Delhi High Court
Yogesh Radhakrishnan vs Media Networks & Distribution ... on 19 March, 2013
Author: Rajiv Sahai Endlaw
*IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 19th March, 2013
+ CS(OS) No.217/2013
&
IA NO.1907/2013 (OF THE PLAINTIFF UNDER
ORDER 39 RULE 1&2 CPC)
YOGESH RADHAKRISHNAN ..... Plaintiff
Through: Mr. S. Ganesh & Mr. N.K. Kaul, Sr.
Advs. with Mr. Amit Sibal, Vikram
Mehta, Mr. Sunil Shekhawat & Mr.
Anshuman Srivastava, Advs.
Versus
MEDIA NETWORKS & DISTRIBUTION
(INDIA) LTD. & ORS. ..... Defendants
Through: Mr. Rajiv Nayyar, Sr. Adv. with Mr.
Jaspreet Singh Kapoor, Adv. for D-1.
Dr. Abhishek Manu Singhvi & Mr.
Maninder Singh, Sr. Advs. with Mr.
Kunal Tandon, Adv. for D-2 to 4.
Mr. Aman Lekhi, Sr. Adv. with Mr.
Abhishek Malhotra & Mr. Angad
Singh Dugal, Advs. for D-5.
CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
RAJIV SAHAI ENDLAW, J
1.
The plaintiff, holding 49% shares in the defendant No.1 Company
has instituted this suit as a derivative action, for and on behalf of
defendant No.1 Company, to prevent the defendant No.2 Bennett Coleman
& Company Ltd. holding the remaining 51% shares in the defendant No.1
Company and its 100% subsidiaries Times Global Broadcasting
Company Ltd. and Zoom Entertainment Network Ltd., impleaded as
defendants No.3 & 4 respectively, from illegally and malafidely
terminating the Business Service Agreement (BSA) dated 18.01.2011
between the defendant No.1 Company on the one hand and defendants
No.2 to 4 on the other hand and to restrain the defendants No.2 to 4 from
entering into an agreement with the defendant No.5 MSM Discovery Pvt.
Ltd. for the same services for which they had entered into the BSA with
the defendant No.1.
2. The plaintiff claims, i) a declaration that the BSA is valid,
subsisting and binding on the parties; ii) a declaration that the termination
of the BSA vide termination letter dated 06.11.2012 is illegal; iii) decree
for Specific Performance directing the defendants No.2 to 4 to
specifically perform their obligations under the BSA; iv) decree for
Permanent Injunction restraining the defendant No.5 from acting under
the Agreement entered into by it with the defendants No.2 to 4.
3. The plaintiff, in support of its case relies upon a Joint Venture
Agreement (JVA) dated 20.01.2011 between the plaintiff on the one hand
and the defendant No.2 on the other hand and to which JVA, the
defendant No.1 Company being the Joint Venture Company was also a
party. It was however not the plea of the plaintiff in the plaint as
originally filed, that the terms of the JVA had been incorporated in the
Articles of Association (AoA) of the defendant No.1 Company.
4. The suit came up for admission on 06.02.2013 when doubts as to
its maintainability were expressed on the following counts:
(i) Maintainability in law of a derivative action for the benefit
of a Company by a shareholder.
(ii) Whether the terms of the JVA, notwithstanding the
defendant No.1 Company being the Joint Venture Company
being party thereto, were binding on the defendant No.1
Company without being incorporated in the AoA of the
defendant No.1 Company; reference was made to V.B.
Rangaraj Vs. V.B. Gopalakrishnan (1992) 1 SCC 160; and
(iii) The specific enforceability of the BSA.
The counsels for the defendants also appeared on that date and
arguments were heard on the aforesaid three aspects.
5. The plaintiff thereafter applied for amendment to plead that
material terms of the JVA dated 20.01.2011 were indeed incorporated in
the AoA of the defendant No.1 Company pursuant to the Resolution
passed in the Extraordinary General Meeting (EGM) of the defendant
No.1 Company held on 16.02.2011. The said amendment was allowed
and the amended plaint taken on record and the arguments on the aspect
of maintainability continued and the order thereon reserved.
