Bombay High Court
Board Of Control For Cricket In ... vs Complex on 14 December, 2010
Bench: S.J. Vazifdar
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ARBITRATION APPEAL (LODGING) NO.30742 OF 2010
Board of Control for Cricket in India, a society ]
registered under the Tamil Nadu Societies ]
Registration Act, 1975 having its Head Office ]
at Cricket Centre, Wankhede Stadium, `D' ]
Road, Churchgate, Mumbai 400 020 ]... Appellants
Versus
Jaipur IPL Cricket Private Limited, a company
ig ]
incorporated and registered under the ]
Companies Act, 1956, having its registered ]
office at Shop No.2A, Shanti Nagar, SRA ]
Complex, Mahakali Road, Andheri (East), ]
Mumbai - 400 093. ]... Respondent
Mr.C.A. Sundaram, Senior Counsel with Mr.T.N. Subramaniam, senior
counsel, Mr.P.R. Raman, Ms.Akhila Kaushik, Ms.Rohini Musa, Mr.Sharan
Jagtiani, Ms.S.P. Arthi, Mr.Indranil Deshmukh, Mr.Rahul Mascarenhas and
Mr.Adarsha Saxena i/b Amarchand & Mangaldas & S.A. Shroff & Co. for
the Appellants.
Mr.Janak Dwarkadas, Senior Counsel with Dr.Milind Sathe, senior counsel
Mr.Ashish Kamat and Ms.Preeti Singh i/b Crawford Bayley & Co. for the
Respondent.
CORAM : S.J. VAZIFDAR, J.
DATE : 14TH DECEMBER, 2010.
ORAL JUDGMENT :-
1. Admit. With the consent and at the request of the parties, the
appeal is heard finally.
2. This is an appeal under section 37 of the Arbitration and
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Conciliation Act, 1996 (hereinafter referred to as the "said Act") against an
order passed by the learned sole arbitrator dated 30.11.2010 in the
respondent's application under section 17 of the said Act.
3. The respondent had filed Arbitration Petition No.1322 of 2010
under section 9 of the said Act in this Court. By an order dated 19.11.2010,
the petition was disposed of in terms of the consent minutes of the order
by which all the disputes and differences between the parties stood
referred to the sole arbitrator and the pleadings before the court and the
pleadings to be filed, were to be treated as the pleadings for the purpose of
respondent's proposed application under section 17.
The respondent accordingly filed an application under section
17 before the learned arbitrator which was disposed of by the said order
dated 30.11.2010. It is this order which is challenged in the present appeal.
4. Mr.Sundaram, the learned senior counsel appearing on behalf
of the appellants submitted that the jurisdiction of a Court hearing an
appeal under section 37 from an order of the arbitral tribunal under section
17 is wider than the jurisdiction of a Court hearing a challenge to an award
filed under section 34. According to him, in an appeal under section 37
from an order of the arbitral tribunal under section 17, the Court is bound to
consider the merits de-novo.
Considering the urgency in the matter and conscious that I
must ensure that the parties have reasonable time to challenge any order
that I pass, I decided to hear the matter afresh on all questions including of
fact and of law. I have come to the conclusion that the order must be
upheld on merits not merely for the reasons stated therein but on other
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grounds and for other reasons as well. I, therefore, do not consider it
necessary to decide the question as to the scope of the jurisdiction of a
Court hearing an appeal under section 37 against an order of the arbitral
tribunal under section 17. While confirming the order I have put the
respondent on certain terms for the reasons and in the circumstances I will
state later.
5. The appellant is a society registered under the Tamil Nadu
Societies Registration Act, 1975. The Indian Premier League (IPL)
consists of and is managed by a Governing Council which is a sub-
committee of the appellants.
On 27.12.2007, the appellants issued an invitation to tender,
inviting persons/entities to bid for a franchise to own/operate a cricket team
in the IPL.
One Manoj Badale, Suresh Chellaram and Lachlan K. Murdoch
decided to bid for an IPL franchise.
6. On 19.1.2008, the respondent issued, inter-alia, the following
clarifications to the prospective bidders:-
"58. Section 2.3 of the ITT ("Eligibility to Bid")
mentions in the last line that "all Franchises will, for at
least the first three years, be located in India". Does this
mean that Bidders located outside India, will have to
operate a subsidiary company in India or can we decide
this structuring post the bid process.
Answer: All Franchises will play all their matches in India
during the first three years at least, but Franchisees from
overseas are entitled to bid for ownership of the
Franchises. BCCI need to know the possible structures
from which Franchisees based outside India. It is not a
requirement of IPL that Franchisees operate an Indian
subsidiary."
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Question No. 60 and clarification given by the Respondent
were as follows:"
60. Can a bidder form a new company after
winning the franchisee rights to hold and better manage
the franchise. (This new company would be a group
company or a company controlled by the same promoter.
This new company will meet all the bid criteria of the
BCCI.)
Answer: Yes this would be allowed subject to any parent
company guarantees which may be required by BCCI."
7. The respondent's case, which I have accepted, is that the said
Manoj Badale, Suresh Chellaram and L.K. Murdoch (hereinafter collectively
referred to as the "owners") on 22.1.2008 submitted a bid in the form of a
Letter of Eligibility, through Emerging Media (IPL) Ltd. "EMIPL", a company
registered in UK.
Clause 1.1(b) of the LOE required the details of all the
shareholders in the bidder to be stated. The name of the said Manoj Kumar
Badale was mentioned therein. Mr.Sundaram submitted that the
representation therefore, was that the EMIPL was the bidder and that the
sole shareholder thereof was Badale. He contended that as ultimately the
said Badale was not the only person in control of the respondent, there
was a misrepresentation when the franchises agreement was entered into
subsequently. The submission is incorrect, as I will demonstrate later.
Clause 1.1 (c) of the LOE required an organization chart of the
group including the details of those persons who were the ultimate
controllers of the bidder if the bidder formed a part of a group of
companies. The LOE furnished the following chart:-
EM Founder Shareholders Australian Shareholders SI Shareholders
| | |
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| | |
New Investment Co. New Investment Co. New Investment Co.
\ | /
\ | /
Bidco
Emerging Media (IPL) Ltd.
| 100%
|
Mauritian Holding Company
| 100%
|
Indian Operating Company
EMIPL was incorporated on 23.11.2007 in the name of
Intercede 22/46 Ltd., which was changed to the present name on
11.1.2008.
Clause 1.1(d) stated that one Fraser Castellino was the CEO
and said Badale and one Charles Mindenhall were the directors of EMIPL.
Clause 1.2 stated that EMIPL had paid the performance
deposit of Rs.2.00 crores.
Where the bid was submitted by a consortium, clause 1.3
required the relevant terms of the consortium arrangement to be provided.
The LOE in this regard stated "NOT APPLICABLE". Mr.Sundaram stated
that this was again a misrepresentation for the respondent's case today is
that there was a consortium of the said owners viz. the said Manoj Badale,
Suresh Chellaram and Lachlan Murdoch. This submission is also
unfounded, as I will demonstrate later. In fact the appeal was argued on
the basis that it was always represented that the said owners were
involved in the process from the beginning.
8. On 24.1.2008, the respondent was declared to be the
successful bidder and was awarded the Jaipur Franchise of the IPL. The
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franchise agreement was signed by the appellants on 14.4.2008. It is
however, convenient at this stage itself to set out the clauses thereof,
which pertain to the basis on which the respondent terminated the
agreement. The same read as under :-
"DEFINITION OF OWNER
"Owner" shall mean any person who is the
ultimate Controller of the Franchisee;
....................................
10. Sale of Franchise
10.1 ig The Franchisee has no right to
assign or delegate the performance of any
right or obligation under this Agreement.
