YUM! RESTAURANTS INDIA PRIVATE LIMITED vs A.N. TRADERS PRIVATE LIMITED & ORS.
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: 30th November, 2023
Pronounced on: 28th February, 2024
+ CS(COMM) 376/2019, I.A. 9998/2019 (under Order XXXVIII Rule 35 CPC), I.A. 7609/2023 (under Section 151 CPC)
YUM! RESTAURANTS INDIA PRIVATE LIMITED ….. Plaintiff
Through: Mr. Rajeeve Mehra, Sr. Advocate with Mr. Parth Dua, Advocate.
versus
A.N. TRADERS PRIVATE LIMITED & ORS. ….. Defendants
Through: Mr. Ashim Vaccher & Mr. Vinayak Uniyal, Advocates.
CORAM:
HON’BLE MS. JUSTICE NEENA BANSAL KRISHNA
J U D G M E N T
NEENA BANSAL KRISHNA, J.
I.A. 18473/2019 (under Order 37 Rule 3(5) read with Section 151 CPC for seeking leave to defend and contest the abovementioned suit)
1. The application under Order 37 Rule 3(5) read with Section 151 of the Code of Civil Procedure, 1908, (hereinafter referred to as CPC’) has been filed on behalf of the defendants for seeking Leave to Defend and contest the above-mentioned suit.
2. The plaintiff herein had filed a summary suit under Order XXXVII CPC for recovery of Rs.24,95,01,346/- along with interest, in terms of the Memorandum of Understanding (MoU) dated 22.07.2016. It is submitted in the suit that the plaintiff is the worlds largest food chain company with nearly 43,000/- restaurants in 135 countries across the globe. The plaintiffs restaurant brands are KFC, Pizza Hut and Taco Bell, which are the global repute for chicken, pizza and Mexican-style food categories.
3. Mr. Ashok Sharma, Defendant No. 3 and his representatives approached the plaintiff in the year 2004, to open and operate the franchisee stores for KFC at various places in the State of Punjab and Delhi. The franchisees stores were proposed by the defendant No. 3, to be operated by his companies (i) AN Traders Private Limited (ANTPL)/defendant No. 1 and (ii) Silver Leaf Hospitality Private Limited (SLHPL)/defendant No. 2.
4. The defendant No. 3, Mr. Ashok Sharma executed various Agreements with the plaintiff in his capacity as Director of defendant Nos. 1 and 2 and also in his personal capacity. Specifically, in terms of Licensee Shareholders Agreements executed by the defendant No. 3, he guaranteed due and punctual performance of all the obligations and liabilities of defendant Nos. 1 and 2, under various Agreements.
5. The parties entered into various Agreements to run the Franchisee business in the years 2004, 2005 and entered into the Licensee Shareholders Agreement dated 12.04.2004 and 21.11.2005, Technology License Agreement, Trade Mark License Agreement, Tripartite Operating Agreement dated 29.07.2010 and 28 separate TLAs and TMAs for each outlet operated by the defendant Nos. 1 and 2. The defendant No. 3 was operating 27 outlets through defendant No. 1 and one outlet through defendant No. 2.
6. It is submitted that in the year 2010, the defendants started defaulting in payments which were contractually due to the plaintiff under the Agreements. On several occasions, the defendant No. 3 made false promises and gave undertaking to clear the outstanding payments but failed to do so.
7. In May, 2013, the defendant owed about INR 2.70 Crores (INR 1,35,95,358/- on account of continuing fee and an amount of Rs. 1,34,05,724 on account of advertising contribution, to the plaintiff and the subsidiary Company. The defendants failed to clear the outstanding dues and the Notice of breach dated 08.07.2013 and 11.09.2013, were issued by the plaintiff to the defendant No.1 calling upon them to rectify the defaults and to make the outstanding payments. No response was received to any of these Notices.
8. The plaintiff was left with no option but to terminate the TLA for Rajouri Garden outlet vide Letter dated 25.11.2013. The defendant No. 3, in order to avoid termination on 27.11.2023, issued post-dates cheques for the amount of Rs.3,00,81,328/- towards the part payment of the amounts due to the plaintiff. On these assurances, the defendant No. 3 was continued to operate the Rajouri Garden outlet vide communication dated 28.11.2013. However, all the cheques on presentation were dishonoured. The plaintiff, therefore, terminated the TLA for the outlet at Kirti Nagar, New Delhi vide Letter dated 25.12.2013.
