Bombay High Court
Onyx Musicabsolute.Com Pvt.Ltd vs Yash Raj Films Pvt.Ltd. & Ors on 4 July, 2008
Author: D.G.Karnik
Bench: D.G.Karnik
1
mpt
IN THE HIGH COURT OF JUDICATURE OF BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
NOTICE OF MOTION NO. 1143 of 2008
IN
SUIT NO. 959 of 2008
1) Onyx Musicabsolute.com Pvt.Ltd.
2) Kishore Patel
3) Rajan Patel
4) Bharati Patel
5) Rupa Patel
ig .. Plaintiffs
versus
1) Yash Raj Films Pvt.Ltd. & ors.
2) Onyx Mobile Pvt.Ltd.
3) Virtual Marketing India P.Ltd. .. Defendants
...
Mr.D.J. Khambatta, Sr. Counsel with Shyam Mehta, Gautam Ankhad i/b M/s.Federal & Rashmikant for the plaintiffs/petitioners.
Dr.V.V. Tulzapurkar, Sr.Counsel with P. Palkhiwala i/b Deven Dwarkadas & Partners for defendant no.1/ respondent no.1.
Mr.T.N. Subramaniam, Sr.Advocate with G.R. Joshi i/b I.C.Legal for defendant no.3/respondent no.3.
W I T ARBITRATION PETITION NO.169 OF 2008 ::: Downloaded on - 09/06/2013 13:33:58 ::: 2 AND ARBITRATION PETITION NO.170 OF 2008 Onyx Musicabsolute.com Pvt.Ltd.
and others .. Plaintiffs
versus
Yash Raj Films Pvt.Ltd. & ors. .. Defendants
...
Mr.D.J. Khambatta, Sr. Counsel with Shyam Mehta, Gautam Ankhad i/b M/s.Federal & Rashmikant for the petitioners.
Dr.V.V. Tulzapurkar, Sr.Counsel with P. Palkhiwala i/b Deven Dwarkadas & Partners for defendant respondent no.1.
Mr.T.N. Subramaniam, Sr.Advocate with G.R. Joshi i/b I.C.Legal for respondent no.3.
None for respondent no.2.
CORAM : D.G.KARNIK,J DATED : 4th July 2008 ORAL JUDGEMENT:-
1. These matters were heard on 27th April 2008 and the order was reserved. In the meanwhile, the plaintiffs/petitioners moved the vacation Bench by filing Arbitration Petition nos.239 and 240 of 2008 and the papers of these matters were called by the Vacation Bench and the papers are now returned ::: Downloaded on - 09/06/2013 13:33:58 ::: 3 after passing some ad-interim orders. Those arbitration petitions are however not placed on Board. After reopening of the courts I have heard the counsel again. By consent, the matters are heard finally.
2. The plaintiffs in the suit are the petitioners and the defendants in the suit are the respondents in the arbitration petition nos.169 and 170 of 2008. Hence, for the sake of convenience the parties are referred to as the plaintiffs the defendants.
and
3. In the suits as well as in the arbitration petitions, the plaintiffs seek an order of injunction restraining the defendants, their agents and servants from selling, re-selling, sub-licencing, distributing, exploiting, promoting, marketing any form of content in the films produced or to be produced by the defendant no.1 and covered by the contract (licence agreement dated 23rd April 2005) between the defendant no.1 and defendant no.2. The plaintiffs also seek a further order directing the defendant nos.1 and 3 to return the content of the film "Tashan" and other reliefs.
Basic facts.
::: Downloaded on - 09/06/2013 13:33:58 ::: 44. Plaintiff no.1 is a company incorporated and registered under the Companies Act, 1956 and plaintiff nos.2 to 5 hold the entire share capital of plaintiff no.1. Plaintiff no.1 is engaged in the business of producing internet and net enabled solutions and related services. Defendant no.1 is also a company incorporated and registered under the Companies Act and is engaged in the business of production distribution, marketing and sale of cinematographic defendant no.1, igfilms.
after
The plaintiffs
negotiations
and
decided
the
to
establish a joint venture to engage in and
undertake business of providing mobile and internet content of Bollywood movies and other related businesses. Accordingly, they formed defendant no.2 as a joint venture company incorporated and registered under the Companies Act, 1956. A joint venture agreement was executed between the plaintiffs, the defendant no.1 and the defendant no.2 on 23rd April 2005. The business of the joint venture interalia was to set up one or more unique Short Codes to offer mobile internet content, to provide online service of mobile phone net works and to secure and obtain mobile and internet rights of the contents of Bollywood movies. On the same day, the defendant no.1 granted to the defendant ::: Downloaded on - 09/06/2013 13:33:58 ::: 5 no.2 exclusive licence for internet rights and mobile rights in the Bollywood films produced and to be produced by the defendant no.1 with a right to the defendant no.2 to grant sub-licences to third parties. The licence was to remain in force till the joint venture agreement remained in full force and effect.
