Appellate Court Upholds Appellant’s Business Rights in Arbitration Dispute: High Court of Delhi
Title: HAD FLAVOURS PVT LTD. Vs. DADDY’S HOSPITALITY PVT LTD.
Citation: ARB. A. (COMM.) 29/2023 & IA Nos.12437/2023, 12439/2023
Coram: HON’BLE MR. JUSTICE SACHIN DATTA
Decided on: 06-11-23
Introduction:
The appellant is appealing against an order passed by the Ld. Sole Arbitrator, disposing of an application under Section 17 of the Arbitration and Conciliation Act, 1996 (the “A&C Act”). The Ld. Sole Arbitrator was appointed by the court vide order dated 10.02.2023, at the parties’ joint request. While appointing the Ld. Sole Arbitrator, the court directed that the said petition under Section 9 of the A&C Act would be placed before the Ld—sole Arbitrator as an application under Section 17 of the A&C Act.
Facts:
The case involves a Business Transfer Agreement (BTA) dated 29.01.2022 between two parties. The BTA specifies the transfer of a “transferred undertaking” along with certain rights and assets, including the brand “34 Chowringhee Lane.” The purchase consideration for this transfer was detailed, with a lump sum amount to be paid, and the appellant alleged that the respondent violated the BTA by continuing to operate a competing brand.
Disputes between the parties led to legal notices and the purported termination of the BTA by the respondent. The matter was taken to arbitration under the Arbitration and Conciliation Act, and the Sole Arbitrator issued an order addressing various prayers made in the petition under Section 9 of the Act.
The impugned order by the Sole Arbitrator restricted the appellant from creating new franchises or entering into business agreements with third parties for the use of the name/brand “34 Chowringhee Lane.” This restriction aggrieves the appellant.
Court analysis and judgement:
In the judgment the court considered the contentions of both parties and reviewed the impugned order issued by the Sole Arbitrator under Section 17 of the Arbitration and Conciliation Act. The key points in the judgment are as follows: The Sole Arbitrator had found that after the receipt of the consideration amount, the conduct of the business was recognized as the right of the claimant (appellant), with the respondent’s directors assisting in the business for remuneration. The impugned order also made a prima facie finding that the respondent could not claim a right to interfere with the conduct of the business. The court noted that putting restrictions on the appellant’s right to create new franchises or enter into business agreements with third parties was unwarranted in light of the findings in the impugned order, which recognized the appellant’s right to conduct the business. The appellant contended that such directions were unwarranted, especially considering that the respondent had not filed an independent Section 17 application seeking injunctive orders against the appellant.
The court emphasized that a blanket embargo on creating new franchises or business agreements might harm the business’s value due to market stagnation or share depletion. Such a direction was deemed inappropriate when dealing with the appellant’s Section 17 application in the absence of a similar application from the respondent. The court, therefore, set aside the portion of the impugned order that restricted the appellant from creating new franchises or entering into new business agreements with third parties during the proceedings. However, the court directed that any such actions should be done with the prior approval of the Sole Arbitrator and subject to the terms and rationale being presented to the Sole Arbitrator to safeguard the rights of the respondent. The judgment disposed of the present appeal with these directions, and any pending applications were also disposed of. In summary, the court found that the restrictions placed on the appellant by the impugned order were unwarranted and lifted them. Instead, it required that any such actions be taken with the approval of the Sole Arbitrator and subject to the protection of the respondent’s rights.
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Written By: Gauri Joshi