A Party Cannot Be Allowed To Take Advantage Of Inartistic Drafting Of Arbitration Clause As Long As The Intention To Arbitrate Is Clear: Bombay High Court

The bench of Justice Manish Pitale also held that a Court exercising power under Section 9 of the A&C Act would be within its power to scrutinize and decide as to whether the arbitration clause is valid in law.

The Court also held that while interpreting terms of an agreement, the Court has to adopt a view that supports all the covenants of the agreement and not one that renders one or more clauses nugatory.

Facts

The Petitioner and Respondent No. 3 entered into a joint production agreement for the Telugu film "Goodachari" on May 15, 2017. They held equal Intellectual Property Rights and Exploitation Rights.

The film was released on August 3, 2018, to critical acclaim. Respondent Nos. 1 and 2 expressed interest in acquiring intellectual property rights owned by the petitioner, this led to the execution of a Deed of Transfer on May 4, 2019. The Deed of Transfer contained an arbitration clause however, it was improperly worded.

In June 2023, the Petitioner learned of plans for a sequel and issued a legal notice contending that the Deed of Transfer only granted right of remakes but it did not allow the respondent no.1 and 2 to make prequel or sequels of the movie. The dispute escalated, and the Petitioner filed a petition in July 2023, which gained urgency when news of the sequel's pre-production surfaced.

Contention of the Parties

The petitioner sought the interim relief on the following grounds:

• The Deed of Transfer, when properly interpreted, assigned only the specific right to make a remake of the film to Respondent Nos. 1 and 2. The right to make sequels and prequels was expressly excluded from the Intellectual Property Rights assigned to them.
• Past judgments in similar cases supported the Petitioner's claim that the right to make a sequel or prequel needed specific assignment, and without it, restraining orders should be issued. Reference was made to the order in the case of Zee Entertainment Enterprises Limited Vs. Ameya Vinod Khopkar Entertainment & Ors and the Division Bench judgment in the case of Narendra Hirawat & Co., Vs. M/s Alumbra Entertainment & Media Pvt. Ltd. & Ors.
• The Petitioner argued that the Arbitration Clause in the Deed of Transfer constituted an Arbitration Agreement, contrary to the Respondents' objections. The relevant clause demonstrated the parties' intent to arbitrate.

The respondent made the following counter-arguments:

• The Arbitration Clause fell short of meeting the necessary criteria to be considered a valid Arbitration Agreement as required by law.
• The Deed of Transfer unambiguously assigned all rights, including the right to produce a sequel to the film, to Respondent Nos. 1 and 2. This was made clear in Schedule I of the Deed, which specifically listed the rights transferred, even extending to future formats.
• When interpreting the Deed, it was emphasized that ordinary language and the common-sense understanding of the document's words should prevail. In this context, interpretations that give meaning to all parts of the Deed were to be preferred to ensure the document's coherence and comprehensiveness. It contended that golden rule of interpretation should be adopted by the Court to interpret the Deed.

Analysis by the Court

Firstly, the Court dealt with the objection regarding the wording of the arbitration clause. The Court observed that indeed the clause is not very happily worded, however, the mere poor drafting of the clause would not come to the aid of the respondent as upon a complete reading of the clause, the intention of the parties to arbitrate can be deciphered.

Next, the Court dealt with the objection regarding the power of the Court to scrutinize an arbitration clause while exercising power under Section 9 of the A&C Act. It held that the Supreme Court in Patel Engineering has clearly held that a Court exercising power under Section 9 of the A&C Act would be within its power to scrutinize and decide as to whether the arbitration clause is valid in law.

After rejecting the preliminary objection, the Court examined whether the petitioner has a prima facie case to get interim reliefs. The Court observed that the Deed of Transfer unambiguously assigned all rights, including the right to produce a sequel to the film, to Respondent Nos. 1 and 2. This was made clear in Schedule I of the Deed, which specifically listed the rights transferred, even extending to future formats.

The Court held that the interpretation that is sought to be adopted by the petitioner would render the entire agreement nugatory. It held that while interpreting an instrument and where there are two views possible, the Court should adopt the golden rule of interpretation.

Accordingly, the Court observed that the petitioner did not have a prima facie case.

Case Title: Abhishek Pictures v. Abhishek Agarwal Arts LLP, Arbitration Petition (Lodging) No. 18905 of 2023

Date: 27.10.2023

Counsel for the Petitioner: Mr. Mayur Khandeparkar a/w Mr. Vikramjeet Garewal i/b Mahalakshmi Ganpathy.

Counsel for the Respondents: Mr. Venkat Rao a/w Mr. Akash Gaonkar and Ms. Archita Rao, for Respondent No. 1. Ms. Sindhu Kotian i/b Legalserve and Associates, for Respondent No. 3. Mr. Vikas Kumar a/w Mr. P. V. Narendran i/b Lex Legal and Partners, for Respondent No. 5.

Click Here To Read/Download Order