5. The defendant no.2 commenced its business immediately after the licence agreement dated 23rd April 2005.
The major and perhaps business so far undertaken by the defendant no.2 is the only to make available mobile content of the films produced by the defendant no.1. According to the plaintiffs, seeing the huge potential in the internet business the defendant no.1 made various attempts to exclude internet content from the licence agreement, with a view to exploit the internet rights by itself to the exclusion of the defendant no.2. The defendant no.1 firstly attempted to persuade and pressurise the plaintiffs to modify the terms of the licence agreement. On being unable to succeed in its design the defendant no.1 adopted three pronged approach. Firstly it tried to exploit the internet content in respect of its various film on its own in gross violation of the terms of licence agreement;
; secondly, it tried ::: Downloaded on - 09/06/2013 13:33:58 ::: 6 to obstruct exploitation of the internet rights by the defendant no.2 by adopting a non operative stand; ; and thirdly, it attempted to try and contrive/engineer a Dead Lock with regard to the operations and management of the defendant no.2 company. According to the plaintiffs the defendant no.1 is trying to give internet and mobile rights
in its film "Tashan" to the defendant no.3. The plaintiffs therefore filed the aforesaid two arbitration petitions to restrain the defendant in the contents no.1 from giving away the internet or mobile rights of the films produced or to be produced by the defendant no.1 and for preventing it from committing breach of the licence agreement.
However since the defendant no.3, to whom the internet and mobile rights are sought to be transferred, is not a party to the joint venture agreement or the licence agreement (which contain arbitration clause) the plaintiffs have filed the suit for claiming relief of injunction against all.
Submissions of the plaintiffs.
6. Mr.Khambatta, learned Sr.Advocate for the plaintiffs submitted that by the licence agreement dated 23rd April 2005, the defendant no.1 had granted exclusive licence to the defendant no.2 for ::: Downloaded on - 09/06/2013 13:33:58 ::: 7 exploiting internet rights as well as mobile rights in respect of all films produced as also the films to be produced by defendant no.1 from time to time.
No person (including the defendant no.1) other than the defendant no.2 has a right to exploit the internet and mobile content in the films of defendant no.1. However in breach of the licence agreement the defendant no.1 has attempted to give the internet and/or mobile rights in respect of his films covered by the licence agreement. The film "Tashan"
release
produced
on
ig by defendant no.1 was
24th March 2008. As per the
due
licence
for
agreement the internet and mobile right in the
content of the film "Tashan" exclusively belongs to the defendant no.2. However in breach of the said agreement the defendant no.1 was trying to give the internet and mobile rights of the content of the film "Tashan" to the defendant no.3. Disputes therefore arose between the plaintiffs and defendant no.1 for the resolution of which the plaintiffs have initiated the procedure for appointment of arbitral tribunal. Pending the resolution of the disputes by arbitration, plaintiffs have claimed the relief of injunctions in the arbitration petitions. Learned counsel for the plaintiffs submitted that the deadlock notice issued by the defendant no.1 on 27th November 2007 ::: Downloaded on - 09/06/2013 13:33:58 ::: 8 is invalid as the grounds specified for deadlock in the joint venture agreement do not exist and in any event, the defendant no.1 has waived the deadlock notice. He submitted that the joint venture agreement as well as the licence agreement were therefore, in full force and effect. Under the licence agreement, the defendant no.2 is the exclusive licencee in respect of the internet and mobile content of all the films covered by the licence agreement. Under section 2(j) and section 54 of entitled the Copyright Act, the defendant to exclude even the plaintiff from use of no.2 is the copyright in the mobile and internet content of the said films and plaintiffs are entitled to an injunction restraining the defendant no.1 from committing breach of the licence agreement.
Counsel further submitted that the defendant no.2 was a joint venture company and since the plaintiff nos.2 to 5 on the one hand and defendant no.1 on the other hand were equal shareholders and each party had two directors on the Board of Directors of defendant no.2, it was not possible for the defendant no.2 to file any suit or arbitration petition and therefore plaintiffs were entitled to sue and/or file arbitration petitions by way of a derivative action on behalf of and for the benefit of defendant no.2.
::: Downloaded on - 09/06/2013 13:33:58 ::: 9Submissions of the defendant nos.1 and 3.
7. Per Contra Mr.Tulzapurkar, learned Sr. Advocate appearing for the defendant no.1 submitted that suit and the arbitration petitions by the present plaintiffs were not maintainable. Under the licence agreement dated 23rd April 2005, the licence was granted by the defendant no.1 to joint venture company i.e. the defendant no.2.