6. It is the case of the plaintiff:
(i) that the defendants No.3 & 4 are the owners of various
channels such as Times Now, ET Now, etc.;
(ii) that in the Digital Media various parties act as intermediaries
(such as Cable / Direct to Home (DTH) operators) for the
purposes of distributing the services to the end consumers;
the said intermediaries collect subscription charges from the
consumers and pass it on to the broadcasters and provide
allied services;
(iii) that in the year 2011, the defendant No.2 approached the
plaintiff, a professional having expertise in providing such
intermediary services, for availing his services for
distribution of its channels and other allied functions so as to
fetch maximum subscription revenue therefrom;
(iv) that eventually the JVA aforesaid was executed under which
the plaintiff became the Managing Director of the defendant
No.1 Company and which provides that the business of the
defendant No.1 Company cannot be transferred or alienated
without the consent of the plaintiff or his nominee Directors
and the AoA of the defendant No.1 Company amended to
inter alia incorporate the said term of the JVA;
(v) that the business of the defendant No.1 Company was/is, to
distribute all the channels viz. TIMES NOW, MOVIES
NOW, ET NOW and ZOOM of the defendants No.2 to 4 and
the BSA aforesaid was entered into between the defendant
No.1 on the one hand and the defendants No.2 to 4 on the
other hand and which BSA was annexed to the JVA;
(vi) that prior to the BSA, the defendants No.2 to 4 were
earning/generating only about Rs.16 crores per annum as
subscription fee from their said channels but the defendant
No.1 Company, under the BSA agreed to give a minimum
guarantee of Rs.100 crores over a period of three years, to
the defendants No.2 to 4;
(vii) that it however appears that the intention of the defendants
No.2 to 4 was solely to take undue advantage of the
experience of the plaintiff and increase their revenue and
thereafter terminate the BSA; with the said intent, the
defendants No.2 to 4 on 06.11.2012 terminated the BSA on
false, concocted, mischievous, vague and illegal pretext of
the defendant No.1 Company‟s performance being not upto
the mark when prior thereto no complaint whatsoever had
been made;
(viii) that the said notice is in violation of Clause 8 of the JVA
and thus illegal;
(ix) that if the defendants No.2 to 4 take away their business, the
defendant No.1 would not be able to survive; thus the
termination was also ultra vires the AoA, particularly
Article 87, inasmuch as what is prohibited thereunder cannot
be permitted to be done indirectly;
(x) that upon the plaintiff approaching the defendants No.2 to 4,
prolonged negotiations for settling the issues took place and
in the middle of January, 2013 the defendants No.2 to 4
represented from their conduct that they will continue the
BSA with the defendant No.1 Company and assured that a
formal letter revoking the termination would be issued and
the defendant No.1 Company should continue providing
services under the BSA;
(xi) that however on 27.01.2013 it was learnt that the defendants
No.2 to 4 had started corresponding with various local
distributors (Cable Operators) directly to represent that with
effect from 06.02.2013, they have appointed the defendant
No.5 Company as the sole and exclusive distributor for the
subsequent business of the TV channels and that all rights of
the defendant No.1 Company had been withdrawn;
(xii) that the action of the defendants No.2 to 4 of terminating the
BSA and appointing a new distributor for the said channels
is contrary to Clause 8 of the JVA and Article 87 of the
AoA;
(xiii) that the defendant No.2 who has terminated the BSA is the
majority shareholder of the defendant No.1 Company and is
therefore not taking any action against the illegal termination
of the BSA, compelling the plaintiff, being a minority
shareholder, to file the suit as a derivative action for the
benefit of the defendant No.1 Company;
(xiv) that there are various negative covenants cast upon the
plaintiff in the JVA and by which the plaintiff continues to
be governed and for which reason also the defendants No.2
to 4 should not be permitted to create a situation in which the
defendant No.1 Company will be left with no business
whatsoever;
(xv) that the nominees of the defendants No.2 to 4 are in majority
in the Board of Directors of the defendant No.1 Company
and if at all there are any deficiencies in the service rendered
by the defendant No.1 under the BSA, the defendants No.2
to 4 themselves are to blame therefor.
7. It may be mentioned that in the termination letter dated 06.11.2012,
90 days period of termination, in terms of the BSA, expiring on
06.02.2013 was given. The suit though came up first before this Court on
05.02.2013 but could not be taken up for hearing as on the first call
passover was sought and thereafter the matter did not reach. The senior
counsels for the defendants during the hearing on 06.02.2013 contended
that the suit was infructuous as the termination had already come into
effect and could not be injuncted. The senior counsel for the plaintiff had
on that date insisted on the interim protection even though the hearing on
maintainability was inconclusive. Though no interim relief was granted
but it was orally observed that if a case was found in favour of the
plaintiff, status quo ante could always be ordered.
8. The senior counsel for the plaintiff during the hearing on
06.02.2013 relied on the following judgments in support of the
maintainability of the derivative action:
(i) N.V.R. Nagappa Chettiar Vs. The Madras Race Club AIR
1951 MADRAS 831.
(ii) Globe Motors Ltd. Vs. Mehta Teja Singh 24 (1983) DLT
(iii) Prudential Assurance Company Ltd. Vs. Newman
Industries Ltd. (1982) 1 All ER 354
(iv) Daniels Vs. Daniels (1978) 2 All ER 89.
However during the hearing it was observed that the passages in
each of the aforesaid judgments except in Daniels supra, were permitting
a derivative action only when the action complained of was ultra vires the
Company and it was as such asked as to whether the action complained of
in the present case though stated to be in breach of the JVA but not the
AoA could be said to be ultra vires. The said question however in view of
the subsequent amendment to the plaint becomes irrelevant.
9. It may however be recorded that the senior counsel for the plaintiff
has also invited attention to Narendra Kumar Berlia Vs. Om Prakash
Berlia MANU/WB/0227/2011 and Prakashchandra Rajmal Jain Vs.
Firm Swarupchand Hukumchand & Co. MANU/MP/0131/1971 in
support of maintainability of a derivative action. It has further been
contended that V.B. Rangaraj supra stands overruled in para 262 of the
separate but concurring with the majority judgment in Vodafone
International Holdings BV Vs. Union of India (2012) 6 SCC 613.
