Case: Board of Control For Cricket In India Vs. Kph Dream Cricket Private Limited

of Kings XI Punjab;v. As a result of the letter of termination the Respondent would be precluded from participating in the auction for cricketers which is scheduled to take place in January 2011. Players are normally signed up for two year contracts with the option of a one year extension;vi. The Respondent would also not be able to trade players with other franchisees at mutually agreed prices;vii. The Respondent is a representative franchisee for the States of Punjab, Haryana, Himachal Pradesh and Jammu & Kashmir which provides a platform for cricketers of the region to develop their skills;viii. The Respondent has built up a large number of sponsors who have chosen to become part of the brand, Kings XI Punjab. In the year 2010 itself 14 sponsors had signed up with the Respondent, some of them having signed a contract which extends for a period upto three years;ix. The Respondent has been promoting cricket in far off places, in remote areas of Himachal Pradesh and is currently in the process of setting up a cricket academy in conjunction with the Cricket Associations of Punjab and Himachal Pradesh.28. We are of the view that sufficient grounds were made out on behalf of the Respondent for establishing that damages would not provide an adequate remedy and that an interim order staying the termination was warranted. Such an order falls within the contemplation and purview of Section 9. The Arbitrator has power to grant specific performance. The Arbitrator, if appointed again, will decide finally all the issues after taking note of material and submissions. During this period, the Court is empowered to pass a protective order in order to preserve the subject matter of the Arbitration and to safeguard the rights in adjudication before the arbitral tribunal from being frustrated. In view of the nature of the transaction, the conduct of the parties, to avoid irreparable loss, injury and harm to goodwill and reputation, and in the interests of justice as a strong prima facie case is made out, we are inclined to maintain the order passed by the learned Single Judge. We are also of the view that the balance of convenience lies in favour of the Respondent. It was just and convenient to pass an order to protect and preserve the subject matter of the dispute, to avoid further complications in the matter, particularly when the action of an abrupt termination of the contract which had a life coextensive with the duration of IPL is unjust, unfair and illegal. Damages will hence not provide adequate or sufficient recompense. Therefore, clause 21.6 does not affect the power and jurisdiction of the Court under Section 9 to pass such an order, at the interim stage, till the award of the arbitral tribunal. However, this is subject to the conditions set out in the order of the learned Single Judge.29. In Hindustan Petroleum Corpn. Ltd. Sriman Narayan (2002) 5 SCC 760 ), the Supreme Court reiterated the principles which were laid down in Dorab Cawasji Warden v. Coomi Sorab Warden (1990) 2 SCC 117 ) for the grant of interlocutory mandatory injunctions. The circumstances which have been enunciated in the judgment of the Supreme Court include that (i) The plaintiff must establish a strong case for trial, a higher standard than a prima facie case normally required for a prohibitory injunction; (ii) The Plaintiff must establish that it is necessary to prevent irreparable or serious injury which normally cannot be compensated in terms of money; (iii) The balance of convenience must be in favour of one seeking such relief. We are more than satisfied that the learned Single Judge is justified in coming to the conclusion that these principles are duly fulfilled.30. The judgment of the Supreme Court in Lachoo Mal v. Radhye Shyam (AIR 1971 SC 2213 ) deals with the question as to whether a landlord could waive the exemption benefit available for constructions made after the stipulated date in the U.P Control of Rent and Eviction Act. The Supreme Court laid down that the general principle is that every individual has a right to waive an advantage of a rule made solely for the benefit of the individual unless it can be shown that an agreement in such circumstances is contrary to public policy. The judgment of the Supreme Court would really not advance the case of the Appellant.31. The learned Single Judge while granting an interlocutory injunction, carefully weighed the equities and has made the final relief subject to stringent conditions. These conditions include the requirement that the Respondent furnish a bank guarantee of US $ 18 million to secure the payment of players dues and another bank guarantee in the amount of US $ 3.5 million, both of nationalized