Full Judgment Text
IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: November 4, 2011
Pronounced on: November 8, 2011
O.M.P. 809/2011
FASHION TELEVISION INDIA PRIVATE
LIMITED ..... Petitioner
Through: Mr. Ramji Srinivasan, Senior Advocate
with Ms. Shally Bhasin, Ms. Misha
Rohtagi and Mr. Suresh Kumar Sahu,
Advocates
versus
FTV BVI ..... Respondent
Through: Mr. N.K. Kaul and Ms. Indu Malhotra,
Senior Advocates with Mr.Vikram Mehta
and Mr. Kush Chaturvedi, Advocates
And
ARB A 14/2011 & I.A. No. 17222/2011 (for stay)
FASHION TELEVISION INDIA PVT LTD ..... Petitioner
Through: Mr. Ramji Srinivasan, Senior Advocate
with Ms. Shally Bhasin, Ms. Misha
Rohtagi and Mr. Suresh Kumar Sahu,
Advocates
versus
FTV BVI ..... Respondent
Through: Mr. N.K. Kaul and Ms. Indu Malhotra,
Senior Advocates with Mr.Vikram Mehta
and Mr. Kush Chaturvedi, Advocates
CORAM: JUSTICE S. MURALIDHAR
1. Whether Reporters of local papers may be
allowed to see the order? No
2. To be referred to the Reporter or not? Yes
3. Whether the order should be reported in Digest? Yes
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 1 of 21
O R D E R
08.11.2011
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1. Aggrieved by an order dated 20 October 2011 passed by the Arbitral
Tribunal under Section 17 of the Arbitration and Conciliation Act, 1996
(„Act‟), the Fashion Television India Private Limited (hereinafter „the
Appellant‟) has filed Arbitration Appeal No. 14 of 2011 against the
Respondent FTV BVI under Section 37(2)(b) of the Act. The Appellant has
also filed O.M.P. No. 809 of 2011 under Section 9 of the Act for directions
to the Respondent to comply with the Memorandum of Agreement
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(`MOA‟) dated 9 August 2001 with the Petitioner and not act in
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furtherance of an Agreement dated 19 April 2011 between the Respondent
and Media Network of Distribution (India) Ltd. without first giving an
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opportunity to the Appellant in terms of Clause 21 of the MoA dated 9
August 2001.
2. Since both the appeal and the petition arise out of the same facts between
the same parties, they have, with the consent of the parties, been heard
together.
3. Modi Entertainment Network Ltd. („MEN‟) and the Respondent entered
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into the MOA on 9 August 2001 whereunder the Respondent appointed
MEN as its sole and exclusive distributor in the Territory, i.e., India,
Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka and Maldives, for
distribution of the Respondent‟s international and crypted fashion channels
through cable and satellite, through its sales distribution network, carrying
a mixture of international and India specific programmes, as mutually
decided by the parties. The Respondent also appointed MEN as sole and
exclusive air-time sales representative in the Territory to undertake sales of
advertising time on the channel. MEN was also appointed the sole and
exclusive distributor for merchandising and licensing of the Respondent‟s
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 2 of 21
products on a revenue sharing basis and the sole and exclusive distributor
for internet including programme sales in the Territory.
4. The period of the MOA was five years from the date of the execution,
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i.e., 9 August 2001 extendable for a period of seven years as provided in
Clause 6(3). Clause 6 and 7 of the MOA are relevant for the purposes of
the present case and read as under:
“6. JOINT VENTURE: It is hereby agreed by and between
the Parties that during the subsistence of this MOA, if MEN
achieves the gross revenue projections, as mentioned in clause
7, then in that event the parties shall:
1) Mutually discuss formation of JVCO with equal equity
participation.
2) Mutually agree to the terms of the joint venture, and take
necessary steps to incorporate the JVCO within a period of 90
days.
3) If not reached any agreement for the formation of JVCO,
then agreed that, this MOA shall stand automatically extended
for a period of 7 years from the date of such disagreement.
7. REVENUES: The Parties hereby agree to the following
revenue projections:
(A) Gross Subscription / Distribution Revenue – in Years 1, 2
and 3 will be US$2,68,527, US$3,366,834 and US$4,168,865
respectively.
(B) Net Advertising Revenue – in Years 1, 2 and 3 will be
US$461,892, US$583,083 and US$1,011,399 respectively.”
5. Clause 9 provided that MEN would pay to the Respondent a minimum
guarantee of US$ 720,000 per annum based on the exchange rate prevailing
on the date of execution. Clause 9 reads as under:
“9. MINIMUM GUARANTEE:
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 3 of 21
(i) MEN will guarantee fTV, a minimum guarantee of
US$720,000 per annum based on the exchange rate prevailing
on the date of execution hereof. This guarantee will be
pertaining to revenues as mentioned in clauses 7(A) and 7(B)
here above i.e. US$ 520,000 for distribution services or 20% of
gross subscription revenues, whichever is higher and USD
200,000 for airtime sales revenue or 40% of net advertising
revenue, whichever is higher, respectively.
(ii) In case MEN & fTV are not able to reach an agreement in
regard to formation of JVCO then as provided in clause 6(3)
this MOA will be renewed for an additional term of 7 years.
(iii) At that time MEN and fTV will also negotiate a new
business plan and if the Parties are unable to reach any
consensus then the Minimum Guarantee amount will increase
at the rate of 20% per annum from the fourth year of
operation.”
6. Clause 21 gave the Appellant the right of first refusal and read as
under:
“21. FIRT RIGHT TO REFUSAL : During the subsistence of
this MOA and on formation of JVCO, if fTV launches any new
channels or any business considered in this MOA in the
Territory, it agrees and undertakes to provide MEN with the
exclusive first opportunity to acquire distribution, air time
marketing and merchandising rights for the same (“the Offer”).
Any such Offer shall be in writing and MEN shall have 30
days to accept the Offer of fTV. If MEN fails or declines to
accept the fTV Offer, then in that case, fTV may offer the same
to any third party, except that if fTV determines to enter an
agreement with a third party with respect to distribution, air
time marketing and merchandising rights for new channels,
fTV shall first re-offer to MEN the opportunity to enter into an
agreement on the same terms as with the third party (and will
provide MEN with written notice of its determination, the
terms of such agreement and the identity of third party). MEN
will have a period of 30 days in which to accept such re-offer,
failing which fTV shall be free to enter into an agreement with
such third party on the terms no less favorable than those
described to MEN.”
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 4 of 21
7. Clause 19 of the MOA permitted the assignment by MEN of its rights
under the MOA to the company to be formed by it. Admittedly, the rights
and obligations under the MOA were assigned by MEN to the Petitioner
with the consent of the Respondent. Clause 30 contained the arbitration
agreement. The MOA was to be governed by the laws of England.
However, the venue of the arbitration was to be in India and held in
accordance with the Act.
8. It is the Appellant‟s case that consequent upon the breach by the
Respondent of MOA the appellant filed O.M.P. No. 207 of 2003 in this
Court under Section 9 of the Act. The said petition was disposed of in terms
of the settlement between the parties. The consent terms were filed in this
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Court on 22 January 2004. Both parties agreed that the MOA would
continue to be valid and binding on the parties. Clause 4(f),(g) and (h) of
the consent terms read as under:
“f. FTV undertakes that it will make the best efforts to re-encrypt
the current Free-to-Air Channel. FTV will revert to MEN with its
plan for re-encryption in due course. After, and as and when, the
FTV signal into India is re-encrypted, the Parties aver that they
will revert to the terms and conditions of the MOA dated
9/6/2001 and will be bound by them, including the Minimum
Guarantee payments and the respective obligations of each party.
g. As long as the FTV Channel remains Free to Air, MEN will
not be liable to pay any Minimum Guaranteed amounts.
h. The revenue sharing between the Parties, during the period that
the FTV Channel is Free-to-Air, will be on a 50:50 basis both ad
sales (net of agency commission of 15%) and
merchandizing/licensing.”
