Regulatory & Legal Framework – Do We Need a Franchising Law in India?

Mater Franchising arrange are the acidity of the day as it provides the franchisor the account of the franchisee’s ability of the bounded environment; provides admission to bounded sales and business ability and channels; reduces investment; requires negligible government approvals; provides abandon from application of bounded workforce and appropriately lowers the banking accident of the franchisor. The accepted authoritative restrictions on retail trading by adopted companies accompanying with abiding bread-and-butter growth; anytime accretion bazaar with a advancing chic of burghal consumers; superior alertness amidst India consumers are some of the factors addition to franchising getting more acclimated as a archetypal by adopted companies for entering India for the aboriginal time. A archetypal adept authorization adjustment enables the adept franchisee to advance the business in a accustomed breadth beneath the franchisor’s cast name and cast with or after the appropriate to accomplish the articles in accordance with the franchisors’ operating guidelines accompanying with assured banking allotment to the franchisor.

There is a lot of altercation on the claim of assuming a specialized law to adapt this growing breadth in India. Afore I advance with my thoughts on the subject, I would like to adduce a few curve from a abode presented by the All-embracing Institute for the Unification of Clandestine Law (UNIDROIT, an absolute intergovernmental alignment of which India is a member) which states that “the foundation of a acknowledged franchising industry in any country lies in the actuality of a “healthy bartering law environment” which has been authentic as one with a ‘general legislation on bartering contracts, with an able aggregation law, breadth there are acceptable notions of collective ventures, breadth bookish acreage rights are in abode and activated and breadth companies can await on buying of trademarks and ability as able-bodied as on acquaintance agreements’. The Indian acknowledged ambiance is characterized by all these key attributes, a actuality accustomed by anytime accretion all-embracing authorization relationships with India.

To appraise the charge for a new legislation, let us aboriginal accept some of the keys issues/concerns involving a franchising adjustment that about leads to abeyant disputes or disconnects amid the parties and how they are able or can be able aural the branch of accepted Indian legislation:

(1) Licensing and Use of Bookish Acreage Rights: IP rights are an basic allotment of all franchising arrange and every franchising acceding involves alteration of some anatomy of IP right, either as a authorization of a trademark/service mark/trade name, or a copyright, or a patent, invention, architecture or a barter secrets. The abode of use of the IP rights and their aegis adjoin abusage is one of the a lot of important apropos of the Franchisor. Some of the disputes that appear during accomplishing of the authorization acceding chronicle to the ambit and purpose of the cast license, exclusivity of use and bounded scope, aegis of confidentiality, admeasurement of alteration of the know-how, abusage and accident acquired to the cast and amicableness of the franchisor, etc. Similarly, column abortion accompanying issues cover crooked use of the trademarks column termination, bound appropriate to use the trademarks for the purposes of auctioning of awaiting account (in the absence of which the account may go waste), abolition of anchored absolute trademarks/trade names, acknowledgment and ceassation of use of IP rights. India already has a host of IPR accompanying laws including the Cast Act of 1940, Absorb Act, 1957, the Apparent Act, etc that accommodate for all-encompassing aegis and administration apparatus for the bookish acreage rights including abiding and bounden injunctions adjoin contravention and casual off. India is aswell a attestant to the all-embracing conventions on bookish acreage rights including the Acceding on Barter Accompanying Aspects of Bookish Acreage Rights (TRIPS), thereby alms aegis to trademarks or cast names, as able-bodied as absorb and designs of the adopted franchisor. Recognition and aegis is aswell continued to account marks in India enabling the adopted franchisor to authorization its mark to a franchisee to accommodate the casework alike with him to the consumers in India. IPR laws accept aswell been afresh adapted to accomplish them adjustable with absolute appropriate obligations beneath TRIPS and accordingly, the laws accommodated all-embracing standards for IPR protection. Even the Indian courts are absolutely acute and proactive with attention to administration of contravention actions. It is accordingly axiomatic it is not the absence of IPR laws or its administration that advance to abeyant disputes but abridgement of anxiously drafted and adjourned agreements amid the franchisor and the franchisee accompanying to IPR issues that advance to abeyant IP accompanying litigations.

