LEGAL

ASPECTS OF
BUSINESS

GROUP Legal and

NO. 8
SUBMITTED BY:
Business Risk
AVANI JAIN [21P130]
RAVI BAGDIYA [21P132]
LOKESH AGARWAL [21P150]
Assessment
MASOOM RANAWAT [21P152]
SHRESHTH HARI [21P170] GUIDED BY: PROF. PARUL GUPTA
SHREYA AKHOURI [21P172]
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OVERVIEW:
Assessing the legal and business risks from the perspective of ABC & PANTA, the franchisee, in the joint venture
agreement with XYZ International.

PARTIES:
XYZ- It is an international company incorporated under the laws of Belgium and is a leading seller of casual wear,
sports wear and accessories for men. It is looking to enter the Indian market by forming a partnership with Indus LC
[Hereby referred to as ABC] & PANTA.

PANTA- It was incorporated according to the Indian Companies Act [1956] and has its registered office in Mumbai. It
is one of the leading Indian retailers which operates in various segments like clothing, footwear, beauty, electronics,
financial products, music etc. PANTA is a part of the 4 major companies of the Future group.

ABC- It was incorporated according to the Indian Companies Act [1956] and has its registered office in Bangalore.
PANTA has a 76% equity shareholding in ABC which makes ABC a subsidiary of PANTA.

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LEGALLY BINDING CONTRACT

The contract is considered as legally blinding when a party makes an offer which is accepted by another party.
As the Parties have agreed to certain commitments, the contract is legally binding

The contract is legally binding as its content follows the laws and it does not violate any laws and hence it is
enforceable

The contract is legally binding as it contains well defined agreements and interpretations which the parties
have agreed to

The contract is legally binding as no party is being misled and all the involved Parties are aware of what they
are agreeing to, and they are agreeing to the same things

Parties have the capabilities of entering into a contract hence, the contract is legally binding