However, subject to the remainder of this
Clause and to obtaining BCCI-IPL's prior
written consent: (i) the Franchisee will
have the right to sell the Franchise to any
person; or (ii) any person who Controls
the Franchisee will be entitled to effect or
otherwise cause to occur a Change of
Control of the Franchisee or a Listing (any
of the events described in (i) and (ii) being
an "Event" for the purposes of this
Agreement). Any person who acquires
the Franchise from the Franchisee shall
be a "Purchaser" (which expression shall
include any person who Controls the
Purchaser) and any person who acquires
Control of the Franchisee upon any
Change of Control of the Franchisee from
time to time shall be a "New Controller"
in each case for the purposes of this
Agreement. Upon any Event occurring
BCCI-IPL reserves the right to require a
new franchise agreement to be entered
into by way of replacement for this
Agreement for the remainder of the Term,
such agreement to be in the form of the
standard agreement offered by BCCI-IPL
to its Other Franchisees current at that
time (the "Replacement Agreement")
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10.2 The conditions required to
obtain BCCI-IPL's written consent to any
Event are as follows:
(a) no Event shall occur during the
first three years;
(b) any proposed Purchaser and/or
any New Controller shall meet
BCCI-IPL's standards with
respect to suitability, business
experience, financial status and
ability and the Franchisee shall
procure the delivery to BCCI-
IPL of all such information
relating to the proposed
Purchaser and/or any New
ig Controller as shall enable BCCI-
IPL to determine whether such
standards have been met;
.............................
11. Termination
11.1 Either party may terminate this
Agreement with immediate effect by
notice in writing if the other party has
failed to remedy any remediable material
breach of this Agreement within a period
of 30 days of the receipt of a notice in
writing requiring it to do so which notice
shall expressly refer to this Clause 11.1
and to the fact that termination of this
Agreement may be a consequence of any
failure to remedy the breach specified in it.
For the avoidance of doubt a breach by
the Franchisee of its payment obligations
under this Agreement or under Clause 22
shall be deemed to be a material breach
of this Agreement for the purposes of this
Clause.
11.2 Either party may terminate this
Agreement with immediate effect by
written notice if the other party commits or
permits an irremediable breach of this
Agreement or if it is the subject of an
Insolvency Event.
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11.3 BCCI-IPL may terminate this
Agreement with immediate effect by
written notice if:
(a) there is a Change of Control of
the Franchisee (whether direct or indirect)
and/or a Listing which in each case does
not occur strictly in accordance with
Clause 10;
(b) the Franchisee transfers any
material part of its business or assets to
any other person other than in accordance
with Clause 10;
(c) the Franchisee, any
Franchisee Group Company and/or any
Owner acts in any way which has a
material adverse effect upon the
reputation or standing of the League,
BCCI-IPL, BCCI, the Franchisee, the
Team (or any other team in the League)
and/or the game of cricket.
..........................
11.7 For the purposes of this
Agreement "Control" means in relation to
a person the direct or indirect power of
another person (whether such other
person is the direct or indirect parent
company of the first mentioned person or
otherwise) to secure that the first
mentioned person's affairs are conducted
in accordance with the wishes of such
other person:
(a) by means of the holding of any
shares (or any equivalent securities) or
the possession of any voting power; or
(b) by virtue of any powers
conferred on any person by the Articles of
Association or any other constitutional
documents of any company or other entity
of any kind; or
(c) by virtue of any contractual
arrangement
and "Controlled" and "Controller" shall
be construed accordingly and a "Change
of Control" shall occur if (i) a person who
Controls another person ceases to do so;
or (ii) a different person acquires Control
of such other person (whether before or
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after or as a consequences of any Listing);
or (iii) if any person acquires Control of
another person in circumstances where no
person previously Controlled such other
person. For the purposes of this Clause
11.7 (and in connection with the use in
this Agreement of the terms defined in this
Clause 11.7) all of the members of any
consortium, partnership or joint venture
which has any interest (direct or indirect)
in the Franchisee shall be deemed to be
one person".
..............................
12.1 This Agreement (and the
Regulations), constitutes the entire
agreement between the parties in relation
to the Franchise and supercedes any
negotiations or prior agreements in
respect thereof and;
(a) this Agreement clearly
expresses the parties' requirements and
intentions in connection with the matters
contemplated hereby;
(b) in entering into the Agreement
each party confirms that it has not relied
on any warranties or representations
which are no expressly set out in the
Agreement; and
(c) the parties agree that the sole
remedy for any breach of any of the
warranties or representations included in
this Agreement shall be a claim for breach
of contract.
............................
20.9 References to a "person" shall
include an individual, corporation,
unincorporated association, firm or any
other entity of any kind and references to
the "termination" of this Agreement shall
include its termination or expiration."
9. It would also be convenient at this stage to refer to the letter of
termination dated 10.10.2010 which has been stayed by the learned
arbitrator and Mr.Sundaram's further submissions in this appeal, before
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referring to the fact of the case.
In paragraph 4 of the letter of termination, it is stated that the
appellants had undertaken an internal investigation and found serious
irregularities in the respondents corporate structure contrary to the
proposed structure submitted in the LOE. The letter stated that EM
Sporting Holdings Ltd., a company incorporated in Mauritian (EMSHL) and
EMIPL held 9999 shares and 1 share respectively in the respondent. It was
further stated that the shares of EMSHL were in turn held as under :-
Name No.of shares held
Emerging Media (IPL) Ltd.
ig 12,64,688
Tresco International Limited 17,23,008
Blue Water Estate Limited 4,58,320
Kuki Investment 4,56,500
It was accordingly stated that the corporate structure of the
respondent was totally different from the one mentioned in the LOE ; that
the Mauritian Holding Company was not a 100% subsidiary of EMIPL/the
Bidco; that what was represented to the appellants was that there were
three shareholders of the EMIPL viz. the said Badale, a New Australian
company and another company as a Strategic Investor, but that no such
structure was in place.
It was further stated that the presence of EMIPL as a 100%
holding company of the Mauritian company, which was the basis of the
structure had been violated. It was further alleged that there was a
violation of clause 3.2 of the LOE and 13.3 of the franchise agreement and
that the above breaches were irremediable which entitled the appellants to
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terminate the franchise agreement.
The appellants stated that when the respondent was
incorporated on 8.3.2008, there were only two shareholders viz. said
Castellino and Barthakur, who held 5000 shares each. In other words, none
of the owners were the shareholders of the respondent and no back ground
was provided to suggest any connection between the Bidco/EMIPL and the
shareholders. The transfer of Castellino's 5000 shares to EMSHL on
3.10.2008 caused a change of the controlling interest of the respondent.
On 27.1.2009, the said Barthakur transferred his 4990 shares to EMSHL
and ten shares to EMIPL. According to the appellants, there was a change
of control of the franchise within the meaning of that expression in clause
10 of the franchise agreement twice within three years of the franchise
agreement unknown to the appellants.
Paragraph 10 of the letter of termination summarised the
violations as under:-
"10. Hence, it is found that you have committed
three violations viz.,
a) Violated the solemn declaration given in the
letter of eligibility that the Emerging Media (IPL) Limited,
UK (Bidco) would be the entity controlling the Indian
Holding Company operating the Franchise though its
wholly own Mauritian subsidiary.
b) Stepped into the shoes of the original bidder
on the date of award of the Franchise i.e., 14.4.2008
without being a " group company or entity controlled by
the bidder" and
c) Clear violation of the Franchise agreement,
more particularly clause 10.1, 10.2(a) and 10.3".
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10. On 24.1.2008, EMIPL was declared as the successful bidder
for and was awarded the Jaipur Franchise of the IPL.
11. The respondent's case always was that from the beginning the
franchise was to be owned, controlled and managed by EMIPL, the shares
of which were to be held/controlled by the said owners; that they had
initially decided to acquire the franchise through EMIPL, which was then
controlled by the said Badale and that they had agreed between
themselves that in the event of EMIPL succeeding in the bid, they would
set up a new company, owned and controlled by them which would own
the franchise and the IPL team.
The respondent's case is that for variety of reasons including
tax related issues and constraints of time, in February, 2008, the owners
decided to control the respondent, which was yet to be incorporated,
through a Mauritian Holding Company and to eliminate the intervention of
EMIPL. In other words, the corporate structure depicted in the LOE was to
have one tier less by eliminating the Bidco/EMIPL.
12(A) The respondent was incorporated on 8.3.2008 with an initial
share capital of Rs.1,00,000/- in which 10,000 shares of Rs.10/- each. The
said Barthakur and Castellino held 5000 shares each, which constituted
the entire issued equity share capital of the respondent.
