Supreme Court Restores Interim Injunction in Film Rights Dispute: Narendra Hirawat & Co. vs. Sholay Media Entertainment Pvt. Ltd. (2022)

Date of the Judgment: 7 March 2022

Citation: 2022 INSC 207

Judges: Justice Vineet Saran and Justice Aniruddha Bose

Can a higher court overturn a lower court’s decision on an interim order just because it might have decided differently? The Supreme Court of India recently addressed this question in a dispute over film rights, focusing on whether the High Court’s Division Bench was right to reverse an interim injunction granted by a Single Judge. The core issue revolved around the interpretation of a settlement deed and whether a party’s non-compliance justified the termination of a license agreement. The Supreme Court, in this case, restored the interim injunction, emphasizing that appellate courts should not interfere with a trial court’s discretion unless it is exercised arbitrarily or perversely. The judgment was delivered by a two-judge bench comprising Justice Vineet Saran and Justice Aniruddha Bose.

Case Background

Narendra Hirawat and Company (NHC) and Sholay Media Entertainment Pvt. Ltd. (SME) entered into two agreements on 9 September 2015. The first agreement granted NHC rights to the films “Sholay” and “Sholay 3D” from 1 April 2016 to 31 March 2022, for ₹20 crores. The second agreement covered the same films from 1 April 2022 to 31 March 2027, for ₹5 crores. A similar agreement was executed on the same date between NHC and Generation Three Entertainment Pvt. Ltd. (G3) for 32 films.

On 12 July 2016, two addenda to the license agreements were executed. NHC paid an additional ₹1.75 crores for unlimited runs of the films, extending the period to 30 September 2027. Disputes arose regarding payment mechanisms and tax burdens, which were later settled. On 16 May 2018, NHC sub-licensed the rights to Goldmines Telefilms Pvt. Ltd. for the period 15 November 2021 to 14 November 2026.

A memorandum of settlement was reached between NHC and SME on 5 November 2018, followed by a Deed of Settlement on 3 December 2018. NHC agreed to pay an additional ₹8.71 crores in four tranches, and the license period was extended to 30 September 2028. The dispute that led to the current proceedings was over the alleged non-compliance with the Deed of Settlement, with SME claiming that NHC did not make payments as agreed. NHC contended that they had made substantial payments and were willing to pay the balance, but SME had not issued the necessary invoices.

SME issued a termination notice on 18 June 2019, citing non-compliance with the Deed of Settlement. Goldmines Telefilms also terminated its sub-license agreement with NHC on 26 August 2019, demanding a refund of over ₹11 crores.

NHC filed a commercial suit on 30 August 2019, seeking a declaration that they were the sole licensee, that the termination notice was illegal, and a permanent injunction. The Single Judge of the High Court granted an interim injunction on 9 March 2020, restraining SME from disturbing NHC’s license rights and acting on the termination notice. The Division Bench of the High Court reversed this order, leading to the present appeals before the Supreme Court.

Timeline:

Course of Proceedings

The commercial suit was filed by NHC on 30 August 2019, seeking a declaration that they were the sole licensee, that the termination notice was illegal, and a permanent injunction. The Single Judge of the High Court granted an interim injunction on 9 March 2020, restraining SME from disturbing NHC’s license rights and acting on the termination notice. The Single Judge also restrained SME and Goldmines Telefilms from acting on the agreement executed on 24 October 2019. The Division Bench of the High Court, on appeal, reversed the order of the Single Judge. The Division Bench held that NHC failed to establish that they were ready and willing to perform the essential terms of the contract and that no extraordinary circumstances existed to grant a mandatory injunction. The Supreme Court heard the appeals against the Division Bench’s order.

Legal Framework

The case primarily revolves around the interpretation of the Deed of Settlement dated 03.12.2018 and the principles governing the grant of interim injunctions. The court also considered Section 14(d) of the Specific Relief Act, 1963, which deals with contracts that cannot be specifically enforced. The relevant portion of the Specific Relief Act, 1963 is as follows:

“14. Contracts not specifically enforceable.—The following contracts cannot be specifically enforced, namely:—
(a) a contract for the non-performance of which compensation in money is an adequate relief;
(b) a contract which runs into such minute or numerous details or which is so dependent on the personal qualifications or volition of the parties, or otherwise from its nature is such, that the court cannot enforce specific performance of its material terms;
(c) a contract which is in its nature determinable;
(d) a contract the performance of which involves the performance of a continuous duty which the court cannot supervise.”

