Sucheta Dalal :Calcutta High Court rejects Dinesh Dalmia's bail plea
Sucheta Dalal

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Calcutta High Court rejects Dinesh Dalmia's bail plea  

May 28, 2010

 While rejecting the bail plea of the promoter of DSQ Software, the High Court observed that the possibility of Mr Dalmia absconding again, extending threats or inducement to witnesses and the risk of him tampering with evidence at this stage of the trial cannot be ruled out

A Division Bench of the Calcutta High Court has rejected the bail prayer of Dinesh Dalmia, promoter of DSQ Software Ltd in connection with the 2001 Calcutta Stock Exchange scam. Mr Dalmia is the prime accused in the fraud case and is in judicial custody.

In an order, the High Court said it is its considered view that there is proof to show prima facie that the present accused petitioner (Mr Dalmia) prepared false and fabricated documents and used the same as genuine in different stock exchanges and before the Department of Company Affairs (DCA). "In fact, it is a serious case having inter-state ramification and involvement of a huge amount of Rs120 crore," the Court said.

Mr Dalmia was the managing director of DSQ Software when the Central Bureau of Investigation (CBI) arrested him for his involvement in a stock scam. He made money by transferring DSQ shares in the name of UK-based New Vision Investment Ltd and un-allotted shares in the name of Dinesh Dalmia Technology Trust. However, according to investigation reports, about 1.3 crore DSQ shares were not listed on any exchange.

Until 2000, Dinesh Dalmia's DSQ Software was just another company whose management cooked its books, hid audit trails through frenetic name changes and exploited every bull-run to make a killing for the promoter group. What distinguished Mr Dalmia was his brazen confidence in his ability to fool most people most of the time. The string of eminent persons who were persuaded to join his board and face the ignominy of being barred from the capital market is clear testimony to this. Before the Ketan Parekh led bull-run, DSQ had been listed as a defaulter by a dozen banks and institutions.

In 2006, Mr Dalmia was arrested at New Delhi for various fraud charges and is currently serving a jail sentence while the enquiry is underway. It is believed that Mr Dalmia was in the United States from 2003 to 2006 trying to establish a presence in the BPO market by setting up businesses using proxy names and deals. He was constantly seen in the New Brunswick area of New Jersey driving luxury cars and often eating at a local Indian restaurant. He was indicted in 2006 by the US District Court in New Jersey on multiple charges of fraud.

DSQ Software is operationally dormant as per trading information submitted for the year 2005. As per BSE data, trading in DSQ Software is suspended due to penal reasons.

The Calcutta High Court, while rejecting the bail plea of Mr Dalmia said, materials on record disclose that his conduct is far from satisfactory. "He absconded for a pretty long time both inside the country and abroad. In such a situation, the Investigating Agency had to issue a Red Corner Notice to secure his presence before the courts of law," the Court said.

While most of the co-accused in this case are already out on bail after their detention for a considerable period of time, the High Court observed that the case of Mr Dalmia is not similarly situated and his release may jeopardise the interest of the trial. The Court said, "The possibility of (Mr Dalmia) absconding further and extending threat or inducement to the witnesses as well as tampering of evidence at this stage of trial cannot be ruled out. Considering all these, we do not feel inclined to allow the Petitioner's prayer for bail."

The High Court said since Mr Dalmia is languishing in jail for more than four years, it is desirable that the trail should be concluded with utmost expedition. The Court directed the Calcutta Metropolitan Magistrate to exhaust the process against the absconders in accordance with the law as early as possible. The High Court also directed the Trial Court to proceed with the trial of the State versus HC Biyani and others case without granting any unnecessary adjournment to either sides and to dispose of case No 2201 of 2001 pending before him as expeditiously as possible.

The Dalmia Saga: Nailed by net (By Sucheta Dalal)
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For a man who manipulated info-tech companies, it is only fitting that Dinesh Dalmia's activities were trailed by employees and associates that kept popping out of cyberspace and linked journalists across the world.

Until 2000, Dinesh Dalmia's DSQ Software was just another company whose management cooked its books, hid audit trails through frenetic name changes and exploited every bull-run to make a killing for the promoter group. What distinguished Dalmia was his brazen confidence in his ability to fool most people most of the time. The string of eminent persons who were persuaded to join his board and face the ignominy of being barred from the capital market is clear testimony to this.

I met Dinesh Dalmia on 25 May 2001, at his request. As I wrote that week, he wanted to ''clear certain issues and misconceptions." His story was that DSQ Software ''had no borrowings anymore and was among the only Indian companies to have paid back all the money it owed banks and institutions." Before the Ketan Parekh led bull-run, DSQ had been listed a defaulter by a dozen banks and institutions.

