Blow for startup community: Stayzilla founder expresses shock over NCLT insolvent order

In an order that could have broad inferences on the start-up ecosystem in India, a Division Bench of the National Company Law Tribunal (NCLT) in Chennai has ordered the initiation of corporate insolvency resolution process against Inasra Technologies Private Ltd., a parent company of Stayzila.

The court found that online stay home aggregator has defaulted in the payment of the outstanding debt to Jigsaw Advertising and Solutions along with interest.

Earlier, Jigsaw had filed a complaint against Insara Technologies under the insolvency and bankruptcy code for failing to pay its dues to the tune of Rs 1.69 crore reportedly.

“The Tribunal has passed an order saying they do owe me money and since they haven’t paid my debt, they have appointed an interim resolution professional (IRP) to take over the assets of the company, liquidate it and pay off all the debts they have. Not sure if my debt will be paid back entirely. Will cross the bridge when it comes,” Aditya CS of Jigsaw was quoted as saying by The NewsMinute.

The order will allow IRP right to take charge of Stayzilla’s management instantly to initiate the process.  Stayzilla now can’t transfer, encumber, alien or dispose any of its assets. It also cannot recover of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor, which in this case is Stayzilla.

After the Tribunal’s order, Yogendra Vasupal, CEO and co-founder of Stayzilla said, “I am shocked. It’s important for companies to be proactively litigious when they find any issues with vendors. This act is biased against companies and under this act, vendors can become operational creditors and take the companies to insolvency. I hope for the future of the business in India, this act gets more judicious in its application over time and in the meantime the companies take note to be proactively litigious."

On February 24, 2017, Stayzilla suspended operations, claiming that it will restructure itself and reboot operations.

On March 14, Stayzilla founder was arrested and got bail from Madras High Court after a month on April 11, he then furnished proof of Aditya cheating them with photoshopped pictures as proof of delivery for Stayzilla’s advertising campaign.

Vasupal also pointed out that various parties owed us as much as Rs 7 crore and we were not going to file criminal cases against them, he had clarified.

More than 70 entrepreneurs and industry members, including Paytm's Vijay Shekhar Sharma, Ola's Bhavish Aggarwal, and Mohandas Pai, who formed an informal group called Help Yogi', had written against the arrest of Vasupal.

"The Stayzilla case and its locked-up founder underscore the hardship of being an entrepreneur in the country. If ever there's a right to be an entrepreneur, that's clearly been violated. Period," the letter said.

Many of investors still believe in Vasupal as an entrepreneur. Matrix Partner investor Avnish Bajaj said he still believes in the entrepreneur, not in Stayzilla model.

Vasupal, however, had said that once the court proceedings are over, he will make comeback as a B2B player. When he does that still remains a question?

Meanwhile, the case of Stayzilla brings into sharp focus the issue of lack of adequate recovery laws in India for startups. This has terrified the start-ups to say the least. A creditor can spoil your idea of business would be too much to give in absence of proper laws.

When different laws apply for a minor and adult in a criminal case. Should there be no distinction made between a start-up and any other company? Or was it the lack of alternative remedy to recover dues through a civil suit? Will this end here, or lead to more creditors queue up at NCLT’s doorstep against failing ventures?

These are the questions that will trouble startups ecosystem, whenever Stayzilla case will pop up in mind.