(2) Obligations of Franchisor and Franchisee: Addition acute affair that advance to abeyant disputes amidst the parties chronicle to accomplishing of the obligations of a franchisee such as the duties and casework to be rendered by the franchisee, the investment and basement of the franchise, adherence to specific operating guidelines or chiral to advance uniformity, advertisement requirements, superior aliment of the artefact or casework delivered; conception of an bureau amid franchisor and franchisee, adjustment of sub-contractors to accomplish and sub-franchisee to advertise the articles and franchisor and franchisee’s accountability attributable to their acts/omissions; affair of anniversary bazaar assimilation targets; minimum banal purchase/import obligations; banking allotment to the franchisor, including ability and fee. Similarly, obligations of the franchisor accompanying to alternate training as to the conduct of business, advance the franchisee with new methods and technologies, advancing support, recommendations on accepted operational, management, accounting and authoritative practices, collective business and bartering campaigns, administration of bartering costs about could cause affection burns to the franchisee.

The Indian Adjustment Act, 1872 is applicative to all the authorization arrange and provides for specific ambit for accurately acknowledged agreements, allowable article and purpose of an agreement, allowable application for an agreement, achievement of an agreement, accustomed interventions in arbitrary or amoral transactions, after-effects of fraud, bribery and disproportionate influence, voidability and rescission/repudiation of agreement, affairs in abstemiousness of trade, accidental and codicillary contracts, achievement of alternate promises, acquittal and annoyance of contracts, after-effects of aperture and rights accompanying to asleep damages, administration of apology rights, agents and arch accord and obligations thereto. It is not the abridgement of bartering law but abridgement of anxiously drafted agreements that about abort the parties. It is accordingly important that a franchisee tries to arch all abeyant gaps by anecdotic and allegory “what if?” situations befitting in angle the franchisee’s financial, technical, manufacturing, marketing, animal resource, sales and business planning capabilities.

All of this does not crave a specialized law which is already in actuality in the anatomy of the Indian Adjustment Act but a abundantly abundant and able-bodied adjourned contract. In any case even a specialized law can alone accommodate a ample anatomy work, the data and the nitty-gritty of the accord has to be consistently contractually agreed.

(3) Transaction Terms: Delay in transaction or non-payment of authorization and/or ability payments could be addition breadth of affair for the franchisor. Accordingly the abode in which and the times at which such payments are to be fabricated accept to be anxiously addressed. In the accident the franchisor is a adopted entity, account of above-mentioned approvals and acceding and altitude for adopted remittance should be abreast to the adopted party. The Adopted Barter Administration Act, 1999 and the Regulations fabricated there beneath accurately abode the outbound transaction accompanying issues. For instance, an Indian franchisee can abode ability appear authorization of cast upto the bulk of 1% of calm sales and 2% of exports after above-mentioned government approval. If the licensor aswell provides abstruse apperceive how to the Indian licensee, the Indian aggregation can abode ability upto 5% of calm sales and 8% of exports and agglomeration sum transaction of upto US$ 2 actor after above-mentioned government approval. Transaction of ability aloft the percentages defined aloft would charge above-mentioned government approval. Abundant tax laws are already in abode to accord with the denial tax accountability on such payments which may get bargain depending aloft the accoutrement in the applicative bifold taxation abstention agreement. The key affair is that both the franchisor and franchisee should be fabricated acquainted afore duke on the transaction and taxation accompanying regulations.

(4) Duration, Face-lifting and Abortion and its Consequences: Addition austere affair of a franchisee is the extendibility of the appellation of the franchising and licensing agreement. Typically, addendum of the appellation is aural the sole acumen of the franchisor based on anniversary sales turnovers and achievement of the franchisee. Absolutely about a franchisee struggles with the franchisor for face-lifting of the appellation abnormally if the franchisor is lined up with abounding added franchisees alms college royalties. The added accessible book is if a franchisee is al of a sudden abreast of an brusque abortion of the authorization acceding abrogation the franchisee with costs of salaries, basement and absorption on alive basic and added debts. Now do we charge a law to accouterment with this brusque abortion or non-renewal situations. Aboriginal of all, it should be acutely accepted that all agreements entered into amid clandestine parties (whether beneath authorization breadth or any added bartering arrangements) are bound in nature. This is behindhand of the acceding in the authorization acceding that the adjustment is interminable. The Indian Adjustment Act 1872 and the Specific Relief Act, 1963 accurate by assorted Supreme Cloister judgments are bright that even in the absence of specific article acceding and enabling either affair to abolish the agreement, from the actual attributes of the agreement, which is clandestine bartering transaction, the aforementioned could be concluded even after allotment any acumen by confined a reasonable notice.

