Over the last year, this column has documented the antics of the incorrigible Dinesh Dalmia — the man who has several arrest warrants against him, is wanted by the Mumbai and Kolkata police and is under investigation by the Securities and Exchange Board of India (Sebi), Enforcement Directorate (ED), Department of Company Affairs (DCA) and the Reserve Bank of India.
Most of these investigations are in connection with DSQ Software, his flagship company. He is accused of having made an unexplained preferential allotment, falsely claimed a merger with Fortuna Technologies of San Jose, USA, surreptitiously sold off his core business to the Scandent group and has frequently ramped up its stock prices.
We now learn that in the course of investigating Dalmia’s forex violations in DSQ Software, the ED has stumbled on similar dealings and worse in DSQ Biotech Ltd, earlier known as Square D Biotech and renamed as Origin Agrostar Limited on October 22, 2001.
The story of this loss making company goes back to the year 2000, when the scrip had soared vertically from around Rs 50 in January 2000 to a phenomenal Rs 907 by February 23, 2000. In the first week of March 2000, Dalmia made a preferential issue of 80,30,000 shares worth Rs 220 crore to four Overseas Corporate Bodies (OCBs). They were: Deutsche Bank International, which was allotted 22 lakh shares, Societe Generale (11 lakh shares), AJ Finance Ltd (30 lakh) and Greenfield Investments Ltd (17.3 lakh).
The ED smelt a rat when it discovered that the shares were allotted at Rs 275 each, when the ruling scrip price was over Rs 800.
Interestingly, the company received barely 30 per cent of the money against the preferential allotment and has made no effort to collect it either. The ED also found that two of the OCB’s, AJ Finance and Greenfield Investments belonged to Dalmia himself (AJ apparently stands for his relative Ajay Jhunjhunwala). By September 2000, DSQ Biotech’s scrip was crashing and Dalmia needed to deliver shares to various stockbrokers. He asked the National Share Depository to dematerialise shares allotted to Greenfield and AJ Investments.
Within seven days after they were dematerialised, the shares were transferred to DSQ Holdings, Dalmia’s family holding company. Of these, five well-known brokerage firms were delivered physical share certificates leading a direct trail to DSQ Holdings and confirming that Dalmia was distributing the share allotted to two OCBs on a preferential basis.
This is just one part of Dalmia’s shenanigans. DSQ Biotech’s books needed to reflect the receipt of money for the preferentially allotted shares. So Dalmia resorted to an absurdly simply trick to simply circulate his funds. He went to Kolkata and opened 13 accounts at the Bhowanipur branch of Indian Overseas Branch (IOB) in collusion with its officials, paying the minimum Rs 2,500 and obtained cheque books for each account.
He then moved money from DSQ Biotech to each of these companies from its account at the same branch. Documents available with me show money transferred to the following companies: Square ‘D’ Distillers (Rs 20 crore), Le Pierre Securities (Rs 20.63 crore), Square ’D’ Polymers (Rs 21 crore), Prime Infosystems (Rs 43.79 crore), Beezy Hardware & Software Pvt Ltd (Rs 12.15 crore), Tarang Infotech (Rs 18.31 crore) etc.
Each of these companies then entered into a series of transactions with each other to camouflage their trail and finally routed the money back to DSQ Biotech through companies with names such as Continental, Uniforge and Athena also belonging to Dalmia. My sources say that Dalmia has confessed to many of these transactions during interrogation by the ED but no longer responds to their summons. The IOB has also admitted to collusion by its staff in facilitating Dalmia’s transactions.
But there are several loose ends. For instance, what was the deal with the two OCB’s, Deutsche International and Societe General? Their custodial agent, Standard Chartered bank has made no effort to pursue the deal although they have not received their shares or made full payment for them.
In the meanwhile, the stock exchanges, where the DSQ Biotech scrip is listed are clueless about these details. The NSE has suspended the scrip since June 27, 2001 for non-compliance with listing rules. The stock price was then down to Rs 28 and probably made no difference to Dalmia. The share however continues to be traded on the Bombay Stock Exchange, where it closed at Rs 8.60 with a hefty turnover of 84,000 shares last Friday.
That is not all. Dalmia seems to have been steadily offloading his own equity. The NSE records show that at the end of March 2002, the promoter’s holding was down from 6.75 per cent in September 2001 to 2.2 per cent in March. Simultaneously, the public holding is up from an already high 71 per cent to 78 per cent. Private corporate bodies hold the rest. The company, now called Origin Agrostar has extended its accounting period by three months to December 2002, which means that its next general body meeting will by held only in March 2003. In the meanwhile, it has announced plans to restructure the company with the approval of shareholders. It has also changed its registered office, downsized operations citing a “severe recession” in the United States from where it apparently receives most of its orders.
Clearly, Dalmia’s shenanigans are supervision-proof. His antics with DSQ Software, DSQ Biotech and DSQ Industries make you wonder whether his companies are outside the ambit of all corporate and capital market regulation. His easy manipulation of the equity capital of his companies demonstrates that the monitoring system (listing agreement of stock exchanges) seems to break down very easily if a company is brazen enough to provide inaccurate and incomplete information to the bourses and regulators. Interestingly, Dalmia’s tricks at DSQ Software as well as DSQ Biotech were discovered by chance. In DSQ Software, it was an ill-judged admission by Dalmia to this writer that he had taken over a company called Fortuna Technologies in San Jose, that led to the unravelling of his fake capital expansion unconnected to any overseas deal.
In DSQ Biotech, the ED stumbled on his mischief while investigating DSQ Software. The other regulatory agencies — DCA, Sebi and the stock exchanges continue to be blissfully unaware. One way out of such situations is better coordination between the regulatory and investigative agencies and subjecting all suspicious cases to a detailed forensic audit, especially to check their source of funds.