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Deccan Chronicle Holdings Limited v/s Board of Control for Cricket in India & Another

    Arbitration Petition (L) No. 1352 of 2012

    Decided On, 18 October 2012

    At, High Court of Judicature at Bombay

    By, THE HONOURABLE MR. JUSTICE R.D. DHANUKA

    For the Petitioner: S.U. Kamdar, Sr. Counsel along with Zal Andhyarujina & Arcot Chandrashekar i/by M/s. Dave Girish & Co., Advocates. For the Respondents: Navroz Seerwai, Sr. Counsel, Rohan Cama, Ajay Vazirani, Amey Nabar, S.S. Ghosh, Anirudh Hariani, Ms. Deeksha Dadwal, Ameya Deosthale i/by M/s. Hariyani & Co., T.N. Subramanium, Sr. Counsel along with P.R. Raman, Viraj Maniar, Ms. Akhila Kaushik, Ms. Misbah Dada & Nikhil Karnawat i/by M/s. Maniyar Srivastava Associates, Advocates. For the Intervener: Janak Dwarkadas, Sr. counsel with Nandkishore & Anjan Dasgupta for HSA Advocate.



Judgment Text

Oral Judgment:

1. By this Petition under section 9 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as 'Act'), the petitioner seeks stay of the termination of Franchise agreement by letter dated 14th September, 2012 and the subsequent decision of the Working Committee of the Board of Control for Cricket in India (hereinafter referred to as 'BCCI') dated 15th September, 2012 confirming the same. The Petitioner also seeks status quo order against the parties and injunction against BCCI from acting upon the tender notice issued on 14th October, 2012 and or providing any party with the invitation to tender in respect of the franchise for the City of Hyderabad.

2. The relevant facts in the matter are briefly set out hereunder:

In and around 2007, the BCCI conceptualised a tournament to be called 'Indian Premier League' which would involve competition between various teams of Twenty-20 format of cricket. A sub committee of the respondent known as Indian Premier League managed by a separate governing council, was setup/established to oversee the operation of the league, which in turn, ultimately reports to BCCI. The IPL/BCCI conceived that private individuals/companies should establish and operate the teams as franchisees in the league, as per the guidelines and regulations framed by IPL/BCCI. The Deccan Chronicle Holdings Ltd. (hereinafter referred to as 'DCHL') was declared successful bidder for Hyderabad franchise of the league and the franchise agreement dated 10th April, 2008 was thereafter executed between DCHL and BCCI.

3. On 14th September, 2012, BCCI terminated the franchise agreement on various grounds. On 15th September, 2012, the DCHL filed Arbitration Application (L) No. 1238 of 2012 in this court for seeking interim measures.

4. On 1st October, 2012, this court disposed of the said arbitration petition by passing a detailed order. In Para 6 of the said order, it has been observed that admittedly DCHL failed to make payments as agreed to its players, support staff, associations and overseas cricket boards which became due on and from 1st May, 2012. In Para 42 and 43 this court held as under:

'42. In the above circumstances I am of the view that BCCI has at all stages acted in some haste in terminating the Franchise Agreement with DCHL. Though BCCI had after issuing the termination notice on 14th September 2012, granted time to DCHL to cure the defects upto 5.00 p.m. on 15th September 2012, it would have been prudent on the part of BCCI to take the decision of confirmation of termination of the Franchisee Agreement after considering all the letters received from DCHL or its Bankers on 15th September 2012. Instead, BCCI has, on the same day at 5.30 p.m., without considering the letters received by it by 5.00 p.m. or a little thereafter, taken the decision to confirm its decision dated 14th September 2012 to terminate the Franchise Agreement executed by and between BCCI and DCHL. Despite the above, I do not attribute any motives to BCCI at this stage and, as stated hereinabove, I am proceeding on the basis that the haste on part of BCCI was due to the fear and anxiety expressed by their Learned Senior Advocate namely that the failure on the part of DCHL to fulfill their contractual commitments may tarnish their image in International cricketing circles. However such hasty termination, if after a detailed adjudication by the Arbitrator is found to be incorrect will cause grave loss and prejudice not only to DCHL but also to the Banks and financial institutions which are backing DCHL with financial support, resulting in complete destruction of DCHL which cannot be compensated in terms of money. At the same time the Court whilst granting protective reliefs in the above petition to DCHL, as submitted by the learned Senior Advocate appearing for the BCCI, will also have to keep in mind the interest of BCCI, the game and its players more particularly the image of BCCI in the International Cricketing World. I have inquired from the Learned Advocate for DCHL whether his clients are willing to furnish an irrevocable and unconditional Bank Guarantee to BCCI in the sum of Rs. 100 crores as security for the IPL Series VI, within 10 days from 26th September 2012 , the Learned Advocate after taking instructions has responded in the affirmative. Though I find that the balance of convenience is more in favour of DCHL, I am of the view that the following protective orders will take care of the interest of both the parties.

