Domestic and International Franchising, Master Franchising, and Regulation of Franchise Agreements in India: Overview

Domestic and international franchising, master franchising,
and regulation of franchise agreements in India: overview

Practical Law Country Q&A 5-630-8133
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Domestic and international franchising, master franchising,..., Practical Law Country...
Domestic and international franchising, master

franchising, and regulation of franchise agreements in
India: overview
by Preeti G Mehta, Kanga and Company, Advocates & Solicitors
Country Q&A | Law stated as at 01-Jun-2018 | India
A Q&A guide to franchising in India.
The Q&A provides an overview of the main practical issues concerning franchising, including current market
activity; regulation of franchising; contractual issues relating to franchising agreements (including pre-contract
disclosure requirements, formalities, parties' rights and obligations, fees and payments, term of agreement and
renewal, termination, and choice of law and jurisdiction); Operations Manual; liability issues; intellectual property;
real estate; competition law; employment issues; dispute resolution; exchange control and withholding; and
proposals for reform.
To compare answers across multiple jurisdictions, visit the Franchising: Country Q&A tool.
This Q&A is part of the global guide to franchising law. For a full list of jurisdictional Q&As visit
www.practicallaw.com/franchising-guide.
Market
Regulation of franchising
Franchise agreement
Pre-contract disclosure requirements
Formalities
Parties' rights and obligations
Fees and payments
Term of agreement and renewal
Termination
Choice of law and jurisdiction
Operations Manual
Liability issues
Intellectual property
Real estate
Competition law
© 2020 Thomson Reuters. All rights reserved. 1

Employment issues
Dispute resolution
Exchange control and withholding
Reform
Online resources
Reserve Bank of India (RBI)
Contributor profile
Preeti G Mehta, Partner
Online resources
Contributor profile
Market
1. What have been the main developments in the franchising market over the
past 12 months?
India is an emerging and vibrant market with huge potential for the franchising industry.
Over the past few years, India has attracted the attention of major international brands
and their success has encouraged others to explore franchise opportunities.
As expected, there have been many noteworthy franchise transactions in the past 12
months including the following:
• Dubai based Doner & Gyros has opened franchise outlets in India.
• Italian brand Monnalisa is looking to open its first store in India this year.
• British brand Simon Carter have opened multiple stores in India.
• Popular waffle chain, WAFL, has opened franchisee stores along with their
company operated stores.
• Hollywood leading fitness brands My Home Fitness and MYGLAMM have also
made forays into India.
Many international brands have also planned further expansion in view of the market
potential, including Hard Rock Café and Barcelos. While Gap successfully launched in

India in 2015, Gap’s shop-in-shop format is likely to be introduced this year through multi
brand retailers.
Recent franchise trends suggest that entities are open to considering new avenues to
accelerate the growth of their business. It has been noticed that some mall developers are
taking up brand franchising as a mutually beneficial opportunity for the developer and the
retailer. India has seen an increase in the multi-brand franchising model as a lucrative way
of expanding. In fashion franchising, brands have started following the made to order or
customisation trend. The significance of social media has also been a factor in the growth
of franchising and businesses are trying to use the same for their benefit.
2. What are the most commonly used methods of local and international
franchising?
Local franchising
Direct franchising is a commonly used method of local franchising. This allows the
franchisor, who is well aware of the local market, to develop a successful franchise
network and carry out due diligence of potential franchisees.
International franchising
International franchisors normally appoint a master franchisee, and develop a franchise
network through this master franchisee, which is expected to have vast knowledge and
expertise of the local market and conditions. This practice also allows the international
franchisors to share its risk with the master franchisee. For example, McDonalds, Toni
& Guy and Krispy Kreme have granted master franchising rights for eastern, western,
northern and southern India. This method is popular and efficient due to the:
• Size of the country.

• Size of the market and demand.
• Different languages and cultures throughout the country.
• Various states' regulatory issues.
Some international franchisors have also formed local companies that grant franchise
rights in India. For example:
• Australian Food India Pvt Ltd is a joint venture that has the master franchisee
rights for Cookie Man.

• The fast food chain Subway has set up a subsidiary in India (Subway Systems India
Pvt Ltd in India).
Indian brands have preferred the franchising route for expanding globally primarily
because it is viewed as:
• An easy and less risky way of entering the global markets.

• Providing profits above market levels.
Some of the key issues that Indian brands evaluate before taking a strategic decision to
expand outside India are:
• Whether there are specific regulations governing franchises in the relevant market.
• The general regulatory and political environment.
• Demand and acceptability of the relevant products and services.
• The local competition.
• Demographics.
• Pay structures.
3. Are there any specific reasons for an overseas franchisor to use a separate
entity for entering into a franchise agreement with a franchisee in your
jurisdiction?
In the absence of specific franchising regulations or guidelines, this aspect is left to

the decision of the franchisor and franchisee, which is predominantly influenced by the
taxation of franchise payments.
Regulation of franchising
4. What is the legal definition of franchising and/or a franchise?

