TaxTMI 
TaxTMI 
2013 (3) TMI 552
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.... 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 fil....
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....nt 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; CS(OS) No.217/2013 Page 6 of 43 (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....
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....t 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 214. (iii) Prudential Assurance Company Ltd. Vs. Newman I....
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....ss 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) coll....
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.... 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....
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....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; CS(OS) No.217/2013 Page 20 of 43 (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. Attent....
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....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 create....
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....nder 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 ev....
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.... 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. ....
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....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 tha....
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.... 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 ....
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....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....
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.... 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....