1. The petitioner (hereafter ‘Percept’) has filed the present petition under Section 34 of the Arbitration & Conciliation Act, 1996 (hereafter the ‘A&C Act’) impugning the Arbitral Award dated 18.09.2012 (hereafter the ‘impugned award’) rendered by an Arbitral Tribunal comprising of a Sole Arbitrator. The impugned award was rendered in the context of the disputes that have arisen between the parties in connection with an Agreement dated 05.06.2009 (‘the Agreement’).
2. Percept is a company engaged in the business of providing advertising services such as advertising strategy and implementation, designing and conceptualization of advertising through various modes. The respondent (hereafter ‘BSNL’) is a government company and is engaged in the business of providing telecom services throughout the country except the metro cities of Delhi and Mumbai.
3. BSNL had invited Expression of Interest (EOI No.12-2/08-Mktg) on 11.07.2008 for empanelling agencies for its advertising and publicity activities. Percept had submitted its bid. After technical evaluation of the bids, Percept was declared as the successful bidder and BSNL empanelled it as an advertising agency. Thereafter, on 05.06.2009, the Agreement was executed between the parties.
4. The disputes essentially arise in connection with a Work Order dated 30.03.2010 (hereafter the ‘Work Order’) issued for “Production of Two TV commercials on 3G VAS (with Ms. Deepika Padukone, BSNL Brand ambassador) and Mobile Tariff”.
5. In terms of the Work Order, the TV Commercials for ‘3G VAS’ were to be produced through a production house, Film Farm India Private Ltd. (hereafter ‘FFIPL’), and were to be directed by the celebrity director, Mr. Imtiaz Ali. The TV Commercials were required to feature Ms. Deepika Padukone, BSNL’s brand ambassador. The cost of the TV Commercials was fixed at Rs.1,45,00,000/- (Rupees One Crore and Forty-five Lac Only) plus 5% agency commission amounting to Rs.7,25,000/- (Rupees Seven Lac and Twenty-five Thousand Only). The TV Commercial, “Mobile Tariff” was to be produced through the production house, Vinay Jaiswal Creates and was to be directed by Mr. Vivek Kamath. The cost of the same was fixed at Rs.49,00,000/- (Rupees Forty-nine Lac Only) plus 5% agency commission amounting to Rs.2,45,000/- (Rupees Two Lac and Forty-five Thousand Only).
6. The Work Order expressly provided that the cost of production of the TV Commercials would include the cost of the celebrity director and the production houses viz. FFPIL and Vinay Jaiswal Creates. The fee for the services of Ms. Deepika Padukone was not included as BSNL has engaged her as its brand ambassador under a separate agreement.
7. The disputes between the parties arise in connection with the production of the TV Commercials ‘3G VAS’, which was required to be made through the production house FFIPL under the direction of celebrity director Mr. Imtiaz Ali. The said TV Commercial was to feature only Ms. Deepika Padukone. The amount of Rs.1,45,00,000/- included the cost of the production including the amount to be paid to FFIPL, the celebrity director as well as the cost of the travel expenses, stylist/costumes, vanity troops etc. of Ms. Deepika Padukone. Percept’s remuneration was limited to the agency commission of Rs.7,25,000/-.
8. Percept claimed that it had suffered a loss of Rs.50,00,000/- as it had paid that amount to FFIPL in respect of the cinematograph shoot that was fixed on 15.05.2010 and 16.05.2010. The said shoot was cancelled due to non-availability of Ms. Deepika Padukone. Percept claimed that it was entitled to the said amount incurred by it. But BSNL rejected the said claim.
9. Percept claimed that it had no control or direct contact with Ms. Deepika Padukone. It had received an e-mail dated 27.04.2010 from BSNL informing Percept that Ms. Deepika Padukone would be available for shoot of the TV Commercials on 15.05.2010 and 16.05.2010. It claimed that in accordance with the industry practice, it had booked the studio and made arrangements for the shoot on 15.05.2010 and 16.05.2010. However, Ms. Deepika Padukone did not turn up for the shoot. Percept claims that it was verbally informed by one Mr. Amit Sinha of M/s Search Light Movies Private Ltd. (an agency which was a party to the Tripartite Agreement along with Ms Deepika Padukone and BSNL for engaging Ms Deepika Padukone as BSNL’s Brand Ambassador) barely three days prior to the scheduled shoot, that she would not be available for the shoot on 15.05.2010 and 16.05.2010 as there were some payment issues with her. Percept had immediately sent a letter dated 12.05.2010 to BSNL seeking clarification as to whether Ms. Deepika Padukone would be available on the scheduled dates. Percept also put BSNL to notice that in case the shoot was cancelled on account of no show by Ms. Deepika Padukone, BSNL would be liable to pay the cancellation charges. BSNL never responded to the said communication.
