Paradigm Franchising Pvt. Ltd. vs Krishna Continental
2008 Latest Caselaw 733 Del

JUDGMENT

Shiv Narayan Dhingra, J.

1. This petition under Section 9 of the Arbitration and Conciliation Act, 1996 (for short, "the Act") has been preferred by the petitioner seeking following reliefs:

A. Direct the Respondent to remove the obstruction to the back passage in the basement and thereby grant the Petitioner and its employees, which is a part of the premises mentioned in the Business Conducting Agreement;

B. Direct the Respondent to ensure it complies with all requests for requisitioning the liquor as required by the Petitioner;

C. Direct the Respondent to grant the Petitioner access to the roof of the hotel to install its signages on the roof of the hotel;

D. Directing the Respondent to remove the obstruction of the passage /entry from the lobby of the hotel to the restaurant premises and thus interfering/obstructing with the flow of customers into the restaurant;

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2. Brief facts for the purpose of deciding this petition are that the applicant/petitioner and the respondent entered into a business conducting agreement dated 10th May 2005 whereby the applicant was allowed to run a restaurant in Krishna Continental Limited in an area of 2003.40 sq. ft. on the ground floor and 1790.89 sq. ft. on the lower ground floor in the brand name of Bennigan's Restaurant. The applicant has the franchise rights from Metro Media Group of USA for use of this brand name. As a consideration for running this restaurant in the hotel, the applicant was to pay an amount of Rs. 4.5 lac per month or 25% of the net sale, whichever was higher. The applicant has also deposited a sum of Rs. 27 lac as security amount with the respondent and gave post dated cheques on 1st May 2006 for Rs. 13.50 lac for increased security amount. The term and renewal clause of the agreement, specified that the initial term of agreement was 12 years commencing from 1st May 2005 expiring at the end of 12th year. The payment of conducting fees/consideration was to start from 1st July 2005 since the applicant/petitioner was to make the premises ready for its operation. In the renewal clause, it was stated that the conducting fees shall be enhanced by 20% after every three years of the last fees paid. The agreement was not to be terminated by either party for the initial three years period, thereafter the applicant could terminate the agreement by giving six months written notice to the respondent, which could be given after expiry of initial period of 3 years. On expiry of 12 years period, the parties were to enter into a fresh agreement on mutually acceptable terms and in absence of any fresh agreement after 12 years, the applicant was to remove commodities from the premises along with the equipment etc.

3. One of the terms of the agreement was that the conducting fees was to be paid by the applicant on monthly basis by 7th of each subsequent month after TDS deduction as applicable and in case of any delay in remitting the conducting fees, a penal interest @ 18% per annum was chargeable for the delayed period. In the event of default in payment of conducting fees for more than 60 days, the respondent was to get full authority to terminate the contract notwithstanding the other rights available to the applicant under the agreement.

4. The respondent issued a notice to the applicant dated 24th February 2007 and terminated the agreement alleging inter alia that the petitioner had delayed the payment of conducting fees for the month of November 2006 beyond the period of 60 days. The petitioner invoked the arbitration clause of the agreement and an arbitrator was appointed to adjudicate the disputes between the parties under the orders of this Court. The petitioner/applicant earlier also had moved an application under Section 9 of the Act seeking stay from dispossession of the petitioner from the premises being OMP No. 113 of 2007. The stay from dispossession was allowed conditionally and the petitioner was directed to deposit a sum of Rs. 15 lac with the Registrar of this Court and continue to pay the conducting fees of Rs. 4.5 lac per month to the respondent. The instant petition has been filed by the petitioner since the respondent had refused to sign the request for procurement of liquor in the restaurant which the respondent was obliged to do under the business conducting agreement. It is also allged that the respondent had blocked the passage of the restaurant going in the basement thereby denying the employees and other service employees access to the passage. It is also alleged that the respondent was blocking the passage/entry from the lobby of the hotel to the restaurant and interfering and obstructing in the flow of customers into the restaurant. The respondent was also not allowing placing of any singage of the petitioner on the roof of the hotel was undertaken by the respondent in the business conducting agreement.

