Bombay High Court
Wavelength Entertainment Limited And ... vs Next Radio Limited And Anr on 5 April, 2019
Author: G.S.Kulkarni
Bench: G.S.Kulkarni
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
Commercial Arbitration Petition (lodg) NO. 362 OF 2019
1.Wavelength Entertainment Limited.
2.Reliance Boradcast Network Limited. ...Petitioners
Versus
1.Next Radio Limited
2.Syngience Broadcast Ahmedabad Limited ...Respondents
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Mr.Darius Khambatta, Senior Advocate with Mr.Rohan Cama and
Ms.Neha Naik I/b. Phonenix Legal, for the Petitioners.
Mr.Virag Tulzapurkar, Senior Advocate with Mr.Raghav Gupta, Ms.Ankita
Sangwan I/b. Wadia Ghandy & Co., for Respondent No.1.
Ms.Bindi Dave I/b. Wadia Ghandy & Co, for Respondent No.2.
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CORAM: G.S.KULKARNI, J.
DATED: 5 April 2019
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P.C.:
This is a petition under Section 9 of the Arbitration and Conciliation Act,1996 (for short 'the Act') whereby the petitioner no.1-Wavelength Entertainment Limited and petitioner no.2-Reliance Broadcast Network Limited pray for the following interim reliefs pending the arbitral proceedings:-
"(a) Pending the commencement, continuation and completion of the Arbitral Proceedings and for a period of 90 days thereafter, this Hon'ble Court be pleased to pass a temporary order and injunction ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 2 carbpl362-19.doc restraining the Respondents, their servants, agents, assigns or any other persons claiming by, through or under them from acting upon or taking any steps in furtherance of the purported termination letters dated March 5, 2019 and March 9, 2019 (being Exhibits O and P hereto) and correspondence addressed by Respondent No.1 further to the same (being Exhibit T hereto) and/or taking any steps contrary to the binding term Sheet dated October 29, 2019 (Exhibit D hereto);
(b) Pending the commencement, continuation and completion of the Arbitral Proceedings and for a period of 90 days thereafter, this Hon'ble Court be pleased to pass a temporary order and injunction restraining Respondents, their servants, agents, assigns or any other persons claiming by, through or under them from selling, transferring, alienating and/or in any other manner creating third party rights in respect of the shareholding of Respondents and licnese for the Ahmedabad Station.
(c) Pending the commencement, continuation and completion of the Arbitral Proceedings and for a period of 90 days thereafter, this Hon'ble Court be pleased to pass a temporary order and injunction restrianing Respondents, their servatns, agents, assigns or any other perosns claiming by, through or under them from selling, alienating, transferring, disposing of, creating any third-party rights, or parting with the assets and licenses held by the Respondents in relation to Ahmedabad Station in contravention of the Term Sheet dated October 20,2015 being Exhibit D hereto.
(d) Pending the commencement, continuation and completion of the Arbitral proceedings and for a period of 90 days thereafter this Hon'ble Court be pleased pass an appropriate order for direction to the Respondent No.1 to procure the final approval from the MIB to transfer the license of the Ahmedabad Station to the Respondent no.2 and for acquisition of the shares of the Respondent no.2 by the Petitioner no.1 as contemplated under the binding Term Sheet."
2. The case of the petitioners is that petitioner no.1 is a wholly owned subsidiary of petitioner no.2 who is one of the India's leading private FM broadcasters owning 58 radio stations across India. Petitioner no.2 is therefore a co-petitioner in its capacity, as a parent company of petitioner no.1.
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3. Respondent no.1-Next Radio Limited is the owner of "94.3 Radio One", and is stated to be a popular radio network in India with radio stations in seven cities namely Mumbai, Delhi, Bangalore, Chennai, Kolkata, Pune and Ahmedabad. The subject matter of the petition concerns the radio station of respondent no.1 at Ahmedabad operating at a frequency of 95 MHz. Respondent no.1 is a party to one Ad Sales Agreement dated 21 October 2015 and a Term Sheet dated 29 October 2015 entered between petitioner no.1 and respondent no.1. Respondent no.2-Syngience Broadcast Ahmedabad Limited is the Special Purpose Vehicle (for short 'SPV') formed by respondent no.1.
4. It is the petitioners' case case that in the year 2015, respondent no.1 had approached petitioner no.1, expressing that it required funds for its operations, as it was facing a liquidity crunch, for renewing the licenses for its radio stations. The parties had accordingly agreed that an arrangement be arrived at, under which the petitioners would pay an agreed sum of money to respondent no.1 with a view to take over the Ahmedabad Radio station of respondent no.1. An agreement titled as "Ad Sales And Ad Inventory Outsourcing Services Agreement" (for short "Ad ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 4 carbpl362-19.doc Sales Agreement") dated 21 October 2015 came to be entered between respondent no.1 and petitioner no.1 (earlier known as 'BIG Magic Limited') whereunder respondent no.1 interalia agreed to provide services for the purpose of such channels as may be indicated by respondent no.1 to the petitioner no.1. One of the conditions of the agreement was that petitioner no.1 shall endeavour to generate annual net revenue in excess of Rs.4 crores for channels in the territories through the performance of the services, and as security towards the performance of its services under the said agreement for the entire term of the agreement. Petitioner no.1 agreed to secure its obligations as more specifically set out in clause 3.4 and to provide an interest free refundable amount of Rs.19 crores (termed as "Business Performance Security Deposit") to respondent no.1 which sums were to be refunded only on the terms as contained in the said agreement. The case of the petitioner is that the payment as received by respondent no.1 of Rs.19 crores under Ad Sales agreement was to be utilized by respondent no.1 to incorporate a Special Purpose Vehicle (SPV) namely respondent no.2 to whom the licence for Ahmedabad Radio Station would be transferred by respondent no.1 through a process of corporate restructuring by way of demerger/disinvestment,although not ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 5 carbpl362-19.doc expressly borne out by the said agreement. It is stated that respondent no.1 was to obtain requisite approvals from the Ministry of Information and Broadcasting of the Government of India (for short 'MIB') initially for restructuring and thereafter for transfer of the license to the proposed Special Purpose Vehicle.
