1 aral30742-10 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION ARBITRATION APPEAL (LODGING) NO.30742 OF 2010 Board of Control for Cricket in India, a society ] registered under the Tamil Nadu Societies ] Registration Act, 1975 having its Head Office ] at Cricket Centre, Wankhede Stadium, `D’ ] Road, Churchgate, Mumbai 400 020 ]... Appellants Versus Jaipur IPL Cricket Private Limited, a company ] incorporated and registered under the ] Companies Act, 1956, having its registered ] office at Shop No.2A, Shanti Nagar, SRA ] Complex, Mahakali Road, Andheri (East), ] Mumbai – 400 093. ]... Respondent Mr.C.A. Sundaram, Senior Counsel with Mr.T.N. Subramaniam, senior counsel, Mr.P.R. Raman, Ms.Akhila Kaushik, Ms.Rohini Musa, Mr.Sharan Jagtiani, Ms.S.P. Arthi, Mr.Indranil Deshmukh, Mr.Rahul Mascarenhas and Mr.Adarsha Saxena i/b Amarchand & Mangaldas & S.A. Shroff & Co. for the Appellants. Mr.Janak Dwarkadas, Senior Counsel with Dr.Milind Sathe, senior counsel Mr.Ashish Kamat and Ms.Preeti Singh i/b Crawford Bayley & Co. for the Respondent. CORAM : S.J. VAZIFDAR, J. DATE : 14TH DECEMBER, 2010. ORAL JUDGMENT :- 1. Admit. With the consent and at the request of the parties, the appeal is heard finally. 2. This is an appeal under section 37 of the Arbitration and 2 aral30742-10 Conciliation Act, 1996 (hereinafter referred to as the “said Act”) against an order passed by the learned sole arbitrator dated 30.11.2010 in the respondent’s application under section 17 of the said Act. 3. The respondent had filed Arbitration Petition No.1322 of 2010 under section 9 of the said Act in this Court. By an order dated 19.11.2010, the petition was disposed of in terms of the consent minutes of the order by which all the disputes and differences between the parties stood referred to the sole arbitrator and the pleadings before the court and the pleadings to be filed, were to be treated as the pleadings for the purpose of respondent’s proposed application under section 17. The respondent accordingly filed an application under section 17 before the learned arbitrator which was disposed of by the said order dated 30.11.2010. It is this order which is challenged in the present appeal. 4. Mr.Sundaram, the learned senior counsel appearing on behalf of the appellants submitted that the jurisdiction of a Court hearing an appeal under section 37 from an order of the arbitral tribunal under section 17 is wider than the jurisdiction of a Court hearing a challenge to an award filed under section 34. According to him, in an appeal under section 37 from an order of the arbitral tribunal under section 17, the Court is bound to consider the merits de-novo. Considering the urgency in the matter and conscious that I must ensure that the parties have reasonable time to challenge any order that I pass, I decided to hear the matter afresh on all questions including of fact and of law. I have come to the conclusion that the order must be upheld on merits not merely for the reasons stated therein but on other 3 aral30742-10 grounds and for other reasons as well. I, therefore, do not consider it necessary to decide the question as to the scope of the jurisdiction of a Court hearing an appeal under section 37 against an order of the arbitral tribunal under section 17. While confirming the order I have put the respondent on certain terms for the reasons and in the circumstances I will state later. 5. The appellant is a society registered under the Tamil Nadu Societies Registration Act, 1975. The Indian Premier League (IPL) consists of and is managed by a Governing Council which is a sub- committee of the appellants. On 27.12.2007, the appellants issued an invitation to tender, inviting persons/entities to bid for a franchise to own/operate a cricket team in the IPL. One Manoj Badale, Suresh Chellaram and Lachlan K. Murdoch decided to bid for an IPL franchise. 6. On 19.1.2008, the respondent issued, inter-alia, the following clarifications to the prospective bidders:- “58. Section 2.3 of the ITT (“Eligibility to Bid”) mentions in the last line that “all Franchises will, for at least the first three years, be located in India”. Does this mean that Bidders located outside India, will have to operate a subsidiary company in India or can we decide this structuring post the bid process. Answer: All Franchises will play all their matches in India during the first three years at least, but Franchisees from overseas are entitled to bid for ownership of the Franchises. BCCI need to know the possible structures from which Franchisees based outside India. It is not a requirement of IPL that Franchisees operate an Indian subsidiary.” 