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CLAUSE 2.6:
In this agreement, PANTA & ABC shall not set up, and
undertake that all Future Group companies shall not set
up any kind of joint venture or any other agreement with
any third party in order to manufacture, sell or promote
casual wear, sportswear, eyewear, & accessories for
men.
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ASSESSMENT: PANTA is one of the largest Indian
retailers. By limiting it to just one particular
company's products in this segment, it will lose out
on significant business opportunities. This may also
jeopardize its existing corporate relationships with
other sellers.
SUGGESTION: This clause should be eliminated
from the contract's exclusivity section, and a new
clause should be added to the contract saying that
both parties are free to form a joint venture with
third-party sellers and manufacturers.
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ASSESSMENT: PANTA and ABC undertake to ensure
that the information processing system of the company
is compatible with that of XYZ. Since this is subject to
XYZ providing its IT specifications to PANTA and ABC
CLAUSE 2.8.1(a):
in advance, there is a potential business risk involved in
PANTA and ABC hereby agree that in order for the
this process for the franchisee which could eventually
Company to carry on the Business both PANTA and
create compliance problems in the future.
ABC shall provide administrative and corporate
SUGGESTION:
commercial advice, including legal & secretarial,
1. To minimize or avoid this business risk, compliance
information technology services. However, direct costs
management is one of the key strategies that
incurred in connection with the said services shall be
should be adopted by all major companies.
borne by the Company. PANTA and ABC undertake to
2. There are two areas to consider: internal
ensure that the information processing system of the
compliance to assure that best practices are being
Company is compatible with that of XYZ, subject to XYZ followed and coordinated internally, and external
having provided its IT specifications to PANTA and ABC compliance by following the laws, guidelines, and
in advance. regulations.
3. Continuous follow-up and coordination between the
franchisor and franchisee will be key factors here
to maintain the IT compliance.
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CLAUSE 2.8.2:
PANTA & ABC further guarantee to XYZ that:
Company will have a priority right for opening SASs in
PANTA departmental stores and Central departmental
stores owned directly or indirectly by Future Group, at
competitive market prices
They will make their best efforts to implant the
Company in the existing departmental stores and
Central departmental stores belonging to Future Group
and where PANTA and ABC have already a shop. It is
hereby specified that Future Group will allocate a shop
or a stand to the Company as soon as Future Group have
the possibility to do so, under 3-year leases renewable
by the Company for at least one further 3-year period
PANTA and ABC shall obtain the prior permission of the
Company before negotiating or committing to any rent
for EBO’s/SAS’s or shops or stands for the Company
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ASSESSMENT:
A situation can arise wherein PANTA-ABC get
helpless when they wish to lease the SASs to any
other brand, even if they are offering to pay a
premium over the competitive market prices if
they continue giving priority right to Company for
SAS’s in all departmental stores and Central
departmental stores owned directly or indirectly
by Future Group.
Also, committing to allocating a shop or a stand
to the Company for a 3+3 year period will freeze
the space for a long duration and PANTA-ABC
might miss out on opportunities for better
utilization of the space.
SUGGESTION: It is our suggestion that ABC &
PANTA have complete control over the right to lease
their property on their own terms, If the company
matches the best market price, then it should be
given priority.
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CLAUSE 3.4:
XYZ and ABC shall use all reasonable endeavours to procure that the Conditions Precedent are satisfied as soon as
practicable, and in any event no later than:
(a) 90 days from the signing of the Agreement; or,
(b) any other date agreed in writing by XYZ, ABC and PANTA, on or before that day.
Should the Conditions Precedent not have been satisfied or waived in the time period referred to in (a) and (b) above,
this agreement shall be deemed null and void.
ASSESSMENT: According to the given information, the obligation of the Company to issue and allot the Shares to
XYZ and ABC and the obligation of XYZ and ABC to subscribe to the Shares shall be subject to the fulfilment of some
five "Conditions precedent."
Therefore, there is a potential risk involved, since the five conditions precedents mentioned depends on various
internal, external as well as the regulatory factors. There might be chances that there conditions are not met in the
given timeline which may lead the agreement to be deemed null and void.
SUGGESTION: To satisfy the condition of XYZ and ABC obtaining all government approvals, both the companies
should be well aware of the different government laws and regulations to avoid any last-minute hiccups. Here, the
franchisee ABC should take the lead and be more proactive, since it has more knowledge of the Indian regulations.
For the timely execution of Trademark Licence Agreement, the necessary legal documents, permissions and the
supporting affidavit should be arranged by the concerned companies as soon as possible, since these legal processes
can take time and can affect the overall agreement between the two parties.
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CLAUSE 3.6 & 5(b):
3.6-At any time upon the request of XYZ, ABC undertakes to sell the relevant number of shares to XYZ at Fair Market
Value or to allow XYZ to subscribe to a reserved share capital increase, at XYZ’S choice, so as to allow XYZ to
increase its stake in the share capital of the Company up to the maximum level from time to time authorized by the
law in force in India for foreign investors in the retail business.
5.b-If required, the maximum investments by way of loan etc. (including the total paid up capital of the Company) in
fixed assets of the Company, shall be, for each year, equally divided between XYZ and ABC.

ASSESSMENT: According to this, XYZ has the right to increase its share in the company to the maximum permissible
level in the country. Panta & ABC do not have the right to deny the sale of their shares to XYZ. This will skew the
decision-making power in the favor of XYZ and thus is a huge business risk for ABC & Panta.

SUGGESTION:
The clause should be amended to make sure that such a transfer of shares is only possible upon the agreement of
both parties.
Also instead of an equal split of loans and other liabilities, these should be shared in the ratio of the share capital
equity between XYZ and ABC.

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CLAUSE 6.1(a) Board Composition:
As long as XYZ and ABC hold Shares in the Company in the proportions set out in clause 3.1, both XYZ and ABC shall
have equal representation on the Board. It is agreed that the total number of Directors shall be eight (8), which may
be increased or decreased from time to time by mutual consent of both XYZ and ABC.
It is agreed between the Parties that the representation of XYZ and ABC on the Board shall be adjusted to the
participation of XYZ and ABC in the share capital of the Company if XYZ following the application of Clause 3.6.

ASSESSMENT: This clause forces ABC to sell their stocks to XYZ whenever they wish to purchase them. This will
make ABC helpless in situations where it’s in their best interest to hold these shares. In addition to this, the
representation of XYZ and ABC will also change based on the proportion of shares held by each of them. Hence,
selling shares to XYZ will lead to a majority of members of XYZ on the board of directors.

SUGGESTION: The transfer of shares should happen after mutual consent of both the parties.

