Can vendors resort to goondaism, threats, and coercion in their disputes with startups?

There are deeper questions that the Stayzilla case has raised. Not all startups will succeed, and yet debtors and vendors need to be paid — it is money that is owed to them. But do we need to resort to goondaism? Is it valid that the powerful use undue influence? Is this the reality of the Startup India dream?

“In a contractual relationship, where a company has agreed to pay for certain services to a particular agency or organisation, and for whatever intervening circumstances, like the business shutting down or the company running out of cash and not being able to pay for the services, then it is a civil dispute in nature. Filing a criminal complaint is a way of arm twisting the individual involved to pay the agency or organisation out of court. Once a person gets arrested, he is under pressure to try to settle it one way or the other. In a civil case, the court decides whether there is a liability. If the court’s verdict is yes, then the company needs to make the payment. If it does not then it leads to civil imprisonment,” says a renowned lawyer working for one of the top law firms in the country.

Why make a criminal case out of a civil one?

Why was Yogendra Vasupal taken into police custody by the crime branch? Especially, when the crime branch didn't even have jurisdiction over the case? Why was a magistrate called in to issue an arrest warrant well after court hours? Yogendra was branded a criminal and kept in remand for two nights and three days.

Yogendra, or Yogi as he is popularly known, is now resolute that he will take these things up via a civil suit. Meanwhile, sources claimed that Aditya had reached out to Yogi through mutual contacts asking him to pay up and resolve the matter out of court.

But the issue doesn't end there. There are more questions. Why is this a personal complaint? The contract is supposed to be between two organisations. And if the said outstanding dues of Rs 1.56 crore was at the core of the dispute, why was it not taken via civil disputes?

Why no FIR copy?

Today, while Yogi's team will be applying for a bail, there are still doubts whether the bail will be granted today. A confidant who has been a part of the proceedings since Tuesday night, says,

“We never got an official copy of the FIR. Even yesterday till 3 pm, it was a photograph of the FIR. The delay in giving the FIR clearly shows that these are efforts to thwart Yogi from getting bail before the weekend. Normally, a bail petition takes 48 hours to be heard. Today is Thursday, if we file the petition today, taking the 48 hours delay into account, it will be Saturday when the courts can hear it. But Saturday is a court holiday, which could mean that Yogi will have to spend the weekend in remand.”

Again is this legal? Another startup entrepreneur on the condition of anonymity said that Jigsaw’s founder Aditya CS has used family connections and power to discredit Yogi. In an email query to Aditya on the same sent by YourStory yesterday, Aditya vehemently denied these allegations.

However, there are several gaps in the way the whole case has been handled. Why a late night conviction? What was the need to delay giving a copy of the FIR to the family? A prominent mentor in the startup ecosystem adds that even as Stayzilla has failed, it has left behind debtors who need to be paid. Such debtors are entitled to pursue civil remedies to recoup their dues to the maximum extent possible.

The individual adds that using below-the-belt intimidatory tactics, threatening the safety and well-being of Yogi's family members is an act of goondaism. The undue haste shown in the arrest and incarceration of Yogi on the basis of what appears to be flimsy evidence is a clear case of an aggrieved party abusing the system and his access to powers-that-be to pursue his agenda.

Hyperfunded startups and their games

But there also is a serious allegation by Jigsaw and Aditya:  

“I also have proof that these guys have siphoned money from the company accounts into their personal accounts (No, not salary) AND INTO ACCOUNTS OF THEIR FAMILY MEMBERS who hold no position in the company. And of course the fact -- How long will advertising agencies and media houses bear loses because of irresponsible wannabe entrepreneurs who manage to get funding just to live a 5-star life for a few years and then finally shut shop and expect the hard working small-time business people to suffer? They cheat us and if the system takes action they cry foul.”

There is no doubt that vendors and agencies get a raw end of the deal when startups fail and shut down. Startups defaulting on payments to agencies and vendors is something every vendor talks about. But Stayzilla living a five-star life – #factcheck – Stayzilla started in 2005 and was bootstrapped for a long time till it took its first big institution round in 2015. It had taken an angel round by IAN in 2012. They never fell into the hyper-funded startup category.

IAN in a press statement said:

“The Stayzilla episode where the founder has been summarily thrown into jail for what appears to be at best a civil matter has shocked the entire startup community. There are challenges in every business and startups have more than their fair share. It is imperative that the legal and regulatory framework supports and encourages new ventures to emerge and scale. Unlawful treatment in such situations will trigger a sense of fear in young minds and put the brakes on the Prime Minister’s Startup India dream. IAN believes that legal rights of every individual must be respected and the law must follow its proper course, unhindered and uninfluenced in any way.”

The other allegations by Aditya that Stayzilla siphoned off money is serious too. Many startups have allegedly siphoned off investor money for personal gains. However, a source close to the auditors, VCs and employees, however, strongly oppose these allegations against Stayzilla and Yogendra.

Also, the source also adds that the payments listed in the FIR (payment to his father for rent, and credit card payments) are acceptable and have been vetted by the company auditor as well as by investors.

The money that Stayzilla owes Jigsaw is not being contested. What is being questioned is the means and tactics used to get that money out. Over the past three days, there are other voices that say that vendors get a raw deal, that civil proceedings take a long time and they are cheated out of their money. But should vendors resort to goondaism, threats and coercion? The case currently seems to reek of a personal vendetta rather than a payments dispute.