company and the successfulResolution Applicant would only be expected to be in a position to meet all the regulatorynorms of business and improvement expectations
Response to point No. 10 of the Basis for Disclaimer of Opinion: Your Company hadapplied Ind AS 109 with respect to Expected Credit Losses (ECL) for the first time for theyear ended March 31 2019. During the current period your Company has revisited theunderlying assumptions required to calculate the provisions for ECL on the retail loanportfolio to remediate the deficiencies in the underlying assumptions as followed in theprevious year
Response to point No. 11 of the Basis for Disclaimer of Opinion: Pursuant to theadmission of your Company under the IBC with a view to reflecting fairly the position forthe purpose of presentation in respect of your Company's obligation tor interest andprincipal amount in respect of all the borrowings your Company has not provided forinterest amount of Rs 236133 lakh on borrowings since insolvency commencement date i.e.December 3 2019 based on the opinion obtained from legal advisors. Under the IBC thetreatment of creditors under the resolution plan is as per debts due as on the insolvencycommencement date and therefore no interest is accrued and payable after this date. Ifthe interest was accrued on borrowings the loss year would have been higher by Rs175612 lakh (net of tax). The same has been undertaken as per the legal advise and viewsof the experts.
Response to point No. 12 of the Basis for Disclaimer of Opinion : Your Company haselected to exercise the option of lower tax rate provided under Section 115BAAoftheIncome-tax Act 1961 as introduced by the Taxation Laws (Amendment) Ordinance 2019 datedSeptember 20 2019. Accordingly your Company has remeasured its deferred tax assets(including re-measuring the opening balance as at April 1 2019 and has taken a charge ofRs 40907 lakh relating to the same in the current financial year) basis the rate providedin the said section. The full impact of above mentioned change has been recognized in thefinancials for the year ended March 312020.
Further your Company has credited a net sum of Rs 460985 lakh to the Statement ofProfit and Loss for the year ended March 31 2020 on account of deferred tax asset createdas per Ind AS - Income Taxes'. Your Company is running as a going concern as per theprovisions of the Code which requires the Administrator to preserve the value of yourCompany and maintain it as a going concern. Further various bidders have expressedinterest in submitting a Resolution Plan for your Company which is in an indicator of yourCompany's running as a going concern' in future.
Response to point No. 13 of the Basis for Disclaimer of Opinion: Your Company in thepast has incurred cost for development of customized software for its operations andrecording of transactions which has been carried as intangible asset under developmentthe balance of which as at March 31 2020 is Rs 10517 lakh. Considering the factors asstated your Company is of the view that no adjustments is required to be made to thecarrying of the intangible assets under the development pursuant to the requirement of IndAS 36 on impaired Assets.
Response to point No. 14 of the Basis for Disclaimer of Opinion: Your Company iscurrently undergoing Corporate Insolvency Resolution Process (CIRP) under the provisionsof the Insolvency and Bankruptcy Code 2016 (Code). The CIRP is to facilitate asustainable resolution plan for your Company.
The present management has undertaken various good governance initiatives recentlyincluding various efforts to strengthen of the financial policies and processes costcutting steps functioning of the IT system; loan / security documentation legal auditinternal financial controls and updating risk control matrices information securityoperational and credit management risk and fraud risk management through in-houseresources and engagement of external professional experts/consultants. However the samecould not be fully concluded and implemented by March 31 2020 due to the time essentiallyrequired; and the same is impacted due to the COVID-19 situation and the resultantlockdown.
The management team has also initiated steps for comprehensive compliance of variousapplicable rules and regulations within your Company. The betterment process is acontinuous effort and the same is impacted due to the COVID 19 situation and the resultantlockdown. The Company believes that financial position of your Company will improve uponimplementation of approved resolution plan by committee of creditors and NCLT.
Response to point No. 15 of the Basis for Disclaimer of Opinion: The Present Managementin the process of analyzing and reconciling its total assets have observed that an amountof Rs 301868 lakh have not been reconciled and could not be mapped to any securityagainst which this amounts was disbursed in the past. The process of identifying andmapping of this amount to any scheme under which they were disbursed and further steps tobe taken basis the findings are being addressed as a part of CIRP and the same isunderway and the Transaction Audit report may reveal further details in this regard.
