TMI Blog2013 (3) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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. Plaintiff himself said that the BSA and the JVA are part of the same transaction. Rather when during the hearing, it was put to 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. Thus unable to und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere can be no manner of doubt that the requirement of affirmative vote is a negative covenant. 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 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. Unable to subscribe to the contention of the plaintiff that the purport of Section 42 of the SRA is to make agreements which by their very nature are not enforceable, 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. It is also not as if the negative covenants are necessarily to be enforced. The Joint Venture Company defendan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 thereund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fendants 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel 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. 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 sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opriate 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 perm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 major ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09 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 defendant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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