(B). A franchise agreement between the appellants and the
respondent was executed on 14.4.2008.
(C). The Mauritian Holding Company, EMSHL was incorporated on
5.5.2008. According to the respondent, the owners held shares in EMSHL
as per the ratio indicated in the LOE through their respective investment
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companies. The Bidco/EMIPL was controlled by the said Badale and Blue
Water Estate Limited and Tresco International Limited were controlled by
the said Lachlan K. Murdoch and Suresh Chellaram respectively. It will be
evident a little later that the appellants were aware of the existence of each
of these companies although Mr.Sundaram had denied the same.
13. Mr.Sundaram stated that for the purpose of this appeal he
would proceed on the basis that the representation to the appellants
always was that the said owners Manoj Badale, Suresh Chellaram and L.K.
Murdoch would be in control of the Bidco/EMIPL and the franchisee.
14.
In view thereof, it is not necessary to set out the myriad facts
and circumstances which would establish the same. Suffice it to note that
from the beginning the appellants always addressed the entire
correspondence to each of the owners by name. This included a separate
invitation to each of the owners for the opening ceremony for the first IPL
season.
15 The learned arbitrator's finding that the correspondence
suggested that the fact that the said three persons were the owners, was
to the knowledge of the appellants cannot therefore be faulted.
16. It is difficult to imagine that the appellants were unaware of the
shareholding pattern of EMIPL or the respondent when the LOE was
submitted and the Franchise Agreement was executed.
The appellants acted not merely on the basis of the expertise
of their own officers but on the advise and with the assistance of
International Management Group (IMG), a sports management consultancy
which provided legal and other services to the IPL. IMG admittedly co-
14 aral30742-10
ordinated with the successful bidders for preparing the final documentation
and carried on correspondence with them.
A lot appears to have transpired between the parties orally as
is evident from the e-mails and from various other facts. For instance,
though at the material time, there is no mention of each of the said owners
and their precise interest in the entire matter, the correspondence was
addressed specifically to each of them.
Mr.Sundaram constantly emphasised that control of the
franchise and the owner of the franchise is of "paramount importance" for a
variety of reasons which go beyond the contractual relationship between
the parties and extends, inter-alia, to public and national interest. Looking
to the nature of the IPL and the amount of money involved, I would
presume he is right. It is difficult then to believe that the appellants would
not even have made the elementary enquiry regarding the identity of the
shareholders of the Bidco/EMIPL and the respondent.
Absent any indication to the contrary, it is a reasonable
presumption that the appellants were fully aware of the owners
participation in the matter and de-facto involvement in EMIPL and the
respondent.
17. Mr.Sundaram contended that the basis on which the franchise
agreement was executed was that the Bidco i.e. EMIPL would always be in
the picture and would control the Mauritian Holding Company. He
submitted that the reason why the corporate structure mentioned in the
LOE was accepted was that EMIPL was registered in UK which would have
enabled the appellants to obtain information regarding the company easily.
15 aral30742-10
This, he submitted, would in turn enable the appellants to keep control over
and know who they were dealing with. Mr.Sundaram also submitted that it
was of vital importance that each tier of the corporate structure indicated in
the LOE ought to have remained throughout. Mr.Sundaram further
submitted that there was a misrepresentation by the owners at the time
the LOE and the franchise agreement were entered into to the effect that
the owners and not the said Barthakur and the said Castellino would
be/were in control of the respondent, whereas in fact it is the said
Barthakur and Castellino who held all the shares in the respondent.
18.
The submissions are really, if not an after thought, raised in
hindsight. Neither the invitation to tender nor the LOE even remotely
indicated that it was a fundamental requirement of the appellants that the
bidder ought to be registered in UK or in any other particular country or
countries. If this was so crucial, it would have been mentioned in the IIT or
the agreement which have been prepared in great detail and with
considerable expertise.
In answer to Question 58 set out earlier, the appellants stated
that it was not a requirement of IPL that franchisees operate an Indian
subsidiary. If the place of registration of a foreign company was so
important, the appellants would at least at this stage have stated so.
19. Nor is there anything in any document or otherwise which
indicates that it was an important term of the contract that the corporate
structure mentioned in the LOE ought to remain exactly as it was
mentioned therein. The documents including the LOE are in fact to the
contrary. The submission militates against what is stated in the LOE. From
16 aral30742-10
the LOE, it is also clear that the entire manner in which the control by the
owners of the franchise was to be exercised was kept open and subject to
adjustments and changes. This is evident from the fact that the LOE itself
stated that the details of the exact corporate structure were being finalized
and the same would be subject to meeting the legal and local jurisdiction,
controls and regulations. The diagramatic representation of the corporate
structure was only an anticipated one - it was not final.
Neither the LOE nor the franchise agreement supports the
submission either. If the corporate structure was to be frozen as per the
LOE, it would have been so provided in the ITT, the clarifications issued or
the franchise agreement. Each of them, in fact, suggest the contrary. At the
cost of repetition, it was clearly stated that the corporate structure
mentioned in the LOE was only anticipated, that the details were being
finalized and would be subject to various factors.
20. The fact that the final mode of control by the said owners of the
respondent was different from the one suggested in the LOE, is therefore
of no relevance. It did not constitute a misrepresentation of facts by the
Bidco/EMIPL, the respondent or the owners.
21. As will be evident hereinafter all this was not even the
appellants' grievance at the material time. The respondent was aware of
the mode of control of the franchise at all times prior to April, 2009 when,
they now allege they became aware of the said breaches.
22. That the appellants themselves not only did not consider this to
be so, is not only evident but virtually established not only by the exchange
of correspondence I have referred to, but more important by the appellants'
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conduct pertaining to the issuance of the parent company guarantee.
23. The exchange of correspondence regarding the parent
company guarantee is of considerable importance in establishing that the
respondent never considered the removal of any tier in the corporate
structure indicated in the LOE to be of any significance or importance and
that the appellants were aware that the respondent was ultimately
held/controlled by EMSHL which, in turn, was held/controlled by the said
owners through their respective investment companies.
24(A). By an e-mail message dated 23.5.2008, one Ms.Vandana
Gupte, of IMG, called upon the respondent to furnish a corporate
guarantee from EMIPL in respect of the respondent's obligations under the
franchise agreement.
(B). The respondent by an e-mail message dated 4.6.2008 stated
as under:-
"I would like to share some clarifications in relation to the
corporate structure of the above franchise and obtain
your consent prior to approving the attached corporate
guarantee ("Guarantee").
As you are aware, Jaipur IPL Cricket Private Limited (the
"Company") entered into the Franchise Agreement with
the BCCI-IPL.
The first clarification we would like you to be aware of is
that the Company is not owned by Emerging Media (IPL)
Ltd. As indicated in your email below, but rather by a
Mauritian parent company, Holding Limited (the "Parent
Company") registered in Mauritius under number
080058/C1IGBL whose registered office is at 5th Floor,
& R Court, 49 Labourdomats Street, Port Louis, Mauritius.
The second clarification we seek is whether the
Guarantee can be entered into by the Corporate
Company Jaipur IPL Cricket Private Limited, given that it
is responsible for all operational and commercial
18 aral30742-10
obligations of the franchise. Failing that, we will proceed
to enter into the Guarantee with the Parent Company, but
would seek your confirmation in either case."
I will assume as correct Mr.Sundaram's contention that the
clarification is no different from what was stated in the LOE, as the mere
fact that the Mauritian Holding Company, EMSHL was stated to be the
parent company would not indicate that EMIPL was no longer in the
picture. He submitted that it was so understood by the appellants as is
evident from the appellants' e-mail message in reply on the same day
which reads as under:-
"To answer your queries, firstly, a guarantee is always
given by a third party to secure the financial obligations of
another. Therefore in order to secure the financial
obligations of the Jaipur Franchisee, it is imperative that a
corporate guarantee is given by its parent company and
not by the Jaipur Franchisee itself. Secondly, in this case,
though we understand that the Mauritian company is the
holding company of Jaipur (IPL) Cricket Pvt. Limited, we
would like the UK company which, as per information
furnished to us earlier, is the ultimate parent company of
the Jaipur Franchisee, and also the biding company, to
furnish a corporate guarantee."
