Bombay High Court
Ufo Moviez India Ltd vs Vanitha-Vineetha Cineplex on 7 April, 2021
Author: G.S. Patel
Bench: G.S. Patel
19-CARBPL7561-2021 WITH CARAPL9575-2021(1).DOC
Shephali
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMM ARBITRATION PETITION (L) NO. 7561 OF 2021
WITH
COMM ARBITRATION APPLICATION (L) NO. 9575 OF 2021
UFO Moviez India Ltd ...Petitioner/
Applicant
Versus
Vanitha Vineetha Cineplex & Anr ...Respondents
Dr Birendra Saraf, Senior Advocate, with Krushi N Barfwala, i/b Parinam Law Associates, for the Petitioner/Applicant. Mr Abhineet Pange, i/b Ashish Agarkar, for the Respondents.
CORAM: G.S. PATEL, J (Through Video Conferencing) DATED: 7th April 2021 PC:-
1. Heard through video conferencing.
2. The Petition is under Section 9 of the Arbitration and Conciliation Act 1996. Between the parties, there was a Equipment Lease Agreement dated 4th June 2018, an Advertising Agreement of the same date, and Letter for Virtual Print Fee dated 31st August 2018. These pertained to the lease by the Petitioner of digital Page 1 of 16 7th April 2021 ::: Uploaded on - 09/04/2021 ::: Downloaded on - 05/09/2021 17:02:39 ::: 19-CARBPL7561-2021 WITH CARAPL9575-2021(1).DOC cinema equipment in the 1st Respondent's screen, for sharing of advertising revenue and a virtual print fee arrangement between the parties. The 1st Respondent is a Theatre Complex in Kerala, operated by its proprietor. The 2nd Respondent is a company that, like the Petitioner, provides flm projection and sound services through digital projection systems.
3. The Petitioner is a provider of digital content. It provides, amongst other things digital projectors, digital servers, computer equipment and other necessary gear for digital cinema projections.
4. In 2007, the 1st Respondent approached the Petitioner for installation of what is called non-DCI digital cinema equipment 1 for screens in the premises of the 1st Respondent. The 1st Respondent did not wish to buy this equipment for its screens. The parties reached an lease agreement. The essence of the agreement was that the Respondent could take on lease and install on its screens the Petitioner's high-end digital cinema equipment. The lease rental was very low. The real consideration came through composite agreements for the sale of in-cinema advertising and virtual print fees. This arrangement was designed to enable the Petitioner to recoup its investment.
5. 1 Digital Cinema Initiatives, LLC ("DCI") is a consortium of leading motion picture studios: Metro-Goldwyn Mayer, Paramount Pictures, Sony Pictures Entertainment, 20th Century Fox, Universal Studios, The Walt Disney Company and Warner Bros. It was formed to establish specifcations for a common systems architecture for digital cinema systems.Page 2 of 16
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6. Since 2007 the 1st Respondent entered into several lease agreements, ad agreements and VPF arrangements. These are set out in a table below paragraph 9.
7. Over time, the 1st Respondent made several structural changes to its premises as it increased the number of screens. The Petitioner kept providing additional leased equipment. In 2016, the 1st Respondent's theatre was renovated to modify it into a twin- screen theatre complex. At the 1st Respondent's request, the Petitioner installed and upgraded the digital cinema equipment. From February 2016 until May 2017, the lease rental was merely Rs. 5,000/-. In 2017, when, at the request of the 1st Respondent, the digital cinema equipment was upgraded to DCI servers in the two screens, revised commercial terms were agreed upon.
8. In 2018, the digital cinema equipment in screen-2 was swapped out and installed in screen-4 that the 1st Respondent had newly constructed. A DCI server was installed in screen-2. There were revised commercial terms.
