- Legal Dispute: Honasa, the parent company of Mamearth, has been ordered by a UAE court to pay INR 57 crore to its former distributor, RSM General Trading, for terminating their contract unlawfully.
- Contract Termination: RSM General Trading served as Honasa’s distributor in the Middle East and Africa markets from July 30, 2020, to January 17, 2023, before the contract was terminated prematurely.
- Court Ruling: The UAE’s Court of Full Commercial Jurisdiction in Dubai ruled in favor of RSM General Trading, mandating Honasa to pay compensation totaling INR 56.6 crore, along with attorney fees and legal interest.
- Appeal Intention: Despite the ruling, Honasa plans to appeal the decision, claiming it lacks merit and does not adequately consider the company’s objections. The appeal will be submitted to the Court of Appeal in Dubai.
- Impact on Expansion Plans: The legal dispute potentially disrupts Honasa’s plans for international expansion, particularly in the UAE, as it had previously aimed to enhance its presence in the region through strategic acquisitions or organic growth.
- Financial Performance: Despite the legal setback, Honasa has witnessed significant growth since going public, with its consolidated net profit increasing by 264% to INR 25.9 crore in Q3 FY24. However, there was a slight sequential dip from the previous quarter.
- Diverse Portfolio: Honasa operates a diverse portfolio of brands, including The Derma Co, Aqualogica, Ayuga, Dr. Sheth’s, BBlunt, and Mamearth. Momspresso was shut down prior to Honasa’s IPO.
In a recent development, Honasa, the parent company of Mamearth, has been ordered by a UAE court to pay a hefty fine of INR 57 crore to its former distributor, RSM General Trading, for what the court deemed unlawful contract termination.
The legal saga unfolded when RSM General Trading, Honasa’s distributor in the Middle East and Africa markets from July 30, 2020, to January 17, 2023, took legal action against Honasa for terminating their contract prematurely. The UAE’s Court of Full Commercial Jurisdiction in Dubai ruled in favor of RSM General Trading, ordering Honasa to compensate the former distributor.
According to an exchange filing by Honasa Consumer Ltd, the court mandated the payment of AED 25.07 million (approximately INR 56.6 crore) as compensation, along with AED 1,000 (INR 22,665) in attorney fees and legal interest at a rate of 5%.
Despite the court’s ruling, Honasa has expressed its intention to challenge the decision, claiming that the judgment lacks merit and fails to adequately consider the company’s objections. Honasa plans to appeal the decision with the Court of Appeal in Dubai, signaling its determination to contest the fine imposed by the lower court.
This legal setback comes at a critical juncture for Honasa, as it gears up for further expansion and international market penetration. The company had previously severed ties with RSM General Trading a few months before its IPO in India, as part of its strategy to enhance international expansion efforts, particularly in regions like Bangladesh, Malaysia, Vietnam, and Thailand.
However, the dispute with its former distributor has potentially disrupted Honasa’s plans for UAE expansion through strategic acquisitions or organic growth. The outcome of the legal battle remains uncertain, raising questions about Honasa’s future trajectory in the international market.
Despite the legal challenges, Honasa continues to operate a diverse portfolio of brands, including The Derma Co, Aqualogica, Ayuga, Dr. Sheth’s, BBlunt, and Momspresso, alongside its flagship brand Mamearth. Notably, Momspresso was shut down prior to Honasa’s IPO.
Financially, Honasa has seen significant growth since going public, with its consolidated net profit soaring by 264% to INR 25.9 crore in Q3 FY24, compared to INR 7.1 crore the previous year. However, there was a slight dip of 11% sequentially from the INR 29.4 crore profit recorded in the previous September quarter.
As Honasa navigates through this legal challenge, its ability to overcome the fine and resume its expansion plans will be closely watched by investors and industry observers alike, shaping the company’s future prospects in the competitive global market landscape.