Delhi High Court grants relief to ‘34 Chowringhee Lane’ acquirer HDA Flavour

Delhi High Court grants relief to ‘34 Chowringhee Lane’ acquirer HDA Flavour

Sets aside fetters put by the arbitrator on opening any new franchise

The Delhi High Court has granted relief to ‘34 Chowringhee Lane’ acquirer HDA Flavour Pvt. Ltd. by ruling that the Arbitrator while dealing with a Section 17 application, should not have prohibited it from creating new franchisees.

The Bench of Justice Sachin Datta held, “A blanket embargo on the appellant from creating any new franchisee or entering into such business agreements as may be appropriate for the advancement of business, may result in denuding the value of the business on account of stagnation/depletion in market share.”

The parties had entered a Business Transfer Agreement (BTA) after which the appellant acquired the brand ‘34 Chowringhee Lane’.

When disputes arose, the appellant preferred a petition under Section 9 of the Arbitration and Conciliation (A&C) Act, 1996. It averred that even though an amount exceeding the sale consideration was paid, the respondent violated the terms and continued to operate a competing brand.

While appointing an arbitrator, the High Court had directed the appellant’s petition to be placed before the arbitrator under Section 17.

The arbitrator stated that certain pleas of the appellant could not be acceded at the Section 17 stage; it could only be adjudicated upon a complete trial.

The Arbitrator directed, “Neither party will create any new franchise or enter into such business agreements with third parties for the use of the name/brand ‘34 Chowringhee Lane’ during the pendency of the proceedings.”

The appellant’s grievance was about the fetters put on it by the arbitrator’s order.

On the other hand, the respondent stated there was a breach of BTA terms by the appellant.

The Court noted that the appellant acquired the brand ‘34 Chowringhee Lane’ under the BTA and opened new franchisees.

The arbitrator had analyzed, “After the receipt of Rs.1.7 crores the conduct of the business was recognized to be the right of the claimant, with the respondent’s directors, at best, assisting in the conduct of the business for remuneration. The respondent cannot claim a right to interfere with the conduct of that business.”

However, the Court held that it was unwarranted for the arbitrator to put fetters on the appellant’s rights to create any new franchisee or enter into business agreements with third parties. The appellant had the right to conduct its day-to-day affairs and its franchisees under the brand, but the direction was in the teeth thereof.

The Bench also found merit in the appellant’s contention that the direction should not have been passed, as there was no independent Section 17 application on the respondent’s behalf seeking injunctive orders against the appellant.

While setting aside the arbitrator’s direction, the Court said that the appellant’s creation of any new franchise or entering into a new business agreement with third parties would have to be with the prior approval of the arbitrator.

Senior Advocate Arun Bhardwaj, along with advocates Karn Bhardwaj, Kanwar Abhay Singh, Gagar, Kshitiz Ahlawat, and Aayush Gautam appeared for the appellant.

The respondent was represented by advocates SK Nanda and Arman Bhardwaj.