SUPER CASSETTES INDUSTRIES PRIVATE LIMITED vs RELIANCE ENTERTAINMENT STUDIOS PRIVATE LIMITED

$~42
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 04th April, 2024
+ CS(COMM) 840/2023, I.A. 6629/2024
SUPER CASSETTES INDUSTRIES PRIVATE LIMITED
….. Plaintiff
Through: Mr. Amit Sibal, Senior Advocate with Mr. Harsh Kaushik, Mr. Sanjeevi Sheshadri, Mr. Darpan Sachdeva and Ms. Srishti Mishra, Advocates.
versus

RELIANCE ENTERTAINMENT STUDIOS PRIVATE LIMITED
….. Defendant
Through: Mr. Saurabh Kirpal, Senior Advocate with Ms. Malvika Kapila Kalra,
Ms. Tanwangi Shukla and Ms. Adya Rajkotia, Advocates for Defendant No. 1.
Mr. Sandeep Sethi, Senior Advocate with Mr. Thomas George, Ms. Tanvi Sinha, Mr. Sidharth Chopra,
Mr. Devvrat Joshi, Ms. Neeti Nihal and Ms. Riya Kumar, Advocates for Los Gatos.
Ms. Shyel Trehan, Mr. Raj Duggal, Mr. Raghav Kumar, Mr. Rohan Poddar, Mr. Aditya Ladha and
Ms. Ganeha Gambani, Advocates for Window Seats Films LLP.
Mr. Sidharth Joshi and Mr. Vikrant Ballav Sharan, Advocates for D-7.

CORAM:
HON’BLE MR. JUSTICE SANJEEV NARULA
JUDGMENT
SANJEEV NARULA, J. (Oral):

I.A. 6607/2024 (on behalf of the Plaintiff seeking injunction restraining the Defendant from releasing future films along with supporting affidavit)

1. The Plaintiff, Super Cassettes Industries Private Limited,1 has now, for the second time, filed the instant application seeking to prevent the Defendant, Reliance Entertainment Studios Private Limited,2 from releasing/ exhibiting/ broadcasting cinematographic films. SCIPL claims a lien and charge on the revenues generated by these films, asserting a consequential right to seek an injunction emanating from the Loan Agreement dated 19th May, 2021,3 and other ancillary agreements between the parties. SCIPL further alleges non-compliance by Reliance with a prior undertaking given to this Court, suggesting that Reliance is proceeding with the release of new films, despite a commitment to the contrary.

FACTS GERMANE TO THE PRESENT CONTROVERSY
2. SCIPL, as a financer of production and distribution of cinematographic films, extended a loan of Rs. 268 crores to Reliance under the Loan Agreement towards production and other related expenses in respect of eleven cinematographic films in the Hindi language. The monetary stipulations of the Loan Agreement underwent modifications through exchange of communications between the parties, with the last correspondence dated 17th March, 2023.4 According to this communication, SCIPL had disbursed an amount of Rs. 168 crores till the date of issuance of the letter towards production of six films, which was recoverable from Reliance along with the cost of capital.
3. SCIPL contends that Reliance has defaulted in repayment of the outstanding amounts due under the Loan Agreement, constraining them to institute the present suit for recovery of an amount of Rs. 60,23,73,358/-, allegedly due as on 16th November, 2023. This figure encompasses the principal amount due, cost of capital, and revenue components in accordance with the terms set forth in the Loan Agreement. In light of this alleged default, SCIPL asserts a lien and charge over any future films that Reliance plans to produce, either independently or in collaboration with others. Consequently, SCIPL seeks the Court’s intervention to prohibit Reliance from releasing any such films until the afore-mentioned sum is fully recovered, basing this request on the stipulations of the Loan Agreement, as reinforced by the March letter.
4. At the stage of issuance of summons and notice in the application under Order XXXIX Rules 1 and 2 of the Code of Civil Procedure, 1908 [I.A. 23284/2023], Mr. Saurabh Kirpal, Senior Counsel for Reliance, demonstrating a spirit of fairness and acknowledging the longstanding relationship between the parties, assured the Court that Reliance would refrain from releasing any cinematographic films and from transferring any rights related to such films for a period of two weeks therefrom. He further committed that should Reliance contemplate undertaking either of these actions within the specified timeframe, it would first seek the Court’s permission through a formal application. The order dated 23rd November, 2023 thus notes as follows:
“40. However, Mr. Saurabh Kirpal, ld. Sr. Counsel, fairly submits that in view of the long association between the Defendant and the Plaintiff, the Defendant shall not release any cinematograph films for the next two weeks and shall not transfer any rights in any cinematograph films for the next two weeks. If the Defendant wishes to do so, it would approach the Court by way of an application.”

