OZONE SPA PVT LTD  Vs JYOTSNA SANJAY AGGARWAL & ANR.

I.A. No. 5541/2020 in CS (COMM) 198/2020 Page 1 of 23
$~J-1
* IN THE HIGH COURT OF DELHI AT NEW DELHI

Judgement r eserved on 20.11.2020
Judgement p ronounced on 08.01.2021

I.A. No. 5541/2020
+ in
CS(COMM) 198/2020

OZONE SPA PVT . LTD . …..Plaintiff
Through : Mr. Tanmay Meht a with Mr. Rajesh
Mahindru, Advs.
versus

JYOTSNA SANJAY AGGARWAL & ANR. …..Defendants
Through : Mr. Manish Sharma, Adv. for D -1.

CORAM:
HON’BLE MR. JUSTICE RAJIV SHAKDHER

RAJIV SHAKDHER, J.

I.A. No. 5541/2020
1. This is an application pr eferred under Order XIII A Rule 2 and 6 read
with Section 151 of the Code of Civil Procedure , 1908 [hereafter referred to
as the “CPC”].
2. The application has been preferred by the plaintiff i.e. Ozone Spa Pvt.
Ltd. (hereafter referred to as “Ozone”). Via thi s application Ozone seeks a
summary judg ement and decree for recovery of Rs. 97, 43,250 /- along with
pendent -lite and future interest at the rate of 12% per annum against
defendant no. 1. In the alternative, Ozone seeks a direction for the deposit
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of the “suit amount” or a security or bank guarantee equivalent to the said
sum.
3. Shorn of verbiage, the facts obtaining in the matter, those which are
necessary for adjudication of the instant application are set forth hereafter:
4. Ozone , which is in the business of creating, marketing, selling
facilities concerning fitness club, beauty and hair care salon and spa in India
entered into a franchise agreement on 09.06.2016 [hereafter referred to as
“FA”] with defendant no. 1. The FA detailed out the terms and condi tions
on which franchise was given to defendant no. 1 to run a salon. The upshot
of the FA was that defenda nt no. 1 could use the plaintiff’s trademark
“OZONE ” for its business and to run the same from the “franchise territory”
based on the stipulated “sys tems” and “standards” subject to payment of
franchise fee/royalty. The franchise territory as per schedule “C” to the FA
was to be located at M -7, Greater Kailash, New Delhi. Evidently with
mutual consent the “franchise territory” was shifted to M -41, M-Block,
Greater Kailash , Part -II, New Delhi . The said premises are owned by
defendant no.2 and were taken on lease by defendant no. 1 to run its
franchise business.
5. The FA had a fixed tenure period of 10 (ten) years w hich was to
expire on 08.06.2026 with an option for renewal as per clause 4 of the FA.
5.1 The initial and continuing obligations which were undertaken by the
franchisor i.e. Ozone are outlined in clause 6 of the FA. Likewise,
obligations undertaken by defendant no.1 are set forth in clause 8 of the FA.
5.2 The provision for franchise fee/royalty and collection -sharing as well
as payment arrangements are provided in Clause 9 read with Schedule D of
the FA.
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5.3 Likewise, t he provision for termination of the FA is provided in
Clause 18.
5.4 Pertinently, Schedule D detailed out the provisions f or payment of
franchise fee/ royalty. As per clause (i) of Schedule D, defendant no.1 was
required to pay on or before the execution of the FA a non -refundable l ump-
sum franchise fee of Rs.12 ,00,000/ – inclusi ve of service tax and all
applicable taxes.
6. Besides these , defendant no.1, in terms of clause (ii) Schedule D, was
required to pay a franchise fee/royalty of Rs.75,000/ – per month plus service
tax and all other applicable taxes in the first year with the caveat that
franchise fee/royalty was not to be paid for the initial 3 (three) months.
However, after the first year from the d ate of execution of the FA, defendant
no. 1 was required to pay a royalty fee of Rs.1 ,00,000/ – plus service tax and
all other fut ure taxes as may be applicable.
6.1 The royalty fee was to be deposited in the bank account of Ozone by
the 7th day of the following month. For this purpose , defendant no.1, was
required to give an ECS mandate to its bank in the relevant format. It would
be germane to note that no such format was placed on record along with the
copy of the FA.
6.2 Going further, it was also provided that if the franchise fee/royalty
was not credited into Ozone’s account by the designated date, defendant
no.1 was liable to pay interest/penalty at the rate of Rs.10,000/ – per month
for the “period of delay or part thereof”.
6.3 Furthermore, it was also provided that interest/penalty , at the rate of
Rs.10,000/ – per month , for the delayed payment , was required to be paid by
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defendant no.1 even if defendant no.1 made in the payment in the “mid of
the month” .
6.4 Importantly, this very clause , i.e. clause (iii) of Schedule D stated in
no uncertain terms that payment of royalty fees was the essence of the
agreement and that fail ure to remit three consecutive royalty fee payments
would be construed as a breac h of the agreement, triggering O zone’s right to
implement the non -compete clause and other clauses of the FA.
7. At this stage, it is imp ortant to note that Clause (v) of Schedul e D
made provision for collection -sharing royalty which was to be paid by
defendant no.1 to Ozone latest by the 5th day of the following month in
which the number of members as per slab mentioned in the agreement was
achieved. The collection -sharing royalt y was, broadly, based on gross sale s
as defined in Clause (iv) of Schedule D.
8. Clause (iv) of Schedule D, while defining gross sale s adverted to
indices which formed part of gross sales and those which were required to
be excluded. Though there is a refere nce to a slab based on which
collection -sharing royalty was required to be calculated and remitted by
defendant no.1 to Ozone , the slab , somehow was not incorporated in the FA
giving the impression that it is inchoate and , perhaps , a format agreement
which Ozone has entered into with other franchises.
9. The admitted position is that if the provisions of the FA had to apply
after the expiry of the initial period of three months , defendant no.1 had to
pay a fixed franchise fee/royalty of Rs.75,000/ – per month f or the first year
which stood enhanced to Rs.1,00,000/ – per month for the remaining tenure
of the FA w hich was to expire on 08.06.2026 .
