In a significant development pertaining to banking fraud investigations, Justice Ravinder Dudeja of the Delhi High Court has declined to grant regular bail to Kapil Wadhawan, former CMD of Dewan Housing Finance Corporation Limited (DHFL), who stands accused of masterminding one of India’s largest financial scams.

Facts:

The case originates from a First Information Report (FIR) registered by the Central Bureau of Investigation (CBI) on 20th June 2022. The CBI alleged that the promoters of DHFL, including Kapil and Dheeraj Wadhawan, conspired to cheat a consortium of banks led by Union Bank of India.

The modus operandi was to induce banks to sanction loans aggregating to ₹57,242.05 crores and subsequently siphoning off and misappropriating large portions of the funds. Books of accounts of DHFL were allegedly falsified to conceal the fraud.The fraud was done by creating fake loan accounts. Over 2.6 lakh fake borrowers were shown through a non-existent branch called "Bandra Branch-001."

DHFL’s internal software was allegedly tampered with to make it look like real loans.The money was then sent to 87 shell companies owned by friends, employees, and relatives of the Wadhawan family. A special set of accounts, called the “Bandra Book,” was kept to hide these fake transactions.

The Central Bureau of Investigation(CBI) says that Kapil Wadhawan used this money for personal gains, including buying expensive paintings and funding other companies in his group. These activities continued even when he was in judicial custody.

The counsel for Wadhawan argued that the case is based only on documents, and he has already spent nearly three years in jail in this matter. They said that the forensic audit used as evidence is unreliable and that he has not tampered with any evidence. His legal team also claimed that most of the loan amount has already been recovered under the Insolvency and Bankruptcy Code (IBC).

However, the CBI strongly opposed the bail. They said the fraud was massive and carefully planned. They also said that Wadhawan had misused hospital visits while in custody, sold valuable paintings, and tried to delay the trial by not cooperating. He is also facing several other cases across India for similar financial crimes.

The Court said the scale and seriousness of the fraud cannot be ignored. The judge noted that economic crimes like this hurt the country’s financial system and public trust. Such crimes are different from normal cases and must be handled more strictly.The Court said that Wadhawan failed to meet the legal conditions for bail. There is a real chance he could influence witnesses or tamper with evidence if released.

The argument that the delay in trial is a reason for bail was also rejected, as the delay was partly due to the applicant himself. The judge also noted that getting money back under IBC does not cancel criminal charges. The Court said that the fraud was not a civil matter but a criminal conspiracy involving cheating, forgery, and money laundering.

Noted the bench,“the court is not persuaded to grant regular bail to the applicant considering the magnitude, complexity, and gravity of the economic offences alleged against him.This by itself cannot entitle the accused to bail when the allegations relate to fraudulent siphoning of funds on an unprecedented scale. cannot dilute the seriousness of the allegations. Resolution under IBC does not exonerate criminal liability, and recoveries made by third-party resolution applicants cannot be construed as voluntary restitutions by the applicant.”

“The case of the prosecution is not one of mere default but of deliberate deception, diversion of public funds, creation of fictitious accounts, forgery, and laundering of money, all of which attract penal consequences. The act of fraudulently obtaining public funds and misusing them in a manner calculated to conceal the trail and mislead stakeholders falls squarely within the realm of criminal law.” the court stated.

With observations that Wadhawan played the main role in the scam, his release from custody was denied since it could damage the case and the justice process. Conclusively, the Court dismissed his bail application and ordered that he stay in custody.

Case Title: Kapil Wadhawan versus Central Bureau of Investigation