9. In 2018, given the revised demands for upgrades in the existing digital cinema equipment, the Petitioner entered into a Lease Agreement and an Ad Agreement with the 1st Respondent for all four screens. The VPF arrangement for screen-1 is in schedule to the Lease Agreement. The VPF arrangement for screen-2 is in a separate letter of 31st August 2018. Copies of the Lease Agreements dated 4th June 2018, the Ad Agreement of that date and a VPF letter of 31st August 2018 are annexed to the Petition. The Lease Page 3 of 16 7th April 2021 ::: Uploaded on - 09/04/2021 ::: Downloaded on - 05/09/2021 17:02:39 ::: 19-CARBPL7561-2021 WITH CARAPL9575-2021(1).DOC Agreement under clause 3.1 was to remain in force for an initial period of ten years. Clause 3.2 said that the 1st Respondent could not terminate it for a lock-in period of six years from the date of execution. There is no dispute about the provision or installation of the equipment.
10. Clause 4.1 of the Lease Agreement required the 1st Respondent to pay the Petitioner a sum of Rs. 2.5 lakhs for the digital cinema equipment in screen-1 and Rs. 2.5 lakhs each for screens-2 and 4 as an interest-free refundable security deposit. There was also one-time non-refundable registration fee of Rs. 25,000/- collected for screen-1 paid in 2016. In 2018, a registration fee of Rs. 15,000/- was paid for screen-2. A cumulative sum of Rs. 35,000/- was payable for screens-1 and 4 and Rs. 25,000/- for screen-2 as the monthly lease rental.
11. Clause 7.1 (e) of the Lease Agreement prohibited the 1st Respondent from making any addition or alteration to the Petitioner's leased digital cinema equipment without its prior written consent and did not permit the 1st Respondent to remove or unplug any component.
12. The most important clause of the agreement is 7.1(d) which said that during the term of the Lease Agreement, the 1st Respondent was not to procure any digital cinema equipment in any manner from any other supplier other than the Petitioner. This is, therefore, in the form of a negative covenant. For any upgrades or new theatres the Petitioner had a right of frst refusal. In clause Page 4 of 16 7th April 2021 ::: Uploaded on - 09/04/2021 ::: Downloaded on - 05/09/2021 17:02:39 ::: 19-CARBPL7561-2021 WITH CARAPL9575-2021(1).DOC 7.1(u), the 1st Respondent agreed that the Petitioner and its afliates had the exclusive right to collect and retain any income or revenue earned in respect of providing and delivery of the content.
13. The Ad Agreement between the parties was for ten years from 4th June 2018 to 3rd June 2028. Clause 4.1 of the Ad Agreement resulted in the Petitioner being the sole advertising concessionaire of the 1st Respondent for the sale of in-cinema advertising in the theatres. This was accompanied by an Ad Minimum Guarantee of Rs. 15,000/- per screen per theatre per month to be paid by the 1st Respondent. The Ad Agreement in clauses 6.1 and 6.1(a) acknowledges that the digital cinema equipment was essential to the exhibition of advertisements to be sourced and provided by the Petitioner. Again, the Ad Agreement had a lock-in period of six years from 4th June 2018.
14. The VPF arrangement vide letter dated 31st August 2018 expressly acknowledged that the Petitioner was solely entitled to collect and retain the entire VPF for screen-2. The diferential amount between the minimum guarantee and the actual VPF was to be paid within 15 days.
15. Dr Saraf for the Petitioner submits that all three agreements were part of a composite transaction. The Petitioner installed equipment worth Rs. 60 lakhs in screen-1 and new equipment of Rs. 60 lakhs in screen-2 apart from other attendant costs. The 1st Respondent availed of these services.
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16. In November 2019, the 1st Respondent approached the Petitioner with a proposal to buy digital cinema equipment outright. The request was to quote for a higher end model of the projector. The Petitioner provided a quote on 19th November 2019, with a discount. The 1st Respondent never accepted this proposal.
17. On 28th November 2019, the 1st Respondent wrote to the Petitioner seeking its consent to uninstall or deactivate the Petitioner's equipment in the 1st Respondent screens, although this was clearly within the lock-in period under the Lease Agreement and the initial or lock-in period under the Ad Agreement. There was no complaint about quality at all. The Petitioner replied on 4th December 2019 demanding that the 1st Respondent comply with its contractual obligations.