The Administrator on the advise of the Advisory Committee and in consultation with theprocess advisors and legal advisors will file an application before the Hon'ble NCLT asand when reports under the above sections are received from the TAA. First such filing wasdone on August 30 2020. The disclosure in relation to said filing as approved by theAdvisory Committee on the advise of the legal advisors and the process advisors andsubmitted by your Company to the stock exchanges pursuant to the provisions of Regulation30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (SEBIListing Regulations) is annexed at Annexure - 1 to this Report.
In the light of the above position and in the absence of internal confirmations it hasbeen decided as a prudent measure to treat the amount as loss assets as per assetclassification norms and also due to non-availability of any security your Company hasfully provided for this amount while preparing the financials of your Company for the yearended March 31 2020.
Response to point No. 16 of the Basis for Disclaimer of Opinion : In certain instancesthe amount of the claim admitted or to be admitted by the Administrator under CIRP processmay differfrom the amount reflecting in the books of accounts of your Company. The auditedfinancial results are drawn on the basis of the figures appearing in the books of accountsof your Company as on March 31 2020. The Administrator the Advisors KMPs stated thatthe figures may be interpreted solely for the purpose of satisfying the requirement forfiling of yearly/ quarterly audited financial results and that these figures could changeduring the CIRP process or thereafter depending upon the findings made during the CIRPprocess or thereafter.
Response to point No. 17 of the Basis for Disclaimer of Opinion : The Reserve Bank ofIndia (RBI) vide Press Release dated November 20 2019 in exercise of the powers conferredunder Section 45-IE (1) of the Reserve Bank of India Act 1934 (RBI Act) superseded theBoard of Directors of your Company and appointed an Administrator under Section 45-1E (2)of the RBI Act. Thereafter RBI vide its Press Release dated November 22 2019 inexercise of the powers conferred under Section 45 IE 5(a) of the RBI Act 1934constituted athree (3) member Advisory Committee to assist the Administrator in thedischarge of his duties. On November 29 2019 the RBI filed the Petition before the NCLTunder sub-Clause (i) of clause (a) of Rule 5 of the Insolvency and Bankruptcy (Insolvencyand Liquidation Proceedings of Financial Service Providers and Application to AdjudicationAuthority) Rules 2019 (FSP Rules) to initiate CIRP against your Company read with Section227 of the Code. Accordingly in terms of Rule 5(b)(i) of the FSP Rules an interimmoratorium came into effect on the filing of the application to initiate CIRP. FurtherCIRP was initiated against your Company under Section 227 read with clause (zk) of sub -section (2) of section 239 of the Code and read with rules 5 and 6 of the FSP Rules by anorder dated December 3 2019 of the Hon'ble National Company Law Tribunal Mumbai Bench(NCLT/Adjudicating Authority). The Adjudicating Authority vide the above order appointedthe Administrator to perform all the functions of a resolution professional to completethe CIRP of your Company as required under the provisions of the Code. The moratorium wasdeclared by the NCLT. As per the said NCLT order dated 3rd December 2019 amoratorium in terms of the Sec. 14 of the Code is applicable on your Company.
The Administrator after his appointment and with the approval of Committee of Creditorsof your Company as constituted by him in accordance with Section 18(c) and 21(1) of theCode and the Regulation 17(1) of the CIRP regulations appointed the Company Secretary(CS) and the Chief Financial Officer (CFO). The Key Managerial Personnel (KMPs or PresentManagement) the Chief Executive Officer (CEO) was appointed on 1-10-2019 by the erstwhilemanagement. CEO the Company Secretary (CS) and the Chief Financial Officer (CFO) alongwith the Senior management of your Company has ensured that your Company continues tooperate a s a ''Going Concern.The Administrator and the Advisory Committee as set upby the RBI to assist the Administrator in discharge of his duties exercise oversight onthe operations of your Company apart from running the CIR process in accordance with theprovisions of the Code and Regulations under IBC 2016. The Present Management hasundertaken various good governance initiatives recently including various efforts tostrengthen of the financial policies and processes functioning of the IT system; loan /security documentation legal audit internal financial controls and updating risk controlmatrices risk and fraud risk management through in-house resources and engagement ofexternal professional experts/ consultants. The management team has also initiated stepsfor comprehensive compliance of various applicable rules and regulations within yourCompany. The betterment process is a continuous effort however the same could not befully concluded and implemented by March 31 2020 due to the time essentially required;and the same is impacted due to the COVID-19 situation and the resultant lockdown and thesame is impacted due to the COVID-19 situation and the resultant lockdown.
