Price of Living Dangerously - Part 1

The inability to repay the borrowed money rattles the human mind. Unpaid debt terrorises. If the primal fear in animals is the threat of ‘predators’, in humans it is ‘debt’. The ‘fear of debt’ was aptly described in the following verse from the famous Kambha Ramayan in Tamil; “Vidam Konda Meenaippolum, Venthazhal Mezhugu Polum, Padam Konda Paanthal Vaayil, Pattriya Thaerai Polum, Dhindamkonda Rama Bhanam, Serukkala Thutra Podhu, Kadankondaar Nenjam Pola, Kalanginaan Elangai Vendhan”

What the famous Tamil Poet meant was that, “on seeing the brave Rama’s arrows coming at him in the battlefield; Ravana’s state of mind fluttered like a poisoned fish, flickered restlessly like the candle flame, twitched like a toad caught in a snake’s mouth, and rattled like that of the debtor on seeing his creditor.”

That was an era when the world was ruled by virtue, ethos, morals etc. In fact, whatever the era, basically indebtedness begins from the day we are born as human; but that’s the ‘debt’ repayable in ‘kind’. We are indebted to our parents for their unconditional love and their contribution until we became independent. We may or may not be able to repay our parents in equal parlance; hence most remain indebted for life. Such indebtedness might leave a sort of ‘guilt’ only in one’s mind, but it doesn’t cause ‘fear’. Failing to repay kindness is very common, for it is an undocumented debt. The reason is because the Parents never bang on the door of their children, recalling their debt like creditors. Hence the children liberally abuse their parents. Our Legislature had proclaimed a statute called ‘Maintenance and Welfare of Parents and Senior Citizens Act, 2007”’. It’s an Act to provide for more effective provisions for the maintenance and welfare of parents and senior citizens guaranteed and recognised under the Constitution and for matters connected therewith or incidental thereto. But I hardly came across any neglected Parent invoking the provisions under the said law against their uncharitable children; it’s because there are no conditions precedent in the first place. In my view those who take care of their aged and ailing parents are superior humans.

The real trouble is the ‘pecuniary’ debt, and the perils one faces if it is not paid in time. By default, it’s not only the property, but the soul that is pledged. We have Commercial Courts, Debt Recovery Tribunals, Tax Recovery Tribunals, National Company Law Tribunals, Magistrate Courts, etc., which are busy round the year to deal with the ‘debt’ related issues. Who is the target in all these proceedings? It is mostly the destitute ‘entrepreneur’ who from the beginning is misled with dreams and false promises and invited into the ‘business world’ with unprecedented fanfare. The young entrepreneur’s first in the agenda is to source ‘debt’, because his own margin for the required Capital will never be sufficient to finance his dream project. Based on the circumstances and size of the project, I agree that ‘borrowing’ is necessary to envisage and execute a project. Hence debt is unavoidable. The young or immature entrepreneur is excited while preparing all those ‘Project Reports’ and profit estimates. He does not realise that they are all illusionary. He starts his mythical journey, the outcome of which, he has no control. He sets off without being aware of the death situation in a business, ignorant of all those lists of statutes that govern or influence his business; apart from shrewd Banking Policies. The worst of all, the Players change every three years; and so does the script. Resultantly, 99.9% of our businessmen end up in unsurmountable debt. Even a proved business established by the Father, after taken over by the Son who had not endured his Father’s hardships; ends in failure.

There are excellent academic courses for all kinds of professions like Medical, Engineering, Agriculture, Advanced Sciences, Business Management, and many numerous major and minor courses for careers such as Hotel Management, Hair Dressing etc. But the ‘Business’ Management courses that are offered as MBA are not only unrealistic and impractical but unfortunately a sham. Suitable for a decorative tag on the Business Card. I observed they are pointless, and purposeless management techniques which are not suitable to the real circumstances. A MBA Graduate employed by a private or public enterprise does not feel the heat for he does not sign any loan document, nor pledges his personal property, or extend his personal guarantee. His real mastery or business acumen is put to test only when he commences his own enterprise. The reason is because of the absence of curriculum in the MBA syllabi to deal with true ‘debt’. What the academicians are clueless are the repercussions that cause frightening social changes in the life of the indebted businessman. The Business Graduate is unaware that he is heading for an endless battle with the readily laid debt traps ahead. His future is forged with a sugar coating. It’s just a hoax. There is definitely no element to demonstrate that Law is entrepreneur friendly.