There is no legislation that specifically regulates franchising in India. The term "franchise"
was only defined for the purposes of services tax law (which has now been repealed in view
of the consolidated indirect tax legislation of Goods and Services Tax) as an "agreement
under which the franchisee has a representational right to sell or manufacture goods or
to provide services or undertake any process identified by the franchisor, regardless of
whether the agreement involves the use of a trade mark, service mark, trade name, logo
or any such symbol."
5. What are the laws regulating franchising?
There is currently no legislation specifically regulating franchising or granting protection

to local agents in India. In the absence of specific legislation, the offer and sale of
franchises in India is governed by a variety of statutes, rules and regulations, including:
• The Indian Contract Act 1872, which governs the contractual aspects of franchise
agreements.
• IP legislation, that is the Trade Marks Act 1999, the Copyright Act 1957, the Patents
Act 1970 and the Design Act 2000.
• The Foreign Exchange Management Act 1999 and the rules and regulations issued
under this Act, which govern payments made and guarantees issued by Indian
franchisees to foreign franchisors.
• The Foreign Direct Investment Policy, which regulates any proposed investment in
India and lists the sectors in which foreign investment is permitted.
• The Competition Act 2002, which deals with anti-competitive agreements and
abuse of a dominant position.
• Real estate laws, including the:
• Transfer of Property Act 1882, which governs the acquisition of immovable
property (under both sale and lease agreements);
• Indian Stamp Act 1899 and state legislation, which govern the administration
of stamp duty;
• Registration Act 1908, which contains rules on the registration of agreements;
• rent control legislation, which applies to tenancies and lettings of immovable
property; and
• development control rules.

• The Income Tax Act 1961 and double taxation avoidance agreements, which are
relevant when considering the tax liability of a foreign franchisor.
• Labour legislation, including the:
• Industrial Disputes Act 1947;
• Contract Labour (Regulation and Abolition) Act 1970; and
• Employees Provident Fund and Miscellaneous Provisions Act 1952.
• The Arbitration and Conciliation Act 1996, which governs arbitration proceedings
and the enforcement of foreign awards.
• The Consumer Protection Act 1986, which provides remedies to consumers for
defective products and services.
• The Information Technology Act 2000, which contains provisions relating to data
protection.
Additionally, industry-specific and state legislation may apply depending on the relevant
industry/sector. Therefore, a franchising business may need to obtain and maintain
licences and permits under the relevant state laws.
There are no laws in India which require a franchising agreement (or certain provisions
of it) prepared under foreign laws to be adapted to be enforceable in India. However, if
the franchise agreement contains provisions which are either contrary to Indian law or
would require certain approvals for their implementation (for example issuing guarantees
in favour of the franchisor) it is advisable to suitably modify those provisions.
6. What is the regulatory authority responsible for enforcing franchising laws

and requirements in your jurisdiction?
There is no regulatory authority responsible for enforcing franchising laws. Franchise

agreements are governed by various statutes, rules and regulations (see Question 5),
which are enforced by the relevant authorities. Any franchising dispute can be settled
through mediation, arbitration or court proceedings, as agreed by the parties.

7. Must the franchisor be registered with a professional or regulatory body

before setting up a franchise system?
Indian laws do not require the franchisor to be registered with any professional or
regulatory body before setting up a franchise system (including offering a franchise,
signing up franchisees or taking payments from franchisees).
See Question 31 regarding registration requirements for licensing IP rights.
There is no requirement for a franchisor to pilot one or more outlets before franchising.
However a pilot franchise is a good way to understand the market and to test the franchise
model.
8. Is there a code of ethics or other means of promoting ethical franchising in

your jurisdiction?
There is no code of ethics for franchising under Indian laws. However, many franchisors
and franchisees are members of franchise associations such as the Franchising
Association of India, which has formulated a code of conduct/code of ethics that their
members are expected to follow (although this code is not binding). India is not a
signatory to the European Code of Ethics for Franchising.
9. Do franchisees benefit from any laws designed to protect consumers or small

businesses?
Under the Consumer Protection Act 1986, the definition of a consumer specifically
excludes any person who buys goods or hires or avails of services for resale or any
commercial purposes. Therefore, the protection under this Act is not available to
franchisees.