Assuming,
breach
without admitting, that there
of the terms and conditions of the licence, was any it was the defendant no.2 who alone could take an action either by filing of a suit or by arbitration petition. The plaintiffs had no cause to take an action for the alleged breach of the licence. The plaintiff nos.2 to 5 as shareholders of the defendant no.2 company could not take an action for the alleged cause of defendant no.2. The case of the plaintiff no.1 was worse in as much as he is not even a shareholder of the defendant no.2. It was the defendant no.2, if at all, who was aggrieved by the alleged breach of licence and a shareholder of group of shareholders of defendant no.2 were not entitled to sue for the alleged breach. The defendant no.3 was not a party to the licence agreement and therefore, a petition under ::: Downloaded on - 09/06/2013 13:33:58 ::: 10 section 9 of the Arbitration Act could not be filed against the defendant no.3. He submitted that on merits the plaintiffs were not entitled to an injunctive relief. The joint venture agreement and the licence agreement were executed on the same day and simultaneously. The licence agreement was to remain valid so long as the joint venture agreement remained in full force and defect. In other words, the licence agreement was co-terminus with the joint venture agreement. The joint venture was terminated full and force and effect.
in any event had ceased to On account of the be several in breaches by the plaintiffs and it was impossible to run the joint venture business smoothly resulting into a deadlock in the working of the joint venture. There were irreconcilable differences between the parties regarding the management of defendant no.2. Therefore the defendant no.1 had issued a appropriate notice of a "deadlock" in exercise its right under clause no.11 of the joint venture agreement. The joint venture agreement therefore ceased to be in force and effect. As the joint venture agreement ceased to be in full force and effect the licence agreement stood terminated.
Therefore, the plaintiffs were not entitled to an injunction. He further submitted that the suit related only in respect of the film "Tashan". The ::: Downloaded on - 09/06/2013 13:33:58 ::: 11 rights in the film Tashan were transferred to the defendant no.3 even before the filing of the suit.
The suit had therefore become infructuous and no relief could be granted in the suit. He further submitted that the principles which ordinarily apply for grant of an injunction in a suit do also apply for grant of an injunction in a petition under section 9 of the Arbitration Act. In order to get an injunction in a suit the plaintiff is required to make out a strong prima facie case, including on the point of maintainability of suit and show the balance of convenience was in his the favour. In a petition u/s.9 of the Arbitration Act the same would be required to be shown by a petitioner. Since the plaintiffs, who were the petitioners in arbitration petition, had not made out a strong prima facie case and as the arbitration petition at their instance was not maintainable they were not entitled to any relief in the suit as well as the arbitration petitions.
He further submitted that since the plaintiffs had filed the suit (suit No.959 of 2008) after the filing of the Arbitration Petitions claiming that the relief of injunction on the very same cause, the Arbitration Petitions were not maintainable as two forums cannot, in law, hear and decide the same issues. Since the plaintiffs themselves had chosen ::: Downloaded on - 09/06/2013 13:33:58 ::: 12 public forum (of a Civil Court) getting their grievance redressed, they were not entitled to proceed with the private forum viz. the arbitral tribunal and consequently they were not entitled to any reliefs in the petitions u/s.9 of the Arbitration Act.
. Derivative action by way of a suit.
8. Admittedly, the licence was granted by the defendant no.1 in favour of defendant no.2.
alleged breach of the licence by the defendant no.1 By the in granting licence to defendant no.3 the person who could be aggrieved was the defendant no.2. The defendant no.2 has not taken any action for the alleged wrong done to it. The action is taken by the plaintiffs in their own name for the wrong allegedly done to the defendant no.1 company. The short question that arises for consideration is whether the plaintiffs can sue in their own name for the wrong allegedly done to the defendant no.2 company in which they hold 50% of the shares capital.
9. The fundamental principle of our law is that a company is a legal person with perpetual succession and common seal. It is a body corporate ::: Downloaded on - 09/06/2013 13:33:58 ::: 13 having identity, separate and distinct from the directors of the shareholders with its own property rights and interest to which along it is entitled.
Just as the individual and personal property of any of the members of a company is not the property of the company, the property of the company is not the property of its directors or shareholders or members. Being so, if the company is defrauded or wronged by a wrongdoer, the company itself is the person to sue the wrongdoer for damages. Such is the The rule in Foss Vs. Harbottle (1843) 2 Hare 461.
rule is easy enough to apply when the company is defrauded by the outsiders. In that event, the company is the only person who can sue but what would be the position if the company is defrauded by insiders who control it by the directors or persons who hold a majority of the shares? Would the company sue such insiders or wrongdoers? This would be a practical impossibility. Subsequent decisions of the court appear to have toned down rigour of the rule in Foss Vs. Harbottle or atleast have created exceptions to the rule. It would be interesting to note that in Estmanco (Kilner House) Ltd. Vs. Greater London Council (1982) 1 All E.R 437, Sir Robert Megarry V-C while recognising that there could be a number of exceptions to the rule in Foss Vs. Harbottle ::: Downloaded on - 09/06/2013 13:33:58 ::: 14 observed that difficulties could arise in determining the exceptions. He said:
"If the rule in Foss V. Harbottle had remained unqualified, the way would have been open for the majority to stultify any proceedings which were for the benefit of the minority and to the disadvantage of the majority.