9. The defendant No. 3, in order to satisfy the outstanding payments, made a part payment of Rs.2 Crores on 03.01.2014. However, the defendants again defaulted in making the payment resulting in termination of 6 TLAs by the plaintiff vide Letters dated 13.01.2014 and 21.01.2014. On the assurances of the defendant No. 3 that it would clear the outstanding dues, the termination of TLAs was issued only in respect of six outlets and not all the outlets.
10. The defendant No. 3 then issued 13 cheques stated 10.03.2014, for a total sum of Rs.4,44,64,823/-, towards part payment against the outstanding dues but these cheques were also dishonoured for insufficient funds. Two legal Notices dated 20.03.2014, were issued and thereafter, the Complaint under Section 138 of the Negotiable Instrument Act, 1881, has been filed, which is pending adjudication.
11. On 08.07.2015, the plaintiff was informed that the defendant No. 1 has entered into a Business Transfer Agreement dated 15.05.2015, with Sapphire Foods India Private Limited (SFIPL) for all its 27 outlets. The defendants were required to obtain a No-Objection Certificate from the plaintiff for the transfer of business. The plaintiff gave conditional approval to defendant No. 1, to sell the franchisee business to SFIPL on fulfilment of the specified conditions vide its Letter dated 27.07.2015. The condition included that the sale be completed within 60 days. Also, Rs.8 Crores due to the plaintiff and Rs.6 Crores due towards its subsidiary and outstanding funds for World Hunger Relief Fund, will be cleared and all outstanding statutory dues and vendors shall be paid.
12. The defendants failed to clear the outstanding payment and the plaintiff vide its Letter dated 23.10.2015 gave 30 days more to the defendants to clear all their dues of Rs.17.90 Crores as on 30.09.2015. The defendant, however, failed to clear the outstanding payments.
13. The plaintiff was thus forced to terminate the remaining TLAs and TMAs along with the Operating Agreement vide Letter dated 07.01.2016. The LSA dated 12.04.2024 and 21.11.2005 executed with defendant Nos. 2 and 1 respectively, for various outlets in Punjab, Haryana, Uttar Pradesh and Delhi, were also terminated.
14. In order to settle the disputes with the plaintiff, the defendant No. 3 proposed yet another Scheme to clear the outstanding liabilities as detailed in the MoU dated 22.07.2016, executed between the plaintiff and the defendant Nos. 1 and 2. The defendants expressly admitted the liability of Rs.20,46,16,045/-, on the date of execution of MoU, which is inclusive of interest as on date. The defendant Nos. 1 and 2, in terms of the MoU, made payment of Rs.2,50,00,000/- on 24.08.2016, leaving a balance of Rs.17,96,16,045/-, towards which eight cheques dated from 15.08.2016 to 31.03.2017, were issued. It was agreed that waiver of Rs.2 Crores, towards the admitted Principal amount and the entire interest amount, would be given provided the other terms as contained in the MoU, were satisfied by the defendant Nos. 1 and 2. The defendants in Clause 10 unequivocally agreed that if the afore-mentioned cheques were dishonoured, the entire liability of the defendants, shall stand revived.
15. It is claimed that all the cheques on presentation were dishonoured. Consequently, in terms of the Clause 10, on the entire liability of the defendants under the MoU, stood revived. The plaintiff is entitled to recover the following amounts:
1. Admitted liability under the MoU : INR 20,46,16,045/-
2. Less amount received from SFIPL : INR (-) 2,50,00,000/-
as explained in para 35(a)
3. Interest from the date of default till : INR 6,98,85,301/-
the date of the Suit under the terms
of the Agreement
(detailed calculation is given below)
Total : INR 24,95,01,346/-
16. The plaintiff has also claimed that since it is a commercial transaction within the meaning of Section 34 of the Code of Civil Procedure, the defendants are liable to pay the interest as applicable on the date of default. The SBI Prime Lending Rate of Interest is 14.05% p.a. from 13.12.2016 till 19.10.2019, which comes to Rs.6,98,85,301/-. The future interest @ 14.05 is also claimed.
17. Hence, the summary suit for recovery of Rs.24,95,01,346/- along with interest @ 14.05 p.a., has been filed against the defendants.
