Hidden costs in Business Alliances and Agreements

Hidden costs in Business Alliances and Agreements

Case of BMW India with its dealer in Hyderabad

Charges:

BMW India was dumping cars on its dealer but when he raised a dispute his dealership was terminated and arbitration proceedings were initiated. Soon thereafter the dealer filed an FIR. The Chief Financial Officer was arrested and other Board members, mostly expats, had to abscond abroad. Legal costs ran into crores of rupees over nearly 5 years. Ultimately, a huge out of court settlement brought an end to this saga but it has subsequently opened the Pandoras Box with regard to other dealers.

How ALP‘s Prophylactic and practices could have prevented this?

Agreements should have contained clauses which prevented criminal liability of BMW against dealers rather than agreements providing defence to BMW in civil cases.

There was a need for BMW to implement effective preventative strategies to have ensured that no FIR was registered against the company.

Once registered, BMW should have registered a cross FIR against the dealer on the same cause of action to ensure that dealer could not press for the arrest without exposing himself to a similar liability.

Out of court settlement from a position of weakness proved to be exorbitant for BMW.