In I.A(L) NO.23289 OF 2022-BOM HC- Arbitration as mode of dispute resolution is unsuitable when subject matter of dispute in factual background, requires collective adjudication before one Court or Forum, reiterates Bombay HC
Justice Manish Pitale [18-01-2023]

Read Order: HUNGAMA DIGITAL MEDIA ENTERTAINMENT PVT. LTD. AND ORS V. RBEP ENTERTAINMENT PRIVATE LIMITED AND OTHERS 

Mansimran Kaur

Mumbai, January 20, 2023: The Bombay High Court, while pursuing applications instituted under Section 8 of the Arbitration and Conciliation Act, 1996 observed that it cannot be said under the scope of examination under Section 8 that centralization of resolution of disputes through arbitration is warranted in the facts and circumstances of the present case.

A Single Bench of Justice Manish Pitale dismissed the present applications preferred by defendant in the instant case preferred under Section 8 of the Arbitration and Conciliation Act, 1996, by observing that the nature of disputes and the complexity of the matter warrants centralized resolution of disputes before this Court and consequent continuance of the suits for resolution of the disputes between the parties, in order to pronounce upon their rights and obligations.

When the nature of disputes and the complexity of the matter warrants centralized resolution of disputes before this Court, then arbitration as a medium for resolution of disputes is not suitable, the Bench opined.

It was case of the first defendant that in the light of an arbitration clause existing in an agreement, which was the genesis of filing of the suits, the parties ought to be referred to arbitration.

Factual matrix of the case of such that Super Cassettes Industries Private Limited, RBEP Entertainment Private Limited and  Hungama Digital Media Entertainment Private Limited  entered into a Memorandum of Understanding, whereby the said parties agreed to enter into a Long Form Agreement under which  the first defendant-RBEP was to assign to the plaintiff Super Cassettes 40% and to the plaintiff Hungama Digital 20% of copyright, including audio rights, mobile and digital rights, as also publishing rights in existing music titles held by RBEP, referred to as ‘Back Catalogue’ and also unreleased future music titles, referred to as ‘Fresh Catalogue’ for certain films. 

The three parties were to become joint copyright holders in the ratio of 40:40:20. 

It was also stipulated that if the plaintiffs failed to make payments within 45 days of written intimation by the defendant RBEP, the said defendant would have the right to terminate the agreement and that the rights assigned in favour of the plaintiffs would be re-assigned in favour of the defendant RBEP after receipt of consideration at a valuation arrived at by an auditor. 

Thereafter, the said second defendant claiming to be the constituted attorney of the defendant RBEP, sent a letter purportedly terminating the Long Form Agreement and assignment deeds on the ground that the plaintiffs had breached the terms of the agreements. 

Subsequently, two suits were filed by the plaintiffs, wherein they  sought decree of permanent injunction against the defendants to restrain them from exploiting the copyrights in respect of which the plaintiffs claim proprietary rights on the basis of the Long Form Agreement as also assignment deeds executed by the defendant RBEP, independent of the Long Form Agreement, to the extent of the shares of the plaintiffs.

In pursuance of the same, the first defendant filed applications under Section 8 of the aforesaid Act, relying upon the arbitration clause in the Long Form Agreement and prayed for referring the parties to arbitration, stating that in the face of the arbitration clause, the suits cannot proceed further. 

After pursuing the rival contentions, the Court took into account Section 8 of the Act. 

The Court held that it could not be said that merely because one of the defendants was not party to the arbitration agreement, reference to arbitration could not be made, because the dispute between the parties was essentially relating to benefits arising out of the retirement deed and partnership deed. In the facts of the said case, it was held that there was no question of bifurcation of cause of action or parties, if the reference to arbitration was made.

Thus, the applicants in the present case would succeed if they are able to show, on a prima facie examination that the defendants in the present suit, who were  not signatories to the Long Form Agreement, were  claiming through and under the first defendant- RBEP or that the agreements executed by the first defendant-  RBEP in favour of the other defendants who were  nonsignatories to the Long Form Agreement, can be said to be underlying agreements necessarily linked with the Long Form Agreement, the Court observed. 

At this stage reliance was placed on the judgments in Cheran Properties Limited Vs. Kasturi & Sons Limited & Natural Gas Corporation Limited Vs. Discovery Enterprises Private Limited and another .

 “It cannot be said under the scope of examination under Section 8 of the said Act that centralization of resolution of disputes through arbitration is warranted in the facts and circumstances of the present case”, the Bench said while adding  that such a step would lead to immense complications, as a consequence of which, the plaintiffs would have to pursue proceedings before the Court against the defendants who are nonsignatories to the agreement, the Court noted. 

“As held by the Supreme Court in the case of Vidya Drolia and others Vs. Durga Trading Corporation arbitration as a mode of dispute resolution is unsuitable when the subject matter of a dispute in the factual background, requires collective adjudication before one court or forum. Hence, there is substance in the contentions raised on behalf of the plaintiffs”, the Court opined. 

Thus, considering that arbitration agreement did not exist between the plaintiffs and the first  defendant  - RBEP in respect of the two lots of works, as also in the light of the admitted position that no arbitration agreement existed between the plaintiffs and the defendant - Madman Film Ventures Private Limited and the defendant - Zee Entertainment Enterprises Limited, the present applications cannot be granted. 

The nature of disputes and the complexity of the matter warrant centralized resolution of disputes before this Court and consequent continuance of the suits for resolution of the disputes between the parties, in order to pronounce upon their rights and obligations.

In the light of such observations, the applications were dismissed.