Severe action is justified only if the accused show signs of being non-cooperative or a tendency to evade ownership for their decisions that cause loss of property to customers or other stakeholders like partners

The arrest of the managing director of real estate giant Unitech Ltd in a case involving complaints and a court case by buyers not given possession of the properties they had paid for is significant for its far-reaching outcome, but by no means is surprising in the current atmosphere in which corporate chiefs are being brought to book.

The arrest of Sanjay Chandra and his brother Ajay comes within weeks after the controversial detention of the CEO of hot startup Stayzilla, Yogendra Vasupal, in a case of failure to pay dues. The nation is already furiously debating and joking about the money owned by the defunct Kingfisher Airlines and its founder Vijay Mallya, who is evading Indian laws by sitting in London.

One common question connects all these men together: Is an economic flaw arising out of a failure to honour commitments a business failure, a civil liability or a crime? In a world in which white collar crimes and cyber crimes are recognised as acts that can attract jail terms, the public mood and judicial processes increasingly seem to classify acts previously thought to be civil misdemeanours to have criminal import.

The fact is that any wilful act that deprives people of their property or funds is tantamount to a crime. However, where it involves consumer/partner complaints or bank loans, it may be difficult to separate the wilful from the incidental or accidental. What matters therefore is the intent of the corporate chiefs in question and their willingness to cooperate with the law and their ownership of liabilities. This is what will separate the men from the boys in the new scenario.

Former RBI governor Raghuram Rajan ushered in the concept of the non-cooperative borrower and there is a new real estate law in place that clearly lays down the liabilities for builders such as Unitech. But old-world business leaders are now being caught or shamed under the “new normal” regime.

It would be wise for courts and law enforcers to give some of them the breathing room to come clean. Severe action is justified only if the accused show signs of being non-cooperative or a tendency to evade ownership for their decisions that cause loss of property to customers or other stakeholders like partners.

Business associations such as CII, FICCI and Nasscom need to have their own self-regulatory codes of conduct so that risk-taking and investments as part of normal business is not discouraged by extreme instances of law enforcement. Only those people who brazenly violate such codes should be seen as liable to criminal prosecution. Sanjay Chandra’s arrest is a wake-up call for industry associations to recognise the new normal of civil liabilities.

(Editor's note: The brother who was arrested along with Sanjay Chandra was Ajay, not Naresh. This article has been corrected.)

(The author is a senior journalist. He tweets as @madversity)