JAK COMMUNICATIONS PVT LTD Vs STAR DEN MEDIA SERVICES PVT. LTD.

S.B. Sinha

Respondent is a `Broadcaster’ within the meaning of provisions of the Telecommunication (Broadcasting and Cable Services) Interconnection Regulations, 2004 (the Regulation). Petitioner is a Multi Service Operator. Indisputably, by reason of a notification issued in terms of Clause 4A of the Regulations, the town of Chennai was declared to be a CAS area.

Petitioner obtained permission of the Government of India to operate under the said system by an order dated 5.8.2008.

It had made a request to the respondent herein for providing signals of its channels for their retransmission through its head-end which was set up in the town of Chennai. The head-end of the petitioner including the SMS equipment installed therein were inspected by the respondent herein A request for providing signals was again made on 30.1.2010, whereafter the said agreement dated 19.3.2010, was executed.

We may, at the outset, notice the relevant clauses thereof:- “2.1 Subject to due observance by the Parties of the terms and conditions of this Agreement and in consideration of the promise by the Affiliate to make payment of the Subscription Amounts which are due and payable in terms of this Agreement to STAR DEN, STAR DEN hereby grants to the Affiliate, for the duration of the Term of this Agreement, a non-exclusive right to avail the services indicated in Clause 1.1 of Article 1 comprising in the right to subscriber to and to distribute the Subscribed Channels as described in Annexure A through CAS to the subscribers in the Area only via the Permitted Distribution System. The Affiliate shall have the right to distribute the viewing of the subscribed Television Channels only to subscribers in the Area and not to any other third party. xxx

3.1 SUBSCRIPTION AMOUNTS AND REVENUE SHARE ARRANGEMENTS.

A. SUBSCRIPTION AMOUNTS Subject to the provisions set forth herein in this Agreement, and in consideration of the rights granted by STAR DEN under this Agreement in terms of clause 2.1 of Article 2, the Affiliate agrees to pay to STAR DEN, A Fixed Subscription Fee of Rupees Ten Lakh per month (“Monthly Fee”)”

Article 4.5 provides for the obligations of the affiliate on subscribers report, which reads as under :- “4.5 AFFILIATE OBLIGATIONS ON SUBSCRIBER REPORTS

4.5.1 The Affiliate shall prepare and provide to STAR DEN complete and accurate monthly reports (“Subscriber Report”) for the Subscribed Channels within 15 days after the end of each month detailing:

i) Total number of subscribers, including their names and addresses and the Subscribed Channels on the first day and the last day of the month subscribed to; ii) Maximum Retail prices charged for the tiers that include Subscribed Channels; iii) Details of tiers that include Subscribed Channels offered to the subscribers (details such as channels in each tier and number of the subscribers subscribing to each tier); iv) Such other information as STAR DEN may require for determining the Subscription Amounts.

Upon STAR DEN’s written request, the Affiliate shall provide number of subscribers by category, tier, location, sub-operator/last mile operator that STAR DEN may require with prior intimation and sufficient Notice to the Affiliate.

4.5.2 Each Subscriber Report shall be signed and attested by an officer of the Affiliate of a rank not less than Head of Department/Chief Financial Officer responsible for the Affiliate’s SMS, who shall certify that all information in such Subscriber Report is true and correct. The Affiliate acknowledges that any requests for further information from time to time by STAR DEN would not be unreasonably withheld. This obligation shall survive termination of the Agreement until STAR DEN receives the Subscriber Reports for each relevant month and all outstanding monies have been paid.”

Clause 4.10, providing for Subscriber Records, Access and Audit Rights, reads as under :- “4.10 SUBSCRIBER RECORDS, ACCESS & AUDIT RIGHTS

4.10.1 The Affiliate shall keep accurate, complete and up to date records of every subscriber’s details, details of the location of every set top box, Smart Card, records and accounts of billings including historical billing data, type of subscribers, sublicenses and all relevant matters (“Subscriber Records”). The Affiliate shall ensure that its SMS and billing software allows for monitoring and printing historical data relating to subscriber activation and/or deactivation, going back to at least 12 months at any point of time. 4.10.2 The SMS and all Subscriber Records that are relevant to the Subscribed Channels for the operation of the Agreement shall be available for inspection and audit by STAR DEN/STAR DEN’s representative(s) (where such representatives are members of an internationally recognized accounting firm and agree in writing to be bound by confidentiality obligations) during the Term at any time during normal business hours and for three months after the expiry or premature termination of the Agreement, as the case may be, to ensure compliance with the Anti- Piracy Obligations, and (ii) on three days prior written notice during normal business hours to ensure compliance with all other terms of the Agreement up to four times within any 12-month period and for three months after the expiry or premature termination of the Agreement, as the case may be.

