While DSQ may have sent funds abroad through the Mauritius route, it wasn’t the only one. Zee Telefilms, SEBI has told the JPC, appears to have followed the same time-tested route

ON Friday, SEBI acted with the alacrity expected from a tough capital market regulator to initiate action against DSQ Software Ltd and its managing director Dinesh Dalmia. This column had extensively documented the shenanigans of Dalmia in allotting shares to three Mauritius-based companies ostensibly for the acquisition of Fortuna Technologies of the USA.

SEBI has now cancelled the allotment, signalling that in its prima facie opinion, the deal was a fraud. The extent of fraud can be determined only on finding out who owns the three firms — if it turns out that the three Mauritius-based firms belong to Dalmia the matter should logically be referred to the Enforcement Directorate.

But DSQ is not alone in its rampant disregard for corporate rules and accountability. There is already clear evidence that at least three other companies which had a close nexus with Ketan Parekh have probably violated as many rules. It is now common knowledge that Global Trust Bank (GTB), Zee Telefilms and Himachal Futuristic Communications Ltd. (HFCL) were in cahoots with Ketan Parekh and had all routed large sums of money to corporate entities connected with him.

SEBI has told the Joint Parliamentary Committee that at the latest count, Zee and HFCL had diverted Rs 515 crore and Rs 700 crore respectively to Parekh. While GTB had lent him Rs 256 crore, lent the Zee group Rs 200 crore to be diverted to Ketan and also lent money to various other brokers for funding Ketan Parekh. In addition, Zee also borrowed money from ICICI, UTI, IDBI and lent it to Parekh. This deep liaison with the broker raises many questions. Shouldn’t the RBI be asking UTI, ICICI and IDBI why they lent money to the Zee group with such undue haste?

SEBI’s deposition before the JPC however tells most of the story. The corporate nexus with Parekh, allowed them to structure their market manipulation with Overseas Corporate Bodies (OCBs) and Foreign Institutional Investors playing a central role. SEBI has discovered at least 10 OCBs, which acted for Parekh. Of these, the first five alone have ‘siphoned off’ a whopping Rs 2,900 crore through OCB operations. These OCBs were all registered in Mauritius and many had a $10 capital. Operating through OCBs allowed Ketan Parekh to buy credibility for his ramping and circular trading.

SEBI has now told the JPC that it has unearthed six more OCBs, which were also operating for Ketan Parekh and used for ‘cornering and parking of stocks’. They were: Dossier Stock Inc, Greenfield Investments, AOM Investments, Symphony Holdings, Almel Investments (Mauritius), and Delgrado Ltd. Of these, Delgrado is the most significant. The sole beneficiary of this OCB is none other than Subash Chandra, Chairman of Zee Telefilms. SEBI has found that Zee Telefilms allotted 2.48 crore shares to two shareholders of Zee Multimedia to acquire that company. One of these was Delgrado, which received massive 1.75 crore shares of Rs 10 face value, later split to 10 with a Rs 1 face value.

The deal allowed Chandra to icrease his holding in Zee Telefilms. Chandra was able to sell some of his shares in Delgrado at the relentlessly-ramped up price and remit a hefty profit of Rs 450 crores to Mauritius. This sale too was through Ketan’s company Triumph International. The other shareholder of Zee Multimedia would be interesting to know, as also how it was valued.

Ironically, Subash Chandra held an unusual press conference in June this year to send out the message that Zee was now looking for a strategic investor. Chandra had stymied reporters’ questions about the diversion of funds to Ketan Parekh, by saying that he wanted to ‘close that chapter’, little realising that it was not his choice.

For instance, the true ownership of Delgrado can attract violations of the Companies Act. Moreover, every acquisition, sale, placement and tie-up of Zee would be now under the magnifying glass. SEBI told the JPC it is checking out whether Chandra had sold six per cent of his own shares in the capital market. Its curious private placement last year is also under scrutiny. At that time Zee Telefilms had raised Rs 800 crores and Rs 645 crores through a private placement. These shares were allotted to Goldman Sachs and Winter Heat Company Ltd and the beneficial ownership was never questioned. SEBI has now asked Goldman Sachs to disclose the name of the true owner of these shares. Could the placement have been a mere tool for further ramping operations?

Zee’s agreement with Star TV and the money that it earned from Star, Zee’s subsidiaries and their equity distribution and the manner in which it managed to create reserves of over Rs 3,500 crores in just one year (1999-2000) are all being probed. Until the crash of Ketan Parekh and the collapse of Zee’s share price, Zee was too big and powerful a media force to be probed by the regulator.

Curiously, even researchers and analysts at that time seemed happy with superficial explanations by Chandra. Hopefully, having initiated speedy action against DSQ Software, SEBI will not be able to delay a similar action against Ketan Parekh’s other buddies — ZEE, HFCL and GTB.

http://www.indianexpress.com/columnists/such/20010722.html