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'The conduct of the transaction needs to be seriously investigated'

Editor's note: What follows, is the full text of the legal opinion tendered by Additional Solicitor General Kirit N Rawal, on April 15, 1999, regarding the agreement entered into between Prasar Bharti and an alliance of four partners, with respect to television rights for international sporting events. Certain lines have been italicised for emphasis -- please note that the emphasis is ours.

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>1: The Querist entered into an agreement for exclusive marketing of live sports on the 24th of March, 1998 with a Consortium of Stracon India Pvt. Ltd. (hereinafter referred to as "Stracon")., and Creative Eye Ltd. , who are referred to in the Agreement as an Alliance. Subsequently, Nimbus Communications Ltd. (hereinafter referred to as "Nimbus") and UTV also joined the alliance.

The said Agreement provided for exclusive rights being given to the members of the Alliance to provide for daily telecast of all major international sports held in India, and abroad involving Indian teams. Subsequently, a further Agreement dated 21.9.1998 was entered into in the name of style "Agreement for Financial Participation and Marketing". The said Agreement dated 21.9.1998 is surprisingly signed on 3rd of November, 1998 by Stracon with the date altering to 3rd December, 1998, on 5th of December by UTV and on 8th December by Door Darshan. In the intervening period there were arbitration proceedings between Nimbus and Stracon which are still pending but an interim Award has been passed therein.

By letter dated 9.4.1999, my attention has been drawn to various breaches of the Agreement by the Alliance. the matter was also discussed in conference with the Chief Executive Shri Kejriwal. On the basis of the documents provided at the discussion, my opinion is sought on the following questions :

"In view of the conduct of the Alliance subsequent to the Agreement dated 24.3.1998, would it be appropriate to terminate the Consortium Agreement of 24th March, 1998".

At the very out-set, it is to say the least surprising, that an agreement of the nature covered by this opinion has been entered into without any process of open bidding or advertisement or public participation. There are number of players in the field and a public body like Prasar Bharati, which clearly falls within the definition of "other authority' contemplated by Article 12, would be duty bound to follow the normal practice of inviting offers from all potential participants. I was informed that the normal policy of the Querist is to invite public offers from potential participants and there is no justification for the departure from such practice. I am informed that negotiations were held with 6 parties, including the 4 who form the Consortium & ultimately the Consortium Agreement was entered into with only four of the parties without any reason being specified in the file. Thereafter, the agreement dt. 24.3.98 was entered into. There are also no substantial reasons why the normal route of inviting offers from the public or going in for competitive bidding needed to be departed from. It is certainly open to an authority to part with this process of open bidding if justified by the facts and circumstances of the case. No such facts have been pointed out to me and in any case, I am informed that there is no conscious decision taken by any competent authority to depart from the normal route of open competitive bidding and straightaway going for a negotiated agreement with the Consortium. In this behalf, reference can also be made to the judgment of the Hon'ble Supreme Court in Sterling Computers Ltd. Vs. M & N Publications Limited reported in (1993) 1 SCC 445 wherein the Supreme Court has observed that for public bodies entering into commercial contracts with public ramification, auction and open bidding should be the rule and any departure from the same should be justified on rational grounds. Therefore, in my opinion, the very genesis of this agreement is contrary to the canons of acceptable conduct of a Public Authority.

In the case of opinion sent to me, reference has been made to a number of breaches by the members of the Alliance. They have competed in a clear breach of the terms of the agreement and most importantly, they have not been able to comply with the guarantee given in clause 4 of the agreement, arranging for broadcasting of minimum number of events. Clause 6 talks of individual member's responsibility and, when one of the members may have complied with this responsibility and others may not have done so, then Clause 6 permits other members to take up the events. However, clause 14 specifically makes the responsibility of the members of the Alliance joint and several. It is therefore clear that the breach of the guarantee by any member of the Alliance as per clause 4 and 6, would make all other members also equally liable for the breach as per clause 14.

I have further been informed that commercial terms have been breached and also disputes have erupted inter-se between the Alliance members which has resulted in arbitration proceedings and even an interim Award. Efforts of conciliation have failed and there has been substantial loss of revenue to the Querist.

More shocking to me, however is the Agreement for Financial Participation and Marketing which is stated to have been entered into on 21.9.1998. That Agreement mentions in clause (h), of an order of learnedArbitratoro Dr. A.M. Singhvi when the first interim order of the Arbitrator was passed in October 1998, i.e. after the alleged date of agreement dated 21.9.1998. Further, I have been given 3 xerox copies of the Agreement. One copy shows that it has been signed by Stracon on 3.11.1998 without the signature of UTV. A third copy shows the signature of all the 3 persons with different dates of 3rd December, 5th December and 8th December. What is the exact date of signature of this document and in what circumstances did clause (h) find place in the document are circumstances which create grave doubt about the whole agreement. I have also been shown an earlier draft of this Agreement which provided that the surplus has to be shared in the ratio of 70% for the Querist and 30% for the Consortium. However, in the agreement it has been reduced to 50:50. Further, under sub-clause (3) of clause F, withholding tax was to be borne by the Consortium. Clause 7 of the Agreement dated 24.3.1998 provided that the final marketing arrangements will be worked out on a case to case basis, whereas the Agreement dated 21.9.1998 provided for covering both, the Sharjah Cup as also the World Cup. In other words, the arrangements seem to have been dovetailed to suit the interest of the Alliance in spite of the occurrence of various breaches committed by the Alliance, mentioned in the letter dated 9.4.1999 of the Chief Executive of the Querist.

In these circumstances, the question which arises for my consideration is the course of action to be adopted. Clause 12 of the Agreement of 24.3.1998 provides for disqualification of the Member who is in default with DD. Obviously, therefore, if all the members conduct themselves in a manner which justifies suspension, it would certainly be open to the Querist to suspend the arrangement contemplated by the Agreement of 24.3.1998 and work out alternative arrangements pending the resolution of disputes by inviting fresh offers from potential participants.

In view of the persistent breach of the Agreement dated 24.3.98, it would also be open to the Querist to terminate the Agreement with the Alliance. This is all the more so since the Alliance itself seems to have withered away with inter-se differences of opinion amongst the Alliance members. However, since the Agreement dated 24.3.98 is the subject matter of arbitration proceedings pursuant to the order of the Bombay High Court, it would be appropriate for the Querist to invoke Clause 12 of the Agreement dated 24.3.98 and suspend the operation of the Agreement with regard to all the members of the Consortium. After suspension, the Querist should invite fresh offers through an open bidding process so as to maximize the returns for the Querist, for all future events including the World Cup 1999. Further, the entire conduct of the transaction in question needs to be seriously investigated, preferably by referring the matter to an impartial agency like the Central Vigilance Commission or C.B.I. as considered appropriate.