25. The subsequent e-mail messages however could have left no
room for doubt in the appellants' mind regarding the elimination of EMIPL
in the structure proposed in the LOE. The respondent's e-mail message of
4.6.2008 reads as under :-
"Thank you for your swift response. I think it would be
valuable if we had a telephone conversation to discuss
the arrangement we had in place and where we are now
in terms of the corporate structure. However, for the
avoidance of doubt, what I would say now is that the
Mauritian holding company is the only ultimate parent
holding company of the Jaipur Franchise."
The last sentence in the e-mail message is clear. It leaves no
19 aral30742-10
room for doubt. In the structure indicated in the LOE, the Mauritian Holding
Company was in turn to be held by EMIPL. If the Mauritian Holding
Company was now the "only" ultimate parent holding company of the
respondent, there could be no question of it in turn being held by EMIPL.
26. Faced with this, Mr.Sundaram submitted that although this e-
mail message indicated that the EMSHL was no longer held by EMIPL, it
did not suggest a disappearance of EMIPL. He suggested that the e-mail
message still suggested that EMIPL was "somewhere in the picture".
27. I fail to understand where in the picture, where in the corporate
structure mentioned in the LOE, EMIPL could find a place in view of this e-
mail message. He suggested that the appellants may have thought that
there was a reversal of positions to wit EMIPL was now held by EMSHL.
I am afraid the submission cannot be accepted at all. Neither
the appellants nor IMG have even suggested anything to this effect.
Even if they so speculated or presumed, it would be contrary to
the corporate structure suggested in the LOE. If this structure was to
remain frozen, as is now contended by Mr.Sundaram, even such a
presumption would have evoked an objection from the appellants.
28. The doubt, if any, is set at rest by two further e-mail messages
dated 5.6.2008 and 10.6.2008 addressed by the respondent to the
appellants and by the appellants to the respondent respectively.
(A) The e-mail dated 5th June, 2008, reads as under :-
"Many thanks for your time in speaking to me today, I
think we had a useful call and you asked if I would
summarise our discussion.
20 aral30742-10
I gave a brief background to the process in which the
same group of shareholders that have currently invested
in the Mauritius parent company ( Holding Ltd.), provided
funds to the UK entity, Emerging Media (IPL) Limited, to
merely facilitate making payment of the initial deposit of
US$ 5m as part of the ITT. This step was deemed
necessary since we were concurrently in the process of
incorporating both the Mauritian Parent and the Indian
Subsidiary that entered into the Franchise Agreement.
Once the companies were incorporated, the same
respective shareholders hold their direct investment
through the Mauritian parent company and are obligated
to meet all funding requirements of the Indian subsidiary.
Therefore, as discussed, I believe it makes sense for the
Mauritian parent to provide the guarantee and not the UK
Company Emerging Media (IPL) Ltd."
(B)
In fact the said Ms.Vandana Gupte's response of 10.6.2008,
indicates that the appellants understood that EMIPL was no longer in the
picture and accepted the same. The e-mail message dated 10.6.2008
reads as under :-
"Thanks for summarizing the corporate structure of the
Jaipur Franchisee. Based on the discussions had with
you, we are okay with the Mauritian parent company to
provide the required guarantee. Please let me know if you
have any further queries."
The e-mail message of 5.6.2008 proves the fact that the
respondent informed the appellants inter-alia that the initial deposit of US $
5 million was only routed through EMIPL as the owners were in the process
of incorporating the Mauritian Holding Company viz. EMSHL and the
respondent company and that once they were incorporated, the owners
would hold their investments in the respondent 'through the Mauritian
parent Company". In other words, the respondent informed the appellants
that the owners no longer held the respondent through EMIPL. It is for this
reason that the respondent informed the appellants that "it makes sense for
21 aral30742-10
Mauritian parent company to provide the guarantee and not the UK
company Emerging Media (IPL) Ltd." The appellants understood the
purport of the correspondence correctly. They had no doubt in their mind.
The doubt now sought to be created is not warranted. It is clear beyond
doubt at least at this stage therefore that the corporate structure indicated
in the LOE was tentative and subject to such changes that the owners
desired to bring about in the same. The same however, was subject to the
owners retaining control within the meaning of that expression in the
franchise agreement of the franchise and the holder thereof i.e. the
respondent.
29. Mr.Sundaram submitted that the entire order passed by the
learned arbitrator is vitiated on account of two patent errors apparent on
the face of the order. Firstly, he submitted that the learned arbitrator had
wrongly come to the conclusion that the relevant date was the date of the
franchise agreement and not the date of the LOE. Secondly, he submitted
that the learned arbitrator wrongly observed that there was admittedly no
change in the control after the date of the franchise agreement.
I will assume as suggested by Mr.Sundaram that the relevant
date is the date of the LOE and not the date of the franchise agreement. I
will also assume that the learned arbitrator has wrongly observed that there
admittedly was no change in the control after the execution of the franchise
agreement. In the facts of this case, it would make no difference
whatsoever.
30. It is not the respondent's case that there was a change in the
control at any stage, at any point of time even prior to the LOE. The
22 aral30742-10
respondent's consistent stand throughout was that it was the said owners,
who were and who continued to be in control of the franchise and the
respondent. The learned arbitrator has in fact considered this aspect of the
matter in detail.
On facts, I find the respondent's case in this regard to be well
founded and established at least at this stage. There is nothing on record
that suggests the contrary.
31. Mr.Sundaram further submitted that although the
representation prior to the execution of the franchise agreement was that
the said owners would own the franchise and control the same, they were
not even the shareholders in the respondent, when it was incorporated on
8.3.2008.
32. As I observed in my judgment dated 8.3.2010 in KPH Dream
Cricket Pvt. Ltd. versus Board of Control for Cricket in India, Arbitration
Petition (Lodging) No.1303 of 2010, control is a matter of substance and
not of form. A person can hold shares without any control over them or the
voting rights in respect thereof. Conversely, a person can exercise control
over shares, including the voting rights in respect thereof without being a
registered holder thereof. The question therefore is whether the said
owners in fact controlled the shares of the respondent at all material time. I
believe they did. I also believe that the appellants knew and accepted the
fact that they did it.
33. One must remember that the appellants had engaged the
services of the IMG and that events transpired rapidly in a short period of
time. We have today the benefit of hindsight. If we were to take ourselves
23 aral30742-10
back in time to when it all began a few important aspects would be
obvious. The appellants and the bidders may well have been positive about
the success of the IPL but could not have been sure of the same. They
obviously had not assessed or even have had a reasonable idea about the
extent of the IPLs success. This is evident, inter-alia, from the fact that
whereas the franchises were first auctioned in the year 2008 for between
US $ 65 million and US $ 75 million, Mr.Sundaram himself stated that two
new franchises were recently auctioned for an average of US $ 345 million.
The appellants floated the tender on 27.12.2007. The clarifications were
issued to the bidders on 19.1.2008. The bids were submitted on 22.1.2008.
The first IPL season was to commence in April, 2008 i.e. within about three
months. The LOE, therefore, understandably recorded that what was
stated therein was only a possible structure and was subject to change. It
is in this background that the manner in which the owners conduct
themselves must be examined. Considering the above facts, I am inclined
to accept, as did the learned arbitrator, the respondents case about the
manner in which the final corporate structure was arrived at and that it was
in conformity with the bid and the Franchise Agreement.
34. Mr.Dwarkadas's submission that the said Castellino and
Barthakur held the shares merely as agents and nominees on behalf of the
said owners, is well founded for more than one reason.
35. Firstly, as I held earlier, the appellants themselves considered
the said Manoj Badale, Suresh Chellaram and Lachlan K. Murdoch to be
the bidders and owners of the franchises. The appellants always presumed
and proceeded on this basis. There is no other explanation for the entire
24 aral30742-10
correspondence having been addressed specifically to them by name. The
correspondence was indeed also addressed to the said Castellino for he
was stated in the LOE to be the C.E.O. of EMIPL. I find it difficult to accept
that the appellants especially with the assistance of IMG never bothered to
ascertain who the respondent's shareholders were. It is reasonable to
presume that they did. It is significant that IMG has not filed a single
affidavit either in this Court or before the learned arbitrator to show that
they never even bothered to find out in whose names the respondent's
share were held.
