Sucheta Dalal :DSQ saga heading for fresh complications (15 July 2001)
Sucheta Dalal

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DSQ saga heading for fresh complications (15 July 2001)  

DSQ’s Dinesh Dalmia appears to be in the middle of selling his stake— can a promoter who’s being investigated for a variety of things be allowed to do this?


What happens when the promoter of a company, which is in the middle of a serious investigation simply sells his stake and vanishes? Dinesh Dalmia of DSQ Software is planning just such a move.

And whatever happens with DSQ would provide a good case study on whether a promoter who is being investigated for a variety of stock market shenanigans can get away by simply selling his holding.

On Friday last, the NSE announced that the DSQ Software scrip would be suspended from trading for a week from July 27, 2001 for ‘non compliance with provisions of the listing agreement’ —the announcement was made after a long and unsuccessful back-and-forth effort to get some answers from the company. The suspension is probably the first and mildest of actions possible against DSQ Software.

The company is also being investigated by the Sebi and the Department of Company Affairs (DCA) in connection with various charges which range from manipulation of stock prices (especially at Kolkata); the issue of 10 lakh shares to Kolkata broker Harish Biyani (which could well be duplicates); and the mysterious allotment of 1.4 crore to three Mauritius-based companies for an alleged acquisition of Fortuna Technologies of the USA. The curious relationship between IndusInd Bank and DSQ Software also bears scrutiny.

While DSQ’s managing director Dinesh Dalmia had told me that he has almost no borrowing from the banking system (not even working capital funds), IndusInd Bank has been discounting cheques of Kolkata brokers at Dalmia’s request (the dispute between Harish Biyani and the Stock Holding Corporation of India is a case in point).

Since the Calcutta Stock Exchange (CSE) has already complained to the Joint Parliamentary Committee (JPC) about IndusInd Bank’s delay in providing information about a broker’s payment difficulties, the RBI ought to be interested in taking a closer look at these entities.

But first, a quick update on the DSQ story. On December 11 last year, DSQ Software obtained shareholder approval at an extraordinary general meeting for the acquisition of Fortuna Technologies Inc. Subsequently, the company told its board of directors in January that 1.40 crore shares at Rs 675 each had been allotted to three Mauritius based companies—Technology Trust (60 lakh shares), Softee Corporation (40 lakh shares) and New Vision Investments (40 lakh shares). The value of this allotment was a cool Rs 945 crore at that time. Yet, seven months later, there is no deal with Fortuna Technologies. Instead, the managing director of Fortuna, TC Ashok, told this paper that the three Mauritius companies mentioned above ‘neither own Fortuna, nor does Fortuna owns them’. He claimed that he is the sole owner of Fortuna US and it in turn does not own any other company.

The question is: who was the beneficiary of nearly Rs 1,000 crore of DSQ Shares allotted in January 2001, when the share price of DSQ Software was still fairly robust? Dinesh Dalmia is providing no answers. Instead, he has been shuttling between the USA and India; or spending his time lobbying for political support in India to get him out of the mess. He is also working to release 10 lakh shares that he had given to a Kolkata broker called Harish Biyani who has since been declared a defaulter. There is a distinct possibility that the shares with Biyani are duplicates because they bear the distinctive numbers as those issued to some of the Mauritius-based companies.

Sources familiar with DSQ Software claim that the three Mauritius-based companies which were allotted 1.4 crore shares belong to Dalmia himself. They also say that this was not unusual. Two other high profile software companies had resorted to similar tactics during the IT-led boom of 1999 to enhance their holdings under the guise of overseas acquisitions. In fact, the overseas acquisitions were mere shell companies that were purchased for a pittance. In DSQ’s case, there isn’t even an acquisition. However, neither of the regulators investigating DSQ seem to have cracked the mystery of the Fortuna deal as yet.

Instead, Dalmia continues to negotiate with Ramesh Vangal (former chief of Pepsi in India) and a bunch of foreign investors to sell his holding in DSQ Software and escape regulatory action. Vangal and company, I am told, are convinced that DSQ Software is a good purchase at a price, because it has a few genuine contracts and assignments. They also believe that regulatory action against Dalmia will have no impact on the new management. If that indeed is the position, then Dinesh Dalmia would go Scot-free and the retail investors can only pray for a better performance under the new management. Surely this cannot be allowed to happen. It will only encourage other promoters to emulate the Dalmia trick to escape sticky situations.

Dalmia also has a couple of other cards up his sleeve. His entire stake in DSQ Software is held through a private company called DSQ Holdings. Given the hundreds of crores of rupees that he speculates with, his wealth tax return at the height of the IT-stock led bubble of 1998-99 showed some paltry assets of Rs 35 lakh even when DSQ’s dues to a variety of creditors ran into several crores of rupees.

In May this year, Dalmia told this writer that his stake in DSQ software was 23 per cent. He also holds a substantial stake in several other companies such as DSQ Biotech (30 pc), DSQ Industries (60 pc) and Antarij Software (Rs 60 crore investment). However, it is not even quite clear what DSQ Software’s shareholding pattern is in the last few months. The stock exchanges, which ought to be the first to be informed are only aware that his capital have gone up from Rs 30 crore to Rs 47.25 crore, but the exact break up is still not disclosed. In fact it is one of the reasons why NSE has suspended the company’s scrip.

As of March 31, the public held 29 per cent of the shares, and 35 per cent were held by non-resident Indians and overseas corporate bodies. Institutional investors who held nearly 11.5 per cent of the shares also ought to be asking questions, but that has not happened so far. What happens next is anybody’s guess. The only real sign of activity so far is the suspension of DSQ’s shares and Dalmia’s frantic attempts to sell the company. Did someone mention a compulsory Corporate Governance Code?

-- Sucheta Dalal