It
is always that non-risk takers make the law for risk takers.
It is always that non-risk takers implement that law on risk
takers. It is always that non-risk takers watch the compliance
of that law by risk takers. Administered are thus considered
affluent class irrespective of what could be found in the
lockers of administrators. But that slang apart the question
here is that is economic failure equal to a criminal act?
When
a project fails is it not an equal failure of those who initiated
and drafted it and of those that initially appraised it and
supported it? I am not recommending that the later should
henceforth be punished. I am only presenting that the dimensions
and magnitudes are the same then why variables should have
variations.
There
is yet another point to ponder. I say I wish to improve performance
of our boys in cricket. Surpassingly if I have sweeping powers
to decide and do decide that for every out in first over I
shall put the boy in jail. The net result of this rule shall
be one and only one. No boy would make any run in first over.
So on and so forth I can extend this simple logic to economic
activity. I can safely conclude that if economic failure is
criminal why should every one not go in a team of non-risk
takers. Thus a society that punishes its economic failure
punishes its self by restricting its stimuli, the stimuli
of growth. It may appear a foolish simplification. But it
is simplification only that teaches a kid that a cat is a
cat. Now I am saying the same in same terms. And this is that
simple.
On one hand thus the problem is so obvious
though difficult that it is easy to place it. On the other
hand it is so obscure that it is difficult to find solutions,
hence debate.
The Case Studies:
The
studies conducted by FISME on failed entrepreneurs highlights
some important points:
-
Most small businesses have involvement of family and friends.
The arrangement offers cost effectiveness, expediency and
efficiency. It is based on general understanding of mutual
dependence and informally shared benefits. Emphasis supplied
'thus when one economically fails it is failure of a defined
and undefined group of persons.'
- There is generally a financial constraint leading to dependence
on loans secured by guarantees and mortgages of related or
unrelated persons who may not necessarily be sharing the benefits
or at least not in proportion of the risk undertaken.
- Informality leading to high flexibility in decision making
is a feature.
- The small businesses do not have proper support of professionals
due to the various factors such as cost, lack of awareness,
time factor etc. The entrepreneurs generally depend on mutually
shared informal information net work.
- Dependence on single or a few of large clients.
- My view, 'dependence on single banker' leading to non availability
of alternate.'
- Success of small business generally depends on personal
networking that that is called informal relationship for formal
executions. Here my view is different. I shall put it this
way 'It is a generally conceived misnomer that the success
of small business depends on informal relations. I feel that
it shall depend on lack of it. The lack of informal relations
shall seed a fear and the fear shall result in higher level
of preparedness/ awareness hence better success.'
These conclusions would always be confirmed when placed to
a person who by nature is a risk taker. These conclusions
would always be confuted when placed to a person who by nature
is no-risk taker. Generally, for a person who is in business
it is easy to stand guarantee for others. Generally, for person
who enjoys or had been in secured zone I had observed a denial
for guarantee for the loan of even of his own son. Thus the
difference is that of perception. Perception of one may not
be the perception of other whereas the risk factors of a deal
remain same. The personal perception may be said to be micro
level perception. The same works at macro level. Therefore
those who enjoy secured zone of livelihood when assess the
risk perception associated with a proposal do assess the same
with their own level of risk taking attitude. This is the
cause of delay. And this delay at each stage result in the
time slot required for sanction of a proposal. This diversity
is involved from beginning to the end. Though of course we
are talking of end but that is not very different from beginning.
From beginning to the end it is continuity.
The
criminality, jail and the business:
Crime
in general parlance is said to be an offence punishable by
law. Therefore an act that is punishable by law is a crime.
Legal definition as placed by Hon'ble Supreme Court, elaborates
'A crime is an act deemed by law to be harmful to society
in general, even though its immediate victim is an individual.
The notion of crime as a threat to the whole community is
the material counterpart of the formal rule that the state
alone is master of a criminal prosecution. No private person
has a direct interest in a criminal proceeding, although exception
may be made by the statue in certain cases. It is common knowledge
that a criminal prosecution is not intended for the private
satisfaction of a personal vendetta or revenge.'
Seems
thus that we apply law to a given fact or set of facts and
by a process that is called verification form a conclusion
that the fact or set of facts fall in the category of crime
or in category worth placing a person in prison. But many
times what is formulated is different than the object of that
formulation. The outcome depending on such formulations is
much at distance to enumerate:
-
Bouncing of a cheque (#138, Negotiable Instruments Act). The
intention is to safe guard the interest of honest businessman
from dishonest payments and give that force to a cheque as
a legal tender has. But here is an example of distortions.
'A' takes a loan from 'B' for purchasing a machine. The loan
is repayable in next seven years in 84 equated installments.
These installments are worked out after assessing the viability
of related project with proper support of acceptable DSCR.
To further safeguard his interest 'B' takes 84 advance cheques
from 'A'. The economic environment changes viability does
not remain on predicted lines. Cheques start bouncing after
3 years. Now to the set of facts enumerated in this example
the law is applied. The intention of the provision of law,
read preamble, was not to cover such transactions of business
failure. But it is applied here.