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10. Ozone , both in the plaint and the captioned application , has stated that
no claim is made by it concerning franchise fee /royalty that may have
accrued up until March 2017.
11. The claim for royalty fee which is pegged at Rs. 41,23,250/ –
(Rs.35,00,000/ – plus GST) concerns the period April 2017 to May 2020.
12. Furthermore, for the same period , Ozone has claimed interest/penalty
at the rate of Rs.10,000/ – per mo nth which has been quantified at
Rs.56,20,000/ -.
12.1 Ozone has provided no details as to how it has arrived at the figure of
Rs.56,20,000/ -. Simple elementary math would show that even if the claim
for interest/penalty is sus tained , of which I have grave doubts, at least at this
stage, the per year liability would be Rs.1,20,000/ – and for three years or so,
defendant no. 1’s liability would be in the range of Rs .3,60,000/ – to Rs.
3,70,000 /-.
Submission s of Counsel s: –
13. Given th e aforesaid background, Mr. Tanmaya Mehta, who appeared
on behalf of Ozone , argued that this was an open and shut case where
defendant no.1 had no real prospect of successfully defending its claim and
therefore, there was no compelling reason as to why its claim ought not to be
disposed of before recording of oral evidence.
14. According to Mr. Mehta, Clause 9 read with Schedule D of the FA
provided that the over a period 10 (ten) years defendant no.1 was required to
pay a fixed franchise fee/royalty at the ra te of Rs.75,000/ – per month in the
first year and thereafter at the rate of Rs.1,00,000/ -per month . Mr. Mehta
said that failure to pay franchise fee/royalty entailed an obligation on the
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part of defendant no.1 to pay interest/penalty at the rate of Rs.10,0 00/- per
month.
15. The FA being a written agreement, all that the court was required to
see was whether the aforementioned franchise fee/royalty payment clauses
were sustainable and apply the same qua the claim set up by Ozone since
neither the factum of exec ution nor the contents of the same were disputed
by defendant no.1. In other words, Mr. Mehta contends that the liability to
pay franchise fee/royalty is absolute.
16. Mr. Mehta, however, did concede that no claim for payment of
franchise fee/royalty between September 2016 to March 2017 is made by
Ozone .
17. Mr. Mehta, though, went on to state that thereafter invoices were
served regularly for payment of franchise fee/royalty followed by
communications via letters/email as regards non -payment o f franchise
fee/roya lty by defendant no.1.
18. In this behalf , Mr. Mehta relied upon the copies of the following
invoices and communications :
(i) Invoices dated: “18.04.2017, 02.05.2017, 01.06.2017,
01.09.2017, 01.10.2017, 01.11.2017, 01.12.2017, 02.01.2018,
01.02.2018, 01.03.2018, 31.03.2018, 01.05.2018, 02.06.2018,
02.07.2018, 02.08.2018, 01.09.2018, 01.10.2018, 01.11.2018,
01.12.2018, 01.01.2019, 31.03. 2020, 08 .06.2020”.
(ii) Letters dated: “14.11.2017, 18.01.2018, 22.03.2018,
28.06.2018, 28.02.2019 and 26.02.2020 ” and
(iii) E-mail dated: “26.02.2020, 02.03.2020 , 10.05.2020 ”.
19. Mr. Mehta also submitted that the trigger for the institution of the suit
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was the alleged attempt by defendant no.1 to hand ov er the premises to
defendant no. 2 contrary to the terms of the FA.
20. On the other hand, Mr. Ma nish Sharma who appeared on behalf of
defendant no.1 , submitted that the captioned application seeking the relief of
passing a summary judgement against defendant no.1 was not sustainable
for the following reasons:
21. There was , in effect , an oral agreement w aiver borne out from the
conduct of the parties to the effect that no franchise fee/royalty was payable
or was required to demanded by Ozone . In support of this plea, Mr. Sharma
emphasized the purported largesse of Ozone in giving up its claim for
franchis e fee/royalty up until March 2017 as also the fact that despite Ozone
having allegedly served invoices and communication on def endant no. 1
over 3 (three) years , it did not take recourse to the next logical act which
was to terminate the FA.
22. Although, def endant no. 1 paid the non -refundable “but adjustable
security deposit of Rs.12,00,000/ -” and invested nearly Rs.1.75 Crores in the
design and development of the salon, Ozone failed to fulfil its obligations
under Clause 6 and 7 of the FA .
23. Amongst other obl igations , Ozone was required : to give initial
training to the employees and person nel of def endant no. 1 in the standards,
procedure , techniques and methods to be applied as per the operating
manual; to supply or to recommend suppliers, as the case may be, of,
equipment/consumable other materials required to be set up in the business;
to advise on marketing and advertising activities before the commencement
of business; to provide standard forms of contracts, soft/hard copies for use
by defendant no.1 in th e dealing with its customers; to assist defendant no.1
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in the selection of trained and qualified staff; to provide details of products,
services and equipment described in the operating manual as specified
therein and to organise an d convene annual confere nce and meetings to
bring about improvements in the system and to bring to fore Ozone’s
proposals for promotional activities and general operations of the system.
24. Notwithstanding the failure on the part of Ozone to fulfil its
obligations under clause 6 and 7 of the FA, def endant no. 1 has incurred
fixed and recurring costs concerning lease rent amounting to Rs.7 lac s per
month plus GST (amounting to Rs.1,25,000/ -). Besides this, defendant no. 1
has had to make payments toward s the maintenance of the buildin g, usage of
the generator (for backup power) and lift to the tune of Rs.75,000/ – per
month.
25. This apart, defendant no.1 had to fork out amounts towards the salary
of staff and payment of other variable expenses.
26. Because there were huge losses , the business had to be shut down
over several days in the 3 years qua which claim has been made by Ozone .
In this behalf, reliance was placed on paragraph 19 of the reply filed by
defendant no.1.
