A clause in a franchise agreement that allows the franchisor to terminate the agreement without assigning any cause is unconscionable and void under Section 39 of the Indian Contract Act.

( 1 ) IN the suit as well as in this application plaintiff hasraised questions of far reaching public importance, concerning the rights of thefranchisor to terminate the franchise/dealership agreement entered into with thefranchisee "without assigning any cause". Beside challenging the legality of anysuch clause or term contained in the standardised form of contract, conferring rightto take such action.

( 2 ) IN order to appreciate the challenge made by the plaintiff to the right ofthe defendant (hereinafter called the frenchiser) regarding terminating ofplaintiff s contract of dealership, we have to first muster facts of this case.

( 3 ) IN 1985, M/s. Maruti Udyog Ltd. (In short MUL) published anadvertisement in various newspapers, inviting application for dealership for thevehicles manufactured by it in various aties of India including Union Territory ofdelhi. The criteria for selection and for the appointment of dealer was; (i) theability of the dealer to provide standard of customer service which is comparableto that available in developed countries; (ii) to maximise the market for Marutiand to project and develop the highest possible image of the company; (iii) Wherenecessary, dealer was required to make suitable arrangements for the sale andservice of vehicles in towns other than their head quarters but included within theirterritorial jurisdiction in a manner acceptable to MUL; (iv) MUL was to provideto the dealer with designs for the show room, layout and equipment andspecifications for the workshop; (v) minimum spare parts stocks to becarried aswell as; (vi) facilities for training of servicing engineers and mechanics.

( 4 ) THE partnership firm known as M/s Competent Builders of which Mr. Anand and Mr. Chopra were partners applied for grant of this dealership. Theiroffer was accepted and the dealership was granted. The automobile business wasstarted in the name of M/s Competent Motors. This again was a partnershipconcern. M/s Competent Motors established its show room in Connaught Placeand service station at Mathura Road, New Delhi, involving an investment of hugecapital expenditure. While the workshop at Mathura Road and show room at F-14, Connaught Place, New Delhi, were in the process of completion, the defendantasked the said partners of the Competent Motors to execute a formal agreementcalled the dealership agreement. It is further the case of the plaintiff that the saidagreement was executed on a standardised form of contract in the year 1983. Every dealer, whose offer was accepted in response to the advertisement, wascalled upon to sign identical agreement on the dotted lines. There was nonegotiation with regard to any of the terms of the aforesaid standardised form ofthe contract between the defendant and the dealer.

( 5 ) THAT for the purpose of carrying out the obligation enjoyed upon thedealer, the dealer had to engage large number of staff for the establishment of theshow room and the service station. As per the Balance Sheet of Competentmotors, as on 31/03/1985, an amount of Rs. 43,19,598. 79paise was spent onshow room and service station. On 8/12/1985 another show room wasopenedat5, Bhikaji Cama Place with the consent of the defendant, there by furtherlarge sums were spent. The total value of the capital assets established bycompetent Motors by way of show room, service station amounted to Rs. 1,06,41,691. 00 as per the Balance Sheet as on 31/03/1986. On the advertisementand publicity as well as on repair and maintenance of show rooms as well asservice station from April, 1984 to 1987, Competent Motors spent worth crores ofrupees details of which are given in para 74 of the plaint.

( 6 ) IN l986,dispute arose between the partners of M/s Competent Motors, asaresult of which, they entered into an agreement for exploitation of the dealershipon altogether new terms by separating the assets between themselves which werebeing used inconnection with the dealership and for this purpose execut