No business entity will keep its rights with monetary potential idle, says Bombay HC while refusing to grant injunction for specific performance

Read judgment: Sholay Media Entertainment Pvt. Ltd. and Ors vs. Narendra Hirawat and Co. and Ors

Pankaj Bajpai

Mumbai, August 31, 2021: The Bombay High Court has refused to grant specific performance of a terminated contract pursuant to creation of third party rights, as there was failure to establish that the plaintiff has always been ready and willing to perform an essential part of the terms of the contract.

While allowing the commercial appeals and setting aside the grant of injunction, the Division Bench of Justice Nitin Jamdar and Justice C.V Bhadang observed that true owners of the licensed material should not be prevented from monetizing their property rights.

The observation came in reference to the appeals arising from an interim order granting a mandatory injunction in a suit for specific performance.

The background of the case pertains to the fact that Sholay Media Entertainment Private Limited (Sholay Media) and Generation Three Entertainment Private Limited (Generation Three) had given license to the Narendra Hirawat & Co. (plaintiff) for exploitation of rights in certain films, which was however terminated on  June 18,2019.

Post-termination, Sholay Media and Generation Three created rights in favour of Goldmines Telefilms Private Limited (Goldmines Telefilms). On the other hand, the plaintiff filed a suit for specific performance of the license Agreements and also sought damages to the tune of Rs.100 crore.

The plaintiff also sought for a declaration that it was the sole and exclusive licensee and that Sholay Media be restrained by order of permanent injunction.

The matter reached the High Court, where the Single Judge allowed the interim application and stayed the termination of the licence agreements by observing that the Deeds of Settlement did not confer any right upon Sholay Media to terminate the licence at its sweet will and, thus, the Agreements in question were not in their nature determinable.

In addition, the Single Judge consequently nullified the rights created in favor of Goldmines Telefilms opining that the plaintiff could not be adequately compensated if the interim relief sought was not granted, as the rights claimed under the license were not ordinary property rights available in the market to work out damages.

After considering the agreement and the arguments, the High Court found that the Single Judge only observed that because of the situation plaintiff was in, it will be difficult for plaintiff to calculate the damages and, therefore, plaintiff’s loss was not computable in terms of money.

“The licences were given by Sholay Media and Generation Three for monetizing their ownership rights. Once the agreement with one party is terminated, the owner of the rights is bound to look for another to put them to use. No business entity will keep its rights with monetary potential idle, and there is every likelihood that if there is no restraint by any Court, it will proceed to monetize the same. Plaintiff being a businessman in the same trade, would be fully aware of this and would also be aware that there would be an imminent likelihood that third party rights would be created, and it has not come as a surprise, nor it was done surreptitiously”, observed the High Court.

The High Court went on to add that plaintiff, during the existence of the 2018 Agreement, had sub-licensed the rights to Goldmines Telefilms, and after the termination of the 2018 Agreement, Sholay Media and Generation Three have granted the rights to Goldmines Telefilms itself. Therefore, Goldmines Telefilms had an agreement with both parties.

Observing that no ad-interim relief was pressed during the pendency of the suits, in respect of creation of third party rights, the Division Bench said that Goldmines Telefilms was right in making a serious grievance that the injunction had created an unjust situation for it.

Merely because a business agreement (with Goldmines Telefilms) provides for safety clauses, the business reality and how the businessman would arrange the affairs cannot be lost sight of, added the Division Bench.

The High Court clearly opined that the plaintiff, who was not ready and willing having consistently breached essential terms of the Agreements, who was admittedly in arrears on the date of the suit, and who is yet to establish its rights at the final trial; is permitted by through a mandatory interim injunction to exploit all rights under the terminated Agreement.

The true owners of the licensed material are prevented from monetizing their property rights. Goldmines Telefilms, which has paid money to both, plaintiff and licensor appellants, is deprived of exploiting the licenses. No extraordinary situation existed for such a drastic interim order, added the Court.

Hence, the High Court set aside the grant of injunction, since the basic essential terms of the contract and documents on the record itself was overlooked while passing such order by the Single Judge.