Case Note & Summary
The petitioner, Kuoni Travels (India) Pvt. Ltd., filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award dated 9th July 2011 passed by the learned arbitrator. The respondent, Pharmaco Flavours and Fragrances Pvt. Ltd., was the original claimant in the arbitration. The dispute arose out of a franchise agreement dated 25th September 2008, under which the petitioner appointed the respondent as its sole franchisee for the territory of Bandra. The respondent claimed that the petitioner failed to provide adequate staff and supervision, leading to losses. The arbitrator allowed some of the respondent's claims, including refund of security deposit of Rs. 1,00,000 with interest, loss of profit of Rs. 5,00,000, and other amounts. The petitioner challenged the award on the ground that the arbitrator's findings were perverse and contrary to the terms of the agreement. The court examined the terms of the franchise agreement, particularly clause 6.2, which required the franchisee to engage its own staff. The court held that the arbitrator's finding that the petitioner committed breach by not providing staff was perverse, as the agreement did not obligate the petitioner to provide staff. The court also held that the award of loss of profit was perverse as the respondent failed to prove any loss and did not mitigate damages. However, the court upheld the award directing refund of security deposit with interest, as the petitioner failed to return the deposit despite termination. The court partially allowed the petition, setting aside the award on loss of profit and other claims, but upholding the award on refund of security deposit and interest.
Headnote
A) Arbitration - Section 34 of Arbitration and Conciliation Act, 1996 - Challenge to Arbitral Award - Public Policy - The court examined whether the arbitrator's findings on breach of contract and damages were perverse and contrary to the terms of the franchise agreement. Held that the arbitrator's conclusion that the petitioner committed breach by not providing adequate staff and supervision was perverse as the agreement did not obligate the petitioner to provide staff; the franchisee was required to engage its own staff. The award on loss of profit and other claims was set aside. (Paras 2-10) B) Contract - Franchise Agreement - Breach of Contract - The court considered the terms of the franchise agreement dated 25th September 2008 between the petitioner (franchisor) and respondent (franchisee). Held that the arbitrator's finding that the petitioner failed to provide a branch in-charge and adequate supervision was contrary to the agreement, which required the franchisee to engage its own staff. The petitioner's obligation was only to train staff and appoint a branch in-charge for supervision, not to provide staff. (Paras 2-6) C) Damages - Loss of Profit - Mitigation - The court examined the award of damages for loss of profit. Held that the arbitrator's award of Rs. 5,00,000 for loss of profit was perverse as the respondent failed to prove any loss and did not mitigate damages. The respondent continued business under a different brand after termination, indicating no loss. (Paras 7-9) D) Interest - Security Deposit - Refund - The court upheld the award directing refund of security deposit of Rs. 1,00,000 with interest at 12% per annum from the date of termination, as the petitioner failed to return the deposit despite termination. (Para 10)
Issue of Consideration
Whether the arbitral award dated 9th July 2011 is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 on the ground that the arbitrator's findings are perverse and contrary to the terms of the franchise agreement.
Final Decision
Petition is partly allowed. The arbitral award dated 9th July 2011 is set aside to the extent it awards loss of profit of Rs. 5,00,000 and other claims. The award directing refund of security deposit of Rs. 1,00,000 with interest at 12% per annum from the date of termination is upheld. No order as to costs.
Law Points
- Section 34 of Arbitration and Conciliation Act
- 1996
- Public policy
- Perversity
- Breach of contract
- Damages
- Interest
- Security deposit
- Franchise agreement