5. The case of the petitioners is that accordingly a "Term Sheet" dated 29 October 2015 (for short, "the term sheet") came to be entered between respondent no.1 and the petitioner no.1 which incorporates terms and conditions by which the petitioners would interalia receive transfer of rights, for acquisition of the shareholding of respondent no.2 which was to hold licence for Ahmedabad Radio Station in a phased manner. The petitioner contends that the term sheet is a binding contract in every respect and contemplated execution of a formal definitive agreement after certain conditions set out in the term sheet were complied.
6. The petitioners contend that the term sheet was clearly acted upon between the parties which according to the petitioners is clear from the letter dated 10 March 2016 issued by the Deputy Secretary, MIB to respondent no.1 whereby the MIB informed respondent no.1 in regard to the permission sought by respondent no.1 for corporate restructuring ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 6 carbpl362-19.doc under which respondent no.1 proposed to create four wholly owned subsidiaries (WOS) for transfer of all assets and liabilities of its Kolkata, Pune, Ahmedabad and Chennai Licenses. The MIB had taken up the matter with the Ministry of Corporate Affairs and it was informed to the MIB that there is no prohibition in the Companies Act,1956/2013 from incorporating as many subsidiaries as may be required by a company and also demerge identified assets and liabilities as per its Corporate Restructuring Plan to those subsidiaries, however, provided the orders/approvals of the High Courts of the State in whose jurisdiction the transferor (holding company and the transferees (subsidiaries) are situated. The MIB accordingly advised respondent no.1 to obtain approval from the respective High Courts in the matter and then approach the Ministry for permission. The case of the petitioner is that this letter dated 10 March 2016 of the MIB is required to be considered as an approval in terms of Clauses 3 and 4 of the term sheet and thus, the contract as entered between the parties under the term sheet had become a binding contract.
7. It is contended by the petitioners that the term sheet was acted upon is also clear from the fact that on 10 April 2017 respondent no.1 ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 7 carbpl362-19.doc caused respondent no.2-Syngience Broadcast Ahmedabad Ltd. to be incorporated which was a special purpose vehicle (SPV) contemplated under Clauses 3 and 4 of the term sheet.
8. Petitioners contend that after incorporation of respondent no.2, respondent no.1 took further steps towards restructuring as provided in the term sheet by filing company scheme petition no.702 of 2017 before the National Company Law Tribunal (for short 'NCLT') for approval of the proposed scheme for arrangement (demerger Scheme) for arrangement between respondent nos.1 and 2 under the provisions of Section 230 to 232 of the Companies Act,2013. The petitioner contends that thereafter a notice dated 29 June 2017 was also issued by respondent no.1 to petitioner no.1 intimating petitioner no.1 about the scheme and that at item no.9.8(x) under the Explanatory Statement to the notice of meeting and the clause 19.1.13 of the Scheme annexed to the petition filed by respondent no.1, it was clearly mentioned that respondent no.1 had obtained the MIB approval issued under the MIB's letter dated 10 March 2016.
9. Petitioners contend that by an order dated 5 October 2017 the NCLT allowed the petition and approved Respondent no.1's Scheme in its ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 8 carbpl362-19.doc entirety and thus the formation of Respondent no.2 SPV and restructuring contemplated under the term sheet, according to the petitioners, stood completed, and the term sheet became binding on the parties. Petitioners contend that in pursuance of NCLT approving the scheme of respondent no.1 and referring MIB's letter dated 10 March 2016, respondent no.1 addressed a letter dated 8 December 2017 to MIB seeking formal permission to transfer the licence of the Ahmedabad Station to respondent no.2 (SPV) and the petitioners were informed that MIB was processing the said application.
10. The petitioners contend that while petitioners were awaiting final approval of MIB, the petitioners were made aware of the proposed scheme of demerger and amalgamation between (i) petitioner no.1, (ii) NML the parent company of respondent no.1, (iii) HTML and (iv) HT Music & Entertainment Ltd., a subsidiary of HTML (for the respondent no.1's other station excluding the Ahmedabad Station) pursuant to two letters dated 13 December 2018 addressed by NML-the parent company of respondent no.1 to the National Stock Exchange (NSC) and Bombay Stock Exchange (BSE) which were uploaded on the website of the SEBI. According to the ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 9 carbpl362-19.doc petitioners, the letters indicated that demerger of the radio broadcasting business of respondent no.1 was to take place excluding the Ahmedabad Station. The petitioners therefore contend that it was always clear that Ahmedabad Radio Station was exclusively to be transferred by respondent no.1 to the petitioners under the obligation under the term sheet.
11. Petitioner contends that thereafter petitioner no.1 also took further steps towards finalizing the documents for the acquisition by petitioner no.1 of the shares in respondent no.2. Petitioner no.1 shared with respondent no.1 a draft of Share Purchase Agreement (SPA) to be executed between the parties as forwarded to respondent no.1 by its e- mail dated 22 February 2019. It is stated that in the draft SPA the petitioners also provided for clause 5.3(i) for refund of security deposit of Rs.19 crores paid by the petitioners under the "Ad Sales agreement", so as to enable petitioner no.2 to utilise the same for purchasing shares of respondent no.1.