5. The afore-mentioned commitment made by Reliance was extended on 19th December, 2023, and continues to bind them.
6. In this background, SCIPL has raised concerns that Reliance is gearing up for release of five films enlisted in paragraph No. 15 of the application, where they act as the producers. These releases are anticipated in the upcoming months. However, the focal point of SCIPL’s apprehension is the film “Amar Singh Chamkila”, slated for release on Netflix on 12th April, 2024. Given the imminent release date, the Court’s immediate attention has been directed towards determining whether relief should be granted to restrain the release of the said film.
7. During the initial stages of the proceedings, the Court closely examined SCIPL’s plea to prevent the release of the film, with the parties’ pleadings thoroughly addressing this issue. However, in a strategic turn of events, during the hearing held on 01st April, 2024, SCIPL, represented by Mr. Amit Sibal, Senior Counsel, revised their stance. Acting on specific instructions, Mr. Sibal narrowed the relief sought to specifically demand the deposit of Rs. 42.16 crores, which represents the amount received by Reliance from Los Gatos Production Services India LLP, an affiliate of Netflix Inc.5 This request met with vigorous opposition from Mr. Kirpal, who contended that such a demand exceeded the scope of the instant application, emphasizing the lack of opportunity provided to Reliance to formally respond to this new angle of the case. Consequently, the Court granted Reliance an opportunity to articulate their position more comprehensively by submitting an additional reply or affidavit.
8. Having received the additional affidavit submitted by Reliance, the Court is now to adjudicate upon SCIPL’s request for an order directing Reliance to deposit the afore-mentioned sum of Rs. 42.16 crores with the Court. This matter has been thoroughly deliberated, with the Court engaging in extensive hearings involving the Senior Counsel for SCIPL, Reliance, and Netflix, in addition to the counsel for Window Seat Films LLP.6 The involvement and perspective of WSF will be detailed in the succeeding paragraphs.

PARTIES’ CONTENTIONS
9. With the factual narrative having been set out, the Court proceeds to succinctly note the parties’ submissions, bringing to the fore highly contentious issues, which, for reasons that will be delineated in the relevant section, the Court finds itself unable to resolve at this interim stage.