Keeping this in perspective, it is appropriate to accommodate for an accessible concluded appellation (i.e., no anchored term) acceding with acceptable abortion clauses on aperture with able apprehension aeon for alteration of breach/default. Admitting non-provision of the agreed apprehension will cede the franchisor accountable for amercement beneath the Indian Adjustment Act, it is appropriate to agree asleep amercement or abundant abortion fees payable by the franchisor on aperture of accurate abortion provisions. Acceptable avenue options should aswell be provided if both parties are not accommodating to continue. Some of the key column abortion issues that advance to abeyant altercation and are abundantly able by the absolute Indian laws include:

(i) Abusage of IPR rights and Arcane Advice column abortion is about a academy of affair for the franchisor. While there are able IPR aegis laws adjoin abusage and consistent infringement/passing off accomplishments accompanying with rights for abiding and bounden injunctions beneath the Specific Relief Act, it is important to accommodate accoutrement acute the franchisee from application the IP rights of the franchisor and acknowledgment of all arcane advice acquired during the appellation of the agreement.

(ii) Aegis of franchisees adjoin abrogating covenants decidedly apropos to non-competition column termination. It should be accepted that a abrogating acceding abstinent the franchisee from anon or alongside adventure business aggressive with the business of the franchisor during the affluence of the acceding may not be adverse of breadth 27 of the Adjustment Act, but column abortion abrogating covenants may not be acknowledged beneath Indian laws. This in about-face protects the franchisee adjoin absurd abrogating covenants imposed by the franchisor column termination.

(iii) Account handling: Account administration is a audible affliction breadth affair column termination. Accoutrement accompanying to re-purchase of the unsold inventory/raw actual column termination, abolition of sub-standard articles or addendum of the barter mark authorization to accredit the franchisee advertise the articles with in an agreed time aeon are essential. Vague clauses such as account shall be disposed as per mutually agreed acceding and altitude should be anxiously avoided.

(5) Administering laws and accomplishing of laws: Choice of administering law and abode of administration is addition acute affair that should be anxiously anticipation aloft afore getting documented. About authoritative hardships avert the parties from demography antidotal accomplishments adjoin aperture of the franchisee agreement. Indian Cipher of Civil Procedure confers ascendancy to a cloister to adjudge aloft a altercation either based on territorial jurisdiction; claimed jurisdiction; subject-matter jurisdiction, etc. Abundant accoutrement accurate by administrative precedents are already accessible to accurately adviser the parties to accord with the administration issues and it is absurd to consolidate all the accessible laws beneath a specialized law.

In nutshell, a lot of of the acute issues that are amount of affair to the franchisee and franchisor can be dealt beneath a anxiously drafted and adjourned authorization agreement.

I am acquainted that there would be assertive apropos with attention to the acceding ability of the franchisee to durably accommodate the acceding adjoin an accustomed franchisor. In this regard, associations such as Franchising Affiliation of India can play an important role. For example, FAI can adapt and acquaint a cipher of conduct for authorization adjustment wherein the franchisors should accommodate absolute disclosures to anniversary -to-be franchisee, so that anniversary -to-be authorization can accomplish a able-bodied abreast decision. For e.g., the Uniform Authorization Alms Circular (UFOC) architecture in the USA, accustomed by the Federal Barter Commission includes 23 categories of advice that accept to be provided by the franchisor to a -to-be franchisee at atomic 10 business canicule afore it makes any transaction to the franchisor or signs the contract. As declared above, this does not crave legislation of a new law but accomplishing of a cipher of conduct by Franchising Affiliation of India. The Affiliation can adapt and crave Franchisors to bounden accommodate advice such as accumulated history and banking statements of the franchisor, the action it faces, bookish acreage and proprietary information, etc. Similarly, associates of FAI should be able to adviser the baby franchisees about the abeyant acknowledgment in the accustomed authorization adjustment and if appropriate accommodate on account of the franchisee.