27. Because defendant no.1 was incurring business losses, which were
known t o Ozone , a suggestion was made that its business could be taken
over by one Mr. Nikhil Gupta who is another franchisee of Ozone and is
running other Ozone salon s in Greater Kailash, Part 1 and Model Town in
North Delhi.
28. To demonstrate that there was an el ement of truth in the stand taken
by def endant n o. 1 qua such an arrangement between her and the managing
director of Ozone, Mr. Naveen Kandhari , my attention was drawn to the
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details of the meetings held between her husband and Mr. Naveen Kandhari
outline d in p aragraph 21 of the written statement and reply. It appears that
three meetings were held on 28.01.2020 and 22.02.2020 and 26.02.2020 at
Leela Palace, Chanakyapuri, New Delhi . In between a meeting was also held
on 24.02.2020 albeit at the residence of Mr. Kandhari located in Sunde r
Nagar, New Delhi. In the same paragraph of the written statement and reply,
there is also a reference to yet another meeting held on 09.03.2020 at Leela
Palace, Chanakyapuri , New Delhi which was attended by not only the
husb and of d efendant no. 1 and Mr. Kandhari but also by Mr. V.K. Pahwa,
the director of Ozone, Mr. Manikant Aggarwal/defendant no. 2, Mr. Divya
Aggarwal, son of Mr. Manikant Aggarwal, Mr. Ronnie Bhasin, President of
Greater Kailash -II market association, Mr. Jitender Agnihotri,
employee /accountant of Ozone, Mr. Nikhil Gupta, another franchisee of
Ozone and another person, namely, Mr. Ranjit Bhasin. Besides this,
defendant no. 1 has also referred to a meeting held two or three days before
the 09.03.2020 meeting which was attende d by Mr. Kandhari, Mr. Manikant
Aggarwal, Mr. Divya Aggarwal, Mr. Ronnie Bhasin , Mr. Ranjit Bhasin and
Mr. Nikhil Gupta. This meeting according to defendant no. 1 , was held at
The Oberoi Hotel in New Delhi.
29. In support of defendant no.1’s plea that Ozone was a franchisor who
had a poor track record concerning business relations with other franchis ees
in the city, my attention was drawn to para graph 5 of the reply wherein
reference was made to five (5) franchises qua which Ozone was in liti gation
which led to the termination of the agreements executed with them. These
franchise -outlets acc ording to def endant no . 1 were set up in Kailash
Colony, Green Park, Rajouri Garden, Punjabi Bagh and Sohna Road.
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30. In sum, it was contended that the FA was onerous and on e-sided and
that it was to the knowledge of Ozone that defendant no. 1 was suffering
business losses and therefore it had a n understanding/ oral agreement with
defendant no.1 that no coercive measures would be taken to claim the
franchise fee/ royalty and that Ozone was interested in taking over directly or
indirectly the premises from where defendant no.1 was operating its
business.
Analysis and Reasons : –
31. Having perused the record and heard learned counsel s for the parties
what is required to be ascertained at this stage is whether or not defendant
no.1 has any real prospect of succeeding in defending the claim made by
Ozone . In other words , as to whether or not defendant no. 1 has raised a
plausible defence and triable issues.
32. Rule 6 (1) of Or der XIII A of the CPC sets out various options that the
court has while disposing of such an application which includes vesting of
power in the court to pass a conditional order in consonance with provisions
of Rule 7 (1).
33. Rule 7 (1) of Order XIIIA provide s that where it appears to the court
that it is possible that a defence may succeed but it is improbable that it
should do so, the court can : make a conditional order which includes a
direction to deposit money in court; direction to the defendant to take
specified steps in his/her defence; direction to furnish security or to provide
surety for restitution of cost as deemed fit and proper, or even impose such
other condition including providing security for restitution of los ses that any
party is likely to suffer during the pendency of the suit as may be deemed fit
in the discretion of the court.
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34. Therefore, the court can inter alia either pass a judg ement and decree
in terms of the claim (s) made in the application or dismiss the application or
issue a condit ional order of the kind prov ided in Rule 7(2) of Order XIII A.
35. In other words, if the reply raises triable issues then the court would
be empowered to dismiss the application for summary judgment. Where ,
however , the court concludes that a claim or defence may succeed but it is
improbable, the court is empowe red to pass a conditional order. [See Rule
7(1) and Rule 6(1)(b) Order XIIIA of CPC .] The kind of conditional order
that the court can pass is outlined in Rule 7(2)(a)(i) to (iv) of Order XIIIA of
the CP C. Under Rule 7(2)(b) of Order XIIIA, the court can also specify
consequences of the failure to comply with the conditional order including
passing a judgment against the party that fails to comply with it.
36. The perusal of the pleadings and material on reco rd in the instant case
would show that the following aspects have emerged quite clearly.
36.1 Ozone entered into an FA with the view of granting a franchise to
defendant no. 1 which entailed that defendant no. 1 could use the trademark
and brand name qua which it claimed ownership provided the franchise
business was operated as per systems and standards adverted to in the said
agreement. Clauses to this effect were incorporated in the FA to protect the
reputation and goodwill of Ozone. The intent concerning the aforesaid is
evident upon a plain reading of clauses 1.7, 1.9, 1.14, 1.16 and 2.1. For the
sake of convenience , the relevant clauses are extracted hereafter:
1.7 “FRANCHISED BUSINESS” means the franchised
business of Salon and Spa as per Annexure “A”, to be
run and operated by the Franchisee in accordance with
the System and Standards under the Proprietary Marks of
the Franchisor, and including the stock, sale, delivery or
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use of the Products if any, supplied in relation thereto by
the Franchisor, as more particularly described in the
Operating Manual.