18. Interestingly, while this was going on to one side, the parties arrived at separately Lease Agreements and Advertising Agreements in respect of screen-3 although that is not a subject matter of this Petition.
19. On 11th January 2021, the 1st Respondent wrote to the Petitioner again saying that it had in fact proceeded to uninstall and deactivate the Petitioner's digital cinema equipment in the screens and was no longer going to be using them from 11th January 2021. The Petitioner protested by its letter dated 21st January 2021. There is no reply to that notice. The Petitioners issued a legal notice on 16th February 2021.
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20. The Afdavit in Reply makes for interesting reading. In paragraph 6 and its sub-paragraphs it seeks to put forth a justifcation for the 1st Respondent uninstalling and deactivating the Petitioner's lease equipment during the lock-in period. There are complaints or submissions in regard to quality but these do not seem to be refected in any prior correspondence. They come for the frst time in the Afdavit in Reply. Then there is a submission that the equipment needed to be upgraded and it was the desire to upgrade and to own its own projectors that led the 1st Respondent to take equipment from the 2nd Respondent. This is untenable in view of the contractual provisions to which the 1st Respondent agreed. The claim is that the 2nd Respondent's equipment is more technologically advanced; that is surely irrelevant. Finally, in sub- paragraph (c), there is a submission that the terms of the agreements between the Petitioner and the 1st Respondent are unfair. There are complaints about the Petitioner not sharing information about revenue, adjustments and settlement.
21. The previous correspondence does not establish any of this. More importantly, the provisions for the lock-in period in the Lease Agreement and the initial period in the Ad Agreement do not permit the 1st Respondent to unilaterally make these changes. The 1st Respondent now claims that it has altered its theatres but there are no details of any such structural alterations.
22. In regard to the lock-in provision, in paragraph 7 the 1st Respondent says the clause is not enforceable being in violation and contravention of Sections 23 and 27 of the Contract Act. Ex facie this submission does not commend itself. A lock-in period is not Page 7 of 16 7th April 2021 ::: Uploaded on - 09/04/2021 ::: Downloaded on - 05/09/2021 17:02:39 ::: 19-CARBPL7561-2021 WITH CARAPL9575-2021(1).DOC illegal and certainly does not violate any provision of the Contract Act. It is not a contract in restraint of trade at all within the meaning of Section 27. The consideration cannot be said to be unlawful to fall within the frame of Section 23. It is not forbidden law. It is not of such a nature as would defeat the provision of any law, nor is it fraudulent. It does not involve or imply injury to any person or property. It is most emphatically not immoral, nor opposed to public policy. Merely chanting these sections will not assist the Respondent.
23. In paragraph 8, the 1st Respondent now says for the frst time that the Petitioner's equipment is not tailor-made for the 1st Respondent's premises. This is supposed to mean that Petitioner can take away its equipment and deployed elsewhere. Again, that is immaterial.
24. The next submission in law is that once the contract has been terminated, a Section 9 order cannot restore the contract. The reference to Aurangabad City Water Utility Co v Aurangabad Municipal Corporation2 is entirely misplaced: that was a case seeking an injunction against invocation of a bank guarantee; and, in any case, the public interest weighed against the Section 9 petitioner. But this argument assumes that there is a right of termination in the frst place. A termination that is prima facie wrongful and in breach of an explicit lock-in period cannot be invoked to oppose an injunction application.
2 2016 SCC OnLine Bom 12675 : (2017) 5 Bom CR 824.
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25. The next submission is that the injunction sought is in the nature of a fnal decree in specifc performance. That submission is entirely misconceived. There is no such decree being granted. What is being sought is the enforcement of a negative covenant, something the 1st Respondent does not address at all.
26. Then it is submitted that this is a contract that is determinable in nature and cannot be specifcally enforced. Here again, the submission on law is misconceived. In Narendra Hirawat & Co v Sholay Media Entertainment (P) Ltd,3 SC Gupte J considered precisely this question. He held the expression "a contract which is in its nature determinable" to mean that a contract is determinable at the sweet will of a party to it, that is to say, without reference to the other party or without reference to any breach committed by the other party or without reference to any eventuality or circumstance.