18. The defendants were served with the summons for appearance and they put in their Appearance. Thereafter, on service of Summons for Leave to Defend, they filed the application bearing I.A. No. 18473/2019 under Order 37 Rule 3(5) CPC for leave to defend the present suit. The application was supported with an affidavit giving the grounds for seeking leave to defend.
19. Essentially the facts of defendant Nos. 1 and 2 through the defendant No. 3 having taken the franchisees of plaintiff through the various Agreements is not in dispute. It is further not in dispute that there were various business transactions which occurred and the Notices for closure of six outlets of the defendant Nos. 1 and 2, was served by the plaintiff.
20. The defendants, however, sought the leave to defend on the ground that the claim of the plaintiff is not based entirely on the alleged MoU dated 22.07.2016 since there have been subsequent payments made in the account. As per the alleged MoU dated 22.07.2016, the total alleged outstanding dues of the defendant Nos. 1 and 2, was capped at Rs.15,92,78,448/-. The relevant Clause is reproduced as under:-
AND WHEREAS Franchisor hereby agrees to cap the financial liability of the Franchisee to the extent of Principal Amount of Rs.15,92,78,448/- (Rupees fifteen Crore Ninety Two Lakh Seventy Eight Thousand Four Hundred Forty Eight Only) and an interest on Principal Amount as may be applicable, till the date of final payment by the Franchisee to the Franchisor.
21. Further, the plaintiff had alleged that the post-dated cheques were issued by the defendant Nos. 1 and 2. The details of the post-dated cheques are as under:-
2. That it is further agreed that an amount of Rs.2,50,00,000/- (Rupees Two Crore Fifty Lacs) shall be paid by Franchisee to Franchisor vide a post dated cheque no. 000301 dated 15th August, 2016, drawn on RBL Bank, in the name of Yum! Restaurants (India) Pvt. Ltd.
3. That it is further agreed that an amount of rs.30,000 (Rupees Thirty Lacs), Rs.1,00,00,000/- (Rupee One Crore) and Rs.20,08,279 (Rupees Twenty Lacs Eighty Thousand Two Hundred and Seventy Nine) shall be paid by Franchisee to Franchisor vide post dated cheque no. 000303 dated 15th August 2016, cheque no. 000306 dated 31st March 2017 and cheque no. 000308 dated 31st March 2017 respectively drawn on RBL Bank, in the name of Yum! Restaurants (India) Pvt. Ltd.
4. That it is further agreed that an amount of Rs.4,50,00,000/- (Rupees Four Crore Fifty Lacs, Rs.1,00,00,000/- (Rupee One Crore) and Rs.58,05,346 (Rupees Fifty Eight Lacs Five Thousand Three Hundred and Forty Six) shall be paid by Franchisee to Franchisor vide a post dated cheque no. 000304 dated 30th November, 2016, cheque no. 000307 dated 31st March, 2017 and cheque no. 000309 dated 31st March 2017 respectively drawn on FBL Bank, in the name of Yum! Restaurants (India) Pvt. Ltd.
5. That it is further agreed that the remaining balance of Rs.1,50,00,000/- (Rupees One Crore Fifty Lacs) shall be paid by Franchisee to Franchisor vide a post dated cheque no. 000305, dated 28th December 2016, drawn on RBL Bank, in the name of Yum! Restaurants (India) Pvt. Ltd.
22. It is submitted that on addition of the alleged amounts, as mentioned in Clause 2 to 5, the amount comes to Rs.11,58,13,625/-. To this sum another sum of Rs.2.5 Crores has been added, as per the Clause 1 of the MoU, which reads as under:-
1. That the Franchisors new franchisee, Sapphire Foods India Private Limited (SFIPL) will make an immediate payment of Rs.25,000,000 (Rupees Two Crore Fifty Lacs) on behalf of Franchisee on the closure of the Business Transfer Agreement (BTA) between Franchisee and SFIPL. In the event SFIPL fails to pay the said amount, Franchisee shall pay the said amount directly to the Franchisor within 3 (three) days from the date of closing of BTA which shall be closed by 05th August, 2016, failing which, the Franchisee will make good the aforesaid payment of Rs.2,50,00,000 (Rupees Two Crore Fifty Lacs) immediately.