4 aral30742-10 Question No. 60 and clarification given by the Respondent were as follows:“ 60. Can a bidder form a new company after winning the franchisee rights to hold and better manage the franchise. (This new company would be a group company or a company controlled by the same promoter. This new company will meet all the bid criteria of the BCCI.) Answer: Yes this would be allowed subject to any parent company guarantees which may be required by BCCI.” 7. The respondent’s case, which I have accepted, is that the said Manoj Badale, Suresh Chellaram and L.K. Murdoch (hereinafter collectively referred to as the “owners”) on 22.1.2008 submitted a bid in the form of a Letter of Eligibility, through Emerging Media (IPL) Ltd. “EMIPL”, a company registered in UK. Clause 1.1(b) of the LOE required the details of all the shareholders in the bidder to be stated. The name of the said Manoj Kumar Badale was mentioned therein. Mr.Sundaram submitted that the representation therefore, was that the EMIPL was the bidder and that the sole shareholder thereof was Badale. He contended that as ultimately the said Badale was not the only person in control of the respondent, there was a misrepresentation when the franchises agreement was entered into subsequently. The submission is incorrect, as I will demonstrate later. Clause 1.1 (c) of the LOE required an organization chart of the group including the details of those persons who were the ultimate controllers of the bidder if the bidder formed a part of a group of companies. The LOE furnished the following chart:- EM Founder Shareholders Australian Shareholders SI Shareholders | | | 5 aral30742-10 | | | New Investment Co. New Investment Co. New Investment Co. \ | / \ | / Bidco Emerging Media (IPL) Ltd. | 100% | Mauritian Holding Company | 100% | Indian Operating Company EMIPL was incorporated on 23.11.2007 in the name of Intercede 22/46 Ltd., which was changed to the present name on 11.1.2008. Clause 1.1(d) stated that one Fraser Castellino was the CEO and said Badale and one Charles Mindenhall were the directors of EMIPL. Clause 1.2 stated that EMIPL had paid the performance deposit of Rs.2.00 crores. Where the bid was submitted by a consortium, clause 1.3 required the relevant terms of the consortium arrangement to be provided. The LOE in this regard stated “NOT APPLICABLE”. Mr.Sundaram stated that this was again a misrepresentation for the respondent’s case today is that there was a consortium of the said owners viz. the said Manoj Badale, Suresh Chellaram and Lachlan Murdoch. This submission is also unfounded, as I will demonstrate later. In fact the appeal was argued on the basis that it was always represented that the said owners were involved in the process from the beginning. 8. On 24.1.2008, the respondent was declared to be the successful bidder and was awarded the Jaipur Franchise of the IPL. The 6 aral30742-10 franchise agreement was signed by the appellants on 14.4.2008. It is however, convenient at this stage itself to set out the clauses thereof, which pertain to the basis on which the respondent terminated the agreement. The same read as under :- “DEFINITION OF OWNER “Owner” shall mean any person who is the ultimate Controller of the Franchisee; .................................... 10. Sale of Franchise 10.1 The Franchisee has no right to assign or delegate the performance of any right or obligation under this Agreement. However, subject to the remainder of this Clause and to obtaining BCCI-IPL’s prior written consent: (i) the Franchisee will have the right to sell the Franchise to any person; or (ii) any person who Controls the Franchisee will be entitled to effect or otherwise cause to occur a Change of Control of the Franchisee or a Listing (any of the events described in (i) and (ii) being an “Event” for the purposes of this Agreement). Any person who acquires the Franchise from the Franchisee shall be a “Purchaser” (which expression shall include any person who Controls the Purchaser) and any person who acquires Control of the Franchisee upon any Change of Control of the Franchisee from time to time shall be a “New Controller” in each case for the purposes of this Agreement. Upon any Event occurring BCCI-IPL reserves the right to require a new franchise agreement to be entered into by way of replacement for this Agreement for the remainder of the Term, such agreement to be in the form of the standard agreement offered by BCCI-IPL to its Other Franchisees current at that time (the “Replacement Agreement”) 7 aral30742-10 10.2 The conditions required to obtain BCCI-IPL’s written consent to any Event are as follows: (a) no Event shall occur during the first three years; (b) any proposed Purchaser and/or any New Controller shall meet BCCI-IPL’s standards with respect to suitability, business experience, financial status and ability and the Franchisee shall procure the delivery to BCCI- IPL of all such information relating to the proposed Purchaser and/or any New Controller as shall enable BCCI- IPL to determine whether such standards have been met; ............................. 