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9. On 9 August 2005 an addendum (hereinafter „First Addendum‟) was
executed by MEN and the Respondent. It was stated that the MOA read
with the consent terms was being further amended by the First Addendum
which would regulate the terms of commercial business and understanding
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 5 of 21
of the parties including the assignors and beneficiaries. The Start Date of
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the First Addendum was 1 April 2005. All other terms of the MOA read
with the consent term not modified by the First Addendum were to be made
valid and binding. Clause 3 of the First Addendum stated as under:
“The India signal will be Free to Air and any decision of
converting it to an encrypted mode will be mutually discussed
and agreed upon between FTV BVI and FTV India, taking into
consideration the market conditions in India.”
10. The Respondent was to be paid a minimum guarantee of US$ 240,000
per annum or 30% of the net revenue collected, whichever was higher for
revenue from advertising sales, sponsorship sales, events, programme
placement income and any other revenue to air-time sales in the Territory.
The minimum guarantee of US$ 20,000 per month was to be paid to the
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Respondent by the 15 of the subsequent month and not to be reduced by
any costs or tax.
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11. This was followed by a Second Addendum dated 30 March 2006
(hereinafter „Second Addendum‟) executed by the Respondent and the
MEN which stated that “the said MOA read with the consent terms are
being further amended as per the second addendum.” It was further stated
that the Second Addendum “will regulate the terms of commercial business
and understanding of the above-mentioned parties including the Assignors
and beneficiaries and or their agents on the terms as hereinafter
mentioned.” Clause 3 of the Second Addendum stated that “the India signal
will be Free to Air and any decision of converting it to an encrypted mode
will be mutually discussed and agreed upon between FTV BVI and MEN
Mauritius, taking into consideration the market conditions in India.” Clause
4 of the Second Addendum stated that the Respondent was to receive a
minimum guarantee of US$ 240,000 per annum or 30% of the net revenue
collected, whichever was higher, from advertising sales, sponsorship sales,
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 6 of 21
events, programme placement income and any other revenue relating to air-
time sales in the Territory. Like the First Addendum, the Second
Addendum also provided that a minimum guarantee of US$ 20,000/- was
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to be paid in full to the Respondent by the 15 of the subsequent month
without reduction for any costs or tax. The period of the Second Addendum
was sixty months from the Start Date and was to be “reviewed after this
term.” Admittedly, the sixty months period in terms of the Second
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Addendum, came to an end on 31 March 2011.
12. It is the case of the Appellant that it had made all payments in terms of
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the Second Addendum up to October 2010. On 28 March 2011 there were
two letters written by the Respondent to MEN, and the Appellant. The first
was a final notice concerning the outstanding dues aggregating USD
112,500 being the monthly minimum guarantee due from October 2010 to
February 2011. Apart from the above minimum guarantee payment, the
Respondent alleged that it was also owed the revenue share from various
licensees, mobile distribution, internet revenues, advertising etc. Further,
RRsat informed the Respondent about the outstanding payments owed to it
by the Appellant and MEN. It was stated by the Respondent in the letter
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dated 28 March 2011 that it wished to settle the dispute in a friendly
manner.
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13. On the same date, i.e., 28 March 2011, another letter was written by
the Respondent to MEN and the Appellant, the subject matter of which
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referred to the expiry of the MOA dated 1 August 2001, the Consent
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Terms dated 9 December 2003 and the Second Addendum dated 30
March 2006. The Appellant and MEN were asked to settle all the
outstanding dues with respect to the MOA and the First and Second
Addendums. Para 5 of the said letter read as under:
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 7 of 21
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“5. In the meantime, please confirm in writing by 4pm on 31
March 2011, that you accept the offer set out. If we do not hear
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from you but you nevertheless continue after 31 March 2011 to
broadcast Fashion Television, such conduct will amount to an
acceptance of the offer:
5.1 The right to broadcast the local FTV Channel according to the
Agreement will be extended subject to the paragraphs set out
below until such time as it is determined by any party in its sole
discretion.
5.2 The Agreement and any non-contractual obligations arising in
connection with the same shall be governed by the law of
England and Wales and in the event of any dispute arising under
or in connection with the Agreement (including claims in respect
of non-contractual liability and including claims based upon
events already taken place or in respect of rights already accrued),
the parties hereby irrevocably submit to the exclusive jurisdiction
of the Courts of England and Wales.
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5.3 If by 4pm on 31 March, you accept that this offer in writing,
then any dispute referred to in 5.2 above shall be referred to
arbitration before a sole arbitrator appointed in accordance with
the rules of the London Court of International Arbitration (“the
LCIA”); the seat of the arbitration shall be England and the rules
of the LCIA shall apply.”
14. MEN then sent an e-mail to the Respondent in which it stated that the
Respondent had failed to fulfill its commitment under the Consent Terms
and the attempt of the Respondent to wriggle out of its commitment would
amount to violation of the said Terms. Further, it was stated in the
alternative that, since the JVCO was not formed, Clause 7 had to be
severed. As a consequence, Clause 6 which provided for automatic renewal
would be inapplicable to the MOA. It was further maintained by MEN that
the addendums “only dealt with commercial aspects which were specific to
the terms mentioned within and cannot be read to have modified the
original period agreed under the MOA.”
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 8 of 21
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15. On 1 April 2011 the Respondent wrote to the Appellant, inter alia,
stating that MEN could buy 1 million euro shares of the Respondent at
favourable price and must keep them for validity of the contract.
Alternatively, MEN could deposit one million euros with the Respondent
which could be returned by it in equal parts over the duration of the
extension of the agreements. It was stated that the issues should be resolved
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by 7 April 2011. The Respondent sent another e-mail on 20 April 2011
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stating that the Agreement came to an end by efflux of time on 31 March
2011. It was urged that the problem could be solved if the outstanding
amounts would be paid and the easiest way was for MEN to buy shares or
make the deposit as guarantee for performance. This was contested by
MEN by a reply e-mail in which it maintained that the MOA read with the
Consent Terms remained binding.
16. The Appellant then filed O.M.P. No. 390 of 2011 in this Court under
Section 9 of the Act seeking the interim relief of restraining the Respondent
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from giving effect to the termination notice dated 28 March 2011 and also
restraining the Respondent from entering any third party agreement for
appointing them as distributors of the Respondent‟s FTV channel during
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the subsistence of the MoA dated 9 August 2001. In the said petition this
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Court passed an interim order on 24 March 2011 by which subject to
deposit of 50% of minimum guarantee before the Registrar General of this
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Court till the next date of hearing, i.e., 22 July 2011, the Respondent was
restrained from appointing any third party for distribution, merchandising
and licensing the rights of FTV channel in the Territory covered by the
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MOA dated 9 August 2001 in case not already appointed.
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17. The Respondent on 2 June 2011 filed an application for vacation of
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the said interim order. On 3 August 2011 after hearing the parties and
after noting that the parties had nominated their respective Arbitrators, this
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 9 of 21
Court disposed of O.M.P. No. 390 of 2011 and I.A. No. 9848 of 2011 in
the following terms:
“a.50% minimum guarantee amount deposited by the petitioner
with the Registrar General of this Court shall be kept in FDR by
the Registrar General of this Court for a period of six months.
b. It is agreed between the parties that they have no objection if
nominated arbitrators will appoint the Presiding Arbitrator within
one week from today.
c. The parties are agreeable that the petition under Section 9 of
the Act be treated as application under Section 17 of the Act
which could be decided by the arbitral tribunal within two weeks
from the date of commencement of the first meeting. The
petitioners agree to file pleadings of the petition under Section 9
of the Act within the period of seven days from the date of
passing of the order and the interim order dated 24.05.2011 shall
continue till the disposal of the interim application which would
be decided as per its own merit and without the influence of the
ex-parte order passed by the Court.
d. The parties will not take any unnecessary adjournments.
5. The parties shall appear before the Arbitral Tribunal as and
when the first of sitting is fixed by the Arbitral Tribunal.”
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18. Before the Arbitral Tribunal the Appellant filed an application on 2
September 2011 for directions to the Respondent to disclose and produce
the agreement entered into between it and Media Network Ltd. It is
submitted that pursuant thereto the Respondent submitted a incomplete
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copy of the said agreement dated 19 April 2011. Arguments on the
application under Section 17 of the Act were heard by the Arbitral Tribunal
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on 6 September 2011.