1.9 ‘OPERATING MANUAL’ or “SOP” means the written
specification of the methods, process, techniques, systems
and schemes devised and complied and copyrighted by
the Franchisor to be observed and implemented by the
Franchisee in operating the Franchised Business and any
amendment or variation thereof at any time hereafter
notified -in writing by the Franchisor to the Franchisee.
Ozone Spa Pvt. Ltd. confidential operating manuals, as
amended from time to time in the Franchisor’s sole
discretion, which contain the instructions, requirements,
Standards, specifications, methods and procedures for the
operation of the premises including (i) those relating to
the selection, purchase, training of instructors and the
services being provided in the premises; (ii) those
relating to the maintenance and repair of the premises,
buildings, grounds, equipment, signs, interior and
exterior decor items, fixtures and furnishings; and (iii)
those relating to employee apparel and d ress, accounting,
bookkeeping, record retention and other business
systems, procedures and operations.

1.14 ‘SYSTEM’ means the proprietary software
system/distinctive Franchised Business format and
method developed and implemented by the Franchisor in
connection with the operation of the Franchised Business.
A unique, proprietary system developed and owned by the
Franchisor (which may be modified or further developed
from time to time, in Franchisor’s sole discretion) for the
establishment and oper ation o f full -service premises
under the Proprietary Marks, which includes, without
limita tion, a distinctive image consisting of exter ior and
interior design, decor, color scheme and furnishings;
special recipes, menu items; unifor m standards, products,
services and specifications; procedures with respect to
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operations, inventory and managemen t control (including
accounting procedures and policies) ; training and
assistance ; and advertising and promotional programs.

