Draft of IPL show cause notice to Kings XI Punjab
October 1, 2010
Ms. KPH Dream Cricket Pvt. Ltd.
Sub: Show Cause Notice
1. Ms. Preity Zinta & Others received the ITT issued by BCCI on 27.12.2007 for the eight Franchises of IPL and submitted the successful bid for the Mohali Franchise. In the letter of eligibility submitted along with the bid documents on 22.1.2008, the terms of consortium arrangements were disclosed. The individuals expressed to form a new company and they were named as "Preity Zinta, Ness Wadia, Karan Paul, Mohit Burman and others".
2. The clarificatory response to questions posed by the bidders form part of the tender conditions. To the question No. 60, under 'General Questions', whether the bidder could form a new company after winning a Franchise rights which would be a group company or a company controlled by the same promoters, the BCCI answered in the affirmative, subject to any parent company guarantee as required.
3. Pursuant to award of the Mohali bid to Ms. Preity Zinta and others, the IMG who were preparing the Franchise document for final signature, had been told to co-ordinate with the successful bidders and to fill up the names of the entities who held the rights as per the agreement. The name K.P.H. Dream Cricket Pvt. Ltd. was given by the bidder's representative to IMG. The agreement was executed for an on behalf of KPH Dream Cricket Pvt. Ltd., by Ms. Preity Zinta as Chairperson on 4th April 2008 and on behalf of BCCI by Mr. Lalit K Modi on 10th April 2008.
4. Clause 11.7 of the Franchise agreement defines "Control" followed by the definition of "Change of Control" as where a person who controls any other person ceases to do so, or a different person acquires control over such other person, an event of change of control is deemed to have taken place.
5. As per clause 10.1 only subject to the prior written consent of the BCCI-IPL, can a 'Change of Control' take place. As per clause 10.2, no "Event" meaning thereby a 'Change of Control' can take place during the first three years of the IPL.
6. As per clause 11.3 of the Franchise agreement, the BCCI IPL may terminate a franchise agreement with immediate effect if there is a change of control of the Franchise, where direct or indirect control that does not occur strictly in accordance with clause 10.
7. The BCCI has recently found in the course of its internal investigations into the award of the Franchises in 2008 that KPH Dream Cricket Pvt. Ltd., was a company that was incorporated on 10.3.2008 with only two share holders namely ACEE Enterprises Pvt. Ltd. with 9900 shares and Mohit Burman with 100 shares. The names of Preity Zinta, Ness Wadia, and Karan Paul do not figure as share holders. Mr. Mohit Burman had an insignificant stake in the newly formed company even combining the 12.5% shares held in ACEE Enterprises Pvt. Ltd. The inclusion of the words, "and others" in the bid document cannot entitle complete strangers to take control over the franchise in place of the original bidders.
8. Further, on 8th May 2008, both ACEE Enterprises Pvt. Ltd and Mr. Mohit Burman have transferred their shares to Dabur Investment Corporation Limited and Windy Investments Pvt. Ltd. These transferee companies have taken control of the Franchisee thereby. Even in these two companies the original bidders are conspicuous by their absence save for Mr. Mohit Burman who holds 0.47% in Dabur Investment Corporation Limited. Clearly, an "Event" has taken place prior to 3 years of operation of the franchise.
9. Thereafter, it appears that further changes to the share holding of KPH Dream Cricket Pvt Ltd. has taken place on 30th June 2008 by which the 100% "Control" over the franchisee of Dabur Investment Corporation Limited and Windy Investment Pvt. Ltd. came down to only 23%. Preity Zinta, Ness Wadia, Colway Investments Ltd., Karan Paul and Root Invest Pvt. Ltd., were the beneficiaries of the transfer of 77% of the shares share leaving 11.5% each to Dabur Investment Corporation Limited and Windy Investments Pvt. Ltd. No notice of change of control was given to the BCCI and no permission was ever taken.
10. Hence, it is found that you have committed two violations viz.,
a) Stepped into the shoes of the original bidder on the date of award of the Franchisee without being a "group company or entity controlled by the bidder". This transgression would shake very foundation of the tender process otherwise meant to eliminate any possibility of successful bids being converted into marketing opportunities even prior to the award of the Franchisee rights.
b) Clear violation of the franchise agreement, more particularly clause 10.1, 10.2(a) and 10.3. These violations have taken place more than once.
11. The above violations attract provisions of clause 11.3 of the Franchise agreement under which the BCCI has right to terminate the agreement with immediate effect. As per Clause 3.2 of the letter of eligibility there is a declaration by the successful bidder that the information contained in the bid and otherwise provided to IPL during the bidding process shall not be false or misleading and following submission of the bid if there are any changes, IPL would be promptly notified. Your conduct is clearly contrary to these declarations. Clause 13.3 of the Franchise Agreement also specifies the declaration of the franchisee to the same effect. All these declarations have been violated by you and the BCCI has every right to terminate your Franchise on these grounds as well.
12. Notwithstanding this right of immediate termination the BCCI issues this show cause notice to you calling upon you to explain in writing within 15 days of receipt of this notice why such action should not be taken against you.