Entrepreneurship is being encouraged today throughout institutions, across the ranks. But we know it is a messy process, particularly in commercial enterprises. So when Stayzilla co-founder Yogendra “Yogi” Vasupal was arrested by Chennai Police earlier this year, it took the entire startup community by shock, consternation, and eventually, a furor erupted.
Consequences of the late payment?
Vasupal was accused of cheating Aditya CS, proprietor of Jigsaw Advertising of Rs 1.69 crore. Here, it seemed, was an entrepreneur being persecuted for not paying his bills on time—and obviously civil dispute being turned into a criminal case at the behest of the aggrieved party. This was pretty much what Justice S Bhaskaran of the Madras High Court said in court while granting Vasupal bail on the condition of him depositing Rs 40 lakh with the Magistrate Court.
It’s important to note that Justice Bhaskaran also advised the parties to settle the matter through mediation, although that suggestion does not seem to have been taken up. This came after Vasupal had spent 28 days in jail when all the lower courts had denied him bail.
Beyond the payment dispute between Stayzilla and Jigsaw, this case epitomizes a deeper problem with the Indian judiciary that could potentially torpedo the growth of Indian startups as the sector goes through an already visible and difficult phase of consolidation.
The underlying problems with India’s justice delivery mechanisms might explain why Aditya might have approached the police to resolve what is essentially a civil dispute, and why this may not be the last time an entrepreneur faces such a dark situation.
A look at the National Crime Records Bureau data published in its annual ‘Crime in India’ reports over the last decade shows that the annual number of cheating cases registered with the police has doubled, from 58,076 in 2006 to 1,15,405 in 2015.
No other economic offense under the Indian Penal Code has seen such an increase; only robbery and offenses against women have registered similar increases. (The highest increase in this 10-year period, where comparable figures are available, seems to be in abduction and kidnapping. But that’s a story for another day).
The above numbers must also be seen in the context of another curious phenomenon—of cheating cases being ‘settled’ out of court between parties and the FIR (First Information Report) being quashed by the High Court on this basis.
Setting the process right
This phenomenon is bizarre because a cheating case, punishable under Section 420 of the Indian Penal Code, 1861 is not a “compoundable offense”. That is, it is not an offense where the prosecution can be dropped at the instance of the victim. Take, for instance, this case: Sandesh Subhash Pawar v State of Maharashtra decided by the Bombay High Court on 28 November 2016.
The applicant was an accused in a Section 420 case where he is alleged to have defrauded the complainant in the case for Rs 12 lakh. However, once he paid Rs 2 lakh in cash and gave a demand draft of Rs 10 lakh, the complainant had no objection to the case being quashed in court. The state government also does not seem to have had an objection to this settlement between the parties.
High Courts usually exercise their discretion relying on the judgment of the Supreme Court. In the case of Narinder Singh v State of Punjab (2015), where it was held that even in cases which are “non-compoundable” under the Code of Criminal Procedure, 1973, High Courts still had the discretion to quash such cases where it looks likely that a prosecution will be unsuccessful since the complainants and the victims have resolved the matter between themselves.
While this discretion does not seem to be applied in the context of violent crimes or crimes against women, it is being exercised liberally in the context of cheating cases. More often in cases where the court feels that it is essentially a civil dispute.