UPDATE | ONLINE STREAMING AND COPYRIGHT PROTECTION

The Bombay High Court recently held in the case of Tips Industries Limited v Wynk Music Limited that online streaming services are not eligible for being granted statutory licenses for broadcasting under Section 31D of the Copyright Act, 1957 (Act).

FACTS OF THE CASE:

• In 2016, Tips Industries Limited (Tips) entered into a licensing agreement with Wynk Music Limited (Wynk), an online music streaming service. After expiry of the license in 2017, both parties attempted to renegotiate the terms of the license allowing Wynk to offer downloading and streaming of musical works owned by Tips. However negotiations between the parties for extension of the license failed.
  
  
• Tips`s issued a cease and desist notice to Wynk requesting Wynk to remove the songs whose copyrights were owned by Tips`s from their platform. In reply to the same Wynk invoked Section 31D of the Copyright Act, 1957, claiming that they were a broadcasting organisation hence making them entitled to a statutory license to communicate the work to the public by way of a broadcast of the Tips`s songs.
  
  
• Tips`s filed two suits against Wynk for (1) infringement of the Tips`s copyright, disputing Wynk’s right to avail of a statutory license provided for by Section 31-D; and (2) claiming permanent injunction, restraining Wynk from — (a) communicating to the public the Tips`s musical work and sound recordings; and (b) giving on commercial rental/sale, the Tips`s songs by way of providing download services.
  
  

DECISION OF BOMBAY HIGH COURT

• Section 31D of the Act does not cover `downloading/purchase` of works
  
  The court held that when copyrighted songs were allowed to be stored or cached on the devices of their users, it would classify as ‘making another sound recording’ embodying the copyrighted work, under Section 14(E)(I) of the Act.
  
  When these same copyrighted songs are ‘sold’ through the feature allowing users to ‘purchase’ and access songs offline, it would classify as a ‘sale’ or ‘rental’ of the song. When copyrighted songs are ‘streamed’ without the provision for downloading, it amounts to a ‘communication to the public’ and a ‘broadcast’ under the Copyright Act, the exclusive right to which belongs to the copyright owner.
  
  Hence the court was of the view that the Wynk’s feature of allowing users to download songs and store for unlimited future use constituted ‘sale’ and not ‘communication to the public’, hence not coming under the definition of a ‘broadcast’ under Section 31D. Therefore, Wynk could not claim a statutory license for the use of such works.
  
  
• Section 31D of the Act does not Cover Internet Broadcasting
  
  The court examined Section 31D of the Act along with the Report of the Rajya Sabha Parliamentary Committee on the Copyright Amendment Act, 2012 and stated that the legislature was aware of internet streaming services and they consciously chose not to include such forms of communication within the scheme of Section 31D of the Act.
  
  Therefore, Wynk could not claim that the legislature intended ‘radio’ broadcasts to subsume online broadcasts. The court strictly interpreted Section 31D(3) of the Act along with the copyright rules framed to hold that it was clear that statutory licensing was intended to cover only ‘radio’ and ‘television’ broadcasting, and not internet broadcasting. The Court also rejected Wynk’s reliance upon the Government of India Office Memorandum, stating that it lacked statutory authority, and could not prevail over the statutory scheme under Section 31D of the Act.
  
  
• Section 31D of the Act cannot be invoked without the prior fixation of rates by the IPAB
  
  The court held that, the Intellectual Property Appellate Board (IPAB) did not have jurisdiction to fix rates for `internet broadcasting`. The court further held that after strict perusal of the statutory scheme under Section 31D of the Act and Rules 29, 30 & 31 of the Copyright Rules 2013 (Copyright Rules), the prior fixation of royalty rates by the IPAB was essential for the invocation of a statutory license under Section 31D of the Act. Wynk also attempted to argue that Rules 29, 30 and 31 of the Copyright Rules were ultravires the section as they provided for prior fixation of the royalty rate, but this contention was also rightly rejected by Bombay High Court, who stated that there is no inconsistency between the rules and the statute.
  
