Contract Law Football

TRANSFER BAN AND MOUNTING TROUBLES: WHAT AILS EAST BENGAL?

Image Source: indiansuperleague.com

[Author: Shivang Mishra, a student of Law at National Law University and Judicial Academy, Assam]


A Glorious History and A Difficult Present

Sporting Club East Bengal has been one of the most successful football teams in the state of West Bengal. The centenarian club has achieved various milestones in its glorious history and is accredited with producing many quality players. Unlike the well-known giants of European football, SC East Bengal is organised as a registered society under the Societies Registration Act, 1860, which means one can avail membership in the club. There are around 12,000 members. However, in 1998, East Bengal (popularly known by their jersey and logo colours, ‘Red and Gold’) and their arch rivals in the popular Kolkata derby, Mohan Bagan Athletic Club decided to leave behind a “feudal past” and get on board the new trend of becoming successful by inviting investors and sponsors. To serve this purpose, a limited company called the East Bengal Club Pvt. Ltd. was set up. Along with the registered society, this company became the parallel administrator of the club. It was in 1998, that Vijay Mallya’s United Breweries Group acquired a 50% stake in the club. However, the success that corporate sponsorship had promised proved to be a bubble that burst rather quickly. Vijay Mallya’s financial troubles spilled to the club, leaving the club cash-strapped. In an era where football has become an expensive venture with constant pumping of cash required just to keep the clubs afloat, East Bengal became stranded without a sponsor.

Quess Corp: The False Messiah

The Kolkata giants were aiming to turn their fortunes after Quess Corp acquired majority stake in the club in 2018. Much to the chagrin of the members of the registered society and the fans, the club sold 70% stake to the Bangalore start-up. The acquisition agreement had a clause that the takeover would fall through if East Bengal fails to join the Indian Super League within 3 years. The Joint Venture started out strong with Quess (which happens to be one of the largest private sector employers in the IT sector in India) helping East Bengal sign Costa Rican world cupper Johnny Acosta Zamora which included a reported remuneration of Rs. 1.36 cr.

But signs of trouble were quick to appear. A rift was created between the club officials and their corporate sponsors. The former accused the latter of not paying heed to the needs of the club with regards to the signing of players, while Quess Corp alleged that the club officials were interfering in football matters and are trying to gain an upper hand.

It was all but confirmed that East Bengal was going to be the newest addition to the Indian Super League, but Quess Corp decided to pull the plug on their partnership with the club in the middle of 2019. Quess Corp unilaterally terminated their contract stating that they will not continue the Joint Venture of the Club beyond May 31, 2020.

Adding Fuel to Fire: The Covid-19 Pandemic

For a club strapped for cash, without a sponsor in sight, a global pandemic suspending all activities only made matters worse. As the I-league season was suspended indefinitely, it became difficult for clubs to pay the wages of the players. East Bengal became the first club in the league to invoke the force majeure clause in the players’ contracts. In this context, it becomes important to understand force majeure clauses.

Black’s Law Dictionary describes force-majeure clause as ‘A contractual provision allocating the risk if performance becomes impossible or impracticable, esp. as a result of an event or effect that the parties could not have anticipated or controlled.’ Force Majeure events cannot be equated to an Act of God, as laid down by the Supreme Court of India in the case of The Divisional Controller, KSRTC v. Mahadava Shetty. The court observed that every event resulting from natural forces outside human control cannot be designated as an Act of God and does not provide any escape from liability if there was a reasonable possibility of anticipating the event. However, the Indian Contract Act does not lay any specific provisions with regards to force majeure clauses.

There are two sections in the law that deal with Force Majeure and Acts of God. Section 32 of the Act deals with contingent contracts and states, among other things, that if a contract is predicated on the occurrence of a future event that becomes impossible, the contract is void. Section 56 of the Act deals with contract frustration and states that a contract is invalid if it becomes impossible to perform after it is formed due to an occurrence that a promisor could not avert.

The Supreme Court has held in a series of decisions ranging from Satyabrata Ghosh v. Mugneeram Bangur to Energy Watchdog v. CERC  that when a force majeure event is related to an express or implied clause in a contract, it is governed by Section 32 of the Act, whereas when a force majeure event occurs outside the contract, it is governed by Section 56 of the Act.

The force majeure incident must have a direct impact on the non-performance of the contract, and the party seeking to place reliance on it has a duty to mitigate and/or explore other performance options.

FIFA also advised the clubs and players to “work together” and find solutions in an “even handed manner”. It also advised the national governments to take appropriate actions to help out the players and clubs.

FIFA has certain parameters it looks at while deciding matters of disagreement between the players and a team. They can be broadly stated as follows-

  • If there is a genuine attempt by the club to reach a consensus with the players.
  • Economic situation of the club.
  • Adjustments, if any, are proportional to the stated terms of the players’ agreement or not.
  • Difference in net income of the players post-adjustment (if any).
  • Whether there was equal treatment meted out to all players or not.

