Sucheta Dalal :Another hefty penalty
Sucheta Dalal

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Another hefty penalty  

Dec 27, 2004

Dinesh Dalmia and his once high-flying company DSQ Biotech Ltd, (now called Origin Agro Star) have been dealt a severe blow by the Enforcement Directorate for Foreign Exchange violations pertaining to the bull-run of 2001 and the scam in allotment of shares. The Enforcement Directorate has slapped a hefty total penalty of Rs 75 crore (on various counts), a penalty of Rs 15 crore against the company DSQ Biotech and fairly hefty penalties against people and officials connected with the deals. In a nutshell, the Enforcement Directorate found that DSQ Biotech had issued and credited 80.30 lakh shares to two Overseas Corporate Bodies (OCBs), Greenfield Investments and M/s A.J. Finance, in October 2000, although it received only 10 per cent of the value of the shares as consideration.

The Enforcement authorities have calculated the unrealised value of the remaining 90 per cent of the shares (allotted on a preferential basis to the two companies) at Rs 158 crore. The enforcement action hence covers Dinesh Dalmia, his Singapore based brother-in-law Anil Jhunjhunwala (who is suspected to own M/s. A.J. Finance, although he has officially denied a connection) and several senior officials. A.J. Finance and Greenfield Investments and one Pravin Guwalewala have been fined Rs 10 crore each, and Ashok Sharma and Anil Jhunjhunwala have been fined Rs 7 crore each. The order was issued on November 29 and the money had to be deposited within 45 days thereafter.

Tough times

Frequent name changes, setting up of mirror companies and operating through a web of investment outfits — we thought that DSQ had pioneered such camouflage techniques until some brotherly leaks have shown us otherwise. Dalmia’s DSQ Biotech was first born as Ushuta Biotech Ltd in 1988 and is in the business of manufacturing starch and its derivatives. It changed its name to Square D Biotech 1994 and to DSQ Biotech in 1997. After the scam of 2001, which led to investigations against the group, it changed name to Origin Agrostar. The price of its shares had soared to over Rs 800 during the Ketan Parekh0-led bull-run and the Joint Parliamentary Committee (JPC) report mentions that Dinesh Dalmia had some dealings with Ketan Parekh as well. Four years after the scam, investigations against the group are finally beginning to hurt.

The Serious Fraud Office set up by the Ministry of Company Affairs has made little headway, but Dalmia is finding the going tough at the Securities Appellate Tribunal (SAT). SAT wants him to deposit Rs 5 crore with the Securities and Exchange Board of India (Sebi) before hearing his appeal against a 10-year ban from the market. In the case where the Enforcement Directorate has initiated action, Dalmia made a preferential offer to four entities. They were two OCBs (A.J. Finance and Greenfield Investments) and two Foreign Institutional Investors (Societe Generale and Deutsche International Corporate Services).

However, investigations by the Enforcement Directorate revealed that it only issued shares to the OCBs connected with it and gave nothing to the FIIs because it did not have Reserve Bank permission to make the preferential allotment in the first place. Instead, the shares went to other Dalmia companies — Uniforge Steel Workshop, Athena Software and Continental Investment Ltd. This led to a maze of banking transactions through dozens of other investment companies, which established how money was routed out of the parent company and the books of account falsified to cover its tracks.

Revenue collection

The Maharashtra government is certainly pursing all ways to collect revenue. With former Sebi Executive Director, O.P. Gehrotra as its Finance Secretary, the government has correctly zeroed in on stockbrokers who have been evading stamp duty payable to the government. In fact, the government wanted stock exchanges to collect the payment. At the same time, it has reduced the duty and sought trading turnover data from the bourses, so that the collecions can be verified against the computerised payments on every transaction and not merely the delivery-based trades. These sources say the evasion is so high that it has made brokers who have dutifully paid up their stamp duty look foolish. Gehrotra’s experience with Sebi may now help the state collect some legitimate dues.  

Tailpiece: The share price movement of UTI Bank, that accompanied the imbroglio over the splitting of the Chairman and Managing Director’s post and restoration of status quo ante has been intriguing market operators. On the one hand, the return of P.J. Nayak for another term, saw the stock price Shoot up from Rs 174.55 on December 22 to 188.80 on December 23. However, when IDBI chief M. Damodaran announced that there was never any plan to merge UTI Bank with IDBI, his clarification didn’t go down well with investors either and the stock fell 5 points in a market, which is otherwise bullish on bank stocks.

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-- Sucheta Dalal