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Vol. XXXII No. 7, July 16-31, 2022

The Rise & Spectacular Fall of Square D

Business Houses of the South by Sushila Ravindranath

Chennai is not widely known for major business skulduggeries. During the stock market booms of the 80’s and the 90’s, many a manipulator was born. Contrary to popular belief, there were quite a few players from the city as well. While they paled in comparison to the shenanigans in Mumbai and Delhi, two names stand out. Rajarathnam, the man who came from nowhere and gobbled up every losing business he could lay his hands on, made money out of them in various ways and then quietly disappeared. The other one who claimed to be aiming for the skies was Dinesh Dalmia of Square D group of companies, who took banks, institutions and the public for a ride before finally getting caught. He seems to have faded from everybody’s memory.

Dalmia came to Chennai in the early 90’s and set up the Square D Group, named after his initials. He hailed from a business family in Calcutta. Dalmia wanted to get out of Calcutta and become an independent entrepreneur. He chose Madras as real estate was unaffordable in Bombay.

He was in his early 30’s when he launched several ventures. The first was software exports. He was able to attract senior professionals by giving them complete freedom to create a new company. Dalmia was able to raise Rs. 40 crore (a large amount then), from institutions such as the IDBI, and then planned a public issue of Rs 10 crores.

Several eyebrows were raised about his ability to raise this amount. When I asked him about this when we were doing a feature on him, he said he already had established Lexus, a 100 per cent export oriented manufacturing company which had a turnover of 22.5 crores and a profit of Rs. 5 crores in 1993-94. He was married into a highly successful business family from Calcutta, also in exports, and his in-laws were very supportive. Dalmia had also set up a 100 per cent export company which did global trading which too he claimed was highly profitable. Said his groups’ financial controller, “We are financially a strong group. The promoter may not have cash per se, but he has the means to raise finances. His leveraging position in the NRI market is considerable.”

This was an illusion that Dalmia created. Even before people could get over the launching of the software company, Dalmia became the successful bidder of a joint sector biotech project, Ushta te Biotech, in which the Tamil Nadu Industrial Development Corporation – TIDCO – invested. The name was changed to Square D Biotech – a name that would later change many times. This company manufactured tapioca and maize-based starch and invested in further downstream projects. It was a loss-making entity.

Dalmia wanted to get into granites, but it did not take off. He claimed that he would make monuments instead for exports. He sounded unstoppable. He launched yet another company, Square D Casts and Forge Ltd, to manufacture aluminium alloys and billets for exports. He said that the US-based Omega Enterprises was the collaborator. Another new venture was Square D Beverages, which was to manufacture non-molasses based alcohol drinks. TIDCO contributed Rs. 11 crore for this Rs. 48 crore project. New companies and acquisitions were happening at a breath-taking pace. Dalmia also acquired a textile mill near Madurai.

Dalmia was seen as some kind of a wunderkind. However, mixed feelings towards him continued to persist. The software company’s name was beginning to be heard in the international software circles. But there were sceptics in the industry. The real test for the company would come a few years down the line, they said.

Sure enough, Square D started coming apart around 2003. Dalmia turned out to be a master market manipulator. Financial re-engineering became a fine art under him. He used every trick in the trade. He set up companies with impunity, transferred money from one to the other and managed to stay one step ahead of authorities. The country’s best business journalist Sucheta Dalal scathingly called him the incorrigible Dinesh Dalmia. She was among the first to expose him when he gave an interview to her about a non-existent company.

By 2003, there were several arrest warrants against him. He was wanted by Mumbai and Calcutta police and was under investigation by the Securites and Exchange Board of India, the Enforcement Directorate, Department of Company Affairs, and the RBI.

Dalmia’s flagship company Square D Software, which was by then called DSQ Software, started coming under various scanners. The market knew he was playing around with his own stocks. He might have got away with it if the scrips had not gotten tangled in the notorious Ketan Parekh bull run. DSQ was one of the 10 stocks which got caught up in the scandal.

After his businesses started unravelling one after the other and various authorities began closing in on Dalmia, he had the audacity to move to the US and set up fake companies there as well. Writing about all his misdeeds would fill several issues of this magazine. As Sucheta Dalal put it, “He engineered a complex web of obfuscation created by setting up mirror companies around the world, often in the same city to confuse and confound any investigator.”

It did not last long in the US. With the FBI at his heels, Dalmia returned to India, got arrested and had multiple cases slapped against him. He went to jail for some time and got debarred from the stock market.

That was the last anyone heard of Dinesh Dalmia and the Square D Group.

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