Price of Living Dangerously - Part-III

Shri Nani Palkhiwala, the eminent Jurist once said, “The contrast between ancient India and the modern India seems sufficient to ‘disprove’ Darwin’s theory of evolution upwards.” I don’t think anyone can dare to debate the view of the Legendary Jurist. Since the day the bold observation was made, our country has further deteriorated especially with regard to the survival of an entrepreneur.

My forefathers built wealth on which our joint-family prospered for more than three generations spreading a span of 60 years. We had two Cinema Theatres and a large residence where we lived comfortably. My Uncle who was the head of the Joint Family, instead of running the cinema houses, gave them away for lease. I observed that the lessees were prospering, hence wondered why we were not continuing our business the way it was successfully run earlier. When I was made the Joint Managing Partner for our family business in 1979, I found that our total debt was just Rs 10,000/-, which was paid of by my uncle while renewing the lease in that year. Even though our family could afford a Car, my Uncle always travelled in a Rickshaw. Of course he was a spendthrift. He used to purchase all knick-knacks and distribute as gifts to children and adults alike. But he did not ever borrow for family business, only the entire annual income was spent without a rupee in saving. After his demise, our Family sold the Cinema houses and shared the sumptuous wealth. There was absolutely no debt. Today many entrepreneurs have smaller families but the debt is mightier than their assets. The lesson is; family wealth should never be treated as capital for an enterprise. Or else the entire family is at risk.

What I meant about MBA in the earlier part was that if someone was really serious about educating a young future entrepreneur, especially when he is planning for a Manufacturing Unit; the course to start is with an introduction to the various statutes pertaining to Taxation including the Sales Tax, or GST, Income Tax, Contract Law, and a plethora of Acts and Rules such as Factory Act, PF Act, ESI Act, etc. Exit-Routes cannot be preconceived, but it is necessary to be aware of the draconian Laws such as the Securitisation Act, the Recovery of Debts Due to Banks Act, and the Insolvency & Bankruptcy Code prior to incorporation of an Enterprise. If a test is to be conducted to see whether the Entrepreneur is aware of all those thorns before he wants to tread on the rosy path; I will raise a wager that it is impossible to find a single entrepreneur who has such wholesome knowledge. As far as the Banker is concerned, he never understands the intricacies of any business. His Loan approvals and sanctions depend only on mythical and unpredictable Balance Sheet projections, Margin Money, Collateral and Guarantees. By chance if the young entrepreneur is aware of at least a few of them, then he would never choose to to do business in his life time.

The failures are more prospective, and disasters in family are a permanent feature for it entangles all the loved ones. We have no exit-route from business failures, unless you plan both your business boundaries and family comforts to a limited level like Andre or like my Uncle. Or else one will be compelled to resort to illegal means. No Bank provides a loan without the personal guarantee which is something like pledging the soul. In the instance where one fails in his business, or if his loan account is irregular, the Bank has the power to not only sell the secured assets but also the assets of all those guarantors also who had signed the guarantee agreement. In most occasions, the Guarantor is the spouse, adult children, and other family members. It’s a chain reaction, and whoever has placed his signature on the loan document is a victim. The moment one starts an enterprise, the first choice for a business partner is the Better Half; because of the love and affection one feels that she is the person who brought us luck. What one fails to foresee is when the business begins to sink, the threats mount, and the poor Lady is the maximum sufferer. Her only hope is that her Husband will set right all issues. But the nightmares trigger in her when the ordeal continues for a longer time. That’s the Price an entrepreneur pays for living dangerously without having the first hand knowledge of the perils of doing a business. Thats the dark truth.

