Sucheta Dalal :DSQ Software and its mysterious acquisition of Fortuna Technologies (24 June 2001)
Sucheta Dalal

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DSQ Software and its mysterious acquisition of Fortuna Technologies (24 June 2001)  



The Department of Company Affairs’ (DCA) decision to inspect the books of accounts of DSQ Software (among several notorious stocks) could not have come a day too soon. DSQ Software is simply amazing in its brazenness. For the last three years, its managing director Dinesh Dalmia has made more news for his stock market operations than for his management skills. The scrip has been a Ketan Parekh favourite and rose to a dizzy Rs 2,800 last year, to hurtle downwards to Rs 54 last Friday.

Dalmia is known to be a big speculator in the unofficial market at Kolkata and many of the top defaulters at the Calcutta Stock Exchange (CSE) were found stuck with massive quantities of DSQ Software shares. It may be recalled that Unit Trust of India (UTI) had also bailed out the CSE by buying 13,30,000 shares of DSQsoft at Rs 189 each; as the price continues to crash, the losses to unit holder increase. But Dalmia’s shenanigans in the market are equalled only by what is happening with the capital of his company. I met Dinesh Dalmia on May 25, because he said that he wanted to clarify ‘certain issues and misconceptions’ about DSQ Software. He said DSQsoft had no bank borrowings anymore and was among the only Indian companies to have paid back all the money it owed banks and institutions (it had been listed as a defaulter with half a dozen banks including Indian Bank and HDFC Bank). Among other things he said that he was now off speculation and determined to focus exclusively on running his company (like Arjuna in the legendary Mahabharat, he said). He was confident that DSQ Software would be another Infosys.

Dalmia’s determination seemed quite impressive. I then asked him why DSQsoft’s capital had increased Rs 30.5 crore to Rs 47 crore in March and if he had acquired a company during that time. I also wanted to know why it was such a secret. Dalmia said that DSQsoft had acquired a San Jose-based company called Fortuna Technologies. He claimed that all disclosures were made to the six stock exchanges on which DSQsoft was listed. And he promised me to e-mail further details on the very next day.

Every since, I have written to Dalmia around a dozen times asking for the information. First he said he was abroad, next that he was unwell, finally he said that under the agreement with Fortuna Technologies, the takeover could not be announced until the employees of Fortuna were transferred to DSQsoft. That was to have happened 10 days ago. What about disclosure to Indian shareholders? I asked. There was no answer and DSQ simply stopped replying to my emails.

Intrigued about the secrecy, I asked the Sebi, BSE and NSE for information. Sebi’s executive director Partip Kar confirmed that the company had not informed Sebi about the acquisition/merger; he also said that there were indications of a violation of the listing agreement and the takeover rules. Sebi would investigate the matter further, he said. The BSE did not bother to reply and the NSE said that the information was incomplete and there were indications of listing violations. It said that it was in a dialogue with the company to get more precise information and planned to initiate some disciplinary action.

A fund manager from Chennai also wrote in to say that no information was available with the Madras Stock Exchange when he checked for it. I then checked DSQ’s website. It says nothing about the acquisition or the increase in capital, even though the site is updated until April this year. There is no mention of Fortuna Technologies at all. Instead, right until April 2001, there are press clippings about its negotiations and re-negotiations with San Vision Technologies of the US. It is now that the Fortuna Technologies acquisition gets really intriguing.

Firstly, Fortuna is not a San Jose-based company, as claimed by Dalmia but in Sunnyvale, California. Secondly, a decision to issue 1.5 crore shares on preferential/private placement basis to certain Overseas Corporate Bodies (OCBs) was made at a board meeting on November 10,. Then at an extraordinary general meeting on December 11, , shareholder approval was sought for the acquisition of Fortuna Technologies Inc. by issuing 1.4 crore shares. Subsequently, the company announced to its board of directors at a meeting on January 12, 2001, that 1.40 crore shares had been allotted at Rs 675 each, in dematerialised form to three Mauritius based companies —Technology Trust (60 lakh shares), Softee Corporation (40 lakh shares) and New Vision Investments (40 lakh shares). These shares bore the distinctive numbers 33250001-47250000. The distinctive numbers are important because the mystery now begins to deepen. It is not clear if these companies in turn owned Fortuna Technologies or how Fortuna was ever acquired, but the allotment itself is curious.

DSQsoft, armed with an auditors’ certificate confirming the allotment, informed the National Share Depository Ltd (NSDL) that shares bearing the distinctive number mentioned should be credited to the three Mauritius-based companies’ accounts. NSDL in turn said that the shares could be credited only after DSQsoft receives in-principal listing approval from all its stock exchanges.

At this stage, on May 28, 2001, the CSE which probably received a listing application form DSQ wrote to all exchanges stating that they had received 10 lakh equity shares in physical form bearing the distinctive numbers 43250001-44250000 from one of the defaulting members against his payment liability. Since these are within the band of numbers allegedly issued to the Mauritius-based companies, it would appear that DSQ has issued at least some shares with the same distinctive numbers twice — once in physical form to some Kolkata brokers and a second time to the Mauritius-based companies.

The question is, has DSQ been printing share certificates to bailout Kolkata brokers who had lost due to excessive speculation in its shares? How much of this was Dinesh Dalmia’s responsibility? Also, are the 13.3 lakh shares purchased by UTI from broker Dinesh Singhania (through the CSE) in the same distinctive number band? And finally, why is Dinesh Singhania so adamantly reluctant to part with information? Clearly the DCA has its job cut out for it. But Sebi also needs to investigate DSQsoft’s compliance with listing requirements, the number of shares that it owns and has issued and finally its failure to comply with Clause 40A of the listing agreement under which is has to provide a list of shareholders owning more than 15 per cent of the capital and the exact holding of the promoters.


-- Sucheta Dalal