Delhi High Court Rules: Franchisee Cannot Use Brand Name After Agreement Termination for Fee Non-Payment

Brand Sovereignty: Delhi HC Limits Franchisee Trademark Use Post-Termination

In a significant observation regarding the sanctity of franchise agreements, the Delhi High Court has held that a franchisee cannot continue to leverage a brand name indefinitely after an agreement has been terminated due to the non-payment of fees. The bench, comprising Justice Prathiba M. Singh and Justice Shail Jain, addressed the dispute between M/S Azure Hospitality Private Limited and Amit Bhasin, proprietor of Retail India Solutions, over the use of the "Mamagoto" and "Dhaba" brand names.

The Conflict Over Hospitality Trademarks

The dispute arose from a franchise agreement dated January 31, 2022, which allowed the respondent to operate restaurants under the well-known "Mamagoto" and "Dhaba" trade names. According to the appellant, Azure Hospitality, the respondent failed to pay "Project Management Fees" beyond November 2024, leading to the formal termination of the agreement on March 1, 2025.

Initially, the Commercial Court had granted an interim injunction restraining the respondent from using the "Mamagoto" trademark. However, this order was later vacated, prompting the current appeal before the High Court.

Competing Claims in the Marketplace

The courtroom saw a stark division in arguments:

• The Appellant’s Stance: Azure Hospitality emphasized that their Intellectual Property rights remained exclusively with them throughout the agreement’s term. They argued that once the contract was terminated for non-payment, the respondent’s legal right to the brand name vanished, rendering any continued usage an infringement.
• The Respondent’s Defense: Representing Retail India Solutions, the counsel argued that the agreement included a three-year "lock-in" period, which had not yet expired. Furthermore, they contended that the non-payment was justified because the appellant had allegedly failed to render the required Project Management Services after November 2024. The respondent also highlighted the payment of a Rs. 30 lakh one-time brand fee as justification for continued operation.

Legal Analysis: The Primacy of Agreement Terms

The Court’s analysis focused on the contractual consequences of termination. Under Clause 6.5(a) of the subject agreement, the right to use the brand name is explicitly tied to the validity of the contract. The Court found that once the underlying contract is terminated due to defaults—such as non-payment—the license to use the trademark is effectively revoked.

While the respondent pointed to the lock-in clause, the bench suggested that this does not provide immunity against trademark usage once the foundational agreement has been severed due to financial default.

Key Observations

The Court’s reasoning was anchored in the following observations:

• On Brand Ownership: “Clause 2.1 which recognizes that the Intellectual Property rights of the Appellant qua the said trade name continues to remain with the said party during the term of the subject agreement.”
• On Post-Termination Rights: “Since there was termination of the subject agreement, one of the consequences of the same is that the right of the Respondent to use the brand name of the Appellant ceases in terms of Clause 6.5 (a).”
• On Continued Usage: “After hearing, ld. Counsel for both the Parties, prima facie, the Court is of the opinion that the Franchise agreement having been terminated due to non-payment of the Project Management Fees, the subject brand name cannot be continued to be used indefinitely by the Respondent.”

The Path Forward

The High Court has not yet issued a final decree, instead opting to facilitate a potential middle ground. After putting forth queries to both parties, the Court has directed both sides to seek further instructions on proposals discussed during the hearing. The matter is set to be revisited on the next date of hearing, serving as a reminder that trademark rights are strictly tethered to the performance and validity of franchise agreements in the eyes of the law.