5. It is submitted that the applicant has spent about Rs. 1 crore on repairs and furnishing of the restaurant and installation of machineries since the agreement was for the period of 12 years. The restaurant being in a continental hotel was catering to the needs of the same kind of customers and was also serving liquor. The respondent was having L-5 License for serving liquor in the restaurant and in terms of the agreement the respondent was to allow the use of this license so that the liquor could be served in the restaurant. The petitioner was to pay duty/taxes directly to the authorities if so permitted under the law and the respondent was kept indemnified against any act of omission/commission done by the petitioner under the L-5 license. The relevant clause of the agreement reads as under:

The Conductor shall adhere to the terms of L.5 license for servicing liquor in the Restaurant and shall pay/reimburse directly to the authority if so permitted under law and the license fee to the Licensor if so paid/payable by the Licensor and shall keep the Licensor indemnified against any act of omission/commission by the Conductor including payment of L-5 License Fee;

As far as access to the restaurant is concerned, the agreement provides as under:

VII. Further agreements between the licensor and the conductor. The Licensor and the Conductor further agree and undertake that:

(i) That the Licensed Premises has been provided with access from the front and rear part of the building and the Conductor shall also have the right to use service staircase/service lifts of the hotel building for affecting room services in the hotel building and as may be permitted by the Licensor from time to time.

(ii) That for affecting room service in the hotel premises the Conductor shall enter into a separate arrangement with the Licensor.

(iii) That as the Restaurant Premises is a part of the entire hotel property, the said Restaurant Premises on the Ground Floor will also stay connected to one side to Barista and on other side to the hotel lobnby and the Conductor shall not block such entries as the Restaurant as well as Barista shop is a part of the entire Hotel.

6. At the time of entering into the agreement, the parties had also agreed that if in case there was any dispute and the arbitration was to be invoked, the parties shall continue to fulfilll their obligations under the agreement except such obligations as may be subject matter of the arbitration. The relevant clause reads as under:

IX Arbitration

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Provided, however, that during the pendency of the arbitration proceeding both parties shall continue to fulfilll their obligations under this Agreement, save and except such obligations that may be the subject matter of the arbitration. Any breach of this undertaking by a Party shall be deemed to be a material breach of this Agreement and the non breaching Party shall be entitled to all remedies available to it, whether under this Agreement, contract, law or equity and each such remedy shall be independent of the other.

7. The parties had also envisaged that in case of breach of agreement or threatened breach, compensation in money shall not be sufficient damages and remedy of injunction against threatened breach of conditions and obligations shall be available to the parties. The relevant clause reads as under:

Injunction and Specific Performance: Notwithstanding anything to the contrary contained herein, in the event of a breach or threatened breach of the provisions of this Agreement, damages to be suffered by a party, if any, will not be fully compensable in money damages alone, and accordingly, the Parties will in addition to other available legal or equitable remedies, be entitled to an injunction against such breach or threatened breach without any requirement to post bond, as a condition of such relief, and also specific performance of the obligations and undertakings of the Parties as provided for in this Agreement.