12. The case of the petitioner is that while the petitioners were awaiting response of respondent no.1 on the share purchase agreement, the ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 10 carbpl362-19.doc petitioners surprisingly received a letter dated 5 March 2019 informing the petitioners that in the prevailing circumstances, it is desirable to terminate "non binding term sheet" whereby respondent no.1 requested for consent of the petitioners for immediate termination of the said Term Sheet dated 29 October 2015. The petitioners contend that thereafter respondent no.1 by its letter dated 8 March 2019 also terminated the Ad Sales agreement. Petitioner no.2 replied to respondent no.1's request for termination of the Term Sheet and termination of Ad Sales Agreement, by its letter dated 14 March 2019 recording its refusal to accept the termination of the Term Sheet and Ad Sales Agreement and recorded that the Term Sheet and Ad Sales Agreement formed part of the same composite transactions as per the understanding of the parties and there was no question of consenting to the termination of Term Sheet at a belated stage when it had become binding on respondent no.1 and when there was no provision for termination under the Term Sheet except for an automatic termination only upon executing definitive documents. Also a meeting in this regard was proposed by the petitioners to discuss the way forward for fulfilling the obligations under the Term Sheet. Accordingly, on 15 March 2019 there was a meeting between the representatives of the ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 11 carbpl362-19.doc petitioners and respondent no.1 and it was revealed that respondent no.1 was not desirous of concluding the agreement under the Term Sheet and this would cause immense prejudice to petitioner no.1.
13. Petitioners contend that thereafter the petitioners learnt from the documents uploaded by respondents on the website of SEBI, that respondent no.1 was charting out transaction to be entered into by NML and HTML namely (i) public announcement dated 20 December 2018, (ii) detailed public statement dated 27 December 2018, (iii) letter of offer dated 5 March, 2019, (iv) recommendations of the committee of independent directors of NML dated 8 March 2019 in relation to the offer made by HTML to the public shareholders of NML and (v) offier by way of public announcement dated 13 March 2019.
14. Petitioner no.2 once again addressed a detailed letter dated 22 March 2019 to respondent no.1 asserting that on formation of respondent no.2 (SPV) which was in view of MIB's approval and also as NCLT had passed an order dated 5 October 2017, there was no question of termination of the binding Term Sheet as well as "Ad Sales Agreement" by ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 12 carbpl362-19.doc respondent no.1 which formed part of the same composite transaction. It was stated that the acquisition of NML by HTML could not be a ground for respondent no.1 to act in an unconscionable manner and to set at naught the efforts and expenditure of the petitioners towards the transaction. It was stated that issuance of a request for termination of the Term Sheet by respondent no.1 as also termination of "Ad Sales Agreement" was clearly with an intention to renege from concluding the acquisition of the respondent no.2's shareholding as agreed under the Term Sheet which had remained pending only due to the impending MIB approval.
15. The petitioners contend that once again there was a meeting between the parties on 24 March 2019 wherein the petitioners reiterated that the request of respondent no.1 for termination of the Term sheet and the Ad Sale Agreement were uncalled for and that the term sheet was binding and in force. It is stated that respondent no.1 thereafter issued a letter dated 26 March 2019 to the petitioner no.2 recording that the term sheet stood automatically terminated in view of the prevailing circumstances. Petitioners replied to the said letter by their letter dated 1 April 2019 reiterating their stand that the term sheet as also the "Ad Sales ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 13 carbpl362-19.doc Agreement" was binding between the parties.
16. In the above circumstances, the petitioners are before the Court praying for interim reliefs pending the arbitral proceedings.
17. Mr.Khambatta, learned Senior Counsel for the petitioners drawing the court's attention to the clauses of the term sheet dated 29 October 2015 and the correspondence entered by respondent no.1 with the MIB and the orders passed by the NCLT, would submit that the term sheet constituted a concluded and a binding contract between the parties. This in his submission, more particularly in view of an approval being granted by the MIB to respondent no.1 by its letter dated 10 March 2016.
18. Mr.Khambatta referred to the different clauses of the term sheet and in particular refers to clause B(3) and (4) of the Term Sheet which are titled as "Background" and "Proposed Restructuring". Referring to clause B(3) of the Term Sheet, it is contended that it was agreed that respondent no.1 had proposed to apply to the MIB seeking its approval for restructuring where one or more FM broadcasting channels were proposed ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 14 carbpl362-19.doc to be transferred with assets and liabilities pertaining thereto into separate vehicles, whether by formation of a new subsidiary or by way of a demerger or by means of disinvestment of the undertakings or part thereof of the company into a separate vehicle which was to be in relation to the Ahmedabad Radio Station (SPV). Mr.Khambatta referring to clause B(4) ("Proposed Restructuring") would contend that respondent no.1 had represented and undertaken to the petitioners that during the period November 2015 to May 2016, with the relevant approval from the MIB and relevant Court and in compliance with applicable laws, respondent no.1 shall undertake restructuring and form a SPV. It is submitted that this clause clearly provided that upon the occurrence of these conditions namely of an approval from the MIB and the relevant Court (NCLT), the Term Sheet had become binding and that within one month from the occurrence of the events the parties were to enter into binding definitive documents. It is submitted that the said two events having occurred as provided in clause B(4) and the benefit of the remaining conditions in regard to the acquisition of the equity shares in the SPV in two phases as provided in clause B(5) had become available to the petitioners. Thus according to Mr.Khambatta the Term Sheet had become binding on ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 15 carbpl362-19.doc respondent no.1.