10. Percept also sought the availability of Ms Deepika Padukone on alternative dates from BSNL. However, BSNL terminated the Work Order by a letter dated 10.06.2010.
11. The disputes were referred to the Arbitral Tribunal. BSNL contested the said claims on various grounds. First, it stated that the non-availability of Ms. Deepika Padukone was made known to Percept prior to the scheduled dates and hence, Percept’s claim for any charges was unsustainable.
12. Second, it submitted that Percept had failed to confirm the acceptance of the Work Order within a period of two days from the date of its issuance and therefore, its claim for any payment in connection with the said Work Order was unsustainable.
13. Third, Percept could not claim any amount in anticipation of the work to be executed considering that the contracted work was never executed.
14. Fourth, that any advance made by Percept to FFIPL was at its own risk and responsibility and BSNL could not be held liable for the same. BSNL relied on Clause 3.12 of the Agreement and contended that in terms of the said clause, Percept was liable for all the claims made by any third party.
15. Fifth, it claimed that the Percept’s claim was liable to be rejected for nonjoinder of parties as it had not joined Ms. Deepika Padukone or M/s Searchlight Movies as parties to the arbitration proceedings.
16. BSNL also stated that it had entered into a Tripartite Agreement dated 28.07.2008 between BSNL, Ms. Deepika Padukone and M/s Search Light Movies. M/s Search Light Movies was required to provide the available dates of Ms. Deepika Padukone for the TV Commercial shoots and also update Percept regarding the same. Since Ms. Deepika Padukone was not available for shooting the TV Commercials, and the Work Order contemplated that the TV Commercials in question would be made featuring her, the same was cancelled on account of her non-availability.
17. The Arbitral Tribunal considered the claims made by Percept and noted that, admittedly, BSNL had informed Percept regarding the availability of Ms. Deepika Padukone for shooting the TV Commercials on 15.05.2010 and 16.05.2010. It also accepted Percept’s case that it had no control regarding the availability of Ms. Deepika Padukone for the said shoot. M/s Search Light Movies was the agency responsible for making her available on the dates fixed; however, she had not turned up for the shooting as scheduled. The Arbitral Tribunal noted that Percept had issued a Purchase Order to FFIPL and also produced documents evidencing payment of Rs.50,00,000/- to FFIPL as an advance for arranging the shoot to be held on 15.05.2010 and 16.05.2010. The payment of the said amount had not been denied by BSNL in its reply.
18. The Arbitral Tribunal rejected BSNL’s contention that Percept’s claim was required to be rejected for non-joinder of necessary parties as it had not made Ms. Deepika Padukone or M/s Search Light Movies as parties to the arbitral proceedings. The Arbitral Tribunal held that Percept had no contract either with Ms. Deepika Padukone or with M/s Search Light Movies. Percept had also sent an e-mail that it was willing to re-schedule the shoot to another date but BSNL had, instead of providing an alternate date for the availability of Ms. Deepika Padukone, terminated the Work Order due to her non-availability. The Arbitral Tribunal held that it was BSNL’s duty to ensure the availability of Ms. Deepika Padukone for the shoot and neither Percept nor FFIPL had any control over her availability.
19. The Arbitral Tribunal also accepted that Percept may have suffered losses due to non-performance of the obligations by BSNL as the Work Order could have been performed only if Ms. Deepika Padukone was available for the shoot. However, the Arbitral Tribunal rejected the Percept’s claim on the ground that there was no proof that the amount paid by Percept to FFIPL had been refunded to Percept or adjusted against any other work/contract.
20. It is apparent from the plain reading of the impugned award that the Arbitral Tribunal had accepted that the obligation to ensure that Ms. Deepika Padukone was available for the shoot was that of BSNL; Percept had made the arrangement for the shoot on 15.05.2010 and 16.05.2010 on the basis of the communication sent by BSNL confirming that Ms. Deepika Padukone would be available for the TV Commercials on 15.05.2010 and 16.05.2010; Percept had paid a sum of Rs.50,00,000/- to FFIPL; and, Percept may have suffered losses due to non-performance of obligations on the part of BSNL as it was responsible for making its brand ambassador - Ms. Deepika Padukone available for the shoot. Without BSNL performing that obligation, it was not possible for Percept to perform the Agreement.
21. Notwithstanding the aforementioned findings in favour of Percept, the Arbitral Tribunal rejected Percept’s claim. The reason for rejecting Percept’s claim is encapsulated in Paragraph 19 of the impugned award, which reads as under:
“19. The Respondent has argued that as per para 3.12 of the Agreement dated 05.06.2009, the Agency shall be fully responsible for all the claims made by any third party and shall also be responsible for all the expenses incurred by BSNL in any litigation initiated by the third party. Though the Claimant has paid Rs.50 lakhs to the Film Farm India Pvt. Ltd., there is no proof that the paid amount has not been paid back to the claimant or got adjusted against any of their work.”
