Zee Entertainment Enterprise Ltd vs Rewari Digital Network

Heard learned counsel for the Rewari Digital Network (Rewari) and learned counsel for Zee Entertainment Enterprises Ltd. (ZEEL) in the light of

issues relating to an interim arrangement which would be just and proper in respect of demand made by ZEEL on the basis of audit report.

For the purpose of records and convenience it would be useful to refer to some of earlier orders passed in this matter such as order dated 1.12.2020

when time was granted for filing rejoinder on the relevant issues and also orders dated 24.2.2021 and 16.3.2021.

In BP No. 567 of 2020 Rewari Digital has challenged a debit note raised by ZEEL for an amount of Rs. 2.18 crores approx for the period February

2019 to May 2020. The relevant communication from ZEEL dated 30.6.2020 (Annx. P/9)Â explains that the additional demand for the said period is

calculated on the basis of total active subscribers declared by Rewari in the Monthly Subscription Reports(MSR). The above communication also

indicates the reason for such additional demands raised earlier also, to be on account of discrepancies found out in the audit report in respect of

systems of Rewari.

In BP no. 536 of 2020 filed by ZEEL the prayer is for a decree of Rs. 2.18 crores approx. which is the same additional demand challenged by

Rewari in the other petition BP no. 563 of 2020. In BP No. 536 of 2020, details of audit of Rewari's system held by M/s KPMG India Pvt.

Ltd. at the instance of ZEEL have been provided. The audit was held on 27.11.2019 for the period February 2019 to November 2019. The audit

report was shared with the respondent on 31.12.2019.

In para 9 of their petition, ZEEL has pointed out the major issues of concern arising from the observation in the audit report in following terms :

-Variance observed in subscribers reported in BR and subscribers found in CAS (for both pre-NTO & post-NTO period).

-3 channels (EZ Mall, ZEE MP Chattisgarh and Zee Rajashtan News) which were subscribed but were not available in the TS recording.

-23 channels of ZEEL having same ECM as that of FTA channels.

-CAS IDs configured in MUX for servers not declared by the DPO.

-Non - compliance to TRAI Regulations :

-SMS data was not available for the period April 2018 to January 2019 (pre-NTO) and from February 2019 to March 2019 (post- NTO)

-Broadcaster Reports were not available on a weekly basis (7th, 14th, 21st and 28th) for the period February 2019 to 27 November 2019

Â

In parawise reply to para 9, the Rewari has taken the following stand :

In response to the contents of paragraph 9, it is submitted that the respondent disputes and denies the findings of the auditor’s report. It is submitted that the

auditor appointed by the petitioner was not a neutral party and the respondent humbly prays for a fresh audit to be conducted by a neutral agency such as

BECIL. It is submitted that the alleged variance in subscriber numbers has only been on account of change of SMS system by the respondent. Further, the

three channels that were subscribed but not available in TS recording were on account of a technical issue. It is submitted that the respondent had paid

subscription charges for the said channels and there cannot be any malafide intention in the said channels not being available in TS recording. Further the issue

of ECM of 23 channels being same as that of FTA channels cannot be a basis for alleged demand. It is humbly submitted that the entire basis for arriving at the

alleged claim of the petitioner is faulty as in order to run a channel on its network, ECM is not the sole requirement but the Access Criteria and Service ID is also

required to be same. In the present case, the Respondent had duly responded and informed the petitioner, the reason for ECM matching and requested the

petitioner to conduct an audit of its system again. Reference in this regard is made to the contents of paragraph 11 of preliminary submissions of the present

reply.

It is noted that in BP No. 536 of 2020 filed by Rewari on 18.8.2020 only the invoice dated 7.7.2020 and debit note of 30.6.2020 issued by ZEEL

have been challenged with a prayer for a direction to conduct an audit of the technical system of Rewari on any convenient date. some further

prayers relate to other issues but it is sufficient to notice that there is no challenge to the audit report which was shared by ZEEL long back through

email of 31.12.2019.

At this interim stage, the question is whether Rewari should be granted interim protection without meeting with the demand of Rs. 2.18 crores or

should it be asked to pay the entire amount demanded on the basis of audit report or any part thereof.

On the basis of materials on record, there is no difficulty in holding that the audit report finds serious deficiencies and short comings in the system

of Rewari. It shows that the system in non-compliant with Schedule III of the relevant Regulations framed by TRAI and prejudicially affects the

commercial interest of ZEEL by suppressing the number of subscribers of its channels through various means including the un-acceptable practice of

making 23 channels of ZEEL to have the same ECM as that or FTA (Free to Air) channels.

Admittedly, the impugned demand of Rs. 2.18 crores has to be reduced by the amount for which ZEEL has already issued invoices on the basis

of MSR reports.

During the course of hearing for interim arrangement, on 16.3.2021 this Tribunal observed that while the demand is on the basis of total number of

subscribers found in the system of Rewari, there is a need to explore an alternative scenario for recalculating the demand on the basis of percentage

of penetration by looking at the relevant figures. In the order of 16.3.2021 it was recorded for the aforesaid purpose, the parties will take into account

the averments in the rejoinder of ZEEL filed in BP no. 536 of 2020, on 1.12.2020. The figures for arriving at the percentage of penetration on the

basis of figures of similarly based DPOs for Haryana has been pleaded in the rejoinder in para 5(VI). According to the chart contained in that

rejoinder and the averments which have remained un-rebutted, Rewari has disclosed by its reports only a penetration percentage of 11% for ZEEL

channels whereas six other DPOs have disclosed it as varying from 86% to 71%, which on average comes to about 80%.