On behalf of SCIPL
10. Mr. Sibal presents the following arguments for obtaining the desired relief:
10.1. Under the Loan Agreement as well as the March letter, SCIPL holds a paramount lien and charge on all revenues generated by Reliance from any future films, whether produced solely, or along with a third-party. In addition to the lien and charge, Clause 9 of the March letter grants SCIPL the right to seek injunctive relief to prevent Reliance from releasing any films until the repayment of the dues in full.
10.2. The film Amar Singh Chamkila has been produced by Reliance through WSF, a limited liability partnership,7 of which, Reliance is one of the partners, holding approximately 99.99% of the capital share. Thus, SCIPL has a right to enforce their lien and charge over the revenues to be generated by the film. To buttress this submission, Mr. Sibal points to the following promotional materials of Amar Singh Chamkila, where Reliance has been identified as a producer: (a) Netflix India Slate 2024 (updated as of 29th February, 2024) displayed on Netflix’s website, and (b) statement from the Group CEO of Reliance, Mr. Shibashish Sarkar, made in a LinkedIn post following the trailer launch party hosted by Netflix, where he described Amar Singh Chamkila as “Reliance Entertainment’s next, which is coming soon only on @Netflix”.
10.3. Moreover, in a civil suit instituted by third parties before the Civil Judge, Senior Division, Ludhiana [Civil Suit No. 2915/2023],8 Reliance has admitted in their reply to an application under Order XXXIX Rules 1 and 2 that the film has been produced by them.9 Although Reliance asserts that they had filed the pleadings in the Ludhiana suit on behalf of WSF, this stand is belied from the averments made in the reply and accompanying documents. For instance, in the reply, Reliance has stated that the Ludhiana suit is not maintainable on account of non-joinder and misjoinder of parties as WSF has not been made a party to the suit. The said pleadings are also supported by a Board Resolution in favour of Reliance’s Authorized Representative. Further, the order of 09th May, 2023 passed by the Civil Judge in Ludhiana suit also records that Amar Singh Chamkila has been produced by Reliance, who was arrayed as Defendant No. 2 in that case.
10.4. Thus, Reliance’s assertion that the film Amar Singh Chamkila has been produced by WSF is contradicted by the documents placed on record and the inconsistencies in their submissions before this Court and the Civil Judge, Senior Division, Ludhiana. Regardless of these contradictions, the lien and charge held by SCIPL, as provided for in the Loan Agreement and March letter, applies to all future films produced by Reliance either solely or in collaboration with third parties. Consequently, the argument that WSF is the actual producer holds no significant weight or consequence in the context of SCIPL’s claim. The primary intention behind incorporating the relevant clause in the Agreement was to guarantee that any revenues generated by Reliance’s film-related activities would first be allocated towards the repayment of its debt to SCIPL. This stipulated right remains unaffected by WSF’s role as the producer, and therefore, the plea of WSF being the producer is immaterial and inconsequential.
10.5. The nearly total contribution of 99.99% of Reliance to the capital of WSF, their LLP, blurs the distinction between the two entities, challenging the notion that WSF and Reliance are separate corporate entities. Reference is made to the judgment of the Supreme Court in Arcelor Mittal India Private Limited v. Satish Kumar Gupta and Ors.,10 where the Court examined the interrelations of entities within a group to ascertain their actual operational and financial unity.
10.6. Reliance’s defence hinges on a License Agreement dated 25th November, 2022,11 whereunder WSF ostensibly granted Reliance the right to sub-license WSF-produced content to third parties, with Reliance purportedly earning merely a 2% commission and no share in the licensing fee. This arrangement, post-dating the Loan Agreement between SCIPL and Reliance, is perceived by SCIPL as a strategic move to side-step Reliance’s pre-existing commitments under the Loan Agreement, thereby undermining SCIPL’s claims. Furthermore, the portrayal of Reliance as merely a ‘licensee’ is contradicted by the Content License Agreement dated 18th July 2022, and its amendment on 04th December, 2022 concerning the licensing rights for the movie Amar Singh Chamkila.12 Specifically, the interplay between Clause 2 and Clause 8.1 of this agreement suggests a principal-to-principal relationship between Netflix and Reliance regarding Amar Singh Chamkila, implicitly affirming Reliance’s role as the film’s producer. This substantiates SCIPL’s position to enforce their lien and charge over the revenues of the film.
10.7. Under Section 2(uu) of the Copyright Act, 1957, the designation of ‘producer’ is attributed to the person who takes the initiative and responsibility for making the work. Thus, notwithstanding the structure of corporate affairs, since Reliance has initiated the production of the film, as admitted in the pleadings in Ludhiana suit, and executed the relevant Agreements, they would be regarded as the ‘producer’.
10.8. The forthcoming release of films contravenes Reliance’s unqualified undertaking before the Court to not release new films or transfer any rights therein without the Court’s leave, as recorded in orders dated 23rd November, 2023 and 19th December, 2023. In the affidavit disclosing the receivables from third parties in respect of works forming subject of SCIPL’s lien, filed on 07th December, 2023 pursuant to court directions, Reliance has made no mention of the involvement of WSF in production of film; they have simply submitted that the film is not produced or co-produced by them.
10.9. Given the conduct of Reliance, as elucidated above, SCIPL strongly apprehends that if a direction to deposit the amount received from Netflix is not issued to Reliance, in the event a decree were to be issued in favour of SCIPL, its execution would be rendered futile as Reliance would have expended the money received by them. In light of the huge sum of outstanding dues and Reliance’s admission that SCIPL possesses a right to lien over future films, whether produced by them exclusively or with another party, the tests of balance of convenience and irreparable harm are clearly satisfied in the instant case. In support, Mr. Sibal relies on the judgment in Rotopacking Materials Industry v. Ravinder Kumar Chopra and Ors.13