(i) DCHL shall furnish an irrevocable and an unconditional Bank Guarantee of a Nationalized Bank in the sum of Rs. 100 crores (Rupees One hundred crores) to BCCI on or before 9th October, 2012 which should be in force for a period of one year.

(ii) DCHL shall bear all the expenses for IPL Series6 i.e. make payments to BCCI towards Franchise fee, player and support team costs and in addition also bear the cost of match conduction and other expenses. In the event of any default on the part of DCHL, BCCI shall be entitled to invoke the Bank Guarantee to the extent necessary.

(iii) The representative of YES Bank who is present in Court, undertakes to make wire transfer to the respective foreign parties on or before 3rd October 2012 and upon presenting proof of such wire transfer, BCCI shall return the demand drafts drawn in favour of the foreign parties by YES Bank to the authorised representative of the said Bank.

(iv) BCCI shall forthwith disburse the demand drafts aggregating to Rs.8,95,38,750/- to the beneficiaries named therein.

(v) Upon DCHL furnishing the said Bank Guarantee in the sum of Rs.100 crores to BCCI and DCHL through its Bankers effecting the aforestated wire transfers to the foreign parties, BCCI shall deposit the amount already due and payable by BCCI to DCHL and payable in future to DCHL with the Prothonotary and Senior Master of this Court which the Prothonotary and Senior Master shall invest in a fixed deposit of a Nationalised Bank from time to time until further orders of the Court.

(vi) BCCI shall, pending the arbitration proceedings and making of an Award by the learned Arbitrator and for a period of 7 days thereafter if the Award is in their favour, not act on the termination of the Franchise Agreement. However, it is clarified that this order shall immediately cease to be in effect in the event DCHL fails to furnish a Bank Guarantee of Rs. 100 crores as provided in clause (i) above on or before 9th October, 2012.

(vii) DCHL undertakes to pay IFCI Ltd. the balance installments as agreed in the consent terms on its due dates. The undertaking is accepted.

(viii) DCHL shall pay the undisputed outstanding dues of Hotels, transporters etc. as regards the IPL Series V on or before 31st October 2012.

(ix) This Order shall not preclude the BCCI from adding one more Franchisee for IPL6 series and thereafter.

43. The above Arbitration Petition is accordingly disposed of with a clarification that all the observations made herein are prima facie and the Learned Arbitrator shall make his Award without being influenced by any of the observations made herein.'

5. On 9th October, 2012, the DCHL applied before this court for extension of time to furnish bank guarantee as set out in para 42(i) of the order dated 1st October, 2012 upto 12th October, 2012, 5.00 p.m. The DCHL also applied for permission to furnish a bank guarantee of ICICI Bank instead of a nationalized bank. This court granted extension of time to furnish bank guarantee upto 12th October, 2012, 5.00 p.m. This court, however, directed the petitioner to take out appropriate proceedings for seeking necessary modifications of the order dated 1st October, 2012 as sought by the petitioner. It is an admitted position that no such application came to be made by the petitioner seeking substitution of bank guarantee of nationalized Bank by ICICI Bank.

6. On 12th October, 2012 at 11.00 a.m., an oral application was made for extension of time to furnish bank guarantee which has been admittedly declined. The order passed by this court on 1st October, 2012 being self operative, termination of the contract came into effect at 5.00 p.m., on 12th October, 2012.

7. In the arbitration meeting held before the arbitral tribunal on 12th October, 2012 which commenced at about 5.30 p.m., after directions were issued by the arbitral tribunal, an application under section 17 of the Act came to be made for grant of status quo order passed by this court. The arbitral tribunal passed status quo order on 12th October, 2012. The order passed by the arbitral tribunal granting status quo has been set aside by this court by passing a separate order today. In the meanwhile, BCCI issued a tender notice on 14th October, 2012 inviting a new premier league franchise. It is provided that bids must be submitted at 12.00 noon of Thursday, 25th October, 2012. It is further provided that bids may be submitted in respect of the cities such as Ahmedabad, Cuttack, Dharamsala, Indore, Hyderabad, Kanpur, Kochi, Nagpur, Noida, Rajkot, Ranchi and Vizag.