36.
As rightly pointed out by Mr.Dwarkadas, even after the
respondent was incorporated, the appellants dealt with the said owners
recognizing them to be the owners of the franchise and in control of the
respondent.
37. That the said owners were in fact in control of the respondent
and that the said Bathakur and Castellino held shares on their behalf, is
also evident from the fact that it is nobody's case that even the initial
deposit of US$. 5 million was made to any extent by the said Bathakur and
Castellino. It is the owners who had put up the security deposit of US$. 5
million with the bid. The amount fixed for the first year was US$ 6.7 million.
The security deposit of US$ 5 million was adjusted against the same. A
substantial part of the balance of US $ 1.7 million i.e.,a rupee equivalent of
Rs.3,29,40,000/- was paid by EMSHL. The said Bathakur and Castellino
had never laid claim on the said shares. Their conduct has in fact been
consistent with the appellants' case. On 29.9.2008, the said Castellino
transferred his 5000 shares held by him in the respondent to EMSHL. On
25 aral30742-10
27.1.2009, of the 5000 shares of the respondent held by him, the said
Bathakur transferred 4990 to EMSHL and 10 shares to EMIPL as a
nominee. If indeed the said Castellino and Barthakur were also the
beneficial owners of the said shares, it is difficult to understand why they
would virtually gift the same to the said owners.
38. With these transfers the modified corporate structure
contemplated by the owners in February 2008 to control the respondent
through the Mauritian Holding Company EMSHL directly and eliminating
the Bidco/EMIPL was complete.
39.
Before the learned arbitrator, an agency agreement was sought
to be relied upon by the respondent in support of the contention that the
said Bathakur and Castellino held the shares only as the agents/nominees
and on behalf of the owners. Mr.Sundaram submitted that the agreement
is fabricated as is evident from the fact that it had not been signed by the
said Castellino but has been signed only by the said Bathakur, allegedly on
behalf of the respondent.
40. It is not necessary to consider this documentation for in any
event the company cannot without authority bind a shareholder. Thus even
assuming that this agreement was genuine, it at the highest bound the said
Bathakur who signed the same but not the said Castellino. The fact that
the said Badale signed the same for and on behalf of the respondent would
make no difference. It is difficult however, at this stage to say that the
document is fabricated. I will however, in the present appeal ignore the
document altogether as in any event the other facts and circumstance
establish the respondent's case in regard to the nature of the shareholding
26 aral30742-10
of the said Barthakur and Castellino.
41. In the circumstances, I am in respectful agreement with the
learned arbitrator that the respondent's case in this regard ought to be
accepted. The termination on the ground that there was change in the
control after the franchise agreement was entered into is unsustainable.
42. In this view of the matter, I do not consider it necessary to refer
to or deal with certain clarifications which were sought by the respondent
and furnished by the appellants regarding their entitlement to sell the
shares. Suffice it to note that the appellants confirmed that so long as the
owners retained control, it would not trigger an event within the meaning of
that expression in clauses 10 and 11 of the franchise agreement.
43. I do not consider important, the fact that the LOE in paragraph
1.3 stated that the terms of the consortium arrangement were not
applicable. The respondent obviously stated the same to be in-applicable
only because the bid was formally submitted in the name of a company viz.
EMIPL.
44. Equally unfounded is the contention that the representation in
the LOE was that the Bidco i.e. EMIPL would be controlled solely by
Badale. The chart in the LOE of the corporate structure itself indicated the
contrary. The Bidco/EMIPL only happened to have at that time the said
Badale as the sole shareholder. (The law in UK permitted a single
shareholder.) The chart in fact indicated that the Bidco/EMIPL would be
held by others as well. In fact Badale was shown to have only a 36.70%
share in the respondent through his company depicted in the chart
"Founder New Company" which companies shares were to be held by "EM
27 aral30742-10
Founder Shareholders".
45. It was also evident to the respondent from the LOE itself that
Badale was never to be the sole owner of the franchises. Nor was he to be
the only person to participate in the matter. The structure stated in the LOE
establishes beyond doubt that the Bidco/EMIPL was to be controlled by the
three owners through their respective corporate entities and also that the
Bidco/EMIPL would thereafter control the Indian operating company i.e. the
respondent. It is inconceivable that the appellants and their consultants,
IMG, were led astray by anything contained in the LOE in this regard.
46.
This brings me to Mr.Sundaram's submission that the
appellants discovered only during the hearing before the arbitrator last
month that the shares of the Mauritian Holding Company, EMSHL are held
by "some three un-known entities" viz. Blue Water Estate Limited, Tresco
International Limited and EMIPL. He stated that the appellants knew
nothing about Blue Water Estate Limited and Tresco International Limited
till the respondent relied upon the alleged shareholders agreement dated
29.5.2008 entered into between the EMIPL, Blue water Estate Limited,
Tresco International Limited and EMSHL in the application under section
17 before the learned arbitrator.
47. This contention on facts is established to be incorrect. As
Mr.Dwarkadas rightly pointed out, the appellants were at all material times
aware of the existence of each of these entities including Blue Water
Estate Limited and Tresco International Limited and recognized the same
and acted upon the basis of their interest in the respondent. The question
of suppression in this regard therefore, does not even arise.
28 aral30742-10
48. Firstly, in paragraph 11 of Arbitration Petition (Lodging) No.
1303 of 2010, the respondent averred that it had been agreed between the
owners that the said Badale, Murdoch and Chellaram would hold 36.70%,
13.30% and 50% respectively in EMSHL through their respective
investment companies viz. EMIPL, Blue Water Estate Limited and Tresco
International Limited. In paragraph 17 of the affidavit in reply, the
appellants stated that it was irrelevant whether or not the respondent was
promoted, incorporated, owned and controlled by the alleged owners or
not. In other words, there was nothing specifically stated and no surprise
expressed about the reference to Blue Water Estate Limited and Tresco
International Limited.
49. What is even more important however, is the correspondence
which establishes the appellants' knowledge at least from 3.3.2009 about
the existence and involvement of Blue Water Estate Limited and Tresco
International Limited in the respondent.
50. On 2.2.2009, one Raj Kundra, though his investment company
Kuki Investments Limited acquired 11.70% of the equity shares in EMSHL.
The appellants were obviously aware of the same as by an e-mail message
dated 11.2.2009, addressed to the respondent, they stated that they had
heard that there was a change in the ownership structure of the respondent
and offered their congratulations. The appellants requested the respondent
to send a revised ownership structure and to confirm the terms of the sale
of the said shares.
The respondent by an e-mail message dated 12.2.2009
thanked the appellants for the felicitation. A few more e-mail messages
29 aral30742-10
were exchange between the parties.
By an e-mail message dated 27.2.2009, the respondent
informed the appellants about Kuki Investments Limited having acquired
the said shares in EMSHL describing EMSHL to be "the parent company of
the franchise owner, Jaipur IPL Cricket Pvt. Ltd.".
What is of vital importance and as noted by the learned
arbitrator is that by a further e-mail message dated 3.3.2009, the
respondent furnished the following details regarding the shareholding
pattern before and after the transaction with Kuki Investments Limited:-
Shareholder Number Shares Shares Shares
of sold issued post deal
shares
Emerging 1376250 (111562) 1264688
Media (IPL)
Ltd.
Tresco 1875000 (151992) 1723008
International
Ltd.
Blue Water 498750 (40430) 458320
Estate Ltd.
New 303984 152516 456500
Investor
3750000 - 152516 3902516
30 aral30742-10
51. It is now established beyond doubt that at least as on 3.3.2009,
if not earlier, the appellants were fully aware of the fact that EMSHL was
the parent/holding company of the respondent and that the shareholders of
EMSHL included Blue Water Estate Limited and Tresco International
Limited. In other words, the appellants did not come to know about the
existence and involvement of the Tresco International Limited and Blue
Water Estate Limited for the first time only when the said shareholder
agreement dated 29.5.2008 was sought to be relied upon in the application
under section 17 before the learned arbitrator.