Arguments

Arguments on behalf of NHC (Appellant):

• NHC contended that they had made substantial payments as per the initial agreements and the Deed of Settlement.
• They argued that the payments were always made after receiving invoices from SME, which included GST.
• NHC stated that they were ready and willing to pay the balance amount but were unable to do so because SME did not issue the necessary invoices.
• They asserted that the requirement of invoices was a condition precedent to making payments as per Clause 4 of the Deed of Settlement.
• NHC argued that the Single Judge’s order was based on sound reasoning and should not have been interfered with by the Division Bench.

Arguments on behalf of SME (Respondent No. 1):

• SME contended that the issuance of invoices was not a condition precedent to the payments under the Deed of Settlement.
• They argued that NHC had breached the essential terms of the agreements by not making payments on time.
• SME justified not issuing invoices for the balance amount by stating that the liability for GST would accrue immediately upon issuance, regardless of whether NHC made the payment.
• They argued that the contracts were determinable under Section 14(d) of the Specific Relief Act, 1963, and thus, no specific performance could be granted.
• SME stated that NHC was not ready and willing to perform the contract.

Arguments on behalf of Goldmines Telefilms (Respondent No. 2):

• Goldmines Telefilms stated that they had terminated the sub-license agreement with NHC due to the disputes between NHC and SME.
• They argued that they had entered into a fresh agreement with SME after the termination of the sub-license agreement with NHC.

The innovativeness of the argument from the side of NHC lies in emphasizing the established practice of payment being contingent upon invoice issuance, which was not explicitly stated in the Deed of Settlement, but was the practice between the parties.

The innovativeness of the argument from SME lies in the interpretation of Section 14(d) of the Specific Relief Act, 1963, claiming the contract was determinable and thus not specifically enforceable.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue can be summarized as:

1. Whether the Division Bench of the High Court was justified in interfering with the Single Judge’s order granting an interim injunction.
2. Whether the non-issuance of invoices by the respondent was a valid reason for non-payment by the appellant, and whether it constituted a breach of the Deed of Settlement.
3. Whether the contracts were determinable under Section 14(d) of the Specific Relief Act, 1963.

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The Court followed the principles laid down in Wander Ltd. and Anr. vs. Antox India P. Ltd. [1990 (supp) SCC 727]*, stating that an appellate court should not interfere with the discretion of the trial court unless it was exercised arbitrarily or perversely.
• The Court also relied on Printers (Mysore) Private Ltd. v. Pothan Joseph [(1960) 3 SCR 713]* and Charles Osenton & Co. v. Jhanaton [1942 AC 130]* for the same principle.
• The Court referred to Shah Babulal Khimji Vs. Jayaben D. Kania and Anr. [(1981) 4 SCC 8]* to emphasize the applicability of Section 104 read with Order 43 Rule 1 of the Code of Civil Procedure, 1908 to Letters Patent appeals.
• The Court followed the principles laid down in Dorab Cawasji Warden Vs. Coomi Sorab Warden and Ors. [(1990) 2 SCC 117]* and Metro Marins and Anr. Vs. Bonus Watch Co. (P) Ltd. and Ors. [(2004) 7 SCC 478]* regarding the grant of mandatory injunction at the interim stage.
• The Court also relied on Best Seller Retail (India) Private Ltd. Vs. Aditya Birla Nuvo Ltd. and Ors. [(2012) 6 SCC 792]* regarding the applicability of Rules 1 and 2 of Order 39 of the Code of Civil Procedure, 1908.
• The Court followed the principles laid down in Colgate Palmolive (India) Ltd. Vs. Hindustan Lever Ltd. [(1999) 7 SCC 1]* for the principles guiding grant of interim injunctions.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following:

• Established Practice of Payment: The court noted that the consistent practice between NHC and SME was that payments were made only after SME issued invoices, which included GST. This established practice weighed heavily in favor of NHC’s argument that they were not in breach of the agreement.
• Substantial Payments Made: The court observed that NHC had already made substantial payments under the initial agreements and the Deed of Settlement. The balance amount was a small fraction of the total amount, and this balance was deposited in the High Court.
• Interference with Trial Court’s Discretion: The court emphasized that an appellate court should not interfere with a trial court’s discretion unless it was exercised arbitrarily or perversely. The Single Judge’s order was considered reasonable and judicially sound.
• Equity in Favor of NHC: The court found that equity was in favor of NHC, considering the payments made, the deposit of the balance amount, and the established practice of payment after invoice issuance.