These initiatives will strengthen Company's overall governance structure and controlenvironment. On conclusion and implementation of all such initiatives it is believed thatthe operational efficiency will improve and operational issues will get addressed.
Response to point No. 18 of the Basis for Disclaimer of Opinion : The Company has takensteps to identify legal and other shortcomings in securing the loan assets and initiatedcorrective steps wherever possible. Simultaneously provision coverage are stepped up basedon fair valuation of the loans. The Company under CIRP process is required to identify andaddress any past act or acts which are prejudicial or likely to be prejudicial to theinterest of your Company and the same is in progress
Response to point No. 19 of the Basis for Disclaimer of Opinion : The World HealthOrganisation has declared the novel coronavirus (COVID-19) as a pandemic on March 112020.Besides the impact of this outbreak on human life it has also disrupted the financialeconomic and social structures of the entire world. The Central Government in India alsodeclared a national lockdown from March 25 2020 to May 31 2020 through variousnotifications and subsequently the Central Government has announced Unlock 1.0 till June30 2020. During unlock 1.0 period private offices are allowed to operate with 10% of thestaff with certain conditions initially and restricted the movement as a preventive/precautionary measures to avoid the spread of COVID-19. Your Company remains fullycompliant with the guidelines and directions of both Central and State Government. Thesituation has caused uncertainty and impacted the collections and other operations of yourCompany. However with various remote working measures your Company has been able torestore its normal operations except certain functions which require physical movemente.g. field level visits. With unlock 1.0 the branches of your Company were madeoperational including National Office and the field visits have commenced.
In orderto give effect to the RBI guidelines on regulatory measures on COVID-19 -Regulatory Package your Company has offered moratorium to its eligible customers for aperiod for installments falling due between March 12020 and August 312020 based onapproved policy in this regard. Your Company has taken various steps to ensure theeffective implementation of the moratorium policy and continues to monitor the impact ofsuch moratorium on its portfolio -35% of account holders by number availed Moratorium asof May 2020. The recovery from the moratorium accounts is forthcoming with the Unlock 1.0and commencement of field visits. It is believed that the recovery will further improve inMoratorium accounts.
Response to the Report on Other Legal and Regulatory Requirements under the Basis forDisclaimer of Opinion has been covered in the aforesaid responses.
Further in response to para 3 j (iii) of Report on Other Legal and RegulatoryRequirements in the said Report your Company has been adhering to the timelines for thetransfer of amounts of unclaimed dividends deposits and shares to the Investor Educationand Protection Fund (IEPF).
As required under Section 124 of the Companies Act 2013 your Company has transferredunclaimed dividend of the year 2011-12 Rs 8 lakh ( Rs 9 lakh) and towards unclaimeddeposits and interest accrued thereon Rs 14 lakh ( Rs 26 lakh) to Investor Education &Protection Fund (IEPF) during the year till stay order of received from Hon'ble BombayHigh Court with general delay ranging from 1 to 16 days in transferring unclaimed publicdeposits. Further during the year Rs 59 lakh unclaimed Deposit and Rs 5 lakh of unclaimeddividend was due for payment to the Investor Education and Protection Fund under Section125 of the Companies Act 2013 as at the yearend in respect of Unclaimed Matured Depositswhich was not deposited into IEPF pursuant to stay order issued by Hon'ble Bombay HighCourt and after RBI initiated the CIRP process against your Company.