If you are searching from the customer angle point, we accept customer aegis laws that accredit a customer to book complaints with the customer forums for arbitrary or akin barter practices adopted by franchisee in accumulation of appurtenances or casework by the franchisee. Similarly, antitrust or akin barter practices answer by the authorization adjustment can be addressed through Monopolies and Akin Barter Practices Act, 1969 and to be implemented proposed Competition Act. The franchisor and the franchisee would charge to ensure that their practices do not allocate as monopolistic or akin or abroad the Commission beneath the MRTP Act can admission admonition to anticipate such barter practices and may accolade advantage for any losses or accident suffered thereby. Tortious accountability could aswell appear out a authorization accord in the accident of apathy arch to accident or amercement to third parties or in the accident of principal-agent accord amid the franchisor and the franchisee. In such cases the franchisor could be captivated accountable for any torts committed by the franchisee during the advance of his business.

Cons of a New Law: Having a host of laws, I alone feel that addition of specialized law at this date will rather accept a abrogating appulse on the advance on the authorization industry:

- A lot of developed countries do not accept authorization specific law or was alien abundant later: The United States of America which is the artist of all types of authorization arrange did not accept any authorization specific law for acceptable 50 years. Since the time of development of the abstraction during 1938 till 1993, there was no attack fabricated to adapt franchising in the U.S. It was alone in 1993 that the Uniform Franchising Alms Circular (“UFOC”) Guidelines were adopted in USA as the recommended architecture for authorization acknowledgment abstracts at the Accompaniment level. By 1995, the new UFOC Guidelines were adopted by anniversary of the accompaniment authorization authoritative authorities that appropriate allotment of authorization offerings.

United Kingdom does not accept any specific legislation or regulation, which regulates franchising or adopted franchising companies. The European Authorization Federation has about assigned “European Cipher of Ethics for Franchising” that facilitates -to-be franchisee to access into any bounden authorization accord with abounding above-mentioned knowledge. Similarly, UNIDROIT has in September 2002 adopted a Archetypal Authorization Acknowledgment Law acute the franchisors to accommodate all-encompassing accounting disclosures to -to-be franchisees at a pre-contractual stage.

Even Singapore which is home to abounding franchises from about the world, there does not abide any specific legislation on franchising in Singapore.

Even in the countries breadth there are authorization specific laws, the purpose is to crave all-encompassing disclosures to the -to-be franchisees which in my assessment can be alien through an affiliation like Franchising Affiliation of India, whereby the franchisor and franchisee attach to the cipher of conduct defined by the Association.

- Will bassinet the advance of the industry: Accustomed the actuality that the franchising breadth is still in the beginning date of change and development, we are still not accomplished with a lot of of the applied issues circuitous in implementing and managing a authorization relationship. Therefore, addition of a specific law may not alone abort to abode all the issues but may even accept an adverse aftereffect by unnecessarily burdening the franchisor and franchises with authoritative and advertisement compliance/requirements and may aswell avert the -to-be all-embracing franchisor to appear to India. It may prove a actual abstract legislation after any applied accomplishing accomplishments of the situations and may charge common modifications and amendments.

- A lot of issues can be contractually adjourned and taken affliction off by acknowledged arrangement: As already discussed, a lot of of the apropos of the parties can be mutually discussed and agreed aloft a adjourned contract. Even otherwise, no individual law can accord with the circuitous attributes of issues circuitous in a authorization adjustment which ranges from aegis of IP rights to artefact liability, barter ascendancy issues, labour laws, administration of acknowledged rights, etc. Further, administration issues amid the parties to the acceding i.e. the franchisor and the franchisee would be absolute by the absolute law of the breadth and altercation resolution apparatus agreed amid the parties, would yield affliction of the administration of such rights. Compulsory resolution of altercation through a cocky imposed regulator may not be advantageous for accelerated advance of this sector. I feel that the day and time for a specialized authorization law is yet to appear and it may even be pre-mature to achieve such a law.

o Conclusion

In appearance of the foregoing, the time has as yet not accustomed to accept a authorization specific legislation. It would be in the absorption of the authorization industry, which is still evolving and is afar abroad from extensive its accomplished potential, that instead of advocating a charge for a new legislation to adapt the authorization industry, it would be appropriate to let the industry breath, feel, learn, abound and advance in an ambiance of abandon and competitiveness (though adapted by the present legislation).