1.16 “STANDARDS” means Franchisor’s s et of ma ndatory
and recommended operating procedures, standard,
specifications, poli cies, requirements and controls
(including without limitation, those which maybe set forth
in the Operating Manual or SOP of the Franc hisor, for
the operation of the Franchised Bus iness, as maybe
unilateral ly modified by the Fr anchisor from time to time.
The standards and specifications, as amended from time
to time by the Franchisor, in its sole discretion, contained
in and being a part of, the Confidential Information
pursuant to whic h Franchisee shall develop and operate
the premises at the Site.

2 GRANT OF FRANCHISE

2.1 Upon the representations of the Franchisee that it has the
requisite experience, knowledge, qualification, skill and
financial capability to carry out its oblig ations under this
Agreement including payment of royalty fee, the
Franchisor hereby grants to the Franchisee and the
Franchisee hereby accepts the non -exclusive, non –
transferable, non -assignable franchise to establish, run
and operate the Franchised Busine ss in the Territory i.e.
located at M -7, Greater Kailash -II, New Delhi as per the
Systems and Standards and under the Intellectual
Property of the Franchisor, during the term of this
Agreement. Franchisee’s rights under the Agreement are
limited as provid ed under the Agreement. And the
Franchisee does not have the right to sub -franchise or
sub-license the rights granted under this Agreement to
any third person.
(emphasis is mine)

36.2 Furthermore, towards this end the FA also provided for initial
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obligati ons that Ozone had to fulfil. These obligations are contained in
Clause 6 of the FA. A perusal of the sub -clauses of clause 6 would show that
while some are in the nature of advice and guidelines, the others have a
mandatory flavour. The mandatory flavour of such sub -clauses was perhaps
necessary from the point of view of the parties so that not only was the
reputation and goodwill of the Ozone brand protected but also that defendant
no. 1 was put in a position that she would be able to earn enough revenue to
pay the franchise fee/royalty as provided for in the FA. In this behalf , it
would be useful to advert to clauses 6.4, 6.5 and 6.7 of the FA .
6. INITIAL OBLIGATIONS OF FRANCHISOR
6.4 To provide to all employees and personnel of the
Franchisee initial tr aining in the Standards, procedures,
techniques and methods as per the Operating Manual at
such times and at such place as shall be specified by the
Franchisor from time to time or upon request as and
when made by the Franchisee , the cost of the travel and
subsistence in connection therewith being borne by the
Franchisee.

6.5 To deliver to the Franchisee at the commencement of the
initial training period one copy of the Operating Manual
and any other training materials deemed appropriate by
the Franchisor.

6.7 To supply or to recommend suppliers of, as the case
maybe, the equipment/consumables and other materials
required to be procured to set up and run the Business, to
the Franchisee at the cost of the Franchisee in due time
for the commencement of the F ranchised Business. The
equipment and consumables should be as per the
specification and standards approved by the Franchisor.

(emphasis is mine)

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36.3 Likewise, The FA also provided for continuing obligations that
Ozone was required to fulfil once the franchised business had commenced
so that the systems and standards were maintained and/or improved.
Provisions qua these aspects are found incorporated in Clauses 7.2, 7.3, 7.4,
7.5, 7.6, 7.8 and 7.9. The said clauses are extracted hereafter:
7 CONTINUIN G OBLIGATIONS OF FRANCHISOR

7.2 To provide the Franchisee with advice, knowledge and
guidance relating to the management, finance,
advertisements, promotion and methods of operation to
be employed in connection with the System and to provide
reasonable fa cilities for consultation with the Franchisee
in connection with any problems relating to the System
from time to time arising with a view of assisting and
enabling the Franchisee to operate and maintain the
System.