Mr Dalmia wanted to convince me that he had turned a new leaf. He planned to stay away from capital market speculation and like Arjuna of the Mahabharata, his attention was focussed on the eye of the fish (running DSQ Software), he said. He would soon turn DSQ Software into another Infosys, he boasted, because, unlike N Narayana Murthy, he was a businessman.

A source had told me that Mr Dalmia had quietly increased DSQ Software's capital from Rs30.5 crore to Rs 47 crore, I asked him about it. Mr Dalmia claimed there was no secrecy, stock exchanges had been informed about the deal to buy out a San Jose-based company called Fortuna Technologies through a preferential offering to three Mauritius-based companies; hence the increase in capital. I soon learnt that this was all a lie.

As I said, Mr Dalmia failed to reckon with the power of the Internet and it probably played the biggest role in getting him caught. A consultant to Fortuna Technology read my article on the Net and pointed out that there was no such deal with Mr Dalmia. He put me in touch with Fortuna's San Jose-based Indian-American promoter, TC Ashok, and the dirt came tumbling out. Mr Ashok's discussion with Fortuna was about an all-cash deal and that too had already fallen through.

Investigations later revealed that the three Mauritius companies belonged to Mr Dalmia himself and the 1.3 crore shares allotted to them were re-introduced into the market to cover up the Calcutta Stock Exchange (CSE) scam. He had also fraudulently asked the National Share Depository to dematerialise the additional share capital while at the same time delivered some physical shares to his Kolkata broker cronies who had helped ramp up his share price.

When the heat of the investigations increased, Mr Dalmia made plans to flee. He quietly bilked considerable value from DSQ Software and extracted a nest egg for his US operations. Ironically, despite the notorious market manipulations, DSQ Software had a decent set of international contracts, which found a willing buyer in Ramesh Vangal of Scandent. An alarmed international source began to give me detailed information about those negotiations and the final deal. That part of Mr Dalmia's dealings is being probed exceptionally slowly by the Enforcement Directorate for over three years.

While Mr Dalmia dumped DSQ Software and fled to the US with its money, none of the banks and mutual funds who had bought expensive DSQ shares voiced any protest; not even when I reported details of how he spun off all the foreign subsidiaries in the UK, Singapore and the US into independent companies, repeatedly changed their names to obfuscate any audit trail and turned them into personal assets.

Again several sources e-mailed information from around the world about his international shenanigans and the red Ferrari he used to zip around New Jersey. Only government investigators had no sources or information and were too shy to ask. Mr Dalmia fled India as the Fortuna investigation heated up in 2002. The Central Bureau of Investigation (CBI) then posted an Interpol Red Corner Notice against him.


Yet, Mr Dalmia was unfazed. The same group of top employees, who worked with him at DSQ Software, moved over to his brand new BPO business and had the audacity to operate out of Gurgaon, Bangalore and Chennai under the Allserve name. But nemesis caught up with him when he tried to acquire a Texas-based outsourcing company called Aegis Communications. That is when Christopher Byron, a New York Post journalist got on to his trail, worried at the transfer of confidential personal data to an Indian company.

He found it strange that the buyer of Aegis was hiding behind a numbered Tortola account and he discovered the Dalmia connection. Again, it is Google and the Net that helped Christopher Byron contact me and allowed us to connect up several dots in the case.

Although the Aegis deal fell through after the New York Post expose, Mr Dalmia was unfazed. Pretty soon, he aimed even higher and attempted to reverse merge one of his entities into a Nasdaq-listed company called TACT. That deal didn't stand up to the relentless exposure by the Post.

Mr Byron's meticulous investigation spanned Mr Dalmia's US operations, Tortola accounts and his London dealings. Another break came when Mr Dalmia's empire suddenly collapsed like a pack of cards and he was forced to file for bankruptcy, exposing global borrowing of over $130 million and an international trail of fraud and forgery.

This broad picture does not even begin to cover the complex web of obfuscation created by setting up ''mirror companies'' around the world and often in the same city to confuse and confound any investigator. Most of these were shells operating through numbered accounts in tax havens. As the bankruptcy proceedings heated up, Mr Dalmia fled to India, allegedly after transferring more funds to safe tax havens.

Remarkably, Indian investigation agencies simply refused to take cognisance of our reports for three years and allowed him to continue living like a prince in a New Jersey mansion and zip around in his Ferrari. Even after his return to India, it was three weeks before the Finance Ministry's intervention led to Mr Dalmia's arrest. Whether the arrest leads to investigation and justice will be another story.  — Moneylife Digital Team


-- Sucheta Dalal


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