10. Sub-Clause 8.1 (a) of Clause 8 of the JVA, on which the plaintiff
bases its case is as under:-
"8. DECISIONS BY AFFIRMATIVE VOTE
8.1 Notwithstanding what is contained in Section 16.12, the
Parties agree that till such time that BCCL holds any
Shares in the Company and Yogesh holds not less than
49% (forty nine percent) of the paid-up Equity Share
Capital of the Company, the following decisions of the
Company shall be made by Affirmative Vote:
(a) any sale or other disposal of the whole or any
substantial part of the Business and / or any material
assets of the Company, including without limitation by
way of sale, transfer for consideration, lease, gift, trust,
assignment of rights or any other manner that transfers
the benefit of the same to another Person;"
Similarly Article 87 of the AoA of the defendant No.1 Company is
as under:
"DECISIONS BY AFFIRMATIVE VOTE
87. Notwithstanding what is contained in Article 68, the
Parties agree that till such time that BCCL holds any
Shares in the Company and Yogesh holds not less than
49% (forty nine percent) of the paid-up Equity Share
Capital of the Company, the following decisions of the
Company shall be made by Affirmative Vote:
(a) any sale or other disposal of the whole or any
substantial part of the Business and / or any material
assets of the Company, including without limitation by
way of sale, transfer for consideration, lease, gift, trust,
assignment of rights or in any other manner that
transfers the benefit of the same to another Person;"
11. The senior counsel for the plaintiff has argued that the word
„Business‟ in Clause / Article aforesaid has to take its colour from the
definition thereof in the JVA as under:
"Business" means the business of:
(a) distributing the BCCL Channels in India on various
frequencies in analogue mode and digital mode and
negotiating the carriage fees where relevant with the
multi-system operators and / or local cable operators
and any Third Party channels across various
distribution platforms like cable, satellite, terrestrial,
DTH and internet protocol television and other forms
of linear transmission or delivery which may enable
the channels to be viewed on a television set. This
would include distribution to institutions such as
hotels, food and beverage outlets wherein the
channels may be viewed on a television set. However,
this would not be inclusive of mobiles or delivery onto
other devices and technologies;
(b) collecting subscription revenue in India from the
multi-system operators, local cable operators,
including for internet protocol television and other
forms of transmission or delivery which may enable
the channels to be viewed on a television set. This
would include distribution to institutions such as
hotels, food and beverage outlets, wherein the
channels may be viewed on a television set. However,
this would not be inclusive of mobiles or delivery onto
other devices and technologies; and
(c) distribution of channels on various distribution
platforms as specified in (a) and (b) above in the
international market at a later point in time when
decided by BCCL and on terms to be mutually agreed
between the Parties;"
12. The senior counsel for the plaintiff has argued that the actions of
the defendants No.2 to 4 of termination of the BSA amount to "sale or
other disposal of the whole or substantial part of the business" of the
defendant No.1 Company and "transfer" thereof to the defendant No.5,
and which under the JVA and the AoA could be done only by an
affirmative vote and is prohibited to be done otherwise and that Clause 8
of the JVA constitutes a negative covenant against termination of BSA by
the defendants No.2 to 4. Relying on Gujarat Bottling Company Ltd. Vs.
Coca Cola Company (1995) 5 SCC 545, it is argued that injunction as
sought can thus be granted. On query as to whether the injunctions
sought are not in the teeth of Section 41 of the Specific Relief Act, 1963
(SRA), the senior counsel for the plaintiff argues that Section 42 thereof
is "Notwithstanding anything contained in Clause (e) of Section 41" and
thus in granting injunction thereunder to enforce the negative Agreement,
the question of specific enforceability is not to be seen.
13. Per contra, the senior counsels for defendants No.2 to 4 argued:
(I) that the BSA in Clause 20 thereof provides for arbitration of
all disputes between the parties thereto and the suit, though
by the plaintiff (not a party to the BSA) but being a
derivative action on behalf of the defendant No.1 Company
which is a party to the BSA, is not maintainable and the
remedy of the plaintiff if any, is by way of arbitration only.
It is contended that the defendants No.2 to 4 are ready for
arbitration and if summons of the suit are issued, will file an
application under Section 8 of the Arbitration & Conciliation
Act, 1996. It is further argued that impleadment of the
defendant No.5 in the suit does not affect the remedy of
arbitration;
(II) that the negative covenant relied on, is in the JVA and not in
the BSA and the suit is for enforcing the rights in the BSA
and no action has been taken by the defendants under the
JVA. It is highlighted that the termination is of the BSA and
not of the JVA;
(III) Attention is invited to Clauses 14 & 15 of the BSA (in which
the defendant No.1 is described as MNDIL, defendant No.2
as BCCL, defendant No.3 as TGBCL and defendant No.4 as
ZENL) which are as under:
"14. TERM and TERMINATION
14.1 This Agreement shall come into effect from the
Effective Date and shall continue in force and effect
with respect to each Service for the following period:-
a) For Distribution and Placement Services: for a
period of Three (3) years
b) For Subscription Services:-
i) with respect to the Channels TIMES NOW
and ZOOM three years from the Effective
Date and
ii) with respect to the Channels ET NOW and
MOVIES NOW two years from the
Effective date.
14.2 TGBCL, ZENL and BCCL shall be entitled to
terminate this Agreement pursuant to a 90 days
prior written notice, on the following grounds:
(a) upon failure by MNDIL to provide the Services
in the manner contemplated under this
Agreement, and such failure not being cured
within a period of 30 days from the date of
receipt from TGBCL, ZENL and BCCL of a
written notice informing MNDIL about such
failure;
(b) on the occurrence of any fraud, willful
misconduct or gross negligence or failure to
comply with any instruction of TGBCL/ZENL by
MNDIL in respect of its transactions or Services
which could have an adverse impact on the
business / reputation of TGBCL, ZENL and
BCCL;
(c) In the event MNDIL fails and neglects to file the
necessary regulatory filings within the time
frame prescribed by the Regulator;
(d) by mutual agreement of TGBCL, ZENL and
BCCL and MNDIL;
(e) In the event of change of shareholding pattern of
MNDIL, which is detrimental to the business
interest of TGBCL/ZENL; or
(f) In the event MNDIL fails to maintain the Service
Levels as stated in the said Schedule III annexed
hereto.
15.1 Notwithstanding anything contained herein TGBCL,
ZENL and BCCL shall have the right to terminate this
Agreement without any reasons whatsoever by giving a 90
(ninety) days advance written notice to MNDIL."
