Delhi High Court Grants Relief To “34 Chowringhee Lane” Acquirer, Sets Aside Fetters Put By Arbitrator On Opening Of Franchisees

Justice Sachin Datta of the Delhi High Court recently granted relief to “34 Chowringhee Lane” acquirer-HDA Flavours Pvt. Ltd., ruling that the Arbitrator, while dealing with a Section 17 application, should not have interdicted it from creating new franchisees.

“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.”

Initially, the parties had entered a Business Transfer Agreement (BTA) by virtue of which the appellant had acquired the brand “34 Chowringhee Lane”. When disputes arose, the appellant had preferred a petition u/s 9 of the A&C Act, averring that although an amount in excess of the sale consideration stood paid, the respondent acted in violation thereof and continued to operate a competing brand.

The Delhi High Court, while appointing an Arbitrator, had directed that the appellant’s petition be placed before the Arbitrator as an application u/s 17.

The Arbitrator opined that some certain prayers of the appellant could not be acceded to at the stage of Section 17. The same could only be adjudicated upon a complete enquiry/trial.

Giving rise to the appeal was the Arbitrator’s direction that, “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 these proceedings”.

The appellant’s grievance was w.r.t. these fetters put on it by the Arbitrator’s order. The respondent’s case, on the other hand, was that there had been flagrant breach by the appellant of the terms of the BTA.

On perusing the record, the court noted that the appellant had acquired the brand “34 Chowringhee Lane” under the BTA, it was dealing with the brand and had opened new franchisees.

In its analysis, the court considered the following observation made by the Arbitrator:

“At the same time, as is evident from the record, that 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 … Prima facie it is clear that the Respondent cannot claim a right to interfere with the conduct of that business.”

In view of these findings, the court said, it was unwarranted for the Arbitrator to put fetters on the right of the appellant to create any new franchisee or enter into such business agreements with third parties.

It was added that the findings recognized appellant’s right to conduct its day-to-day affairs and its franchisees under the brand “34 Chowringhee Lane”, but the direction was in the teeth thereof.

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

Setting aside the Arbitrator’s direction qua the appellant, it said that appellant’s creation of any new franchise or entering into new business agreement with third parties shall be with prior approval of the Arbitrator and subject to the Arbitrator’s further orders.

Mr. Arun Bhardwaj, Sr. Adv. with Mr. Karn Bhardwaj, Mr. Kanwar Abhay Singh, Mr. Gagar, Mr. Kshitiz Ahlawat and Mr. Aayush Gautam, Advocates appeared for appellant

Mr. S. K. Nanda and Mr. Arman Bhardwaj, Advocates appeared for respondent

Case Title: HDA Flavours Pvt Ltd v. Daddy’s Hospitality Pvt Ltd.

Citation: 2023 LiveLaw (Del) 1093

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