27. The Lease Agreement is emphatically not in its nature determinable to ft within the meaning Gupte J gave that phrase. Clause 9 of the Agreement is a detailed provision for termination. On its own, this puts paid to the argument that the agreement is by its nature determinable. But there is a further reason. Clause 9.2(a) says:
9.2 a) This Agreement cannot be terminated by the Renting Party during the Lock-in Period. If the Renting Party terminates this Agreement during the Lock-in Period, the Security Deposit shall stand forfeited and the Renting 3 2020 SCC OnLine Bom 391 : (2020) 4 Bom CR 365 : (2020) 82 PTC 417 (Bom).Page 9 of 16
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(Emphasis added)
28. Therefore, clearly, this is not an agreement that is by its nature determinable. If the submission of the 1st Respondent is accepted, every single agreement would, by its nature, be determinable, thus defeating even the provisions of the Specifc Relief Act. The lock-in period prevents the 1st Respondent from terminating the agreement and there is no question of the 1st Respondent, therefore, saying that the agreement has been validly terminated within that lock-in period.
29. Parties in commercial contracts cannot be permitted to resile from their solemn obligations. They must be held to the bargain that they struck. Notably, none of these defences taken in the Afdavit in Reply were even hinted at -- especially in regard to any quality defect or defciency -- in the correspondence that preceded this petition. On the contrary, the factual narrative indicates that the 1st Respondent had no issues about quality. Nothing else explains why it was seeking to purchase the equipment from the Petitioner and sought a quotation for their beneft. It also does not explain why, while there is correspondence going on in relation to screens-1 and 2 on one hand, there were other agreements being executed by the 1st Respondent with the Petitioner in respect of screen-3. This puts an end to any argument in regard to quality being defective or Page 10 of 16 7th April 2021 ::: Uploaded on - 09/04/2021 ::: Downloaded on - 05/09/2021 17:02:39 ::: 19-CARBPL7561-2021 WITH CARAPL9575-2021(1).DOC unacceptable, the lack of upgrades and the inability to convert this arrangement to one of ownership.
30. I am not inclined to make an order in terms of prayer clause
(c) which is for a cash deposit. Dr Saraf's frst prayer (a) is that the 1st Respondent be directed to reinstall and reactivate the Petitioner's digital cinema equipment. That is not the kind of mandatory interim injunction I am inclined to make. But Dr Saraf is correct in saying that the Lease Agreement contains a negative covenant restraining the 1st Respondent from using anyone else's equipment during the term of the agreement, and certainly during the lock-in period.
31. I do not think I can compel the 1st Respondent to re-install or reactivate the Petitioner's digital cinema equipment but the 1st Respondent must be held to the terms of its contract and cannot use the digital cinema equipment of any third party. Indeed, the 1st Respondent's opposition defeats its own case here. For, if the Petitioner's equipment is not bespoke and customized for the 1st Respondent, and can be used anywhere, as the 1st Respondent says, then the 1st Respondent too can use it. This will end any argument that such an order will result in a shut down of the 1st Respondent's operation (even assuming that theatres are allowed to run during the pandemic). There will, therefore, be an order of restraint against the 1st Respondent restraining itself, its proprietor and other agents from using any third party digital cinema equipment and exhibiting any digital content using any third party digital equipment including its own.
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32. This order will operate until disposal of a Section 17 Application by the Petitioner's for a fuller relief including the remaining prayers in this Section 9 Petition.
33. The arbitration provision under the Lease Agreement is in paragraph 16 at page 47. There are identical clauses in the other two Agreements but all three will be treated as a composite agreement. The provision says that the appointment of an Arbitrator is to be made by a Senior Executive of the Petitioner and is to be a lawyer of at least 15 years experience. The arbitration is to be in Mumbai. Obviously, the provision for unilateral appointment cannot be accepted.
34. Both sides leave the choice of Arbitrator to the court. The Section 11 Application is, by consent, called out and taken on board.
35. The disputes and diferences between the parties under all these Agreements are referred to the sole arbitration of Mr Gauraj Shah, learned Advocate of this Court. He is requested to dispose of the Section 17 Application at his earliest convenience and, preferably, by 11th June 2021.