22. It is apparent from the above that the only ground on which the Arbitral Tribunal has rejected Percept’s claim is that there was no proof that the amount paid by Percept to FFIPL was returned to it or adjusted against other work.
23. Plainly, the aforesaid reasoning is manifestly erroneous. Percept had produced the Certificate from FFIPL, which reads as under:
“TO WHOMSOEVER IT MAY CONCERN
This to certify that we, Ms. Film Farm India Pvt. Ltd., have received a sum of Rs.50,00,000/- from Ms. Percept H. Pvt. Ltd. vide Cheque Nos.688813 and 783548 as cancellation charges for the ‘BSNL 3G’ TVC featuring Ms. Deepika Padukone, after the unavailability of dates of Ms. Deepika Padukone.
And are not liable to reimburse full or part of the said amount of Rs.50,00,000/- (Rupees Fifty Lakhs Only) to Ms. Percept H. Pvt. Ltd.
FOR FILM FARM INDIA PVT. LTD.
24. As noted above, there was no dispute that Percept had paid the amount. Percept had set up a case that FFIPL had appropriated the amount and not refunded the same to Percept. Given the case set up by Percept, there was no question of Percept producing any further proof that FFIPL had not refunded the said amount to Percept. In view of Percept’s case that the amount was appropriated by FFIPL on account of cancellation of the shoot, there was requirement to prove the negative. It was not BSNL’s case that the amount paid by Percept to FFIPL, which was not disputed by BSNL, had been returned back to Percept or had been adjusted in any other manner. The conclusion of the Arbitral Tribunal in this regard is thus, wholly speculative and completely ignores the certificate issued by FFIPL, which was placed on record by Percept.
25. Mr Gorang Goyal, learned counsel appearing for BSNL contended that BSNL was not liable to pay any amount to Percept in regard to the claims made by third parties in view of Clause 3.12 of the Agreement. The said contention was also noted by the Arbitral Tribunal in paragraph 19 of the impugned award but the Arbitral Tribunal had not returned any finding in respect of the said contention. As noted above, Percept’s claim was rejected by the Arbitral Tribunal solely on the ground that it had not proved that it had not received the sum of Rs.50,00,000/- from FFIPL.
26. At this stage, it may be relevant to refer to Clause 3.12 of the Agreement, which reads as under:
“3.12 Third Party work compensation: The agency shall be fully responsible for all the claims made by any third party and shall also be responsible for all the expenses incurred by BSNL in any litigation initiated by the third party.”
27. There is no dispute that Percept would be liable to pay all the expenses and was responsible for the claims of third parties. Apart from the consideration fixed in the Work Order, BSNL was not required to pay any third party (other than Ms. Deepika Padukone, who had been engaged as its brand ambassador) for producing the TV Commercials. It is not Percept’s claim that BSNL is liable to pay the third party charges; its claim is for the loss suffered by it on account of BSNL not performing its obligations. The evidence regarding payment to the third party (FFIPL) has been adduced to establish the measure of damages. The incidence of damage is the breach on the part of BSNL in performing its obligation. This was accepted by the Arbitral Tribunal. The Arbitral Tribunal specifically held that the obligation to ensure that Ms. Deepika Padukone was available on the dates of the shoot reste
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d with BSNL. Thus, Clause 3.12 of the Agreement is not applicable. In any view, the Arbitral Tribunal did not reject Percept’s claim for that reason. The Arbitral Tribunal had noted the said contention in the first sentence of Paragraph 19 of the impugned award but had not returned any finding regarding the same. 28. The Arbitral Tribunal also accepted that Percept may have suffered losses due to non-performance of the obligation by BSNL. This is apparent from Paragraph 18 of the impugned award. The same is set out below: 18. Considering the aforesaid provision of Section 54 of the Contract Act and after reading all the relevant judgments, I am of the opinion that the Claimant might have suffered losses due to the non performance of its part of the promise by the Respondent BSNL In as much as the Respondent had to first make its Brand Ambassador Ms. Padukone available for the shoot. The contract could have been performed and completed by the Claimant only if the Respondent had performed its part of the promise. In other words, only if Ms. Deepika Padukone was made available for the shoot.” 29. Given the findings of the Arbitral Tribunal, this Court is of the view that its decision to reject Percept’s claim on the ground that there was no proof that the amount incurred by it was not paid back or adjusted in any manner, is manifestly erroneous. And, it vitiates the impugned award on the ground of patent illegality. 30. In view of the above, the impugned award is set aside. 31. The petition is, accordingly, allowed.