Accordingly, a number of exceptions from the rule have been established;
is here that the difficulties begin.
and it
Though difficulties may arise, as observed by Sir
Robert Magerry, as to what should be the exception
to the rule in Foss Vs. Harbottle, one thing is
clear that the exception have been recognised by the courts to the rule in Foss Vs. Harbottle. Court of Appeal recognised it in Moir Vs. Wallersteiner (No.2) reported in 1975(1) All E.R 849.
10. In India in Dr.Satya Charan Law & ors. Vs. Rameshwar Prasad Bajoria & ors, AIR 1950 Federal Court 133. the Federal Court, after recognising well settled principle of law that in order to redress the wrong done to a company or to recover monies or damages alleged to be due to the company, ::: Downloaded on - 09/06/2013 13:33:58 ::: 15 the action should prima facie be brought by the company, accepted that misconduct on the part of a director provided an exception to the rule in Foss Vs Harbottle. The Court held:
"The correct position seems to us to be that ordinarily the directors of a company are the only persons who can conduct litigation in the name of the company, but when they are themselves the have wrongdoers against the company and acted mala fide or beyond their powers, and their personal interest is in conflict with their duty in such a way that they cannot or will not take steps to seek redress for the wrong done to the company, the majority of the share-holders must in such a case be entitled to take steps to redress the wrong. There is no provision in the articles of association to meet the contingency, and therefore the rule which has been laid down in a long line of cases that in such circumstances the majority of the share-holders can sue in the name of the company must apply.In MacDougali Vs. Gardsner (1876) 1 ::: Downloaded on - 09/06/2013 13:33:58 ::: 16
Ch.D. 18 (45 L.J. ch.27) and Pender Vs. Lushington, (1877) 6 ch D.70: (46 L.J.ch. 317), specific reference was made to the fact that the directors, being the custodians of the seal of the company, were the persons who should normally sue in the name of the company, but nevertheless it was held that the majority of the share-holders were entitled to sue in the name of the company the when relief was sought against directors themselves. Even in Automatic Self-Cleansing Filter Syndicate Co.Ltd. Vs. Cunninghams (1906) 2 ch.34: (75 L.J. ch.437), it was recognised that "misconduct" on the part of the director provided an exception to the rule laid down in that case."
11. It is true that in the case of Dr. Satya Charan Law, the Federal Court has observed that majority of the shareholders are entitled to take steps to redress the wrong and even sue in the name of the company. That was so held because in that case the plaintiffs were the majority of the shareholders. The issue whether the shareholders ::: Downloaded on - 09/06/2013 13:33:58 ::: 17 who hold 50% or less of the shares in the share capital of the company can sue in the name of the company did not specifically arise for consideration in that case and therefore that was not considered by the Federal Court. There is however nothing in the decision to suggest that the rule in Foss Vs. Harbottle admits of no exception. On the other hand, the Federal Court did recognise the exception to the rule in Foss Vs. Harbottle.
12.
ors. (Notice
In Nirad Amilal Mehta Vs.
of
Genelec Limited &
Motion no.1272 of 2008 in Suit
no.888 of 2008) decided on 23rd and 25th April 2008
I have taken a view that a derivative action by a
shareholder for a wrong done to a company is
maintainable in certain circumstances such as where
the directors of the company themselves are the
wrong doers and sell the property and substantial
undertaking of the company without proper
authorisation under section 293 of Companies Act.
13. I see no reason to depart from the view which I have taken earlier. I therefore hold that a suit at the instance of a minority shareholder for a wrong done to a company is maintainable where it is shown that the wrong doers are insiders, say directors of the company or majority of the ::: Downloaded on - 09/06/2013 13:33:58 ::: 18 shareholders who are unlikely to take any action for the wrong done to the company. I am, however, not prepared to go thus far as to hold that even a derivative action by way of an arbitration can be taken by initiating arbitration before an arbitral tribunal, for the reasons indicated a little later.
14. The form of action to be taken by the minority shareholder however may admit of a debate.
In case of Dr. Satya Charan Law (Supra) an action
was
of the company
taken by the majority shareholders in the by joining the company name as co-plaintiff. A Single Judge of the High Court of Calcutta held that the company was not properly impleaded as the plaintiff. The learned Judge however observed that it was open for the plaintiffs to make the company a defendant. A Division Bench of the High Court, on appeal, held that the action was correctly made by joining the company as co-plaintiff in the suit. That decision was upheld by the Federal Court. It therefore appears that it would be open to the shareholders who sue for the wrong done to a company on the ground that the persons causing the wrong are insiders and unlikely to take any action for wrong done to the company by joining the company as co-plaintiff along with them.
However no final opinion needs to be expressed, at ::: Downloaded on - 09/06/2013 13:33:58 ::: 19 this stage, whether a suit filed by minority shareholders by joining the company as a defendant would be bad in law and not maintainable at all.