The Affiliate shall give STAR DEN/STAR DEN’s representatives any assistance they may reasonably require in connection with their audit investigations. In the event a breach of the Agreement has been discovered during the course of such audit or inspection, STAR DEN/STAR DEN’s representatives shall have the right to take printouts, photocopies and computer copies of the Subscriber Records, or any portion thereof, reasonably required to provide evidence of such breach, and the Affiliate agrees to extend reasonable co-operation in this regard. 4.10.3 In the event an audit or inspection by STAR DEN’s representative(s) under Clause 4.10.2 reveals that the Affiliate has under-reported or has misrepresented any item having a bearing on the computation of the amounts payable to STAR DEN, the Affiliate agrees to immediately pay all amounts due based on the actual and true items together with simple interest at the rate of 15% per annum for the periods from the dates when the respective payments should have been made until the actual date or dates of payment. In addition to the above payment, the Affiliate shall also pay all costs and expenses incurred by STAR DEN for such audit/ inspection.

This obligation shall survive the termination of the Agreement. If within a period of two weeks from the date of demand by STAR DEN, the Affiliate fails to pay any amounts found due on the basis of such audit/ inspection, including the cost and expenses of such audit/ inspection, STAR DEN shall have the right to deactivate/disconnect the Subscribed Channels and/or terminate the Agreement as per the law applicable without prejudice to its right to claim such amount referred to above in addition to any other action that may be deemed appropriate.”

Clause 4.12, providing for finger printing, reads as under :- “4.12 FINGERPRINTING

4.12.1 The Affiliate shall ensure that it has systems, processes and controls in place to run Fingerprinting at regular intervals as per the specifications/ guidelines provided by STAR DEN. A certificate at periodical intervals by the Affiliate giving the details of systems, processes and controls in place to run fingerprinting which detail is verifiable by STAR DEN would be sufficient compliance of this clause. The Affiliate shall ensure that all set top boxes should support both visible and covert types of Fingerprinting and should be compatible for running Fingerprinting whether operated by the Affiliate or by STAR DEN. 4.12.2 The Affiliate shall ensure that it shall be able to operate the Fingerprinting across all subscribers or any sub-set of subscribers based on pre-set parameters and such Fingerprinting should, apart from the foregoing, be possible and available on global, group and regional bases at all times. 4.12.3 The Affiliate shall ensure that the following processes shall be deployed to keep a check on piracy and misuse of the signals of the Subscribed Channels: 4.12.3.1 The Subscribed Channels’ Fingerprinting should pass through without masking or tampering with respect to time, location, duration and frequency; 4.12.3.2 Fingerprinting to be provided by the Affiliate on the Subscribed Channels, as per the scheme provided by STAR DEN; STAR DEN shall have a right to give the time, location, duration of Fingerprinting at a reasonably short notice (i.e. at least 30 minutes prior notice or more).”

Indisputably for the purpose of carrying out operations under the SMS system, the respondent was obligated to supply IRD boxes and activitate the same. It is also not in dispute that pursuant to or in furtherance of the aforesaid agreement dated 19.3.2010, the petitioner made a security deposit of Rs.27,000/- for obtaining the IRD boxes and furthermore issued a cheque for a sum of Rs.10,80,940/-, the details whereof are as under:-

Phone: 26371600 26377060 Fax: 26376400 JAK COMUNICATIONS PVT. LTD. #402, J.K.Complex, C.T.H.Road, Avadi, Chennai-600 054. PAYMENT VOUCHER No: 09.03.10 Date: ……..….. Star DenMediaServices PLtd Paid To …………………………………………….. …………………………………………………………………………………………………………. 321173 By Cash/ Cheque No. ………….. date……………………………..Drawn on AB…………… 1080940 …………………………………….....for Rs…………… (Rs Ten Lakhs Eighty Thousand Nine Hundred and Forty Only) Bill No. Date Our Reference Amount Rs. P.

Towards 1000000 (+) service tax 10.3% 103000 - Less 11,03,000 - 22060 - TOTAL 1080940

Prepared By sd/- Received By sd/- Authorised By sd/-

Admittedly, thereafter the IRD boxes were delivered to the petitioner. For one reason or the other, the petitioner made a complaint to the TRAI which was, however, withdrawn subsequently wherefor a communication dated 29.3.2010 was sent to the respondent it.