On behalf of Reliance
11. At the outset, Mr. Kirpal urges that the relief of deposit of the amount is in the nature of a direction of attachment before judgment under Order XXXVIII Rule 5 of the CPC, which requires specific foundational pleadings in the application. He references the judgments in Raman Tech and Process Engg. Co. and Anr. v. Solanki Traders,14 and BMW India Pvt. Ltd. v. Libra Automotives Pvt. Ltd. and Ors.,15 to contend that sans explicit factual circumstances necessitating a direction under Order XXXVIII Rule 5, no relief can be accorded to SCIPL. Without prejudice to the above, he argues that SCIPL does not meet the criteria required for the relief sought. Mr. Kirpal’s contentions are summarized below:
11.1. The film Amar Singh Chamkila has been produced by WSF, independently from Reliance. It was WSF that engaged in negotiations and successfully secured a contract with the family members of the late Mr. Amar Singh for rights to produce a biopic on him.16 Moreover, the Indian Film and TV Producers Council has recognized WSF as the producer of Amar Singh Chamkila, endorsing the film’s publicity designs in favour of WSF. This endorsement facilitated WSF’s contractual arrangements with artists, music composers, and other contributors. Notably, in the film certification application form required for the exhibition of a film, the producer is listed as Imtiaz Ali, who is identified as a partner of Windows Seat Picture LLP, a shareholder entity of WSF.
11.2. Under the License Agreement, Reliance has been authorized by WSF to grant sub-licenses to other entities for films produced by WSF. In that capacity, Reliance executed the Netflix Reliance Agreement. This arrangement is not novel to the situation and in fact, Reliance has similar arrangements with different entities for other films of WSF. As a licensee, Reliance collects license fee from the sub-licensees and transmits the same to WSF, in accordance with their mutual agreement. In this transaction, Reliance retains only a 2% commission of the license fee as compensation for their services. Therefore, the receipts in question are not directly attributable to Reliance, precluding SCIPL from laying any claim over them.
11.3. WSF operates as a Limited Liability Partnership,17 a distinct legal entity owning all intellectual property rights to the films it produces, including Amar Singh Chamkila. This LLP was formed under an agreement dated 16th May 2018 between Reliance Big Entertainment Private Limited and Window Seat Picture Company LLP. Reliance later became a partner in WSF through a Supplementary Agreement dated 06th January 2021. The establishment of WSF predates both the Loan Agreement and the March letter (dated 19th May, 2021 and 17th March, 2023, respectively) between SCIPL and Reliance. As such, highlighting the timeline and legal structure to assert WSF’s independence and primary rights over the produced films, Reliance maintains that WSF was not created as a mechanism to circumvent SCIPL’s claims.
11.4. In the Ludhiana suit, Defendant No. 2 was identified as “Reliance Entertainment, Window Seat Films” and therefore, the pleadings filed in the Ludhiana suit are being misconstrued. Given the aforesaid description of Reliance as a partner of WSF, it cannot be argued that Reliance’s stand, in the capacity of a partner in the Ludhiana suit, has been inconsistent.
11.5. Notwithstanding the above, the Copyright Act ascribes the role of a producer to a person who takes the initiative and responsibility of making the film. The abundant documentation filed on record demonstrates that WSF initiated the production of work, and is thus, the producer in the legal sense.
11.6. The amount in question, which was received by Reliance on behalf of WSF from Netflix, has been transmitted to WSF. Reliance has, through an additional affidavit filed pursuant to leave granted on 01st April, 2024, given full details of the money received from Netflix. Further, WSF has also filed a statement of accounts detailing the heads towards which the amount of nearly Rs. 42.16 crores has been expended. This makes it amply clear that the film in question has been funded by Netflix. Therefore, any orders of this Court at this juncture for deposit would severely prejudice not just Reliance, but also severely affect the rights of WSF and Netflix.
11.7. The lien clause provides that SCIPL has the first and foremost lien and charge on the revenues of future films produced/ co-produced by Reliance. Although Reliance is not obligated to do so, given the association between the parties, Reliance has no objection to issuance of direction to deposit the commission of 2% earned by them under the License Agreement and the profit share of 50% that would accrue to their name as a partner of WSF.

On behalf of Netflix and WSF
12. Mr. Sandeep Sethi, Senior Counsel representing Netflix, and Ms. Shyel Trehan, counsel for WSF, joined the afore-noted submissions of Mr. Kirpal. In addition, Mr. Sethi argues that the Netflix Reliance Agreement was executed prior to the exchange of March letter between SCIPL and Reliance, and therefore, cannot prejudice the rights of Netflix. Ms. Trehan has also handed over copies of the opening credits and certificate issued by the Central Board of Film Certification for the song “Bol Mohabbat” featured in the film, which refers to Window Seat LLP – Mumbai as the producer.

ANALYSIS AND FINDINGS
13. The Court has considered the afore-noted contentions and also perused the material placed on record.

The relevant contractual provisions
14. The controversy pivots around interpretation and application of the clause granting SCIPL a lien and charge over the future films’ revenues. Thus, for a thorough understanding, ease of reference, and contextual clarity, it is apposite to quote the relevant sections of the Loan Agreement and the March letter:
Of the Loan Agreement

“1.12. “Revenues” shall mean any and all incomes, recoveries and realizations derived, if any, from exploitation of the exploitation Rights of each of the Films (including exploitation of the Digital Rights, Music Rights and Satellite Rights and Theatrical Revenues of each of the Films)throughout the entire world after deduction of all distributors commission, all taxes, levies, entertainment tax, local body taxes, GST, or any other statutory deductions, and any tax withheld or deducted at source from such amounts collected by the Producer in RE Account (defined below). Revenues shall also include all incomes and monies earned from subsidies, rebates, tax credits, music consideration (as stated herein below) and other ancillary rights. Revenues shall also include monies earned from exploitation of the Derivative Rights of each of the Films.

xx-xx-xx

5. LIEN
5.1 It is specifically agreed by the Producer that until SCIPL receives the Refundable Amount of a particular Filmie. Loan Amount for a particular Film and cost of capital on the Loan Amount for such particular Film, SCIPL shall have the first and foremost lien and charge on Revenues of such particular Film. If the Refundable Amount of such particular Filmie. Loan Amount for such particular Film and cost of capital on the Loan Amount for such particular Film is not recovered against the Revenues of such particular Film, then SCIPL shall have first and foremost lien and charge on the Revenues of future films of the Producer (whether produced solely by the Producer and/or with any third party) Such future films shall also include the other Films.”
[Emphasis Supplied]
Of the March letter

