NCLAT refuses to stay CCI penalty on UFO Moviez, Qube for anti-competitive practices

The National Company Law Appellate Tribunal (NCLAT) has declined to stay the Competition Commission of India’s (CCI) ruling that levied financial penalties on UFO Moviez India and Qube Cinema Technologies for alleged anti-competitive behavior.

“Balance of convenience” and a “prima facie” case were in favor of the CCI, noted the tribunal.

”Hence in the circumstances, we are of the considered opinion that the facts do not warrant the grant of stay of the impugned order,” the tribunal stated.

On April 16, the CCI had penalized UFO Moviez India and its unit Scrabble Digital with a fine of ₹1.04 crore, while Qube Cinema Technologies faced a penalty of ₹1.66 crore for their roles in anti-competitive conduct.

The issue arises from disputes between digital cinema equipment providers like UFO and Qube and theatre owners who rent such equipment. These companies challenged the CCI’s ruling before the NCLAT, which serves as the appellate forum for decisions made by the competition watchdog.

While the NCLAT refused to halt the enforcement of the penalties, it directed the companies to deposit 25% of the total fine amount within two weeks.

“We have already passed an order of deposit of 25 per cent of the penalty amount vide a separate order. Be deposited within two weeks,” the tribunal said. It further clarified, “the application for grant of interim stay is though dismissed but we grant four weeks time to file replies by the respondents and two weeks thereafter to file rejoinders.”

A final hearing on the appeals is scheduled for August 1.

According to the CCI’s findings, UFO Moviez and Qube had placed constraints in their lease agreements with theatre operators, limiting the ability to source post-production content freely. These restrictions were found to have created roadblocks for other post-production service providers.

UFO and Qube were found to hold 34% and 47% of the market share, respectively, for leasing such digital cinema systems in India.

The shift from physical film reels to digital formats has meant that movies are now distributed digitally and can only be played using DCEs (Digital Cinema Equipment), which has increased dependence on these providers.

In its review, NCLAT considered the agreement terms, lease clauses, and the CCI’s DG report in detail.

“We find both the DG’s report and the impugned order (of CCI) are in line with each other holding inter alia the restrictions imposed relating to content are applicable on the processes subsequent to the mastering process and though as per the agreement, contents of any third party can be run on DCE, but only subject to the payment of Rs 20,000 by the CTOs and also in case where the appellants are unable to provide content,” the tribunal observed.

“Lastly, the clauses of the agreement(s) make the CTOs refuse to deal with other film producers of a cinematograph film who have not got his cinematograph film’s PPP services done by OP2 (Scrabble Digital), hence violative of Section 3(4)(d) of the Act,” the NCLAT concluded.