Eros Challenges NCLT Order Referring Colour Yellow Productions Dispute With Aanand L Rai to Arbitration

Eros International Media Limited has approached the National Company Law Appellate Tribunal (NCLAT) against an order that sent to arbitration its dispute with the promoters of Colour Yellow Productions Pvt. Ltd., including filmmaker Aanand L. Rai.

A bench of Judicial Member Justice Sharad Kumar Sharma and Technical Member Arun Baroka took up the appeal on Monday and sought responses from the respondents.

The challenge is directed against an April 28 order of the Mumbai bench of the National Company Law Tribunal (NCLT). In that order, the tribunal held that Eros' grievances against Aanand Rai and Yogita Rai flowed from contractual arrangements governing its investment in Colour Yellow and were therefore required to be resolved through arbitration.

Eros became a 50% shareholder in Colour Yellow under a term sheet executed on January 22, 2014 with Aanand Rai and Yogita Rai. The arrangement laid down how the film production company would be run and allocated rights and responsibilities between the parties.

Relations between the parties began to fray in 2019 and 2020. Eros accused Aanand Rai and Yogita Rai of excluding it from the management of Colour Yellow, withholding financial information, and carrying out related-party transactions without approval. It also alleged diversion of company funds.

In November 2021, Rai invoked the arbitration clause in the parties' 2014 term sheet while terminating the arrangement. The sides later held talks and entered into a fresh agreement in August 2023.

Eros subsequently approached the NCLT alleging oppression and mismanagement in the affairs of the company. It sought intervention in the company's management and operations.

Rai, in turn, sought to have the dispute referred to arbitration. He argued that the allegations stemmed from alleged breaches of the 2014 term sheet and the 2023 agreement, both of which contained arbitration clauses.

Eros opposed the request. It maintained that the case was not merely about contractual breaches but involved statutory complaints of oppression and mismanagement. Several of the remedies sought, it argued, could be granted only by the NCLT.

The tribunal ultimately sided with Rai. Examining the pleadings, correspondence, and reliefs sought, it found that the dispute was fundamentally contractual in nature. The allegations concerning exclusion from management, related-party transactions, sharing of financial information, revenue entitlements, and use of company funds were all traced back to rights and obligations created by the term sheet.

The NCLT also noted that Eros' nominee, Sunil Lulla, remained on the board and had signed the company's financial statements up to 2024. In those circumstances, it said, the contention that Eros had been completely kept in the dark about the company's affairs was difficult to sustain.

Holding that there was no dispute over the validity of either the term sheet or the arbitration clause, the tribunal concluded that the company petition was a "dressed-up" and "vexatious" attempt to avoid the agreed dispute-resolution mechanism. It referred the parties to arbitration and disposed of the company petition.