It is argued that the BSA is determinable by its nature and
injunction preventing the termination thereof having the effect of specific
performance thereof is barred under Section 14(1)(c) of the SRA.
(IV) that Clause 8.1 of the JVA is not a negative covenant. It
does not provide that the BSA will not be terminated;
(V) that the defendants No.2 to 4 have taken away only the four
channels from the defendant No.1 and two other remain and
the defendant No.1 Company is free to carry on business for
other channels also;
(VI) that an intermediary, as the defendant No.1 Company, not
only collects the subscription charges for the channel owner
but also fixes the carriage fee to be paid by the channel
owner;
(VII) that the specific enforceability of the BSA is also barred by
Section 14(1)(a), (b), (c) & (d) of the SRA;
(VIII) that the defendants No.2 and 4 cannot be forced to supply
channels to the defendant No.1 in whom they have lost
confidence and the working of the BSA entails minute
details which cannot be supervised by this Court;
(IX) that derivative action is permitted to a shareholder who is not
the decision maker in the Company and is thus allowed by
the Court to sue as the Company; here the plaintiff is the
Managing Director of the defendant No.1 Company and has
all the powers;
(X) that the derivative action is to vindicate collective rights of
the shareholders and not personal rights as is the case here;
personal actions can never be derivative ones; in none of the
judgments cited by the senior counsel for the plaintiff, was
the person permitted to take derivative action on behalf of
the Company, the Managing Director of the Company;
(XI) that derivative action is an exception to the principle of
majority rule and can thus be only for collective and not for
personal rights;
(XII) that the plaintiff has the remedy under Section 397 of the
Companies Act, 1956 available to him;
(XIII) that all the cases where derivative action has been permited,
where the impugned actions is of the company; here the
plaintiff is not impugning any action of the defendant No.1
Company but the action of the defendants No.2 to 4 and
which cannot be permitted;
(XIV) that the plaintiff has been in breach of his obligations under
the JVA. Attention in this regard is invited to Clause 4.3
thereof;
(XV) that out of the four channels withdrawn also two are out
because of efflux of time;
(XVI) that the plaintiff acting as the Managing Director of the
defendant No.1 Company was excessively billing the
defendants No.2 to 4 for carriage charges and if the parties
are to work together, they will have to settle accounts on a
day-to-day basis and which cannot be supervised by this
Court. Reliance is placed on Hindustan Petroleum
Corporation Ltd. Vs. Sriman Narayan (2002 ) 5 SCC 760
which though on the aspect of interim order, holds that
interim mandatory injunction which would have to be
granted to restore status quo ante cannot be granted;
(XVII) reliance is placed on MSM Discovery Private Limited Vs.
Viacom 18 Media Private Limited (2011 ) 2 Comp LJ 658
where this Court denied injunction even in the absence of
the contract being terminable, for the reason of the damages
suffered being assessable. It is argued that in the present
case, in view of the BSA having already run for two years,
it will be easy for the plaintiff to assess and quantify
damages for the remaining period for which it has not been
allowed to so run;
(XVIII) that it is not as if after termination of the BSA, defendant
No.1 Company cannot survive; it has been established to
carry on business of distribution of channels and can carry
on the business of distributing channels of others;
(XIX) that the case set up in the entire plaint is for the benefit of
the plaintiff and not for the benefit of defendant No.1
Company;
(XX) M.R. Engineers and Contractors Pvt. Ltd. Vs. Som Datt
Builders Ltd. (2009) 7 SCC 696 is relied on to contend that
reference to a document in a contract cannot be treated as
incorporation of that document in the contract in which it is
referred. It is thus argued that the negative covenant even
if any in the JVA, cannot be read in the BSA. The reasons
for termination are informed;
(XXI) It is denied that after the termination, at any time any
assurance to continue with the BSA was given;
(XXII) that in none of the four judgments cited by the senior
counsel for the plaintiff did the contract permit „without
cause termination‟.
14. The senior counsel for the defendant No.5 has argued that the BSA
being terminable in nature is not specifically enforceable; that a
shareholder cannot have a superior right in a derivative action and if the
defendant No.1 Company could not have injuncted the termination of the
BSA, the plaintiff as a shareholder cannot do so; that Section 42 of the
SRA is not a back door for specific performance which is otherwise
prohibited; that a derivative action is permitted only in cases of fraud and
the plaintiff has not pleaded any particulars of and / or laid any
foundation for fraud in the plaint. Reliance is placed on passages from
„SNELL‟S EQUITY‟, Thirty-First Edition that a negative covenant
within the skin of Section 42 of the SRA has to be severable from the
main contract and it is not so in the present case. Reliance in this regard
is also placed on Kirchner & Company Vs. Gruban (1908-10) All E.R.
Rep. 242. Passage from Fry‟s Treatise On The Specific Performance Of
Contracts, Sixth Edition are cited to contend that if a contract is not fit for
specific performance no injunction will be granted even though negative
words may be present. It is contended that the plaintiff, by waiting for
the last date on which the termination was to come into effect, has
allowed rights in favour of the defendant No.5 to be created and is not
entitled to any relief on this ground alone. On enquiry, it is informed that
the Agreement of the defendants No.2 to 4 with the defendant No.5 was
signed on 27.11.2012 and that the Regulatory Body was informed thereof
on 07.01.2013 though press release issued only on 06.02.2013. It is yet
further argued that damages if any suffered from the breach if any by the
defendants No.2 to 4 of the BSA, are easily computable.
