Gujarat High Court
Kunal Manilal Vania vs Leon Hospitality Private Limited & 2 on 10 April, 2015
Author: Akil Kureshi
Bench: Akil Kureshi
O/IAAP/82/2014 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
PETN. UNDER ARBITRATION ACT NO. 82 of 2014
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KUNAL MANILAL VANIA....Petitioner(s)
Versus
LEON HOSPITALITY PRIVATE LIMITED & 2....Respondent(s)
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Appearance:
MR NIRAD D BUCH, ADVOCATE for the Petitioner(s) No. 1
MS. PRIYANKA R BAROT, ADVOCATE for the Petitioner(s) No. 1
MR GM AMIN, ADVOCATE for the Respondent(s) No. 2
MR TUSHAR P HEMANI, ADVOCATE for the Respondent(s) No. 1
MS VAIBHAVI K PARIKH, ADVOCATE for the Respondent(s) No. 1
NOTICE SERVED for the Respondent(s) No. 3
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
Date : 10/04/2015
ORAL ORDER
1. The petitioner seeks appointment of an arbitrator to resolve the disputes between the petitioner and the respondents out of a franchisee agreement dated 11.12.2013. Respondent no. 1 is the Master franchisee. The petitioner desired to obtain a license for Subfranchisee to enable the petitioner to run a coffee shop in the brand name of 'Goodies'. An agreement was entered into between the parties which contained various clauses governing the bilateral relations between the Master franchisee and the Subfranchisee. One of the said requirements was that the petitioner would have to operate a separate IPR protection agreement with Sterling Foods Pvt. Ltd. The agreement Page 1 of 7 O/IAAP/82/2014 ORDER contained an arbitration clause in the following manner :
"26. Dispute Resolution 26.1 If any dispute arises between the parties hereto during the subsistence of this agreement or thereafter, in connection with the validity, interpretation, implementation or alleged breach of any provision of this agreement or regarding any question, including the question as to whether the termination of this agreement by one party hereto has been legitimate, the parties hereto shall endeavor to settle such dispute amicably.
26.2 In the event of failure to resolve the dispute amicably between the parties, the same shall be referred to arbitration by a sole arbitrator, mutually decided by the parties. The arbitration shall be in accordance with the provisions of Arbitration and Conciliation Act, 1996 or any statutory modification and/or reenactment thereof for the time being in force. The award of the Arbitrator shall be final and binding on the parties. The place of arbitration shall be Ahmedabad and the langauge of the arbitration and the final award shall be in English. Each party shall near its own costs of arbitration.
26.3 The provisions of this Clause shall survive the termination of this agreement for any reason whatsoever."
2. The agreement however, envisaged that such franchisee would pay franchisee fees of Rs. 8 lacs plus tax which under no circumstances would be refundable. A sum of Rs. 6 lacs towards franchisee fee had to be paid upfront at the time of execution of the agreement. Remaining amount would have to be deposited within nine months. Sub franchisee also had to deposit a refundable deposit of Rs. 4 Page 2 of 7 O/IAAP/82/2014 ORDER lacs including taxes with equal installments in nine months from signing of the contract. It was further provided that the agreement would come into effect only upon the payment of franchisee fee and refundable deposit by Subfranchisee and the Subfranchisee would not be entitled to operate cafeteria until making such payment. Relevant clauses containing these terms read as under :
"1.2 The Subfranchisee shall, pay to the Master Franchisee Rs. 8,00,000/ (Rupees Eight Lakhs only) plus taxes, including service tax, if applicable as a fixed Franchise Fee for the grant of the subfranchisee to the Subfranchisee. It is clarified that the Master Franchisee shall not, under any circumstances be liable to refund to the SubFranchisee the Franchisee fee either in full or any part thereof. The SubFranchisee shall pay, simultaneously with the execution of this Agreement, Franchisee Fee, I.e. Rs.6,00,000/ (Rupees Six Lacs) and the SubFranchisee shall pay the remaining within a period of 9 (nine) months from the date of signing. I tis understood that the failure to make the payment of the remaining Franchisee fee within a period of 9 (Nine) months shall attract an interest @ 12% per year.
