Bombay High Court
Onyx Musicabsolute.Com Pvt.Ltd vs Yash Raj Films Pvt.Ltd. & Ors on 4 July, 2008
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
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
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.
4. 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
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
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
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
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.
Submissions 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
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
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
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
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
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,
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.
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
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
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
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.
In 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
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,
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
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
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 [email protected]% 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
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.
(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
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
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
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
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
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
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
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
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
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
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)
