The BCCI will not have to pay INR 4816 crore (US$ 642 million approx.) to Deccan Chronicle Holdings (DCHL), the promoters of the one-time IPL franchise Deccan Chargers, after the Bombay High court set aside the arbitration award won by the company on Wednesday. Here's a look at what exactly the issue is, and how it has played out over the years.
How it began
In late July 2012, the Deccan Chargers were four months late on the INR 13 crore second instalment for player salaries. They asked the BCCI for an extension till August 10 to clear the dues, stating that many of their sponsors hadn't paid up. That deadline wasn't met either.
On August 14, franchise chairman T Venkattram Reddy met with the IPL governing council to present details on what would become the three main points that the BCCI used in their appeal against the award: 1. pending payments, 2. a wind-up petition by Industrial Finance Corporation of India (IFCI) that put the company on the verge of insolvency (which would have been grounds for termination), and 3. charges created in favour of banks on the franchise agreement.
At this meeting, the Chargers were given 30 days to "cure" all these issues and "protect the integrity of the league".
Forty-eight hours later, another notice reached the Chargers: the council said it had not found Reddy's explanations satisfactory, and there was a new deadline of September 15 to "regularise your operations"; beyond this curative period, the BCCI said, it would not be able to stick with the franchise "without risking the credibility, integrity and value of the League itself". And that failure to comply during that period would result in termination.
How it went into arbitration
The Chargers' counsel claimed that YES Bank had stepped in and was willing to clear the dues within the deadline, but did not receive responses from the BCCI on multiple occasions in September. It is then understood that on September 14 - with several other banks and financial institutions claiming charge - the Chargers wrote to the BCCI claiming that they hadn't committed any breaches of contract and wanted to invoke the arbitration clause. At that point, the BCCI called an emergency meeting and terminated the contract on September 14 - one day before the deadline. That's when things went completely off-key.
2012 to 2021
In the BCCI's view, the Chargers' new decision to invoke arbitration looked like a sign that they weren't willing to honour the contract. In the Chargers' view, the termination a day before the deadline was a pre-emptive move because they anticipated legal proceedings.
Both these views hinged around a letter signed by Reddy on August 29, 2012. In the letter addressed to the BCCI, Reddy accepted a breach of terms of the contract and directed the board to help him find a new buyer for the franchise. But the Chargers later claimed in court that Reddy had been coerced into signing the letter after it was prepared by the BCCI, and that "it was one that no reasonable or prudent man would suggest". It was followed by an acceptance letter from the BCCI on September 4, thereby creating a wide range of expectations, opinions, and interpretations for both sides in the span of weeks.
The Chargers then challenged the termination in court and were given a month to put up an INR 100 crore guarantee to stay the termination, and failed to do so. The Hyderabad IPL franchise then went to Sun Network, which owns the Sunrisers Hyderabad.
After the termination was upheld, the Chargers alleged over the course of many hearings that their termination had been "malafide and malicious". They accused the BCCI of singling them out when other teams had failed to meet even the first instalment for salaries, and had been "found guilty of betting and match-fixing", which they claimed were far more hurtful to the IPL's brand.
It also emerged that the Chargers themselves were owed money to the tune of INR 36 crore by the BCCI, as part of the IPL's revenue-distribution system for franchises. In arbitration, the Chargers also pointed out that if the BCCI was concerned about the league's reputation, they could have cleared salaries from this revenue pool, for which there was a provision in the franchise agreements.
In July last year, the arbitrator, Justice Thakkar, found that the termination had been a premature one and that the show-cause notice on August 16, 2012 was necessary but the termination was illegal. He noted that there were several opportunities for the BCCI to act in good faith, particularly with respect to releasing funds owed and the intervention of the banks. He found validity in the Chargers' claims about other teams getting away with worse, and said the compensation was in order.
The Chargers' claims were: 1. INR 630 crore for the losses from missing the 2013 season, based on factors like loss of central revenue, loss of sponsorship, loss of prize money, loss of brand value and such, 2. INR 41 crore from the revenue-sharing agreement, which was then reduced to INR 36 crore, and 3. INR 5146 crore as compensation for loss of profit from being terminated. The methodology to arrive at that number involved an initial valuation of DHCL, a projection of profits discounted 15 years, loss of the Deccan Chargers brand, and even the bidding prices for the Pune Warriors and the Kochi Tuskers Kerala as reference points. Ultimately, the combined award was set at INR 4816 crore, with a 10% interest payable from the date of arbitration.
Why has it been set aside now?
The BCCI challenged this award. In Justice Patel's order on Wednesday, he said none of the three defaults - not paying players and others, creating charges on assets, and the insolvency event - were "convincingly shown to have been cured or not to exist". He ruled that the contractual obligation for the Chargers was not to "ensure" payments would be made, but to actually make them and that payments to players are not contingent on receiving revenues from the BCCI.
He also raised doubts on some of the arbitrator's findings, particularly that there had been no discussion around the fact that Reddy's letter asking the BCCI to find buyers, allegedly written by the board's lawyers, was on a DCHL letterhead. He also found that the award ignored a follow-up letter on September 4, 2012 from the BCCI, accepting his sale proposal, which was also signed by him. Apart from that, the order pointed out how a joint tender sale process on August 31, 2012 - two days after his letter - and a public tender advertisement from DCHL themselves on September 7 that year were ignored in the award.
"In view of this position, there was no question of giving more time to the Claimant and action of termination of Agreement on 14.9.2012 was legal and valid," the order stated.
The court also found the calculations for the award - which the BCCI argued was perverse - to be arbitrary in nature, and flawed to the extent that DCHL's report on its valuation had appeared to come from themselves, and accepted without scrutiny. It said the award was taking a broad view, when it should "at least identify the loss-of-profit component, render some analysis and reasons and then state that a broad view is being taken".
Apart from the INR 36 crore award (minus INR 1.83 crore in costs to be paid by the Chargers) with interest, the rest of the amount was dropped altogether.