52. What is also significant as submitted by Mr.Dwarkadas is the
fact that the appellants not only made no grievance about but
congratulated the respondent regarding the transaction with Kuki
Investments Limited. The appellants were obviously aware of the
involvement of the Blue Water Estate Limited and Tresco International
Limited for had they not been so aware, they would immediately have
responded to the e-mail message dated 3.3.2008 raising a query about the
same. Their silence from 3.3.2009 upto the date of the termination of the
agreement by the said letter dated 10.10.2010, has not been explained.
The only logical inference is that the appellants had accepted the fact that
there was no change in the control and that the said owners continued to
be in control of the respondent through their shareholding in EMSHL and
that their holding in EMSHL was through their investment companies
EMIPL, Blue Water Estate Limited and Tresco International Limited.
53. Mr.Sundaram then submitted that there are various
31 aral30742-10
inconsistencies in an alleged shareholding agreement dated 29.5.2009. He
stated for instance that the agreement referred to the Mauritian Holding
Company and not EMIPL to be the Bidco. This, he submitted, is contrary to
the LOE. Further he stated that there was a reference to Illyrig Pty. Ltd.
Moreover he stated that the agreements had apparently been executed by
or on behalf of certain other companies in turn on behalf of Tresco
International Limited.
54. Mr.Dwarkadas rightly submitted that these contentions ought to
have been pleaded. I do not intend being technical. However, it was
necessary for the appellants to have raised such contentions firstly on
pleadings and secondly before the learned arbitrator. It would be unfair to
the respondents in the absence thereof to permit them to be raised in an
appeal under section 37. Moreover, these contentions have not even been
taken in the appeal. There could well be several obvious explanations, I
however do not intend speculating the same in the absence of pleadings.
55. By April, 2009, the respondent had participated in the first two
IPL seasons without any objection from the appellants including on the
ground that the respondent had not answered the requisitions raised in the
appellants' e-mail message dated 31.3.2008. It is significant that Ms.
Gupte of IMG, by an e-mail dated 31.3.2008 thanked the respondent's
officer for his response and stated that they would put in the details
accordingly. The response was obviously to the appellants earlier e-mail
dated 31.3.2008.
56(A). By an e-mail dated 10.7.2009, the appellants requested the
confirmation of the shareholding list as on 1.4.2008 and on 31.3.2009 and
32 aral30742-10
the movements during the year either as transfer of shares or by issuing
fresh capital.
(B). The respondent by an e-mail message dated 17.7.2009
forwarded as an attachment thereto, the full share register of "parent
company EM Sporting Holdings Limited upto 31.3.2009". The attachments
through inadvertence remained to be annexed to the appeal at pages 440
and 441. The appellants are granted leave to amend the appeal by adding
the same as pages 440 and 441. It was further stated that the details
regarding the respondent would be forwarded the same day or the next
day. The attachment gives the details of the holdings of the shareholders,
including Tresco International Limited, Blue Water Estate Limited and
EMIPL. It also gives the details of the transfers of the shares.
(C). The respondent addressed a further e-mail dated 18.7.2009 to
the appellants attaching this time the details regarding the respondent's
share register.
57. Thus in any event by July, 2009, all the details, as requested by
the appellants, were forwarded to the appellants. The appellants did not
raise any further queries regarding the further shareholding of the
shareholders including of Tresco International Limited and Blue Water
Estate Limited. This further establishes that the appellants were fully aware
of the existence and involvement of all the shareholders of the respondents
prior to the arbitration proceedings.
58. The impugned order passed by the learned arbitrator read as a
whole makes it clear that the respondent's stand throughout has been that
it is the same owners, who have been involved in the entire transaction
33 aral30742-10
throughout. It was never the respondent's case that there was a change in
the owners or a change in the control at any time prior to the LOE or
thereafter. A solitary sentence in the order that there was admittedly no
change in the control after the franchise agreement, must be read in this
contest. Even otherwise, it would make absolutely no difference to the
merits of the respondent's case in view of the finding of fact both by the
learned arbitrator and in this appeal, that there was no change in the
control or change in the owners at any stage.
59. Thus on merits, the respondent has made out more than just a
strong prima-facie case.
60. In view of the conclusions I have reached on the merits of the
case, it is not necessary for me to consider Mr.Dwarkadas's submission
that the appellants had in any event waived the objections and have
forfeited their right to terminate the agreement. The submission was based
on the fact that even after April 2010, when according to the appellants,
they became aware of the facts of this case, the appellants by their various
acts and conduct confirmed the agreement. For instance, the appellants
invited the respondent to a meeting on 24.6.2010 and the respondent even
participated in the IPL-3 where its team "Rajasthan Royals" won.
61. The only question is whether despite this finding the
respondent is entitled to the reliefs sought. I am in respectful agreement
with the learned arbitrator who has answered this in the affirmative. To the
reasons furnished by the learned arbitrator, I would add a few of my own.
62. By my judgment dated 8.3.2010 in KPH Dream Cricket Pvt.
Ltd. versus Board of Control for Cricket in India, Arbitration Petition
34 aral30742-10
(Lodging) No.1303 of 2010, I held that petitioner therein had made out a
strong prima-facie case. I also considered Mr.Sundaram's submissions that
despite the same specific performance ought not to be granted. The same
contentions have been raised in the present case. What I have said in my
judgment KPH Dream Cricket Pvt. Ltd. vs BCCI, would also substantially
apply in this regard to the present appeal. I will therefore deal with the
same only briefly.
63. Mr.Sundaram submitted that in view of clause 21.6 of the
franchise agreement, the respondent in any event can never gets specific
performance of the contract. I do not agree. With respect to this submission
I would only reiterate what I held in KPH Dream Cricket Pvt. Ltd. as under:-
51. Mr. Sundaram submitted that in view of clause
21.6, the Petitioner can never get specific performance of
the contract. Clause 21.6 reads as under:-
"21.6 BCCI-IPL (but not the
Franchisee) shall have the right to bring
an action seeking injunctive or other
equitable relief before the Courts of
Mumbai if it reasonably believes that
damages may not be an adequate
remedy for any breach by the Franchisee
of this Agreement."
52. This clause does not oust the jurisdiction of
a court or tribunal to consider a case for injunction or
other equitable relief, including for specific performance.
It only confers a specific right upon the Respondent.
Prima facie, at least, it confers a benefit upon the
Respondent to seek such reliefs if the Respondents
themselves reasonably believe that damages may not
be an adequate remedy for any breach by the
franchisee. Even assuming that the clause does not
make it obligatory on a court or tribunal to grant such
reliefs, merely on the belief of the Respondent, a
reasonable belief by the Respondent would be entitled
to considerable weightage at least as a question of
evidence. It is a clause which confers a benefit upon
35 aral30742-10
the Respondent.
53. A view to the contrary would render the
words "if it reasonably believes" otiose. For, the mere
belief by a party that damages may not be an adequate
remedy would not be at all relevant in the absence of
such words. The bracketed words only have the effect
of excluding such benefit in the event of the
franchisee's reasonably believing that damages may
not be an adequate remedy for any breach of the
agreement. I do not, however, read it to exclude the
jurisdiction of the courts to grant such reliefs or the
franchisees rights to claim the same. If the intention
was to deny the franchisees equitable relief absolutely,
the clause would have been worded entirely differently.
It would have stated to categorically. There would have
been no need to refer to the Respondents right to such
64.
reliefs for it is in any event entitled to the same in law.
Mr.Sundaram submitted that damages would be an adequate
relief and can be easily computed inter-alia in view of clause 4.3 of the
franchise agreement. It would be difficult to compute damages on the
basis of the previous earnings of a franchisee or a comparison of the
earnings of other franchisees. The franchises' right to enjoy the good-will
is an important aspect, as once the good-will is diluted, it would take a long
time for it to be regenerated, even if the franchisee succeeds in the
arbitration. Similarly, the observations regarding the balance of
convenience, would also apply to the present case.
