India`s Ministry of Corporate Affairs will look into allegations of financial mismanagement against Dewan Housing Finance Corp Ltd (DHFL), two government sources with direct knowledge of the matter told Reuters on Wednesday.

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Investigative media outlet Cobrapost on Tuesday said Dewan diverted funds to shell companies to buy assets, and that firms linked to Dewan`s controlling shareholders - the Wadhawan group - made political donations beyond mandated levels.

Dewan, one of India`s largest housing finance companies, said the report was unfounded and malicious and that it had engaged lawyers to defend itself.

Cobrapost told Reuters it stood by its reporting.

A government source said the ministry of corporate affairs had taken "very serious note" of the allegations would likely inspect the records of Dewan Housing and "further action" against the company and its directors cannot be ruled out."

Another source confirmed the plan to investigate the firm and the alleged shell companies. Both said they could not be named, citing government rules.

Reuters contacted Dewan by phone and email for a response to the government move but there was no immediate response.

However, company chairman Kapil Wadhawan firmly rejected the Cobrapost allegations in a call with media, investors and analysts earlier in the day.

"DHFL has never lent to a shell company," he said. Neither it nor its units made any political donations, he said.

The firm`s denial of the report failed to stop investors selling the stock, which has lost a third of its value since Jan. 1.

Shares of Dewan lost 8 percent on Tuesday and closed down a further 4.9 percent on Wednesday. Shares fell by as much as 9.5 percent to 153.55 rupees at one stage before Wadhawan`s comments were made public.

During the call, Wadhawan also addressed liquidity concerns in India`s non-banking lending sector, saying Dewan was well-financed and had never defaulted on a loan.

"We are committed to have adequate liquidity to meet commitments for the next 12 months," Wadhawan said.

He also said Dewan, which is selling its life insurance business, will shortly raise debt from overseas markets.

($1 = 71.2660 Indian rupees)

(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)