10. Are there any other requirements which must be met before a business can
sell a franchise?
There are no other requirements that must be met before a business can sell a franchise.
However, the franchisor should consider registering its trade and service marks (despite
this is not mandatory) for more effective protection. Also, if the franchisor is proposing
to advertise as well, it must ensure that all marketing and advertising materials comply
with local laws and standards issued by the Advertising Standards Council of India.
Franchise agreement
Pre-contract disclosure requirements
11. Is the franchisor subject to any general or formal pre-contract disclosure

requirements?
The franchisor is not subject to any pre-contract disclosure requirements in India. This
also applies to sub-franchising. There is no statutory obligation imposed on the franchisor
to provide any information in respect of the franchise to the prospective franchisee. It is
therefore prudent for the franchisee to conduct a thorough investigation and evaluation of
the franchisor, the franchise business and other aspects before concluding a franchising
agreement.
However, the common law requires that the parties deal with each other in good faith and
act reasonably. If the franchisor makes any misrepresentation or breaches any warranties
under the franchise agreement, the franchisee can commence either or both:
• Civil proceedings for damages.

• Criminal proceedings for misrepresentation of facts and criminal breach of trust.
Damages generally cover actual losses only, and not indirect, remote or consequential
losses.

12. Must the franchisor disclose fairly and in good faith all facts material to the
prospective franchisee's decision to enter into the arrangement, or must the
prospective franchisee rely on its own due diligence?
The franchisor is not subject to any disclosure requirements. However, in order to avoid
any dispute alleging misrepresentation, it is in the interest of the franchisor to make
suitable disclosures of all material facts to the franchisee at the time of negotiating the
arrangement.
See also Question 11.
Formalities
13. What are the formal contractual requirements to create a valid and binding
franchise agreement?
For a contract/franchise agreement to be valid and binding, the following elements

(among others) must be present (Indian Contract Act 1872):
• An agreement (that is, offer and acceptance).

• Lawful consideration.
• Lawful object and purpose.
• Free consent of the parties.
• Capacity of the parties.
A franchise agreement need not be executed in any specific language in order to be legal
and binding. However, English is the most commonly used language.
Additionally, to be admissible in evidence, a franchise agreement must be duly stamped

before its execution or within three months after it has been first received in India. The
relevant stamp duty to be paid is based on the stamp laws of the relevant Indian state
where the franchise agreement is executed or brought. If one of the parties is a company,
the signatory will need authorisation to execute the agreement, by way of a resolution of
that company.
A franchise agreement need not be notarised or registered.

When interpreting and enforcing a franchise agreement, Indian courts strictly consider
the terms of the agreement that are explicit, clear and free from ambiguity (provided that
the agreement is a valid contract). However, negative covenants such as non-compete
clauses or tying restrictions are not enforceable unless the court considers them to be
reasonable (see Question 17).
In India, the general practice is to execute a comprehensive franchise agreement, which

also covers the licensing of any technology, process, know-how, trade marks and so on.
However, a separate IP licence can be executed and made coterminous with the franchise
agreement if the parties so wish, or if the IP vests in a different entity.
Parties' rights and obligations
14. Is there a general obligation to behave fairly, reasonably or in good faith to

the other party during the term of the franchise agreement?
Right and obligations of the franchisee

The common law requires that the parties deal with each other in good faith and act
reasonably during the term of the franchise agreement.
Rights. The franchisee usually has the rights to:
• Operate the franchise business in the designated territory exclusively or non-

exclusively (as agreed).
• Use the system developed by the franchisor.
• Use the trade secrets, know-how and methods of preparation, recipes, formulas and
business methods of the franchisor.
• Use the trade marks/service marks.
Obligations. The franchisee must usually:
• Operate the franchised business in compliance with the franchise agreement and
the Operations Manual at the approved premises.
• Pay the franchise fees, royalties for use of any trade marks and copyright, and
advertising contribution.
• Use the franchisor's IP in the prescribed manner and protect this IP and
confidential information.

• Carry out local advertising.

• Obtain supplies from the franchisor or approved suppliers.
• Train its staff and ensure that they conduct themselves in accordance with the
agreed standards.
• Provide regular reports, as may be agreed.
• Not engage in competitive activities.
• Not assign the rights and obligations under the agreement to any third party
without the prior written consent of the franchisor.
As a franchise agreement is regarded as a contract, certain implied rights (such as

the right to terminate or claim damages or seek specific performance in the case of
breach) and obligations apply under the Contract Act 1872. However, parties can override
these implied provisions or provide for additional rights and obligations. However, the
following issues must be noted:
• An agreement restraining a party from initiating legal proceedings relating to its

rights under the contract or the law is void.
• Restrictive covenants are subject to the test of reasonableness (see Questions 17 and
22).
Rights and obligations of the franchisor

Rights. The franchisor usually has the following rights:
• Right to approve the franchisee's premises.

• Ownership of the IP, Operations Manual and confidential information.
• Right to require the assistance of the franchisee in the case of any infringement of
IP rights.
• Right to receive payment from the franchisee of the:
• franchise fees;
• royalty for use of any trade marks and copyright; and
• advertising contribution.
• Right of inspection.
• Right of first refusal if the franchisee wishes to sell its franchise business to a third
party.