15. The senior counsel for the defendant No.1 has argued that the
foundation for a derivative action necessarily has to be, of the
shareholders having called upon the Company to take preventive action
and the Company having failed to do so; however in the present case, not
a single communication was addressed by the plaintiff calling upon the
defendant No.1 Company to take action on the termination of BSA
affected by the defendants No.2 to 4. It is further argued that the plaintiff
as the Managing Director of the defendant No.1 has the duty to protect
the Company and there is nothing to show that the plaintiff convened a
meeting of the shareholders or that the majority of the shareholders have
neglected their obligations to the Company. It is yet further argued that
the defendant No.1 is willing to take action of claiming damages for
termination of the BSA against the defendants No.2 to 4; that the
plaintiff, without convening a meeting of the shareholders could not have
instituted this suit. It is yet further argued that the defendant No.1
Company can distribute channels of other channel owners and it is not as
if the foundation or substratum of the defendant No.1 Company would
disappear by the termination of the BSA. It is contended that the plaintiff
has not been attending office of the defendant No.1 Company for the last
three months and has not corresponded with any client and has not
developed any business. Reference is made to Clause 10.2(e) of the JVA
to contend breach by the plaintiff of the obligations thereunder. It is
argued that it is not even pleaded by the plaintiff that the majority of
shareholders of the defendant No.1 Company interfered with the
defendant No.1 Company taking action against termination. Reliance is
placed on P. Subba Rao Vs. Andhra Association, Delhi (Regd.) 2008
(4) AD (Delhi) 37 (DB) but which again is in the context of Order 39
Rules 1&2 CPC.
16. The senior counsel for the plaintiff in rejoinder has argued that, of the
six channels only four which have been taken away were paid and the other
two channels which are argued to have not been taken away are free-to-air-
channels and thus only an illusion is created of the substratum of the
defendant No.1 Company not disappearing by termination of the BSA. It is
further argued that for Clause 8 of the JVA, only the „existing‟ business of
the defendant No.1 Company is to be seen and the transfer by the defendants
No.2 to 4 of the entire business of the defendant No.1 Company to the
defendant No.5 amounts to „sale‟ within the meaning of Clause 8 of the
JVA. It is further argued that Section 42 of the SRA does not require an
express negative covenant and makes even an implied negative covenant
actionable. Attention is invited to Clause 17.2 of the JVA to contend that
thereunder the plaintiff has undertaken not to terminate the JVA prior to the
expiry of three years and even the defendant No.2 is entitled to terminate the
same only upon default committed by the plaintiff and no steps have been
taken for termination of the JVA. Attention is also invited to Clause 18.1 of
the JVA whereunder the plaintiff even after ceasing to hold the shares of the
defendant No.1 Company has undertaken not to engage in any business
competing with / or in conflict with the obligations of the plaintiff in the
JVA. It is thus argued that the defendants, while continuing to hold the
plaintiff bound by his obligations under the JVA, are attempting to transfer
the business away from the defendant No.1 Company creating a situation in
which even though the Joint Venture Company i.e. defendant No.1 will be
left with no business, the plaintiff will still be barred from carrying on any
competing business. It is further contended that the plea of the plaintiff, of
the defendants having assured to revoke the termination, is borne out from
the fact that nothing which was required to be done in the 90 days of the
notice period was done. Attention is invited to Vijaya Minerals Pvt. Ltd. Vs.
Bikash Chandra Deb AIR 1996 Calcutta 67 where the negative covenant
was enforced even where the breach was compensable by damages. It is
contended that this is not a Contract of personal service and the judgment in
Percept D' Mark (India) (Pvt.) Ltd. Vs. Zaheer Khan (2006) 4 SCC 227
relied upon by the defendants has no application. It is contended that the
BSA entails only the collection of the subscription amounts and which too is
also done at the end of the month and there is no personal skill required and
for the reason whereof it cannot be said that the suit is infructuous. It is
further contended that in MSM Discovery Pvt. Ltd. Vs. Union of India
MANU/DE/3622/2010 relied upon by the senior counsels for the defendants,
there was no negative covenant.
17. The senior counsels for the defendants No.2 to 4 in sur-rejoinder have
contended that Clause 18.1 of the JVA does not have the meaning assigned
to it by the plaintiff and invite attention to Clause 14.3 of the JVA which is
as under:
"14.3 Nothing in this Agreement will prevent, restrict or
otherwise limit any Party's ability to directly or indirectly
establish, undertake, invest in, own, manage, operate or
have an interest in any business, whether in India or
outside India, except as specifically restricted in Section
18 (Non Compete) of this Agreement."
It is reiterated that the defendant No.1 Company can carry on business
of distribution of channels of other owners also.
18. Though all the arguments made have been recorded but need is not
felt to deal with the arguments raising factual controversy inasmuch as at
this stage we are only concerned with the maintainability of the suit and for
which purpose the test is, whether even if the plaintiff‟s version were to be
believed, the plaintiff would still be disentitled in law to the relief claimed.
19. Though doubts at the commencement of the hearing were raised as to
the maintainability of the derivative action but I do not deem it appropriate
to discuss the said aspect also or to return any finding thereon inasmuch as it
is felt that the suit is not maintainable for the relief of injunction and is liable
to be dismissed on that ground alone. The plaintiff in the plaint has reserved
the rights for claiming damages and it is felt that any finding on this aspect,
though not necessitated at this stage may affect the claim if any permissible
to the plaintiff of damages.
20. I have therefore examined the matter only from the aspect whether
this Court can grant a decree for injunction restraining the defendants No.2
to 4 from terminating the BSA and decree for specific performance of BSA.
For this purpose, it is necessary to examine the nature of the said BSA.
