Madras High Court Upholds Arbitral Award, Enforces Guarantee Deed in Film Distribution Dispute

M/s Mediaone Global Entertainment Limited held liable for Rs. 1.23 Crores under guarantee deed despite not being a signatory to the principal agreement.

In a significant judgment, the Madras High Court has upheld the arbitral award favoring M/s Vishnu Associates, enforcing the liability of M/s Mediaone Global Entertainment Limited under a guarantee deed for a film distribution agreement. The court dismissed Mediaone's challenge to the arbitral award, which required them to compensate Vishnu Associates Rs. 1.23 Crores, along with interest, due to losses incurred in the distribution of the film "Maatran."

The dispute arose from a distribution agreement between Vishnu Associates and Eros International Media Limited, where Vishnu was to distribute the Tamil and Telugu versions of the film in Karnataka. Due to civil unrest related to the Cauvery water dispute, the film's release was impeded, prompting Vishnu Associates to invoke a force majeure clause and seek a refund of Rs. 2 Crores paid under the agreement.

Mediaone, through its Director Dr. J. Murali Manohar, intervened and executed a guarantee deed assuring compensation for any shortfall. However, following the film's poor performance, Vishnu Associates could not recoup their investment, leading to the invocation of the arbitration clause.

Mediaone contested the arbitral award on grounds including the non-binding nature of the agreement due to their non-signatory status, the lapse of the guarantee upon the film's Tamil version release, and insufficiency of evidence for quantifying losses. The court, however, rejected these arguments, emphasizing the explicit reference to the distribution agreement in the guarantee deed and Mediaone's actions indicating acceptance of the agreement's terms.

Justice N. Anand Venkatesh underscored the validity of the guarantee deed despite the principal debtor not being a signatory, highlighting implied agreement and the petitioner's acceptance of arbitration through previous court submissions. The court noted that the guarantee deed was an absolute and unconditional commitment, binding Mediaone to the arbitration clause within the original distribution agreement.

The judgment reiterates the enforceability of guarantee deeds in arbitration, even when the guarantor is not a signatory to the principal contract, provided there is an implied agreement or acceptance of terms.

Bottom Line:

Arbitration and Conciliation Act, 1996 - Liability under guarantee deed upheld - Guarantee deed executed by petitioner valid despite principal debtor not being a signatory - Arbitration clause binding on petitioner due to explicit reference in guarantee deed and actions taken by petitioner indicating acceptance of agreement terms.

Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 34, Contract Act, 1872 Section 126

M/s.Mediaone Global Entertainment Limited v. M/s.Vishnu Associates, (Madras) : Law Finder Doc Id # 2816636