banks. In addition, the learned Single Judge has recorded a personal undertaking to guarantee the payment of any amounts that may be found due and payable by any court, tribunal or by any other authority. Having regard to the settled principles enunciated by the Supreme Court in Wander Ltd. v. Antox India P. Ltd. (1990 (Supp) SCC 727), no case has been made out for interference. Before concluding, we must advert to the judgment of the Supreme Court in Board of Control for Cricket in India v. Netaji Cricket Club (2005) 4 SCC 741 ). While it is true that BCCI is not State within the meaning of Article 12 of the Constitution, the Supreme Court has held that nonetheless the Board is bound to follow the doctrines of fairness and good faith in all its activities having regard to the enormity of the power exercised by it. For the reasons which we have indicated, we have come to the conclusion that the termination of the contract was anything but fair. The termination was wholly arbitrary, and was founded on an erroneous factual basis. It therefore deserved the treatment which it has received in the Court of the learned Single Judge. We therefore do not find any reason to interfere.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]17. The basis and foundation of the notice of termination is that while in the bid that was submitted by the members of the consortium a representation was held out to BCCI, that the four members consisting of Preity Zinta, Ness Wadia, Mohit Burman and Karan Paul would control the affairs of the franchisee, this was belied when the Respondent was initially constituted. The gravamen of the allegation of BCCI is that when the franchise agreement was entered into on 10 April 2008, none of the members of the consortium was a shareholder of the Respondent. Now from the chart which has been extracted in the earlier part of this judgment it would be abundantly clear that on the date of the franchise agreement the shareholding of the Respondent was held between ACEE which held 9900 shares and Mohit Burman who held 100%. Clause 11.7 of the franchise agreement defines the expression control to mean the direct or indirect power of another person to secure that the affairs of another are conducted in accordance with his wishes. The exercise of both a direct as well as an indirect control is therefore within the contemplation of Clause 11.7. Clause 11.7 also postulates that this control may be exercised by either of three modalities, these being(i) the holding of any shares or the possession of voting power; (ii) by the powers conferred under the Articles of Association of a company and (iii) by virtue of any contractual arrangement. Ex facie, Clause 11.7 is not confined to the exercise of de jure control. Clause 11.7 recognizes that control may be wielded by a broader set of commercial arrangements, sanctified by contract or agreement. The Respondent in its petition under Section 9 specifically set up the plea in paragraph 4.10 that Mohit Burman who was a member of the consortium had identified ACEE which was a family investment company as a company which would initially hold a majority of the shares of the Respondent. The assurance of Mohit Burman to the members of the consortium was that he had full control over ACEE which would act in accordance with the decisions of the members of the consortium which in fact it did. The second statement of the Respondent in its pleadings under Section 9 is that Mohit Burman was always in control and continues to be in control of ACEE, Windy Investments and MB Finmart Pvt. Ltd. (earlier known as Dabur Investment Corporation Ltd.) At this stage what necessitates emphasis is that the control which is postulated by Clause 11.7 is not merely a direct or de jure control but a control that may be indirect as well. Clause 11.7 expressly recognizes that control may be exercised in terms of the holding of shares, the exercise of voting powers, through the Articles of Association or for that matter even by a contractual arrangement.18. There are, in our view, prima facie at this stage atleast seven circumstances which weigh in support of the conclusion of the learned Single Judge that the members of the consortium right from the inception exercised control over the affairs and management of the Respondent. As we have noted earlier, on 10 March 2008 the entire share capital of the Respondent was held by ACEE and by Mohit Burman. The first circumstance is that on 2 February 2008 ACEE had passed a resolution in the following terms :RESOLVED THAT pursuant to the provisions  of Section 292 and subject to all other applicable provisions of the Companies Act, 1956 the consent of the Board be and is hereby accorded to authorize Mr. Mohit Burman, Director of the Company, individually to invest the fund of the Company in any Franchisee in Northern India for bidding to BCCI.RESOLVED FURTHER THAT the consent of the Board be and is hereby accorded to incorporate a new Company / Special Purpose Vehicle on request of other promoters to commence the above venture and Mr. Mohit Burman be and is hereby authorized to defray expenses thereon and pay any fees.RESOLVED FURTHER THAT the Board hereby takes note that the promoters of the new Company / Special Purpose Vehicle shall be Ms. Preity Zinta, Mr. Ness Wadia, Mr. Karan Paul, Mr. Mohit Burman and others as per the ratio to be mutually agreed between the promoters.  (emphasisThe resolution expressly recognizes(i) the consent of the Board of directors for Mohit Burman individually to invest the funds of the company in any franchisee in Northern India for bidding to BCCI; (ii) the consent of the board for the incorporation of a new company on the request of the other promoters and (iii) that the promoters of a new company would be the four members of the consortium namely Preity Zinta, Ness Wadia, Karan Paul and Mohit Burman. Thepromoters mentioned in the second paragraph are the promoters referred to by name in the third paragraph. On 3 March 2008 a second resolution was passed at a meeting of the Board of ACEE to the following effect :RESOLVED THAT the Board hereby takes note that the bid applied by the company alongwith other promoters to purchase Mohali Franchise (amounting USD 76 million and One US Dollar) has been accepted by BCCI.RESOLVED THAT the consent of the Board be and is hereby accorded to incorporate a new Company in the name of K.P.H. Dream Cricket Pvt. Ltd. on request of the other promoters to commence the above venture, initially with following shareholders and Directors :NAME OF THE SHAREHOLDERS:1. ACEE Enterprises2. Mr. Mohit BurmanNAME OF THE DIRECTORS:1. Mohit Burman2. Ness Wadia20. This resolution specifically took notice of the bid submitted for the Mohali franchise which was accepted by BCCI. More significantly it extended the consent of the Board to incorporate the Respondent on the request of the other promoters and initially with certain shareholders and directors. Significantly, the first directors of the Respondent were Mohit Burman and Ness Wadia who were members of the consortium which had submitted the bid to BCCI for the Mohali franchise. Thus, the first important circumstance is the fact that ACEE was at all material times since the inception cognizant of and had consented to the arrangement whereby Mohit Burman would join in the constitution of the Respondent; that the promoters of the Respondent would be the members of the consortium and initially two members of the consortium would be directors of the Respondent.21. The second circumstance is that a little prior to the incorporation of the Respondent, Form 1A was filed with the Registrar of Companies on 18 February 2008 disclosing the names of the promoters. Form 1A expressly stated that the promoters of the Respondent were Mohit Burman, Ness Wadia, Karan Paul and Preity Zinta, besides ACEE. However, on behalf of the Appellant reliance was sought to be placed on Form 1 filed with the Registrar of Companies on 6 March 2008. All that Form 1 contained was a disclosure that there were two subscribers to the Respondent viz. ACEE and Mohit Burman. Now there is no factual dispute about the position that on the date of the constitution of the Respondent these indeed were the two initial shareholders. Therefore Form 1 really does not advance the case of the Appellant.22. The third circumstance to which a reference must be made is that in January 2008 Preity Zinta, Mohit Burman and Karan Paul brought in an amount of Rs.20 Crores towards payment of the performance deposit which was required to be effected in favour of BCCI. Between 9 March 2008 and 8 April 2008 Ness Wadia brought in an additional amount of Rs.5 Crores as capital contribution. In the ledger accounts of the Respondent, an amount of Rs.9.95 Crores was treated as share application money contributed by the four members of the consortium. Theof the Respondent similarly reflected an amount of Rs.9.95 Crores as having been paid towards share application money. The Respondent in its income tax return for assessment yearfiled in October 2009 also disclosed the share application money of Rs.9.95 Crores. Obviously, these sums of money were brought in by each of the four members of the consortium on the basis and foundation that they would be allotted shares, something that, as we would note shortly hereafter did in fact take place. The fourth important circumstance to which a reference must be made is that the only directors of the Respondent from the inception were members of the consortium. Initially as we have noted, the