TERMS OF APPOINTMENT
(a) Appointment of Arbitrator: Mr Gauraj Shah, learned Advocate of this Court, is hereby nominated to act as a Sole Arbitrator to decide the disputes and diferences between the parties under the Equipment Lease Agreement dated 4th June 2018, and Advertising Page 12 of 16 7th April 2021 ::: Uploaded on - 09/04/2021 ::: Downloaded on - 05/09/2021 17:02:39 ::: 19-CARBPL7561-2021 WITH CARAPL9575-2021(1).DOC Agreement of the same date, a Letter for Virtual Print Fee dated 31st August 2018.
(b) Communication to Arbitrator of this order:
(i) A copy of this order will be communicated to the learned Sole Arbitrator by the Advocates for the Applicant within one week from the date this order is uploaded.
(ii) The Advocates for the Applicant will forward an ordinary copy of this order to the learned Sole Arbitrator at the following postal and email addresses:
Arbitrator Mr Gauraj Shah, Advocate.
Address 410, Gundecha Chambers,
Nagindas Master Road, Fort,
Mumbai 400 001
Mobile 90209 20330
Email [email protected]
(c) Disclosure: The learned Sole Arbitrator is requested to
forward, in hard copy or soft copy (or both), the necessary statement of disclosure under Section 11(8) read with Section 12(1) of the Arbitration Act to Advocates for the parties as soon as possible. The Advocates for the Petitioners will arrange to fle the original statement in the Registry. If the statement is forwarded in soft copy, a print out of the covering email is also to be fled in the registry.Page 13 of 16
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(d) Appearance before the Arbitrator: Parties will appear before the learned Sole Arbitrator on such date and at such place as the learned Sole Arbitrator nominates to obtain appropriate directions in regard to fxing a schedule for completing pleadings, etc.
(e) Contact/communication information of the parties:
Contact and communication particulars are to be provided by both sides to the learned Sole Arbitrator. The information is to include functional email addresses and mobile numbers.
(f ) Section 16 application: The respondent is at liberty to raise all questions of jurisdiction within the meaning of section 16 of the Arbitration Act. All contentions are left open.
(g) Interim Application/s:
(i) Liberty to the parties to make an interim
application or interim applications including (but not limited to) interim applications under Section 17 of the Arbitration & Conciliation Act, 1996 before the learned Sole Arbitrator. Any such application will be decided in such manner and within such time as the learned Sole Arbitrator deems ft.
(ii) The present Petition under Section 9 of the Arbitration Act will be treated, heard, and disposed of as an application under Section 17 of the Act. All afdavits fled in the Page 14 of 16 7th April 2021 ::: Uploaded on - 09/04/2021 ::: Downloaded on - 05/09/2021 17:02:39 ::: 19-CARBPL7561-2021 WITH CARAPL9575-2021(1).DOC Section 9 petition will be treated as afdavits fled in the Section 17 application. Liberty to apply to the learned Sole Arbitrator for leave to fle further afdavits.
(iii) The learned Sole Arbitrator is requested to dispose of all interim applications at the earliest.
(h) Fees: The arbitral tribunal's fees shall be governed by the Bombay High Court (Fee Payable to Arbitrators) Rules, 2018.
(i) Sharing of costs and fees: Parties agree that all arbitral costs and the fees of the arbitrator will be borne by the two sides in equal shares in the frst instance.
(j) Consent to an extension if thought necessary. Parties immediately consent to a further extension of up to six months to complete the arbitration should the learned Sole Arbitrator fnd it necessary.
(k) Venue and seat of arbitration: Parties agree that the venue and seat of the arbitration will be in Mumbai.
(l) Procedure: These directions are not in derogation of the powers of the learned Sole Arbitrator to decide and frame all matters of procedure in arbitration.
36. The Petition and the Application are both disposed of in these terms. No costs.
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37. Liberty to the Petitioner to seek the costs of this Petition and Application in arbitration.
38. All concerned will act on production of an ordinary copy of this order.
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