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CLAUSE 7 RESERVED MATTERS:
i) The decisions relating to the following Reserved Matters are of the exclusive competence of the Board.
a) registration of New Trademarks, and any matter in relation to the use of the Trademarks or of New Trademarks
including taking any action for infringement by the Company against any misuse by any Third Party of Trademarks or
the New Trademarks;
l) granting, to Third Parties, licenses/ sub-licenses and rights with respect of patents, manufacturing technology,
trademarks and other industrial property regarding the Trademarks or New Trademarks;
The Chairman shall have an additional or casting vote for matters referred to in paragraphs a) and l) above.

ASSESSMENT: Chairman of the board is from XYZ and has an extra vote in certain scenarios. This is a business risk
as in cases where XYZ and ABC contradict, XYZ will always get their way. This makes the partnership unbalanced.

SUGGESTION: It is better to assign a chairman independent of XYZ and ABC so as to maintain neutrality. This can be
done by selecting someone from a third party company. Another way is to create a pattern of cyclicity where the ABC
and XYZ get to select the chairman every alternate term.

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CLAUSE 7 (ii):
The decisions relating to the following Reserved Matters are of the exclusive competence of the General Meeting:
a)any alteration including deletion or addition to the Memorandum and Articles of Association of the Company
including any change in the number of the Directors;
b)any re-construction, consolidation, merger/ demerger or amalgamation or entering into any agreement or
arrangement with the creditors or class of them or members or class of them;
c)appointment or removal of statutory and internal auditors including the terms of appointment. Any change in the
financial year or change to material accounting or tax policies or practices;

ASSESSMENT: The General meeting is made up of shareholders. XYZ already has one additional shareholder ie 4
compared to 3 for PANTA. This gives them the ability to take major decisions such as modifying the memorandum or
changing the number of directors with a majority. Plus this meeting is presided over by the chairman of the Board
who is from XYZ.

SUGGESTION: One protecting factor for ABC & Panta here is that these decisions require the vote of at least one
shareholder from both the sides. Our recommendation is to have an an equal number of shareholders for both XYZ
and ABC. The person presiding over these meetings should be elected by mutual consent of both the parties.

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CLAUSE 14.4:
Each of XYZ and ABC & PANTA shall inform (and shall use all reasonable endeavours to procure that the Company
shall inform) any officer, employee or agent or any professional adviser advising it in relation to the matters referred
to in this Agreement, or to whom it provides Confidential Information, that such information is confidential and shall
require them:
(a) to keep it confidential; and
(b) not to disclose it to any Third Party (other than those Persons to whom it has already been disclosed in
accordance with the terms of this Agreement).
ASSESSMENT: Assessing the extent of damage to the Business continuity due to the breach of confidentiality.
Analyzing the effect of breach of confidentiality on business operations, reputation and advantage to competitors.
Evaluating the monetary, legal, social and business implications due to the breach of confidentiality and assessing all
parameters covering the effect on business plan from a holistic point of view.
SUGGESTION: Collecting evidence to ensure all facets are covered and all relevant data and information pertaining
to the breach are at our disposal to take the next step i.e., resolution of the situation.
Engaging with the appropriate legal entity to take legal action against the party that breached confidentiality and
discuss all possible options to find the best course of action. After analyzing and examining the potential business
implications and effect of the breach of confidentiality, it is necessary to alter the business plan and form new
strategies to cover vulnerabilities and potential weaknesses the company may now be victim to.

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CLAUSE 16.2:
Any dispute arising out of or in connection with this Agreement, including any question regarding its existence,
validity or termination, shall be referred to and finally resolved by arbitration in Singapore in accordance with the
Rules of Conciliation and Arbitration of the International Chamber of Commerce, Paris (“Rules”) for the time being
in force, which rules are deemed to be incorporated by reference in this Clause.
The tribunal shall consist of three arbitrator(s) each appointed in terms of the Rules in consultation with XYZ and
ABC & PANTA.
The language of the arbitration shall be English and the place of arbitration shall be Paris.

ASSESSMENT: In the above agreement, two of the parties involved ABC & PANTA have their offices registered in
India, both of which have incorporated a company XYZ to form a joint venture. But in this case, Indian companies
won’t abide by the laws enforced in Paris.

SUGGESTION:.
The new joint venture should abide by the Indian laws and any dispute related to them should be handled in state
courts.
Ad hoc arbitration should be passed with the clause in order to avoid the dispute and this will further allow parties
to determine all aspects of the arbitration.
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THANK YOU
Q&A

LEGAL ASPECTS
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