- At the time making an order admitting the petition (of insolvency)
or any subsequent time before adjudication the Court may either
of its own motion or on application of creditor make one or
more of the following orders, namely, - order the debtor to
give reasonable security and direct that in default of giving
such security, he shall be detained in civil prison etc. (Reference
# 21 Insolvency Act)
Now
this is very interesting, "Intention is 'a', application
is 'b' and the outcome is 'c'." The object of Insolvency
Act is to give relief to a debtor unable to pay. So the intention
is relief say 'a'. The application is the need of a security
say 'b'. A security the quantum of that is to be assessed
in terms of outstanding debt. So the insolvent if insolvent
would not be in a position to pay security and would go in
jail. On the other hand a person who is relatively solvent
would not go in jail and get the relief say 'c'.
-
In a case (Sobha v. State, AIR 1963 All. 29) Hon'ble Court
says, "The preamble helps in interpreting the Act and
also to clarify aims and objects of legislature." The
preamble is simple. An act to give relief to a debtor unable
to pay. That is 'all' about Insolvency Act. What it legislates
is explained above and herein after. To give relief is to
give a due discharge. Of a due discharge; deposit a reasonable
security and thereafter you are entitled for due discharge
under the provision of section 41 hereof. But 42 legislates
-
(1)
The Court shall refuse to grant an absolute order of discharge
under section 41 on proof of any of the following facts, namely,-
(a)
that the insolvent's assets are not of a value equal to eight
annas in the rupee on the amount of his unsecured liabilities,
unless he satisfies the Court that the fact that the assets
are not of a value equal to eight annas in the rupee on the
amount of his unsecured liabilities has arisen from circumstances
for which he cannot justify be held responsible;
(b) that the insolvent has omitted to keep such books of account
as usual and proper in the business carried on by him and
as sufficiently disclose his business transactions and financial
position within the three years immediately preceding his
insolvency;
(c) that the insolvent has continued to trade after knowing
himself to be insolvent;
(d) that the insolvent has contracted any debt provable under
this Act without having at the time of contracting it any
reasonable or probable ground of expectation(the burden of
proving which shall lie on him) that would be able to pay
it;
(e) that the insolvent has failed to account satisfactorily
for any loss of assets or for any deficiency of assets to
meet his liabilities;
(f) that the insolvent has brought on, or contributed to,
his insolvency by rash and hazardous speculations, or by unjustifiable
extravagance in living, or by gambling, or by culpable neglect
of his business affairs;
(g) that the insolvent has, within three months preceding
the date of the presentation of the petition, when unable
to pay his debts as they become due, given an undue preference
to any of his creditors ;
(h) that the insolvent has on any previous occasion been adjudged
an insolvent or made a composition or arrangement with his
creditors;
(i) that the insolvent has concealed or removed his property
or any part thereof, or has been guilty of any other fraud
or fraudulent breach of trust.
(2)
For the purpose of this section, the report of the receiver
shall be deemed to be evidence; and the Court may presume
the correctness of any statement contained therein.
(3)
The powers of suspending, and of attaching conditions to,
an insolvent's discharge may be exercised concurrently."
Here
I would quote another relevant provision contained in section
41(2) (c), "the Court may grant an order of discharge
subject to any conditions with respect to any earning or income
which may afterwards become due to the insolvent, or with
respect to his after-acquired property."
I
am unable to decide between the two percepts i.e.
Does
the Insolvency Act gives relief to a debtor to unable to pay?
True or false?
Does
the Insolvency Act gives relief to a creditor to unable to
realize?
True or false?
Answer
of these percepts, reading the law what it is, is a complex
patch. With authority you can give any answer you like. Therefore
it is obvious that the law requires a fresh look or the society
requires a fresh law. Further justification is as under.
Section
42 (a) is above. It says that insolvent should be solvent
enough to pay 50 percent of his unsecured liability or he
shall have to prove to the Court that such liabilities has
arisen from circumstances for which he cannot be held responsible.
So what percept we are dealing with. Is it half-solvent half-insolvent?
There can be no other absurdity than this.
Insolvent
should be solvent enough to keep the books of accounts properly
within the three years immediately preceding his insolvency.
This means that he should be solvent to pay the salary of
accounts department. (Section 42(b))
The
next percept is a pure question of law. If the insolvent has
continued to trade after knowing that he is insolvent he shall
not entitled to relief under section 41. What is insolvency
is defined in section 6. Any person committing an act of insolvency
could be said to be an insolvent.
Thus
the provisions are such where judiciary gets substantial powers
to decide on matters they may not be having experience of.
It is the Court that shall decide that whether insolvent conducted
his business efficiently and effectively or not.
My
emphasis insolvent should be solvent enough to prove his insolvency
and get proper relief with due discharge certificate.
Position
of not-discharged insolvent:
(1)
A not discharged insolvent shall not remain a partner in any
firm. (Section 34(1) Indian Partnership Act )
(2) A not discharged insolvent cannot become a director in
any company. (Section 274(1)(b) Companies Act)
(3) A not discharged insolvent shall have no competence to
contract.
(4) A not discharged insolvent shall have no right to any
property or assets as the entire properties belonging to him
vests in the Court. (Section 28(2) Insolvency Act)
Position
of Discharged insolvent:
(1)
A discharged insolvent is not discharged from any debt due
to the Government. (Section 44(a))
(2) A discharged insolvent is discharged subject to the condition
attached to his discharge. (Section 41(1)(c))
Why
we keep an ineffective legislation?
The
law of insolvency was formulated as a part of Britain's business
of legislation and business of governance for profit. It was
governance for profit, which was the objective. Now for 50
years we are carrying the same law though the world has changed
around us beyond recognition. The present legislation is inconsistent
with realities of our times. Globalization and the era of
competition demands a new piece of legislation that reflects
the needs of today.
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