19. Mr.Khambatta referring to clause B(6) titled as "Conditions Precedent for the proposed transaction" would contend that all these conditions are now binding on respondent no.1. Mr.Khambatta has further referred to various other clauses of the Term Sheet including clause E(21) which contains the Arbitration agreement between the parties conditional upon the Term Sheet becoming binding upon the parties.
20. Mr.Khambatta would submit that for the purposes of clause B(4) of the term sheet, the communication dated 10 March 2016 of the MIB is required to be accepted as an approval. Mr.Khambatta would further submit that the NCLT has also passed an order dated 5 October 2017 accepting the scheme of arrangement/demerger between respondent no.1 and respondent no.2 in regard to the Ahmedabad Radio Station and that pursuance thereto respondent no.1 had made an application dated 8 December 2017 to MIB for a permission to transfer the Ahmedabad Radio Station to respondent no.2. It is submitted that however only to defeat the rights of the petitioners under the term sheet, respondent no.1 after ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 16 carbpl362-19.doc the termination of the term sheet by its communication dated 1 April 2019 have withdrawn the said application as made to MIB. It is thus submitted that the petitioners are entitled for interim reliefs as prayed for as the actions of respondent no.1 is a clear attempt to wriggle out of the binding conditions under the Term sheet.
21. On the other hand Mr.Tulzapurkar, learned Senior Counsel for the respondents at the outset submits that this petition under Section 9 of the Act totally lacks foundation as no arbitration agreement exists between the parties. This for the reason that by the very clauses of the Term Sheet it has not become binding on the parties. To support this contention, Mr.Tulzapurkar has referred to the title of the Term Sheet which recites that the Term Sheet is a "preliminary and non binding Term sheet". It is thus submitted that there is no binding contract between the parties. It is further submitted that the conditions as contained in the term sheet and more particularly in clauses B(3) and B(4) are not fulfilled and thus no contract has come into existence. It is submitted that the binding effect itself has not come into existence. It is submitted that the term sheet is nothing but an agreement to enter into an agreement. It is submitted that ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 17 carbpl362-19.doc the conditions which were contingent, were required to be fulfilled and only on occurrence of such events the term sheet was to become binding. This is how the term sheet was understood between the parties and accepted, not to have any binding effect.
22. Mr.Tulzapurkar submits that the letter dated 10 March 2016 of the Government of India in no manner can be termed as an approval for the purpose of clause B(3) and B(4) of the Term sheet. It is submitted that the orders passed by the NCLT are also of no consequence as the intention of respondent no.1 to form fully owned subsidiaries, was the intention which was prior to the term sheet being executed between the petitioner and respondent no.1. It is submitted that there is no relation whatsoever between "Ad Sales Agreement" and the Term sheet as can be plaintly seen from these documents. These are independent of each other and having no bearing or any relation whatsoever. It is further submitted that as the term sheet itself is not binding, there is certainly no arbitration agreement between the parties. It is further submitted that respondent no.1 was not acting under the term sheet, is clear from the fact that the respondent no.1 had in fact made an application to the MIB far beyond the time lines as set ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 18 carbpl362-19.doc out in clause B(4) of the term sheet on 8 December 2017 and pursued the same by seven letters/reminders and ultimately withdrew the said application by respondent no.1's letter dated 1 April 2019. It was unreasonable to wait for so long. Lastly it is submitted that the petition is misconceived as petitioner No.2 who has no privity with respondent No.1 cannot have a locus to file a petition under Section 9 of the Act. There is also no privity between petitioner and respondent No.2. It is thus submitted that the petition on all these counts needs to be dismissed.
23. Mr.Khambatta, learned Senior Counsel for the petitioner in rejoinder would submit that Clause B-3 and B-4 of the term sheet contemplate two approvals; firstly of licensing, and secondly of restructuring, and steps in that regard were taken by respondent no.1. It is submitted that respondent no.1 having acted upon the term sheet, is clear from the application dated 8 December 2017 of respondent no.1 to MIB seeking permission to transfer the Ahmedabad Station to respondent no.2. It is thus submitted that the term sheet had become binding. It is submitted that a commonsensical business reading of the agreement is required to be undertaken, and the document as placed on record, if seen ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 19 carbpl362-19.doc from that context, it would clearly go to show that the term sheet had become a binding contract.
24. Having heard the learned Counsel for the parties and having perused the documents, at the outset it needs to be observed that since the year 2012 respondent no.1 was in the process of a corporate restructuring to subsidarise its licenses and in pursuance thereto in 2012 itself had applied to MIB seeking approval for such corporate restructuring. This appears to be an admitted position as the petitioners in paragraph 7.1 have referred to this, these averments are required to be noted and read thus:-
"7.1 In the year 2012, Respondent no.1 had applied to the Ministry of Information and Broadcasting (MIB) seeking its approval for a corporate restructuring to subsidiaries its licence with respect of the radio stations at Kolkata, Pune, Chennai and Ahmedabad. Follow up letters were issued by respondent no.1 to MIB seeking the said approval, the last being a letter dated August 4, 2015 inter alia recording the aforesaid letters. Here to annexed and marked as Exhibit A is a copy of letter dated August 4, 2015."
There is also a reference and recognition to the above admitted position in the term sheet. As can be seen in clause B(3) "Background" when it records "in continuation of an application earlier filed by it, the company proposes to apply to the Ministry of Information and Broadcasting ("MIB") ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 20 carbpl362-19.doc seeking its approval for restructuring ... ... ..."