“9. Until the receipt of entire SCIPL Refundable Amount 1 and 2 as above including shortfall/deficit amounts and /or change in amounts as mentioned in Point 8 hereinabove, SCIPL Lien under Clause 5 of the said Agreement shall remain valid, subsisting and enforceable in favour of SCIPL. SCIPL shall have first and paramount lien and charge on Revenues of each of the particular 6 (six) Films until recovery of the entire SCIPL Refundable Amount (defined in Point 5 above) attributable to such particular 6 (six ) Films and in case of any shortfall in the recovery of such SCIPL Refundable Amount (defined in Point 5 above) and/or non-payment by S&D Vendors (for any reason whatsoever) as per their respective S&D Letters mentioned in Point 1.2 above) an/or amounts due under Point 8 above, SCIPL have first, foremost and paramount lien and charge on the Revenues of such other balance Films and future films of RE (whether produced solely by RE and /or any third party). Such future films shall also include the other 5 (five) Films as defined in the Agreement. Additionally, SCIPL shall also have first, foremost and paramount lien and charge on the revenues / incomes to be received from the past films made, released and sold by Reliance. SCIPL shall have all the rights and remedies under the law to exercise its SCIPL Lien including seeking injunction on the Film if SCIPL does not receive its entire SCIPL Refundable Amount 1 and 2 and/or any amounts due under Point 8 above.”

Who is the producer of the film?
15. The determination of the film’s producer is the primary question for resolving this dispute. Under the Copyright Act, a producer is someone who takes the initiative and responsibility for creating a work. Mr. Sibal positions Reliance as the film’s producer by emphasizing their financial and operational involvement in the process of film production and the stand taken in the pleadings in Ludhiana suit. However, Mr. Kirpal presents a compelling counter-narrative that WSF, a distinct entity where Reliance is a partner, stands as the film’s actual and legally recognised producer. His claim is supported by substantial documentation, including (a) the License Agreement, which permits Reliance to sub-license content produced by WSF, (b) the official recognition of WSF as the producer by Indian Film and TV Producers Council, (c) mention of WSF as a producer in the opening credits, and (d) the film certification application naming Imtiaz Ali, a partner at Window Seat Picture LLP and a stakeholder in WSF, as the producer. It is also highlighted that WSF was responsible for negotiating and securing the rights to the biopic, indicating its role in initiating production. Additionally, the nature of Reliance’s financial involvement – primarily receiving a commission from sub-licensing – suggests their role is more of a facilitator than that of a primary producer. Given these complexities, a straightforward identification of Reliance as a producer is obscured, requiring further detailed examination, that is beyond the scope of this hearing. At this stage, while it cannot be definitively concluded that Reliance is the sole and exclusive producer, the evidence presented prima facie indicates that WSF is the actual and legally recognized producer of the film “Amar Singh Chamkila”.

Effect of the pleadings filed by Reliance before the Ludhiana Civil Court
16. At this point in the Court’s deliberations, it is crucial to address Mr. Sibal’s contention based on the pleadings filed by Reliance before the Ludhiana Civil Court. Mr. Sibal argues that these pleadings unequivocally identify Reliance as the producer of the film. However, Mr. Kirpal counters this assertion by highlighting discrepancies in how Reliance was identified in the memo of parties of Ludhiana suit. He points out that the manner in which Reliance is described in conjunction with WSF, does not conclusively establish them as the sole producer. The Court finds that while these discrepancies in the reply filed by Reliance in Ludhiana suit are significant, they alone are not sufficient to definitively identify Reliance as the exclusive producer, especially when considered against the broader array of documentary evidence produced, particularly, the unequivocal designation of WSF as the producer in the documents of Central Board of Film Certification. Therefore, the conflicting representations and comprehensive documentary evidence presented require careful interpretation, and without further evidence from the parties, the Court cannot conclusively determine Reliance as the exclusive producer of the film based solely on the pleadings filed before the Ludhiana Civil Court.
17. Furthermore, SCIPL’s argument that WSF is merely an alter ego of Reliance, suggesting that the Court should apply the doctrine of piercing the corporate veil to reveal the true nature of the LLP, does not find sufficient justification at this preliminary stage. The legal threshold for piercing the corporate veil, typically involving proof of fraud or improper conduct, is high and not readily surmountable on the basis of the current record. There is no substantial basis for the Court to conclude that there exists such unity of interest between Reliance and WSF that their separate corporate personalities have merged, or to suggest that WSF was established or employed primarily to evade Reliance’s legal and contractual obligations. Pertinently, the Court’s focus is narrowly fixed on SCIPL’s request for an order directing Reliance to secure the loan amount by making a deposit before the full adjudication of the suit. Based solely on the documents and facts presented, it cannot be concluded that WSF, established prior to the signing of the Loan Agreement, was created as a sham entity by Reliance to evade the contractual obligations stipulated in the Loan Agreement and the March Letter. Consequently, at this stage, the presumption must be that the film is being produced by WSF.