8. The Petitioners moved this petition under section 9 of the Act for seeking stay of the termination of the franchise agreement by letter dated 14th September, 2012 and confirmed by letter dated 15th September, 2012 and for injunction against the BCCI from acting upon the tender notice issued on 14th October, 2012.

9. Mr. Kamdar, the learned senior counsel appearing for DCHL, Mr. N.A. Seervai, the learned senior counsel for Kamla Landmarc Real Estate Holding Pvt. Ltd. (respondent no. 2), and Mr. Janak Dwarkadas, learned senior counsel appearing for Intervenor Ratnakar Bank, addressed this court in support of grant of interim measures. The learned counsel made following submissions:

(a) IPL-6 would start in April, 2013. There are no existing liabilities of DCHL towards BCCI. Ratnakar Bank one of the creditors is supporting DCHL in applying for status quo of the termination order. DCHL has already entered into agreements with players and the same are in existence today. No prejudice would be caused to BCCI if DCHL is permitted to go out of franchise and is allowed to sell its team to the second respondent.

(b) If termination is not stayed, several creditors including petitioners would be seriously affected. The DCHL has invested about Rs. 600 Crores., which would be wasteful. There is no complaint made by any players against DCHL regarding payments. DCHL has so far paid a sum of Rs.237 Crores to BCCI. Whatever, fees is payable in future under the Franchise Agreement would also be paid. After refusal of stay by this court and stay of order passed by the arbitral tribunal in appeal, there is change in circumstances which warrants grant of interim measures by this court on this application under section 9 of the Act. The learned counsel relied upon avermetns made in para 14 and 15 of this petition which reads as under:

'14. The Petitioner states and submits that entering into MOU by the Petitioner and the Respondent no.2 amounts to a significant change in circumstance. The Petitioner states and submits that the said MOU was arrived at on 11th October, 2012 and has not been the subject matter of any application made in the said Arbitration Petition.

15. The Petitioner states and submits that subject to the consent of the Respondent No. 1 under the terms of the MOU, the Respondent No. 2 will perform all obligations in respect of the Deccan Chargers Franchise for IPL-6. This is a marked contract to the position before the Ld. Judge in the said Arbitration Petition and the basis of the circumstances under which the Orders dated 1st October, 2012 and 12th October, 2012 came to be passed. The record clearly bares out that these orders were passed on the basis that in fact the Petitioner would continue to run the Franchise and to meet all obligations of the Franchise to the Respondent No. 1 and its players in IPL-6.'

(c) MOU has been already entered into between DCHL and Kamla Landmarc Real Estate Holdings Pvt. Ltd. (respondent no. 2), by which DCHL has agreed to go out of the franchise and proposed to sell its team to the 2nd respondent for consideration. All the liabilities of the DCHL have been agreed to be taken over by the proposed purchaser. My attention is invited to various provisions under the said MOU dated 11th October, 2012 including the financial terms recorded by and between the parties thereto. It is submitted that in terms of Clause 10.1 of the Franchise agreement, DCHL has already applied for prior consent of BCCI by letter dated 11th October, 2012 enclosing copy of MOU dated 11th October, 2012 to BCCI and the said permission is awaited.

(d) BCCI instead of permitting DCHL to auction its team to an outsider is adamant to sell its team with an intention to make huge profit and put DCHL to tremendous loss which loss cannot be compensated in terms of money. No prejudice would be caused if the termination is stayed and an opportunity is given to DCHL by introducing a party who is willing to purchase the team of DCHL and save DCHL from this situation.

(e) This Court has made various observations in the order 1st October, 2012 in favour of DCHL and against BCCI about conduct of BCCI in terminating the contract.

10. The learned senior counsel Mr. T.N. Subramanium on the other hand submits that:

(a) the order passed by this court on 1st October, 2012 staying the termination on various conditions is self operative The conditions not having been complied with, the termination came into effect at 5.00 p.m., on 12th October, 2012. Once the respondent's application for extension of bank guarantee came to be rejected by this court at 11.00 a.m., on 12th October, 2012, an application was made without prior notice before the arbitral tribunal for continuation of stay. It is submitted that this court has rightly stayed the operation of status quo order granted by the arbitral tribunal. It is submitted that once extension was refused by this court and this court having stayed the operation of the status quo order passed by the arbitral tribunal, this petition again seeking stay of termination is not maintainable.

