Trademark-use disputes arising from franchise agreements are arbitrable when they concern inter-party rights in personam.

ZEE Learn Limited (“Petitioner”) granted Beauty Singh (“Respondent”) a franchise to operate a “Kidzee” centre at Koderma, Jharkhand, under a Franchise Agreement dated 20 January 2014, which expired by efflux of time on 20 January 2020.

The Petitioner alleged that, despite expiry, the Respondent continued using the mark “KIDZEE” and subsequently adopted “KIDGEE” for the same educational activity, thereby creating an impression of continuing association with the Petitioner.

The Respondent denied continued use of “KIDZEE”, contending that she had begun operating an independently permitted school under the name “KIDGEE School” through Bihan Foundation and had obtained governmental educational registration and a UDISE code.

The Petitioner filed the present application under Section 9 of the Arbitration and Conciliation Act, 1996, seeking injunctions, preservation and disclosure of records, a bank guarantee of ₹7,85,56,728, and appointment of a Court Receiver.

1. Whether the dispute concerning the Respondent’s post-termination use of “KIDZEE”, “KIDGEE” or a deceptively similar mark arose from the Franchise Agreement and was arbitrable, permitting interim relief under Section 9 of the Arbitration and Conciliation Act, 1996.

2. Whether use of “KIDZEE” or “KIDGEE” after expiry of the franchise breached the negative covenant in Clause 14.4 and was likely to suggest a continuing association with the Petitioner.

3. Whether the Respondent’s governmental permission, educational registration and UDISE code constituted a defence to the alleged contractual breach.

4. Whether the Petitioner was entitled at the interim stage to a bank guarantee, appointment of a Court Receiver, preservation of records and disclosure of financial and operational information.

Section 9 of the Arbitration and Conciliation Act, 1996 permits interim measures to protect the subject matter of arbitration and preserve the efficacy of eventual relief.

An arbitration clause covering disputes “arising out of or in connection with” an agreement is construed broadly, including disputes concerning the scope and effect of the contractual relationship, as explained in Renusagar Power Co. Ltd. v. General Electric Co.

Trademark disputes involving rights in personam between parties to a licence or franchise agreement are arbitrable, although matters concerning registration or rights erga omnes may not be, as recognised in Vidya Drolia v. Durga Trading Corporation and K. Mangayarkarasi v. N.J. Sundaresan.

A contractual negative covenant prohibiting a former franchisee from claiming association with the franchisor may be enforced against that franchisee.

Deceptive similarity is assessed by the overall impression, including phonetic similarity and the likelihood that an ordinary consumer may believe that the defendant’s business is associated with the plaintiff; the Court relied on K.R. Chinna Krishna Chettiar v. Sri Ambal & Co., Encore Electronics Ltd. v. Anchor Electronics and Electricals Pvt. Ltd., and Laxmikant V. Patel v. Chetanbhai Shah.

Administrative or governmental permission to operate a school does not override a private contractual obligation concerning use of a trademark or representation of affiliation.

The Court held that the Petitioner was not seeking a declaration of trademark ownership binding on the world at large, but enforcement of contractual obligations against a former franchisee. The dispute therefore concerned rights in personam arising from the Franchise Agreement and fell within the broad arbitration clause.

Clause 14.4 created a clear negative covenant barring the Respondent, after termination, from claiming or advertising any association with the Petitioner “in any manner”.

Although “KIDGEE” was not identical in spelling to “KIDZEE”, the Court considered the overall circumstances: the Respondent had operated the same school under “KIDZEE” for approximately six years, continued the same educational activity in the same locality, knew that renewal had not been granted, and thereafter adopted a phonetically and structurally similar name.

These circumstances established a strong prima facie possibility that ordinary parents and members of the public might perceive a continuing association with the Petitioner.

The Court further held that the UDISE code and governmental permission operated in a separate field and did not revive the expired trademark licence or negate the contractual covenant.

Preservation and limited disclosure of records were considered necessary to protect the Petitioner’s potential monetary claim, but a bank guarantee for the entire disputed amount and appointment of a Receiver were regarded as disproportionate and premature because liability and quantum remained to be determined in arbitration.

Pending commencement and final adjudication of the arbitral proceedings, the Respondent was restrained from conducting or implementing the Petitioner’s “Kidzee Program”, using “KIDZEE”, “KIDGEE” or any deceptively or phonetically similar mark in connection with her school or educational services, and using any name, logo, publicity material or representation suggesting association, affiliation or connection with the Petitioner.

She was directed to remove such marks and representations from the school premises, advertisements, brochures, uniforms, stationery, websites, social media and other material under her control.

She was also directed to preserve relevant operational, admission, fee, banking, marketing and electronic records from 20 January 2020 onwards and, within four weeks, file an affidavit disclosing specified details concerning the school, names used, student admissions, fees, bank accounts and use of the disputed marks.

The prayers for a bank guarantee of ₹7,85,56,728 and appointment of a Court Receiver were rejected, with final damages, accounts and liability left open for determination by the Arbitral Tribunal.