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IN THE HIGH COURT OF DELHI
J.R. MIDHA, J.
Swift Initiative Pvt. Ltd. - Petitioner
Versus
Dilip Chhabria Design Pvt. Ltd. - Respondent
O.M.P.(I) 454/2015 & I.A. Nos.17627/2015, 19315/2015 & 19316/2015
Decided On : 19-11-2015
Arbitration - Franchise Agreements - Specific Relief Act - [Arbitration] - [Arbitration and Conciliation Act, 1996, Section 9] - [Summary of Acts and Sections: Arbitration and Conciliation Act, 1996, Section 9] - The court dismissed the petition under Section 9 of the Arbitration and Conciliation Act, 1996, seeking an injunction to enforce a negative covenant in the franchise agreements. The court found that the petitioner failed to perform the contract and was not entitled to the injunction. The court directed the respondent to maintain true accounts of the business and file quarterly accounts before the arbitrator.
Fact of the Case:
The respondent terminated the franchise agreements after the petitioner failed to open showrooms in two territories and closed showrooms in three other territories. The petitioner sought an injunction to enforce a negative covenant in the agreements and claimed the termination was illegal.
Finding of the Court:
The court found that the petitioner failed to perform the contract and was not entitled to the injunction. The court directed the respondent to maintain true accounts of the business and file quarterly accounts before the arbitrator.
Issues: The issues included the legality of the termination of the franchise agreements, the enforcement of a negative covenant, and the entitlement to an injunction.
Ratio Decidendi: The petitioner's failure to perform the contract and operate the showrooms resulted in the dismissal of the petition seeking an injunction. The court directed the respondent to maintain true accounts of the business and file quarterly accounts before the arbitrator.
Final Decision: The petition seeking an injunction was dismissed. The court directed the respondent to maintain true accounts of the business and file quarterly accounts before the arbitrator.
This is a petition under Section 9 of the Arbitration and Conciliation Act, 1996, in which the petitioner has sought the following reliefs against the respondent: -
“A. Pass an ad-interim ex-parte order restraining the Respondent and all its agents, employees, representatives and assigns from making any sales whatsoever in the territories of NCT of Delhi, Chandigarh, Ludhiana, Lucknow and NOIDA except through the Petitioner,
B. Pass an ad-interim ex-parte order restraining the Respondent and all its agents, employees, representatives and assigns from making any sales to persons who are residents of the NCT of Delhi.”
Factual matrix
2.1 The respondent is engaged in the business of designing and modifying various models of cars and manufacturing a sports car known as ‘D.C. Avanti’.
2.2. Vide five separate Franchise agreements all dated 27th September, 2013, the respondent appointed the petitioner as its franchise in respect of five territories, namely, Lucknow, Noida, Gurgaon, Ludhiana and Chandigarh.
2.3. Under clause 3.2 of the agreements, the petitioner was given the exclusive right to operate the franchise business in the territories mentioned in the agreements. The ‘Franchise Business’ has been defined as selling of the respondent’s products from the showroom premises. The ‘Showroom Premises’ has been defined as designated addressed showrooms. The relevant clauses of the Franchise Agreements are reproduced hereunder:
“ARTICLE 1
DEFINITIONS
When used in this Agreement, the defined terms set forth in this Article 1 shall have, unless otherwise required by the context thereof, the following meanings:
xxx xxx xxx
Franchised Business means the selling of the Products from the Showroom Premises.
xxx xxx xxx
Products means all products as described in Annexure B to the agreement and as modified from time to time.
xxx xxx xxx
Showroom Premises have the meaning set forth in the recitals to this agreement and shall mean the Franchisee Owned and Franchisee Operated (FOFO) showrooms as well as additional showroom premises that have been rented/leased/licensed by the Franchisee in the Territory for the purposes of the Franchised Business.
ARTICLE 2
TERM
2.1 Initial Term
The agreement shall commence from the Commencement Date and shall expire after a term of five (5) years, unless sooner determined; by the Franchisor. However neither the Franchisee nor the Franchisor shall be entitled to terminate this Agreement before expiry of the lock in period i.e. five years, except in accordance with the terms and conditions as provided hereinafter.
2.2 Renewal
Upon the expiration of term of 5 (five) years the Agreement may be renewed for the further term of 5 (five) years upon same terms and conditions between the Parties, such option being available to the Franchisee on account of payment of Franchisee Fee as acknowledged in this Agreement. Further in the event the Franchisee is desirous of renewing the Agreement for a further term of 5 (five) he will have to give written notice of the same to the Franchisor 3 (three) months before the expiration of the Initial Term of 5 (five) years.
ARTICLE 3
GRANT
3.1 Franchisee Business
Subject to the terms and conditions of this Agreement and the due continuing performance by the Franchisee of its obligations hereunder, the Franchisor hereby grants to the Franchisee, for and during the Term, a non-transferable right and license to operate the Franchised Business in the Territory and to use for such purpose, the Brand Name, the intellectual property, the System and any Confidential Information in association thereof (hereinafter referred to as the “Franchise”). The Franchisee accepts the said grant of Franchisee and agrees to operate the Franchised Business in accordance with the provisions thereto.
3.2 Exclusivity & Additional Showroom Premises
(a) In consideration of the payment agreed to be paid by the Franchisor to the Franchisee as stipulated in Article 5 and by the Franchisee to the Franchisor as st
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