Chennai: Last Monday (16 December 2002), Arun Jain, chairman and managing director of Polaris Software, and his colleague Rajiv Malhotra were detained by the police in Indonesia after a commercial dispute with an Indonesian bank.

It is still not clear under what provisions the detention was made. The officials were subsequently released on Friday (20 December) morning, but the unfortunate incident holds a lesson for the Indian government and companies.

Polaris Software is a Chennai-based, rapidly-growing software solutions company that employs more than 3,800 people, and has a current turnover of more than Rs 600 crore. It provides backend solutions to banks and insurance companies and also has several offshore development centres.

Polaris had signed a $1.3-million contract with Bank Artha Graha of Indonesia for providing solutions for central processing, disaster recovery and branch server-related work. The contract was signed in mid-2002 and the project was to be completed by July 2003.

Signs of peril Differences cropped up between the two companies regarding delivery schedules and in late November 2002, Bank Artha Graha served a notice of termination of contract. The bank also demanded compensation citing non-fulfilment of contractual obligation.

In mid-December 2002, Jain and his team went to Jakarta to settle the dispute with the bank. The bank asked Polaris to pay back some of the advances it had paid for the work Polaris had not executed in time.

The bank also started putting pressure on Jain to settle the dispute before returning to India. According to reports, Jain was willing to consider the matter, but the bank apparently asked for the huge amount of $10 million to settle the dispute.

It is learnt that Polaris offered to pay $66,0000 as compensation. The bank did not agree and filed a police complaint, after which Jain and Malhotra were detained.

According to a subsequent Polaris press release, the contract had grievance redressal clauses under the jurisdiction of the courts in Singapore. “There is a specific provision in the agreement for arbitration in Singapore to settle any dispute,” the company said. Thus, the Indonesian authorities’ act of detaining the officials in Jakarta appears inexplicable.

An unlawful act? Polaris, in another statement issued on Wednesday (25 December), said the detention of its officials was “unlawful” as the contract was drawn up under the laws of Singapore and not Indonesia.

The company pointed out that the arbitration facility to settle contractual disputes, like the current one, could be availed of only under Singapore law. “This makes the present incarceration of Arun and Rajiv even more reprehensible and needs to be condemned in the strongest possible terms.”

The legal counsel of Polaris also flew over to Jakarta to coordinate the legal moves with Lucas Partners, an international law firm that Polaris Software hired to secure the early release of its officials. Finally, the officials were released on Friday morning.

Commenting on the release, Indian Embassy sources said: “With the government-to-government communication, they have decided to release them.” But sources say the embassy had given a guarantee to the Indonesian government that the executives would present themselves as needed for police interrogation. The Jakarta police spokesperson was not available for comment.

This, however, should not be considered as a case of “all’s well that ends well.” The bizarre turn of events has several lessons for the industry as well as the government and they should not let matters rest at that.

The realities involved To secure the release of the two officials, a delegation of Nasscom first called on IT Minister Pramod Mahajan and asked him to intervene. The external affairs ministry, too, viewed the matter seriously and was constantly in touch with their counterparts in Jakarta.

External Affairs Minister Yashwant Sinha had to speak to his counterpart in Jakarta. Prime Minister A B Vajpayee was also informed of the matter and things had reached a stage that Vajpayee had decided to speak to Indonesian president Megawati Sukarnoputri if the officials were not released soon.

Such high-level intervention would not have been necessary in the first place if the Indonesian bank had not used strong-arm techniques and if their government had not looked the other way.

Such strong-arm tactics are decidedly out of place in international business. The Indian government needs to pursue this matter with the Indonesia government and also with the World Trade Organisation and other international trade bodies.

As for Indian companies, they should make a thorough appraisal of risks of this type before doing business in other countries. Countries should be rated for such risks so that Indian businesses are extra careful while entering into business agreements in countries where the laws are lax.