Securities and Exchange Board of India (Sebi) found that DSQ and Dalmia made misleading statements "which had the effect of inducing purchase of securities by public which in turn increased the market price of the shares of the company". It said the percentage rise in the price of the shares of DSQ was considerably higher as compared to that of other companies in the same industry. Percentage increase in other scrips varied from 140-340%, whereas increase in the price of the shares of DSQ was around 750% during January-December, 1998.
In its order dated October 3, Sebi said it "...hereby restrain DSQ Software and Dinesh Dalmia from accessing the securities market and also prohibit them from buying, selling, and otherwise dealing in securities market, directly or indirectly, in any manner whatsoever, for a period of 7 years from the date of this order."
The market watchdog observed that Dalmia, being the promoter and managing director of DSQ, was responsible for reducing the free float of shares by purchasing shares through his wife (Radha Dalmia) and filing cases in the court directly and indirectly through his affiliated entities which resulted in the stay of transferability of a substantial number of shares (28% of equity capital).
Sebi found three cases including one against UTI Bank (Kolkata) were filed by Dalmia and other entities related to him to create an artificial scarcity of floating stock.
Further, it was observed that price sensitive statements were made by the company to "create a positive sentiment" for the shares of the company in the secondary market to influence the price of the shares of the company.
These statements were found to be misleading in nature and had induced public to purchase the shares of DSQ which led to an increase in price of its scrip, the order said.
It added the company had made misleading statement of bagging a certain contract with Japanese firm Unisia Jecs Corp and related to future opportunities for DSQ.
Sebi had conducted a probe into the trading of the shares of DSQ for the year 1998 when a sharp rise in the price of the scrip was observed.
DSQ (formerly known as Square D Software) was mainly promoted by Dalmia and his group entities Ganapati Commerce, Ganapati Combines, Lexus Exports, and Square D Exports.
These firms were wholly owned by Dalmia, his friends and family members.