The issue can be left to be decided at the stage of trial.
. Maintainability of Arbitration Petitions by or against the persons who are not parties to the arbitration agreement.
15. defendant Virtual Marketing no.3 in the suit.
India Pvt.Ltd.
It is also joined
is the
(by
an amendment) as respondent no.3 to both the
arbitration petitions. Though a direct interim
relief is not claimed against the defendant no.3 in
arbitration petition no.169 of 2008 it is clear that a relief is claimed against it indirectly or a prayer is couched in such a language that granting it would affect the defendant no.3. The defendant no.1 has entered into an agreement with defendant no.3 relating to the film "Tashan" which is said to be covered by the licence agreement. In arbitration petition no.169 of 2008, the plaintiff has claimed an injunction restraining the defendant no.1 from granting or creating any interest in respect of the films covered with the licence agreement in favour of any person other than the defendant no.2 company.
::: Downloaded on - 09/06/2013 13:33:58 ::: 20In arbitration petition no.170 of 2008, an injunction is claimed against the defendant no.1 from granting internet rights covered by the licence agreement in favour of any other person. These reliefs are aimed against the defendant no.3 who is not a party to the arbitration agreement. The defendant no.3 is not a party either to the joint venture agreement or to the licence agreement, both dated 23rd April 2005 which contain arbitration agreement. There is no other agreement between the plaintiffs any dispute and the defendant no.3 for reference to arbitration. Section 2(h) of of the Arbitration Act defines party to mean a party to an arbitration agreement. Section 9 of the Arbitration Act says that a party may, before or during the arbitral proceedings or at any time after making of the arbitral award but before it is enforced, may apply to a court for interim reliefs mentioned in sub-clause(a) to (e) of clause (ii) of the section.
Obviously, the reliefs u/s.9 of the Arbitration Act an interim relief can be claimed by a party to an arbitration agreement against the other party.
Since the defendant no.3 is not a party to the arbitration agreement, plaintiffs are not entitled to claim any relief against the defendant no.3 in either of the arbitration petitions. Counsel for the plaintiffs, infact, submitted that realising ::: Downloaded on - 09/06/2013 13:33:58 ::: 21 this difficulty, the plaintiffs have filed the suit joining defendant no.3 as party to the suit. In view of this, it must be held that plaintiffs are not entitled to any reliefs against defendant no.3 in the two arbitration petitions. The arbitration petitions against the defendant no.3 are not maintainable.
16. Counsel for the defendant no.1 further submitted that the plaintiff nos.2 to 5 who are the petitioner are also nos.2 to 5 in the arbitration not parties to the arbitration petitions agreement contained in the joint venture agreement dated 23rd April 2005 and therefore arbitration petitions filed by plaintiff nos.2 to 5 are not maintainable.
Countering this submission, learned counsel for the plaintiff submitted that names of plaintiff nos.2 to 5 are shown as parties of the third part to the joint venture agreement and they have also signed the joint venture agreement as parties of the third part. Therefore, they are parties to the arbitration agreement contained in clause no.12.6 of the joint venture agreement. Clause no.12.6.1 of the joint venture agreement provides that all disputes and controversies or claims between the "parties" arising out of or in pursuance to or in connection with the agreement including the breach, ::: Downloaded on - 09/06/2013 13:33:58 ::: 22 termination or invalidity shall be referred to an finally settled under the arbitration act. Clause no.1.1 defines the word "parties" to mean "Yashraj Films and Onyx" i.e. plaintiff no.1. The expression "parties" appearing in clause 12.6.1 of the joint venture agreement refers only to the plaintiff no.1 and defendant no.1. It does not refer to anybody else. So interpreted only the disputes between the plaintiff no.1 and defendant no.1 relating to or arising out of the joint venture agreement between the can be referred to arbitration.
plaintiff nos.2 to 5 with
Disputes
anybody
including the defendant no.1 cannot be referred to
arbitration. Similarly disputes between the
plaintiff nos.2 to 5 and defendant nos.2 and 3
cannot be referred to arbitration as they are not
governed by the arbitration agrement So far as the
plaintiff no.1 is concerned, though it is a party to the joint venture agreement it is not a party to the licence agreement. Licence is granted by defendant no.1 to defendant no.2. Neither of the plaintiff nos.2 to 5 are parties to the licence agreement.
Therefore the plaintiff nos.2 to 5 cannot make an application u/s.9 of the Arbitration Act. The Arbitral Tribunal obviously would have no jurisdiction to adjudicate upon the disputes raised by any of the plaintiff nos.2 to 5 who are not the ::: Downloaded on - 09/06/2013 13:33:58 ::: 23 parties to the licence agreement, above the alleged breach of the licence agreement.