7.3 To provide the Franchisee with stan dard forms of
contracts, soft/hard copies for use by the Franchisee in
dealings with its customers.

7.4 To assist the Franchisee in the selection of trained and
qualified staff for engagement in the Franchised
Business.

7.5 To improve and develop the Sy stem and to make
available to the Franchisee and its employees, such
further training as may from time to time appear
necessary in the light of such improvements or
developments, subject to the Franchisee bearing the cost
of any travel and subsistence invo lved in such further
training and the salaries of its employees during the
course of training or upon request as and when made by
the Franchisee for further training to his staff. Further
the Franchisor should be duly informed about the same.
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7.6 To provi de to the Franchisee the details of the Products,
Services and equipment described in th e Operating
Manual on the terms from time to time herein specified
and to assist the Franchisee in procuring such additional
supplies of Products, Services and equipmen t as may be
required by the Franchisee to commence and operate the
Franchised Business and to use reasonable endeavours to
negotiate and obtain from such suppliers favourable
discount rates for furnishing such supplies to the
Franchisee at the cost of the Franchisee.

7.8 In addition to the initial training pursuant to clause 6.4
above, to provide at the Franchisee’s cost, such
additional training in accordance with the Training
Schedule to be decided from time to time by the
Franchisor, to the staff employ ed by the Franchisee. The
Franchisee shall bear the cost of any travel and
subsistence involved in connection with such training.
Franchisor reserves the right to require as a condition of
providing training, that Franchisee’s employees execute
confidentia lity agreements in form and substance
satisfactory to Franchisor.

7.9 To organize and convene by written notice to each of the
Franchisees an annual conference and meetin gs, the
agenda for which shall include discussion of any
improvements to the Systems and the Franchisor’s
proposals for promotional activities and the general
operation of the System , the Franchisee bearing the cost

of any travel and subsistence expenses incurred in
attending such conference or meetings.
(emphasis is mine)

36.4 How the FA was structured gives the impression that what was
fundamental to the business was that the systems and standards, which were
to be put in place by Ozone, were adhered to and therefore defendant no. 1
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was inter alia mulcted with obligations, the failure to discharge the same
would furnish a ground for terminating the FA. A perusal of clauses 8.8, 8.9,
8.10, 8.11, 8.12 and 8.20 would demonstrate that the franchise business
could only be run by defendant no. 1 as per the system and standards put in
place by Ozone. For the sake of convenience , the said clauses are extracted
hereafter:
8.8 To operate the Franchised Business strictly in
accordance with the provisions of this Agreement and the
Operating Manual and to conform in all respects and at
all times with the System and Standards as may be
modified from time to time and not at any time to use any
additional trade name or symbol, not do or permit to be
done anything which is additional to or not in accordance
with the System and Standards without the prior consent
in writing of the Franchisor. In the event of default or non
compliance, the Franchisee must rectify the defects within
one week failing which the Franchisee will be liable to
pay penalty of Rs. 50,000/ – per month till such
defects/non compliance c ontinue.

8.9 To ensure that the Franchised Business conforms to the
Standards and System· with respect of quality, service
and cleanliness, the Franchisee acknowledging that such
conformity is of utmost importance to the successful
operation of the Franch ised Business and the protection
of the goodwill attaching to the Proprietary Marks.

8.10 To comply with all advice and instructions given by the
Franchisor with regard to the operation of the System.

8.11 Forthwith on commencement of the Franchised Busi ness
to engage all staff and other persons required for the
successful operation of the Franchised Business with the
prior written approval of the Franchisor and to ensure
that all such staff who are required under the terms of
2021:DHC:69I.A. No. 5541/2020 in CS (COMM) 198/2020 Page 18 of 23
this Agreement to undergo tr aining in the System, are
trained in the System at such time and place as may be
specified by the Franchisor for such purpose. The
Franchisee shall bear the cost of any travel and
subsistence incurred in connection therewith and the
salaries of such person s. During the course of such
training the Franchisor reserves the right to reject solely
at its own discretion any such staff found unfit for the
purpose of providing Services.

8.12 To ensure that the Persons responsible for managing the
Franchised Busine ss shall attend such further periods of
training at Franchisee’s cost as may from time to time be
required by the Franchisor and to bear any travel and
subsistence expenses incurred in connection therewith
and the salaries of such Persons.