It’s a false notion that one’s liability is limited in case of a Company incorporated under the Companies Act 1956. The Banker has cracked it, and ensures that all the entrepreneur’s family members extend their personal guarantees including mortgage of personal properties. On default, all the statutes come into play including the criminal laws. Again the vulnerable one is the spouse. The family members of the entrepreneur who were once the forefront beneficiaries of his success run in quandary during troubled waters. A huge gulf widens between the Entrepreneur and his family members. Mr.Rehmat was a successful entrepreneur manufacturing electronic goods. His customers were both overseas and local. Apart from which he entered into some collaboration with the Government in 2012 for supply of goods through BEL. One fine day, his overseas customer declared Insolvency, followed by the Govt of India cancelling his supply contract for reasons not pointed to his company. His world turned upside down. Crores worth of electronic components that he had earlier sourced from China became worthless. Banks declared his accounts irregular and refused to support him with restructuring of his limits. Instead they initiated recovery for almost Rs 100 Crores. This apart, during his heydays, many invested in his company but when the troubled times started, all of them filed criminal cases. The Board consisted of him and his wife only. After a 2 year long legal battle, I could successfully rescue him from his secured creditors bailing him out for almost 25% of his debt. But the cheque bounce and other criminal cases remained, and on his special request I accepted to negotiate with those complainants for a settlement. Even though those were not part of my services, I accepted because of his many good qualities as an Entrepreneur, but during the process, continuing to attend the Criminal Courts was necessary to avoid arrest warrants.

One morning, I received a distress call from Mr.Rehmat. His Wife was not cooperating to attend the criminal court. To add more pressure, his In-laws were also angry with him. On my Client’s request I visited their home, to convince his wife Ms.Saira. We sat at the dining table. I greeted her, she did not respond much. Then I started, “I understand it is difficult for you to attend the criminal court. I too feel very sorry for you Behen.” I continued, “Do you have any idea what is the origin of all this pain?” Then she looked at me as curiously. I said, “All these suffering started when your Husband wanted to provide his family with better standards of living, provide good education to children, to take care of his ageing parents with better medical facilities, etc. He worked very hard and expanded his business from a humble beginning to a large manufacturing company over a span of ten years with his extraordinary skills.” She stared at me in defensive manner. “He was occupied at the factory for almost 15 hours a day. In the process he ensured safety and security of his family and even his workers. It was all his expression of unconditional love for his family; not ignoring his staff and workers,” then I said “when he had done so much for you, can’t you cooperate once during these difficult times?” There was a slight indication of realisation in her. “This is not the way you should repay him. These are difficult times and are not going to stay forever, I assure you” I said with confidence. “Your husband did his business with sincerity.He had not committed any sin.” “Do not be afraid of the court” I gave her a lifetime mantra, “imagine the Judge as the Almighty Khuda, and he will protect you. Your faith is your saviour. If possible chant your prayers.” It was then I saw some relief in her eyes. “Let your husband continue doing his job of protecting you. He had done it earlier, and he will do it again” I assured her. I continued, “Become his strength, not a threat. Don’t dilute his confidence.” The Lady responded only with her eyes, not a word she spoke. Thereafter, I had small chat with her husband and left, hoping that my counselling would help. Mr.Rehmat called a week later and thanked me. His wife never gave him trouble again, there was a huge change in her. I too kept my word. I even resolved his private debt matters amicably by settlement and ensured all the criminal cases withdrawn against his wife first, and then him. Peace was restored, and I was content to see the family of Rehmat in complete happiness.

The origin of all the misery for a honest budding entrepreneur is his endeavour to expand business after tasting success. But, however honest and truthful he might be, he will be played by the system surrounding him. Whatever resistance he demonstrates, the system will influence him and predominate and lure him into a debt-trap. Finally his world comes apart with outside reasons beyond his control, and he will be labelled as a defaulter, criminal and whatnot, by the Law. The price the entrepreneur pays for this illusionary success is extremely painful. Some entrepreneurs merge into the illusory world and customise their criminal activities; but such success is not for ever. It will have its toll over a period of time.

Hence,the metaphor of the rattled ‘Debtor’ in the Part-1 while describing ‘Ravan’, is not appropriate for today’s circumstances. It was appropriate for the Tretayug when justice strictly prevailed in three parts; so was debt repaid as a moral obligation and not enforced by any document.More importantly, the Creditors were more ethical following the policy pronounced by the King in letter and spirit. Both the enforcer as well as the enforced strictly conducted themselves as per law religiously.Virtue was treated as wealth, by the King and his subjects.In today’s parlance, the Banker is definitely not Ram; on the contrary he is…. You know his name.