Reliance’s role in film production.
18. This brings us to the issue surrounding the structure of WSF. This partnership comprises two principal members: Reliance and Window Seat Picture Company LLP, with Mr. Imtiaz Ali, a key figure serving as the founder/ promoter of WSF and also the Director of the film Amar Singh Chamkila. Given that Reliance holds a 50% share in the profits of the LLP, it is reasonable to infer that the film in question is being produced by Reliance, in partnership with another entity. This involvement suggests a collaborative production model, rather than Reliance or WSF acting in isolation. Thus, while WSF is officially recognized as the producer, Reliance’s significant stake and profit-sharing capacity is indicative of their involvement in the film’s production activities.

Can Clause 9 of the March letter bind WSF?
19. Next, we must assess the enforceability of Clause 9 from the March letter vis-à-vis the doctrine of privity of contract. This fundamental legal principle, stemming from the Indian Contract Act, 1872, and supported by common law jurisprudence, dictates that only parties to a contract are bound by its terms and have the standing to enforce its provisions. Clause 9 of March letter specifies that SCIPL shall have a lien and charge on the balance and future films of Reliance, whether produced solely or in conjunction with a third-party. However, this clause can bind Reliance, and not any third parties who have not explicitly agreed to these terms. The rights of Window Seat Picture Company LLP, which is an equal partner with Reliance in WSF, cannot be ignored. They are not a signatory to the Loan Agreement between SCIPL and Reliance, and thus, under the doctrine of privity, they are not automatically subject to its stipulations, including those articulated in the March letter. Therefore, while SCIPL may contend that its rights to prior claims over the film’s revenues are clear and should not be compromised, it remains incumbent upon SCIPL to demonstrate that these rights extend over third-party operations, especially in a scenario where these third parties have not consented to, or are not aware of such encumbrances. This, too, requires further evidentiary support to confirm the applicability of SCIPL’s lien in the context of the WSF’s shared production responsibilities.

Whether the right of lien or charge can be extended to amounts received from Netflix

What are the funds received from Netflix?
20. The Court now proceeds to ascertain the next pertinent issue of the characterisation of the amount over which SCIPL seeks to enforce a lien or charge. These funds originate from Netflix and are channelled through a series of contractual arrangements that must be thoroughly understood. Under the License Agreement executed on 25th November, 2022, Reliance was granted authority by WSF to sub-license to third parties the rights to content produced by WSF. According to this Agreement, Reliance was entitled to retain a commission of 2% on these payments. Following this, Reliance entered into a Content Licensing Agreement with Netflix on 04th December, 2022 to sub-license exclusive non-theatrical rights of the film Amar Singh Chamkila for a total consideration of Rs. 45,10,00,000/-.
21. Netflix began disbursing the agreed sum in tranches starting December 2022. These payments were initially received by Reliance and then transferred to WSF, ostensibly to fund the film’s production. This transaction pattern from Netflix to Reliance and subsequently to WSF, highlights a pivotal point – the payments received are not merely revenues in the traditional sense, but are also purposed for production expenses. They are not clear-cut profits, but are intermingled with production costs, illustrating the complex financial structure underpinning modern film production and thus, a simple demarcation of Reliance’s revenues from these Netflix funds is not feasible, even if one were to assume that Reliance is an equal partner with WSF in the film production.