8.20 To promote and preserve the goodwill and reputation
associated with the Proprietary Marks by promptly
replacing or refunding the cost of any goods or Services
supplied by the Franchisee which do not conform to the
high Standards required by the System.
(emphasis is mine)

36.5 The record shows that, although , Ozone has asserted in paragraph 25
and 35 of the plaint that it provided the necessary technical inp ut for set ting
up the franchise business as also the operation manual, requisite know -how,
training to s taff as well as details of vendors/suppliers, there is not a shred of
evidence on record to back these averments. This becomes important given
the complete denial of defendant no. 1 in her written statement concerning
Ozone’s assertion of having fulfilled its obligations under the FA.
36.6 When examined in the context of the aforesaid discussion, the
submission of Mr. Mehta that the FA casts an absolute liability to pay the
franchise fee/royalty is belied by the terms contained therein. Prima facie ,
2021:DHC:69I.A. No. 5541/2020 in CS (COMM) 198/2020 Page 19 of 23
the liabili ty of defendant no. 1 to pay fixed franchise fee/royalty was
dependent on Ozone fulfilling its initial and continuing obligations as etched
in the FA.
36.7 The sense one get s after reading the plaint is that the immediate
provocation for Ozone to approach the court was its apprehension that
defendant no. 1 was selling or assigning the franchise business to a third –
party contrary to the terms of the FA. This aspect also emerges upon a
perusal of the e -mail dated 25.06.2020, transmitted by Ozone’s advocate, to
defendant no. 1. In this e -mail, a grievance was made on behalf of Ozone
that defendant no. 1 had decided to handover the premises (from where the
franchise business was run) to defendant no. 2 i.e. the lessor, only after she
had received an advance copy of the instant suit action on 24.06.2020. This
allegation was , however, denied by defendant no. 1’s advocate vide a return
mail dated 28.06.2020. Via the return mail, it was conveyed on behalf of
defendant no. 1 that the discussion concerning the takeover of the franchise
business by Ozone was going on for the past 6 months.
36.8 Going further , the documents placed on record by Ozone would show
that although photocopies of monthly invoices spanning the period
18.04.2017 up until 01.01.2019 (excluding invoices for J uly and August
2017) and for March 2020 and June 2020 are on record, most invoices bear
no indication that they had been received by defendant no. 1 . I must
indicate, though, at this juncture, that while defendant no. 1 has in paragraph
9 of the written s tatement denied the receipt of invoices, in paragraph 18 of
the written statement it is averred by her that she is not aware as to the
reasons why the alleged “invoices” towards franchise fee/royalty have been
issued. Defendant no. 1 in the very same parag raph has gone on to say that
2021:DHC:69I.A. No. 5541/2020 in CS (COMM) 198/2020 Page 20 of 23
she denies the invoices in their entirety. The denial of the invoices is
reiterated by defendant no. 1 via her affidavit of admission and denial of
documents dated 14.08.2020 . Therefore, t his may require a further probe
along w ith further defences set up by defendant no. 1 .
36.9 Ozone, on the other hand, has not helped its cause as it has not placed
on record invoices for the period spanning between February 2019 and
February 2020; besides invoices for April and May 2020.
37. While Ozo ne has placed on record copies of letters and e -mails that
are said to have been served on defendant no.1 concerning payment of
outstanding franchise fee/royalty which included past dues as well, there are
unexplained periods qua which there are no communi cations on record. The
first communication concerning payment of dues is a letter dated 14.11.2017
which is followed by three letters dated 18.01.2018, 22.03.2018 and
28.06.2018. Thereafter, the next reminder -letter is , purportedly, sent on
28.02.2019 foll owed by one letter and email dated 26.02.2020 and e -mails
dated 02.03.2020 and 10.05.2020.
38. While it is not suggested that reminders ought to have been issued by
Ozone every other day – long gap in communication, especially, between
June and December 2018 and between February 2019 and February 2020
may require inquiry given the defence set up by defendant no. 1 that Ozone
had waived payment of franchise fee/royalty .
39. What is also required to be noted is that none of the invoices made
any referenc e to the int erest/ penalty amount which according to Ozone was
payable at the rate of Rs. 10,000/ – per month. I may also note that while in
the email 02.03.2020 , towards outstanding franchise fee/royalty a sum of
Rs.32,75,000 /-(exclusive of GST and Service Tax amounting to
2021:DHC:69I.A. No. 5541/2020 in CS (COMM) 198/2020 Page 21 of 23
Rs.5,82,750/ -) was demanded for the period spanning between April 2017 to
