An extremely unfortunate event co occurred with the start of the liberalisation program under Dr Manmohan Singh. It was the unconstitutional and temporary creation of what is called the “collegium system” for selection of judges in the high courts and Supreme Court. It is probably the most shameful event in the history of independent India.
India has the most powerful judiciary in the world. And the collegium system gave control of this to a handful of dynastic families to milk. Since then, not only is the legal system prone to unending delay, if recent press coverages are to be believed, it is also for sale. Twenty years ago an exposed judge Shamit Mukherjee at Delhi High Court argued that receiving sexual gratification was not corrpution. He was not convicted.
Given this reality in India – the very nature of agreements and legal recourse has to be looked at differently. Arbitration proceedings can last thirty years and convictions will rarely happen in a lifetime.
Now the good news is that this is probably the best comparative advantage for Indian VCs in India. The global players have zero chance of navigating this legal system. Their expensive lawyers will drive them to penury and irrelevance. I was particularly impressed by the way an indian conglomerate dealt with a global tech major in the dispute relating to take over of an Indian company. The global major hired an extremely expensive and completely incompetent lawyers firm to fight legally. It is believed that they spent over a hundred million dollars in legal fees (wonder what their cfo was smoking when he approved those bills). The matter became infructuous in what is by far the greatest legal comedy in recent times.
But that said and done, it is almost impossible to raise foreign money without paying a lot of legal fees and signing tomes of documents containing mostly irrelevant stuff with the really dangerous clauses hidden in footnotes and annexures. The best option of course is to walk from such contracts. Finally we are a country where two strangers meet over coffee and decide the matrimonial alliance of their kids. There is no pre nuptial contract.
But what do you do if you have no option but to sign these voluminous tomes. The first thing you do is to insist on an exclusive Indian jurisdiction. Secondly you make sure that there is no arbitration clause. Indian arbitrators lack training, ethics and accountability. Judges are a better bet. Thirdly, you make sure you hire a lawyer from one of the dynasties that control the judiciary in India. Fourth, figure out some way to ensure – you terminate the agreement as soon as possible.
To summarise,
> Law literate VCs don’t need legal agreements
> Oral agreements are binding in Indian law
> In America, oral means nothing
> In India, legal means nothing.
> When in India, stay clear of courts
Most important – make sure you have a lot of money. Merit is tertiary. You will lose if you run out of money or time.