SCIPL’s lien or charge over the Netflix funds
22. Next, we must analyse whether SCIPL enjoys a legitimate right to assert a lien over the amounts received from Netflix. SCIPL anchors its claim to Clause 5 of the Loan Agreement in conjunction with Clause 9 of the March Letter, which together establish a framework for the imposition of a lien or charge. They argue that since the loan amount remains outstanding, they are justifiably entitled to activate their lien and/or charge and enforce the same. Clause 9 referred above distinctly creates a “first and paramount lien and charge” in favour of SCIPL not only on the revenues of specific films forming the subject matter of the agreements, but also on the proceeds from other balance films and future productions involving Reliance, irrespective of any third-party collaborations. However, an intricacy emerges since this charge or lien is sought to be enforced on the revenues from the collaborative production of the film under scrutiny. The challenge, therefore, lies in reconciling SCIPL’s charge with the operational and contractual realities dictating the film’s production and revenue flow. Thus, a thorough examination of the contractual relationships defining the production and distribution framework of the film is imperative. This would require deconstructing the agreements to discern the nature of financial transactions between Reliance, WSF, and Netflix and ascertain the extent to which these arrangements either uphold or complicate SCIPL’s claim to enforce their lien.
23. At this juncture, the Court must highlight that Mr. Sibal focused on securing an order for the deposit of funds specifically from Reliance, and not WSF. He argues that the direction for deposit should target Reliance exclusively, rendering the partnership agreement between Reliance and WSF irrelevant to this specific legal action. According to him, given that Reliance is recognized as holding a 50% partnership in the LLP and is acknowledged as a co-producer of the film, the clause allowing SCIPL to enforce its lien and charge on films produced by Reliance in collaboration with third parties supports this claim.
24. Under the Indian Contract Act, a lien typically represents a right to retain possession of tangible property owned by another until an outstanding debt owed by that property’s owner is settled. However, the agreement in question here uniquely applies the term ‘lien’ to the revenues of a film, thereby extending the traditional concept to encompass rights over intangible property, specifically film revenues. During the proceedings, Mr. Sibal advocated for interpreting this ‘lien’ as a ‘charge,’ a term also employed within the contractual clause itself. The Court agrees that in this context, the stipulated ‘lien’ functions more appropriately as a ‘charge’. This charge, according to the clause, gives rise to SCIPL’s claims over the revenues from specific films. Furthermore, the scope of this charge – and by extension, the lien – is also applied to films co-produced by Reliance.
25. While Mr. Sibal’s argument appears logically sound in asserting that SCIPL can proceed to enforce its lien and charge on revenues from films co-produced by Reliance with a third party, it overlooks a crucial aspect: the contractual definition of ‘Revenues’ under Clause 1.12 of the Loan Agreement and its context in the lien clause(s), which does not straightforwardly encompass all funds received from Netflix. The contractual definition of “Revenues” as specified in the Loan Agreement entails a broad spectrum of income sources derived from the exploitation of the films’ rights. These include, but are not limited to, digital rights, music rights, satellite rights, and theatrical revenues, net of all distributor commissions, various taxes such as, entertainment tax, GST, and any other statutory deductions, and other tax withholdings. Importantly, the definition also extends to include incomes from subsidies, rebates, tax credits, and monies accrued from ancillary rights as well as derivative rights. The definition clearly delineates that the revenues subject to SCIPL’s lien or charge are not mere gross receipts, but are net of operational and statutory deductions. The parties thus, acknowledge that “Revenues” are net of necessary expenditures and statutory obligations, which reinforces the view that any claim or charge should be against the netted financial realisations from film production and exploitation, not the gross inflows.
26. The scope of the lien or charge, while seemingly comprehensive, may not legally extend to encompass funds passing through Reliance to WSF without clear, contractual stipulations that such funds are within the purview of the lien. The enforcement of such a lien or charge over the gross revenues of co-produced films introduces several practical complications. For the film Amar Singh Chamkila, these revenues, as structured by the contractual arrangements, are not directly controlled or owned by Reliance in their entirety, but are instead processed through the partnership for specific production-related expenses. SCIPL however aims to enforce this lien and charge not merely on the net profits accruable to Reliance from the film but on the gross revenues. These gross revenues include claims from third parties involved in the production and are essential for covering the film’s operational and distribution costs. Such costs must be met before any revenue or profit can be generated.
27. Further, in their additional affidavit, the Defendant/ Reliance has detailed how the amounts received from Netflix have been allocated towards operational expenses. The relevant extract is as follows:
“11) I say that Netflix started paying the amounts to the Defendant in several tranches starting from December 2022. The Defendant received these amounts as a trustee of Window Seat Films LLP and subsequently transferred these amounts to Window Seat Films LLP for producing the Film.
12) Thus, the Defendant till date has transferred a sum of Rs. 49,03,89,880/- (Rupees Forty-Nine Crores Three Lakhs Eighty-Nine Thousand Eight Hundred and Eighty Only) which is inclusive of Rs. 42,52,50,000/- (Rupees Forty-Two Crores Fifty-Two Lakhs and Fifty Thousand only) plus GST less TDS amounting to Rs.45,76,41,409/- (Rupees Forty-Five Crores Seventy-Six Lakhs Forty-One Thousand Four Hundred and Nine Only) from Netflix and Rs.3,20,04,000/- (Rupees Three Crores Twenty Lakhs and Four Thousand Only) plus GST less TDS amounting to Rs.3,02,43,780/- (Rupees Three Crores Two Lakhs Forty-Three Thousand Seven Hundred and Eighty Only) received from sub-licensing the music exploitation rights to· Saregama India Limited (“Saregama”). The Defendant states that a sum of Rs. 2,57,50,000/- (Rupees Two Crores Fifty-Seven Lakhs and Fifty Thousand Only) is yet to be received from Netflix out of which a sum of Rs. 90,20,000/- (Rupees Ninety Lakhs and Twenty Thousand Only) being 2% fixed commission of the license fees shall be retained by the Defendant as commission. The Defendant also states that a sum of Rs. 80,01,000/- (Rupees Eighty Lakhs and One Thousand Only) is yet to be received from Saregama out of which a sum of Rs. 8,00,100/- (Rupees Eight Lakhs and One Hundred Only) being 2% fixed commission of the license fees shall be retained by the Defendant as commission.”