25. It appears that the petitioners intended to take benefit of this restructuring by respondent no.1 and were interested to acquire the Ahmedabad Radio Station business and for this purpose for a prospective take over of the Ahmedabad business entered into a term sheet dated 29 October 2015, which is almost three years after respondent no.1 had decided and had initiated steps for the proposed restructuring, with which at the relevant time the petitioners were not even remotely concerned.
26. As seen from the foregoing paragraphs the principal controversy between the parties is on the term sheet and as to whether the term sheet can be prima facie regarded as a binding and conclusive contract between the parties. To further the discussion relevant clauses of the Term Sheet are required to be noted, which read thus:-
"TERM SHEET This Term Sheet dated and effective as of October ______2015 ("Term Sheet"
sets out the indicative terms of understanding amongst the various parties named herein with respect to a proposed investment/acquisition by Big Magic Limited in the SPV (as defined hereafter) of Next Radio Limited ("Proposed Transaction"). This preliminary and non-binding Term Sheet intends to form the basis for definitive documents to be executed amongst the parties ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 21 carbpl362-19.doc named hereinafter in relation to the consummation of the contemplated transaction ("Definitive Documents").
Sr.No. Headings Relevant Terms
(A) PARTIES
(1) Company/Promoter Next Radio Limited ("Company" or NRL)
(2) Acquirer Big Magic Limited or any of its affiliates or
nominees ("Acquirer")
Reference to the Promoter and shareholders of the Company shall be deemed to include reference to shareholders of the SPC, where the context so requires.
(B) TRANSACTION
(3) Background In continuation of an application earlier
filed by it, the Company proposes to apply to the Ministry of Information & broadcasting ("MIB") seeking its approval for re-
structuring, whereby one or more FM broadcasting channel (s) are proposed to be channel(s) are proposed to be transferred with assets and liabilities pertaining thereto, into separate vehicles, whether by formation of a new subsidiary or by way of a demerger or by means of disinvestment of the undertakings or part thereof of the Company into the separate vehicle ("Restructuring") The present Term Sheet is in relation to such proposed separate vehicle that will hold the FM radio license only in relation to the Ahmedabad radio station ("SPV") (4) Proposed The Promoters have represented and Restructuring undertaken to the Acquirer that during the period of November, 2015 to May, 2016, with the relevant approval from the MIB and relevant court (as may be applicable), and in compliance with applicable laws, the Company shall undertake Restructuring and form the SPV.
Upon the occurrence of the above mentioned event (i) this Term Sheet shall become ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 22 carbpl362-19.doc binding; and (ii) within one month from the occurrence of the above mentioned event, the relevant parties shall enter into binding Definitive Documents.
Proposed Transaction Upon the Term Sheet becoming binding as stated in Clause 4 above and subject to conditions precedent specified in Clause 6 hereto (which shall be further recorded in the Definitive Documents), the Acquirer shall acquire equity shares in the SPC in two phases, as described herein below:
"First Phase" a shareholding of 24.9% of the paid up equity and voting share capital of the SPV by way of share transfer from any of the existing shareholders, without dilution of the Promoter's (i.e. Largest Indian Shareholder as defined under paragraph 2.5 of the Policy Guidelines on Expansion of FM Radio Broadcasting Services through Private Agencies (Phase -III) stake of 51% in the equity share capital of the SPV; and without triggering an issuance of further equity shares. This share transfer to the Acquirer in one or more tranches under First Phase, shall, subject to the satisfaction of the conditions precedent for the same occur on or before April 1, 2018.
"Second Phase" a shareholding equal to and not less than 100% in the SPV by way of a transfer of the shares held by all of the shareholders of the SPV but only after a period of 3 (three) years from the date on which all the channels allotted to the Company (being the original permission holder) stand operationalized, i.e. on or after April 1, 2018 and subject to receipt of MIB approval on terms acceptable to the parties hereto.
The parties agree that the Definitive Documents shall duly record the foregoing.::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 :::
pvr 23 carbpl362-19.doc The parties have agreed that the acquisition of the SPV will be made in 2 phases at a total consideration, not exceeding, INR 33 crores with such adjustment as may be necessitated after the due diligence and audit of the accounts and with such further adjustments as may be necessitated on account of events or circumstances occurring on or after the date hereof, to the extent the same impacts or affects the Radio Channel. It is the express understanding of the parties that the valuation as above has been arrived at on the assumption that the annual cost of operation of the said Radio Channel is approximately INR 3 crore (with a plus or minus of 10%).
6 Conditions Precedent On and after the date hereof, to the Proposed Company to maintain separate books of Transaction accounts for the business pertaining to the "Radio One" FM broadcasting channel in the Ahmedabad region (Radio Channel") At the time of Restructuring, all assets (including net profits) and liabilities pertaining solely to the Radio Channel only as reflected in such statement of accounts shall be demerged and transferred /transferred to the SPV (as the case may be) obtaining all necessary legal and regulatory approvals.
Occurrence of steps specified in Clause 4 with appropriate legal and regulatory approvals including MIB, relevant High Court and other relevant regulatory authorities and formation of SPV with Radio Channel.
Due execution of the GOPA in its original terms by the SPV with MIB and the continued operation of the Radio Channel at Ahmedabad by the SPV pursuant to such GOPA.::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 :::
pvr 24 carbpl362-19.doc Approval by MIB of the application filed under Phase III FM radio frequency license regime for the proposed Transaction and for the SPC to own and operate the Radio Channel.