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19. The Arbitral Tribunal passed the impugned order dated 20 October
2011 rejecting the Petitioner‟s application under Section 17 of the Act and
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vacated the interim order passed by this Court on 24 May 2011 which had
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 10 of 21
remained in operation till then. The Arbitral Tribunal, however, directed
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that the said interim order would continue to remain in operation up to 4
November 2011 since an abrupt vacating of the interim order might lead to
difficulty and the parties required some time to rearrange their business
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affairs. In the impugned order dated 20 October 2011 the Arbitral
Tribunal held as under:
(a) There was prima facie substance in the submissions made by
both the sides. For the purpose of grant of ad interim relief the
Appellant had a prima facie case;
(b) The balance of convenience was not in favour of the Appellant.
The injury to the Appellant, if any, could well be compensated by
awarding damages if the dispute was ultimately resolved in favour
of the Appellant. The loss that the Respondent would suffer in the
event of being restrained from proceeding with its legal activity in
the competitive market by striking new bargains may not be
capable of being ascertained, at least in the proceedings under
Section 17 of the Act;
(c) Without making any final order on the Appellant‟s application
seeking a direction to the Respondent to produce the agreement
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dated 19 April 2011, it would not be possible to restrain the
Respondent from entering into any business relationship with other
parties and just to keep its business activity idle;
(d) The negative covenant could be enforced only if the positive
covenant was found to be enforceable and where the positive and
negative covenants were inter related. If such circumstances existed
in which the performance of positive covenant in favour of the
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 11 of 21
Appellant would not be enforced by injunction, then the negative
covenant would also not be enforced by grant of injunction;
(e) A perusal of the MOA, the consent terms and the two
Addendums showed that the parties had entered into a somewhat
complex commercial relationship which would not be possible to
be supervised by the Court. Under Section 41 (e) of the Specific
Relief Act, 1963 („SRA‟) an injunction could not be granted to
prevent the breach of a contract the performance of which would
not be specifically enforced. It could not be said that the Appellant
would suffer irreparable injury if an ad interim injunction was not
granted.
20. On behalf of the Appellant it was submitted by Mr. Ramji Srinivasan,
learned Senior counsel and Ms. Shally Bhasin, learned counsel as under:
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(i) Till date there was no formal termination of the MOA dated 9
August 2001. The consent terms and two Addendums did not alter
the essential features of the MOA, particularly the renewal of the
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MOA for a further period of seven years after 31 March 2006.
(ii) Under Section 42 SRA, notwithstanding anything contained in
Section 41 (e), where a contract contained an affirmative
agreement to do a certain act, coupled with a negative agreement,
express or implied, not to do a certain act, the mere fact that that
the court was unable to compel specific performance of the
affirmative agreement shall not preclude it from granting an
injunction to perform the negative agreement. Consequently, in the
present case the Arbitral Tribunal erred in not granting ad interim
injunction requiring the Respondent to perform the negative
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 12 of 21
covenant and restrain it from entering into any fresh agreement
with third parties. Reliance is placed on the judgments in Gujarat
Bottling Co. Limited v. Coca Cola Co. (1995) 5 SCC 545, Dirk
India Private Limited v. Mahagenco 2007 (5) BomCR 207, Old
World Hospitality Private Limited v. India Habitat Centre 73
(1997) DLT 374, Goyal MG Gases Limited v. M/s. Griesheim
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Gmbh [decision dated 23 October 1998 in FAO (OS) No. 251 of
1998] , Modi Rubber Limited v. Guardian International
Corporation 141 (2007) DLT 822 and Lady Navigation Inc. v.
Lauritzencool AB (2005) EWCA Civ 579.
(iii) Till date the Appellant was receiving fTV signals and this
contradicted the plea of the Respondent that there was a termination
of the MOA and the addendum. In fact nothing prevented the
Respondent from blocking the signals received by the Appellant if
indeed there was a termination of the MOA as amended by the
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Addendums, between 1 April 2011, i.e., after the term of the
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Second Addendum expired, till 24 May 2011 when a stay was
granted by this Court against the Respondent at the instance of the
Appellant. Since the MOA was kept alive, this Court could,
consistent with the intention of the parties, enforce their respective
obligations and require the Respondent to abide by the negative
covenant.
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(iv) The agreement dated 19 April 2011 entered into by the
Respondent with M/s. Media Network and Distribution (India)
Limited was a highly suspicious document and appeared to have
been introduced only to defeat the legitimate right of the Appellant
under the MOA and to overreach the Arbitral Tribunal. Even today
the Appellant was prepared to pay whatever is the money owing by
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it to the Respondent. It had already demonstrated its bonafides by
depositing 50% of the amount in this Court. The Appellant was
prepared to deposit remain 50% without prejudice to its rights and
contentions.
(v) The Arbitral Tribunal had misread Clauses 6 and 7 of the MOA.
It failed to appreciate that Clause 6.3 was independent of Clauses
6.1 and 6.2, therefore, not subject to Clause 7. Even in the
correspondence with the Appellant, the Respondent referred to
Clause 17 (a) and 17 (b) of the MOA. Once the Arbitral Tribunal
found that the Appellant had a prima facie case, the balance of
convenience lay in favour of the Appellant to continue the status
quo as of that date. The business relationship between the parties
continued notwithstanding the First and Second Addendums.
21. On behalf of the Respondent Mr. N.K. Kaul and Ms. Indu Malhotra,
learned Senior counsel submitted as under:
(i) The contract was by very nature determinable and therefore
could not be specifically enforced in terms of Section 14 (1) (c) and
Section 41 (e) SRA.
(ii) The Appellant had misled this Court when the interim order
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dated 24 May 2011 was passed as was evident from the para 6 of
the said order. Even in para 10 of the memorandum of appeal the
Appellant had persisted with making an erroneous statement that
the Respondent had held out to the Appellant that the transmission
of the fTV channel would be encrypted. This was contrary to what
had been specifically agreed to between the parties at the time of
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signing the First and Second Addendums, both of which made it
clear that the telecast of the fTV channel would be free to air.
(iii) Both the Addendums were by way of an amendment to the
term of the MOA. The contract between the parties had come to an
end by efflux of time. There was no question therefore of enforcing
the negative covenant once the contract itself had come to an end.
Even assuming, without admitting, that the contract subsisted and
the termination of the contract by the Respondent was in breach of
the terms thereof, the contract could not be specifically enforced.
Reference was made to the decision of the Supreme Court in
Indian Oil Corporation v. Amritsar Gas Service (1991) 1 SCC
533.
(iv) In terms of the law explained in Gujarat Bottling Co. Limited
v. Coca Cola Co. , the grant of an injunction under Sections 41 or
42 SRA was discretionary. Reference was made to the decision in
Rajasthan Breweries v. The Stroh Brewery Company AIR 2000
Delhi 450.
(v) The Appellant was in default and had failed to comply with its
obligations under the contract in the matter of making the payment
of the guaranteed sums within the stipulated time. The plea of the
Appellant to the contrary was not bonafide and the proviso to
Section 42 of SRA precluded the Appellant from seeking
enforcement of any negative covenant.
(vi) Being a foreign fashion television channel, it was not possible
for the Respondent to telecast its channel directly in India without
an agreement with an Indian counterpart holding a valid licence.
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 15 of 21
Therefore, if the Respondent were to be restrained from entering
into an agreement with a third party, then to avoid being rendered
idle, it would have no option but to continue its arrangement with
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the Appellant. It was only on account of the interim order dated 24
May 2011 passed by this Court that a situation was brought about
whereby the Respondent was compelled to continue transacting
with the Appellant and not otherwise.
(vii) The scope of the powers of this Court under Section 37 of the
Act to interfere with an order passed by the Arbitral Tribunal under
Section 17 of the Act was limited. There was nothing or perverse in
the impugned order which called for interference.
22. Having considered the above submissions, this Court does not find
any valid ground having been made out by the Appellant for interference
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with the impugned order dated 20 October 2011 passed by the Arbitral
Tribunal rejecting the Appellant‟s application under Section 17 of the Act.