The sentiment analysis of the reasons given by the Supreme Court is as follows:

Fact:Law Ratio

The ratio of fact to law that influenced the court is as follows:

The court’s reasoning was more influenced by the factual aspects of the case, such as the established practice of payment and the substantial payments made, rather than purely legal considerations.

Logical Reasoning:

The Supreme Court considered alternative interpretations but rejected them. The Court rejected SME’s argument that the contract was determinable under Section 14(d) of the Specific Relief Act, 1963, by stating that the issue would be decided in the suit proceedings. The court also rejected SME’s claim that NHC was not ready and willing to perform the contract, highlighting the substantial payments already made and the deposit of the balance amount in the High Court. The court’s final decision was to restore the interim injunction granted by the Single Judge, finding that the balance of convenience was in favor of NHC.

The court’s decision was clear: the Division Bench should not have interfered with the Single Judge’s order. The court found that the Single Judge’s decision was reasonable and judicially sound, and the appellate court should not have substituted its own discretion. The court also emphasized the established practice between the parties, the substantial payments made by NHC, and the deposit of the balance amount in the High Court.

The majority opinion was delivered by Justice Vineet Saran and Justice Aniruddha Bose, who were both part of the two-judge bench. There were no dissenting opinions in this case.

The Supreme Court analyzed the reasoning of the Single Judge and found it to be sound. The court also analyzed the Division Bench’s reasoning and found it to be flawed. The court applied the principles of appellate interference in discretionary orders and found that the Division Bench had erred in reversing the Single Judge’s order. The court also analyzed the facts of the case and found that equity was in favor of NHC.

The implications for future cases are that appellate courts should be cautious while interfering with the discretionary orders of trial courts. The court also emphasized the importance of established practices between parties and the principle of equity.

No new doctrines or legal principles were introduced in this case. The court reiterated the existing principles for appellate interference in discretionary orders and the principles for grant of interim injunctions.

The Court did not introduce any new legal principles, but it emphasized the importance of the principles of equity and the established practices between parties. The court also reiterated the principles for appellate interference in discretionary orders and the principles for grant of interim injunctions.

“The appellate court will not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law regulating grant or refusal of interlocutory injunctions.”

“The entire controversy in the present case would hinge around this provision as to whether NHC did not pay the amount in terms of the Deed of Settlement because of non­issuance of invoices by the respondent no.1 or otherwise.”

“In our opinion, however, each individual case is to be decided on its own facts and in the present case, in view of the facts as narrated above, equity is in favour of NHC.”

Key Takeaways

• Appellate courts should not interfere with a trial court’s discretionary order unless it is exercised arbitrarily or perversely.
• Established practices between parties can be crucial in interpreting contracts, even if not explicitly stated in the contract.
• Substantial payments made by a party and their willingness to pay the balance can be a factor in granting interim relief.
• Equity plays a significant role in deciding interim injunction matters.
• The court emphasized that the Single Judge’s order was founded on sound reasoning and the Division Bench should not have interfered with it.

Directions

The Supreme Court directed the learned Single Judge of the High Court to expedite the hearing of the suit and decide the same as expeditiously as possible, preferably within one year. The court also directed that the Single Judge should not be influenced by any observations made by the Single Judge while granting the injunction order, the Division Bench of the High Court, or the Supreme Court. The parties were directed not to seek any unnecessary adjournments in the High Court.

Development of Law

The ratio decidendi of this case is that an appellate court should not interfere with a trial court’s discretionary order unless it is exercised arbitrarily, capriciously, or perversely. The Supreme Court reiterated the principles laid down in previous cases, such as Wander Ltd. and Anr. vs. Antox India P. Ltd. and Printers (Mysore) Private Ltd. v. Pothan Joseph. There was no change in the previous position of law, but the court reinforced the importance of these principles.

Conclusion

The Supreme Court allowed the appeals filed by Narendra Hirawat and Co., setting aside the order of the Division Bench of the High Court and restoring the interim injunction granted by the Single Judge. The court emphasized that the Single Judge’s order was based on sound reasoning and that the appellate court should not have interfered with it. The court also highlighted the established practice between the parties, the substantial payments made by NHC, and the deposit of the balance amount in the High Court. The court directed the Single Judge to expedite the hearing of the suit.