2008 (7) TMI 588 - HC - Companies Law

Order of injunction seeked restraining the defendants, their agents and servants from selling, re-selling, sub-licencing, distributing, exploiting, promoting, marketing any form of content in the films produced or to be produced by the defendant No. 1 - Held that - The decision of the arbitration proceedings and the suit would depend upon the decision of the very same issue. In the circumstances, the plaintiffs themselves have chosen to waive the jurisdiction of arbitral tribunal by choosing the public forum. The plaintiffs are therefore not entitled to any relief in the arbitration petitions. The plaintiffs have not made out a strong prima facie for grant of relief of injunction in the suit or in the arbitration petitions. They have not established that the licence agreement continues to be in full force and effect. In view of this, plaintiffs are not entitled to any reliefs. Accordingly, the motion as well as arbitration petitions are dismissed.

Summary

Issues Involved:
1. Injunction against defendants from exploiting film content.
2. Derivative action by shareholders.
3. Maintainability of arbitration petitions by non-parties to the arbitration agreement.
4. Term of the license agreement.
5. Simultaneous proceedings in court and arbitration.

Detailed Analysis:

1. Injunction against defendants from exploiting film content:
The plaintiffs sought an injunction to restrain the defendants from selling, reselling, sublicensing, distributing, exploiting, promoting, or marketing any form of content in the films produced or to be produced by defendant No. 1. They also sought the return of the content of the film 'Tashan'. The plaintiffs argued that the exclusive license granted by defendant No. 1 to defendant No. 2 for internet and mobile rights was being breached by defendant No. 1, who attempted to transfer these rights to defendant No. 3.

2. Derivative action by shareholders:
The plaintiffs, who are shareholders of defendant No. 2, claimed to take action on behalf of the company due to the alleged breach of the license agreement by defendant No. 1. The court recognized the principle from Foss v. Harbottle [1843] 2 Hare 461, which states that a company alone can sue for wrongs done to it. However, exceptions exist where the wrongdoers are in control of the company. The court acknowledged that a derivative action by minority shareholders is maintainable in certain circumstances where insiders are unlikely to take action for the wrong done to the company.

3. Maintainability of arbitration petitions by non-parties to the arbitration agreement:
The court held that arbitration petitions against defendant No. 3, who was not a party to the arbitration agreement, were not maintainable. The Arbitration Act allows interim reliefs only between parties to an arbitration agreement. Additionally, plaintiffs Nos. 2 to 5, who were not parties to the license agreement, could not seek relief under the arbitration petitions. The court emphasized that arbitration requires an agreement between the parties, and derivative action by way of arbitration is not permissible.

4. Term of the license agreement:
The license agreement was to remain valid as long as the joint venture agreement was in full force and effect. The court found that the joint venture agreement ceased to be in full force after a deadlock notice was issued by defendant No. 1. The deadlock notice indicated the beginning of the end of the joint venture, thereby terminating the license agreement. The court rejected the plaintiffs' argument that the deadlock notice was waived, noting that it was only temporarily kept in abeyance and not withdrawn.

5. Simultaneous proceedings in court and arbitration:
The court ruled that the subject matter of the suit and the arbitration petitions was the same, involving the validity and force of the license agreement dated 23 April 2005. The principle that two tribunals cannot simultaneously decide the same dispute was upheld. The court cited precedents, including Doleman & Sons v. Ossett Corporation [1912] 3 K.B. 257 (CA) and subsequent Indian cases, to support this principle. The plaintiffs, having chosen to file a suit, waived the jurisdiction of the arbitral tribunal. Consequently, the plaintiffs were not entitled to relief in the arbitration petitions.

Conclusion:
The court dismissed the motion and the arbitration petitions, concluding that the plaintiffs had not made a strong prima facie case for injunction. The license agreement was deemed terminated, and the simultaneous proceedings in court and arbitration were not permissible. The operation of the order was stayed for two weeks to allow the plaintiffs to approach the appellate forum.