Franchising in India
Economy
India has experienced rapid growth in the last few years to
become the world’s 4th largest economy based on GDP figures.
Legislation
There is no specific law dedicated to franchising in India. The
relationship between the franchisee and franchisor is subject to
principles of contract law under the Indian Contract Act. A number
of other pieces of Indian legislation from various sectors are
applicable and impact on the overall governance of franchising in
India. The Indian Foreign Exchange Controls have particular
consequences for franchisors based outside of India.
Franchise Market
India currently has one of the fastest growing biggest franchise
markets. The increasing population presents further opportunities
for future growth.
In 2010, there were approximately 1200 franchisors;
approximately twenty five (25) percent of these were international
brands who had entered the Indian franchise market via
franchising.
The fastest growing sectors in the Indian franchise industry are
food, education, retail, and services.
Franchise Legislation
- There are no formal registration requirements for
franchisors.
- There is no obligation for the franchisor to provide
pre-contractual disclosure.
- The common law doctrine of equity prevails and therefore where
a disclosure document is provided, it must comply with the common
law doctrine to be a true and genuine statement of the franchise
offering.
- Both the franchisor and the franchisee are under a legal
obligation to deal with each other in good faith.
- Where payments are made to franchisors based outside of India,
in order to comply with the Indian Foreign Exchange Controls a copy
of the franchise agreement must be provided to the franchisee’s
bank in order to make payments outside the jurisdiction.
- There have been recent changes to Indian competition and
anti-trust law and it is currently unknown how or what effect this
will have on franchising in India.
- Fluctuations in the level and content of individual sector
regulation by the Indian Government are common and can heavily
influence and impact upon certain types of franchise
businesses.
Conclusion
The vast amount of Indian legislation applicable to franchising,
the potential for, as well as the frequent fluctuations in the law
and the serious ramifications resulting from these changes, means
that franchisors must take specialist legal advice to ensure their
legal agreements are both compliant with and enforceable pursuant
to Indian law.