1.3 The SubFranchisee in addition to the Sub Franchisee Fee payable to the Master Franchisee, shall also pay a refundable deposit of Rs.4,00,000/ (Rupees Four lakhs only) and taxes including serving tax, if applicable to the Master Franchisee. This amount will be paid in equal installment within 9 months of signing the contract. The said refundable deposit shall be returned to the SubFranchisee by the SubFranchisee by the Master Franchisee upon termination of this agreement, as stipulated below.
1.4 The parties shall execute this agreement and this
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O/IAAP/82/2014 ORDER
agreement shall come into effect and be binding on the parties only upon the payment of the Franchisee Fee and the refundable deposit by the SubFranchise. The Sub Franchisee shall not be entitled to operate a cafeteria outlet at the premises under the brand name "Goodies" until the SubFranchise pay's the franchisee Fee and the Refundable deposit."
3. It is undisputed that on 11.12.2013 itself the petitioner deposited a sum of Rs. 3 lacs with the respondents. A further sum of Rs.2,50,000/ was deposited by December 2013. According to the respondents, no further amount was deposited. However, according to the petitioner, respondent did not accept the further payment of Rs.50,000/.
4. On 26.3.2014, the petitioner issued a legal notice to respondent no.1 contending interalia that during the meetings further amount of Rs.50,000/ was tendered, which the respondents did not accept. In the meantime, the petitioner has incurred huge costs for starting business which is running to Rs.43 lacs. In the notice, the petitioner called upon the respondent to accept the cheque of Rs.50,000/ and further called upon the said respondent to comply with the other terms and conditions of the agreement.
5. The respondents replied to such notice under a communication dated 10.4.2014 denying the allegations upon which the petitioner after issuing notice in order to activate arbitration clause, filed this petition.
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6. The main objection of the respondent to appointment of arbitrator is that the petitioner having failed to deposit the requisite amount as per the agreement, the said agreement never came into existence. The arbitration clause therefore, did not see the light of the day. No disputes therefore, can be referred to arbitrator.
7. Learned advocate Shri Buch for the petitioner however vehemently contended that the respondent did not accept the payments. Any amount beyond Rs. 6 lacs had to be deposited in installments within nine months. Any delay in such deposit would carry interest indicating that the requirement of depositing the amount was not mandatory.
8. Clause 1.2 of the agreement envisaged payment of franchisee fee of Rs. 8 lacs, out of which Rs. 6 lacs had to be deposited at the time of signing of the agreement. It was only for the remaining amount that the said clause envisaged additional time of nine months. It was in this context that the agreement referred to interest on delayed payment. Further the Subfranchisee had to deposit a sum of Rs. 4 lacs by way of refundable deposit within nine months in equal installments. In this context clause 1.4 provides that the agreement would come into effect and bind only upon payment of franchisee fee and refundable deposit by Subfranchisee. It is reiterated that Sub franchisee shall not be entitled to operate a cafeteria at the premises under the brand name of 'Goodies' until Sub franchisee pays the franchisee fee and refundable deposit.
9. Clause 1.4 thus speaks of two eventualities of Sub Page 5 of 7 O/IAAP/82/2014 ORDER franchisee not depositing the said amount. One is that the agreement itself would not come into effect and second is Subfranchisee shall not be allowed to operate cafeteria using the brand name 'Goodies'. Even if therefore, the requirement of depositing Rs. 2 lacs out of a total of Rs. 8 lacs of franchisee fee and Rs. 4 lacs of refundable deposit for both of which a further period of nine months was envisaged, are not considered essential for bringing into existence the agreement, the first part of requirement of Rs. 6 lacs deposit upfront must be seen as an essential requirement. In other words, unless and until such amount of Rs.6 lacs was deposited, the agreement even if executed would not be activated. The agreement even after signing contained an activation clause. Such activation would take place only upon Subfranchisee depositing Rs.6 lacs and agreeing to deposit the remaining amount of Rs. 2 lacs of franchisee fee in nine months and Rs.4 lacs refundable deposit within the same period. In the present case, the petitioner having failed to do so, the agreement itself did not come into existence. It may be that after depositing a total of Rs. 5,50,000/ which was also accepted by respondent no.1, the petitioner tendered further sum of Rs.50,000/ along with notice, nevertheless, disputes surfaced between the parties long before that. Such disputes therefore, surfaced even before the agreement could be stated to have come into existence. Arbitration clause therefore, would not govern such dispute.
10. Arbitration petition is therefore, dismissed.
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(AKIL KURESHI, J.)
raghu
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