  
• Finally, the Court allowed the Notice of Motion and stated that Tips was entitled to an interim injunction stating that they had prima facie made out a case that they would suffer irreparable injury in the form of revenue lost, and that the balance of convenience was in Tips`s favour.
  

MHCO Comment: This judgment is welcome relief to the music industry and finally puts to rest the questions about Section 31D of the Act and internet streaming. It will also have a ripple effect on how online streaming services need to be incorporated into our copyright law. While it still remains open whether the present position will be overturned by the Supreme Court in a future appeal, the current position has been clearly established by the Bombay High Court.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.comfor any assistance.

UNILATERAL ADDITION TO CONTRACT VIOLATES BASIC NOTIONS OF JUSTICE

INTRODUCTION

The Hon’ble Supreme Court passed a landmark judgement in the matter of Ssangyong Engineering and Construction Company Limited vs National Highways Authority of India (NHAI) where it ruled that a unilateral addition or alteration to a contract cannot be foisted upon an unwilling party and such an act would be contrary to the fundamental principles of justice. This judgement also deals with the implication of amendments to the Arbitration and Conciliation Act, 1996 (Arbitration Act).

FACTS OF THE CASE:

• Ssangyong Engineering and Construction Company Limited (Ssangyong) entered into a works contractwith the National Highway Authority of India (NHAI).
  
  
• The works contract entered into between the parties had a price adjustment formula, which applied the Wholesale Price Index (WPI)published by Union Government based on the year 1993-94 (Old Series). The Union Ministry, from year 2010 onwards, started publishing WPI based on year 2004-2005 (New Series) and Ssangyong raised bills in accordance with the New Series. Thereafter in 2013, NHAI issued a circular adopting a new formula applying a linking factor based on 2009-10 to the old formula.
  
  
• Ssangyong opposed application of the aforesaid 2013 circular and raised dispute for unilateral modification of contract. The said dispute was referred to arbitration. The Arbitral Tribunal while adjudicating the dispute and passing the award, referred to the guidelines available on website of the Ministry of Commerce and Industry, which stated that establishment of a linking factor to connect the Old Series with New Series is necessary. The Arbitral Tribunal by a 2:1 majority upheld the implementation of NHAI’s 2013 circular. The dissenting Arbitrator expressed that 2013 circular and guideline cannot be applied as they were de hors the contract.
  
  
• The said award was challenged before the Hon’ble Delhi High Court by Ssangyong but the Hon’ble Delhi High Court upheld the award passed by the Arbitral Tribunal rejecting Ssangyong’s claim. The matter was appealed to the Hon’ble Supreme Court.

ISSUES

• Whether the award can be set aside under section 34(2)(a)(iii) of the Arbitration Act on the ground that the parties did not have a chance to argue on the guidelines relied by the Arbitral Tribunal while passing the award?
  
  
• Whether the award can be set aside under section 34(2)(a)(iv) of the Arbitration Act on the ground that new contract was made by applying the circular and applying a formula which did not form part of the original contract?
  
  
• Whether 2015 amendment to the Arbitration Act is applicable in the present case? The arbitration in this case was invoked prior to 2015 amendment and arbitration petition under section 34 of the Arbitration Act was filed after the 2015 amendments came into force. In the 2015 amendment, explanation was given to the term “public policy of India” under section 34 of the Arbitration Act. The said Amendment sought to do away with the expansive interpretation of the term ``public policy of India``.
  
  
• Whether unilateral addition or alteration in the contract is contrary to fundamental principles of justice?

