The unfortunate and shocking incident of the Polaris CEO Mr
Arun Jain's arrest in Indonesia should be an eye opener for the Indian IT
industry on the consequences of ignoring the legal risks in business.
It was not long before that the Chennai based Radiant
Software faced the legal battle from Oracle on the copyright issue. Ultimately
Radiant Software went out of business as a consequence of the problems.
The Russian software firm Elcomsoft is facing the case in
California in the celebrated case where the software professional Dmitry
Sklyarov was arrested while on a tour of US.
In both these cases, there would be some logical defenses
which may make the offence look marginal in the end. But the damage is done in
the first few days when the executives are arrested and kept in prison.
In the instant case of Polaris, it appears that there is a
contractual dispute which may or may not involve return of advance received
partially or fully or payment of damages. The legal position would be clear only
when one analyses the contract.
But the excessive action taken by the Indonesian client and
the Police points out to the non assessment of the legal risks involved in the
contract earlier. In any legal analysis "Country Risk" is also a factor to be
reckoned with.
If we analyse how law can be interpreted by different
international Governments whether it relates to an alleged terrorist in Dubai or
an accused fraudster in Malaysia, it is clear that political leanings of the
host countries play a large part in determining the legal risks involved in
business.
In the pre-globalization era, exporters of physical goods
from India were protected by the wisdom of ECGC which while providing a
protective service carried out a detailed country risk analysis. Though many
exporters did not appreciate the ECGC for various reasons, it did serve a good
social cause.
In the Globalization era "Protection" is a dirty word and
businessmen think they are wizards and can take decisions on their own when it
comes to assessing business related risks.
Had there been a close involvement of an Export Risk
Insurance Agency, after the Bali incident, Indonesia's country risk factor
against India would have been raised substantially giving a warning to the
industry. Even earlier, the country risk of Indonesia would have been considered
higher than say Australia and such information would have been factored into the
business quotations as well as contracts.
There is a huge contribution of negligence from the part of
industry organizations including Nasscom, CII and FICCI in not providing
an appropriate "Security Blanket" for Indian businessmen doing business
outside India in alien environment and not alerting the businessmen to these
risks.
Now, apart from taking immediate tactical steps to get Mr Arun
Jain released, it is necessary for the Indian Government to take suitable steps
to ensure long term measures which try to generate warning signals when "Risk"
is building up in a business deal.
For example, we need to find out what is the total business
risk exposure of Indian IT industry in Indonesia and take suitable measures to
meet the risks. Similar assessment of risk exposures has to be made on other
countries such as China in particular so that we need not have to regret later.
If Nasscom is today a developmental organization with a
different set of priorities, then it is necessary for another organization
geared towards protecting the industry to be nominated for the purpose.
This may also need "Registration of All Overseas Contracts"
with the concerned body which the industry may not like. Let us atleast hope that unlike in the Veerappan case where
the Governments go to sleep in between two crises, the Central Government
and the IT industry would not neglect the need to manage legal risks in business
associated with export of IT services from India.
Let us not forget that if Polaris cannot recover its
contracutal dues from its client or has to pay a huge ransom to get out of the
problem, the loss is that of the Country and not restricted to the share holders
of Polaris.
It is precisely for this reason that naavi.org has been
repeatedly warning the IT industry that they have to look at Cyber Law
Compliancy Risks in business activities and take steps for compliance and
without such compliance the so called "Quality" Certifications are weaker than
what they indicate.
Polaris case is a manifestation of a legal risk whether we
call it a Cyber Law risk or not. But it is certain that a proper Cyber law risk
audit of Polaris would have looked into the contract between Polaris and the
Bank Arth Graha and perhaps alerted the company on the financial and legal
liabilities arising out of delay in completing the contract.
Before we end, let us hope that the industry and the
Government would take steps to get the release of Mr Jain immediately.
Naavi
December 17 , 2002
Related Article:
Polaris Chairman Held In Indonesia-FE
About Dmitry Sklyarov case
Polaris CEO in Jakarta jail after contract dispute HT
