Guest Post: The Voodoo Arithmetic that Led to the Flawed Award of Punitive Damages in the Sholay Judgment

Last week, I had blogged about Sholay Media and Entertainment suing Ram Gopal Verma Ki Aag for violating their moral rights over the film Sholay. The Delhi High Court had decreed that the Defendants pay punitive damages of 10 Lakh. In this post, Prashant Reddy questions the reasoning of the Court in granting punitive damages. 

The quality of IP jurisprudence being produced by the original side of the Delhi High Court has been on gently sloping downward curve for most of the last decade – we used to have some delightful interruption by the brilliant Justice Ravindra Bhat but he unfortunately doesn’t sit on the original side anymore. The deterioration is apparent from judgments such as the Wiley case where a basic concept like the ‘privity of contract’ was ignored, to the Ericsson SEP litigation where not only ex-parte injunctions were granted at the drop of a hat without understanding the nature of SEP patents but even ‘interim damages’ were granted before trials could begin. The recent Sholay judgment joins this growing list of poorly reasoned judgments because of its award of Rs. 10 lakhs in punitive damages to the plaintiff, Sholay Media and Entertainment Pvt. Ltd. and Anr. who by the way conceded that they could not even prove actual damages!

The damages award was certainly headline grabbing and has been widely reported in the press. The problem however with this judgment is that it continues a trend in the Delhi High Court where judges have completely misunderstood the jurisprudence of damages, especially punitive damages. Historically, in common law the remedy of damages has only aimed to restore plaintiffs to the original position that they were entitled to before the defendant violated their rights or failed to comply with certain legal obligations. Punitive damages on the other hand are meant to punish the defendant for shocking and blatantly illegal conduct. The grant of punitive damages in all common law countries has been a controversial topic because they are unpredictable – how do you calculate how much is enough to punish a plaintiff, especially a corporation?

As a result in countries like India, courts have been quite restrained from granting punitive damages. Indian courts grant punitive damages in very rare circumstances, usually when a person ends up getting killed due to shocking lapses in safety or when there is irreversible environmental degradation. Take for example the Supreme Court’s judgment in the Uphaar Cinema tragedy which killed 59 people. The relatives of the 59 victims in that case had demanded punitive damages of Rs. 100 crores from the defendants. The Delhi High Court granted punitive damages of Rs. 2.5 crore and the Supreme Court brought it down to Rs. 25 lakhs. The Supreme Court justified punitive damages in that case for two reasons: The first is because the wrongdoing is outrageous in utter disregard of the safety of the patrons of the theatre. The second is the gravity of the breach requiring a deterrent to prevent similar further breaches. The Uphaar judgment is a reminder that punitive damages in India are reserved for cases of wanton disregard for the safety of people, leading to their death. There have been later judgments of the Supreme Court such as the more recent Sterlite case where the Court granted damages of Rs. 100 crores for environmental damages caused by the defendant.

Coming to the issue of punitive damages in IP law, neither the Copyright Act, Patents Act nor the Trade Marks Act mention the phrase punitive damages. How then did punitive damages creep into IP jurisprudence in India? The answer to this question lies in the severely flawed precedent laid down in the case of Times Incorporated v. Lokesh Srivastava where the Delhi High Court granted punitive damages for the very first time.  

The flawed judgment in the case of Times Incorporated v. Lokesh Srivastava

In the case of Times Incorporated v. Lokesh Srivastava (2005) the HC had found an Indian publisher guilty of passing of its Hindi news magazine as the famous Times magazine by adopting a similar name, a similar front page with a distinctive red border and an identical typescript and font. After finding the defendant liable for passing off and trademark infringement, the court proceeds to grant the plaintiff punitive damages of Rs. 5 lakhs. How did the judge come to the conclusion that he could grant punitive damages? He basically came to this conclusion on the basis of an American judgment in the case of Mathias v. Accor Economy Lodging, Inc. 347 F.3d 672 (7th Cir. 2003). The judge’s reliance on this American judgment was misplaced for two reasons.

First the Mathias judgement was not even a judgment involving the infringement of IP rights or passing off. The facts in that case involved a brother and sister suing a Chicago motel for being bitten by bedbugs. The motel apparently had a significant infestation of bed bugs for a long time and it had wilfully endangered the health of its patrons by continuing to run the motel instead of shutting it down for fumigation. The jury found the hotel guilty of “wilful and wanton” misconduct, which under state law made the defendant liable for both punitive and compensatory damages. The jury thus awarded the Plaintiff compensatory damages of $5000 and punitive damages of $186,000. The defendant appealed against the award of the punitive damages but lost before the Federal Court of Appeals. The main point of debate before the Appeals Court was the quantum of punitive damages. None of these facts are discussed in the Mathias judgment.

It takes quite the stretch of judicial imagination to equate a case of rampant bed-bug infestation of a motel with trademark infringement and passing off. Where is the equivalence and how is the Mathias case even remotely relevant to an Indian case involving infringement of IP rights?

The second problem with the HC’s reliance on the Mathias judgment was the fact that the HC completely misapplied the ruling. Under American law, before the grant of punitive damages, the plaintiff is required to at least prove compensatory damages. Punitive damages, usually follows as a multiple of the compensatory damages. The logic for such reasoning is that if punitive damages are meant to punish the defendant by making him cough up more than the actual damages suffered by the plaintiff, it is necessary to know the actual damage suffered by the Plaintiff. Otherwise, where is the question of punishing anybody with damages?

In the Times case the plaintiffs failed to prove compensatory damages. If the plaintiffs have failed to prove even the basic compensatory damages, why should there be a grant of punitive damages? If the defendant’s conduct has really been so reprehensible to invite punitive damages, the plaintiff should have no trouble proving compensatory damages.

For all the reasons above, the reliance on the Mathias judgment was simply misplaced.

The flaws in the Sholay judgment

The Sholay judgment cites only two judgments to justify the award  of Rs. 10 lakhs in punitive damages: the case of Times Incorporated v. Lokesh Srivastava and the case of Microsoft Corporation Vs. Rajendra Pawar & Anr. As already described above, the Times case is severely flawed and most certainly incorrect. The second case where Microsoft was the Plaintiff is equally flawed because the bulk of its reasoning depends on the Mathias case and the Time Incorporated case. Robbed of these two precedents, there is nothing left in the Sholay judgment to justify an award of Rs. 10 lakhs in punitive damages.  There is virtually no reasoning whatsoever as to how the judgement whipped up a figure of Rs. 10 lakhs and how such a figure is punitive? Does it really punish the Defendants as is the intention of punitive damages? One way to fix the quantum of punitive damages would have been to peg it against the quantum of actual damages. In this case however the Plaintiffs themselves concede that they failed to prove actual damages. If the judge didn’t know the actual damage suffered by the Defendant, how did he determine that Rs. 10 lakhs would be a punitive figure?

I’m sure the truth is out there……..