SUPREME COURT HELD

• The Supreme Court held that the award needs to be set aside under section 34(2)(a)(iii) of the Arbitration Act, as the Arbitral Tribunal had relied on the guidelines which were not presented to the parties. Accordingly, the appellant never had a chance to argue on the said guidelines and present its case;
  
  
• The argument that a new contract was made by virtue of the circular and the award needs to be set aside under section 34(2)(a)(iv) of the Arbitration Act was rejected by the Supreme Court. The Supreme Court was of the view that arguments regarding applicability of the circular and other related issues were already argued before the Arbitral Tribunal. Therefore, the same would fall within the arbitration clause or the reference to arbitration governing parties;
  
  
• The Supreme Court also ruled that amendment to Section 34 of the Arbitration Act will be applicable in the present case; as petition under Section 34 of the Arbitration Act was filed after the Amendment, even though the arbitration proceeding commenced before amendment was enforced;
  
  
• The Supreme Court also ruled that any unilateral addition or alteration to the contract cannot be foisted upon an unwilling party and are in breach of fundamental principles of justice;
  
  
• Further, the Supreme Court invoked its powers under Article 142 of the Constitution of India and did not relegate the matter to Arbitral Tribunal for a fresh hearing, but upheld the minority award to ensure a speedy resolution of the dispute.

MHCO Comment: The aforesaid judgment passed by the Supreme Court gives clarity over number of issues, most important of them being applicability of amendment to the arbitration proceedings and unilateral alteration or additions being in breach of fundamental principles of justice. It is often seen in contracts entered by Governmental authorities that Government tries to unilaterally modify the contract without taking consent of other parties to a contract. This judgement would ensure that such additions and alterations do not take place without consent of all parties. The other important aspect of the judgement is that the Supreme Court invoked Article 142 of the Constitution of India for speedy resolution of the disputes which is very encouraging.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.comfor any assistance.
 

SUPREME COURT | REGISTERED TRADE UNION CAN NOW FILE INSOLVENCY PETITION AS OPERATIONAL CREDITOR ON BEHALF OF ITS MEMBERS

The Supreme Court of India has held in the case of J K Mill Mazdoor Morcha versus Juggilal Kamlapat Jute Mills Company Ltd through its director & Ors that a registered trade union can file an insolvency petition in the capacity of an operational creditor against the corporate debtor and also on behalf of its members.

BRIEF FACTS OF THE CASE

The Appellant trade union issued a demand notice on behalf of about 3000 workers under Section 8 of the Insolvency and Bankruptcy Code for outstanding dues of workers. The National Company Law Tribunal (NCLT) dismissed their application on the ground that trade unions are not covered under the definition of operational creditor and stated that the registered trade union specifically does not render any services to the corporate debtor and hence cannot file an IBC application on behalf of its members. Upholding the NCLT order, the National Company Law Appellant Tribunal (NCLAT) observed that each worker may file an individual application before the NCLT.

DECISION OF THE SUPREME COURT

• After examining various provisions of the IBC and the Trade Unions Act, 1926, the Supreme Court observed that a trade union is an entity established under a statute and would thus fall within the definition of ``person`` under Sections 3(23) of the said Code. An ``operational debt``, meaning a claim in respect of employment, could certainly be made by a person duly authorised to make such claim on behalf of a workman. Further the court observed that a registered trade union is formed for the purpose of regulating the relations between workmen and their employer and can therefore maintain a petition as an operational creditor on behalf of its members.

• Hence, in view of the aforesaid observations, the Supreme Court held the NCLAT is not correct in refusing to go into whether the trade union would come within the definition of “person” under Section 3(23) of the Code. Equally, the NCLAT is not correct in stating that a trade union would not be an operational creditor as no services are rendered by the trade union to the corporate debtor.

• Further, the Supreme Court observed that the trade union represents its members who are workers to whom dues may be owed by the employer, which are certainly debts owed for services rendered by each individual workman, who are collectively represented by the trade union.

• Equally, to state that for each workman there will be a separate cause of action, a separate claim, and a separate date of default would ignore the fact that a joint petition could be filed under Rule 6 read with Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, with authority from several workmen to one of them to file such petition on behalf of all.

• Accordingly the Appeal was allowed. The matter is now remanded to the NCLAT for deciding the appeal on merits expeditiously.

