The blog offers all the information related to the understanding of franchise law in India in depth. Read to know more.
The Franchise Act of 1999 allows a franchisor and a franchisee to sell a particular product or service under a written contract or agreement. This blog talks about Franchise Law and Regulations in India and if you are looking forward to starting a franchise business, this can come in handy.
Franchising is a fantastic method to get your business off the ground. Over half of all businesses started today are franchises. Franchising is a form of licensing where a company licenses another company to sell goods or services under its brand name. The licensee (the franchisor) provides training and support to the franchisee. This relationship allows the franchisee to offer customers the same quality of service as the franchisor.
India has a new law in place that deals with Franchising. It protects the interests of both the franchisor and the franchisee. It sets out the requirements for franchising agreements, specifies steps that need to be taken to end a franchise agreement, and penalties for breaking a franchise agreement. The law is aimed at encouraging the growth of franchising in India. It provides a balance between the interests of the franchisor and the franchisee.
The franchise marketing strategy is becoming a popular choice for aspiring entrepreneurs, whether because of its profitability, the variety of possibilities available, or the brand’s reputation. The rules governing franchising in India are examined in this article.
Scope and Definition of the Law
The term franchise is not defined in the Indian legal framework. The Finance Act of 1999 defines a “franchise” as “an arrangement that permits the ‘franchisee’ to sell or manufacture products, provide services, or conduct businesses affiliated with the franchisor.”
A Business franchise consists of a franchisor and a franchisee. Although the former refers to an entity that lends its brand, trade name, or any other form of intellectual property laws along with the value chain, the latter describes a person who, in exchange for a royalty and an initial fee, conducts the former’s business under the mark or name of the franchisor.
In India, franchise agreements are controlled by various relevant laws enactments rather than any genre of legislation. The Indian Contract Act of 1872, the Consumer Protection Act of 1986, the Patents Act of 1970, the Trade Marks Act of 1999, the Copyright Act of 1957, the Specific Relief Act of 1963, the Design Act of 2000, the Transfer of Property Act of 1882, the Foreign Exchange Management Act of 1999, the Indian Stamp Act of 1899, the Arbitration and Conciliation Act of 1996, the Income Tax Act of 1961, and the Information Technology Act of 2000 are a few examples.
Requirement of Registration of the Franchisor
Before agreeing for such a reason, Indian law does not need the franchisor to be licensed with any legal or regulatory authority. But, the Trademark Act of India makes it easier to register as an account holder of a trademark.
Norms for Public Disclosure
Disclosure regulations exist in some countries, requiring franchisors to reveal necessary information to franchisees before signing any deal. The franchise agreement determines the validity of post responsibilities in India by capturing comprehensive disclosure laws in the franchise agreement. In this situation, readers should be aware that “consensus ad idem,” as defined by the Contract Act of 1857, is relevant.
The franchise agreement also determines the implementation of this duty to sub-franchisees. It is worth noting that common law standards govern the suggested contractual relationships.
There are no defined formats or obligations for ongoing disclosures in the absence of any disclosure laws.
It is not required for a franchise to be a member of a national franchise association, although doing so may help better safeguard franchise owners’ interests.
A franchise agreement is the foundation of a franchise, aside from the obvious requirements of cash, facilities, and other essentials. The sort of agreement used for this purpose varies depending on various elements such as the format, control, type of franchisor, and so on.
1872’s The Indian Contract Act requires that franchise agreements follow its provisions. Franchisees may include disclosure laws in their contracts if they meet this condition. In this scenario, the franchisor’s deception allows the franchisee to file civil lawsuits for damages and criminal lawsuits for distortion of facts and criminal breach of trust.
Needs for Translation
Unless the franchise contract specifies otherwise, franchise documents do not need to be transcribed into the local vernacular of the respective area.
If such clauses are contained in the agreement, the franchisor may put rational regulations on the franchisee about the sale, transfer, assignment, or disposal of the Business franchise. So, these limits should not impede any party’s ability to conduct business.
The Problem of Liability
Except in the case of a principal-agent connection between the parties or if the agreement stipulates the relationship between the parties, franchisors could be held responsible for the actions or omissions of a franchisee’s workers in the operation of the Franchise rules and regulations in India
Only reasonable grounds could be used to cancel a franchise. Defaults such as criminal records, abandonment, and bankruptcy do not qualify for a second chance.
Since 1991, India has stayed on the leadership path set by successive governments. The government has kept working on its plan to increase the economic competitiveness in India by implementing social reforms and agricultural production reforms by 2020. Besides these reforms, the Prime Minister has declared the ‘Vocal for Local’ and ‘Make for the World’ strategies, aiming to increase India’s share of the global economy and promote manufacturing in India.
On the one hand, these methods may help India’s manufacturing industry. Still, on the other, they may hurt enterprises looking to sell imported items in the country since customer sentiment may skew toward buying things made in India. Nonetheless, given India’s vast domestic market, we feel that franchising offers considerable prospects for international companies seeking to establish a presence in the country.