65. What I held in favour of the petitioner in KPH Dream Cricket
Pvt. Ltd., regarding the petitioner's entitlement to have the contract
specifically enforced would apply with equal, if not marginally greater force
to the respondent in this case. This is for the reason that the respondent
had in fact won the previous IPL. Paragraphs 54 of the judgment with
respect to that issue, reads as under :-
36 aral30742-10
"54. It can hardly be even suggested that the
franchise agreements entered into by the Respondent are
not unique. It is nobody's case that similar agreements
can be entered into easily or even otherwise. The term of
the agreement continues so long as the league continues
subject to termination, suspension or renewal as provided
in the agreement. The Respondent has participated in the
IPL matches for three seasons. It is reasonable to
presume that over this period of time, it has expended
large amounts of money, time and effort in creating the
brand "Kings-XI Punjab". Mr. Khambatta submitted with
considerable force that if an injunction in these
circumstances is not granted and the Petitioner ultimately
succeeds in the arbitration, it would suffer irreparable harm
and injury. It would lose the momentum it has gained, and
its value would stand considerably diluted and eroded on
account of its inability to participate in the next season or
two.
Further, admittedly, contracts are entered into
between the franchisees and the players for a period of
two years extendable at the franchisee's option by another
year. Thus, if the Petitioner ultimately succeeds it would
lose the benefit of entering into agreements, either directly
or by participating in the player auction. Contracts are
entered into and can be entered into with sponsors of
equipments, souvenirs etc. Apart from the losses incurred
during the course of proceedings, if an injunction is
refused, the effect thereof would continue for at least some
time even after the award is passed."
66. In the circumstances, I would uphold the order passed by the
learned arbitrator not only on the grounds mentioned in the order but even
otherwise.
67. Mr.Sundaram stated in this case as he did in KPH Dream
Cricket Pvt. Ltd. v. Board of Control for Cricket in India that there are
several investigations being carried out by the Enforcements Directorate
and the Income Tax Authorities, inter-alia, regarding the shareholding
pattern of the franchises. However, as in that case, so in this appeal he
has not produced any report from such authorities. I would reiterate what I
observed in that case viz. that if there is any information relevant to the
37 aral30742-10
matter from such authorities or otherwise, the appellants not only may but
ought to act upon the same including by moving the Court or the arbitral
tribunal for appropriate orders. However, in the absence of any evidence
whatsoever, it would be unfair to deny the respondent the relief merely
because investigations are being conducted in respect of the franchisees. I
would have dealt with this aspect of the matter in greater detail, as more
was said in this matter than was said in the other. I do not do so, as
Mr.Subramaniam, the learned Senior Counsel appearing on behalf of the
appellants assured the court in the rejoinder that there was no intention on
the appellants' part to place the burden on the Court or the arbitrator
regarding the possibility of investigations unearthing anything in future
without first producing the necessary, relevant material before the Court or
the learned arbitrator. There is indeed, in that event, nothing that prevents
any authority or the respondent from taking any action against the
franchisees, including the respondent in accordance with law despite the
order passed by the arbitral tribunal and this order.
68. The only aspect that remains for consideration is one that was
not raised before the learned arbitrator. It is whether the termination of the
Franchise Agreement ought to be stayed unconditionally or must be
subject to certain conditions.
69. Two questions arise in this regard.
The first is whether it is open to the appellant to raise this issue
in appeal the same not having been raised before the arbitral tribunal. I
would answer the question in the affirmative.
Sections 34 and 37 of the Act read as under: -
38 aral30742-10
34. Application for setting aside arbitral award.--(1)
Recourse to a Court against an arbitral award may be
made only by an application for setting aside such award
in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if
--
(a) the party making the application furnishes
proof that--
(i) a party was under some incapacity; or
(ii) The arbitration agreement is not valid under
the law to which the parties have subjected it or, failing
any indication thereon, under the law for the time being in
force; or
(iii)
the party making the application was not given
proper notice of the appointment of an arbitrator or of the
arbitral proceedings or was otherwise unable to present
his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted,
only that part of the arbitral award which contains
decisions on matters not submitted to arbitration may be
set aside; or
(v) the composition of the arbitral tribunal or the
arbitral procedure was not in accordance with the
agreement of the parties, unless such agreement was in
conflict with a provision of this Part from which the parties
cannot derogate, or, failing such agreement, was not in
accordance with this Part; or
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable
of settlement by arbitration under the law for the time
being in force, or
(ii) the arbitral award is in conflict with the public
policy of India.
39 aral30742-10
Explanation.--Without prejudice to the generality of sub-
clause (ii), it is hereby declared, for the avoidance of any
doubt, that an award is in conflict with the public policy of
India if the making of the award was induced or affected
by fraud or corruption or was in violation of Section 75 or
Section 81.
(3) An application for setting aside may not be made after
three months have elapsed from the date on which the
party making that application had received the arbitral
award or, if a request had been made under Section 33,
from the date on which that request had been disposed of
by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant
was prevented by sufficient cause from making the
application within the said period of three months it may
entertain the application within a further period of thirty
days, but not thereafter.
(4) On receipt of an application under sub-section (1), the
Court may, where it is appropriate and it is so requested
by a party, adjourn the proceedings for a period of time
determined by it in order to give the arbitral tribunal an
opportunity to resume the arbitral proceedings or to take
such other action as in the opinion of arbitral tribunal will
eliminate the grounds for setting aside the arbitral award.
37. Appealable orders.--(1) An appeal shall lie from the
following orders (and from no others) to the court
authorised by law to hear appeals from original decrees of
the Court passing the order, namely:--
(a) granting or refusing to grant any measure
under Section 9;
(b) setting aside or refusing to set aside an arbitral
award under Section 34.
(2) An appeal shall also lie to a court from an order of the
arbitral tribunal--
(a) accepting the plea referred to in sub-section
(2) or sub-section (3) of Section 16; or
(b) granting or refusing to grant an interim
measure under Section 17.
40 aral30742-10
(3) No second appeal shall lie from an order passed in
appeal under this section, but nothing in this section shall
affect or take away any right to appeal to the Supreme
Court."
70. I will presume that the parameters for the exercise of
jurisdiction under section 34 to challenge the findings in an award are the
same as those to challenge an interim order of the arbitral tribunal passed
under section 17. Even so by its very nature a petition under section 34 to
set aside an award is different from an appeal under section 37 (2) (b) to
challenge an order of the arbitral tribunal under section 17. The former is a
final adjudication of the reference whereas the latter is a step in or in aid of
the final adjudication. While a court exercising jurisdiction cannot, except in
a limited manner, substitute its order for that of the arbitral tribunal it can
do so in an appeal under section 37(2)(b). This follows the fact that once a
reference is made to arbitration it is the arbitral tribunal alone and not the
court that can decide the disputes and differences between the parties.
The Court has only the power to set aside the award on the grounds stated
in section 34. The power is circumscribed by section 34. Section 34 (2)
opens with the words: "An arbitral award may be set aside by the Court
only if........". On the other hand the legislature has conferred the power of
granting interlocutory relief's upon both-the court under section 9 and the
arbitral tribunal under section 17.
71. The nature and scope of an appeal whether under sub-section
(1) of section 37 or under sub-section (2) thereof is the same. The
language of the two sub-sections in this regard is the same. Sub-section
(2) does not place any restrictions as to the scope of an appeal thereunder,
41 aral30742-10
which is absent in sub-section (1). A court, while considering an appeal
under section 37 (2), is entitled to exercise the same powers or place upon
itself the same restrictions as it would while considering an appeal under
section 37 (1).
72. An appellate court can always uphold an interlocutory order
subject to modifications, including imposing conditions thereon or in
respect thereof. I see no reason why a court cannot do the same in an
appeal under section 37 (2)(b). A court has far greater discretion under
section 37 (2)(b) qua orders passed by the arbitral tribunal under section
17 than it has under section 34.
73. Having said that normally a point ought not to be allowed to be
raised in an appeal under section 37 (2) (b) if it was not raised before the
arbitrator. However there is no bar to the jurisdiction of the court permitting
the same if the facts and circumstances of the case so warrant.
74. The next question then is whether I ought to permit the
appellant to raise this aspect in the present appeal. I am inclined to permit
the appellant's to do so for more than one reason.