(b) The orders passed by this court on 1st October, 2012, 12th October, 2012 and 13th October, 2012 have not been challenged by the respondents. All these orders are binding on the parties. It is submitted that four winding up petitions filed against the petitioner company were pending on the date of filing earlier petition under section 9 of the Act. M/s. Tata Capital has filed recovery proceedings against the petitioner wherein an injunction order has been passed from selling assets of petitioner. The learned senior counsel invited my attention to clause 2.1(b) of the Franchise agreement which empowers the BCCI to grant to the franchise a right to be the only team in the league whose home stadium is located in the territory during a period of not less than the first three seasons.

(c) Under clause 10.1 of the franchisee agreement, the franchise has no right to assign or delegate the performance of any right or obligation under that agreement without prior written consent of BCCI. It is submitted that in view of the DCHL not having remedied the material breach pointed out by BCCI, the BCCI was justified in terminating the contract. It is submitted that the insolvency event as defined under clause 11.6 of the Franchise agreement had occurred.

(d) The learned senior counsel also invited my attention to various clauses in the MOU entered into between DCHL and the second respondent. It is submitted that the application for prior consent made by DCHL under clause 10.1 of the agreement is under consideration of BCCI. The learned counsel invited my attention to clause 2 of the MOU which provides that the net realisation under the franchise would be INR 1250 Crores in aggregate be discharged and payable in the manner set out therein. It is proposed that the cash pay out of INR 350 Crores payable by the purchaser in 10 years in equal installments payable starting from the 30th day of December of the calender year pertaining to the closing date more particularly set out in Annexure I. It is provided that the first pay out shall be made not later than 30 December, 2013. My attention is invited to clause 3 which records various conditions precedent for consideration of transaction of sale of the franchise in terms of the said MOU. Clause 3(a)(c ) and (e) are relevant and are as under:

'(a) The seller shall procure and obtain all consents, approvals, no objections, permissions of its Lenders, its shareholders, BCCI and the High Court of Bombay including any other authority for consummating the sale of the Franchise to the purchaser free of any lien, charge and encumbrance and for execution of the Definitive Agreements and all other documents and writings as may be necessary to give effect to the sale.

(c) The Seller shall settle in full all the liabilities of the Franchise up to the Closing date only (i.e. the date when the Sale and Transfer of the Franchise shall be effected in favour of the Purchaser and which shall be a date not later than 31 March, 2013 or a mutually extendable date) (including but not limited to player amounts due for IPL 2010 season or any of the previous seasons, amounts due to Cricket associations, amounts due to each Bought-out player, amounts due to BCCI, Support Staffs, etc.) and also undertake to take over and keep the Purchaser harmless from all liabilities and claims pertaining to the Franchise that have arisen upto the Closing date or arise (at any time thereafter) due to any event or cause of action pertaining to or taken place on or prior to the Closing Date.

(e) Execution and satisfactory delivery of Definitive agreements between the Seller and the purchaser no later than 31 March, 2012 or a mutually extendable date.'

(e) It is submitted that if reliefs as claimed by the petitioner in this petition are granted, it would amount to setting aside the termination under section 9 of the Arbitration and Conciliation Act, 1996 which is not permissible. It is submitted that the order passed by this court on 1st October, 2012 was an equitable and protective order considering the interest of both the parties. The petitioner not having complied with the conditions imposed by this court in that order, cannot once again apply for stay of termination.

(f) It is submitted that though this court had granted liberty to apply on 9th October, 2012 for modification of the order dated 1st October, 2012 and to furnish bank guarantee of ICICI bank in place of Nationalized Bank with a rider that it would be considered on merits, no such application was made. It is submitted that the draft of the bank guarantee forwarded to BCCI by DCHL was not in accordance with the interim order passed by this court on 1st October, 2012. It is submitted that the agreements entered into with players would come to an end on 31st December, 2012. If the agreement is not continued, the players would be free to act for other teams and would be available for auction. It is submitted that any stay as sought by DCHL would not be in the interest of BCCI, players, in the interest of the game and may tarnish the image of BCCI in international cricketing circle. It is submitted that in recent past BCCI had granted an opportunity to DCHL to auction its team. The auction was held on 13th September, 2012. Only one bid was received by DCHL and was not accepted by DCHL.