21. Under the BSA:
(i) Exclusive rights are given to the defendant No.1 of distribution
/ placement of channels of the defendants No.2 to 4 across
various distribution platforms via intermediaries excluding
mobile and internet (Clause 2.1).
(ii) Defendant No.1 is authorized to collect subscription revenue
from intermediaries and subscribers for viewing the channels of
the defendants No.2 to 4 (Clause 2.2).
(iii) Defendants No.2 to 4 at the commencement of each year are to
communicate to the defendant No.1 the markets in which
defendants No.2 to 4 are desirous that their channels should
reach and the defendant No.1 is to suggest the best markets and
the relevant frequencies in the best interest of the defendants
No.2 to 4 and the parties are to hold discussions in this regard
and to reach an agreement (Clause 2.3).
(iv) The parties are to mutually agree upon the revised terms and
conditions if the defendants No.2 to 4 desire to make any
additions, alterations or reductions in the services to be
performed by the defendant No.1 (Clause 2.4).
(v) Defendant No.1 is to enter into the appropriate agreements
granting sub-license and / or appointing intermediaries for the
purpose of redistributing / placement of channels across
Distribution Platforms on terms no less favourable than offered
by the intermediaries for the other channels in the same genre
(Clause 2.6).
(vi) Defendant No.1 is to use all reasonable commercial efforts to
procure the business (Clause 2.7).
(vii) Though defendant No.1 has the sole discretion in relation to the
bundling and / or packaging of the channels for distribution
pursuant to the BSA, but is required to obtain prior permission
from the defendants No.2 to 4 with respect to the said bundling
and packaging (Clause 2.12).
(viii) Defendant No.1 is responsible for timely payment of carriage /
placement fees to the intermediaries (Clause 5.2).
(ix) Defendant No.1 is responsible for compliance of all applicable
laws (Clause 5.5.).
(x) Defendant No.1 is to ensure promotion of the channels of the
defendants No.2 to 4 and to take steps to counter and mitigate
the effects of any practice detrimental to the business of
defendants No.2 to 4 (Clause 5.7).
(xi) Defendant No.1 to obtain prior written approval with respect to
any publicity literature, news release, advertisements etc.
(Clause 6.2).
(xii) Defendant No.1 is not to disclose to any third party any
information relating to the defendants No.2 to 4‟s channels or
operations (Clause 6.3).
(xiii) The parties are to keep their discussions, negotiations and all
information exchanged in the course of performance of the
BSA confidential and to not disclose it to others (Clause 13.1).
(xiv) Defendant No.1 upon termination of the BSA is required to
assign the Agreements entered into by it with the intermediaries
in relation to defendants No.2 to 4 channels, in favour of the
defendants No.2 to 4 or any other party appointed by them
(Clause 15.2(c)).
(xv) The parties are to make a quarterly review of the subscription
revenue collections (Schedule II, Clause 4).
22. A reading of the entire BSA leaves me with no manner of doubt that
the BSA is a contract which runs into such minute or numerous details and
which is so dependent on the personal qualification and / or volition of the
parties or which otherwise from its nature is such that the Court cannot
enforce specific performance of its material terms, all within the meaning of
Section 14(1)(b) of the SRA. A reading of the BSA further shows that the
performance of the BSA involves the performance of a continuous duty
which the Court cannot supervise within the meaning of Section 14(1)(d) of
the SRA. The BSA thus is non enforceable. The reading of the BSA does
not bear out the contention of the senior counsel for the plaintiff that the role
of the defendant No.1 under the BSA is confined only to collection of
subscription charges. The various Clauses of the BSA which have been
highlighted above require a continuous inter-action of the parties for the best
commercial interests of the defendants No.2 to 4 to be achieved. Even
though the defendants No.2 to 4 have a majority on the Board of Directors of
the defendant No.1 Company but it cannot be lost sight of that it is the
plaintiff who is the Managing Director of the defendant No.1 Company. It is
the case of the plaintiff himself that the defendants No.2 to 4 had entered
into the JVA and the BSA to use his professional acumen in distribution of
the channels. The contracts of professional services, it is well established,
are unenforceable (See Pearlite Liners (P) Ltd. Vs. Manorama Sirsi (2004)
3 SCC 172). The defendants No.2 to 4 cannot be forced to continue with
the BSA whereunder the defendant No.1 Company has been entrusted with
ensuring compliance of laws and breach whereof is actionable against the
defendants No.2 to 4 and capable of causing permanent damage to the said
channels of the defendants No.2 to 4. No party can be compelled to
unwillingly place its neck in the hands of another. Once this Court on a
reading of the BSA finds it to be of such a nature which is unenforceable
under Section 14 supra, I fail to see as to why the suit should be entertained
and put through the entire process of trial. We are today living in an era
where contracts are not written by the parties themselves or by lay persons
but are drafted by professionals and thoroughly negotiated. Once the parties
have reduced their agreement into writing, that agreement has to be the sole
repository of what has been agreed between them and no other evidence
contradicting or expanding or restricting the agreement can be seen and the
Court will always be slow to find that the written agreement does not
represent the actual agreement between the parties on the matters which it
addresses. This is necessary, both to promote commercial certainty and to
prevent parties from achieving what is effectively rectification without
proving a common intention. No evidence is thus deemed necessary for
determining the nature of the agreement. Judge Learned Hand as far back as
in James Baird Co. v. Gimbel Bros., Inc. 64 F.2d 344, 346 said that in
commercial transactions it does not in the end promote justice to seek
strained interpretations in aid of those who do not protect themselves. The
same sentiment was echoed in Allied Communications Corporation Vs.