75. Firstly imposing conditions subject to which an interlocutory
order is passed or upheld is not in the strict sense a new point in every
case. It relates not to the merits of the disputes per-se but to the court
moulding the relief depending upon the facts of the case. A party may
oppose the grant of an interim relief absolutely. The court may grant the
same but in its discretion impose conditions in respect thereof upon the
other side.
76. Secondly, in the present case Mr.Sundaram stated that in view
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of the stand taken by the learned counsel appearing on behalf of the
respondents before the arbitrator he did not consider it necessary to raise
this issue at all. He relied upon the written submissions tendered on behalf
of the respondents which was strongly opposed by Mr.Dwarkdas. I do not
intend dealing with this controversy relating to a reference to the written
submissions. I would accept for this purpose, Mr.Sundaram's word that he
genuinely did not consider it necessary to raise the question before the
learned arbitrator as he perceived that the respondent had limited the
scope of the application. In a normal case I may have left it to the
appellant's to make an application in this regard to the learned arbitrator.
However in the facts of the case I am not inclined to do so. I am inclined to
consider the application myself. One of the reasons is the extreme urgency
expressed by both sides for deciding this appeal. The matter brooks no
delay as the next crucial step for the next IPL season is the bidding for
players from the player's auction pool, which is to take place in the first
week of January next year i.e. within less than 3 weeks from today.
Moreover the application is based on general considerations without the
necessity of any further evidence or pleadings as will be evident from what
follows.
77. The conditions I imposed in the other matter and which I intend
imposing in this case with modifications pertained to three possible
monetary claims which may arise in the event of the respondent losing in
the arbitration proceedings ultimately.
78. Mr.Sundaram submitted that two franchises were auctioned
recently for an average price of US$ 345 million. The amount is payable in
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ten equal annual installments. He did not categorically assert that the
appellant's would auction the franchise in the event of the petitioner not
being granted an injunction. The respondent would, in any event, be
entitled to US$.6.70 million per annum from the appellants. Further
Mr.Sundaram did not deny the assertion that if in fact more matches are
played the appellant's would generate further income. Mr. Sundaram
submitted that thus under a possible new contract, the appellants would
receive US$.34.50 million per annum whereas under the present contract,
the appellants receive only US$.6.70 million per year. He submitted,
therefore, that the appellants ought to be protected qua loss of interest on
the difference between US$.34.50 million and US$.6.70 million i.e. on US$.
27.80 million.
79. After weighing various factors, I determined in the other matter
the security to be provided by the petitioner on account of the possibility of
the respondent going out of the IPL and the appellant's for that reason
auctioning the franchise/another franchise. By adopting an ad hoc rate of
interest of 10% per annum, I directed the petitioner in the other case to
deposit a sum of US$ 3.50 million for the first year with liberty to the
respondents therein i.e. the appellants here, to approach the learned
arbitrator for further orders in this regard in the event of the award not
being made by 31.12.2011. I would impose the same condition in the
present matter except that I ought to calculate interest on US$.27.80
million being the remainder after deducting from US$.34.50 million, US$.
6.70 million.
80. Mr.Sundaram then submitted that as a result of the injunction
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the respondents would be entitled to enter into contracts with various
players including Marquee players and the players for whom it bids at the
auction. There is a limit of US$ 9 million per year that can be spent by a
franchisee towards players fees. Mr.Sundaram submitted that in the event
of the arbitral award being against the respondent it is imperative that the
players fees are protected. I agree.
81. Although the appellants are not bound to pay the players fees
in the event of the respondents failing to do so, I am inclined to accept
Mr.Sundaram's submission that it is necessary to protect the same
nevertheless. Although the appellant's have not guaranteed the players
fees a default on the part of a franchisee would adversely reflect upon the
appellant's and be detrimental to the interests of the IPL league itself. The
injunction without safeguards/conditions can adversely affect the rights of
parties who are not before the court viz. the players whom the respondent
would bid for at the auction. Such players cannot refuse to play for the
highest bidder. In any event I cannot see how the respondent can resist
the players dues being secured for admittedly the respondent would be
bound to pay the same every year in two installments. All that the
respondent would lose is the guarantee commission. Considering the
stakes involved a franchisee can hardly be heard to say that it is not in a
position to furnish a guarantee for the players fees.
82. Lastly Mr.Sundaram stated that complaints had been received
from various boards about the players not having been paid their fees by
the respondent in the past. Mr.Dwarkdas on the other hand stated that one
of the reasons for the same was that the appellant's had failed to pay the
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respondents dues. Mr.Subramaniam in rejoinder fairly stated that the
admitted amounts due to the respondent were far more than the amounts
due and payable by the respondent to the players. He made a statement
that the appellants would pay the outstanding dues of the respondents on
or before 25.12.2010 and that the respondents would utilise the same in
the first instance only for the payment of the amounts due and payable to
the players immediately upon receipt of the amounts. The statements are
accepted and it is so ordered.
83. To test the bona-fides of the respondent and the said owners
about the owners being in control of the respondent and the benefits of the
franchise agreement, I directed the same queries to the respondent in this
appeal as I did to the petitioner in KHP Dream Cricket Pvt. Ltd. v. Board of
Control for Cricket in India. In other words, I wanted to be satisfied that the
said owners are, in fact, in control of their respective investment
companies EMIPL, Blue Water Estate Limited and Tresco International
Limited.
84. Mr.Dwarkadas submitted that this would be going beyond the
scope of the present proceedings as the question of control over the Blue
Water Estate Limited, Tresco International Limited and EMIPL was never
raised or put in issue including in this appeal. To that extent, he is right. He
further submitted that unlike as in that matter, none of the owners in this
appeal are Indian residents. He understandably therefore was reluctant to
specify the mode of control across the bar without proper instructions
though the issue was raised on 10.12.2010.
However, an injunction being a discretionary relief, I think it
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necessary that the bona-fides of the respondent and the said owners are
established. Thus, although the order passed by the learned arbitrator is
upheld, one of the conditions ought to be a disclosure regarding control.
The appellants in any event are entitled to call for the same under the
franchise agreement.
85. In the circumstances the following order is passed: -
The order passed by the learned arbitrator dated 30.11.2010 is
confirmed, subject to the following: -
i). The respondent furnishing security in the form of an
unconditional bank guarantee of a Nationalized Bank to the satisfaction of
the Prothonotary & Senior Master, for payment of the players' dues, initially
in the sum of US $ 18 million or in the event of the necessary permissions
not being available at present, the rupee equivalent thereof, calculated at
`46/- per dollar on or before 3.1 2011.
Liberty to the appellants to apply under section 9 or 17 for
similar security with respect to the players dues for the period commencing
December, 2012, if the arbitration proceedings are not concluded by then.
Liberty to the respondent to apply under section 9 or under
section 17 for reduction of the above amounts, in the event of the amounts
due under the players' contracts being less or as and when payments are
made under the IPL Players Contracts with the players.
ii). The respondent furnishing in the first instance and on or before
3.1.2011, an unconditional guarantee of a Nationalized Bank to the
satisfaction of the Prothonotary & Senior Master in a sum of US $.2.78
million or in the event of the necessary permissions not being available at
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present, the rupee equivalent thereof, calculated at `.46/- per dollar.
Liberty to the respondent to apply to substitute this guarantee
alone, with security to the satisfaction of the arbitral tribunal or to the
satisfaction of the Prothonotary & Senior Master.
Liberty to the appellants to apply for further security in this
regard in the event of the arbitration not concluding before 31.12.2011.
iii). The above guarantees and/or security, as the case may be,
shall be valid for a period of twelve weeks after the award is made and
served on the appellants.
iv).
The respondent causing the owners viz. the said Badale,
Chellaram and Murdoch to file an affidavit in this court on or before
3.1.2011 confirming the statement made by Mr.Dwarkadas in Court to the
effect that the owners are in control of their respective investment
companies along with resolutions of the Board of Directors of the said
companies also viz. EMIPL, Blue Water Estate Limited and Tresco
International Limited confirming the same. The affidavit shall also furnish
the details of the mode of such control. The parties are thereafter at liberty
to take steps as they desire, in accordance with law.
v). The above order is subject to the award and any further orders
that may be passed during the course of the proceedings.
The appeal is, accordingly, disposed of. There shall, however,
be no order as to costs.
