Back To Square One

Dinesh
Dalmia-does this name rings a bell? The press hounded him for years because of
his alleged involvement in the multi-crore stock scam. As director of Chennai-
based DSQ Software, Dalmia had allegedly siphoned off Rs 595 crore. As pressure
mounted, Dalmia fled India in December 2003. A global hunt was launched by the
CBI and the Interpol to nab him. Dalmia was finally pinned down in South Delhi
recently, and was brought to Chennai. He has been remanded to CBI custody.
Dalmia was charged with criminal breach of trust and was accused of cheating the
National Securities Depository Limited (NSDL) and dematerializing
shares-credited 130 lakh equity shares of the company as fully paid shares.
The Rs 595 crore preferential allotment in 2000-01 turned out to be fraud.

The Story So Far

In the 1990s, Dalmia founded a company called Square D in Kolkata, a typical
IT services company. He later  moved
base to Chennai and renamed the company as DSQ Software. The alleged
irregularities of this company surfaced when its stock appreciated to an
unprecedented level starting from October 1999 to March 2001. DSQ Software's
scrip witnessed a sharp price fluctuation, and as a result the share price
appreciated from Rs 250 in October 1999 to a whopping Rs 2,631 in March 2000,
but then declined to Rs 100 by March 2001. The price movements were witnessed
significantly in all the major stock exchanges-NSE, BSE, and the Kolkata Stock
Exchange. Perturbed by the unusual fluctuation in the company's scrip, the
Securities Exchange Board of India (SEBI) launched an investigation. It exposed
the alleged irregularities in the allotment and the dematerialization of the
shares, and the sale of the allotted shares by brokers and agencies associated
with the founders of the company.

SEBI found out that as per the listing application filed in the
stock exchanges by Dalmia's firm on February 26, 2001, the company had
allotted Rs 1.70 crore worth of shares to New Vision Investments, Fortune
Technologies USA, Technology Trust, and Softec Corporation, Mauritius. New
Vision was allotted 30,00,000 shares, while others got a preferential allotment
of 1,40,00,000 shares. But the probe revealed that the company had already
allotted 1.30 crore shares to New Vision and Technology Trust in 2000 itself.
Moreover, in 2001, another lot of 40 lakh shares was allotted in physical form
to New Vision Investments, Delhi.

It also came to light that the shares allotted to New Vision UK, and
Technology Trust (in which Dalmia was the trustee) and to Suryanil Ghosh,
trustee, Softec were either transferred or sold without the listing permission
from the stock exchanges. It was later established that around 52.12 lakh shares
were transferred from the above mentioned entities to DSQ Holdings, Powerflow
Holding and Trading (15.25 lakh shares), and to Hulda Properties and Trades
(3.75 lakh shares). At the same time 58.70 lakh shares were given to various
brokers.

The major charge against Dalmia and his associates is that out of the 130
lakh shares allotted and dematted fraudulently, only 18,000 shares were
transferred to Ghosh while the remaining found their way to various entities of
Dinesh Dalmia, and in turn were sold in the market. It is alleged that the
company did not inform the stock exchange about the allotment of 130 lakh shares
to New Vision Investments, UK and later traded in the market as fully paid
shares, but apparently New Vision only paid 10%.

Throughout the investigation, Dalmia claimed innocence. The CBI has now
filed a petition in the court of the additional chief metropolitan magistrate in
Chennai requesting permission to conduct a polygraph nacro-analysis and brain
mapping tests on Dalmia. As his fate hangs in the balance, Dalmia has been
remanded till March 13, 2006. DQ will keep you posted on this case.

Shrikanth
G in Chennai

shrikanthg@cybermedia.co.in