Completion of financial, business and legal diligence of the SPV to be undertaken by the Acquirer.
The Company intimating and taking all necessary approvals for the Proposed Transaction.
Compliance by the parties with all applicable laws and regulatory provisions as may apply to the Proposed Transaction and all necessary legal and regulatory approvals by the parties prior to the Proposed Transaction.
Compliance by the parties with all applicable laws and regulatory provisions as may apply to the Proposed Transaction and all necessary legal and regulatory approvals by the parties prior to the Proposed Transactions.
No material adverse effect in the Company on and after the date hereof, to the extent to that it relates to and/or has an impact on the Radio Channel.
Valid and subsisting authorization by the board and shareholders of the parties for the performance of the proposed transaction.
Conditions Precedent to the Second Phase.
All conditions precedent to First Phase, that are also relevant to Second Phase being satisfied by the parties.::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 :::
pvr 25 carbpl362-19.doc Obtaining of MIB consent for transfer of shares by the Promoter or Largest Indian Shareholder, as defined under Paragraph 2.5 of the policy Guidelines on Expansion of FM Radio Broadcasting Services through Private Agencies (Phase-III) to the Acquirer.
Obtaining of all statutory consents and third party authorisation for change in control and consummation of second phase.
(C) GOVERNANCE MATTERS
(7) Board
(8) Board Meetings
(9) General Meetings
(10) Day to Day
Management
(11) Definitive Documents Share Purchase Agreement, Shareholders
Agreement and any other
agreement/document contemplated
thereunder
OTHER IMPORTANT TERMS
(12) Information & Standard information and inspection rights
Inspection Rights would be provided to the Acquirer.
(13) Related Party All related party transactions, including
Transactions investments / loans to related, formation of
subsidiaries / affiliates, transfer of personnel and costs etc. shall be conducted on an arm's length basis.
(14) Transfer of The shareholders of the SPV including upon Shares/Securities acquisition of shares, the Acquirer, shall not be permitted to transfer, part with or create any encumbrances (other than to raise working capital finance in the ordinary course of business from secured lenders) on its equity shares in the SPV until March 31, 2018. On or after April 1, 2018, the shareholders of the SPV, other than the ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 26 carbpl362-19.doc Acquirer shall not be permitted to transfer their shares except subject to ROFO and call option.
GENERAL MATTERS (15) Confidentiality All parties hereto shall keep all negotiations confidential and maintain the contents of this Term Sheet in strictest confidence and shall make no announcement or disclosure without the prior written approval of the other party(ies) save in respect of disclosures or announcements to each party's consultants, advisors employees/directors on a need-to-know basis or as may be required under applicable law.
(16) Exclusivity In consideration of the Acquirer devoting
significant time and resources to
undwertakek negotiations with the
Company, due diligence and preparation of Definitive Documents, from the date of this Term Sheet, the Company and the existing Shareholders of the Company shall not and shall not permit, (with the exception for the purpose of fulfilling the Conditions Precedent to the Proposed Transaction), any of its officers, directors, employees, agents or other representative to (a) initiate or solicit, directly or indirectly, any inquiries or the making of any proposal with respect to a merger, consolidation, recapitalization or other transaction involving the purchase of all or any portion of the assets of, or any equity interest in, the Company so far as it pertains to or impacts the Radio Channel at Ahmedabad (the "Acquisition Proposal"), or (b) engage in any negotiations, or have any discussions with, any person relating to an Acquisition Proposal, or (c) otherwise issue or agree to issue any equity interest in (or securities convertible into or exchangeable for any equity interest in) the Company (for the avoidance of doubt, nothing in this section shall be construed to prohibit or restrict the company from ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 27 carbpl362-19.doc undertaking undertaking any of the foregoing actions with respect to the Acquirer). The Company and the existing shareholders will notify the Acquirer immediately if any such inquiries or proposals are received by, or any such information is requested from, the Company, the or any of its officers, shareholders, directors, employees, agents or other representatives.
(17) Representation and
Warranties
(18) Other conditions in (i) Pre-emptive rights with respect to any
the Definitive fresh issue of shares by the SPV: The
Documents Acquirer after becoming a shareholder in the
Company shall have a pro rata right to
participate in any future issuance of shares by the Company, on the same terms and conditions (including price) as offered to the other shareholders/party(ies). However, any decision to introduce a new shareholder in the Company and the percentage of equity shareholding to be allotted to such shareholder in the Company shall be decided by the shareholders of the SPV with the prior consent of the Acquirer.
(ii) Rights of First Offer ("ROFO"): In the event a shareholder intends to sell their shareholding in the SPV or a portion of it to a third party, then such selling shareholder shall first offer its shares or a portion of it as the case maybe to the Acquirer. The Acquirer may then choose to purchase the said shares (fully or partly) from the selling shareholder.
If the Acquirer chooses not to purchase such shares, the selling shareholder may sell such shares not acquired or not agreed to be acquired, to any third party.
19. Indemnity
20. Assignment Company or the then shareholders of the SPV shall not assign any of its rights and/or obligations under this Term Sheet, without ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 28 carbpl362-19.doc the prior written consent of Acquirer.
21. Government Law Upon this Term Sheet becoming binding and Dispute upon the parties, this Term Sheet and any Resolution documents to be entered into pursuant to it, save as expressly referred to therein, shall be governed by and construed in accordance with the laws of India and all the parties irrevocably agree that subject to the provisions on arbitration as herein below stated, the courts of Mumbai shall have exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Term Sheet and any such documents.
