McDonald's has tasted significant success operating under a
hybrid-franchise model in India since 1994. A recent spat with its
joint venture partner, Vikram Bakshi, has brought to light several
issues of which foreign franchisors in India should be aware.
The Delhi High Court Order
The Delhi High Court (DHC) recently
issued an anti-arbitration injunction in a situation where
the parties (Vikram Bakshi and McDonald's India Private
Limited) had contractually opted for international arbitration. The
DHC restrained McDonald's from pursuing arbitral proceedings
under the London Court of International Arbitration
(LCIA) Rules, citing two grounds:
a dispute pertaining to oppression and mismanagement alleged by
Vikram Bakshi ought not to be referred to be arbitration; and
that an arbitration in London would cause undue
hardship to Vikram Bakshi and was thus forum
It is standard market practice for franchising transactions
between an international franchisor and an Indian franchisee to
provide that the transaction documents are:
governed by laws of the country chosen by the
franchisor—often non-Indian law—of which the most
common is English law; and
disputes are resolved by courts of a specified country (often
by courts of the country whose law governs the transaction
documents) or by arbitration by an institution such as the LCIA.
Even if the transactions documents were to be governed by Indian
law, recourse to international arbitration is still
The key issue is to obtain as much contractual certainty as
possible against the ability of an Indian franchisee to bring a
dispute to an Indian court, where matters can be indefinitely
Lessons for Foreign Franchisors to
It appears that McDonald's did all that and yet, because of
the DHC order, ended up being unable to pursue international
arbitration to resolve its dispute with Vikram Bakshi. Some of the
key lessons that foreign franchisors should consider in light of
this decision are as follows:
At the very first stage, foreign franchisors should, when
possible, cite to an arbitration agreement in place and resist
submitting to the jurisdiction of the company law tribunal.
It is essential for a foreign franchisor to consider taking
steps to prevent any attempt by the Indian party to approach an
Indian court or tribunal and then later claim that they acquiesced
in that approach, rendering the arbitration agreement
The argument that an arbitration in London would cause Vikram
Bakshi hardship should be appealed with vigor at the
Supreme Court (SC), since there is a
precedent there to the effect that such reasons as hardship,
subject matter being in India or parties per se would not suffice
to turn a forum conveniens into a forum non
A foreign franchisor can also insert a clause that would
require the Indian party to obtain independent legal counsel on the
enforceability of these and other clauses, which could preclude
raising arguments to the contrary at a later stage.
Foreign franchisors should be aware of this decision in
relation to the operation of their franchises in India, but need
not be unduly worried about the DHC order's becoming a binding
precedent, since this was a rather fact-specific determination that
is unlikely to lead the way for other cases to come in the
If you have any questions about the topics discussed in
this Alert, please contact Saionton Basu in Duane Morris'
London office, any of the attorneys in our India Practice Group or
the attorney in the firm with whom you are regularly in
Disclaimer:This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm's
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The Ministry of Corporate Affairs notified on June 5, 2015 that certain provisions of the Companies Act, 2013 shall not apply to private limited companies or shall apply with such exceptions or modifications as directed in the notification.
Whilst trade and barter have existed since early times, the modern practice of forming business relationships through the means of contract has come into existence only since the industrial revolution in the West.
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