MHCO Comments: This judgement of the Supreme Court is purposive and progressive and simplifies the entire process of recovering the dues as the workmen would now be able to file the IBC Application collectively and also the Tribunal would not be burdened by multiple applications. This is also in line with amendments to the IBC in 2018 in which home buyers could be represented by an ``authorised representative``.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.comfor any assistance. 

AN ARBITRATION CLAUSE CONTAINED IN AN UNSTAMPED OR DEFICIENTLY STAMPED AGREEMENT | NOT ENFORCEABLE

Introduction:

The Supreme Court has recently in Garware Wall Ropes v. Coastal Marine Constructions and Engineering Limited answered the question of whether an arbitration clause contained in an agreement which is not stamped or inadequately stamped, can be acted upon for the appointment of arbitrator under Section 11 of the Arbitration & Conciliation Act 1996 (``Arbitration Act``)?

Facts of the Case:

The respondent entered into a sub-contract with the appellant for installation of geo-textile tubes embankment with toe mount at village Pentha in Odisha for protection against coastal erosion. The sub-contract contained an arbitration clause in Annexure III of the agreement. Soon thereafter disputes arose between the parties and the appellant terminated the sub-contract. The respondent thereafter wrote to the appellant stating that in terms of the arbitration clause contained in the sub-contract, notice for appointment of an arbitrator was given to one Mr Naniwadekar to be appointed as the sole arbitrator. The appellant opposed this notice stating that the appointment of arbitrator pursuant to the sub-contract was premature.

The respondent filed a petition under Section 11 of the Arbitration Act in the Bombay High Court and the same was allowed appointing Mr Naniwadekar as the sole arbitrator. The present appeal was filed against this impugned order of the Bombay High Court.

Supreme Court`s Decision:

The Supreme Court in SMS Tea Estate v. Chandmari Tea Company has held that where an arbitration clause is contained in an unstamped agreement, the provisions of the Indian Stamp Act, 1899 require the judicial authority hearing the section 11 petition to first impound the agreement and ensure that stamp duty and penalty (if any) are paid thereon before proceeding with the Section 11 petition.

However, the Bombay High Court was of the opinion that by the insertion of Sec 11 (6A) under the Arbitration Amendment Act, 2015 (``Amendment Act``), the SMS Tea Estate judgement had been negated and the agreement in question had to be impounded by the arbitrator appointed under section 11 and not by the judge hearing the section 11 petition.

The Supreme Court overturned this decision of the Bombay High Court stating that ``when an arbitration clause is contained `in a contract`, it is significant that the agreement only becomes a contract if it is enforceable by law.`` Accordingly, under the Indian Stamp Act, 1899 an agreement does not become a contract unless it is duly stamped and hence an arbitration clause in an agreement would not exist when it is not enforceable by law.

The Supreme Court further went on to apply the doctrine of harmonious construction of statutes citing various judgments for the same. In conclusion, it held that Sec 11 (13) of the Amendment Act deals with appointment of arbitrator expeditiously and has to be harmoniously construed with section 33 and 34 of the Maharashtra Stamp Act. It came to a conclusion that the stamp authorities should try to adjudicate upon the issue of payment of stamp duty within a period of 45 days and the judge hearing the section 11 petition thereafter must dispose of the petition expeditiously. This, according to the Supreme Court gives effect to both the statutes and upholds the natural principles of justice.

MHCO COMMENT:

The basic objective of the Amendment Act was to avoid unwanted delays and for the speedy disposal of arbitration proceedings. This judgement of the Supreme Court comes as a surprise as it goes against the basic notion of arbitration law that an arbitration clause is a separate and distinct agreement from the agreement that it is in. The adjudication of the stamp authorities may take much more than 45 days, which would cause unnecessary delays hence rendering section 11(13) useless.

It will also be a challenge for the courts now to adjudicate the question of interim reliefs under section 9 of the Arbitration Act as regards unstamped agreements or deficiently stamped agreements. What is certain from this judgment of the Supreme Court is that instruments must be stamped at the very inception to avoid unwarranted hardships and delays in the future.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.comfor any assistance.