The reasons for this conclusion follow.
23. At the outset, it requires to be stated that the reasoning that follows is
only a prima facie view of the court on the basis of the existing pleadings
and the submissions of the counsel for the parties in regard to the grant of
interim relief in an application under Section 17 of the Act. In other words
it is not to be construed as a final view on merits.
24. The term of the MOA was essentially for a period of five years
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beginning 1 August 2001. The MOA envisaged that there would be a
joint venture company („JVCO‟) incorporated by the two parties in India
with equal equity participation. Clause 6 of the MOA made the formation
of the JVCO, during the subsistence of the MOA, contingent upon MEN
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 16 of 21
achieving the gross revenue projections stated in Clause 7. When the fTV
channel became free to air, it was plain that the revenue earnings
projected under Clause 7 would be unable to be achieved. The changed
market conditions meant that revenues would have to be generated mainly
from advertisement and not from subscription. Consequently, the
conditionalities under Clause 6 for the formation of the JVCO could not
be met. Under Clause 6 (3) it was agreed that if no agreement was reached
between the parties for the formation of JVCO then the MOA would stand
automatically extended for a period of seven years from “the date of such
disagreement”. The narration of events indicates that there was no
„disagreement‟ as such on the formation of the JVCO. The parties
accepted that the conditions for the formation of the JVCO, as set out in
Clause 7, could not be met. Consequently, the conditionality envisaged
under Clause 6.3 of the MOA, viz., a „disagreement‟ between the parties
as to the formation of the JVCO, was not fulfilled and therefore the
question of an automatic extension of the MOA by a further seven years
did not arise.
25. The First and Second Addendums were by way of an amendment to
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the MOA. The First Addendum dated 9 August 2005 was to be valid for
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12 months from the Start Date, i.e., 1 August 2005. It clearly stated that
the fTV channel would be free to air in India and a minimum guarantee
would be payable to the Respondent. This was also stated in the Second
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Addendum dated 30 March 2006, which was for a period of 60 months
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from the Start Date i.e., 1 April 2006. The term of the Second Addendum
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came to an end on 31 April 2006. There is nothing in either of the
Addendums which indicates that on completion of the term of the
Addendums, the MOA would stand revived. Prima facie it does appear
that the MOA as amended by the Consent Terms, and the First and
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Second Addendums came to an end by efflux of time on 31 March 2011.
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 17 of 21
Thereafter while the Respondent proposed a month to month contract, the
Appellant did not agree to the conditions imposed by the Respondent and
maintained that the MOA stood revived. The stand of the Respondent on
the other hand was that the MOA as well as the Addendums had come to
an end by efflux of time. There was no implied continuation of the
contract on the terms specified in the MOA. There was thus no agreement
st
as such between the parties after 31 March 2011. There is merit in the
contention of the learned Senior counsel for the Respondent that the mere
fact that the Respondent did not withdraw the signals to the Appellant
immediately did not mean that the Respondent had consented to the
extension of the MOA. The Respondent would have otherwise had to
remain idle till it found another Indian party holding a broadcast licence to
enter into an agreement with. It is not possible to accept the contention of
st
learned Senior counsel for the Appellant that after 31 March 2011, the
th
automatic extension clause of the MOA dated 9 August 2001 stood
th
revived and the MOA was meant to expire only on 8 August 2013.
Consequently, the question of a negative covenant in the MOA, i.e.,
Clause 21 thereof, being enforceable thereafter.
26. The relief of an injunction to enforce a negative covenant under
Section 42 SRA is a discretionary one. It is contingent upon the injunction
seeker performing its obligations. Section 42 SRA reads as under:
“42. Injunction to perform negative agreement: -
Notwithstanding anything contained in clause (e) of Section 41,
where a contract comprises an affirmative agreement to do a
certain act, coupled with a negative, express or implied, not to do
a certain act, the circumstances that the Court is unable to compel
specific performance of the affirmative agreement shall not
preclude it from granting an injunction to perform the negative
agreement:
Provided that the plaintiff has not failed to perform the contract
so far as it is binding on him.”
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 18 of 21
27. It is therefore not as if the mere existence of a negative covenant is
enough to persuade a court to grant an interim injunction to enforce it.
Under Section 14 (1) (c) SRA a contract which is in its nature
determinable cannot be specifically enforced. Further under Section 41 (e)
SRA an injunction cannot be granted to prevent the breach of a contract
the performance of which would not be specifically enforced. Although
Section 42 is an exception to this rule, and a court can grant an injunction
to perform the negative agreement in a contract which is coupled with an
affirmative agreement, it is conditional upon the contract subsisting at the
time such injunction is sought and further the injunction seeker complying
with the contractual obligations placed on him in terms of the proviso to
Section 42 SRA. As discussed hereinbefore, the Court is prima facie of
st
the view that the contract came to an end by efflux of time on 31 March
2011. Further, on its own admission the Appellant did not pay the
Respondent any amount from October 2010 onwards. The deposit of 50%
of the minimum guaranteed amount in this Court was only to meet the
th
condition imposed by this Court while passing the interim order dated 24
May 2011. Consequently the conditions envisaged under Section 42 SRA
for enforcement of a negative covenant of the MOA do not appear prima
facie to be met.
28. In Gujarat Bottling Co. Limited v. Coca Cola Co. the Supreme Court
explained in para 42 that “the Court is, however, not bound to grant an
injunction in every case and an injunction to enforce a negative covenant
would be refused if it would indirectly compel the employee either to
idleness or to serve the employer.” The Supreme Court referred to the
earlier decision in Niranjan Shankar Golikari v. Century Spinning &
Manufacturing Co. Limited AIR 1967 SC 1098. In the present case, the
Respondent cannot possibly telecast its channel in India without being an
associated with an Indian broadcaster holding a valid licence. A restraint
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 19 of 21
on the respondent from entering into an agreement with third parties
would certainly render it idle if it were not to permit the Appellant to
downlink the signal. Therefore, by continuing the ad interim injunction
restraining the Respondent from contracting with third parties the Court
would be doing indirectly what it cannot directly under Sections 14 (1) (c)
read with Section 41 (e) SRA. In other words the Court would in effect be
requiring the Respondent to perform a positive obligation to keep alive a
contract which is not only by its very nature determinable but has in fact
come to an end by efflux of time and is therefore not specifically
enforceable. The decisions cited by learned Counsel for the Appellant are
distinguishable on facts.
29. This Court does not find any error committed by the Arbitral Tribunal
in its conclusion that the balance of convenience does not lie with the
Appellant and that it is not likely to suffer any irreparable injury if an ad
interim injunction is not granted in its favour. This Court also concurs
with the prima facie opinion expressed by the Arbitral Tribunal that the
injury likely to be suffered by the Respondent by grant of an ad interim
injunction in favour of the Appellant outweighs the injury which could be
suffered by the Appellant if such injunction were not granted.
30. This Court does not find any ground having been made out by the
Appellant for interference with the impugned order of the Arbitral
Tribunal. The relief prayed for in OMP No.809 of 2011 under Section 9
of the Act also cannot be granted. This Court however reiterates that this
order represents the prima facie view of this Court at this stage. The
Arbitral Tribunal will, in passing the final Award form an independent
view uninfluenced by what has been stated in this order or the impugned
order of the Arbitral Tribunal on merits.
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 20 of 21
31. A prayer was made by Mr. Ramji Srinivasan, learned Senior counsel
for the Appellant that in the event of this Court not holding in favour of
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the Appellant, the interim injunction which remained in force till 4
November 2011 should be continued for a further period to give time to
the Appellant to challenge the order. However, for the reasons set out
hereinbefore, this Court is not inclined to grant any such further relief.
32. Arbitration Appeal No. 14 of 2011 and OMP No. 809 of 2011 are
dismissed with costs of Rs. 20,000/- which will be paid by the Appellant
to the Respondent within a period of two weeks.