28. The above explanation is vital as it highlights that the gross revenues are not purely profit, but are pre-allocated to various production-related expenditures. The Court, therefore, cannot ignore these practical realities when determining the enforceability of the lien or charge. The understanding of gross revenues necessitates a nuanced approach to reconcile the interests of all parties involved. This consideration is crucial to ensuring that the legal interpretation does not disrupt the fundamental economics of film production, thereby inadvertently impacting the involved parties disproportionately.
29. The Court must also address the contention raised by Mr. Sibal of positioning SCIPL as a secured creditor, as per Clause 9 of the March letter, which, he argues secures the loan amount by way of a charge. This characterization warrants scrutiny under the framework established by the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002.18 According to the SARFAESI Act, a secured creditor is defined as one who has a security interest in specific assets of the debtor, thereby granting them a preferential position in the event of a default.19 The clause in question does grant SCIPL a lien or charge over revenues; however, it is crucial to note that this does not elevate SCIPL to the status of a secured creditor. The lien or charge stipulated does not extend to any specific, tangible asset that could be seized or sold in case of a default. Rather, it pertains to intangible property being the revenues, which do not confer the same kind of security as in the case of a lien on tangible or fixed assets. Consequently, without a claim to a specific tangible asset provided explicitly within the Loan Agreement, SCIPL’s position aligns more closely with that of a general creditor, than that of a secured creditor as defined under the SARFAESI Act.
30. In light of the above, it is untenable for SCIPL to assert that revenues generated from the Netflix Reliance Agreement – executed under the License Agreement between WSF and Reliance – constitute revenues in Reliance’s possession over which, SCIPL can legitimately claim a lien or charge. Given the complexities inherent in distinguishing between gross revenues and direct profits accruing to Reliance, the Court finds that SCIPL’s lien or charge, under the current circumstances pertaining to the film in question, is more appropriately enforceable over the net profits of Reliance, rather than the gross revenues.
31. To align with the foregoing reasoning and to provide a practical resolution to the enforcement of the lien or charge, Mr. Kirpal has proactively offered an undertaking on behalf of Reliance. This commitment includes the deposit of (a) a fixed commission of 2% from the licensing fee, to be deducted from the final tranche Reliance receives from Netflix, and (b) 50% of the profits generated by the film Amar Singh Chamkila. These measures reflect an equitable approach to reconciling the interests of all parties involved and ensuring compliance with the contractual and legal frameworks governing the relationships between SCIPL, Reliance, Netflix and WSF.
32. The above undertaking is accepted and shall bind the Defendant, who shall deposit the aforesaid amounts with the Registrar General of this Court as and when the same are received by them.
33. Although the arguments raised by Senior Counsel centred the film Amar Singh Chamkila, however, from a perusal of the pleadings filed in the instant application, it manifests that the films Section 84 and Singham Again have been produced by other entities such as, Film Hangar LLP and Rohit Shetty Picturez LLP, where Reliance is only a partner. These productions are also then in collaboration, where the reasoning given above would apply. As regards the remaining cinematographic films namely, Paan Parda & Zarda and Gul Gule Bakawali, the application does not sufficiently demonstrate that the said films have either been produced by Reliance or are set to be released shortly.
34. In view of the above, the application is disposed of binding Reliance to the undertaking noted above.
35. SCIPL is however permitted to approach the Court for appropriate directions in respect of films produced or co-produced by Reliance, to which the foregoing reasoning is inapplicable. Top of Form

SANJEEV NARULA, J
APRIL 04, 2024/nk
1 “SCIPL”.
2 “Reliance”.
3 “Loan Agreement”.
4 “March letter”.
5 “Netflix”.
6 “WSF”.
7 “LLP”.
8 “Ludhiana suit”.
9 At page No. 25 of the documents filed by SCIPL under Index No. 812387.
10 (2019) 2 SCC 1.
11 “License Agreement”.
12 Collectively, “Netflix Reliance Agreement”.
13 2003 SCC OnLine Bom 736.
14 (2008) 2 SCC 302.
15 2019 SCC OnLine Del 9079.
16 Dated 10th May, 2019.
17 “LLP”.
18 “SARFAESI Act”.
19 Refer: Section 2(1)(zd) read with S. 26E of the SARFAESI Act.
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