All disputes or differences relating to any of the matters set out in this Term Sheet ("Disputes"), upon it becoming binding on the parties, shall be referred to arbitration under and in terms of the LCIA India Arbitration Rules before a panel of one arbitrator ("Panel") to be appointed within ten 10 calendar days from the date of the Dispute arising herein. Both parties to the Dispute (that is the party instituting the arbitration proceeding and the respondent party) shall appoint one (1) arbitrator on the Panel. The seat and venue of Arbitration shall be at Mumbai.
The governing law of the contract shall be the substantive law of India. The arbitration proceedings shall be conducted in the English language. The parties shall equally share the costs of the arbitrator's fees, but shall bear the costs of their own legal counsel engaged for the purposes of the arbitration.
The Panel shall pass a final award in writing within 60 (sixty) days from the date of appointment and constitution of teh Panel, which shall be final and conclusive and binding upon the parties and non-appealable to the extent permitted by applicable law.
Should both parties agree, or if the Panel as ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 29 carbpl362-19.doc per its discretion in the interest of natural justice, seeks to extend this time period, this time period maybe extended for a further period of 30 (thirty) days, from the date of expiry of the 60 (sixty) day period.
The parties further agree that the arbitrators shall also have the power to decide on the costs and reasonable expenses (including reasonable fees of its counsel) incurred in the arbitration and award interest up to the date of the payment of the award.
Notwithstanding the aforesaid, in the event of any breach by either party of the provisions of this Term Sheet (upon the Term Sheet becoming binding upon the parties), the other party shall be entitled, in addition to all other remedies, to an injunction, whether interlocutory or preliminary, restraining any such breach, without recourse to arbitration.
22 Miscellaneous 1. The remaining shareholders of the Company / the then shareholders of SPV shall also execute the Definitive Documents and the Promoters shall ensure that such shareholders perform all actions contemplated in this Term Sheet.
2. The parties may amend this Term Sheet by mutual agreement in writing.
3. This Term Sheet seeks to set out the understanding of the parties in relation to the matters specified above, the details of which (including conditions, timing and procedures) shall be set out in the Definitive Documents, along with any other provisions may be agreed among the parties.
4. -------
5. -------
6. -------
7. The parties hereby expressly agree ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 30 carbpl362-19.doc that nothing in this Term Sheet shall be deemed to either directly or indirectly create a relationship of an employer, franchiser, partner. agent, associate or representative between them and that this Term Sheet is executed solely on a principal to principal basis.
8. -----
9. -----
(emphasis supplied)
27. Having noted the relevant contents of the term sheet what can be clearly seen is that in the title of the Term sheet itself the parties have agreed that the clauses in the term sheet are the "indicative terms of understanding amongst the various parties.... ..." with respect to a "proposed investment/acquisition by the petitioner in the SPV" The transaction itself is referred as proposed transaction. Further and most significantly the parties declared this term sheet as "preliminary and non binding term sheet" under which the parties intended to form the basis for definitive documents to be executed amongst the parties.
28. In clause B(4) of the term sheet, as noted above, the parties have agreed that only on the occurrence of the two events, firstly that during the period November 2015 to May 2016 with the relevant approval from ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 31 carbpl362-19.doc MIB and the relevant Court and in compliance with applicable laws, the respondent no.1 shall undertake restructuring and form the SPV and only upon the occurrence of the events in the manner so provided in paragraph one of clause B(4), the term sheet shall become binding and within one month from the occurrence of the said events the relevant parties shall entered into binding definitive documents. The argument of the petitioners is that the above two events have occurred as noted above and therefore, the term sheet has become binding.
29. I am not inclined to accept this contention as urged on behalf of the petitioners. This for the reason that the clauses of the term sheet are required to be understood in a manner a prudent businessman would commercially understand such terms. The parties in clause B(4) of the term sheet agreed that respondent no.1 (promoter) had undertaken to the petitioner (acquirer), that during the period November 2015 to May 2016 and only with the relevant approval from MIB and the High Court (NCLT) and conditional to the compliance with the applicable laws, only thereafter respondent no.1 (company) was to undertake restructuring and form the SPV (respondent no.2). Thus upon the occurrence of these ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 32 carbpl362-19.doc events, the term sheet was to become binding. Certainly these events have not taken place and more particularly as per the said condition as agreed between the parties.
30. This becomes clear from the fact that in regard to the 18 June 2012 and 23 July 2015 applications of respondent no.1 as made to the MIB for corporate restructuring, for the first time the MIB informed respondent no.1 that it would be permissible for respondent no.1 to have a corporate restructuring plan for its Kolkata, Pune, Ahmedabad and Chennai licences, provided the orders /approval of the High Courts of the State in whose jurisdiction the transferor (holding company) and the transferees (subsidiaries) are situated and that a compliance of Section 186(1) of the Companies Act,2013 and Section 391 to 394 of the Companies Act is obtained. The MIB advised respondent no.1 to obtain approval of the respective High Courts in the matter and then approach the Ministry for permission. As much was argued on this letter of the MIB, the contents of this letter are required to be noted and read thus:-
" No.N-38014/47/2015-FM/337
Government of India
Ministry of Information and Broadcasting FM Cell, 'B' Wing, Shastri Bhawan, New Delhi ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 33 carbpl362-19.doc Dated: the 10th March 2016 To, Managing Director, Next Radio Limited, 156, D.J.Dadajee Road, Behind Everest Building, Tardeo, Mumbai-400034.