• Right to terminate the agreement in the case of breach of the franchise agreement
by the franchisee.
Obligations. The franchisor must usually:
• Train the franchisee's staff to its methods of conducting of business.

• Provide the Operations Manual.
• Upgrade the operations system.
• Provide regular training and ongoing recommendations in relation to advertising.
• Provide advertising material.
• Provide guidance relating to the management, financing and promotion of the
franchise business.
• Supervise the franchise operations and suggest changes to comply with the system
(as the case may be).
See above, Rights and obligations of the franchisee regarding rights and obligations
implied in a franchise agreement.
15. Does local law require that particular provisions must be expressly included
in a franchise agreement?
Local law does not specify that particular provisions must be expressly included in a
franchise agreement. When interpreting and enforcing a franchise agreement, Indian
courts strictly consider the terms of the agreement that are explicit, clear and free from
ambiguity. Therefore, a franchise agreement must clearly cover all aspects of the franchise
arrangement.
16. Are exclusion and entire agreement clauses enforceable in your

jurisdiction? If so, are they effective to protect the franchisor?
It is common practice to include entire agreement clauses, which are enforceable and
recognised by Indian courts. It is not common practice to include exclusion clauses in
franchise agreements.

Where exclusion clauses are included to protect the franchisor, the clauses are
enforceable.
17. Can the franchisor impose product tying or other purchasing restrictions
and non-compete obligations on the franchisee during the term of the
agreement?
Restrictions on purchasing and product tying

The Competition Act 2002 prohibits agreements that directly or indirectly determine a
purchase or sale price or that permit or control the production, supply, markets, technical
development, investment or the provisions of services and so on, provided that they are
likely to cause an appreciable adverse effect on competition within India.
However, reasonable restrictions to protect IP rights are not considered as anti-

competitive. Therefore, a franchisor can require the franchisee to buy products and
services, including those for resale to the franchisee's customers, only from the franchisor
or its nominated suppliers.
Product tying provisions under a franchise agreement are not per se regarded as having
an appreciable adverse effect on competition in India.
Non-compete obligations and transfer restrictions

Restraint of trade agreements are void under Indian law. However, courts have held that
reasonable restrictions are not considered as being in restraint of trade, and are therefore
enforceable. Provisions restraining the franchisee from carrying on a competing business
or restricting/limiting its activity to a given territory during the term of the agreement
will normally be treated as reasonable.
There are no restrictions on the ability of the franchisor to require its prior consent to
transfers of the business and/or transfers of interests in the entity owning the business.
However, the parties can agree on such restrictions in the franchise agreement.
Fees and payments

18. What fees are usually payable by the franchisee? Are there any restrictions
on the parties' freedom to set the fees and payments, or any other payment
requirements?
The fees that are usually payable by the franchisee include the following:
• Initial fee for joining the franchise network.

• Periodical payments for being part of the franchise network.
• Periodical payments relating to sales and production.
• Guaranteed minimum amounts.
• Training expenses.
• Reimbursement of travelling expenses.
• Payments for other services.
• Advertising and marketing costs.
There is no prescribed method for calculating or determining the fees to be paid by the
franchisee. The parties are free to agree on the amount and method of payment, which
will differ depending on the relevant industry.
There is no express restriction or mandatory provision relating to charging interest on

overdue payments. The parties are free to include a provision for the payment of interest
in a franchise agreement.
Courts can allow the payment of interest on overdue payments if a certain sum is payable
either (Interest Act 1978):
• At a certain time under a written instrument.

• From the time of a written demand claiming the payment of interest.
Term of agreement and renewal
19. Are parties free to agree on the term of the franchise agreement? What is
the typical term of a franchise agreement in your jurisdiction?

The parties are free to agree on the term of a franchise agreement. Indian laws do
not impose a minimum or maximum term. When determining the term of a franchise
agreement, the parties must take into account the following factors:
• Nature of the business.

• Industry/sector.
• Profitability.
• Viability of the business.
• Recovery of costs and break-even point.
In India, franchise agreements typically last for ten to 20 years.
20. What rights of renewal are usually included in the franchise agreement?
Are fees paid on renewal?
Commercial practice
Generally, the franchise agreement includes provisions on the right of renewal and on the
duration of such renewal (which can vary from the original term). The right to renew the
franchise agreement can be mutual, or can be exercisable at the option of the franchisor
only.
A fee is usually payable on renewal.
Local law
There are no statutory requirements relating to renewal or to charges payable on renewal.
The parties are free to agree on these matters in the agreement.
Termination