The suggestions by the Bank Manager to manage inflated valuation Report of the collateral is the first chapter. Thereafter comes the lessons in tinkering the Balance Sheets, to inflate the Stocks, and Sundry Debtors; so that the additional Working Capital could be sanctioned. The Banker provides a free work-shop in ‘window dressing’ of Balance Sheets so that his sanctioned loan could be maintained ‘evergreen’ until his transfer to another Branch. Every entrepreneur develops a kind of bondage with such Banker, and indulges in all the above practices, assuming that they are ‘fair play’ in business. During the process, the Bank ensures it has double the value of security, apart from Personal Guarantee extended by all the family members of the entrepreneur. During the end of my days in Export business, the Chief Manager of my Bank wanted to meet my Auditor. We had a meeting at the request of the Banker at my Auditor’s office. There were certain changes suggested by the Banker, but the next day Mr Chowdhury my Auditor called me and pleasingly said that he cannot handle my accounts further. He frankly stated that it was against his ‘professional ethics’. He was right, hence I could not disagree with his decision. Until now, I have not found a straight case where the entrepreneur has filed a Balance Sheet truly reflecting the true state of his business. It’s just impossible. Managing debt has no special technique, except to settle. You are spared from the agony only when you have a Plan-B as insurance, a scenario wherein you have an unencumbered property at your disposal to dispose and pay off your debt. Factors such as rise in value in property are all probabilities. For the Plan-B also fails most often when sale of such property becomes unfeasible.

These apart, borrowing from the private money lenders or powerful people turns to horror. They lend at high interest and hire henchmen to collect their dues. Metropolitan cities are popular with the Political Parties having such Lending Agents who are ex-cons. Like Term Loan, Working Capital, etc., they use different terminology as per the rate of interest. At Chennai, they are called ‘Speed’, ‘Meter’, ‘Kadan tantal’ etc. I too tried to borrow from such dangerous elements, but fortunately they rejected my proposals. A decade and half later during my Legal practice, I heard horror stories of some of my Clients who approached these Political agents in dire circumstances.

Mr.Basheer Khan, a very pious and disciplined businessman, one day visited my office with a special request to help his friend Ramesh in Bangalore. Mr.Basheer’s friend was in a huge debt-trap of almost Rupees Two Hundred crores, hence wanted my help. He said his friend cannot travel due to ill-health or whatever reason. It was an exceptional request. I agreed for a minimum fee and accepted to travel to Bangalore. Mr.Ramesh’s residence was palatial in a land of one acre designed by an Italian architect. After going through his files and narration of facts, I found that it was too late for me to provide any solution or a way out. The debt was almost thrice his collateral. The worst part was apart from the borrowing from various Banks, he had borrowed more than Rs 50 Crores from Loan Sharks who were politically connected at a high rate of interest. The woes of the family was painful for me to hear. After spending almost three hours, I sadly stated I could do nothing at that point. As I was leaving, his wife came running and insisted I have lunch. I resisted, but she was insisting. The Lady prepared a variety of dishes anticipating that my visit would resolve at least some of her family’s woes; but I had no trick in my hand to console. She personally served all the dishes, prompting me to take one more serve. During all the hospitality, I did not miss to notice her moist eyes and silent sobbing. I regretted for having collected a fee, even though minimal. I could only advise to have faith in the Almighty. My appreciation for Basheer Khan’s concern for his friend Ramesh knew no bounds. Unfortunately it was too late.

A successful entrepreneur also has his own perils with extravagant spending. I had one customer by name Andre, a Frenchman from Pondicherry, who later became a good friend. He manufactures all kinds of Leather Goods, such as Belts, Wallets, Portfolio Bags, etc. They are all handmade, hand-coloured, and hand-packed. He employs men and women from a nearby village and trains them. His economics were very simple. He rides a bicycle, travels in an old Ambassador taxi; which I would never hire. I used to supply leather to him, and he carried the purchase along with him, sitting in the front seat without caring the extreme heat the car generated, especially with no A.C in it. He used to purchase his raw material in cash or by reasonable credit period. No borrowing either from Bank, friends or 3rd parties. With extreme care and high quality, his products became popular and niche; hence in good demand. Curiously, he did not expanded his production even by 10%. He lived in peace with extreme satisfaction with the margins he earned. I wondered how he could remain so unambitious when he had developed a niche product. I really loved the way he managed his business. Dilip Kapoor, the Promoter of Hide Sign a very popular Brand in Leather Goods, is also from Pondy, and they both started their careers almost at the same time. I asked him one day, “Andre why don’t you expand your business. Your products are way high in quality compared to other brands” He replied quickly, “Prem, you think all the big businessmen are happy?” I remained silent without any argument.

Unthoughtful expansions and diversion of working capital including the expenditure on the family front when goes overboard, are all perils. The entrepreneur is extremely confident of the system that he had played with; unaware that it begins to play him later. I have seen experienced businessmen who indulged in a variety of business, asserting that success was because of their unparalleled intelligence. Subsequently, they fell like a house of cards. What the entrepreneur doesn’t realise is that the environment shifts periodically. The market demands, season, financial health of your customer especially if he is overseas, etc., are never constant in this World. What he doesn’t realise is that his Banker, who is only a ‘fair-weather’ friend will abandon him in distress. At some point of time, the ‘ever-greening’ stops. The Banker’s agenda is only to save ‘his’ skin, not even that of ‘the Bank’. They even declare you as the Wilful Defaulter to save their personal interests, and implead you in Criminal Cases. That’s only one part of the Price you pay for being an Entrepreneur in our Country.

More truth in the Part-II next week...