The flip side of the great Indian IT story - 13 Feb, 2006. http://www.suchetadalal.com/articles/display/76/1961.article

• A clutch of smaller IT firms are manipulating share prices and rules
• The H&M-Moksha technologies deal raises a number of such questions
• Do exchange disclosure rules apply to only those who abide by these?

Pawan Kumar’s immediate previous job was as co-founder of Moksha, another IT company, that has over 500 employees and three international entities—Moksha Technologies Inc, USA; Moksha Technologies Pte, Singapore; and Moksha Technologies, Bangalore. Pawan Kumar had co-founded this company with Rajeev Sawhney, a non-resident Indian

Moksha hit the headlines on April 12 last year, when Helios & Matheson (H&M), announced a $19 million deal to acquire it and said that Pawan Kumar would continue as its CEO. H&M’s share price soared. However, Moksha’s co-founder, Rajeev Sawhney, was allegedly shut out from this action and initiated legal action. Now cut to February 7, when Pawan Kumar moves to Scandent and has apparently cut his ties with Moksha and H&M. I learn that Rajeev Sawhney has now acquired full control of Moksha through a settlement with Kumar. In an e-mail to friends, Pawan Kumar admits to having “signed a definitive agreement to sell my interest in Moksha and bought my partner’s interests in Fortress and Jadoo Works.” This is accompanied by his new coordinates

Does this mean that the H&M-Moksha deal has fallen through or was never sealed? There is no announcement to the stock exchanges or to shareholders. The only indicator that things are not all well is the share price. H&M had announced a 89% jump in its net profit for the fourth quarter (ending December 31, 2005), causing the share price to spiral up from Rs 206 at the end of December to Rs 257 on January 19. But while the Sensex crossed 10,100, H&M slipped down to Rs 218 on February 10.

Meanwhile, the State Bank of Mauritius (SBM) has received a letter from Rajeev Sawhney, founder of Moksha and Pawan Kumar’s partner, questioning how the bank opened an account in the name of Moksha Technologies Ltd, Mauritius, with the signature of only one director, Pawan Kumar. More pertinently, the account was used to borrow $13.5 million on June 28, 2005, which was transferred to H&M through SBM’s Chennai branch. Why was Moksha borrowing money and transferring it to H&M rather than the other way around?

Sawhney’s letter further says Pawan Kumar, director and shareholder, has sold his stake/shares to the former and moved to his next assignment. As in the DSQ software case, stock exchange disclosure rules are only for those who choose to follow these. Here is a case where at least two listed companies owe an explanation to their shareholders. Ironically, stock exchanges routinely cross-check media reports about companies, but what is not reported to the bourse or by the media remains nicely buried