17. Counsel for the plaintiffs however submitted that just as a derivative action by way of a suit is permitted at the instance of the shareholders of a company which has been wronged a derivative action by way of an arbitration would also be permissible at the instance of the minority shareholders. He submitted that the defendant no.2 company was of wronged by the defendant no.1 by committing a breach the licence agreement. The defendant no.1 being 50% shareholder and holding equal number of directors on the Board of the defendant no.2 company, it was impossible for the defendant no.2 to pass a resolution for taking any action against the wrong doer - the defendant no.1. Therefore the minority or shareholder holding 50% of the share capital were entitled to take action in arbitration against the wrong doer by joining the defendant no.2 company as a party.
18. The rule in Foss Vs. Harbottle clearly lays down that if a company is defrauded or wronged, it is the company who can take action for the wrong done to it. Individual shareholders are not entitled to take action for the wrong done to the ::: Downloaded on - 09/06/2013 13:33:58 ::: 24 company. As stated earlier, the Courts have recognised an exception to this rule that where the wrong doer themselves are in charge of the company as directors or is a majority shareholders.
Minority shareholder may take action for the wrong done to the company. The action contemplated however is legal action before a public forum i.e. the ordinary courts of law and not before a private forum of arbitral tribunal. An arbitral tribunal gets jurisdiction only on agreement between the parties.
parties, In there the absence of agreement between can be no arbitral tribunal the except where such agreement or arbitration is forced by the provisions of any statute. The agreement between the parties being a pre-requisite for constitution of a private arbitral tribunal and exercise of its jurisdiction, it is not possible to hold that such arbitration can be forced by the minority shareholders who obviously are not parties to any arbitration agreement. It is worthy to note that in the present case the plaintiff nos.2 to 5 who claim to be minority or 50@% shareholders have not instituted arbitration proceedings in the name of the company. The company has been joined as the defendant, formal or otherwise. In my view, it would be impermissible to extend the exception to the rule in Foss Vs. Harbottle even to the ::: Downloaded on - 09/06/2013 13:33:58 ::: 25 arbitration proceedings. I may remind myself to the words of Sir Robert Megarry in Estmanco Ltd (Kilner House) Vs. Greater London Council wherein he observed that though a number of exceptions to the rule have been established the difficulty begins there. The exceptions to the rule of Foss Vs. Harbottle cannot be extended at the whim of a judge lest the rule is diluted to such an extent as to cease to exist No decision has been cited before me wherein this has been done and I suppose rightly so.
At this
exception
stage,
to
the
I am not prepared
rule in Foss Vs.
to extend
Harbottle
the
to
arbitration proceedings or proceedingin aid thereto
like the petitions under section 9 of the
Arbitration Act.
. The term of the licence agreement.
19. Clause no.6.1 of the licence agreement reads thus:
"This agreement shall be deemed to have come into force from 1st March 2005 and shall be valid so long as the joint venture agreement entered into between Yashraj (defendant no.1) and Onyx (defendant no.2) is in full force and effect.::: Downloaded on - 09/06/2013 13:33:58 ::: 26
(underlining supplied) The licence agreement was to remain in force only so long as the joint venture agreement was in full force and effect. I would therefore have to look to the joint venture agreement to ascertain the term of the licence. The joint venture agreement does not specify the period for which the joint venture was to remain in force. The joint venture agreement however contains a provision regarding the defines "deadlock"
the igin clause no.11.
"deadlock" to mean Clause any dispute no.11.1 or disagreement in relation to any matter consisting the operation or management of the joint venture company or any of the terms in the agreement that remains unremedied or unresolved for a continuous period of 60 days. Clause no.11.2 to 11.5 provide for the procedure to be followed in the event of the deadlock. In the event of deadlock, one party is to give notice of the deadlock to the other;
each party is then to appoint Chartered Accountant for the valuation reports which are to be exchanged between the parties. The reports of the Chartered Accountants however, are not final. Thereafter a bidding process inter-se between the partners of the joint venture is to take place and the highest bidder is to buy out the other and become absolute ::: Downloaded on - 09/06/2013 13:33:58 ::: 27 owner of the joint venture. Several disputes have arisen between the parties regarding the management of the joint venture company. Allegations and counter allegations are made by the parties. It is not necessary to refer to the various allegations but suffice it to say that there has been unsavoury exchange of letters and e-mails. Finally, the defendant no.1 served on the plaintiffs a deadlock notice under clause 11 of the joint venture agreement. Though not required, the letter dated 27th no.1 had November 2007 gives reasons why the defendant come to the conclusion that there was a deadlock. The reasons interalia are that the defendant no.1 was requesting for information which was not being provided at the desired pace. The information related to Management Information System (MIS) was not being sent even on a monthly basis. International exploitation of the content was very late. Revenue breakups were not being provided. Break up of revenue generated through ring tones, wall papers etc break up was also not provided. There were disputes regarding the management of the joint venture company. This has resulted into ultimate termination of the joint venture by issuance of a deadlock notice after which with one party would buy out the other in the manner provided in clause 11 of the joint venture ::: Downloaded on - 09/06/2013 13:33:58 ::: 28 agreement. If there was a deadlock, can one of the say that the joint venture agreement thereafter remained in full force and effect? In my view the deadlock notice is the beginning of the end of the joint venture. The licence agreement therefore came to an end on receipt of a deadlock notice as the joint venture ceased to be in full force and effect. Learned counsel for the plaintiffs submitted that the joint venture does not come to an end fully on non service of a deadlock notice.