S. MURALIDHAR, J
NOVEMBER 8, 2011
ak/rk
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 21 of 21
Reserved on: November 4, 2011
Pronounced on: November 8, 2011
O.M.P. 809/2011
FASHION TELEVISION INDIA PRIVATE
LIMITED ..... Petitioner
Through: Mr. Ramji Srinivasan, Senior Advocate
with Ms. Shally Bhasin, Ms. Misha
Rohtagi and Mr. Suresh Kumar Sahu,
Advocates
versus
FTV BVI ..... Respondent
Through: Mr. N.K. Kaul and Ms. Indu Malhotra,
Senior Advocates with Mr.Vikram Mehta
and Mr. Kush Chaturvedi, Advocates
And
ARB A 14/2011 & I.A. No. 17222/2011 (for stay)
FASHION TELEVISION INDIA PVT LTD ..... Petitioner
Through: Mr. Ramji Srinivasan, Senior Advocate
with Ms. Shally Bhasin, Ms. Misha
Rohtagi and Mr. Suresh Kumar Sahu,
Advocates
versus
FTV BVI ..... Respondent
Through: Mr. N.K. Kaul and Ms. Indu Malhotra,
Senior Advocates with Mr.Vikram Mehta
and Mr. Kush Chaturvedi, Advocates
CORAM: JUSTICE S. MURALIDHAR
1. Whether Reporters of local papers may be
allowed to see the order? No
2. To be referred to the Reporter or not? Yes
3. Whether the order should be reported in Digest? Yes
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 1 of 21
O R D E R
08.11.2011
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1. Aggrieved by an order dated 20 October 2011 passed by the Arbitral
Tribunal under Section 17 of the Arbitration and Conciliation Act, 1996
(„Act‟), the Fashion Television India Private Limited (hereinafter „the
Appellant‟) has filed Arbitration Appeal No. 14 of 2011 against the
Respondent FTV BVI under Section 37(2)(b) of the Act. The Appellant has
also filed O.M.P. No. 809 of 2011 under Section 9 of the Act for directions
to the Respondent to comply with the Memorandum of Agreement
th
(`MOA‟) dated 9 August 2001 with the Petitioner and not act in
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furtherance of an Agreement dated 19 April 2011 between the Respondent
and Media Network of Distribution (India) Ltd. without first giving an
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opportunity to the Appellant in terms of Clause 21 of the MoA dated 9
August 2001.
2. Since both the appeal and the petition arise out of the same facts between
the same parties, they have, with the consent of the parties, been heard
together.
3. Modi Entertainment Network Ltd. („MEN‟) and the Respondent entered
th
into the MOA on 9 August 2001 whereunder the Respondent appointed
MEN as its sole and exclusive distributor in the Territory, i.e., India,
Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka and Maldives, for
distribution of the Respondent‟s international and crypted fashion channels
through cable and satellite, through its sales distribution network, carrying
a mixture of international and India specific programmes, as mutually
decided by the parties. The Respondent also appointed MEN as sole and
exclusive air-time sales representative in the Territory to undertake sales of
advertising time on the channel. MEN was also appointed the sole and
exclusive distributor for merchandising and licensing of the Respondent‟s
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 2 of 21
products on a revenue sharing basis and the sole and exclusive distributor
for internet including programme sales in the Territory.
4. The period of the MOA was five years from the date of the execution,
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i.e., 9 August 2001 extendable for a period of seven years as provided in
Clause 6(3). Clause 6 and 7 of the MOA are relevant for the purposes of
the present case and read as under:
“6. JOINT VENTURE: It is hereby agreed by and between
the Parties that during the subsistence of this MOA, if MEN
achieves the gross revenue projections, as mentioned in clause
7, then in that event the parties shall:
1) Mutually discuss formation of JVCO with equal equity
participation.
2) Mutually agree to the terms of the joint venture, and take
necessary steps to incorporate the JVCO within a period of 90
days.
3) If not reached any agreement for the formation of JVCO,
then agreed that, this MOA shall stand automatically extended
for a period of 7 years from the date of such disagreement.
7. REVENUES: The Parties hereby agree to the following
revenue projections:
(A) Gross Subscription / Distribution Revenue – in Years 1, 2
and 3 will be US$2,68,527, US$3,366,834 and US$4,168,865
respectively.
(B) Net Advertising Revenue – in Years 1, 2 and 3 will be
US$461,892, US$583,083 and US$1,011,399 respectively.”
5. Clause 9 provided that MEN would pay to the Respondent a minimum
guarantee of US$ 720,000 per annum based on the exchange rate prevailing
on the date of execution. Clause 9 reads as under:
“9. MINIMUM GUARANTEE:
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 3 of 21
(i) MEN will guarantee fTV, a minimum guarantee of
US$720,000 per annum based on the exchange rate prevailing
on the date of execution hereof. This guarantee will be
pertaining to revenues as mentioned in clauses 7(A) and 7(B)
here above i.e. US$ 520,000 for distribution services or 20% of
gross subscription revenues, whichever is higher and USD
200,000 for airtime sales revenue or 40% of net advertising
revenue, whichever is higher, respectively.
(ii) In case MEN & fTV are not able to reach an agreement in
regard to formation of JVCO then as provided in clause 6(3)
this MOA will be renewed for an additional term of 7 years.
(iii) At that time MEN and fTV will also negotiate a new
business plan and if the Parties are unable to reach any
consensus then the Minimum Guarantee amount will increase
at the rate of 20% per annum from the fourth year of
operation.”
6. Clause 21 gave the Appellant the right of first refusal and read as
under:
“21. FIRT RIGHT TO REFUSAL : During the subsistence of
this MOA and on formation of JVCO, if fTV launches any new
channels or any business considered in this MOA in the
Territory, it agrees and undertakes to provide MEN with the
exclusive first opportunity to acquire distribution, air time
marketing and merchandising rights for the same (“the Offer”).
Any such Offer shall be in writing and MEN shall have 30
days to accept the Offer of fTV. If MEN fails or declines to
accept the fTV Offer, then in that case, fTV may offer the same
to any third party, except that if fTV determines to enter an
agreement with a third party with respect to distribution, air
time marketing and merchandising rights for new channels,
fTV shall first re-offer to MEN the opportunity to enter into an
agreement on the same terms as with the third party (and will
provide MEN with written notice of its determination, the
terms of such agreement and the identity of third party). MEN
will have a period of 30 days in which to accept such re-offer,
failing which fTV shall be free to enter into an agreement with
such third party on the terms no less favorable than those
described to MEN.”
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 4 of 21
7. Clause 19 of the MOA permitted the assignment by MEN of its rights
under the MOA to the company to be formed by it. Admittedly, the rights
and obligations under the MOA were assigned by MEN to the Petitioner
with the consent of the Respondent. Clause 30 contained the arbitration
agreement. The MOA was to be governed by the laws of England.
However, the venue of the arbitration was to be in India and held in
accordance with the Act.
8. It is the Appellant‟s case that consequent upon the breach by the
Respondent of MOA the appellant filed O.M.P. No. 207 of 2003 in this
Court under Section 9 of the Act. The said petition was disposed of in terms
of the settlement between the parties. The consent terms were filed in this
nd
Court on 22 January 2004. Both parties agreed that the MOA would
continue to be valid and binding on the parties. Clause 4(f),(g) and (h) of
the consent terms read as under:
“f. FTV undertakes that it will make the best efforts to re-encrypt
the current Free-to-Air Channel. FTV will revert to MEN with its
plan for re-encryption in due course. After, and as and when, the
FTV signal into India is re-encrypted, the Parties aver that they
will revert to the terms and conditions of the MOA dated
9/6/2001 and will be bound by them, including the Minimum
Guarantee payments and the respective obligations of each party.
g. As long as the FTV Channel remains Free to Air, MEN will
not be liable to pay any Minimum Guaranteed amounts.
h. The revenue sharing between the Parties, during the period that
the FTV Channel is Free-to-Air, will be on a 50:50 basis both ad
sales (net of agency commission of 15%) and
merchandizing/licensing.”
th
9. On 9 August 2005 an addendum (hereinafter „First Addendum‟) was
executed by MEN and the Respondent. It was stated that the MOA read
with the consent terms was being further amended by the First Addendum
which would regulate the terms of commercial business and understanding
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 5 of 21
of the parties including the assignors and beneficiaries. The Start Date of
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the First Addendum was 1 April 2005. All other terms of the MOA read
with the consent term not modified by the First Addendum were to be made
valid and binding. Clause 3 of the First Addendum stated as under:
“The India signal will be Free to Air and any decision of
converting it to an encrypted mode will be mutually discussed
and agreed upon between FTV BVI and FTV India, taking into
consideration the market conditions in India.”
