Laws Governing Franchising in India

In the absence of a franchise-specific legislation in India, a franchise arrangement

would be governed by various applicable statutory enactments prevailing in India. A
gist of some important statutes is summarized as a brief overview.
(I) Contract Law
The contractual relationship between a franchisor and a franchisee would be governed
by the Indian Contract Act, 1872. In accordance with the Indian Contract Act, in order
to be a valid and binding contract, the Franchise Agreement must fulfill the essentials
of a valid contract, such as: there must be some lawful consideration for the
agreement, a lawful object and purpose and the parties should be capable of executing
the contract
(II) Intellectual Property Law
In India, the primary laws governing intellectual property rights are the Trademarks
Act, 1999, the Copyright Act, 1957 and the Designs Act, 2002. These legislation deal
with the licensing of trade marks, copyright, systems, etc., from a franchisor to a
franchisee, for the purpose of operating and conducting the franchised business.
Further, under these statutes, civil and criminal remedies are available to a franchisor
against infringement of intellectual property rights. For example, in case of
infringement of a trade mark, civil remedies would be in the nature of an injunction or
stay against the use of the trade mark and damages can also be claimed.
(III) Real Estate Law
In India, premises for conduct of the franchised business may be acquired either on
ownership basis, or by way of a leave and license or lease arrangement or by way of a
business conducting arrangement. The Transfer of Property Act, 1882 and the various
state-enacted legislation on renting of immovable properties govern these
arrangements.
(IV) Taxation Law
Taxes in India are levied by the central, state and local government bodies. Direct and
indirect tax laws such as income tax, sales tax, additional tax, service tax etc. would
be relevant in a franchise arrangement, as they are in any other business concept.
Payment of taxes would depend on the structure of the franchise arrangement and in
the case of an international franchisor, the existence of treaties between the countries.
(V) Remedial and Penal Law; Alternative Dispute Resolution
In case of any dispute or difference between the parties in respect of a franchise
arrangement, civil and criminal remedies would be available to the aggrieved party in
India. The aggrieved party may also initiate any of the alternate dispute resolution
methods under the Arbitration and Conciliation Act, 1996.

(VI) Other Applicable Law

Any franchised business set up for sale of products or providing any services would
have to comply with the applicable labour legislation in India. A consumer buying a
product or availing of a service under a franchise arrangement would be protected
under the Consumer Protection Act, 1986. Further, depending upon the industry/sector
to which the franchised business belongs, the establishment would be required to
obtain certain specific approvals and registrations from different local governmental
authorities. For example, a franchised outlet in the food industry requires an eating
house licence from the Municipal Corporation and a health licence from the Health
Department of the Municipal Corporation. In case of an international franchise
arrangement, the Foreign Exchange Regulations and the Foreign Exchange
Management Act, 1999 would be attracted.

By:
Ms. Urvashi Malpani
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