Laws & Regulations on Franchise Business in India: Lawyers Advice for Franchise Business in India | Franchise Lawyer in Delhi NCR | Franchise Business Attorney in Delhi NCR | Franchise Business Attorney in India
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In India there are no specific laws dealing with franchising businesses. However, according to Black Laws Dictionary, franchising means the license from the owner of a trademark or trade name permitting another individual/licensee to sell the product or service under that trademark.
Though no law specifically deals with franchising business, there are some laws which touch upon such businesses within the country.
The following are the different laws attached to a business and the legal issues involved therein:
- Indian Contract Act, 1872:
Every franchising business has a contractual relationship between the owner and the licensee. Such contracts are governed by the Indian Contract Act and must comply with the necessary provisions. Although the Contract Act, deals with written and implied contract, it is advisable for businesses to enter into a formal written agreement that determines the rights and obligations of the parties so as to avoid any disputes in the future.
In a landmark case of Gujarat Bottling Co. Ltd. & Ors. v. Coca Cola Co. & Ors., [Civil Appeals Nos. 6839-6840 of 1995] Coca Cola imposed a restriction on Gujarat Bottling Co., that it could not enter into an agreement which another beverage manufacturing company during the term of their contract. The Supreme Court held that, any agreement restraining the franchisee from entering into a contract with another brand during the term of the contract or otherwise, does not violate Section 27 (Agreement in restraint of trade, void) of the Act. - Intellectual Property Rights:
In every franchising agreement, there exists a transfer or license of a particular intellectual property like trademark or trade name, design, or a patent, trade secret/ know-how or copyright. Therefore, the licensing of such intellectual property rights must comply with the concerned laws like Copyright Act, 1957, Trademark Act, 1999, The Patents Act, 1970, the Design Act, 2000, etc.
Proper Due Diligence must be conducted by the franchisee to ensure that the licensor has the authority to license the intellectual properties and the necessary provisions of the law are followed.
All necessary measures must be undertaken to ensure the franchisee does not misuse the rights assigned to him and that the trademark is not diluted due to any action or failure of the franchisor and franchisee. The franchisee can also be restrained from entering into an agreement with another competing brand and prevent exposing any confidential information or trade secrets, etc. - Competition Law:
Both the franchisor and franchisee must act in accordance with the Competition Act, 2002. They must ensure that the monopolistic position they have in the market is not abused and that such business does not enter into an anti-competitive agreement as prescribed under the said Act. If a franchisee agrees to certain restrictions on some activities like restriction on selling products of other brands it would cause competition concerns which would create an Appreciable Adverse Effect in the market.
With the digital revolution taking place, the Competition Commission of India (CCI) has, in All India Online Vendors Association v. Flipkart India, [(2018 SCC Online CCI 97)] acknowledged the distinctiveness of online platforms and stated that Appreciable Adverse Effect has to be extended to such platform as well and vertical restraint agreements can amount to a pro-competitive and consumer friendly competition. - Consumer Protection Act, 2019:
If the goods provided or sold by the trader are defective or are injurious to life or do not confirm to the provisions of the law, then a consumer can file a complaint under the said Act where the franchiser and the franchisee can be held liable for such defects in the goods or services. - The Standard of Weights and Measures Act, 1976:
In order to adapt to the nature of the franchise where goods are sold or distributed by weight, numbers or measures the Standard of Weights and Measures Act and Rules must be complied with. - The Companies Act, 2013:
If the franchisee is a company then, the provisions of the Companies Act and other rules which make the business an eligible company in India must be complied with. The actions of the company would make the directors liable and they shall also be subject to tax rates applicable to the company. - Foreign Exchange Management Act (FEMA), 1999:
Where an Indian resident enters into an agreement with a Non-resident Indian (NRI) then such arrangement will have to be in conformity with the Foreign Exchange Management Act (FEMA), 1999 and the prescribed Rules. In order to engage in such arrangement prior approval of the Reserve Bank of India (RBI) is mandatory.
All though the laws in India do not specifically govern any franchisor-franchisee arrangements, some laws are applicable to these arrangements as mentioned above. There is however, a need for a legal framework that expressly deals with such arrangements since many foreign businesses have entered into the Indian market and continue to function along with the domestic companies that are also franchising their business to expand in the market. Therefore, several steps need to be implemented to carry out a proper functioning of franchising businesses in India.
Authored By: Adv. Anant Sharma & Sameera Singal