21. Are there any limitations on the right of a franchisor to terminate the
agreement?
There are no limitations on the right of the franchisor to terminate the agreement. The
parties are free to agree on the grounds for termination.
The grounds for termination are usually expressly set out in the agreement, and include
(for example):
• Material breach or non-performance of any terms of the agreement (such as non-

payment or default in payment, non-compliance with specific quality or other
standards).
• Failure to adhere to the development schedule/target.
• Bankruptcy/insolvency.
• Incapacity to perform obligations under the agreement due to any unforeseen
circumstances that cannot be cured.
Unless the franchise agreement provides for the automatic renewal of a franchise, a
franchisee is not entitled to claim compensation if the agreement is either prematurely
terminated or not extended by the franchisor. In the absence of a specific termination
clause in the agreement, courts also recognised that an agreement can be terminated
without mentioning any specific reason by giving reasonable notice.
Indian law recognises the enforceability of liquidated damages, provided that they are
reasonable and do not constitute a penalty.
22. Are post-term restrictive covenants enforceable?
Post-term restrictive covenants in franchise agreements (such as non-compete and

confidentiality covenants) are enforceable provided that their scope, conditions of
applicability and duration are reasonable.
The payment of fees to the franchisee is not a condition for the validity of post-term
restrictive covenants.

23. Can the franchisor or a replacement franchisee continue to sell to the

former franchisee's customers?
There is no restriction on the franchisor or a replacement franchisee to continue to sell

to the former franchisee's customers. However, the franchise agreement can expressly
prohibit sales to any specific customer or party. No compensation is payable to the former
franchisee in this case, unless otherwise provided in the agreement.
Choice of law and jurisdiction
24. Will local courts recognise a choice of foreign law in a franchise agreement
for a business operating in your jurisdiction?
Local courts generally recognise a choice of foreign law. However, in certain exceptional
cases, a choice of foreign law can be overridden if that foreign law is contrary to the
established principles of the Indian legal system (for example, laws that are contrary to
Indian public policy).
25. Will local courts recognise a choice of foreign jurisdiction in a franchise

agreement for a business operating in your jurisdiction?
Franchise agreements involving parties that are based in different countries often
designate the courts of a specified country to resolve disputes arising under the
agreement. These jurisdiction clauses are normally upheld by the Indian courts.
Operations Manual

26. How does the franchisor ensure that the franchisee complies with the
business standards, systems and requirements?
Generally, an Operations Manual contains information on:
• The franchisor's business concept.

• Operation system.
• Strategy.
• Standards (for example, architectural, legal or hygiene standards).
• Development schedules/targets.
• Procedures and methodology for accounting and security.
• Proprietary information.
• Inventory management.
• Financial targets and information.
• Management/organisation structure.
To ensure that the franchisee complies with the Operations Manual, the franchisor can
expressly reserve the rights to:
• Inspect the premises of the franchisee.

• Conduct periodical audits.
• Require the franchisee to submit periodical reports of compliance.
27. Can the franchisor change the Operations Manual unilaterally, as is usually
required?
There are no legal restrictions on the right of the franchisor to impose changes to
the Operations Manual unilaterally. The franchisor usually has the right to amend the
Manual. The Operations Manual is a crucial business document and may therefore be
subject to periodical amendments/modifications as the business develops.

Liability issues
28. What are the franchisee's remedies against the franchisor for deceptive or
fraudulent selling practices?
The franchisee can initiate a civil action against the franchisor for deceptive or fraudulent
selling practices under the law of torts on negligence.
The franchisee can also initiate a legal action against the franchisor for engaging in unfair
trade practices under the Competition Act 2002.
29. How can third-party claims against the franchisee be brought successfully
against the franchisor?
Circumstances
As the franchisee is operating under the franchisor's brand, it is likely that a consumer
or a third party could make a claim against both the franchisee and the franchisor with
respect to:
• Defective products or services.

• Breach of any terms of a contract with the franchisee.
A consumer complaint against a franchisee relating to defective products or services,

which is filed in the appropriate forum under the Consumer Protection Act 1986, may
also involve the franchisor. The respective liabilities of the franchisee and franchisor will
depend on the allegations made in the complaint and on the findings/decision of the
competent court.
Indemnity
Whether a franchisee can bring an indemnity claim against the franchisor (or the
franchisor can bring an indemnity claim against the franchisee) depends on the provisions
of the franchise agreement. Franchise agreements usually expressly cover indemnity
rights. These rights can be excluded or limited by an exclusion clause that restricts the

liability or rights of the parties to claim indemnity under the contract. In the absence of
an indemnity provision in the contract, the aggrieved party may be able to claim damages
under the law.
Precautions
The relationship between the franchisor and the franchisee is governed by the franchise
agreement and is on a principal-to-principal basis. A clear provision to this end in the
franchise agreement will protect the franchisor against any interpretation of implied
agency, which would otherwise expose the franchisor as principal for the acts of the
franchisee.
All published materials (for example, all letterheads, bills, invoices, e-mails, website) and
any other documents or literature (whether in paper or electronic form) employed in the
franchisee's business should clearly indicate the franchisee's status as a franchisee of the
franchisor.
Intellectual property
30. What provisions are usually made in relation to intellectual property rights
(IPRs), including know-how?
Franchise agreements involve the licensing of IPRs. The IPRs that are typically licensed
are:
• Trade marks.
• Trade names.
• Designs.
• Copyright.
• Business formats.
• Know-how.
• Trade secrets.
Franchisors can exercise control and supervision over the exploitation/use by the
franchisee of their IPRs, know-how and confidential information.