directors of the Respondent were Mohit Burman and Ness Wadia. On 28 March 2008 Preity Zinta was inducted as an additional director. The fifth circumstance is that monies were raised from the bankers of the Respondent against the furnishing of personal guarantees by the members of the consortium. Sixthly, on 8 May 2008 a fresh allotment of shares took place. At that allotment Preity Zinta and Ness Wadia were allotted each 23.958% of the share capital of the Respondent. Karan Paul was allotted 4.166 %. Altogether the three promoters came to hold 52.08% of the share capital. ACEE and Mohit Burman in turn transferred their shareholding in the Respondent to two companies viz. Dabur Investment Corporation Ltd. (MB Finmart P. ltd.) and Windy Investments Private Ltd. Now the contention of the Respondent is that all these three companies are in fact family investment companies of Mohit Burman. As regards ACEE it has been stated that Mohit Burman held 12.5 % of the shares, his mother held 25% shares, his brother held 12.5% while a cousin held 50%. What is significant is that on 8 May 2008 ACEE issued a fresh allotment of shares to Preity Zinta, Ness Wadia, Karan Paul, the effect of which was that together they would constitute a majority comprising of 52.08%. ACEE thereafter retained a stake only through Windy Investments Private Ltd, a wholly owned subsidiary. ACEE had in other words given up 99.9% of its shareholding in the Respondent for a shareholding of 12.5% through its subsidiary, Windy Investments. This could have been only on the hypothesis that this was done at the behest and bidding of Mohit Burman who was one of the members of the consortium controlling ACEE.23. The entire basis of the letter of termination is erroneous and flawed. The termination of the agreement states that when the Respondent was formed on 10 March 2008, none of the members of the consortium figured as shareholders. The letter then states that in the first instance on 8 May 2008 ACEE and Mohit Burman transferred their shares to Dabur Investment and Windy Investments as a result of which the transferee companies had taken control over the franchisee. This totally ignores the factual position that while on 8 May 2008 a transfer had taken place of the shareholding of ACEE and Mohit Burman in the Respondent, this was accompanied by the allotment of fresh share capital to Preity Zinta, Ness Wadia and Karan Paul, all of them being members of the consortium who together came to hold over 52% of the share capital. Secondly, the termination then proceeds on the basis that on 30 June 2008 further changes took place as a result of which the 100% control over the franchisee exercised by Dabur Investment and Windy Investments came down to only 23%. Ex facie, this part of the notice is equally fallacious. Neither Dabur nor Windy had at any point of time exercised 100% control, or for that matter control over the Respondent within the meaning of Clause 11.7. Moreover, as the chart which has been extracted in the earlier part of the judgment shows, on 30 June 2008 there was a further issue of shares in the same proportion of the existing shareholding of the Respondent. In these circumstances, it is to our mind abundantly clear that the Appellant purported to terminate the contract on a basis which was factually incorrect. At this stage, it would be relevant to note that during the course of the hearing, the Learned Single Judge, in order to test the bonafides of the members of the consortium and of their case that ACEE, Windy Investments and Dabur Investment were companies controlled by Mohit Burman, had enquired as to whether Windy Investments and Dabur Investment would transfer the entire shares held by them aggregating to about 24% in the Respondent in the name of Mohit Burman. The learned Judge recorded that counsel appearing on behalf of the Respondent on taking instructions immediately agreed.24. For these reasons, we are of the view that the learned Single Judge was entirely justified in coming to the conclusion that at all material times right from the inception, control over the affairs and management of the Respondent continued to rest in the members of the consortium. We may also note that Article 31 of the Articles of Association of the Respondent postulates that the Directors shall be entitled to exercise all such powers and to do all such acts and things as the company is authorized to exercise and do. The judgment of the Supreme Court in Life Insurance Corporation of India v. Escorts Ltd. (AIR 1986 SC 1370  ) is an authority for the proposition that there are many powers exercisable by the Directors with which the members in general meeting cannot interfere. The most they can do is to dismiss the Directorate and appoint others in their