Sucheta Dalal :Lethargic regulators and half-truths let off the culprits
Sucheta Dalal

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Lethargic regulators and half-truths let off the culprits  

Sep 2, 2001

Ever wonder why market scamsters and promoters are rarely punished? Probably because investigative agencies either collude with the culprits or are too lethargic to do their job even in the face of glaring evidence of duplicity.

Dinesh Dalmia of DSQ Software Ltd. is an example. His company, DSQ Software is under investigation by the Securities and Exchange Board of India (SEBI), the Department of Company Affairs (DCA) and the Enforcement Directorate. Its scrip was suspended by all major stock exchanges for violation of listing rules, and for providing false information regarding overseas acquisition of one Fortuna Technologies of the USA. Finally, the Joint Parliamentary Committee (JPC) got into the act and asked questions about the status of the investigation. SEBI's answers show that all the key investigative agencies continue to bungle.
Ironically, the one person who seems completely unaffected by all the regulatory scrutiny is Dalmia himself. He is so confident about the ineffectual investigation that he continues to mislead regulators and change the structure of his companies without the slightest objection by his major shareholders such as - various Tata companies, the financial institutions including Unit Trust of India, Bank of America etc.

Here are the facts. In January this year, DSQ Software allotted 14 million equity shares at Rs 685 each for a value of Rs 959 crores on a preferential basis to three Mauritus companies -- Technology Trust, Softec Corporation and New Vision Investments for the acquisition of a California based company called Fortuna Technologies USA.

However, DSQ did not inform either the investors or the stock exchanges about the increase in capital or the details of the acquisition. In April this year TC.Ashok, who owns Fortuna, told this writer that that the three Mauritius companies "neither own Fortuna nor Fortuna owns them. I own Fortuna USA 100% and Fortuna USA does not own any other company". (Ashok backed this up by submitting an affidavit to SEBI and agreeing to cooperate with its investigations during his visit to India around six weeks ago).

This was followed by an investigation by all the major stock exchanges leading to the suspension of DSQ shares for sometime. SEBI also conducted and investigation, following which it cancelled Dalmia's "acquisition" of Fortuna. It also prohibited DSQ from accessing the capital market and debarred Dinesh Dalmia from dealing in securities for a year or until investigations are complete.

Meanwhile, the story took a bizarre twist. Harish Biyani, a broker and speculator who was very close to Dinesh Dalmia suddenly produced10 lakh shares of DSQ Software which he gave to Calcutta Stock Exchange (CSE) in lieu of his dues during the payment crisis. It was discovered that Biyani's shares bore the same distinctive numbers as the ones allotted to one of the three Mauritius companies called New Vision Technologies and this set off another investigation.

SEBI's reply to the JPC last week has the latest on this saga. SEBI was initially told that Biyani received the shares from a client against overdue payments. "Investigations brought out that the client was New Vision Investment Private Ltd, a company based in Patparganj, Delhi, and further inquires revealed that no such company existed at the address given for the last three years; 'no satisfactory explanation was offered by DSQ about how there shares were allotted to the Patparganj-based New Vision Investment Pvt. Ltd.', says SEBI.

At this stage Harish Biyani claimed that TC Ashok is an "old friend" who had lent him the shares to avert a payment crisis and that the shares were "given just for personal relationship".
Here is the catch. TC Ashok in a telephone interview told this writer on Friday night that he had absolutely no idea who Harish Biyani was. He was neither a friend nor an acquaintance. As a US citizen had no dealings with him whatsoever. Also, since he has nothing to do with the Mauritius companies there is no question of him lending its shares to anybody. Surely, these are facts that could have been ascertained even more easily by the regulator.

It seems curious that TC Ashok's assertions in an affidavit to SEBI do not figure in its reply to the JPC. SEBI vaguely says "Inquiries reveal that there are different versions of replies given and the matter is under investigation". Surely, a regulator can be at least as resourceful as a journalist in obtaining information, especially when questioned by an august body of parliament.

As things stand, the CSE's default would have increased by Rs 12 crores, since the allotment of shares submitted by Biyani has been cancelled. In the last three months, neither SEBI nor the enforcement directorate seems to have made any headway in establishing the true ownership of the three Mauritius companies and it could well turn out that they belong to Dalmia himself - that would be a violation of the foreign exchange rules.
Ironically, neither the DCA nor SEBI seems to have the powers or the inclination to keep Dalmia away from active management. Dalmia controls DSQ Software and his other group companies through a holding company called DSQ Holdings. Neither of the two regulators seems to have bothered to find out how much of Dalmia's holding is unencumbered. According to a market source, Dalmia who speculated heavily in the Kolkata market has pledged a large chunk of his shares. He has also been offering to part with land in lieu of money payable to institutions such as Infrastructure Leasing & Financial Services.

While the regulators continue their leisurely trip through the DSQ maze of sham and deception, Dalmia is briskly changing the nature of his entire group as well as its operations overseas. He has written to employees that DSQ Software is in the process of being renamed Total Solutions. The reason: the group companies such as DSQ Software, Global Software, e-Antarix Applications and Total Infotainment Limited have independent global sales leading to high sales cost and that a single sales point will allow the company to offer "a wider bandwidth of services" without duplicating the marketing efforts and the new name will reflect the change. Though the change became effect as of August 31, no shareholder seems to have raised the least objection. DSQ Biotech's name is also being changed to Origin Agrostar Ltd. It would be recalled that not very long ago, DSQ Software used to be called Square D software. Apparently, a changed name has a way of obliterating the past record from people's minds. 

But there are other changes afoot at DSQ's overseas operations which should concern shareholders. For instance, a Singapore unit called DSQ Software Pte Ltd. is being sold. While SEBI, the Department of Company Affairs and the Enforcement Directorate continue their reluctant probe, it seems as though DSQ would probably have transformed so much that any punishment they eventually hand out would be meaningless.

-- Sucheta Dalal