The franchisor can impose conditions and limitations in the franchise agreement on
the use of IPRs, know-how and confidential information (including restrictions on the
territory in which the IPRs can be used, the duration of use and so on).
31. What are the registration requirements for licensing IPRs?
There is no mandatory requirement to register licences over IPRs under Indian law.
However, registering IPRs may be advisable in order to obtain statutory protection for
the said licence.
For example, the right to use a trade mark can either be granted under a simple licensing
agreement or to a user registered with the Trade Marks Registry. While a registered user
can bring infringement actions in its own name, a licensee relies on the owner of the trade
mark to do so. However, the licensee can file for a passing off action in its own name.
Real estate
32. Are consents from landlords difficult to obtain when transferring leases or
granting subleases from a franchisor to a franchisee?
Whether the transfer of leasehold interests or grant of a sub-lease requires the consent
of the landlord will depend on the agreement between the franchisor and the landlord.
In the absence of provisions in the agreement between the franchisor and the landlord,
the franchisor must obtain the prior consent and authority of its landlord. The landlord
has discretion to decide whether to give its consent to the transfer or grant of a sub-lease,
with or without any conditions.
The transfer of a lease requires the execution and registration of a duly stamped deed of
assignment in favour of the franchisee. The granting of a sub-lease requires the execution
and registration of a duly stamped deed of sub-lease in favour of the franchisee.
On transfer, the franchisee will step into the shoes of the franchisor and enjoy similar
leasehold rights.

33. How can a franchisor prevent the franchisee from occupying the premises
after the franchise agreement has ended?
A lease/sublease can be made coterminous with the franchise agreement. For this, the
lease deed must contain provisions for termination and vacation of the premises on
termination of the franchise agreement. However, if the franchisee chooses to hold over,
the lessor alone can initiate legal proceedings for eviction.
34. How can the franchisor effectively acquire the franchisee's premises at the
end of the franchise relationship?
In order for the franchisor to acquire the franchisee's premises at the end of the franchise
relationship, an express agreement to this effect must be recorded in writing either in the
franchise agreement or separately in addition to the following.
Transfer of leasehold rights from the franchisee to the franchisor can be effected by way
of assignment, provided that this transfer/assignment is permitted under the agreement
with the landlord/lessor. In the absence of a specific provision permitting transfer/
assignment, prior consent of the landlord/lessor will be required.
The franchisor need not pay any element of goodwill, unless otherwise agreed by the
parties. However, stamp duty will be payable by the franchisor at the current market value
based on the applicable rates.
If the franchisor is a person resident outside India, it cannot acquire immovable property
without prior approval of the Reserve Bank of India, except for a lease not exceeding five
years (Foreign Exchange Management Act 1999). However, an Indian entity owned or
controlled by a foreign franchisor is considered an Indian company for these purposes
and these restrictions will therefore not apply to it.
35. If the franchisor leases or subleases its own site to its franchisee, can it pass
on all related costs to the franchisee? Can the franchisor charge its franchisee
tenant a rent expressed as a percentage of the franchisee's sales?
The franchisor can pass all costs related to the premises to the franchisee under the terms
of the franchise agreement.

The rent/licence fee is normally a fixed amount, although there are no limitations on the
right of the franchisor to charge its franchisee a rent expressed as a percentage of the
franchisee's sales. However, this may pose problems for determining the stamp duty and
taxes payable, which are calculated as a percentage of the rent and deposit (if any). It
is therefore advisable to structure the payments under various heads (such as rent and
franchise payments), taking into account the relevant state's property and stamp duty
laws.
Competition law
36. What is the effect of competition law rules on franchising agreements? Are
there any available exemptions?
Competition law
The Contract Act 1872 and the Competition Act, 2002 prohibit certain agreements
that are in restraint of trade and that are likely to cause an appreciable adverse effect
on competition within India, respectively. However, certain reasonable restraints and
restrictions are permitted.
Exemptions
In the interest of creativity and innovation, the provisions relating to anti-competitive
agreements do not restrict the right of any person to impose reasonable conditions as may
be necessary for the purposes of protecting any of its IP rights (Competition Act, 2002).
This exemption also applies in the context of franchise agreements.
Online/e-commerce restrictions
Provisions restraining the franchisee from carrying on a competing business during the
term of the agreement will normally be considered reasonable. Accordingly, a franchisor
can prevent a franchisee from:
• Having its own website presence.

