Madras HC Upholds Arbitral Award Against MediaOne, Says Guarantor Cannot Disown Guarantee Deed [Read Order]

Chennai: The Madras High Court has dismissed a challenge to an arbitral award directing MediaOne Global Entertainment Ltd. to pay Rs. 1.23 crores to a film distributor, holding that a party cannot approbate and reprobate by first invoking an arbitration clause to defeat a civil suit and later claiming the arbitration agreement does not bind them, while also rejecting arguments that the guarantee deed had lapsed or lacked enforceability.

The bench of Justice N. Anand Venkatesh examined whether a guarantee deed executed to compensate a distributor for losses arising from the release of a film could be challenged on the grounds that the guarantor was not party to the original distribution agreement, that the principal debtor did not sign the guarantee, and that the guarantee lapsed when circumstances changed.

The Court heard Arbitration Original Petition (Commercial Division) No. 34 of 2021 filed by MediaOne Global Entertainment Ltd. under Section 34 of the Arbitration and Conciliation Act, 1996, seeking to set aside an arbitral award dated 30.09.2020 passed in favour of Vishnu Associates (first respondent).

Vishnu Associates had entered into a distribution agreement dated 09.05.2012 with Eros International Media Ltd. for the theatrical distribution of Tamil and Telugu versions of the film Maatran in Karnataka. Under the agreement, Vishnu Associates was required to pay a minimum guarantee of Rs. 4 crores, of which Rs. 2 crores was paid upfront, with the balance due three days before release.

Due to widespread civil unrest over the Cauvery water dispute, Tamil films were prevented from being released in Karnataka. Vishnu Associates invoked the force majeure clause seeking a refund of Rs. 2 crores already paid. At this juncture, MediaOne’s Director, Dr. J. Murali Manohar, intervened and persuaded Vishnu Associates to release the Telugu version, assuring compensation for any shortfall through a guarantee deed dated 11.10.2012.

Relying on this guarantee, Vishnu Associates released the Telugu version. Unfortunately, the film flopped, resulting in a net loss of Rs. 1,24,29,432. When payment was demanded, MediaOne failed to honour the guarantee, prompting invocation of arbitration. The Court appointed a sole arbitrator vide order dated 04.09.2015 in O.P. No. 450/2015.

The arbitrator awarded Rs. 1,23,04,231 with 12% interest per annum from the award date till the date of payment against MediaOne, while rejecting the counter-claim of Eros International Media Ltd.

MediaOne challenged the award on multiple grounds: (i) it was not a party to the distribution agreement containing the arbitration clause; (ii) the principal debtor (Eros) was not a signatory to the guarantee deed, rendering it unenforceable since a guarantee requires three parties — surety, principal debtor and creditor; (iii) the guarantee was confined to the Telugu version but the Tamil version was also released, causing the guarantee to lapse; (iv) the guarantor’s liability is co-extensive with that of the principal debtor and Section 126 of the Contract Act was not complied with; and (v) there was insufficient material to quantify the loss.

Vishnu Associates countered that the guarantee deed was absolute and unconditional, making reference to the distribution agreement. The Tamil version was released pursuant to an email dated 14.10.2012 clarifying that all release centres would be with MediaOne. Sufficient material existed through exhibits to quantify losses, and no grounds under Section 34 were established.

Justice Venkatesh found MediaOne’s arguments untenable. On the arbitration clause, the Court noted:
“It is too late in the day for the petitioner to wriggle out of the guarantee deed executed on 11.10.2012, which the petitioner would want to call a comfort letter.”

The Court highlighted a critical factual finding:
“The sole Arbitrator placed reliance upon Exhibit C8, which was a reply dated 12.02.2013 sent by the petitioner to the respondent, wherein the petitioner admitted the difficulty faced by the respondent in releasing the film in Karnataka and undertook to mediate the dispute. Towards this, the guarantee deed dated 11.10.2012 was executed.”

On MediaOne’s attempt to disown the arbitration agreement, the Court observed:
“The respondent had initially filed the suit before this Court for recovery of the amount, and the same was resisted by the petitioner by filing an application under Section 8 of the Act showing the arbitration clause. When the respondent invoked the arbitration clause, the petitioner then claimed they were not party to the distribution agreement and that it could not be invoked against them.”

The Court emphatically held:
“The petitioner cannot be permitted to approbate and reprobate in this manner.”

On the Section 126 Contract Act argument, the Court noted that a guarantee need not be in writing and may be oral. The Court further held that MediaOne’s mediation between Vishnu Associates and Eros implied an agreement between MediaOne and Eros.

On the lapsing argument, the Court held there was nothing in the guarantee deed stating it would lapse if the Tamil version was also released. The finding of the arbitrator, supported by Exhibit C22, was upheld.

Regarding quantification of losses, the Court noted that the arbitrator had relied on Exhibits C7, C12, C19, and C20 — including box office collections, distribution commissions, and expenses — none of which were seriously challenged in cross-examination or rebutted by contrary evidence.

Emphasising the limited scope of Section 34 review, the Court held that the quantification was based on appreciation of evidence, which cannot be re-evaluated like an appellate court.

Justice Venkatesh concluded that none of the findings suffered from perversity or patent illegality, and the arbitral award was based on a possible and reasonable interpretation of the guarantee deed and documentary evidence.

The petition was dismissed with costs of Rs. 1,50,000 payable to the respondent.

Case Title: M/s. MediaOne Global Entertainment Limited vs. M/s. Vishnu Associates and Others
Appearances: Mr. T. Saikrishnan, Advocate for the petitioner; Mr. Avinash Wadhwani, Advocate for the respondent.

[Read Order]