11. Termination 11.1 Either party may terminate this Agreement with immediate effect by notice in writing if the other party has failed to remedy any remediable material breach of this Agreement within a period of 30 days of the receipt of a notice in writing requiring it to do so which notice shall expressly refer to this Clause 11.1 and to the fact that termination of this Agreement may be a consequence of any failure to remedy the breach specified in it. For the avoidance of doubt a breach by the Franchisee of its payment obligations under this Agreement or under Clause 22 shall be deemed to be a material breach of this Agreement for the purposes of this Clause. 11.2 Either party may terminate this Agreement with immediate effect by written notice if the other party commits or permits an irremediable breach of this Agreement or if it is the subject of an Insolvency Event. 8 aral30742-10 11.3 BCCI-IPL may terminate this Agreement with immediate effect by written notice if: (a) there is a Change of Control of the Franchisee (whether direct or indirect) and/or a Listing which in each case does not occur strictly in accordance with Clause 10; (b) the Franchisee transfers any material part of its business or assets to any other person other than in accordance with Clause 10; (c) the Franchisee, any Franchisee Group Company and/or any Owner acts in any way which has a material adverse effect upon the reputation or standing of the League, BCCI-IPL, BCCI, the Franchisee, the Team (or any other team in the League) and/or the game of cricket. .......................... 11.7 For the purposes of this Agreement “Control” means in relation to a person the direct or indirect power of another person (whether such other person is the direct or indirect parent company of the first mentioned person or otherwise) to secure that the first mentioned person’s affairs are conducted in accordance with the wishes of such other person: (a) by means of the holding of any shares (or any equivalent securities) or the possession of any voting power; or (b) by virtue of any powers conferred on any person by the Articles of Association or any other constitutional documents of any company or other entity of any kind; or (c) by virtue of any contractual arrangement and “Controlled” and “Controller” shall be construed accordingly and a “Change of Control” shall occur if (i) a person who Controls another person ceases to do so; or (ii) a different person acquires Control of such other person (whether before or 9 aral30742-10 after or as a consequences of any Listing); or (iii) if any person acquires Control of another person in circumstances where no person previously Controlled such other person. For the purposes of this Clause 11.7 (and in connection with the use in this Agreement of the terms defined in this Clause 11.7) all of the members of any consortium, partnership or joint venture which has any interest (direct or indirect) in the Franchisee shall be deemed to be one person”. .............................. 12.1 This Agreement (and the Regulations), constitutes the entire agreement between the parties in relation to the Franchise and supercedes any negotiations or prior agreements in respect thereof and; (a) this Agreement clearly expresses the parties’ requirements and intentions in connection with the matters contemplated hereby; (b) in entering into the Agreement each party confirms that it has not relied on any warranties or representations which are no expressly set out in the Agreement; and (c) the parties agree that the sole remedy for any breach of any of the warranties or representations included in this Agreement shall be a claim for breach of contract. ............................ 20.9 References to a “person” shall include an individual, corporation, unincorporated association, firm or any other entity of any kind and references to the “termination” of this Agreement shall include its termination or expiration.” 9. It would also be convenient at this stage to refer to the letter of termination dated 10.10.2010 which has been stayed by the learned arbitrator and Mr.Sundaram’s further submissions in this appeal, before 10 aral30742-10 referring to the fact of the case. In paragraph 4 of the letter of termination, it is stated that the appellants had undertaken an internal investigation and found serious irregularities in the respondents corporate structure contrary to the proposed structure submitted in the LOE. The letter stated that EM Sporting Holdings Ltd., a company incorporated in Mauritian (EMSHL) and EMIPL held 9999 shares and 1 share respectively in the respondent. It was further stated that the shares of EMSHL were in turn held as under :- Name No.of shares held Emerging Media (IPL) Ltd. 12,64,688 Tresco International