Inter alia on the premise that despite supply of the IRD boxes, the respondent had not activated the same, the petitioner filed a petition before this Tribunal in May, 2010 which was marked as Petition No.127 (C)/2010.

By reason of an order dated 28.5.2010, the respondent was directed to activate the decoder boxes and also supply a copy of the agreement to learned counsel for the petitioner.

The respondent was permitted to inspect the CAS system of the petitioner by an order dated 31.5.2010, which was complied with. The IRD boxes were also activated in compliance of the said order on or about 3.6.2010.

A grievance was raised by the petitioner that out of 21 IRD boxes, 6 had not been activated. Allegedly technical issues were involved in respect thereof. A reply was sent to the petitioner by the respondent in terms of a letter dated 7.6.2010, contending that only IRD boxes relating to the `Hungama Channel’ have not activated as the respondent has ceased to be its distributor w.e.f. 1.4.2010.

The respondent thereafter dispatched service invoices. As no payment was made, a demand notice was served on the petitioner on or about 27.1.2011.

A disconnection notice was issued by the respondent claiming an outstanding amount of Rs.65,39,526/- as on 4.3.2011 in response whereto the petitioner denied and disputed its liability. According to the petitioner the signals of the respondent channels were rolled out only on 14.3.2011. A public notice was issued by the respondent on 6.3.2011.

Questioning the legality and/or validity of the said notice, this petition has been filed.

Submissions of Mr.Ajay Kumar, learned counsel appearing on behalf of the petitioner principally are twofold :- (i) Clause 3.1 of the agreement having provided for a minimum guaranteed amount which is prohibited under Clause 6 of the Regulations, the said agreement dated March, 2010 is illegal being hit by Section 23 of the Indian Contract Act.

(ii) In any event the petitioner having not rolled out its services prior to 14.3.2011, having regard to the fact that CAS is applicable in the town of Chennai by reason whereof the subscription fee payable by MSO to a broadcaster will have to be determined on the basis of the SMS report, no amount was payable.

Mr.Saurav Srivastava, learned counsel appearing on behalf of the respondent, on the other hand, would urge :- (i) Clause 3.1 does not provide for a minimum guaranteed amount but a flat fee.

(ii) The agreement being not a contingent one, and the petitioner having entered thereinto with its eyes wide open, it is bound to pay unto the respondent the stipulated amount of subscription fee.

The core question herein is as to whether the said agreement is illegal.

For the purpose of determining the aforementioned question, learned counsel for the parties have referred to the provisions of the Regulations, some of which we may notice hereinafter.

The term `Addressable System’ is defined to mean :- “Addressable System means an electronic device or more than one electronic device put in an integrated system through which signals of cable television network can be sent in encrypted or unencrypted form, which can be decoded by the device or devices at the premises of the subscriber within limits of the authorization made, on the choice and request of such subscriber, by the distributor of TV channels to the subscriber”

Clause 2 (o) defines RIO to mean :- “RIO means the Reference Interconnect Offer published by a Party, prescribing conditions by fulfilling which other Parties would be entitled to obtain interconnection from that party;”

Clause 3.2 of the Regulations mandates a broadcaster to supply signals of its TV channels if a request is made by a distributor of T.V. channel.

Clause 5.1 and 5.2, including explanation appended thereto and clause 6 of the Regulation which are relevant for our purpose, read as under :- “5. Standard Interconnection Agreements

5.1 All broadcasters, multi system operators and cable operators shall mutually negotiate and finalise their interconnection agreements in respect of areas notified by the Central Government under section 4A (1) of the Cable Television Networks (Regulation) Act, 1995 (7 of 1995) vide notification no. S.O. 1231(E) dated 31.7.2006.

5.2 In case any of the service providers in the areas as notified by the Central Government vide notification no. S.O. 1231(E)dated 31.7.2006, are not able to arrive at a mutually acceptable interconnection agreement within a time-period to be specified by the Authority through a direction, then they shall enter into interconnection agreements in terms of the standard interconnection agreements as specified in Schedule I (between broadcaster and multi system operator) or in Schedule II (between multi system operator and cable operator) to this Regulation, as the case may be, within a time period to be specified by the Authority for entering into standard interconnection agreements.”

6. Prohibition of minimum guarantee clause

Where a distributor of TV channels is using a technology by which pay channels can only be seen through an addressable system, then no service provider shall stipulate, insist or provide for any clause in an interconnection agreement with such a distributor which would require such distributor to pay a minimum guaranteed amount as subscription fee for the services provided.”

