Stayzilla Saga: What’s the big deal about the CEO of a Startup being charged and arrested?


The media and digerati are debating the merits and pitfalls of the case against the CEO of the online homestay and alternate-stay aggregator Stayzilla that declared it was shutting down. The story began to unfold on Feb 23 2017 when the CEO Yogendra (Yogi) Vasupal took to Medium to blog that “Stayzilla will reboot its operations” In the post with a geeky, techie sounding title, he explained

“I would like to announce today that we would be bringing to a halt the operations of Stayzilla in its current form, and looking to reboot it with a different business model.

This has been one of the toughest decisions that I have taken so far but it is the right thing to do. The hardest part is saying goodbye to a perfect team that has accomplished a lot by putting Homestays on the map of India. I am the most fortunate to have had such a team on my side at this juncture. Whatever and how much ever I write about them is not going to do justice to their commitment. But try, I must!”

Stayzilla

This news was greeted with a bit of déjà vu. Experts generally agree that over 80-90 percent of startups are bound to fail, and many of us chalked up the “reboot” of Stayzilla as yet another addition to the list of failed startups (link). The media followed the failure story examining how former stayzilla employees were being poached by Paytm and others. Behind the scenes, however the unwinding of Stayzilla operations was taking a rather dark turn: A couple of weeks ago, Indian police officials in Chennai arrested Yogi and remanded him to police custody.

The crux of the issue: A business dispute

Startups, like other business ventures must account for inflow and outflow of money. Investors invest money and the venture might generate revenue. Employees and service providers need to be paid for their service. Some of these services may be disputed either due to unsatisfactory delivery or for other reasons. Such disputes are routine enough and most businesses have the means of addressing them.

The situation complicated gets when a startup goes under (or declares bankruptcy) and is unable to pay off employees, service providers and other creditors. In this case, Stayzilla, was sent a legal notice by its offline agency Jigsaw Advertising over pending dues of Indian rupees 1.7 crore (about $260,000). The two parties apparently tried to mediate offline before the Ad agency went to authorities after which Stayzilla’s founder and CEO Yogendra Vasupal was arrested.

Facts versus emotions

This case is sub-judice, and most of the public information being echoed by media accounts and press-releases by the parties are just opinions not facts. The facts, at this time are clear as mud. Both parties seem to agree that a sum of over Rs. 1.7 crore was due by Stayzilla to Jigsaw Advertising. However, the disagreement – depending on whose account you read – is whether the payment is still due. The vendor, Jigsaw, claims the amount is still due but Stayzilla asserts that the contract was not satisfactorily executed by the vendor and hence the amount is not payable.

This seems to be a routine enough business dispute that many of us see in commercial operations all the time. Most businesses also have means of arbitration and dispute resolution prior to taking the ultimate step of going to court and arrest of a business executive for non-payment of business dues is equally rare.

It has been over a week since Yogi was arrested and remanded to Indian police custody. His bail application has been denied and he continues to be held by the Police.

Given the two sides to the coin, the matter remains intriguing:

  • Is this a case of vendetta against startups? Many executives and startup founders are coming to grips with the reality that they could be under the gun if their startup has a similar dispute with a vendor in the future. Banding together against the “unfair and illegal treatment” being vetted out to Vasupal, Founders of over 400 Indian startups have written an open letter to country’s Union Home Minister Rajnath Singh requesting a fair investigation into the issue, and are seeking to have Vasupal released as soon as possible. (ref: Open letter “The Startup community across India stands by Stayzilla and strongly oppose any abuse of power to subvert the law of land.”)

Versus

  • Startups are no different from any other business. They too face legal trouble and have disputes with vendors, suppliers, creditors and others. However, unlike established businesses, they lack mature leadership that can help in crisis management. Take the example of the flamboyant, powerful and politically connected Vijay Mallya, who flew the Kingfisher empire to bankruptcy, leaving banks and lenders high-and-dry. He was able to go into exile while trying to seek legal help in dealing with the matter. Mallya might eventually be brought to justice, or might settle with authorities. Yogi, on the other hand, was not as astute or lucky. Prior to his arrest, he took to social media in a medium post pleading “Help! I need everybody…” In a dramatic sounding post, he adds “If you are seeing this line, it means that the pre-saved draft was published without the time to remove a line. Likely, because I am under duress with no time to edit. I want to bring to light the problems that me and Sachit are facing. We are also seeking any help that you have to offer.”

Lessons thus far

The story continues to unfold and the questions raised by digerati still remain open. However, a few lessons and takeaways on the business basics for all startups, entrepreneurs and founders of small businesses who are following this story:

  • The law-of-land applies equally to business transactions, contracts and other agreements entered by large businesses, small-businesses and startups alike.
  • There is an inherent responsibility and fiduciary accountability that comes with the title of “founder,” “CEO” or managing executive (or whatever fancy title one chooses). Depending on the nature of business incorporation, and legal status, the founder may be personally accountable for the liabilities incurred.
  • Founders and Businesses that raise money from investors and third parties need clear accounting and financial management in place. For example, Sarbanes–Oxley or SOX, is a United States federal law that set new or expanded requirements for all U.S. public company boards, management and public accounting firms. There are also a number of provisions of the Act that also apply to privately held companies, for example the willful destruction of evidence to impede a Federal investigation.

Author: Mohan K – Mohan is an IT executive and Enterprise Architect and regular columnist. He also contributes to myDigitalStartup regularly.


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