Limited 17,23,008 Blue Water Estate Limited 4,58,320 Kuki Investment 4,56,500 It was accordingly stated that the corporate structure of the respondent was totally different from the one mentioned in the LOE ; that the Mauritian Holding Company was not a 100% subsidiary of EMIPL/the Bidco; that what was represented to the appellants was that there were three shareholders of the EMIPL viz. the said Badale, a New Australian company and another company as a Strategic Investor, but that no such structure was in place. It was further stated that the presence of EMIPL as a 100% holding company of the Mauritian company, which was the basis of the structure had been violated. It was further alleged that there was a violation of clause 3.2 of the LOE and 13.3 of the franchise agreement and that the above breaches were irremediable which entitled the appellants to 11 aral30742-10 terminate the franchise agreement. The appellants stated that when the respondent was incorporated on 8.3.2008, there were only two shareholders viz. said Castellino and Barthakur, who held 5000 shares each. In other words, none of the owners were the shareholders of the respondent and no back ground was provided to suggest any connection between the Bidco/EMIPL and the shareholders. The transfer of Castellino’s 5000 shares to EMSHL on 3.10.2008 caused a change of the controlling interest of the respondent. On 27.1.2009, the said Barthakur transferred his 4990 shares to EMSHL and ten shares to EMIPL. According to the appellants, there was a change of control of the franchise within the meaning of that expression in clause 10 of the franchise agreement twice within three years of the franchise agreement unknown to the appellants. Paragraph 10 of the letter of termination summarised the violations as under:- “10. Hence, it is found that you have committed three violations viz., a) Violated the solemn declaration given in the letter of eligibility that the Emerging Media (IPL) Limited, UK (Bidco) would be the entity controlling the Indian Holding Company operating the Franchise though its wholly own Mauritian subsidiary. b) Stepped into the shoes of the original bidder on the date of award of the Franchise i.e., 14.4.2008 without being a “ group company or entity controlled by the bidder” and c) Clear violation of the Franchise agreement, more particularly clause 10.1, 10.2(a) and 10.3”. 12 aral30742-10 10. On 24.1.2008, EMIPL was declared as the successful bidder for and was awarded the Jaipur Franchise of the IPL. 11. The respondent’s case always was that from the beginning the franchise was to be owned, controlled and managed by EMIPL, the shares of which were to be held/controlled by the said owners; that they had initially decided to acquire the franchise through EMIPL, which was then controlled by the said Badale and that they had agreed between themselves that in the event of EMIPL succeeding in the bid, they would set up a new company, owned and controlled by them which would own the franchise and the IPL team. The respondent’s case is that for variety of reasons including tax related issues and constraints of time, in February, 2008, the owners decided to control the respondent, which was yet to be incorporated, through a Mauritian Holding Company and to eliminate the intervention of EMIPL. In other words, the corporate structure depicted in the LOE was to have one tier less by eliminating the Bidco/EMIPL. 12(A) The respondent was incorporated on 8.3.2008 with an initial share capital of Rs.1,00,000/- in which 10,000 shares of Rs.10/- each. The said Barthakur and Castellino held 5000 shares each, which constituted the entire issued equity share capital of the respondent. (B). A franchise agreement between the appellants and the respondent was executed on 14.4.2008. (C). The Mauritian Holding Company, EMSHL was incorporated on 5.5.2008. According to the respondent, the owners held shares in EMSHL as per the ratio indicated in the LOE through their respective investment 13 aral30742-10 companies. The Bidco/EMIPL was controlled by the said Badale and Blue Water Estate Limited and Tresco International Limited were controlled by the said Lachlan K. Murdoch and Suresh Chellaram respectively. It will be evident a little later that the appellants were aware of the existence of each of these companies although Mr.Sundaram had denied the same. 13. Mr.Sundaram stated that for the purpose of this appeal he would proceed on the basis that the representation to the appellants always was that the said owners Manoj Badale, Suresh Chellaram and L.K. Murdoch would be in control of the Bidco/EMIPL and the franchisee. 14. In view thereof, it is not necessary to set out the myriad facts and circumstances which would establish the same. Suffice it to note that from the beginning the appellants always addressed the entire correspondence to each of the owners by name. This included a separate invitation to each of the owners for the opening ceremony for the first IPL season. 