DIRECTORS' RESPONSIBILITY STATEMENT:
The financial statements of your Company for the financial year ended March 31 2020have been taken on record by the Administrator while discharging the powers of theerstwhile Board of Directors of your Company which were conferred upon him by the RBI videits press release dated November 20 2019 and subsequently powers conferred upon him inaccordance with the NCLT Order dated December 3 2019 to run your Company as a goingconcern during CIRP. Hence the financial statements for the year ended March 31 2020 havebeen prepared on going concern assumptions.
The Administrator Advisors and KMPs have not been able to analyse in depth theaccuracy validity completeness or authenticity of the information and figures mentionedin the audited financial statements as they have joined after November 20 2019. Moreoverthe entire Present Management has been involved in the affairs of your Company for lessthan four months in the entire financial year 2019-20. Further since March 25 2020lockdown was imposed in the Country on account of COVID-19 causing a complete shutdown ofoffices which extended beyond the financial year 2020 and May 312020.
In certain instances the amount of the claim admitted or to be admitted by theAdministrator under CIRP process may differ from the amount reflecting in the books ofaccounts of your Company. The audited financial statements are drawn on the basis offigures appearing in the books of accounts of your Company as on March 312020.
The Administrator has signed the financial statements solely for the purpose ofcompliance and discharging his duties during CIRP period of your Company and in accordancewith the provisions of the IBC read with the regulations and rules thereunder and basedon the explanations clarifications certifications representations and statement made bythe existing staff of your Company in relation to the data pertaining to the period priorto the joining of the present management and does not have knowledge of the past affairsfinances and operations of your Company.
REPORT ON CORPORATE GOVERNANCE & MANAGEMENT DISCUSSION AND ANALYSIS
Pursuant to Securities and Exchange Board of India (Listing Obligations and DisclosureRequirements) Regulations 2015 a separate section titled Report on CorporateGovernance' forms part of this Annual Report which also includes certain disclosures thatare required as per the Companies Act 2013.
Pursuant to the Securities and Exchange Board of India (Listing Obligations andDisclosure Requirements) Regulations 2015 and Housing Finance Companies - CorporateGovernance (National Housing Bank) Directions 2016 a separate section titledManagement Discussion and Analysis' forms part of this Annual Report.
BUSINESS RESPONSIBILITY REPORT
Pursuant to Regulation 34(2) of the Securities and Exchange Board of India (ListingObligations and Disclosure Requirements) Regulations 2015 as amended a separate sectiontitled Business Responsibility Report (BRR) forms part of this Annual Report whichdescribes your Company's performance and activities from environmental social andgovernance perspective. The BRR is also available on the website of your Company at theURL: https:// www.dhfl.com/docs/default-source/default-document-library/business-responsibility-report.pdf
EXTRACT OF ANNUAL RETURN
Pursuant to Section 92 of the Companies Act 2013 and the Rules framed thereunder asamended the extract of the Annual Return as at March 31 2020 in the prescribed FormMGT-9 and the Annual Return as at March 312020 in the prescribed Form MGT- 7 areavailable on website of your Company at the URL: https://www.dhfl.com/docs/default-source/default-document-library/form-no-mgt-9-extract-of-annul-return.pdf and https://www.dhfl.com/docs/default-source/default-document-library/annual-return- as-on-3T;:t-march-2020.pdfrespectively.
For and on behalf of the Board (Advisory Committee)
Administrator of Dewan Housing Finance Corporation Limited 6th Floor HDILTowers Anant Kanekar Marg Station Road Bandra (East) Mumbai 400 051
For and on behalf of Dewan Housing Finance Corporation Limited (a Company underCorporate Insolvency Resolution Process by an Order dated December 3 2019 passed byHon'ble NCLT Mumbai). The Administrator has been appointed under Rule 5(a)
(iii) of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings ofFinancial Service Providers and Application to Adjudicating Authority) Rules 2019 underthe Insolvency and Bankruptcy Code 2016. The affairs business and property of DewanHousing Finance Corporation Limited are being managed by the Administrator R.Subramaniakumar who acts as agent of the Company only and without any personal liability.
Date: September 5 2020