The TRAI in its Explanatory Memorandum attached to the said Amendment made in the said Regulation in the year 2006, inter alia stated as under:-

5. Minimum Subscriber Guarantee

In accordance with the decisions taken by the Authority and contained in the recommendations on issues relating to broadcasting and distribution of TV channel of October 1st, 2004 (paragraph 6.30) a clause has been added in the Interconnection Regulation prohibiting minimum subscriber guarantee where the distribution of signals is through an addressable system. In the draft this had not been specifically made applicable to all addressable platforms. It is now being made clear so as to be applicable to all addressable platforms including DTH, IPTV and such like and is also in accordance with the rationale of the earlier decision of the Authority as contained in the aforesaid recommendations. Some stakeholders have objected to such a clause on the ground that this would adversely affect their commercial freedom and that such issues should not be regulated or standardized. The reasons for imposing this restriction have been spelt out in the aforesaid recommendations in para 6.26 and the same are reiterated. Incentives for higher performance can always be given through volume discounting but the imposition of a minimum subscriber guarantee can defeat the introduction of new addressable platforms. This would adversely affect the subscribers who can get choice in an addressable platform. It would also adversely affect the industry which is plagued by disputes on subscriber base in the current non addressable regime: with addressability the scope for such disputes would become negligible if not vanish totally. Thus, it is in no one’s interest to put any hurdle in the way of the introduction of such addressability. Accordingly, such a regulation is necessary to speed up the very slow introduction of addressability in the market. The TDSAT in its judgment in Petition No. 136© dated July 14 2006 (ASC Enterprises vs. Star India) has also taken a similar view. Accordingly, the Authority sees no reason to change its earlier view and has decided that there should be such a prohibition of minimum guarantee clauses in all interconnection agreements where addressable systems are in place. The definition of addressable systems has been changed to cover all addressable platforms.”

The validity of the agreement is in question only on the premise that levy of minimum guaranteed amount was forbidden in terms of Regulation 6. Regulation 6, in our opinion, cannot be read in isolation. It has to be read conjointly with Regulation 5.1.

In terms of the provisions of the Indian Contract Act, two persons can enter into an agreement provided the same is lawful. What would render a contract unlawful is stated in Section 23 thereof.

It reads as under :- “Section 23 – What considerations and objects are lawful and what not The consideration or object of an agreement is lawful, unless – It is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.”

We have noticed heretobefore that the only contention raised by Mr.Ajay Kumar is that Clause 3.1 providing for the subscription fee payable @ Rs.10 lakhs p.a. being a minimum guaranteed clause is forbidden by law.

The Regulations subject to the provisions contained therein do not infringe upon the right of two parties to enter into an agreement voluntarily.

The word `Law’ would mean a law enacted by a legislature or by an authority competent therefor.

The prohibition contained in a subordinate legislation which would render the terms of contract void, which is otherwise valid, deserves strict construction.

Regulation 5 as indicated hereinbefore does not forbid any contract. It in fact gives freedom to the parties to enter into a contract. Such freedom to enter into a contract, however, is subject to Regulation 6.

We are of the opinion that the agreement in question per se is not illegal. We do not, however, intend to enter into the question as to the concept of flat fee or fixed fee and minimum fee in the present case being not necessary to do so. The learned counsel for the petitioner, himself submitted that we should ourselves determine a reasonable amount payable to the respondent. In absence of any material placed on record by the parties hereto, we cannot determine any amount which would appear was reasonable.

The contract in question is a commercial one. Indisputably the petitioner has not only entered into a contract with its eyes wide open but also as noticed heretobefore insisted on the activation of the IRD boxes. It not only approached this Tribunal for the said purpose; presumably it had approached the TRAI also.

If despite the aforementioned contract and despite the order of this Tribunal in terms whereof the decoder boxes supplied by the respondent were activated on or about 3.6.2010, in our opinion, it is idle to contend as has been done in the instant case that only because the petitioner has not rolled out the services, the contract cannot be given effect to.

The obligation on the part of the respondent as envisaged in Clause 2.1 thereof is merely to supply IRD boxes and activate the same as soon as the respondent performed its part of contract. The petitioner became obligated to discharge its own liability. If the petitioner did not carry out its roll out services, the respondent was not concerned therewith.

Our attention has been drawn to paragraph 20 of the Explanatory Memorandum issued by the TRAI, which has been noticed by this Tribunal in Appeal No. 3(C)/2010 entitled Zee Turner Ltd. vs. TRAI and Ors. (disposed of on 16.12.2010); from a perusal whereof it would appear that the TRAI while making Telecommunication (Broadcasting and Cable Services) (4th addressable system) Order 2010 noticed that one of the methods adopted by the service provider is a long term contract for payment of a fixed annual fee. The said order evidently has no application in the instant case.