10. The Respondent was to be paid a minimum guarantee of US$ 240,000
per annum or 30% of the net revenue collected, whichever was higher for
revenue from advertising sales, sponsorship sales, events, programme
placement income and any other revenue to air-time sales in the Territory.
The minimum guarantee of US$ 20,000 per month was to be paid to the
th
Respondent by the 15 of the subsequent month and not to be reduced by
any costs or tax.
th
11. This was followed by a Second Addendum dated 30 March 2006
(hereinafter „Second Addendum‟) executed by the Respondent and the
MEN which stated that “the said MOA read with the consent terms are
being further amended as per the second addendum.” It was further stated
that the Second Addendum “will regulate the terms of commercial business
and understanding of the above-mentioned parties including the Assignors
and beneficiaries and or their agents on the terms as hereinafter
mentioned.” Clause 3 of the Second Addendum stated that “the India signal
will be Free to Air and any decision of converting it to an encrypted mode
will be mutually discussed and agreed upon between FTV BVI and MEN
Mauritius, taking into consideration the market conditions in India.” Clause
4 of the Second Addendum stated that the Respondent was to receive a
minimum guarantee of US$ 240,000 per annum or 30% of the net revenue
collected, whichever was higher, from advertising sales, sponsorship sales,
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 6 of 21
events, programme placement income and any other revenue relating to air-
time sales in the Territory. Like the First Addendum, the Second
Addendum also provided that a minimum guarantee of US$ 20,000/- was
th
to be paid in full to the Respondent by the 15 of the subsequent month
without reduction for any costs or tax. The period of the Second Addendum
was sixty months from the Start Date and was to be “reviewed after this
term.” Admittedly, the sixty months period in terms of the Second
st
Addendum, came to an end on 31 March 2011.
12. It is the case of the Appellant that it had made all payments in terms of
th
the Second Addendum up to October 2010. On 28 March 2011 there were
two letters written by the Respondent to MEN, and the Appellant. The first
was a final notice concerning the outstanding dues aggregating USD
112,500 being the monthly minimum guarantee due from October 2010 to
February 2011. Apart from the above minimum guarantee payment, the
Respondent alleged that it was also owed the revenue share from various
licensees, mobile distribution, internet revenues, advertising etc. Further,
RRsat informed the Respondent about the outstanding payments owed to it
by the Appellant and MEN. It was stated by the Respondent in the letter
th
dated 28 March 2011 that it wished to settle the dispute in a friendly
manner.
th
13. On the same date, i.e., 28 March 2011, another letter was written by
the Respondent to MEN and the Appellant, the subject matter of which
st
referred to the expiry of the MOA dated 1 August 2001, the Consent
th th
Terms dated 9 December 2003 and the Second Addendum dated 30
March 2006. The Appellant and MEN were asked to settle all the
outstanding dues with respect to the MOA and the First and Second
Addendums. Para 5 of the said letter read as under:
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 7 of 21
st
“5. In the meantime, please confirm in writing by 4pm on 31
March 2011, that you accept the offer set out. If we do not hear
st
from you but you nevertheless continue after 31 March 2011 to
broadcast Fashion Television, such conduct will amount to an
acceptance of the offer:
5.1 The right to broadcast the local FTV Channel according to the
Agreement will be extended subject to the paragraphs set out
below until such time as it is determined by any party in its sole
discretion.
5.2 The Agreement and any non-contractual obligations arising in
connection with the same shall be governed by the law of
England and Wales and in the event of any dispute arising under
or in connection with the Agreement (including claims in respect
of non-contractual liability and including claims based upon
events already taken place or in respect of rights already accrued),
the parties hereby irrevocably submit to the exclusive jurisdiction
of the Courts of England and Wales.
st
5.3 If by 4pm on 31 March, you accept that this offer in writing,
then any dispute referred to in 5.2 above shall be referred to
arbitration before a sole arbitrator appointed in accordance with
the rules of the London Court of International Arbitration (“the
LCIA”); the seat of the arbitration shall be England and the rules
of the LCIA shall apply.”
14. MEN then sent an e-mail to the Respondent in which it stated that the
Respondent had failed to fulfill its commitment under the Consent Terms
and the attempt of the Respondent to wriggle out of its commitment would
amount to violation of the said Terms. Further, it was stated in the
alternative that, since the JVCO was not formed, Clause 7 had to be
severed. As a consequence, Clause 6 which provided for automatic renewal
would be inapplicable to the MOA. It was further maintained by MEN that
the addendums “only dealt with commercial aspects which were specific to
the terms mentioned within and cannot be read to have modified the
original period agreed under the MOA.”
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 8 of 21
st
15. On 1 April 2011 the Respondent wrote to the Appellant, inter alia,
stating that MEN could buy 1 million euro shares of the Respondent at
favourable price and must keep them for validity of the contract.
Alternatively, MEN could deposit one million euros with the Respondent
which could be returned by it in equal parts over the duration of the
extension of the agreements. It was stated that the issues should be resolved
th th
by 7 April 2011. The Respondent sent another e-mail on 20 April 2011
st
stating that the Agreement came to an end by efflux of time on 31 March
2011. It was urged that the problem could be solved if the outstanding
amounts would be paid and the easiest way was for MEN to buy shares or
make the deposit as guarantee for performance. This was contested by
MEN by a reply e-mail in which it maintained that the MOA read with the
Consent Terms remained binding.
16. The Appellant then filed O.M.P. No. 390 of 2011 in this Court under
Section 9 of the Act seeking the interim relief of restraining the Respondent
th
from giving effect to the termination notice dated 28 March 2011 and also
restraining the Respondent from entering any third party agreement for
appointing them as distributors of the Respondent‟s FTV channel during
th
the subsistence of the MoA dated 9 August 2001. In the said petition this
th
Court passed an interim order on 24 March 2011 by which subject to
deposit of 50% of minimum guarantee before the Registrar General of this
nd
Court till the next date of hearing, i.e., 22 July 2011, the Respondent was
restrained from appointing any third party for distribution, merchandising
and licensing the rights of FTV channel in the Territory covered by the
th
MOA dated 9 August 2001 in case not already appointed.
nd
17. The Respondent on 2 June 2011 filed an application for vacation of
rd
the said interim order. On 3 August 2011 after hearing the parties and
after noting that the parties had nominated their respective Arbitrators, this
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 9 of 21
Court disposed of O.M.P. No. 390 of 2011 and I.A. No. 9848 of 2011 in
the following terms:
“a.50% minimum guarantee amount deposited by the petitioner
with the Registrar General of this Court shall be kept in FDR by
the Registrar General of this Court for a period of six months.
b. It is agreed between the parties that they have no objection if
nominated arbitrators will appoint the Presiding Arbitrator within
one week from today.
c. The parties are agreeable that the petition under Section 9 of
the Act be treated as application under Section 17 of the Act
which could be decided by the arbitral tribunal within two weeks
from the date of commencement of the first meeting. The
petitioners agree to file pleadings of the petition under Section 9
of the Act within the period of seven days from the date of
passing of the order and the interim order dated 24.05.2011 shall
continue till the disposal of the interim application which would
be decided as per its own merit and without the influence of the
ex-parte order passed by the Court.
d. The parties will not take any unnecessary adjournments.
