The Directorate of Revenue Intelligence (DRI) and the Enforcement Directorate (ED) have recently put out light-blue alerts against Dinesh Dalmia, managing director of DSQ Software. This means that he would be immediately detained, as and when he is noticed, if he tries to leave the country. This action is connected to suspected foreign-exchange violations by Dalmia and DSQ Software when he allotted 14 million shares (worth over Rs 900 crores) to three Mauritius based Overseas Corporate Bodies (OCBs). The shares were ostensibly allotted in order to acquire a San Jose based company called Fortuna Technologies in a share swap deal. The Mauritius based companies were: Technology Trust, Softee Corporation and New Vision Investments. It also turns out that there may be more than one company registered with the New Vision name and that some shares were diverted to a Delhi registered outfit, which then lent them to a Kolkata broker who was on the verge of a default. Although the preferential allotment of shares was made in May 2000, the deal with Fortuna Technologies never occurred. Facts reveal that Dalmia did not even have a Memorandum of Understanding (MoU) with Fortuna when he had claimed a deal to buy the company. The ED is now investigating the source of funds of New Vision Investments, a UK- registered OCB, which remitted Rs 30 crore to acquire DSQ shares, although it its capital was a measly one-pound sterling. About a year ago, Sebi had come to Dalmia’s rescue when it ‘punished’ it by cancelling the 14 million share preferential allotment to three Mauritius-based OCBs. This apparent ‘punishment’ would have allowed Dalmia to bury the Fortuna technology chapter, but for two developments. First, the ED and DRI decided to investigate the ownership of the three OCBs and their source of funds. By then Fortuna Technologies and its owner T.C. Ashok had made it clear that he had no understanding to a share-swap or to route any sale through the OCBs. Secondly, Fortuna Technologies filed arbitration proceedings with the American Arbitration Association’s International Centre for dispute resolution on October 12, 2001 against DSQ Software Corporation of Texas. Dalmia in turn has filed proceedings with the District Court of Northern California, attempting to strike down the arbitration proceedings. First, the papers show that although Dalmia made a preferential allotment of 50 per cent of his capital to the Mauritius based OCBs in May 2000, but he first approached T.C.Ashok of Fortuna Technologies only in February 2001. Until then, the fact of the allotment and its purpose was not revealed to DSQ Software’s Indian investors or to stock exchanges on which it is listed. Around June 28, 2001 DSQ and Fortuna signed a MoU for an all cash deal for Fortuna shares for a sum of $27,500,000. On August 21, 2001 Fortuna terminated the MoU, following Sebi’s July 20 order against Dalmia. Among other things, the Sebi order had cancelled the preferential allotment that was ostensibly made to acquire Fortuna shares; it also barred the company from accessing the capital market for a year and began to investigate his alleged ramping of DSQ shares. Interestingly, the genuine MoU with Fortuna had said that DSQ Software would pay $350,000 as a break-up fee on the termination of the agreement. DSQ has apparently paid $100,000 of this claim and is yet to pay $250,000. Fortuna now wants damages to the extent of the difference between the acquisition price agreed in the MoU and the current value of shares ($ 7.5 million). It has also claimed further damages because Dalmia breached the confidentiality clause in the MoU. Its main charge is that Dalmia had never disclosed to it that he had issued 14 million shares to three OCB’s in a fraudulent transaction under the premise of acquiring Fortuna. It has demanded damages of $10 million under these charges plus costs. Dalmia too has taken steps to defend the charges. On December 21, 2001, DSQ Software filed a response to the arbitration demand denying Fortuna’s charges. It also insists that Fortuna’s rights are limited by the agreement, which provides for a break-up fee of $350,000. DSQ says that arbitration was only contemplated in the event of a long-term relationship with Fortuna based on a staggered payment arrangement had the deal been completed. In doing so however, Dalmia has accepted an outstanding liability of at least $ 250,000 towards Fortuna. DSQ Software’s petition in the District Court for the Northern District of California, has sought ‘an order declaring the arbitrator has no jurisdiction, and that but for the claim regarding the $250,000 break-up fee no arbitrable claims exist’. Although the dispute has been pending since October 2001, DSQ’s shareholder and stock exchanges have not been informed about this development. As for its employees, Dalmia routinely sends out circulars to them and posts notices denying all negative reports including those relating to the ED’s action. Instead, Dalmia has been calmly negotiating the sale of large chunks of DSQ’s most lucrative contracts with a consortium of NRIs led by Ramesh Vangal. Ironically, the capital market regulator and the Department of Company Affairs have yet to follow up the Vangal deal or question the investment bankers associated with it.