'POLARISATION' - Black Mark in Commercial Dispute Resolution?

22 Dec, 2002

The occurrence of commercial disputes are centuries old and can be traced back to the birth of commerce itself. But imposing an alleged criminal bent to them; even before a judicial review, is new and very much a Third World / banana republic syndrome. New economy entities in IT and media sectors are now getting a taste of the strong arm tactics in the emerging markets; where they seek business relationships. Enron, Tyco Union Carbide (Bhopal) were dealt with correctly; even if massive misappropriation and / or damage was evident. But the arrests of the Polaris Chairman & MD/CEO Arun Jain and his SVP, Mr. Rajiv Malhotra, have shocked the business world. The Indonesian Govt. thankfully, and eventually, responded to diplomatic pressure from India and released the two from police (custody) but the latter have retained their passports. This commercial dispute is about a small US$ 1.3 million contract for disaster recovery (!) and central processing services and specifically provided for arbitration in Singapore, presumably because of the palpable lack of trust in Indonesia's legal redressal processes. The Indonesian client, Bank Artha Graha (House of Commerce in Hindi!) was promoted by Tomy Winata. This 44 year old businessman of Taiwanese descent, is said to have become a billionaire because of his close association with the army. The magazine, 'Inside Indonesia' attributes his huge wealth to property businesses involving the army and the Special Forces Command, engaged in intelligence-gathering and counter espionage. During the days, when Tomy Suharto (the son of the former President) was regarded by some as the master-fixer, Winata cultivated friendships and businesses. He is also reportedly friendly with Toufik Kiemas, the husband of Indonesian President, Megawati Sukarnoputri. The Artha Graha Group, it is noted, has wide spread interests in real estate, financial services, mining, telecom, fishing as well as a gambling operation and a cruise ship, close to the Indonesian shores, in the North of Jakarta Bay. No wonder, Time Asia, labelled Tomy Winata, as a "gambling kingpin".

In the recent Polaris CMD's arrests, some Indonesian government officials admit that the police may have got carried away by the strong influence brought to bear on them. The Indonesian intellectuals and industrialists are fully aware that in areas such as information technology, global IT companies will blacklist any country that behaves like a police state i.e. no law or order; as the software companies' main assets are its skilled managers.

Indonesia has always been derided by many as a citadel of corruption and intrigue. Particularly during the previous regimes, few business deals were done, until one greased the palms along the way. It is unfortunate that a country endowed with natural, mineral and human resources and with strong nationalistic values espoused by Sukarno, during his hey days of non-alignment with Nehru, Nasser and Tito, should descend to arbitrary arrests in business dealings, because of influence-peddling. The Indonesian police is said to have the authority to detain anyone for upto 20 days upon a complaint. Surely, there has to be a judicial review and a due process of law. No wonder, business confidence ebbed away after the collapse of the Suharto regime. Earlier, it had been greased and glued together, literally, by commissions and omissions and questionable ethical practices.

The Indian industry association representatives, not just in the Information Technology arena but the likes of CII etc., have rightly brought pressure on the Indian IT, Foreign and Prime Ministers. That resulted in the foreign minister having a chat with his counterpart in Indonesia and the Prime Minister planning to do likewise with Megawati. But diplomatic niceties apart, the so called 'historical-friendships' are coming in the way of these political bigwigs expressing themselves strongly in clear and unambiguous terms. While the actions, responses and articulation of indignation are commendable, they should go beyond. There is need for strong leadership and a display of robust attitudes, if the Third-World giants expect to be taken seriously. No one is recommending gun-boat diplomacy but surely, strong signals need to be sent, by say, recalling the ambassadors for consultation and perhaps packing off, home, two or three of the offending country's representatives.

The reason why no one messes around with the U.S. or U.K. citizens around the world, is the anticipation of very strong reaction and measures from their governments, if any of their citizens, particularly their businessmen, were to be harmed undeservedly,. That unfortunately, is not how Indian authorities have treated or valued their citizens resident abroad. Hitherto, it largely allowed them to fend for themselves, in some instances, engaging in nothing more than diplomatic pow-wow; while smiling and continuing with their political (shenanigans) business as usual.

In this instance, the details of the dispute are not clearly known. It would appear that a software contract and system implementation were not done satisfactorily. The Indonesian client has every reason to negotiate and even attempt to penalise, in monetary terms, for any lack of real or perceived performance. But no civilised country that wishes to do international business, will throw the visiting chairman of a company and his senior colleague into jail for a week and not allow the matter to go to either courts or for a judicial review. It is a little odd, as was reported, that although the arrests took place on Friday, the 13th of December (always a black day), Polaris chose to inform its shareholders and the Indian government, only a couple of days later. Mr. Arun Jain is a man of considerable intellect and strong reputation; who has visited Dubai earlier this year and spoke to appreciative audiences. It is a pity that he and his colleagues are mistreated as common criminals.

It is important that good commercial values and human rights are respected along the way. In this regard, the entire gamut of cross-border commercial dispute-resolution mechanisms need to be reviewed at the highest level; possibly in fora such as the WTO and the IMF-World Bank meetings or in the United Nations. Arbitration was earlier thought to be an appropriate recourse; without first going to the courts. But having had personal experiences of some ICC arbitrations, I am less enamoured of the merits of this option. Arbitrations tend to be long-winded processes, with two arbitrators appointed by each party and a third one by ICC. The proceedings often go beyond what might happen in the commercial courts. It is true that the civil courts in most countries are finding that while they understand the laws, their judges may not appreciate the nuances of complex, commercial contracts. This leads the judges to appoint experts. But this expert may become somewhat arbitrary and take a particular view or latch on to an interpretation. Thus arbitrations as an alternative, appears to be less than satisfactory.

What might be useful, is to introduce a "facilitation clause" in commercial contracts, which could perhaps bring in a lawyer and say another disinterested eminent businessman from the same sector, into a round-table, to review and give considered opinions and support. They can facilitate a dispassionate discussion of what each of the party to the disputes / agreements have to say. Thereafter, this can be interpreted by the specific experts appointed by say the Chambers of Commerce and / or ICC, to shorten the process, be it in the court of arbitration or in the law or special courts.

If it involves a wilful misconduct or gross negligence, these two matters turn out to be the most difficult to "prove" in litigation. Then the matters will need to be escalated, on a rapid-track basis, to the judicial authorities. So should be the case, if and when there is a criminal breach of contract or demonstrable 'deception' or fraud. But, it should not be left to the police, to decide. In most parts of the Third World, the cops are notoriously clumsy and high handed and on whom enormous pressures are brought to bear by the political and commercial bigwigs. They are all not cognisant of human rights and tend to take the 'law' into their own hands! Instead, it should be a group of eminent commercial persona, a la the old panchayat system in India or the majlis / shura in the Arab world, in which a congregation of experience and humanistic values predominate. Thus crass commercialism, cronyism, double-standards and implied racialism would not be allowed to creep into matters of commercial jurisdictions.

Such fair and transparent processes alone, will restore the confidence and credibility in these troubled times. It is inherently difficult to do business in most parts of the world, given the excessive competition, capacity-expansion and the multi-pressure environment. It would be worse, if senior executives representing a company, run the risk in overseas visits, of possible arrests, conviction or violence. These incidents are hardly conducive to economic and commercial growth and well-being neither in the host country nor, generally, in the comity of nations.

(The author (sureshk@emiratesbank.ae) is a General Manager in Emirates Bank Group. The views expressed in this article are not necessarily shared by the Bank.)

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