The Stayzilla fiasco: Indian businesses and the myth of the rule of law

In mature economies, it’s ‘see you in court’ when someone wants to cheat you. In India, it’s ‘go to court’ when you’re being cheated.
The Stayzilla fiasco: Indian businesses and the myth of the rule of law
The Stayzilla fiasco: Indian businesses and the myth of the rule of law
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It wasn’t a huge amount of money, just about Rs 10 lakh, but it was enough to give a close family member sleepless nights. He had a small business, and a lot of money was under constant ‘rotation’. If one project fell through, the entire business could go down. So, when one of his most wealthy clients passed away suddenly, and the client’s business collapsed with him, this unfortunate family member was left with dues of nearly Rs 10 lakh. The inheritors of the business threw their hands up, even as they sat on property worth several crore rupees. It has been more than 5 years since, and there is no sign of the money.

It gave him sleepless nights, the looming threat to his business. He would stay up late at night watching television, trying to put himself to sleep. The pressure was too much to handle. Thankfully for him, he had no dependents and everyone else in the family was financially stable. He survived.

Not everyone's that lucky. Perhaps Aditya CS too, is not. Or he is. We don’t know. So, when I read the agonizing, painful account of Stayzilla CEO Yogendra Vasupal detailing his struggle with a local politician and a threatening vendor, I had my sympathies for him, but ran out of it when I read this.

“I recognized the name of the complainant and informed them that there was a dispute between 2 companies and we had asked the other company to take it up in the court. I don’t personally owe anybody money and I am wondering how can they get confused on such a basic matter as this was a clear civil case. I also pointed out that we have been asking the other company to take it to court if they felt they were wronged as we felt within our right. I also pointed out that my company is also owed close to 7 crores from various debtors but I am not going around filing false criminal cases against them.”

Well, perhaps you should, Mr Vasupal.

As soon as the blog was published, several people in the startup ecosystem came to Vasupal’s ‘rescue’. He might owe money (which is close to Rs. 2 crore, no small amount), but why jail him, they asked. Headlines screamed help for Vasupal, exhorting the startup ecosystem to stand up for him and fight for his release, as though he was the only one who could have been wronged here. (Stayzilla shut shop on February 24, read here.)

To be sure, we don’t know if Jig Saw advertising, Aditya’s company, was genuinely owed money, or there were ‘severely deficient services’ as Vasupal claimed. That is for the justice system to decide.

But let’s for a moment assume that Aditya is owed money for services rendered (and that is likely to be the case since there seems to have been no complaints about the vendor from Stayzilla until they ran out of money). Think about how reckless it for the CEO of a startup, which probably burnt through more than $30 million in 3 years, to say to a vendor in a cavalier manner, ‘go file a case, I don’t personally owe you any money.’

This sheer audacity of these self-obsessed CEOs, who take down several other smaller businessmen with them when they ‘fail’, and then like to write narcissistic posts on ‘Why failure is an important step towards success’, is rooted in the widespread disobedience of the rule of law in India. Thanks to an overburdened judicial system, the legal process is the punishment in India. Any vendor who has to resort to filing a civil case to receive his dues is well aware that it is as good as having lost the money. Only those who can pull some strings, which seems to have been the case with Aditya, could hope to retrieve some of the money.

With several startups meeting their end, several vendors and small businessmen, who have no VC backing them and had put in their hard-earned money into their business, are facing the brunt. Take for instance this example from a recent story on The Ken on GoJavas.

“This company (Gojavas) owes me about Rs. 1.8 crore,” says Amit Bajaj, managing director of Mituj Marketing Private Limited. “Since no one is responding, four vendors in New Delhi have teamed up. We are owed close to Rs 4 crore, and we are going to file a case in Economic Offences Wing. This is a lot of money for small businessmen like us, and it is really hurting us. These people are ripping off real businessmen while they have made crores...”

It is particularly fancy among new age entrepreneurs to complain about the unease of doing business in India. They throw around terms like free market, and smirk while talking about the regulatory mechanism. But it’s the same ‘stars of failure’ who refuse to pay their dues without batting an eyelid, and then go on to address startup conferences to indulge in their pretentious gyaan-mongering.

It is no surprise then, that according to a World Justice Project report in 2016, India was ranked 66 globally in the rule of law index, and sub-ranked 92 when it came to Civil Law. In mature economies, ‘see you in court’ is a threat you hand out when you are being cheated. In India, you get told ‘go to court’ when you are being cheated.

Civil jurisprudence in India is close to non-existent, and it isn’t because of the ‘system’, it’s because of smug businessmen who know that they could get away with not paying a penny they owe by hiding behind arguments like ‘I don’t personally owe the vendor, only my company does.’ How different, then, is a Vijay Mallya from a Yogendra Vasupal?

For any system to work, accountability is important. For free markets to work, it is unconditional and imperative that the rule of law is enforced and obeyed. Our entrepreneurs like to mouth platitudes about the market and regulatory mechanism, will they also stand up for the system to obey the law of the land?

If not, then there is no point complaining when someone with more power comes along and puts the broken system to use against them.

Note: Views expressed are the personal opinions of the author.

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