With the development of the hotel sector and the increasing entry of foreign players into the Indian market, the resolution of disputes arising from hotel management or franchise agreements is considered crucial in India. It is important to note that the form and nature of negotiations between an operator and an owner, including the law governing the contract and the agreed dispute resolution mechanism, form the basis of a hotel management or franchise agreement. To this end, it is recommended that the parties to these agreements pay attention to and ensure that certain key conditions are inserted in order to eliminate the risks to which one of the parties may be exposed. Since most of the new players in Indian markets are foreign companies that have agreements with Indian companies, and arbitration offers these companies flexibility in choice of law, dispute resolution forums, seat and place of arbitration, it has become a more popular choice. Unlike other industries and businesses, hospitality requires several permits from the central government, such as approval from the Ministry of Tourism and approval from regional authorities. This could range from police clearance to compliance with labour laws, then tax obligations, environmental clearance, depending on the size and scale of the industry. We have seen disputes arise related to the taxation of foreign hotel companies based on the extent of control exercised by these companies over the Indian company. A similar issue was examined, for example, before the Advance Rulings Authority, AAR, where Swissôtel, Kolkata, although owned by an Indian tax resident, was managed by FRHI Hotels and Resorts S.a.r.l (FRHI), a subsidiary of the Canadian-based hotel company, and was obliged to make payments for various services under the commercial agreement with FRHI. such as FRHI`s global booking services. The issue before the AAR was whether such a payment received by FRHI was taxable as a technical services charge or as a fee under the Indian tax system in connection with the Indo-Luxembourg tax treaty. The AAR went beyond the scope of the question before it and, in assessing the hotel management agreement, as well as the other agreements between the two parties, considered that the degree of control exercised by FRHI was global and that Swissôtel was therefore classified as FRHI`s `permanent establishment`. Therefore, the AAR found that all income received by FRHI from Swissôtel, Kolkata was taxable as business profits made in India.6 As our digital footprint continues to grow, a discussion on data protection in the hospitality industry becomes indispensable.
With online bookings and hotel maintenance of personal databases becoming the norm today, the industry is highly vulnerable to data breaches and cyberattacks. This situation is exacerbated by the scale of sensitive personal data (SPDI)12 collected from industry players. The vulnerable position of customers in the industry can be understood from several cases of violations that have taken place in India in the past. In November 2018, the Starwood division of the world`s largest hotel chain, Marriott International, was hacked, compromising sensitive records (including passport numbers and payment card details) of 500 million guests and affecting Indian hotels such as Le Meridian in Delhi, Westin in Mumbai, etc.13 Hyatt Hotels Corporation was also hit by malware between August 13, 2015 and August 8, 2015. December 2015. compromised information on the payment card details of its customers. affects 90% of the entire Indian portfolio.14 In the case of a franchise agreement, a franchisor who owns the hotel business and has established the brand name and a franchisee who is granted the right to establish a franchise using the franchisor`s intellectual property instead of a royalty payable to the franchisor are involved. Unlike a hotel management or operation agreement, where the operator manages the hotel but the responsibility for the risks associated with the business is assumed by the owner, in the case of a franchise agreement, all business risks associated with the establishment and management of a franchisee rest with the franchisee for as long as the franchise agreement exists. The franchisee is free to conclude contracts with third parties in order to entrust an operator with the management of the business. The relationship under a franchise agreement is therefore limited to the transfer of a right from the franchisor to the franchisee to use its intellectual property, including with respect to pre-existing operating methods and systems. In the case of hotel management or operation agreements, there is a direct relationship between the owner of a hotel and the operator (.dem i.e.
the hotel manager), under which the owner of the property or hotel binds the operator to conduct its business under the operator`s brand and operating procedures and systems, which are generally associated with the technical services provided by the operator. for a fee based on the company`s performance in terms of profit sharing, room occupancy targets, amenities and other revenue streams. We have seen that most major international brands operate according to this model. The operator may be a natural or legal person such as a company responsible for the operation, management, branding, marketing and provision of other services related to the business, while the ownership of the hotel or property and the risks associated with such ownership and certain aspects of the business such as the employment of personnel, obtaining local licenses and permits, remains with the owner. Secondly, issues related to copyright infringement on musical works are also a source of concern in the industry, as making music, organizing live band performances, etc. are common practices for entities in this sector.