May
notice it
be so, but certainly on service of a cannot be said that the joint deadlock venture agreement thereafter remained in "full force and effect". Full meaning must be given to the words "full force and defect". Certainly fullness in the force of the joint venture came to an end after service of the deadlock notice.
20. Mr.Khambatta submitted that the deadlock notice was waived. He invited my attention to the letter dated 18th January 2008 written by the defendant no.1 to the plaintiffs wherein it is stated that in view of the meetings to be held in first week of February 2008, the deadlock notice was temporarily being kept in abeyance. This was accepted by the plaintiffs by their reply dated 30th January 2008. What is material to note is ::: Downloaded on - 09/06/2013 13:33:58 ::: 29 that the deadlock notice was not withdrawn but was only kept in abeyance. The only possible inference which can be drawn by reading the two letters as a whole was that procedure to be followed on a deadlock notice i.e. to say appointment of a chartered accountant, valuation of the company and bidding process between the parties was to be kept in abeyance. This is clear by use of the words "temporarily kept in abeyance". Naturally when the parties are in discussioni of resolution of the disputes blood to by negotiations, they may not flow which may affect the like negotiations.
bad By letter dated 11th March 2008, respondent no.1 clearly stated that the parties had agreed to discuss without prejudice to the deadlock notice.
In paragraph no.8 of the letter dated 11th March 2008, the defendant no.1 specifically stated that deadlock notice was kept on hold only to evaluate the results of post of deadlock meetings and since no consensus could be reached it was prudent to expedite severance process. In view of this, I am unable to agree with Mr.Khambatta that deadlock notice was withdrawn.
. Whether the suit and arbitration can go on simultaneously.
21. Mr.Tulzapurkar submitted that the subject ::: Downloaded on - 09/06/2013 13:33:58 ::: 30 matter of the arbitration petitions and the subject matter of the suit was the same. By filing of a subsequent suit the plaintiffs must be held to have withdrawn from and/or prevented themselves from referring any dispute to arbitration. In any event, the arbitration proceedings and the suit cannot go on simultaneously. The arbitral tribunal being a private forum must lead to the adjudication by the public forum. Countering the submission, Mr.Khambatta submitted that the points in issue in the suit arbitration and points proceedings in issue in the are not and could not proposed be the same. The suit relates only to grant of the internet/mobile rights of the content of the film "Tashan" covered by the licence agreement. The arbitration proceedings, however, relate to all the films covered by the licence agreement and therefore the subject matter of the two is not the same.
22. Suit no.959 of 2008 has been filed alleging the existence of the joint venture agreement the licence agreement dated 23rd April 2005. It is not disputed that the film "Tashan" is covered by the licence agreement dated 23rd April 2005. An injunction has been claimed in the suit on the premise that release of the internet/mobile content ::: Downloaded on - 09/06/2013 13:33:58 ::: 31 of the film "Tashan" by the defendant no.1 to defendant no.3 would amount to breach of the licence agreement. The defence of the defendant no.1 is not that the film "Tashan" is not covered by the licence agreement but is that though the film was covered by the licence agreement, the licence agreement stood terminated on issuance of the deadlock notice or otherwise. Grant of any injunctive relief in a suit would depend upon an affirmative finding on the issues: "Whether the licence agreement dated 23rd April 2005 is in full force and effect and continues to be binding on the parties? and Whether the licence agreement stands terminated and/or has ceased to be in full force and effect after the dead lock notice? The reliefs which are sought to be claimed in the proposed arbitration, as can be seen from the averments made in the petition under section 9 of the Arbitration Act are to restrain the defendant no.1 from granting internet or mobile rights in any of the films including "Tashan" to the defendant no.3.
The defence of the defendant no.1 in the arbitration petition again is the same viz. that the licence agreement dated 23rd April 2005 stands terminated on issuance of a deadlock notice or otherwise. The grant of any relief in the arbitration proceedings in favour of the plaintiffs ::: Downloaded on - 09/06/2013 13:33:58 ::: 32 would therefore depend upon an affirmative finding on the very same issues. viz. whether the licence agreement dated 23rd April 2005 is in full force?
Whether it stands terminated and/or has ceased to be in full force and effect after the deadlock notice? Undoubtedly, there would be some other issues but the common issues in both, suit and arbitration petitions are whether the agreement dated 23rd April 2005 was in force and defect and was binding on the parties. Unless the affirmative finding proceedings was recorded on the same issue in both the and the claimants in the arbitration proceedings would not be entitled to any relief.