February 2020. In the email dated 10.05.2020 the outstanding dues towards
franchise fee/royalty for the period April 2017 to May 2020 were quantified
at Rs.35,75,000/ – (exclusive of GST and Service Tax quantified at
Rs.5,82,750/ -). In both e -mails, the interest/penalty amount was quantified at
Rs.56,20,000/ -. The total amount demanded in the ema il dated 02.03.2020
was Rs.94,77 ,750/ – while the total demand in the email dated 10.05. 2020
was Rs.97,77,750/ -. What is not clear that even though the franchise
fee/royalty increased from Rs .32,75,000/ – to Rs.35,75,000/ – as the latter also
covered the months of March to May 2020 , the GST and Service tax amount
continues to remain quantified at Rs. 5,82,750/ -.
40. If one were to keep in mind the aforesaid aspects which have
emerged from the record , it would be evident that defendant no. 1 has raised
issues which would require a trial qua the claim set up by Ozone.
41. Apart from anything else , what c omes to fore , upon a meaningful and
careful reading of the pleadings filed by defendant no. 1 is that, she , in
effect , is raising a defence of waiver of franchise fee/royalty or, in the very
least, a plea of mitigation. A perusal of t he pleadings filed by defendant no .
1 would show that she seeks to assert that Ozone ought to have terminated
the agreement if it was not inclined to waive the recovery of franchise
fee/royalty to mitigate its losses. These assertions , to my mind , at this
juncture, raise not only a possibi lity of the defence succeeding but also
appear to be bona fide and genuine for the reason that Ozone has not been
able to explain , at least at this stage , as to why , firstly, it did not press for
claiming franchise fee/royalty between Sept ember 2016 and Ma rch 2017
and secondly, it did not terminate the FA despi te failure on the part of
2021:DHC:69I.A. No. 5541/2020 in CS (COMM) 198/2020 Page 22 of 23
defendant no. 1 to pay franchise fee/royalty for three consecutive mo nths in
consonance with clause (iii) of Schedule D read with clause 18 of the FA.
42. All that Ozone did ove r 3 (three) years was to serve upon defendant
no.1 invoices and issues letters/emails demanding payment of franchise
fee/royalty (assuming, for the moment that all the invoices and
communications were served on defendant no.1) without taking any steps
towa rds cutting its losses.
43. On the other hand , defendant no.1, has asserted that Ozone did not
discharge a single obligation as provided in Clause 6 and 7 of the FA.
44. Thus , taking an overall view of the pleadings and material presently
placed on record, I am o f the view that evidence is required to be placed on
record by Ozone to demonstrate , firstly, that it fulfilled its obligations under
the FA. Secondly, as to why Ozone did not take steps to mitigate its losses
once defendant no. 1 had defaulted in payment of royalty fee for three
consecutive months ; conduct which seems inexplicable to any reasonable
man of commerce . Defendant no. 1 , on the other hand , would have to
establish a waiver of dues by Ozone .
45. Furthermore, in my opinion, an opportunity needs to be given to
parties to demonstrate as to whether or not they have discharged their
respective obligations as stipulated in the FA.
46. I may also indicate that prima facie the claim for payment of
interest/penalty at the rate of Rs.10,000/ – per month at this stag e is suspect
unless Ozone can demonstrate that it suffered an injury which resulted in
damages. The damages , if at all payable , can only be granted to the extent
they are reasonable. In the plaint, there are no such assertions made.
47. Furthermore , as noticed hereinabove , the claim for a penal amount of
2021:DHC:69I.A. No. 5541/2020 in CS (COMM) 198/2020 Page 23 of 23
Rs.56,20,000/ – seems to be completely unsustainable at this juncture.
48. In nutshell, in my view, the case needs to proceed to trial as there are
aspects which would , perhaps , require oral evidence. In other words , given
the gaps in the material, presently, available with the Court, it would not be
appropriate to render a summary judgement in favour of Ozone.
49. Therefore, for the foregoing reasons , the application is disposed of
with the following directions:
(i) Defendant no. 1 will file an affidavit setting forth therein the
details of its unencumbered assets worth Rs. 35,75,000/ -.
(ii) In case, defendant no. 1, is desirous of selling or disposing of
assets detailed out in her affidavit , prior permission of the Court
would be taken.
(iii) The aforementioned affidavit will be filed within three weeks
from the da te of receipt of the copy of this order.
CS(COMM) 198/2020
50. List before the Joint Registrar (Judicial) on 28.01.2021 for exhibiting
the documents.
51. List before the Roster Bench , for framing of issues , on 18.03.2021 .

RAJIV SHAKDHER, J
JANUARY 08, 2021
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2021:DHC:69