Through additional affidavit filed on 19.3.2021, ZEEL has given three sets of calculations for three scenarios described as A, B and C.

Scenario A is on the basis of assumed 100% penetration under which the gross amount payable after netting of 20% of distribution commission,

for February 2019 to May 2020 comes to the same figure of Rs. 2.18 crores. After deducting the amount billed on the basis of monthly subscriber

reports, the net payable exclusive of GST has been shown to be Rs. 1.85 crores approx.  In this scenario, the net payable for the subsequent

period from June 2020 to January 2021 has also been shown separately as Rs. 98.60 lakhs approx which is exclusive of GST. On adding for both

periods, the total net payable under scenario A exclusive of GST is shown as Rs. 2.83 crores approx.

Scenario B is on the basis of 80% penetration for ZEEL channels. On this assumption, the net payable exclusive of GST for the period of

impugned demand, February 2019 to May 2020, comes to Rs. 1.41 crores approx. and on adding the calculation for subsequent period of June

2020Â to January 2021, the net payable (exclusive of GST) has been shown as Rs. 2.16 crores. approx.

ZEEL has also made calculation for scenario C which is on the assumption of 80% penetration, out of which 60% is charged at the popular

bouquet price of ZEEL Family Pack-Hindi and further, three popular channels of ZEEL have been charged on a'la carte rates treating them 40 % of

total penetration figures. In this scenario, for the period till May 2020, the net amount exclusive of GST comes to Rs. 1.53 crores and by adding the

subsequent period till January 2021, the net total (exclusive of GST) comes to Rs. 2.36 crores. approx.

For the purpose of interim arrangement, parties have been heard in detail. Learned counsel for M/s Rewari Digital highlighted the stand of

Rewari in para 9 extracted earlier and has submitted that for proving beyond any doubt that Rewari has distributed the 23 channels of ZEEL and

benefitted its customers while concealing the distribution of those channels by making their ECM same as that of FTA channels, the audit report

should have been more elaborate and should have further disclosed the Access Criteria and Service IDs. His submission is that even though the

ECM of 23 ZEEL channels were same as that of FTA channels, that does not show any malafide intentions of Rewari and in such factual

scenarios, on the basis of audit report the additional demand through debit note is not justified.

The aforesaid submission is, prima facie, found to be without any merits. The much needed explanation for such wrong acts is absolutely missing

and there can be no other inference than to hold that the audit report discloses huge wrong doings by Rewari which are clearly malafide and aimed

at causing wrongful loss to the broadcaster(ZEEL).

Although Rewari was given opportunity to file its own calculation, but that has not been done. Learned counsel for Rewari has however,Â

tried to assail the figures of penetration on the basis of figures of other DPOs of Haryana pleaded to be similarly situated, by submitting verbally that

the figures are not of similarly placed DPOs. He has argued that Rewari will have different percentage of penetration because it has large market in

rural areas also. This plea is without any factual foundation and the pleading in the rejoinder filed on 1.12.2020 have not been challenged.

An interim arrangement is required to be made in the larger interest of justice by deciding the amount that should be paid by Rewari from out of

impugned demand of Rs. 2.18 crores. For the stated period, the actual net payable as per scenario A calculation comes to Rs. 1.85 crores +

GST. Of course, the amount will increase if the subsequent period of June 2020 to January 2021 is also taken into consideration. But at this

stage, it would not be proper to include the amount for the subsequent periods after May 2020 because such a demand has to be first made from

Rewari who would be at liberty to pay the same or challenge it in accordance with law.

As per scenario B the net payable (exclusive of GST ) for the impugned period of February 2019 to May 2020 comes to Rs. 1.41 crores. approx.

Scenario C does not merit consideration at this stage because it will require further materials to consider whether 60 % of penetration should be

allotted for the Family Pack (bouquet) and 40% for the other three channels or not. The amount of Rs. 1.41 crores as per scenario B is found to be

more appropriate for the purpose of making interim arrangement. Alongwith GST of 18%, this amount would come to Rs. 1.66 crores approx.

Considering all the relevant facts and submissions, by way of interim arrangement and for availing protection from this Tribunal, against the

impugned demand, Rewari Digital is directed to pay Rs.1.66 crores on the basis of assumption of 80% penetration as per scenario B. Such payment

would be against the impugned additional demand of Rs. 2.18 crores. This

The aforesaid amount of Rs. 1.66 crores shall be payable by Rewari in three instalments. First instalment of Rs. 50 lakhs should be paid within

one week from today. The next instalment of another amount of Rs. 50 lakhs should be paid within one month from today and the balance within a

period of one month thereafter.

If the payments are not made within time, the interim protection granted to Rewari Digital shall stands withdrawn and ZEEL shall be at liberty to

realise the aforesaid amount of money in accordance with law.

Post the matter before the Court of Registrar on 5.5.2021 to pass necessary orders and directions to make the petitions ready for hearing.