11. From the backgrounds of the facts narrated aforesaid, it is clear that the order passed by this court on 1st October, 2012 was an equitable order considering the interest of both the parties. In Para 42 of the said order, it is recorded that this court had enquired from the learned counsel for DCHL whether his clients were willing to furnish irrevocable and unconditional bank guarantee to BCCI in the sum of Rs. 100 Crores as security for IPL series 6 within 10 days from 26th September, 2012. The learned counsel after obtaining instructions from the client had responded in the affirmative. It was therefore, recorded that balance of convenience though was in favour of DCHL, protective orders came to be passed which would take care of interest of both the parties. It was also observed that this court did not attribute any motives to BCCI at this stage. It is observed that the court was proceeding on the basis that the haste on the part of BCCI was due to fear and anxiety expressed by their learned senior counsel that the failure on the part of DCHL to fulfill their obligation may tarnish their image in international cricketing circles. In my view the order passed by this court on 1st October, 2012 being self operative order, termination of the contract came into effect at 5.00 pm on 12th October, 2012. The validity and legality of the same would be the subject matter of arbitration before the arbitral tribunal. This proceedings are not by way of an appeal against the order passed by this court on 1st October, 2012. I can not sit in appeal on the order passed by this court on 1st October, 2012 and 12th October, 2012.

12. In my view the petitioner having failed before this court, obtained an order of status quo from the arbitral tribunal by filing application which was not maintainable. The arbitral tribunal acted without jurisdiction and granted status quo order which was stayed by this court by passing order on 13th October, 2012. In my view, filing of another application under section 9 of the Act for staying termination of the impugned order is in the teeth of the order passed by this Court on 1st October, 2012, 12th October, 2012 and 13th October, 2012 and is a gross abuse of process of law.

13. It is clear that when the petitioner applied for extension of time to furnish bank guarantee at 11.00 a.m., on 12th; October, 2012, even according to the petitioner, MOU was already entered into on 11th October, 2012 itself between DCHL and second respondent. In this respect reference to the pleadings filed by the BCCI in Civil Application in the appeal would be relevant. In Para 5 of the Civil Application dated 13th October, 2012 in Arbitration Appeal, it is averred by the BCCI that at around 11.00 a.m., on 12th October, 2012 this court expressly refused DCHL's request for further extension of time to furnish bank guarantee which request has been made on the ground that negotiations for the sale of Hyderabad Franchise were in progress. DCHL has filed affidavit in reply to this Civil Application on 16th October, 2012. These averments made in Para 5 of the Civil Application are not denied by the petitioner in the affidavit in reply. In any event on the date of making of the application for extension of time to furnish bank guarantee at 11.00 a.m., on 12th October, 2012, MOU which is now being relied upon by DCHL was already in place. Inspite of the said fact, this court had refused to extend time for furnishing the bank guarantee. In my view thus there is no change in the circumstances which warrants exercise of the powers

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of this court under section 9 in this application. 14. Even otherwise, perusal of the MOU entered into between DCHL and the second respondent indicates that the said transaction is made subject to execution and delivery of satisfactory definitive agreements containing various conditions. It is subject to consent of Lenders, BCCI, High Court, Bombay and such other approvals as may be required by the seller from any other authority. Clause 3 provides for various conditions precedents required to be complied with before any final agreement can be arrived at. It is stated in clause 3(c) that the seller shall settle in full all the liabilities of the Franchise upto the closing date which shall be the date not later than 31st March, 2013 or a mutually extendable date. The financial obligation recorded in the said MOU indicates that cash pay out of INR 350 Crores payable by the purchaser i.e. respondent no. 2 in 10 years in equal installments starting from 30th day of December of calender year and has to be not latter than 30 December, 2013. 15. In my view, while exercising power under section 9 of the Act, this court can not supervise compliance of any conditions agreed upon by DCHL and second respondent. Various permissions, consents, approvals, no objections are required to be obtained by DCHL from its lenders, shareholders, BCCI and the High Court of Bombay, and other authority for consummating the sale of the Franchise to the purchaser free of any lien, charge and encumbrance and for execution of the Definitive Agreements and other documents. It is not possible for this court to direct any of these authorities to grant its consent, approval or no objection in favour of the DCHL proposing to auction its team to the second respondent. In my prima facie view, if reliefs as claimed by the petitioner are granted, this court will have to first set aside the termination order dated 14th September, 2012 and then grant specific performance of the MOU entered into between DCHL and second respondent and then to direct BCCI to accept such assignment. In my view such recourse is not permissible under section 9 of the Arbitration Act, 1996. 16. In my view, no case is made out for ad interim relief. The respondents are directed to file affidavit in reply on or before 1st November, 2012. Rejoinder, if any to be filed on or before 20th November, 2012. The matter tobe placed on board for final hearing on 29th November, 2012. It is made clear that this court has not expressed any views on the on the validity or legality of the termination order.
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