23. Rs.2.5 Crores were admittedly received by the plaintiff from Sapphire Foods India Private Limited (hereinafter referred to SFIPL) 24.08.2016. Even if these amounts two are added, the total amount comes to Rs.14,08,13,625/-. Therefore, it is evident that there were no liquidated amount as has been alleged by the plaintiff, to have been acknowledged by the defendants.
24. As per the Clause of MoU, the interest was payable as was applicable on the date, on the principal amount liable to be paid by the defendant Nos. 1 and 2. However, without assigning any reason and in violation of the terms of MoU, a claim is made for Rs.20,46,16,045/-, which is not the outstanding amount in terms of the MoU. The suit is, therefore, not maintainable under Order 37 CPC.
25. Moreover, the suit is not based on MoU but on the balance mentioned on the foot of alleged Statement of Account filed by the plaintiff on which the suit under Order 37 CPC is not maintainable. Moreover, the compound interest is sought to be charged by the plaintiff on the claim amount, which admittedly also includes the interest of Rs.45,33,75,97/- in the principal amount. The plaintiff has sought to charge the compound interest, which is again not in accordance with the terms contemplated under the MoU. On this account as well, the Order under 37 CPC is not maintainable.
26. Moreover, the plaintiff has not placed on record any Invoices in support of the alleged sum of Rs.15,92,78,448/- or the alleged sum of Rs.20,46,16,045/- as being due and payable by the defendants.
27. The defendant has further asserted that the present suit is vitiated by fraud played upon the defendants by the plaintiff. The plaintiff had got the MoU dated 22.08.2016 signed from the defendant Nos. 1 and 2 by adopting unfair means and tactics, in connivance with SFIPL and by exerting pressure on the defendant Nos. 1 and 2. The MoU dated 22.07.2016 along with the cheques were got signed by the plaintiff, on the condition to provide NOC so that Sapphire Food India Private Limited, would release payments. An FIR No. 521/2017 was filed by the defendant No. 3, as Director of defendant No. 1. The plaintiff had filed a petition under Section 482 of the Code of Criminal Procedure, 1973, for quashing of FIR, against the plaintiff and other named persons.
28. Further, the plaintiff forced the defendants under pressure to enter into Business Transfer Agreement (BTA) with SFIPL, with the understanding that the latter shall clear the entire liabilities of defendants towards the plaintiff. However, to further harass the defendants, the SFIPL paid only Rs.82 Crores out of Rs.94 Crores, to clear the outstanding dues of the Banks and Financial Institutions and balance payments were never made to defendant Nos. 1 and 2. Thus, in collusion with SFIPL, plaintiff ensured to not only give the business of the defendants suffered but also ensured that the defendants were unable to commence a new business venture.
29. In terms of Schedule 7 of BTA, the business liabilities of defendant Nos. 1 and 2 were taken over by SFIPL. The plaintiff instead of seeking the balance payment from SFIPL, has filed the present suit to extort the money from the defendants. It is, therefore, submitted that the defendants are entitled to leave to defend the present suit.
30. Submissions heard and the written submissions/Judgments filed on behalf of both the parties have been perused.
31. The plaintiff has sought recovery of Rs.24,95,01,346/- along with interest @ 14.05% till the date of payment.
32. The first ground for seeking leave to defend agitated by the defendants, is that the suit amount is based on an MoU but it does not correspond to the amounts alleged to have been admitted by the defendants in the MoU. It also includes interest at the rate which was never specified under the MoU.
33. The defendants have placed reliance on IFCI Factors Ltd. vs. Maven Industries Limited, 225 (2015) DLT 32, wherein it is held that a suit if filed on the basis of a contract containing liquidated amount or a dishonoured bill of exchange or cheque, by itself without any further fact or document, required to be proved or pleaded shows the liability of the defendants only then such a suit is maintainable. However, if the amount claimed does not spring directly from a written document, i.e. dishonoured cheques, but further documents have to be looked into or the part-payment made after the contract is adjusted, then such suit is not maintainable under Order 37 CPC.
34. Similar view has been taken in the case of GE Capital Services India vs. Dr. K.M. Veerappa Reddy, 2015 SCC Online Del 13007; Ajay Shaw vs. HDFC Limited, MANU/DE/2541/2018; Krishan Chand Sharma vs. Altafur Rahaman, 2021 SCC Online Del 3021; Span Healthcare Private Ltd. vs. Vishal Sharma Proprietor, MANU/DE/2960/2021; Shree Sai Rent A-Car Pvt. Ltd. vs. Sea Bird Tourist Centre, 2018 SCC Online Bom 4823; Span Healthcare Private Ltd. vs. Vishal Sharma Proprietor, MANU/DE/2960/2021 and Shree Sai Rent A-Car Pvt. Ltdv. Vs. Sea Bird Tourist Centre, 2018 SCC Online Bom 4823.
