Sucheta Dalal :Regulators Drag Their Feet
Sucheta Dalal

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Regulators Drag Their Feet  

Apr 1, 2002

In an amazingly brazen move, which is typical of the diminutive Dinesh Dalmia, DSQ Software and all its global affiliates including those registered abroad under the new name of Total Infosystems are set to sell off their most lucrative businesses and contracts. The buyer is a Singapore- based group led by Ramesh Vangal, who was until recently a director of the blue chip Infosys Technologies and formerly, country head of Pepsi Cola in India.

The deal was to have been completed at the end of March but because of Dalmia’s secretive business practices, nothing is known about his plans. What is however clear is that DSQ’s large investors seem clueless about Dalmia’s plans and have done nothing so far to check his powers or curtail his rights to alienate DSQ Software’s assets. Documents available with this writer show that all the groundwork is in place, the price fixed and all deeds drawn up. The net result of these actions will be that DSQ Software will be a worthless shell company of no value to any of its investors.

It would be recalled that DSQ Software is one of those notorious companies of scam 2000, which is supposed to be under investigation by the Enforcement Directorate, the Department of Company Affairs, the Reserve Bank, and the Securities and Exchange Board of India. Last year, Sebi, in an interim order, forced Dalmia to cancel a completely irregular preferential allotment of shares to three Mauritius-based companies and barred him from accessing the capital market for a year.

The DCA does have the power to remove Dalmia from active management, but seems to be dragging its feet on the issue. Certain members of parliament had also asked questions about Dalmia’s shenanigans in the Calcutta Stock Exchange and the problems connected to a broker called Harish Biyani, but these too have not been a deterrent. In the meanwhile, Dalmia is ready to flee by registering a series of companies in India and abroad with identical names that are meant to create confusion and avoid detection.

Here is how it works: The main sale deal is being signed by DSQ and Dalmia with Ramesh Vangal and Satyen Patel and a company incorporated in the British Virgin Islands called Globetech Worldwide Ltd (PO Box 146, Wickhams Cay). Another agreement is being signed between Scandent Network Private Ltd, based in Bangalore and will acquire some of DSQ’s assets, and DSQ Software Ltd in India. The entire deal will be obfuscated through a series of mirror companies with identical names as the selling companies or target companies.

For instance, there is one company called Scandent Network Private Ltd registered at 5, Crescent Road Bangalore, for the transfer of DSQ Software’s major assets. There is also a company called Scandent Network Pvt Ltd registered at Singapore. Companies with the Scandent Network name and different suffixes are also being registered across Europe for enabling the sale. The DSQ companies, including those located abroad, which Dalmia has renamed under the head Total Infosystems are being divided into two categories. The ‘target companies’ are the DSQ companies and they will transfer specified assets, lucrative contracts, nearly 90 per cent of the employees, the goodwill and intellectual property owned by the group. The ‘mirror companies’ (the nomenclature is self explanatory) are those to which the assets will be transferred by DSQ. The transactions were expected to be completed by April 5, 2002.

Thus, some asset transfers will be between DSQ and Scandent Network in India, while others will happen abroad. Scandent in India will eventually become a subsidiary of the Vangal group; in the meantime, it will hold its shares as a pledge. As for the employees, they may be transferred directly to Vangal group’s acquiring company, or to its subsidiary companies or the mirror companies that will be acquired by him. All key contracts will be assigned to the target companies and then to the Vangal group’s mirror companies. Most mirror companies will bear the name Scandent Network with appropriate suffixes for incorporation in various countries such as Singapore, France etc.

The contracts that will move from DSQ, DSQ Europe and Total Infosystems to the Vangal group include the ones with Peregrine Systems Inc, the California-based Liberty Mutual Group, and Exel Logistics (formerly known as MSAS Global Logistics Limited).

While DSQ obtains permissions to transfer and assign all its lucrative global contracts to the Vangal Group, the buyer company will open two escrow accounts. The first for Rs 100 crore and a second dollar denominated one for Rs 30 crore. Apart from this, there are a few other contracts that are being worked out through the mirror companies for specific asset acquisition with separate payments. For instance, one mirror company will pay Rs 15 crore to acquire Amtex Systems Inc. Dalmia is also signing away the rights to his properties at Tidel Park Complex and Mount Road in Chennai along with all the furniture and infrastructure.

It is clear that Vangal and friends are interested in DSQ’s lucrative contracts abroad and the intellectual capital of the company. Hence, the deal spells out in detail the number of engineers working on each of these contracts in India and abroad with specific legal provisions for their transfer to the Vangal companies.

The deal, however, raises several critical questions. For instance, how is it that someone of the stature of Ramesh Vangal is completely unfazed about the many allegations against Dalmia? Part of the negotiations for Vangal have been conducted through Utsav Parikh, a Kolkata-based broker. What role has be played in arranging the sale? Why is the DCA reluctant to curb Dinesh Dalmia’s powers despite the many powers available to it under the Companies Act, even though his plans to sell DSQ’s assets are well known? Why are all Indian regulators including the Enforcement Directorate, which oversees foreign exchange regulation, the Reserve Bank of India, that supervises overseas corporate bodies, and Sebi moving at such a snail’s crawl with regard to the DSQ investigations?

Is it yet another case of deliberately allowing the horse to bolt before the regulators spring into action? The losses, running into several hundred crores of rupees, will be borne by financial institutions, banks, the beleaguered Unit Trust of India and thousands of investors

-- Sucheta Dalal