By unilaterally invoking the force majeure clause, without holding discussions with the players, went against the first of the above-mentioned parameters. By not even attempting to reach an amicable agreement nor by exploring other possible solutions, Quess Corp not only violated the principles laid down by FIFA, but also the principles of contract law of India.

A New Chapter with A Same Story

A club/franchise that participates in the ISL incurs operating costs of more than Rs 40 crore every season, including a franchise fee of Rs 15 crore. Meeting such expenses without a title sponsor is virtually impossible for any club in India, let alone one like East Bengal which has been facing financial troubles for over a decade now.

When East Bengal was in deep waters, Shree Cement threw a life raft. In the presence of Mamta Bannerjee, the Chief Minister of West Bengal, the cement giants signed a term sheet with SC East Bengal to form a Joint Venture. A term sheet is essentially a non-binding document which lays down the broad commercial and legal terms to be agreed by the parties. It lays down the foundation for negotiations which would result into a legally binding agreement.

Cracks were rather soon to emerge as the club officials alleged that their corporate partners were tweaking the terms which were agreed in the term sheet for the final agreement. Important matters such as signing of new players and renewing contracts of existing players were brought to a halt in the absence of a signed agreement.

Acosta Fiasco

Johnny Acosta from Costa Rica was one of the star players of East Bengal.  He became one of the highest paid players in India. However, after the force majeure clause was invoked in March, and all contracts were terminated, Acosta, without his wages, did not see the point in staying in India while the lockdown was imposed. He decided to go back to Costa Rica. His manager claimed that flight tickets were the responsibility of the club, but the player had to depend on the Embassy of Costa Rica for the same. Acosta was also asked to vacate his apartment, forcing him to stay at the Embassy. The club officials fervently denied any responsibility owed to Acosta, claiming that it was their previous partners, Quess Corp, who have to pay the wages of the players.

After returning to his homeland, Acosta made several pleas to the club to pay his wages. With Shree Cement on board, he hoped he will receive his due salary. Shree Cement, however, maintained a stance that as per the term sheet, they are not responsible for any dues that the club might have before it came on board as the corporate sponsor. Without any legally binding document in place, it was rather easy for Shree Cement to deny any obligation.

The player was left with no option but to approach football’s governing body, FIFA. FIFA, taking cognisance of the matter asked East Bengal to pay the wages of the Costa Rican, but to no avail. FIFA decided it had no options left but to impose a transfer ban on East Bengal in June 2021 for the summer window.

After a slew of legal notices and pleas for help given to All India Football Federation (the governing body of association football in India), the club cleared the salaries of many players for the months of April and May 2021. Acosta’s wages remain unpaid.

As Shree Cement has remained obdurate in not paying for any liabilities accrued during the Quess Corp stint, East Bengal came to a decision that it was in its best interests that the club clears the dues of the player. While several reports suggest that East Bengal is making all efforts to pay Acosta’s wages, the transfer ban remains in place.

Conclusion

The doors to The Court of Arbitration for Sport (CAS) remains open for East Bengal to challenge the transfer ban. CAS has previously reduced the transfer ban on Chelsea (although the ban was imposed due to a different breach of rules). But it would probably be in the best interest of the club to pay the wages of Acosta and close the matter amicably.

Despite the fact that the letter and spirit of Indian Contract Act, 1872 tries to ensure that none of the parties are placed at a disadvantaged position while signing a contract, the financial power that big corporates bring and the need for economic resources that Indian football clubs, (especially those which are facing setbacks for decades now) forces the clubs to sign agreement which are potentially detrimental to the clubs and their players.

The jolt to East Bengal is a lesson for clubs around the globe to handle their expenses in a more financially sound manner, while maintaining a healthy and transparent relation with the sponsors. East Bengal needs to strike a balance between the interests of the players, the members of the society, the club officials and their corporate partners.

It is high time that FIFA comes up with a mechanism to hold the big corporate houses liable for the arbitrary decisions which puts the future of the players at stake and potentially endanger the very existence of the clubs.

*For any query, feedback or discussion, Mr. Manu can be contacted at [shivangmishra43@gmail.com]

PREFERRED CITATION: Shivang Mishra, Transfer ban and mounting troubles: What ails East Bengal? SLPRR, <https://sportslawandpolicyreviewreporter.com/?p=1545> July 2, 2021.

*NOTE- The opinions and views expressed in this article are that of the Author(s) and not of SLPRR- the expressed opinions do not, in any way whatsoever, reflect the views of any third party, including any institution/organization that the Author(s) is/are currently associated to or was/were associated to in the past. Furthermore, the expressions are solely for informational and educational purposes, and must not be deemed to constitute any kind of advice. The hyperlinks in this blog might take you to webpages operated by third parties- SLPRR does not guarantee or endorse the accuracy or reliability of any information, data, opinions, advice, statements, etc. on these webpages.

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