place, or alter the articles so as to restrict the powers of the Directors for the future. This principle of law has been established also by the Court of Appeal in England in John Shaw and Sons (Salford), Ltd. v. Peter Shaw and John Shaw (1935) 2 Kings Bench Division 113) and Automatic SelfCleansing Filter Syndicate Company Ltd. V. Cuninghame (1906) 2 Chancery Division 34). The only directors of the Respondent since the inception are members of the consortium and them alone.Now at the outset, it must be noted that Clause 21.6 postulates that BCCI shall have the right to bring an action before the Courts of Mumbai for injunctive or equitable relief, if it reasonably believes that damages may not be an adequate remedy for a breach by the franchisee of the agreement. The words but not the franchisee are pressed in aid of the submission that the right of the franchisee to move a court for injunctive or equitable relief is excluded. Under Clause 21.2 parties have agreed that if any dispute arises under the agreement which cannot be amicably resolved, parties shall submit their dispute to arbitration. However, by Clause 21.6 BCCI is empowered to bring an action before a Court in Mumbai in order to seek injunctive or equitable relief. Now the belief of BCCI, if it were to bring an action claiming injunctive or other equitable relief, that damages would not be an adequate remedy is by no means conclusive, in the event, that an action is brought before a Court. It is for the Court to determine in the first place as to whether damages would or would not constitute an adequate remedy. Clause 21.6 essentially deals with a situation where there is a breach of the agreement by the franchisee. Now what the argument of the Appellant essentially requires the Court to accept, is that the franchisee is barred by Clause 21.6 from bringing an action under Section 9 of the Arbitration and Conciliation Act 1996 to claim injunctive relief in respect of an unlawful termination of the contract even in a circumstance where damages would not provide an adequate remedy. Whether the damages would or would not provide an adequate remedy is a separate issue altogether. However, in our view, it would be wholly destructive of the underlying principles of Section 28 of the Contract Act to allow a party to assert that the effect of a contractual term is to prohibit access to the Court in a petition under Section 9 of the Arbitration and Conciliation Act 1996 for obtaining suitable injunctive relief even if, damages were not to provide an adequate recompense. The Court would not readily adopt such a construction of Clause 21.6 and indeed if it were to do so, there would be serious questions in regard to validity of Clause 21.6. A construction must therefore be placed on Clause 21.6 which makes business sense. After all, the franchise agreement reflects a business understanding between parties to a commercial document. When the Court construes a commercial document, the effort must be to give business efficacy to a commercial understanding between the parties. We decline to read Clause 21.6 as enabling BCCI to successfully set up the defence that the remedy of injunctive relief under Section 9 is barred even if the franchisee is able to establish that damages would not provide an adequate remedy. Significantly when parties agreed to a consent order in Arbitration Petition 1340 of 2010, they left it open to the Respondent to file an application before the sole arbitrator for interim relief under Sectionare of the view for the reasons indicated earlier that the learned Single Judge was justified in coming to the conclusion that a strong prima facie case was made out by the Respondent for the grant of interlocutory relief. The Respondent in the course of its arbitration petition has set out several circumstances as to why, the franchise agreement needs to be specifically enforced. These circumstances are :i. There exists no standard for ascertaining the actual damage that may be caused by the non performance of the franchise agreement and compensation in money would not afford an adequate relief;ii. The franchise agreement is a perpetual agreement,with the life of the IPL and not one which in its nature is determinable;iii. The subject matter of the franchise agreement is of special value and interest to the Respondent and the rights acquired by the Respondent are not readily available in the market;iv. The Respondent had spent a large amount of effort, time and money in developing and creating the business and the brand of Kings XI Punjab;v. As a result of the letter of termination the Respondent would be precluded from participating in the auction for cricketers which is scheduled to take place in January 2011. Players are normally signed up for two