In any event, the petitioner was bound to restore the benefit received by it to the respondent, even if the contract is found to be void, in terms of the provisions of Section 65 of the Indian Evidence Act.

According to Mr.Ajay Kumar the petitioner did not roll out its services as it did not receive the IRD Boxes of Sun TV Network which was essential for the purpose of launching the cable services. Obtaining of supply of signals of the channels of the Sun TV was not a pre-condition to the supply of signals by the respondent herein.

Clause 2.1 of the Contract provided for the obligations on the part of the broadcaster. Once the said obligations are satisfied, namely, to provide signals, we do not find any reason as to why while enforcing a commercial contract, this Tribunal would ignore the terms thereof.

Mr.Ajay Kumar would urge that the very fact that the petitioner in terms of the agreement was required to supply the details of the SMS and other informations which are closely connected with the Conditional Access System only, it is inconceivable in law that the petitioner should be asked to pay a lump sum amount per month by way of subscription charges and not on the basis of the report of the viewership generated through the system.

Reports as regards viewership as also the number of customers attached to the network of the petitioner are required to be furnished for many purposes, one of them being in the nature of the SLRs which are required to be furnished in terms of Clause 12 of the Regulations.

It is now a well-settled principle of law that for the purpose of holding negotiations at the time of renewal of the agreement, it is essential that the `Universe’ and/or SLR of the `Distributor’ of the TV channels is made known to the `Broadcasters’ so as to enable it to hold negotiation on a fair and reasonable basis. It is also necessary for the `Broadcaster’ to know about the growth of the Distributor of the TV channels. It is so provided also in Clause 8.1 of the Regulations.

The petitioner moreover keeping in view the factual matrix involved herein cannot also be heard to say it was impossible for it to roll out its services.

If the petitioner was to contend that the respondent was bound to enter into an agreement strictly in terms of the standard agreement, it should have approached this Tribunal immediately thereafter.

It acted upon the said agreement. It raised grievances that the IRD boxes had not been activated. If it was not in a position and otherwise unwilling to roll out its services, it is inconceivable as to why a petition was filed for a direction upon the respondent to activate the IRD boxes. Having taken benefits under the said agreement, the petitioner cannot be permitted to question the validity of a clause thereof. {See Shyam Telelink Limited v. Union of India, (2010) 10 SCC 165, and Union of India v. Assn. of Unified Telecom Service Providers of India, (2011) 10 SCC 543}

Admittedly, apart from paying the subscription fees for a month as also security charges for the IRD Boxes, the petitioner has not made any payments to the respondent. There cannot, therefore, be any doubt or dispute that it is a `defaulter’. The petitioner’s contention, that the said notices were illegal, therefore, in our view, cannot be sustained.

We may, however, notice that this Tribunal did not pass any interim order. An undertaking was given by learned counsel appearing on behalf of the respondent that supply of signals would not be discontinued. The petitioner has received supply of signals during pendency of this petition despite expiry of the agreement.

We do not know whether the petitioner has made any payment for receiving the supply of signals or not during pendency of this petition. However, the respondent has not filed any counter-claim.

Mr.Ajay Kumar would urge that this Tribunal may fix a reasonable amount. The agreement in question being a commercial document, we are afraid that it is not possible for us to interfere with the terms thereof, without any valid ground.

No order, as is well-known should be passed only on the basis of sympathy/ sentiment.

Moreover, in this petition we are not concerned with the quantification of the amount of subscriber fee payable by the respondent.

In this case we are not concerned furthermore of the actual amount payable by the petitioner to the respondent. The respondent for the recovery of the said amount may file an appropriate petition. If the petitioner is a defaulter for whatever amount it may be the respondent cannot be prohibited from enforcing its statutory right in terms of the Regulations; Albeit in any terms of the contract Albeit subject to complying of the provisions contained in 4.1 and 4.3 of the Regulations. We are herein only concerned with the legality of the impugned notices.

CONCLUSION

For the reasons aforementioned, we do not find any reason to interfere with the impugned notices.

This petition is dismissed with costs. Advocate’s fee assessed at Rs.50,000/-. The respondent shall be at liberty to take such steps as it may think fit and proper for enforcing its claim.

(S.B. Sinha) Chairperson (P.K. Rastogi) Member January 18, 2012 `ns’