Subject: Corporate Restructuring Plan of M/s.Next Radio-regarding Sir, I am directed to refer to your letters dated 18 th June 2012 and 23rd July 2015 on the above subject wherein this Ministry's permission was sought for corporate restructuring under which you proposed to create 4 Wholly Owned Subsidiaries (WOS) for transfer of all assets and liabilities of its Kolkata, Pune, Ahmedabad and Chennai Licenses.
2. This Ministry took up the matter with Ministry of Corporate Affairs and was informed that there is no prohibition in the Companies Act,1956/2013 from incorporating as many subsidiaries as may be required by a company and also demerge identified assets and liabilities as per its Corporate Restructuring Plan to those subsidiaries, provided the order/approvals of the Hon'ble High Courts of the States in whose jurisdiction the transferor (holding company and the transferees (subsidiaries) are situated.
3. It is further stated that the concerned company is required to ensure compliance of Section 186(1) of Companies Act,2013 and Section 391 to 394 of the Companies Act,1956 in this regard.
4. It is, therefore, advised to obtain approval of the respective High Courts in this matter and then approach this Ministry for permission.
Yours faithfully, (S.R.Yadav) Deputy Secretary to the Govt. of India Tel: 011-23386678"
(emphasis supplied.) ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 34 carbpl362-19.doc
31. It is thus clear and more pertinently from paragraph 4 of the above letter of MIB that by no stretch of imagination the same can be accepted as approval of the MIB on the applications of respondent no.1 dated 18 June 2012 and 23 July 2015 which would enable respondent no.1 to take further steps in regard to the proposed transaction under the term sheet.
Even the petitioner has not understood the above communication of MIB dated 10 Mach 2016 as such an approval.
32. Apart from the fact that the 10 March 2016 (supra) communication of the MIB cannot be accepted as an approval as agreed between the parties in Clause B(4) of the term sheet, it needs to be further observed that the respondent no.1 had approached the NCLT in a petition under Section 230 to 232 of the Companies Act in the year 2017 and an order on the same came to be passed by the NCLT on 5 October 2017 which is again completely beyond the time schedule as agreed between the parties in clause B(4) of the term sheet. It is not the case of the petitioners that there was any variation of the time-lines as stipulated in clause B(4) of the term sheet for occurrence of both the events namely of a approval of the MIB and the for the orders of the NCLT.::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 :::
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33. It is also required to be noted that after the NCLT passed the said order on 5 October 2017, the respondent no.1 had made an application dated 8 December 2017 to the MIB seeking approval for demerger of the Ahmedabad Radio Station to the wholly owned subsidiary of respondent no.1. Admittedly, this application is not granted till date. Thus in any event it cannot be said that there is approval of MIB even after the orders of the NCLT within the meaning of what the parties have agreed in clause B(4) of the term sheet. Even the said application dated 8 December 2017 stands withdrawn by respondent no.1 as pointed out on behalf of respondent no.1, from the respondent no.1's letter dated 1 April 2019 about which the petitioners had a serious grievance during the course of the arguments. This also is indicative of the non occurrence of the MIB condition as provided in clause B(4) of the term sheet.
34. There is another significant aspect namely that in the intervening period and more particularly after May 2016 respondent no.1 had proposed a scheme of demerger and amalgamation between (i) petitioner no.1, (ii) NML the parent company for respondent no.1 , (iii) one HTML and (iv) one HT Music & Entertainment Ltd., a subsidiary of HTML (for ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 ::: pvr 36 carbpl362-19.doc the Respondent no.1's other stations excluding the Ahmedabad station).
This was fully to the knowledge of the petitioners as seen from paragraph 7.15 (page 12 of the petition).
35. There is no material to indicate that without the respondent no.1's application dated 8 December 2017 to the MIB and merely on the communication dated 10 March 2016 of the MIB coupled with the NCLT's order dated 5 October 2017, the petitioners had taken a position that the term sheet had become binding between the parties and immediate steps in regard to the completion of the transaction were to be taken. In fact the petitioners never called upon compliance of the other conditions as set out in clause B(6) of the term sheet.
36. If on the above background the respondent no.1 addressed a letter dated the 5th March 2019 informing that the non binding term sheet be terminated, in my opinion, there was nothing wrong so as to infer that respondent no.1 wanted to wriggle out of any binding contractual obligations under the term sheet, more particularly when the term sheet itself had not become binding in the manner as agreed between the parties.::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 :::
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37. Considering the clear material on record, there is much substance in the submissions of Mr.Tulzapurkar that the term sheet at the highest was an agreement to enter into an agreement and considering the facts and circumstances the terms and conditions therein had not become binding between the parties. There is also much substance in the contention of Mr.Tulzapurkar that there is no nexus whatsoever between the Ad Sales Agreement dated 21 October 2015 entered between the petitioner and respondent no.1 and and the term sheet dated 29 October 2015. There is no material to accept the submissions of Mr.Khambatta that there was some relation between these two documents.
38. Considering the material on record, I am also quite certain that Mr.Tulzapurkar is correct in his contention as to how in these circumstances there can be an arbitration agreement between the parties, when the term sheet itself had not become binding.
39. In the light of the above discussion, I find no substance in this petition so as to entitled the petitioners for any reliefs. It is accordingly rejected. No costs.::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 :::
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40. At this stage, Mr.Cama, learned Counsel for the petitioners, seeks continuation of the ad-interim order. The request is opposed on behalf of the respondents. Considering the facts and circumstances of the case, the request is required to be rejected. It is accordingly rejected.
(G.S.Kulkarni, J.) ::: Uploaded on - 05/04/2019 ::: Downloaded on - 06/04/2019 06:47:40 :::