15 The learned arbitrator’s finding that the correspondence suggested that the fact that the said three persons were the owners, was to the knowledge of the appellants cannot therefore be faulted. 16. It is difficult to imagine that the appellants were unaware of the shareholding pattern of EMIPL or the respondent when the LOE was submitted and the Franchise Agreement was executed. The appellants acted not merely on the basis of the expertise of their own officers but on the advise and with the assistance of International Management Group (IMG), a sports management consultancy which provided legal and other services to the IPL. IMG admittedly co- 14 aral30742-10 ordinated with the successful bidders for preparing the final documentation and carried on correspondence with them. A lot appears to have transpired between the parties orally as is evident from the e-mails and from various other facts. For instance, though at the material time, there is no mention of each of the said owners and their precise interest in the entire matter, the correspondence was addressed specifically to each of them. Mr.Sundaram constantly emphasised that control of the franchise and the owner of the franchise is of “paramount importance” for a variety of reasons which go beyond the contractual relationship between the parties and extends, inter-alia, to public and national interest. Looking to the nature of the IPL and the amount of money involved, I would presume he is right. It is difficult then to believe that the appellants would not even have made the elementary enquiry regarding the identity of the shareholders of the Bidco/EMIPL and the respondent. Absent any indication to the contrary, it is a reasonable presumption that the appellants were fully aware of the owners participation in the matter and de-facto involvement in EMIPL and the respondent. 17. Mr.Sundaram contended that the basis on which the franchise agreement was executed was that the Bidco i.e. EMIPL would always be in the picture and would control the Mauritian Holding Company. He submitted that the reason why the corporate structure mentioned in the LOE was accepted was that EMIPL was registered in UK which would have enabled the appellants to obtain information regarding the company easily. 15 aral30742-10 This, he submitted, would in turn enable the appellants to keep control over and know who they were dealing with. Mr.Sundaram also submitted that it was of vital importance that each tier of the corporate structure indicated in the LOE ought to have remained throughout. Mr.Sundaram further submitted that there was a misrepresentation by the owners at the time the LOE and the franchise agreement were entered into to the effect that the owners and not the said Barthakur and the said Castellino would be/were in control of the respondent, whereas in fact it is the said Barthakur and Castellino who held all the shares in the respondent. 18. The submissions are really, if not an after thought, raised in hindsight. Neither the invitation to tender nor the LOE even remotely indicated that it was a fundamental requirement of the appellants that the bidder ought to be registered in UK or in any other particular country or countries. If this was so crucial, it would have been mentioned in the IIT or the agreement which have been prepared in great detail and with considerable expertise. In answer to Question 58 set out earlier, the appellants stated that it was not a requirement of IPL that franchisees operate an Indian subsidiary. If the place of registration of a foreign company was so important, the appellants would at least at this stage have stated so. 19. Nor is there anything in any document or otherwise which indicates that it was an important term of the contract that the corporate structure mentioned in the LOE ought to remain exactly as it was mentioned therein. The documents including the LOE are in fact to the contrary. The submission militates against what is stated in the LOE. From 16 aral30742-10 the LOE, it is also clear that the entire manner in which the control by the owners of the franchise was to be exercised was kept open and subject to adjustments and changes. This is evident from the fact that the LOE itself stated that the details of the exact corporate structure were being finalized and the same would be subject to meeting the legal and local jurisdiction, controls and regulations. The diagramatic representation of the corporate structure was only an anticipated one - it was not final. Neither the LOE nor the franchise agreement supports the submission either. If the corporate structure was to be frozen as per the LOE, it would have been so provided in the