Monday, October 4, 2010

Arbitration: MSM Satellite v. World Sport Group – Part 1

(The following post has been contributed by Vijay Kumar, a lawyer and a company secretary by qualification, who is practising as an Advocate in the Chennai High Court with the law firm of Iyer and Thomas)
Appeal in the Bombay High Court

MSM Satellite (Singapore) Ltd (MSM) had filed a suit against World Sport Group (Mauritius) Limited (WSGML) and had moved a notice of motion before the Learned single judge for restraining WSGML from referring the disputes between the parties to this suit to arbitration and preventing invocation of arbitration clause in the Deed of Facilitation dated 25th March 2009. The said notice of motion was not allowed and hence has been challenged in Appeal

The order in detail is given here. The subject matter of contention is that there were agreements for media rights license of cricket matches (in the Indian subcontinent and rest of the world) entered into between MSM and WSGML and between MSM and the Board of Control for Cricket in India (BCCI), and between WSGML and BCCI. The first agreement was entered between MSM and BCCI in 2008. There were certain allegations of breach of this agreement by BCCI against MSM. The matter was pending before the Bombay High Court and a limited injunction was granted by the Court in favor of MSM for protection of its rights. During the pendency of the matter before the Court, BCCI through Lalit Modi cancelled the said Media Rights License Agreement and created fresh rights in favour of WSGML. WSGML is a Company whose details of incorporation and legal status are not known. However, it was admittedly not a broadcaster and was in search of broadcaster for sub-licensing of its media licensing rights. BCCI had granted only 72 hours (commencing 15.03.2009) to WSGML for finding a new broadcaster for the media rights of Indian subcontinent more particularly for IPL II cricket failing which these rights would revert back to BCCI. To overcome the situation and to participate in broadcasting of the IPL II, MSM entered into a facilitation deed with WSGML for consideration of Rs. 425 crores of which admittedly Rs. 125 crores has been paid by MSM to WSGML.

After the controversy around Lalit Modi and his acts became public, BCCI wrote to MSM specifying that WSGML has no role to play in the Licensing of Media Rights to MSM. WSGML is a ruse created by Lalit Modi and that BCCI which is owner of Media Rights has not authorized WSGML either to enter into facilitation deed or to sub license these rights. BCCI also states that WSGML never had media rights to sub- license the same in favour of MSM. It was also stated that the media rights had reverted back to BCCI by the time Facilitation Deed was entered between MSM and WSGML as WSGM failed to find broadcaster within 72 hours. WSGML in the meanwhile, when a prior suit filed by MSM for protecting its license for media rights was pending, issued the notice for commencement of Arbitration between WSGML and MSM. WSGML made a claim for damages and for the balance sum of Rs. 300 crores as agreed in the Facilitation Deed and sought to relegate the parties to arbitration. As a result the present suit is filed by MSM to prevent WSGML from invoking arbitration and to prevent the parties from being referred to arbitration. The agreement provides for arbitration only in accordance with English Law in Singapore and that parties agree that all their rights under that agreement in event of dispute shall be determined only by way of arbitration.

The relief is sought on the following grounds –
a. Fraud has been played on MSM by WSGML by making false and fraudulent representations. Matters involving complex facts and those pertaining to fraud can be decided only after detailed evidence is let in and not by way of arbitration.

b. BCCI is a necessary party for adjudication of the dispute as it is the owner of the media release rights. BCCI however is not a party to facilitation deed and to the arbitration.

c. The facilitation deed between MSM and WSGML cannot be read independently. All the documents between BCCI, MSM and WSGML must be read and understood together so that effect can be given to the intention of the parties.

d. Public policy is involved. Cricket is a sport of the nation and BCCI regulates this sport. Any agreement which is in the nature of fraud would affect the right of MSM and consequently the broadcasting and viewing rights of the public. The interests of people in the Indian sub continent are involved and therefore parties cannot be allowed to decide the dispute based on English laws (the agreed law for settlement of dispute). Such decision would affect public policy and is in contravention of Section 23 of the Indian Contract Act.

e. Last but not the least, the Arbitrators have to consider and decide on their jurisdiction to determine the dispute, which question of the jurisdiction is also before the Court and that the Court thinks fit that it needs to decide this issue. The same issue is subject matter of Lodging No. 1901 of 2010 in the earlier suit filed by MSM against WSGML and BCCI. This is a principle propounded in Russell’s Arbitration.
Conclusions arrived by the Court

1. The Court held that such agreements which take away the rights of the parties to approach civil Court would be hit by the provisions of Section 23 and 28 of Indian Contract Act. It is necessary here to mention that Section 28 which relates agreement in restraint of legal proceedings was amended in 1997. The amendment empowers parties to the agreement to provide that parties to the agreement can refer any dispute that may arise between them to arbitration. The present clause relating to adjudication of disputes also provides for reference of dispute to arbitration. The Learned bench failed to consider the same. It goes on to say that arbitration proceedings can be stayed on the ground that it violates Section 23 and Section 28 of the Indian Contract Act, 1872. Consequently, the agreement is void and hence the arbitration between foreign parties is liable to be stayed under Section 45 of the Arbitration and Conciliation Act.

2. It has been repeatedly held that an order restraining arbitration must be exercised only in rarest of the rare cases. The present dispute falls under this category for following reasons-
a. Prima facie there is fraud played by the WSGML on MSM.

b. Rights of MSM for the sum of Rs. 125 crores already paid to WSGMA can be determined only if BCCI is party to the dispute. BCCI which is necessary party to determine the dispute is not a party to the Facilitation deed and hence to arbitration.

c. The clause pertaining to arbitration specifies the procedure for arbitration. Under the procedure, the laws of England would apply for determination of dispute between the parties. The Court held that the Media Release Rights pertain to Indian Sub Continent, which are held by BCCI. BCCI is a public body which regulates cricket in India. Public interest is involved in the game of cricket. The Court referred to the role of BCCI as was held in M/s Zee Telefilms Limited and others versus UOI (AIR 2005 SC 2677). Therefore, any adjudication of rights between MSM and WSGML would affect BCCI which holds Media release rights and consequently the public. Hence, the agreement for adjudication between MSM and WSGML is opposed to public policy.

d. Further, such an agreement which prevents parties from approaching ordinary civil courts would be against Section 28 of the Indian Contract Act and hence void.

e. The Agreement between the parties itself is challenged and therefore the validity of the arbitration itself is in question and hence the parties cannot be relegated to arbitration. It is not only the agreement that is vitiated by fraud but also the arbitration clause in the agreement, and as a result Arbitration needs to be stayed.

f. The Arbitrators have to consider and decide on their jurisdiction to determine the dispute. The same question of jurisdiction is also before the Court and that the Court thinks fit that it would decide on this issue of jurisdiction and not the arbitrators.

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