5. The parties shall appear before the Arbitral Tribunal as and
when the first of sitting is fixed by the Arbitral Tribunal.”
nd
18. Before the Arbitral Tribunal the Appellant filed an application on 2
September 2011 for directions to the Respondent to disclose and produce
the agreement entered into between it and Media Network Ltd. It is
submitted that pursuant thereto the Respondent submitted a incomplete
th
copy of the said agreement dated 19 April 2011. Arguments on the
application under Section 17 of the Act were heard by the Arbitral Tribunal
th
on 6 September 2011.
th
19. The Arbitral Tribunal passed the impugned order dated 20 October
2011 rejecting the Petitioner‟s application under Section 17 of the Act and
th
vacated the interim order passed by this Court on 24 May 2011 which had
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 10 of 21
remained in operation till then. The Arbitral Tribunal, however, directed
th
that the said interim order would continue to remain in operation up to 4
November 2011 since an abrupt vacating of the interim order might lead to
difficulty and the parties required some time to rearrange their business
th
affairs. In the impugned order dated 20 October 2011 the Arbitral
Tribunal held as under:
(a) There was prima facie substance in the submissions made by
both the sides. For the purpose of grant of ad interim relief the
Appellant had a prima facie case;
(b) The balance of convenience was not in favour of the Appellant.
The injury to the Appellant, if any, could well be compensated by
awarding damages if the dispute was ultimately resolved in favour
of the Appellant. The loss that the Respondent would suffer in the
event of being restrained from proceeding with its legal activity in
the competitive market by striking new bargains may not be
capable of being ascertained, at least in the proceedings under
Section 17 of the Act;
(c) Without making any final order on the Appellant‟s application
seeking a direction to the Respondent to produce the agreement
th
dated 19 April 2011, it would not be possible to restrain the
Respondent from entering into any business relationship with other
parties and just to keep its business activity idle;
(d) The negative covenant could be enforced only if the positive
covenant was found to be enforceable and where the positive and
negative covenants were inter related. If such circumstances existed
in which the performance of positive covenant in favour of the
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 11 of 21
Appellant would not be enforced by injunction, then the negative
covenant would also not be enforced by grant of injunction;
(e) A perusal of the MOA, the consent terms and the two
Addendums showed that the parties had entered into a somewhat
complex commercial relationship which would not be possible to
be supervised by the Court. Under Section 41 (e) of the Specific
Relief Act, 1963 („SRA‟) an injunction could not be granted to
prevent the breach of a contract the performance of which would
not be specifically enforced. It could not be said that the Appellant
would suffer irreparable injury if an ad interim injunction was not
granted.
20. On behalf of the Appellant it was submitted by Mr. Ramji Srinivasan,
learned Senior counsel and Ms. Shally Bhasin, learned counsel as under:
th
(i) Till date there was no formal termination of the MOA dated 9
August 2001. The consent terms and two Addendums did not alter
the essential features of the MOA, particularly the renewal of the
st
MOA for a further period of seven years after 31 March 2006.
(ii) Under Section 42 SRA, notwithstanding anything contained in
Section 41 (e), where a contract contained an affirmative
agreement to do a certain act, coupled with a negative agreement,
express or implied, not to do a certain act, the mere fact that that
the court was unable to compel specific performance of the
affirmative agreement shall not preclude it from granting an
injunction to perform the negative agreement. Consequently, in the
present case the Arbitral Tribunal erred in not granting ad interim
injunction requiring the Respondent to perform the negative
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 12 of 21
covenant and restrain it from entering into any fresh agreement
with third parties. Reliance is placed on the judgments in Gujarat
Bottling Co. Limited v. Coca Cola Co. (1995) 5 SCC 545, Dirk
India Private Limited v. Mahagenco 2007 (5) BomCR 207, Old
World Hospitality Private Limited v. India Habitat Centre 73
(1997) DLT 374, Goyal MG Gases Limited v. M/s. Griesheim
rd
Gmbh [decision dated 23 October 1998 in FAO (OS) No. 251 of
1998] , Modi Rubber Limited v. Guardian International
Corporation 141 (2007) DLT 822 and Lady Navigation Inc. v.
Lauritzencool AB (2005) EWCA Civ 579.
(iii) Till date the Appellant was receiving fTV signals and this
contradicted the plea of the Respondent that there was a termination
of the MOA and the addendum. In fact nothing prevented the
Respondent from blocking the signals received by the Appellant if
indeed there was a termination of the MOA as amended by the
st
Addendums, between 1 April 2011, i.e., after the term of the
th
Second Addendum expired, till 24 May 2011 when a stay was
granted by this Court against the Respondent at the instance of the
Appellant. Since the MOA was kept alive, this Court could,
consistent with the intention of the parties, enforce their respective
obligations and require the Respondent to abide by the negative
covenant.
th
(iv) The agreement dated 19 April 2011 entered into by the
Respondent with M/s. Media Network and Distribution (India)
Limited was a highly suspicious document and appeared to have
been introduced only to defeat the legitimate right of the Appellant
under the MOA and to overreach the Arbitral Tribunal. Even today
the Appellant was prepared to pay whatever is the money owing by
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 13 of 21
it to the Respondent. It had already demonstrated its bonafides by
depositing 50% of the amount in this Court. The Appellant was
prepared to deposit remain 50% without prejudice to its rights and
contentions.
(v) The Arbitral Tribunal had misread Clauses 6 and 7 of the MOA.
It failed to appreciate that Clause 6.3 was independent of Clauses
6.1 and 6.2, therefore, not subject to Clause 7. Even in the
correspondence with the Appellant, the Respondent referred to
Clause 17 (a) and 17 (b) of the MOA. Once the Arbitral Tribunal
found that the Appellant had a prima facie case, the balance of
convenience lay in favour of the Appellant to continue the status
quo as of that date. The business relationship between the parties
continued notwithstanding the First and Second Addendums.
21. On behalf of the Respondent Mr. N.K. Kaul and Ms. Indu Malhotra,
learned Senior counsel submitted as under:
(i) The contract was by very nature determinable and therefore
could not be specifically enforced in terms of Section 14 (1) (c) and
Section 41 (e) SRA.
(ii) The Appellant had misled this Court when the interim order
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dated 24 May 2011 was passed as was evident from the para 6 of
the said order. Even in para 10 of the memorandum of appeal the
Appellant had persisted with making an erroneous statement that
the Respondent had held out to the Appellant that the transmission
of the fTV channel would be encrypted. This was contrary to what
had been specifically agreed to between the parties at the time of
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 14 of 21
signing the First and Second Addendums, both of which made it
clear that the telecast of the fTV channel would be free to air.
(iii) Both the Addendums were by way of an amendment to the
term of the MOA. The contract between the parties had come to an
end by efflux of time. There was no question therefore of enforcing
the negative covenant once the contract itself had come to an end.
Even assuming, without admitting, that the contract subsisted and
the termination of the contract by the Respondent was in breach of
the terms thereof, the contract could not be specifically enforced.
Reference was made to the decision of the Supreme Court in
Indian Oil Corporation v. Amritsar Gas Service (1991) 1 SCC
533.
(iv) In terms of the law explained in Gujarat Bottling Co. Limited
v. Coca Cola Co. , the grant of an injunction under Sections 41 or
42 SRA was discretionary. Reference was made to the decision in
Rajasthan Breweries v. The Stroh Brewery Company AIR 2000
Delhi 450.
(v) The Appellant was in default and had failed to comply with its
obligations under the contract in the matter of making the payment
of the guaranteed sums within the stipulated time. The plea of the
Appellant to the contrary was not bonafide and the proviso to
Section 42 of SRA precluded the Appellant from seeking
enforcement of any negative covenant.
(vi) Being a foreign fashion television channel, it was not possible
for the Respondent to telecast its channel directly in India without
an agreement with an Indian counterpart holding a valid licence.
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 15 of 21
Therefore, if the Respondent were to be restrained from entering
into an agreement with a third party, then to avoid being rendered
idle, it would have no option but to continue its arrangement with
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the Appellant. It was only on account of the interim order dated 24
May 2011 passed by this Court that a situation was brought about
whereby the Respondent was compelled to continue transacting
with the Appellant and not otherwise.
(vii) The scope of the powers of this Court under Section 37 of the
Act to interfere with an order passed by the Arbitral Tribunal under
Section 17 of the Act was limited. There was nothing or perverse in
the impugned order which called for interference.
22. Having considered the above submissions, this Court does not find
any valid ground having been made out by the Appellant for interference
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with the impugned order dated 20 October 2011 passed by the Arbitral
Tribunal rejecting the Appellant‟s application under Section 17 of the Act.
