Leverage, Law and Loss of Control: A Cross-Civilisational Perspective

 

 

By Adv Sreeraj Muralidharan 

BBM, FCS, LLB, CFORA

advsreerajm@gmail.com 

 

The modern corporation believes debt is a tool.

Indian civilisation believed debt was a condition.

One can debate financial models. One cannot debate human behaviour across centuries. When obligation exceeds capacity, sovereignty weakens. Whether it is a king in Hastinapura or a promoter in Mumbai, the structure of downfall remains unchanged.

This is not a moral argument against borrowing. It is a structural argument against dependence.

To understand this properly, one must begin not in Wall Street, but in Sanskrit.

I. The Mahabharata: Obligation as the Beginning of Ruin

In the Mahabharata, Sabha Parva (Book 2), the dice game between Yudhishthira and Shakuni is not merely a story of gambling. It is a case study in exposure without control. Yudhishthira stakes wealth, kingdom, brothers, and ultimately himself.

The epic’s wisdom lies not in a single anti-debt slogan, but in the unfolding logic of obligation. The moment one binds oneself beyond one’s capacity, sovereignty erodes.

Later, in the Mahabharata, Shanti Parva (12.15.30, approximate recension variations), a profound observation appears:

अर्थस्य पुरुषो दासो दासस्त्वर्थो न कस्यचित्।
arthasya puruṣo dāso dāsas tv artho na kasyacit
“Man becomes the servant of wealth; wealth is never the servant of man.”

Contextually, this is spoken in a discourse on governance and ethics. It is not condemning wealth. It is a warning against enslavement to it.

Debt is precisely that inversion. The promoter believes capital serves him. In reality, he begins serving capital.

The Mahabharata does not attack ambition. It exposes misjudged obligation.

II. Manusmriti: Debt as Binding Dharma

The Manusmriti (Chapter 8, verses 140–144) deals explicitly with debt recovery and repayment. One relevant passage states:

ऋणं दातव्यमित्याहुर्धर्मज्ञा धर्मदर्शिनः।
(Manusmriti 8.140, contextual paraphrase from traditional recensions)

The thrust of this section is clear: debt repayment is not optional. It is binding under dharma.

Manu proceeds to lay down mechanisms of enforcement. The seriousness is unmistakable. Borrowing creates enforceable subordination.

Ancient Indian law treated debt as an obligation of such gravity that recovery mechanisms were codified with precision.

This is not romantic philosophy. It is civil law.

When a business borrows, it enters into dharmic and legal bondage simultaneously.

 III. Arthashastra: Sovereignty Requires Fiscal Strength

In the Arthashastra of Kautilya, Book II (On the Treasury and Revenue Administration), the king’s independence is tied directly to the treasury.

Kautilya repeatedly emphasises that:

• The treasury is the foundation of state stability.
• Fiscal weakness invites vulnerability.
• Revenue discipline precedes expansion.

While Kautilya does not poetically condemn borrowing, his administrative logic is clear: a ruler dependent on external finance loses autonomy.

In Book VIII (Concerning Calamities), financial distress is treated as a destabilising calamity for the state.

Replace “state” with “company.” Replace “king” with “promoter.” The principle remains structurally identical.

Autonomy requires internal strength.

Debt shifts dependency outward.

IV. Subhāṣita Tradition: Indebtedness as Psychological Bondage

A widely cited maxim in Sanskrit proverbial literature states:

ऋणी शत्रुः परो नास्ति।
ṛṇī śatruḥ paro nāsti
“There is no enemy greater than indebtedness.”

This line appears across medieval Subhāṣita collections and Nīti anthologies, including variations in the Subhāṣita Ratna Bhāṇḍāgāra.

It is not a dramatic exaggeration. It reflects behavioural economics centuries before the term existed.

An indebted person does not negotiate from confidence. He negotiates from urgency.

A leveraged corporation behaves similarly.

Debt does not first damage the balance sheet. It first distorts decision-making.

V. Modern Statute: The IBC as Structural Confirmation

What philosophy observed, law has now operationalised.

Under the Insolvency and Bankruptcy Code, 2016, default triggers transfer of control.

In Innoventive Industries Ltd. v. ICICI Bank, the Supreme Court clarified that once default is established, admission of insolvency proceedings follows.

In Swiss Ribbons Pvt. Ltd. v. Union of India, the Court affirmed that the Code shifts control from the debtor to the Committee of Creditors.

And in Lalit Kumar Jain v. Union of India, personal guarantors were brought firmly within insolvency jurisdiction.

The ancient warning about bondage has now become mechanical law.

Once debt crosses tolerance and default occurs, sovereignty is suspended.

VI. Empirical Proof: Global Corporate Downfalls

Debt-induced fragility is not cultural. It is mathematical.

Lehman Brothers operated at extreme leverage ratios. A modest asset decline erased equity. Bankruptcy followed. The 2008 crisis was not merely about bad assets. It was about excessive leverage.

Toys R Us collapsed under debt imposed by leveraged buyouts. Interest obligations constrained reinvestment during digital disruption.

Evergrande Group expanded aggressively through borrowing. When liquidity tightened, the leverage architecture became unsustainable.

In India, Kingfisher Airlines and Reliance Communications illustrate how scale funded by debt without commensurate cash resilience invites insolvency exposure.

These were not visionless enterprises. They misjudged exposure.

VII. The Structural Thesis

The global financial world asserts that debt improves return on equity.

Civilisational wisdom responds that dependence erodes sovereignty.

Both statements are true — in different time horizons.

In stable growth phases, leverage magnifies success.

In volatile phases, leverage accelerates collapse.

The question is not whether debt is evil.

The question is whether your resilience justifies your leverage.

Ancient Indian thought, classical law, and modern insolvency jurisprudence converge on a single principle:

Obligation without proportion leads to subordination.

Closing Reflection

The Mahabharata reminds us that the fall of empires often begins not with enemies, but with misjudged commitments.

And in Shanti Parva, the truth echoes again:

अर्थस्य पुरुषो दासो दासस्त्वर्थो न कस्यचित्।
“Man becomes the servant of wealth; wealth is never the servant of man.”

Growth is admirable.

But when growth is financed through disproportionate obligation, it ceases to be expansion. It becomes exposure.

Civilisation warned us.

The law enforces it.

History repeats it.