That issue is the heart of the matter. The subject matter of the suit and the arbitration proceedings are the same.
23. In Doleman & Sons Vs. Ossett Corporation, 1912 3 K.B. 257, the Court of Appeal was required to consider whether two tribunals, each having jurisdiction to decide can simultaneously proceed to decide the same dispute between the same parties. The decision was followed by the Calcutta High Court in Ram Prasad Surajmull Vs. Mohan Lal Lachminarain, AIR 1921 Cal 770. The Division Bench of the Calcutta High Court following the decision of the Court of Appeal in Doleman & Sons held that ::: Downloaded on - 09/06/2013 13:33:58 ::: 33 there cannot be two tribunals each with jurisdiction to insisting on deciding the rights of the parties and to compel it to accept its decision. In Jai Narain Babu Lal Vs. Narain Das, AIR 1922 Lahore 369, the Lahore High Court also accepted the principle laid down by the Court of Appeal in Doleman's case and held that arbitral tribunal and court cannot proceed with the resolution of the same dispute simultaneously. In Firm Gopi Ram Guranditta Mal Vs. Pokhar Das & ors.
AIR
held that
1934 Lahore 887, a Division Bench of the Court arbitral tribunal would become functus officio in respect of the portion of the dispute referred to the public forum like an ordinary court. In Firm Jowahir Singh Sundar Singh Vs. Fleming Shaw & Co.Ltd. AIR 1937 Lahore 851 Tek Chand, Acting C.J. speaking for the Division Bench reiterated the same principle. In Whirlpool Corporation Vs. Registrar of Trade Marks, 1998, SCC (1) the Supreme Court held that where the two tribunals under the Trade Marks Act viz. Registrar of Trade Marks and the High Court have both jurisdiction to entertain, such jurisdiction can be exercised only by one to the exclusion of other the jurisdiction being concurrent. If they both exercise the jurisdiction, there was a possibility of conflict of decisions In Oil and Natural Gas ::: Downloaded on - 09/06/2013 13:33:58 ::: 34 Commission Vs. Western Company of North America, 1987 1 SCC 496, the Supreme Court held that if two tribunals simultaneously exercise the jurisdiction there was a likelihood of conflicting decisions resulting into legal chaos. The Supreme Court therefore held that only one tribunal would have a jurisdiction to the exclusion of other. The principle appears to be well settled that where two tribunals simultaneously have jurisdiction only one of them would exercise the jurisdiction. Section 10 of statutory the Code embodiment of Civil Procedure of that principle.
is only
It says
a
that no court shall proceed with the trial of any
suit in which the matter in issue is also directly
or substantial in issue in a previously restricted suit between the same parties. In case proceedings before two public forum like two courts, the rule is the forum wherein the proceedings were filed first would hear it to the exclusion of other. In my view, this principle of general application has not undergone any change under the Arbitration Act.
Section 8 contemplates that a judicial authority before which an action is brought in a matter which is subject of an arbitration clause shall, if a party so applies not later that it submitted his first statement on the substance of the dispute, refer the parties to arbitration. The Civil Court ::: Downloaded on - 09/06/2013 13:33:58 ::: 35 therefore would be required to refer the parties to arbitration when there is an arbitration agreement and one of the parties applies for the court to do so. Though section 8 of the Arbitration Act, 1996 does not provide for a stay of a suit like 34 of the Arbitration Act, 1940, in effect the suit would stand stayed and/or the court would not exercise the jurisdiction to hear the suit by referring the parties to arbitration. This also contemplates that only one forum could decide the matter. But when public no application under section 8 is filed, forum of Civil Court would hear the dispute the to the exclusion of a private forum of an arbitral tribunal. In the present case, the plaintiffs after having filed two arbitration petitions has chosen to file the suit. The decision of the arbitration proceedings and the suit would depend upon the decision of the very same issue. In the circumstances, the plaintiffs themselves have chosen to waive the jurisdiction of arbitral tribunal by chosing the public forum. The plaintiffs are therefore not entitled to any relief in the arbitration petitions.
24. In my view, the plaintiffs have not made out a strong prima facie for grant of relief of injunction in the suit or in the arbitration ::: Downloaded on - 09/06/2013 13:33:58 ::: 36 petitions. In my view, they have not established that the licence agreement continues to be in full force and effect. In view of this, plaintiffs are not entitled to any reliefs. Accordingly, the motion as well as arbitration petitions are dismissed.
25. After this order was pronounced, Mr.Khambatta learned counsel appearing for the plaintiffs the petitioners orally applied for stay operation of this order on the ground that the of plaintiffs wanted to approach the appellate forum.
Learned counsel for the defendants objected the prayer. Taking an overall view of the matter, operation of this order is stayed for a period of two weeks.
(D.G. KARNIK, J) ::: Downloaded on - 09/06/2013 13:33:58 :::