Legal Solutions for Franchisor against Under-Billing & Under-Reporting of Sales by a Franchisee: Lawyers Advice on Franchise Business in India | Franchise Lawyer in Delhi NCR | Franchise Law Firm in Delhi NCR | Franchise Business Attorney in Delhi NCR | Franchise Business Attorney in India

Franchise Business Lawyer in India | Franchise Business Attorney in India | Franchise Lawyer in Delhi NCR | Franchise Lawyer in Delhi | Franchise Lawyer in Noida | Franchise Lawyer in Gurugram | Franchise Lawyer in New Delhi | Franchise Lawyer in India | Franchise Business Attorney in Delhi NCR | Franchise Business Attorney in Delhi | Franchise Business Attorney in New Delhi | Franchise Business Attorney in Noida | Franchise Business Attorney in Gurugram | Franchise Attorney in India | Franchise Lawyer Advice in Delhi NCR | Franchise Lawyer Advice in Delhi | Franchise Lawyer Advice in Noida | Franchise Lawyer Advice in Gurugram | Franchise Legal Services in Delhi NCR | Franchise Legal Services in Delhi | Franchise Legal Services in Noida | Franchise Legal Services in Gurugram | Franchise Legal Solutions in Delhi NCR | Franchise Legal Solutions in Delhi | Franchise Legal Solutions in Noida | Franchise Legal Solutions in Gurugram |

Franchisee under-reporting is when the franchisee does not report the exact income or sales than what he actually earns so that the accountability of lesser money will be less. The Courts have little sympathy for franchisees who fail to report all revenue making the franchisor suffer wrongful loss.

Legal Steps to reduce Under-reporting and under-billing by a Franchisee
It boils down to these critical steps:
• Track data regarding third-party delivery: Third party aggregators generate more data for your organization.
• Centralized Data within the Point of Sale (POS):.Centralized data storage allows for increased use of analytics and data-driven reporting.
• Apply data to refine operations and improve profitability. Applied data from the Point of Sale (POS) improves operational management, delivery services, and increases accountability.
• Report outcomes for franchisors: Reports provided to franchisors open the door for assistance, accurate services, improved inventory management, and other related concerns.

Clause regarding auditing: Audits are one way to monitor franchisee compliance: Some franchisors see it contrary to building and developing an accommodating business relationship. An audit initiative should be properly planned, communicated and executed so that it removes any apprehensions. Non-compliant franchisees avoid the obligations that honest franchisees are meeting, so basic idea of fairness supports audits. Audits vary widely among franchise agreements which help collecting the granular data of the franchisees whereabouts. Some agreements permit surprise visits by franchisors, only on-site reviews of documents, examination of only a very few specifically identified documents. With the advent of technological up gradation of Point of Sales (POS) systems, under-reporting issues do not arise, since franchisors are able to use this system to beam into franchisees stores.

Termination due to under-reporting violation: The majority of franchising breaches are curable, almost all under-reporting violations permit automatic termination. Even in those cases where the franchise agreement does not explicitly mention automatic termination for under-reporting, Courts have held universally that under the common law an under-reporting breach is so material as to not require a cure period and is eligible for instant termination by the franchisor.

In the case of M/S G.D. Goenka (P) Ltd. vs. State Of U.P. And others 2017(1) ADJ 477 the terms in Memorandum of Understanding stated that the any deviance in the records of the expenditure or revenue is a plausible clause for revoking the contract. The Contract will be dissolved immediately with sufficient evidence provide for under-reporting.

Three distinct steps to achieve successful audit program:
• Creating a thorough outline of the procedures.
• The actual performance of an examination.
• Documenting the whole audit procedure and enforcing its data.

In a recent U.S. case 7-Eleven Inc. v Upadhyay CA 12- 5541 of 2013, the franchisor had organized secret shops of the franchisee’s store and found that in 13 instances the purchased product were not reported by the exact amount, hence were under-billed. The franchisor also conducted a category specific audit to check if there were existence of any under-reporting evidence of the franchisee’s store and found significant amount of discrepancies between reported purchases and reported sales. 7-Eleven issued a non-curable notice of material breach and immediate termination of the franchisee. The franchisee, however, refused and continued operating the franchised business, forcing 7-Eleven to seek a permanent injunction. The Court also found, based on all of evidence, that the franchisee’s fraudulent actions had destroyed all trust between the franchisee and 7-Eleven.Where a franchisor has found compelling evidence of fraud, a Court will likely enforce the termination and it is best for the franchisee to partake in proceedings and decide upon an orderly exit.

Most agreements give the franchisor the right to audit Franchisee Company. An audit process can promote compliance with these agreements without creating any tension. Most audit programs are designed to evaluate sales under-reporting and under billing that can prove to be bad for business. Thus, an audit program can benefit both franchisor and franchisee by ensuring a systematic procedure, while at the same time providing insight into areas where the franchisee could improve its operations.
Authored By: Adv. Anant Sharma & Shivangi Ghosh