35. In the present case, the plaintiff has alleged MOU dated 22.07.2016, mentioning an amount of Rs.20,46,16,045/- but has also claimed adjustment of Rs.2.5 Crores out of the total amount, leaving a balance of Rs.70,96,16,045/-. The alleged amount also includes an interest of Rs.6,98,85,301/- to arrive at a total of Rs.24,95,01,346/-. Prima facie, it is evident that the suit amount claimed is not as has been acknowledged under the MoU but there are subsequent adjustments also made. Moreover, there were various terms and conditions incorporated in the MoU for it to be effective. Whether those conditions have been violated by the defendants or have been complied, is a matter of evidence. It is not a case where the entire liability has claimed by the plaintiff, is concretized in the MoU. The defendants are, therefore, entitled to leave to defend the present suit.
36. The second ground on which leave is sought by the defendants is the BTA, which was entered into between the defendant Nos. 1 and 2 and SFIPL, which according to them, they had been forced to enter by the plaintiff. According to defendants, all their obligations were to be paid to the plaintiff by SFIPL. However, a payment of Rs.82,44,16,812/- out of Rs. 95 Crores has been made by SFIPL on behalf of the defendant Nos. 1 and 2.
37. The defendant Nos. 1 and 2 have been able to show the grounds entitling them to leave to defend the present suit. As held by the Supreme Court in the case of IDBI Trusteeship India Services Ltd. vs. Hubtown Ltd., (2017) 1SCC 568 if the defendant satisfies the Court that he has a substantial defence and he is likely to succeed, the plaintiff is not entitled for leave to summary judgment. Further, if the triable issues are raised by the defendants, indicating a fair reasonable defence, although not positively a good defence, the defendants are entitled to defend the suit. Similar observations have been made in Raj Duggal vs. Ramesh Kumar Bansal, (1991) Supp (1) SCC Page 191.
38. The plaintiff has relied upon Oil & Natural Gas Corpn. Ltd. vs. State Bank of India, 2001 SCC OnLine Bom 119; Daryanani (Indo Saigon) Construction (P) Ltd. vs. Mantri Realty Ltd., 2017, SCC OnLine Bom 7963; Khera Handloom Supply vs. O.B. Exports, 1990 SCC OnLine Del 42 and Diglife Distribution & Marketing Services Ltd. vs. Stalco Consultancy & Systems (P) Ltd., 2018 SCC OnLine Del 11278, wherein, it is submitted that where an amount is admitted by the defendants then merely because a claim for interest is made in the Legal Notice making a demand from the defendants, before the filing of the suit and subsequently, is a statutory right conferred by Section 34 and the claim of interest cannot be considered to be beyond the scope of Order 37 CPC, provided there are no other ground, which have been agitated in the Leave to Defend application.
39. The proposition of law in regard to interest is not in dispute. However, in the present case, the principal amount of Rs. 24,95,01,346/- is claimed to have been admitted under the MoU, which is not the case. Moreover, there are various defences raised by the defendants, in regard to the validity of the various terms which have been incorporated in the MoU. At this stage, it cannot be said that there is any unequivocal admission of a fixed liability by the defendant Nos. 1 and 2, entitling the plaintiff to a summary judgment.
40. In view of the above discussion, it is held that the defendant Nos. 1 and 2 have been able to disclose triable issues and entitle to leave to defend the present suit. The present application under Order 37 Rule 3(5) CPC of the defendants is allowed.
I.A. 7609/2023 (u/S 151 of CPC, 1908 by the defendants for filing of additional affidavit and additional documents on record)
41. Consequently, I.A. 7609/2023 also stands disposed of.
CS(COMM) 376/2019
42. The written statement along with necessary documents, if any, be filed, in accordance with law.
43. Be listed before the learned Joint Registrar for completion of pleadings on 22.03.2024.
(NEENA BANSAL KRISHNA)
JUDGE
FEB RUARY 28, 2024/RS
CS(COMM) 376/2019 Page 1 of 13