Continental Cellular Corporation MANU/FEFC/0637/1987 where it was
observed that when the transaction is commercial, the parties sophisticated,
and the contract itself detailed, it is wise for the Courts to rely on express
language than to imply a promise on their own.
23. It is perhaps for this reason only that the senior counsel for the
plaintiff also pegged his case on negative covenant rather than on specific
enforceability. However before I discuss the said aspect, it is also deemed
appropriate to deal with the plea of the defendants of the specific
performance of the BSA being barred under Section 14(1)(c) of the SRA
since it is by its very nature determinable. The BSA, as per Clause 14
thereof is for a period of three years only from 01.01.2011 i.e. till the end of
the year 2013. The senior counsel for the plaintiff also agrees that thereafter
neither the defendant No.1 nor the plaintiff have any right under the BSA.
Specific performance is claimed for the remaining about eleven months
only.
24. Inspite of exclusive rights, under the BSA, having been granted to the
defendant No.1 to distribute the channels of defendants No.2 to 4 for a
period of three years, the parties still permitted termination thereof by the
defendants No.2 to 4 in the events described in Clause 14.2 thereof and also
without any reason whatsoever under Clause 15.1 thereof. There is thus no
doubt that the BSA by its specific terms is determinable in nature. Thus
Section 14(1)(c) of the SRA is clearly attracted.
25. The argument of the plaintiff also is, that it is only owing to the
negative covenant in Clause 8.1 of the JVA, that the BSA cannot be
terminated before the end of the year 2013.
26. In my view however, Clause 8.1 of the JVA is not concerned with the
determination of the BSA. Clause 8.1 is of the genre as often found in the
JVAs whereby notwithstanding one of the joint venture parties being in
majority, the decision on certain aspects requires affirmative vote of the
minority shareholder also. Such clauses are intended to protect the interest of
the minority shareholder. One such decision for which affirmative vote of
the plaintiff was agreed to be necessary was of sale or disposal of the whole
or any substantial part of the business and / or assets of the defendant No.1
Company in any manner whatsoever. However what that Clause
encompasses is a decision of the defendants No.2 to 4 as shareholders of the
defendant No.1 Company to transfer the business of the defendant No.1
Company. The defendants No.2 to 4 vis-à-vis the plaintiff had two different
status, one as joint venture partners of the plaintiff having majority share in
the joint venture company floated / acquired with the plaintiff, and other as
the channel owners. The said two status of the defendants No.2 to 4 cannot
be mixed up. It is the argument of the senior counsel for the plaintiff
himself that the BSA and the JVA are part of the same transaction. Rather
when during the hearing, it was put to the senior counsel for the plaintiff that
the JVA being of three days subsequent to the date of the BSA should
prevail, the response of the senior counsel was that they have to be read
together. I am unable to understand as to why, if the understanding of the
plaintiff was that the defendants No.2 to 4 as channel owners will not take
away the business from the defendant No.1 prior to three years, should the
plaintiff have agreed to the BSA being terminable at the instance of the
defendants No.2 to 4 without any cause whatsoever also. The BSA, on
behalf of the defendant No.1 has been signed by the plaintiff himself and not
by any nominee of the defendants No.2 to 4 in the defendant No.1 Company.
The plaintiff having made the BSA determinable by its very nature cannot
be permitted to rely on Clause 8.1 of the JVA to make it non determinable.
Clause 8.1 is concerned with the decision making by the Board of Directors
of the defendant No.1 Company and not by the action of the defendants No.2
to 4 as channel owners. It is nobody‟s case that the defendants No.2 to 4 as
shareholders of the defendant No.1 Company or through their nominee
Directors in the defendant No.1 Company have agreed to transfer the
business of the defendant No.1 Company to some other person, even though
the action of the defendants No.2 to 4 in their capacity as channel owners, of
termination of the BSA with the defendant No.1 may have the same effect.
If the intention of the parties had been as is being argued now, the plaintiff
would not have agreed to the Clauses in the BSA making the same
determinable without any reason also.
27. That brings me to the aspect of negative covenant. The defendants
No.2 to 4 as joint venture partners of the plaintiff can be said to have agreed
to not using their majority on the Board of Directors of the defendant No.1
Company to take any decision of disposal of the whole or any substantial
part of the business and assets of the defendant No.1 Company without the
affirmative vote of the Directors of the defendant No.1 Company
representing the interest of the plaintiff therein. However as aforesaid no
decision to the said effect has been taken by the Board of Directors of the
defendant No.1 Company.
28. I have also examined the matter from the aspect of inconsistency
between the clauses aforesaid of the BSA and the JVA, accepting the
argument of the plaintiff of the two being part of the same transaction. In
that eventuality, the undisputed position is that the BSA is anterior in point
of time to the JVA; the settled position in law (See Radha SundarDutta Vs.
Mohd. Jahadur Rahim AIR 1959 SC 24; Sahebzada Mohammad
Kamgar Shah Vs. Jagdish Chandra DeoDhabalDeo AIR 1960 SC 953 and
Uma Devi Nambiar Vs. T.C. Sidhan (2004) 2 SCC 321) is that in
construction / interpretation of deeds / documents, except a Will, the clause
first appearing in the document / deed, prevails over the one appearing latter
in the deed / document. Thus, applying the said test also, it will be the
clause in the BSA permitting termination which will prevail over the clause
if any to the contrary in the JVA.
