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21 March 2017

Franchise service - Whether right conferred is a representational right, to be established

Delhi High Court has held that merely because by an agreement, a right is conferred on a party to sell or manufacture goods or provide services or undertake a process, it would not ipso facto bring the agreement within the ambit of a franchise.

The Court in this regard, in its decision in the case Delhi International Airport P. Ltd. v. Union of India, was of the view that it has to be established whether the right conferred is a representational right. It held that upfront fees and annual fees paid to the Airport Authority of India by the assessee under a joint venture agreement to develop, operate and manage airports would not be covered under Franchise service.

It was held that once the functions of Authority were completely divested by it and assigned to the petitioners, there is no question of the petitioner representing the Authority in performance of those functions.