National Company Law Appellate Tribunal, Chennai: In a set of two stay applications filed by Qube Cinema Technologies Pvt. Ltd. (‘Qube’) and UFO Moviez India Ltd. (‘UFO’) against the impugned order of the Competition Commission of India (‘CCI’) wherein the CCI held that conduct of the appellants (including Scrabble Digital Ltd.) violated Section 3(4)(a), 3(4)(b) and 3(4)(d) read with Section 3(1) of the Competition Act, 2002 (‘the Act’), and imposed a penalty on Qube, the three-member Bench of Yogesh Sharma*,Judicial Member, Ajai Das Mehrotra ,Technical Member, and Indevar Pandey,Technical Member, rejected the application, holding that the balance of convenience and prime facie case lay in favour of the respondents considering the concurrent the findings in the Director General’s Report and the impugned order.
Background
In 2020, the informants, DNEG India Media Services Limited (earlier known as PF Digital Media Services Ltd.) (‘DNEG’) and a film producer named Ravinder Walia, filed information under Section 19(1)(a) of the Act alleging violations of Sections 3 and 4 of the CA against UFO, Scrabble Digital Ltd. (‘Scrabble’), and Qube (‘the appellants’). The informants alleged that the appellants engaged in exclusive arrangements that limited the competition in the market for the provision of digital cinema services and post-production processing (‘PPP’) services.
Accordingly, the CCI directed the Director General (‘DG’) to undertake a detailed investigation, after which the DG submitted its report (‘DG Report’) to the CCI.
Thereafter, the CCI passed the impugned order under Section 27 of the Act, wherein the appellants were found to be in contravention of Section 3(4) of the CA in the market for the supply of Digital Cinema Equipment (‘DCE’), on lease/rent to Cinema Theatre Owners (‘CTOs’) and in the market for PPE services in India. The CCI, inter alia, observed that the appellants held market power in the market for the supply of DCEs on lease/rent to CTOs in India through the imposition of restrictions on the supply of content in lease agreements entered with CTOs, which created barriers for players engaged in the market for the provision of PPP services.
By way of the impugned order, the CCI also imposed a penalty on Qube and directed it not to enter into lease agreements with CTOs that impose restrictions on the supply of content from parties other than the three companies. It also directed that the existing lease agreements with CTOs stood modified such that they did not impose restrictions on the supply of content from parties other than the three companies.
Analysis
At the outset, the NCLAT stated that there are various stages in cinematograph film starting from shooting at the locations, to post-production processes in the laboratory, to the distribution to the CTOs, and to the ultimate public viewing. Due to the advent of technology, the distribution of a cinematograph film to various CTOs has transitioned to digital distribution instead of one via cinematograph film rolls. The digitally distributed cinematograph film can be played by CTOs only through a DCE, and only a digitized version is played. Such compatible digitization is achieved through PPE by digital cinema laboratories like Scrabble.
The NCLAT further stated that to achieve the standards, an association of all major producers formed an entity called Digital Cinema Initiatives (‘DCI’), which consisted of seven motion picture studios, namely, Disney, Fox, MGM, Paramount Pictures, Sony Pictures Entertainment, Universal Studios, and Warner Brothers Studio. This Association was formed to establish uniform specifications for digital cinema and DCE, which is compliant with international standards dictated by the DCI. No person is entitled to tamper with these standards to claim a monopolised market. Accordingly, no fetter can be imposed by any party on such digital display of a cinematograph film through a software lock. Any such lock placed by the equipment supplier would defeat the purpose of digitization and the efforts of DCI.
Upon perusal of the impugned order, the NCLAT noted that the information provided by the appellants indicated that they had a market share of 34 percent and 47 percent in the market for DCI-compliant DCEs on lease. Observing this, the CCI held that the clauses of the Equipment Lease Agreement(s)(‘agreements’) did, prima facie, show a tie-in arrangement that required the CTOs to exclusively use the contents supplied by the appellants and contents rights being vested in appellant.
Thereafter, after considering the DG’s report, the NCLAT found that the report and the impugned order were in line with each other in holding, inter alia, that the restrictions imposed regarding content applied to the processes after the mastering process. However, as per the agreements, the contents of any third party can be run on DCE, subject to the payment of Rs. 20,000 by the CTOs and also in cases where the appellants were unable to provide content. The NCLAT stated that this clause did not give any choice to the CTOs to procure content from third parties. Thus, both the DG and the CCI uniformly found the appellants indulging in an exclusive supply agreement in violation of Section 3(4)(b) of the Act, wherein they required a CTO to accept the content supplied by them only on the leased DCE.
The NCLAT noted that the CCI also found that the Key Delivery Message (‘KDM’) generated by other PPP service providers could not be played on the DCE supplied by the appellants on lease due to the restriction on the server, and such practices did not appear to occur internationally. Further, the CCI noted that other competitors, such as K Sera Sera and SDC Techmedia, allowed other players to provide content to its DCI-Compliant DCE subject to prior mutual consent and due approval from the producer or distributor.
The NCLAT further noted that the statement of a representative of Indian Film and Television had previously pointed out there was no condition on the deployment of KDM, but over the last four years, Qube had imposed such restrictions that only the KDM provided by it would work.
Another factor noted by the NCLAT was that the investigation revealed that no other independent player, apart from DNEG, attempted to enter the market over the last few years, which showed enforcement of the appellants’ model had been a significant barrier for independent players to venture into cloning and delivery of content by the appellants.
Lastly, the NCLAT took note of the fact that the agreements made the CTOs refuse to deal with other film producers who did not get his cinematograph film’s PPP services done by Scrabble, which was violative of Section 3(4)(d) of the Act. The NCLAT found that the fixed rental which the appellants may charge in case of a fixed lease package ranged between Rs. 1 to 1.5 Lakhs per month, and if the amount spent by CTOs in a lease package was to be considered, then the difference would be lesser. Thus, the NCLAT rejected Qube’s claim that it would have to bear an irreparable loss if the stay was not granted.
Hence, the NCLAT held that the balance of convenience and prime facie case lay in favour of the respondents considering the concurrent findings in DG Report and the impugned order.
Holding the aforementioned, the NCLAT disposed of the appeals, stating that a stay was not required to be granted on the impugned order. It also directed the deposit of 25 percent of the penalty amount within two weeks.
[Qube Cinema Technologies Pvt Ltd v. Competition Commission of India, IA No.3107 of 2025 in Competition Appeal (At) No.8 of 2025, decided on 09-06-2025]
Advocates who appeared in this case:
For the appellants: Samar Bansal, Bharat Budholia, Vaishnavi Ganesh, Deepanshu Poddar, Rishabh Jain, Khushi Agarwal, Palak Jagetia, and Vedant Kapur, Sr Advocate Arun Kathpalia, Rahul Rai, Avinash Amarnath, Ravi G, Bhavika Chhabra, Riddhika D, and Aaditya, Advocates.
For the respondents: Sr Advocate Prashanto Sen, Neeha Nagpal, Rohit Ghosh, Jt Director (Law) Sunaina Dutta, Dy Director Dinesh Chandra, Srashti Prashar, Sr Advocate Vaibhav Gaggar, Rishi Agarwala, Aroon Menon, and Tarini Khurana, Abhishek Nari, Kanishka Pandey, Advocates, Sr Advocate Vaibhav Gaggar,, Rishi Agarwala, Aroon Menon, Tarini Khurana, Advocates.