29. There can be no manner of doubt that the requirement of affirmative
vote is a negative covenant. Fry, J. sitting in the Chancery Division as far
back as in Donnell Vs. Bennett (1883) 22 Ch.D. 835 observed that there can
be no substantial or tangible distinction between a contract containing an
express negative stipulation and a contract containing an affirmative
stipulation which implies negative. The same view was followed by the
Courts in this country in Kirtyanand Sinha Vs. Ramanand Sinha
MANU/BH/0020/1936, JairamValjee Vs. Indian Iron and Steel Co. Ltd.
AIR 1940 Cal. 466 and in Navayuga Engineering Company Ltd. Vs.
Sanghi Industries Ltd. MANU/AP/1508/2001 (DB). This Court though, in
Shubhmangal Merchantile (P.) Ltd. Vs. Tricon Restaurants (India) Pvt.
Ltd. AIR 2000 Delhi 13, sounded a note of caution that Section 42 of the
SRA does not say that every affirmative contract includes by necessary
implication a negative agreement to refrain from doing certain things, and
that it is a question of interpretation in each case whether a particular
contract can be said to be having a negative covenant, express or implied
contained within it. The affirmative vote for the decisions mentioned in
Clause 8 of the JVA, after its incorporation in the AoA, would thus make
any decision and action in pursuance thereto requiring an affirmative vote
without such affirmative vote, ultra vires the company.
30. I am unable to subscribe to the contention of the senior counsel for the
plaintiff that the purport of Section 42 of the SRA is to make agreements
which by their very nature are not enforceable, enforceable. The negative
covenant, enforcement whereof is provided for in Section 42 of the SRA has
to be distinct from the Agreement which is found to be not enforceable.
Section 42 of the SRA provides for a situation where even though the
agreement may be found to be specifically not enforceable but the defendant
has separately agreed not to do a certain act and permits grant of an
injunction restraining the defendant from doing that act. It cannot be
interpreted as making the agreement which is non enforceable, enforceable.
In fact during the hearing, it was enquired from the senior counsel for the
plaintiff whether merely by providing in the contract that the same shall not
be terminated, the same can be made specifically enforceable even though
not permitted so under Section 14 of the SRA. No plausible answer was
forthcoming. If Section 42 of the SRA were to be read in such a manner, it
would amount to making of contracts specifically enforceable
notwithstanding the provisions of the SRA. The classic example which can
be given of Section 42 of the SRA is of a singer who though cannot be
forced to sing for the plaintiff for whom he / she has agreed to sing, but if
has agreed not to sing for the said duration of the agreement with the
plaintiff for any other person, can be restrained from so singing. However
Section 42 of the SRA cannot be invoked for preventing termination of a
contract which is terminable by its very nature. Section 42 of the SRA will
have no application where the positive and negative covenants have the
same effect. Mention may be made of Shree Ambarnath Mills Corporation
Vs. D.B. Godbole AIR 1957 Bom. 119 where a Division Bench of the
Bombay High Court observed that the negative covenant must be distinct
from the affirmative agreement, otherwise breach of every affirmative
agreement would be restrained by an injunction even if the Court is unable
to compel specific performance of the affirmative covenant.
31. It is also not as if the negative covenants are necessarily to be
enforced. The House of Lords as far back as in Richard Wheeler Doherty
Vs. James Clagston Allman and W. C. Dowden (1878) 3 App. Cas. 709
held that even where negative words have been used, it may not be
reasonable that it should be enforced. This Court recently in Fashion
Television India Private Limited Vs. FTV BVI MANU/DE/4249/2011 also
observed that the relief of injunction to enforce a negative covenant is a
discretionary one and it is not as if the mere existence of a negative covenant
is enough to persuade a Court to grant an interim injunction to enforce it.
The appeal being FAO(OS) No.548/2011 thereagainst was withdrawn on
22.11.2011. To the same effect are the Percept Talent Management Pvt.
Ltd. Vs. Yuvraj Singh MANU/MH/1040/2007, Interlink Services (P) Ltd.
Vs. S.P. Bangera 65 (1997) DLT 228 and Prestige Pictures Vs. Sree
Krishna Cinema (P) Ltd. MANU/WB/0348/1969. A Single Judge of the
Guwahati High Court also in Sati Oil Udyog Ltd. Vs. Avanti Projects &
Infrastructure Ltd. MANU/GH/0312/2009 observed that Section 42 of the
SRA is not a license to do something which is already prohibited by Section
41 of the SRA and the discretion in the matter of enforcing a negative
covenant has not been taken away from the Court.
32. There is another aspect of the matter. The Joint Venture Company
defendant No.1 was not formed for a period of three years only; there is
nothing to suggest that it was to carry on business for a period of three years
only. Nevertheless the plaintiff agreed that the right of the defendant No.1
Company to distribute the channels of the defendants No.2 to 4 was for a
period of three years only, of which two years are already over. The
plaintiff also agrees that the defendant No.1 Company after the third year
has no right to claim any right to distribute the channels of the defendants
No.2 to 4. In this light also, it is felt that it is not essential to protect the
right even if any, of the defendant No.1 to distribute channels of the
defendants No.2 to 4 for the remaining less than one year of the said three
years by issuing an injunction and when the damages suffered are easily
computable.
33. I may record that the senior counsels for the defendants No.2 to 4
have handed over two volumes comprising of a large number of judgments
and which are kept on record, but in the face of the view taken, need is not
felt to deal therewith.
34. The suit for injunction is thus found to be not maintainable and is
dismissed. The matter having been examined for this limited purpose, any
observation made will not come in the way of the plaintiff / defendant No.1
claiming relief of damages or any other relief to which they may be entitled.
However in the facts, no costs.
RAJIV SAHAI ENDLAW, J
MARCH 19, 2013
„gsr‟