year contracts with the option of a one year extension;vi. The Respondent would also not be able to trade players with other franchisees at mutually agreed prices;vii. The Respondent is a representative franchisee for the States of Punjab, Haryana, Himachal Pradesh and JammuKashmir which provides a platform for cricketers of the region to develop their skills;viii. The Respondent has built up a large number of sponsors who have chosen to become part of the brand, Kings XI Punjab. In the year 2010 itself 14 sponsors had signed up with the Respondent, some of them having signed a contract which extends for a period upto three years;ix. The Respondent has been promoting cricket in far off places, in remote areas of Himachal Pradesh and is currently in the process of setting up a cricket academy in conjunction with the Cricket Associations of Punjab and Himachal Pradesh.28. We are of the view that sufficient grounds were made out on behalf of the Respondent for establishing that damages would not provide an adequate remedy and that an interim order staying the termination was warranted. Such an order falls within the contemplation and purview of Section 9. The Arbitrator has power to grant specific performance. The Arbitrator, if appointed again, will decide finally all the issues after taking note of material and submissions. During this period, the Court is empowered to pass a protective order in order to preserve the subject matter of the Arbitration and to safeguard the rights in adjudication before the arbitral tribunal from being frustrated. In view of the nature of the transaction, the conduct of the parties, to avoid irreparable loss, injury and harm to goodwill and reputation, and in the interests of justice as a strong prima facie case is made out, we are inclined to maintain the order passed by the learned Single Judge. We are also of the view that the balance of convenience lies in favour of the Respondent. It was just and convenient to pass an order to protect and preserve the subject matter of the dispute, to avoid further complications in the matter, particularly when the action of an abrupt termination of the contract which had a life coextensive with the duration of IPL is unjust, unfair and illegal. Damages will hence not provide adequate or sufficient recompense. Therefore, clause 21.6 does not affect the power and jurisdiction of the Court under Section 9 to pass such an order, at the interim stage, till the award of the arbitral tribunal. However, this is subject to the conditions set out in the order of the learned Single Judge.The judgment of the Supreme Court in Lachoo Mal v. Radhye Shyam (AIR 1971 SC 2213  ) deals with the question as to whether a landlord could waive the exemption benefit available for constructions made after the stipulated date in the U.P Control of Rent and Eviction Act. The Supreme Court laid down that the general principle is that every individual has a right to waive an advantage of a rule made solely for the benefit of the individual unless it can be shown that an agreement in such circumstances is contrary to public policy. The judgment of the Supreme Court would really not advance the case of the Appellant.31. The learned Single Judge while granting an interlocutory injunction, carefully weighed the equities and has made the final relief subject to stringent conditions. These conditions include the requirement that the Respondent furnish a bank guarantee of US $ 18 million to secure the payment of players dues  and another bank guarantee in the amount of US $ 3.5 million, both of nationalized banks. In addition, the learned Single Judge has recorded a personal undertaking to guarantee the payment of any amounts that may be found due and payable by any court, tribunal or by any other authority. Having regard to the settled principles enunciated by the Supreme Court in Wander Ltd. v. Antox India P. Ltd. (1990 (Supp) SCC 727), no case has been made out for interference. Before concluding, we must advert to the judgment of the Supreme Court in Board of Control for Cricket in India v. Netaji Cricket Club (2005) 4 SCC 741  ). While it is true that BCCI is not State within the meaning of Article 12 of the Constitution, the Supreme Court has held that nonetheless the Board is bound to follow the doctrines of fairness and good faith in all its activities having regard to the enormity of the power exercised by it. For the reasons which we have indicated, we have come to the conclusion that the termination of the contract was anything but fair. The termination was wholly arbitrary, and was founded on an erroneous factual basis. It therefore deserved the treatment which it has received in the Court of the learned Single Judge. We therefore do not find any reason to interfere