8. It is evident from the agreement that the agreement between the parties is a comprehensive one where parties have envisaged all probable eventualities and it is for these reasons that it is provided in the agreement itself that even if there is a dispute and arbitration proceedings going on, parties shall keep on complying with the terms and conditions of the agreement. It is apparent that these clauses were put into the agreement at the instance of the petitioner who was investing a huge amount into the restaurant and was to pay heavy monthly conducting fees and had no option to terminate the agreement for initial period of 3 years. These conditions were put so that restaurant is run by the petitioner with profitability and with all facilities even in case of disputes pending adjudication before the Arbitrator or the Court. The respondent has agreed to these conditions because the respondent was getting huge monthly benefits from the restaurant. It is also apparent that one of the conditions of the agreement was that the respondent was to permit the use of its L.5 License to the petitioner and the petitioner was to pay fee/cess directly to the Excise Department and other Government Authority as per the use of L.5 License (which is necessary for serving liquor in the restaurant). This license is in the name of the respondent. The restaurant was also to be run inside the hotel as a part of Hotel. It is apparent that since the respondent is the owner of the hotel and also of the restaurant area, it had obtained L.5 License in its own name but it allowed the petitioner/conductor to use this L.5 license directly. This License could be used by the applicant only in the name of the respondent and not otherwise. The documents filed by the petitioner show that the respondent has been making available its letterhead to the petitioner for obtaining liquor and for correspondence with the authorities. The petitioner has also placed on record the proof of several payments of license fees in respect of L.5 License by the petitioner which also run in lacs of rupees. The petitioner has not only paid the license fee of L.5 License in past but has also produced documents showing that it had paid the license fees of L-3 License which is used by the respondent for service of liquor inside the Hotel rooms. So long as the relations between the parties were cordial, the respondent was allowing the applicant to use the license and its letterhead in correspondence with the authority. However, after the relations became strained, the respondent seems to have denied the use of L.5 License to the petitioner. The contention of the counsel for respondent is that the respondent learnt that the petitioner has committed forgery and forged the signatures of its officials and applied for L.5 License in its own name. Certain documents have been placed on record by the respondent alleging that these were having forged signatures. A perusal of the agreement shows that the respondent had put a condition on the petitioner that the petitioner shall obtain all sanctions/permissions and license for setting up maintaining and servicing the restaurant and shall obtain these licenses as soon as possible. Since the applicant was serving liquor in the restaurant and was running the restaurant under franchisee, if the petitioner had applied for independent L.5 license, that cannot be considered any violation of the terms of the agreement. It has been denied by the petitioner that it had forged the signatures of any of the officials of the respondent or misused the letterheads of the respondent. The petitioner has placed on record the authority letter given by the respondent to the petitioner for representing the respondent in case of L.5 License.

9. It is submitted by respondent that the prayer made by the petitioner cannot be allowed in view of Rajasthan Breweries Ltd. v. Stroh Brewery Company and this application/petition under Section 9 of the Act is liable to be dismissed. I consider that the case cited by the respondent is not applicable in the facts of the present case. In the present case, there is a specific agreement between the parties that even if there is a dispute raised between parties and the matter is referred to the arbitrator or is taken to the Court, the respondent shall continue to honour the agreement during pendency of the disputes and shall continue to fulfilll its obligations. In view of this specific agreement, the judgment cited by the respondent is not applicable.

10. I consider that prima facie the petitioner has a good case. The petitioner who is paying the agreed amount of license fees/conducting fee for running the restaurant cannot be deprived of the facilities which the respondent was obliged to provide to the petitioner for proper running of the restaurant. For proper running of restaurant in a continental hotel, serving of liquor is a must. The category of customers which are catered by the petitioner are those who visit the restaurant for liquor and other facilities. The restaurant is not a road-side restaurant. It is situated inside the hotel and obviously customers are also high esteemed customers. Non serving of liquor is obviously going to affect the business of the petitioner since this Court ordered the petitioner to pay monthly license fee of Rs. 4.5 lac to the respondent, it would be just and equitable that the respondent is asked to comply with other obligations which are part of the agreement between the parties.

11. In view of my foregoing discussion, the petition of the petitioner is allowed and the respondent is directed to allow the petitioner use of L.5 License issued in the name of the respondent. The requests of the petitioner for the liquor shall be forwarded by the respondent on its letterhead to the concerned authorities on the same day and the petitioner shall be paying tax/fees to the authority and shall pursue with the Excise Department for supply of liquor in time. The petitioner shall pay directly to the authority for the liquor which is purchased in usual manner and shall keep the respondent indemnified as agreed between the parties in the agreement dated 10th May 2005. The petitioner has a right to use the passage and facilities as given in the agreement and no passage and ingress to the restaurant, as provided in the agreement, shall be hindered by the respondent. The petitioner and its employees shall have the right to use the service staircase, service lift of the hotel building for effective room service in the hotel as provided in Clause (7) (i) of the agreement and the restaurant shall remain connected by Brista and hotel lobby as provided in Clause 7(iii) of the agreement. The petitioner shall also not be denied the rights of putting the sinage etc in terms of the agreement entered into between the parties.

12. This petition stands disposed of with above terms.