• Promoting its business on the internet.
• Engaging in e-commerce to sell competing products or services.

Employment issues
37. Can a franchisee be regarded as an employee of the franchisor?
India has historically been an employee-friendly jurisdiction, and there are many central
and local laws protecting employees. Different labour law issues can arise depending on
the nature of the franchise agreement and the amount of control the franchisor has over
the franchisee's business operations.
A franchisee will not usually be regarded as an employee of the franchisor and the
relationship is generally considered to be between two principals. However, in order to
avoid the creation of an employment relationship, suitable provisions can be included in
the franchise agreement to clarify that:
• The franchisee will be acting in its capacity as an independent contractor.

• Nothing in the franchise arrangement should be construed as creating an
employer/employee relationship between the franchisor and the franchisee.
Dispute resolution
38. How are franchising disputes typically dealt with? What provisions for
handling disputes are usually included in domestic franchise agreements?
Cross-border franchising transactions normally provide for overseas governing laws and
for dispute resolution through arbitration (as this is more cost effective and less time-
consuming than litigation. Parties usually choose an international arbitration forum to
adjudicate on any disputes.
Choice of forum and choice of law provisions in a franchise agreement are enforceable and
recommended. In the absence of these provisions, the parties can resort to court litigation
to determine the applicable law and/or competent jurisdiction.

Franchise agreements also sometimes include an element of mediation to precede

arbitration proceedings, although this is not mandatory. Under Indian law, the use of
mediation does not prevent the parties from subsequently bringing judicial or arbitration
proceedings.
In the absence of mediation or arbitration provisions, disputes can be resolved by

resorting to court proceedings in the relevant jurisdiction.
39. How are foreign judgments or foreign arbitral awards enforced locally?
India is a party to (among others) the UN Convention on the Recognition and

Enforcement of Foreign Arbitral Awards 1958 (New York Convention), and recognises
and enforces international arbitration awards. The enforcement of awards under this
convention (among other things) depends on whether the foreign jurisdiction:
• Is a party to the New York Convention.

• Has been notified by the Central Government of India in the Official Gazette as a
territory to which the New York Convention applies.
Foreign judgments can be enforced through court proceedings. In India, foreign

judgments can be enforced by way of a decree under the procedures set out in India's
Civil Procedure Code 1908 if the foreign court in question is in a reciprocating territory,
subject to certain conditions.
If the foreign court is not based in a reciprocating territory, a fresh suit must be filed in
India, which will be more time-consuming.
Exchange control and withholding
40. Are any exchange control or currency regulations applicable to payments

to an overseas franchisor?
Payments made between an Indian resident and a non-resident under an international

franchise arrangement are subject to the provisions of the Foreign Exchange Management
Act 1999 and to the rules issued under this Act.

Currently, franchise payments made by a resident to a non-resident are allowed under the
automatic route (that is, no approval is required and there is no ceiling on the amounts
that can be paid). However, such payments must be made through an authorised payment
institution.
41. Is there a withholding obligation on payments made to an overseas

franchisor?
There is a withholding obligation on payments made by an Indian franchisee to an

overseas franchisor. Currently, the franchisee must deduct income tax at the rate of 10%
at the time of the payment of royalties and/or technical fees to the overseas franchisor.
If the franchisor is located in a jurisdiction that has a double taxation avoidance

agreement with India, the taxation will be governed by the provisions of that agreement.
However, the provisions of the Income Tax Act 1961 must apply if they are more beneficial
to the franchisor.
Reform
42. Are there any proposals to reform the laws affecting franchising?
As there is no legislation that specifically regulates franchising, franchise arrangements

are currently governed by various commercial and business laws.
There are currently no proposals to enact specific laws affecting franchises or to reform
the existing general laws.
Online resources

W www.rbi.org.in

Description. This is the official website of the RBI, which is maintained by

the RBI itself. The website is available in both English and Hindi, and the
information available is up to date.
Contributor profile
Kanga and Company, Advocates & Solicitors
T +91 22 6623 0000
F +91 22 6633 9656/7
E preeti.mehta@kangacompany.com
W www.kangacompany.com
Professional qualifications. LLB, Bombay University, 1984; Advocate, High

Court, Bombay, 1984; Solicitor, Bombay and England, 1987; Intensive Course in
Franchising, Middlesex University, UK, 2000
Areas of practice. Foreign investment; mergers and acquisitions; private

equity investment; corporate law; franchising and hospitality; banking law; real
estate.
Non-professional qualifications. BA, Bombay University
Languages. English, Hindi, Gujarati, Marathi, Kutchi

