Buying You Out with Your Money!

"Marriages are Made in Heaven" is an oft repeated adage. There is also a popular book by name "Marriages are Made in Heaven, But Maintained on Earth". People even joke that marriages are made in heaven, but divorces are made on earth and in courts. One of the famous stars in Bollywood got engaged (and later married too) in the early 1970s. The press reporters present at the engagement ceremony interviewed her and asked her whether she believed that her marriage would last long. She answered with a twinkle in her eyes, "Marriages will be stable and succeed as long as the couple have a common bedroom but separate bathrooms". It is common in many big houses to have a big bedroom with bathrooms on either side together with storage and wardrobe spaces separately for the two partners. No study has been carried out so far about the divorces taking place in such houses. Not yet.

Things are fine when some asset or property or entity is owned exclusively by one person or group. But it is not always possible to have this ideal situation on hand. Especially in large enterprises, due to the requirement of huge capital and resources, there is always a need for different persons or groups to come together and build the edifice. There is perfect understanding when the things shape up, but in due course of time differences crop up. Thick friends become sworn enemies and getting on together becomes impossible. It is in such situations that one of the parties, usually the dominant share holder, makes efforts to get rid of the minority shareholders and take full control of the assets and management. 

The concept of "Buy Out" is often practiced in business circles. What is buying out? Each party has a certain stake in the entity, but not in full. Consensus is required to run the entity and share the profits. Sometimes things reach such a stage that carrying on together will become impossible. One of the parties (usually the one with a bigger share or stake) wants to have a free run without any hindrance from the other party or parties. 

How to achieve this buying out? Make a valuation of the business. Arrive at the value of the share of the unwanted party. Offer to pay that value and ask that party to get out of the system. Once this is done, you own the entity or organisation or asset on your own. You can do whatever you want to do with it. The other party who is bought out cannot ask you any questions because he was paid the value of his share and hence is no longer connected with it.  

Buying out is not easy because the party deprived of the part ownership is to be paid the value for his share. What to do when the party buying out does not have the money then and there? If the parties are agreeable, a value for the share given away can be arrived at and payment is made in future, either in lump sum or in instalments as mutually agreed upon. This is known as Deferred Payment because the money or value to be paid is postponed to a future date. This is risky for the party going out, but many times they agree for various reasons, one of them being a promised higher amount for the immediate sacrifice they make. Parties going out in such situations take care to protect their interests in case of default in payments in future.

Thus buying out can be completed either with immediate payout of the agreed value or an agreement to pay at future dates. But the fundamental issue is that the party holding on to the business will have to raise funds to pay off the exiting party. The money can come in any form, say own funds or borrowed from someone else, but cannot be from the exiting party. 

Can there be a situation where the party buying out does not have any share at all in the entity, but will promise to pay its value at future dates, and from the funds belonging to the outgoing party? The question prima facie looks absurd and funny, All elements here are favourable to the party holding on and equally unfavourable to the party going out. Value is not given now. There is only a promise that It will be given in future. Moreover, the money for buying out will be taken out from the pockets of the party going out! 

Totally unbelievable, one may say. But these types of activities are going on continuously around us. And to add insult to injury, they are repeating with predictable regularity! 

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India became independent from foreign rule and declared itself a sovereign democratic republic. Adult suffrage  was chosen as the tool for electing and forming governments, both at the central and state level. The initial elections were fought more on emotions than on any other principles. Leaders associated with the freedom movement or from royal families easily won and ran the governments. Name of the person or party was enough to ensure victory. Size of the electorate was small, communication mediums were minimal and most of the voters were illiterate. Some small leaders in the villages and towns decided how their area or mohalla will vote. After two or three general elections, the generation of leaders who fought for the freedom of the country were all gone and a new crop of leaders came to the forefront. The composition of the voters also changed, more and more post-independent India generation called the shots. 

Electioneering became more complex now. Political parties developed their own vote banks and each groups had their leaders who extracted their pound of flesh for pledging their follower votes. Candidates had to spend on keeping these groups happy, and keeping the mood in their favour during election time by distributing money, liquor, clothes etc. Hiring people as volunteers for canvassing, food and refreshments for the canvassing teams, hiring vehicles and other allied resources for campaigning became more and more costlier. To win an election cost a lot of money. After winning, the winner had to get back this investment made during elections with interest and also provide for fighting the next elections. The system of investing and reaping the rewards got institutionalised and corrupt practices at all levels flourished.

Advent of modren electioneering methods, monitoring by enforcement agencies and compulsive competition had a big effect on the electioneering process. Even after spending huge amounts during elections, there was no guarantee of earning thereafter. In past few years another headache plagued the candidates and parties. With mobile phones in wide usage, someone can record any talk, discussion or even distribution of inducements. Programs like demonitization, closer vigil by income tax authorities using PAN, TAN and TIN, anti money laundering operations and many restrictions on cash transactions choked the channels of unethical money making and circulating a very unwelcome proposition. Political parties had to find alternate avenues for funding elections. More than that, there was a need to offer inducements in a more subtle way and within legal framework.

It is at this stage that a well developed system of promising delivery of cash or cash equivalent to voters if voted to power, was brought in by various political parties. This evolved into the fine art of offering what are now popularly and collectively called "Guarantees". Parties offer guarantees to voters of delivering something if voted to power. It will even be announced that the decision of implementing these guarantee will be taken in the very first cabinet meeting, even if the cabinet has only two ministers!

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Elections have been fought in some states in the last one year with focus on such "Guarantees". At the time of promising the guarantees, even the parties offering them do not know whether they will really be in a position to implement them. Neither they worry about the costs and implications on the finances of the state. No cost working or implementing mechanism are under scrutiny. Even the target group is kept ambiguous so that maximum votes can be got and power can be captured. 

Now, one can clearly see the various elements discussed in the earlier paragraphs above, in this buying out the voters by political parties play out in our presence:

• The real stakeholders in any state or country are the voters and more particularly all the citizen ruled by the incoming governments. It is to be noted that those below 18 years are also subject to the rule, but do not vote in elections.
• Political parties have little stake in these elections except the goal of capturing power. If they lose the elections, they have no commitment. If they win, they will cross the bridge when they reach there!
• In the case of all guarantees, there is no immediate payment. It is only promise to pay in the future. It is a Deferred Payment Arrangement.
• The bought out voters are not in a position to have any safeguards for ensuring that the promised payments will be made.
• The promise is made to some sections of voters that is sufficient to swing elections in favour of the political party. Even if the party wins, all voters do not get something. Most of the voters do not get anything.
• Of course, it is wrong to say that most of the voters do not get anything. They get the entire burden of additional taxes and increase in tariffs. They also have to deal with the mess created in the administration due to these guarantees.
• The parties talk of having some criteria for delivery of guarantees after being voted to power. For example, there was a promise of free power of 200 units per household. In reality, no household got 200 units free power!
• Finances of most state governments are already in precarious conditions. Delivery machinery is non-existent in many areas. 
• In order to raise resources, tariffs are increased on many commodities, additional taxes are levied and so on. In effect all the funds required for implementing the guarantees is coming from the voter, the one who was bought out!
• All other development work, more particularly in the infrastructure creation area, have come to a standstill. There are even complaints of inability to meet salary payments and minimum running expenditure of the departments.
• Promise of tree travel has encouraged purposeless travel by some. it is harming the section of students and workers very dearly.

One can go on analysing at length. This is what is happening now, election after election.

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Is this not the story of "Buying out a party with substantial stake with promise of deferred payments and raising that promised funds from the bought out party?"