The reasons for this conclusion follow.
23. At the outset, it requires to be stated that the reasoning that follows is
only a prima facie view of the court on the basis of the existing pleadings
and the submissions of the counsel for the parties in regard to the grant of
interim relief in an application under Section 17 of the Act. In other words
it is not to be construed as a final view on merits.
24. The term of the MOA was essentially for a period of five years
st
beginning 1 August 2001. The MOA envisaged that there would be a
joint venture company („JVCO‟) incorporated by the two parties in India
with equal equity participation. Clause 6 of the MOA made the formation
of the JVCO, during the subsistence of the MOA, contingent upon MEN
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 16 of 21
achieving the gross revenue projections stated in Clause 7. When the fTV
channel became free to air, it was plain that the revenue earnings
projected under Clause 7 would be unable to be achieved. The changed
market conditions meant that revenues would have to be generated mainly
from advertisement and not from subscription. Consequently, the
conditionalities under Clause 6 for the formation of the JVCO could not
be met. Under Clause 6 (3) it was agreed that if no agreement was reached
between the parties for the formation of JVCO then the MOA would stand
automatically extended for a period of seven years from “the date of such
disagreement”. The narration of events indicates that there was no
„disagreement‟ as such on the formation of the JVCO. The parties
accepted that the conditions for the formation of the JVCO, as set out in
Clause 7, could not be met. Consequently, the conditionality envisaged
under Clause 6.3 of the MOA, viz., a „disagreement‟ between the parties
as to the formation of the JVCO, was not fulfilled and therefore the
question of an automatic extension of the MOA by a further seven years
did not arise.
25. The First and Second Addendums were by way of an amendment to
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the MOA. The First Addendum dated 9 August 2005 was to be valid for
st
12 months from the Start Date, i.e., 1 August 2005. It clearly stated that
the fTV channel would be free to air in India and a minimum guarantee
would be payable to the Respondent. This was also stated in the Second
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Addendum dated 30 March 2006, which was for a period of 60 months
st
from the Start Date i.e., 1 April 2006. The term of the Second Addendum
st
came to an end on 31 April 2006. There is nothing in either of the
Addendums which indicates that on completion of the term of the
Addendums, the MOA would stand revived. Prima facie it does appear
that the MOA as amended by the Consent Terms, and the First and
st
Second Addendums came to an end by efflux of time on 31 March 2011.
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 17 of 21
Thereafter while the Respondent proposed a month to month contract, the
Appellant did not agree to the conditions imposed by the Respondent and
maintained that the MOA stood revived. The stand of the Respondent on
the other hand was that the MOA as well as the Addendums had come to
an end by efflux of time. There was no implied continuation of the
contract on the terms specified in the MOA. There was thus no agreement
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as such between the parties after 31 March 2011. There is merit in the
contention of the learned Senior counsel for the Respondent that the mere
fact that the Respondent did not withdraw the signals to the Appellant
immediately did not mean that the Respondent had consented to the
extension of the MOA. The Respondent would have otherwise had to
remain idle till it found another Indian party holding a broadcast licence to
enter into an agreement with. It is not possible to accept the contention of
st
learned Senior counsel for the Appellant that after 31 March 2011, the
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automatic extension clause of the MOA dated 9 August 2001 stood
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revived and the MOA was meant to expire only on 8 August 2013.
Consequently, the question of a negative covenant in the MOA, i.e.,
Clause 21 thereof, being enforceable thereafter.
26. The relief of an injunction to enforce a negative covenant under
Section 42 SRA is a discretionary one. It is contingent upon the injunction
seeker performing its obligations. Section 42 SRA reads as under:
“42. Injunction to perform negative agreement: -
Notwithstanding anything contained in clause (e) of Section 41,
where a contract comprises an affirmative agreement to do a
certain act, coupled with a negative, express or implied, not to do
a certain act, the circumstances that the Court is unable to compel
specific performance of the affirmative agreement shall not
preclude it from granting an injunction to perform the negative
agreement:
Provided that the plaintiff has not failed to perform the contract
so far as it is binding on him.”
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 18 of 21
27. It is therefore not as if the mere existence of a negative covenant is
enough to persuade a court to grant an interim injunction to enforce it.
Under Section 14 (1) (c) SRA a contract which is in its nature
determinable cannot be specifically enforced. Further under Section 41 (e)
SRA an injunction cannot be granted to prevent the breach of a contract
the performance of which would not be specifically enforced. Although
Section 42 is an exception to this rule, and a court can grant an injunction
to perform the negative agreement in a contract which is coupled with an
affirmative agreement, it is conditional upon the contract subsisting at the
time such injunction is sought and further the injunction seeker complying
with the contractual obligations placed on him in terms of the proviso to
Section 42 SRA. As discussed hereinbefore, the Court is prima facie of
st
the view that the contract came to an end by efflux of time on 31 March
2011. Further, on its own admission the Appellant did not pay the
Respondent any amount from October 2010 onwards. The deposit of 50%
of the minimum guaranteed amount in this Court was only to meet the
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condition imposed by this Court while passing the interim order dated 24
May 2011. Consequently the conditions envisaged under Section 42 SRA
for enforcement of a negative covenant of the MOA do not appear prima
facie to be met.
28. In Gujarat Bottling Co. Limited v. Coca Cola Co. the Supreme Court
explained in para 42 that “the Court is, however, not bound to grant an
injunction in every case and an injunction to enforce a negative covenant
would be refused if it would indirectly compel the employee either to
idleness or to serve the employer.” The Supreme Court referred to the
earlier decision in Niranjan Shankar Golikari v. Century Spinning &
Manufacturing Co. Limited AIR 1967 SC 1098. In the present case, the
Respondent cannot possibly telecast its channel in India without being an
associated with an Indian broadcaster holding a valid licence. A restraint
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 19 of 21
on the respondent from entering into an agreement with third parties
would certainly render it idle if it were not to permit the Appellant to
downlink the signal. Therefore, by continuing the ad interim injunction
restraining the Respondent from contracting with third parties the Court
would be doing indirectly what it cannot directly under Sections 14 (1) (c)
read with Section 41 (e) SRA. In other words the Court would in effect be
requiring the Respondent to perform a positive obligation to keep alive a
contract which is not only by its very nature determinable but has in fact
come to an end by efflux of time and is therefore not specifically
enforceable. The decisions cited by learned Counsel for the Appellant are
distinguishable on facts.
29. This Court does not find any error committed by the Arbitral Tribunal
in its conclusion that the balance of convenience does not lie with the
Appellant and that it is not likely to suffer any irreparable injury if an ad
interim injunction is not granted in its favour. This Court also concurs
with the prima facie opinion expressed by the Arbitral Tribunal that the
injury likely to be suffered by the Respondent by grant of an ad interim
injunction in favour of the Appellant outweighs the injury which could be
suffered by the Appellant if such injunction were not granted.
30. This Court does not find any ground having been made out by the
Appellant for interference with the impugned order of the Arbitral
Tribunal. The relief prayed for in OMP No.809 of 2011 under Section 9
of the Act also cannot be granted. This Court however reiterates that this
order represents the prima facie view of this Court at this stage. The
Arbitral Tribunal will, in passing the final Award form an independent
view uninfluenced by what has been stated in this order or the impugned
order of the Arbitral Tribunal on merits.
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 20 of 21
31. A prayer was made by Mr. Ramji Srinivasan, learned Senior counsel
for the Appellant that in the event of this Court not holding in favour of
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the Appellant, the interim injunction which remained in force till 4
November 2011 should be continued for a further period to give time to
the Appellant to challenge the order. However, for the reasons set out
hereinbefore, this Court is not inclined to grant any such further relief.
32. Arbitration Appeal No. 14 of 2011 and OMP No. 809 of 2011 are
dismissed with costs of Rs. 20,000/- which will be paid by the Appellant
to the Respondent within a period of two weeks.
S. MURALIDHAR, J
NOVEMBER 8, 2011
ak/rk
ARB. A. No. 14/2011 & O.M.P. No. 809/2011 Page 21 of 21