Professional associations/memberships. Law Committee, Bombay

Chamber of Commerce and Industry; Executive Council, Franchise Association
of India and (Chairing of Legal Committee).
Publications. Editorial Advisory Board Member, International Journal

of Franchising Law; other publications, including in the International
Encyclopaedia of Franchising Law published by Richmond Law & Tax Ltd.
Online resources

W www.rbi.org.in
Description. This is the official website of the RBI, which is maintained by

the RBI itself. The website is available in both English and Hindi, and the
information available is up to date.
Contributor profile
Kanga and Company, Advocates & Solicitors
T +91 22 6623 0000

F +91 22 6633 9656/7
E preeti.mehta@kangacompany.com
W www.kangacompany.com

Professional qualifications. LLB, Bombay University, 1984; Advocate, High

Court, Bombay, 1984; Solicitor, Bombay and England, 1987; Intensive Course
in Franchising, Middlesex University, UK, 2000
Areas of practice. Foreign investment; mergers and acquisitions; private

equity investment; corporate law; franchising and hospitality; banking law; real
estate.
Non-professional qualifications. BA, Bombay University
Languages. English, Hindi, Gujarati, Marathi, Kutchi
Professional associations/memberships. Law Committee, Bombay

Chamber of Commerce and Industry; Executive Council, Franchise Association
of India and (Chairing of Legal Committee).
Publications. Editorial Advisory Board Member, International Journal

of Franchising Law; other publications, including in the International
Encyclopaedia of Franchising Law published by Richmond Law & Tax Ltd.
END OF
DOCUMENT
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Domestic and international franchising, master franchising,

and regulation of franchise agreements in India: overview

© 2020 Thomson Reuters. All rights reserved.

Domestic and international franchising, master

Country Q&A | Law stated as at 01-Jun-2018 | India

A Q&A guide to franchising in India.

© 2020 Thomson Reuters. All rights reserved. 1

© 2020 Thomson Reuters. All rights reserved. 2

• Size of the country.

© 2020 Thomson Reuters. All rights reserved. 3

• An easy and less risky way of entering the global markets.

In the absence of specific franchising regulations or guidelines, this aspect is left to

4. What is the legal definition of franchising and/or a franchise?

© 2020 Thomson Reuters. All rights reserved. 4

5. What are the laws regulating franchising?

There is currently no legislation specifically regulating franchising or granting protection

© 2020 Thomson Reuters. All rights reserved. 5

6. What is the regulatory authority responsible for enforcing franchising laws

There is no regulatory authority responsible for enforcing franchising laws. Franchise

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7. Must the franchisor be registered with a professional or regulatory body

See Question 31 regarding registration requirements for licensing IP rights.

8. Is there a code of ethics or other means of promoting ethical franchising in

9. Do franchisees benefit from any laws designed to protect consumers or small

© 2020 Thomson Reuters. All rights reserved. 7

Pre-contract disclosure requirements

11. Is the franchisor subject to any general or formal pre-contract disclosure

• Civil proceedings for damages.

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See also Question 11.

For a contract/franchise agreement to be valid and binding, the following elements

• An agreement (that is, offer and acceptance).

Additionally, to be admissible in evidence, a franchise agreement must be duly stamped

A franchise agreement need not be notarised or registered.

© 2020 Thomson Reuters. All rights reserved. 9

In India, the general practice is to execute a comprehensive franchise agreement, which

Parties' rights and obligations

14. Is there a general obligation to behave fairly, reasonably or in good faith to

Right and obligations of the franchisee

Rights. The franchisee usually has the rights to:

• Operate the franchise business in the designated territory exclusively or non-

Obligations. The franchisee must usually:

© 2020 Thomson Reuters. All rights reserved. 10

• Carry out local advertising.

As a franchise agreement is regarded as a contract, certain implied rights (such as

• An agreement restraining a party from initiating legal proceedings relating to its

Rights and obligations of the franchisor

• Right to approve the franchisee's premises.

© 2020 Thomson Reuters. All rights reserved. 11

Obligations. The franchisor must usually:

• Train the franchisee's staff to its methods of conducting of business.

16. Are exclusion and entire agreement clauses enforceable in your

© 2020 Thomson Reuters. All rights reserved. 12

Restrictions on purchasing and product tying

However, reasonable restrictions to protect IP rights are not considered as anti-

Non-compete obligations and transfer restrictions

Fees and payments

© 2020 Thomson Reuters. All rights reserved. 13

• Initial fee for joining the franchise network.

There is no express restriction or mandatory provision relating to charging interest on

• At a certain time under a written instrument.

Term of agreement and renewal

© 2020 Thomson Reuters. All rights reserved. 14