franchising aspects Jul, 09 2010

Safeguarding franchise interests

Legal framework is an indispensable part of every business. This is also applicable to a franchise business, which involves intricate business policies. Let us find out the legal aspects of franchising in India

By Ramanjit Kaur
Feature Writer
Safeguarding franchise interests

Franchising is undoubtedly a commendable option to start a business or to expand any existing business. However, every business model calls for specific laws and regulations in order to establish a business enterprise. It ensures healthy legal environment, helps in maintaining a strong cordial relationship, is also responsible for the growth and expansion of the business. Though India has some franchise laws to protect and regulate the interests of franchisors and franchisees but these franchise laws are not well defined. As India lacks specific laws governing the franchise model, therefore an array of business laws and regulations can be applied for developing a franchise agreement in order to avoid conflicts. This article gives you an insight of those laws and Acts that are liable to franchising in India.

Unlike countries like USA, UK, Russia, China, Australia and so on, India is lagging behind in developing comprehensive franchise legislation. In the name of franchise legality, the Indian franchisor and franchisees only have the franchise agreement and franchise operating manuals. However, there are other laws and Acts that can be used by both the parties to avoid conflicts and deceits.

Indian Competition Law: In India, Part A of MRTP Act (Monopolies and Restrictive Trade Practices Act), 1969 states the laws to prevent monopolistic, provisional and unfair trade practices that hamper the carrying out of competitive practices in the market. This act is basically directed against the franchisor. While Part B of MRTP Act, 1969 and the Protection Act, 1986 offers solutions to customers who were caused any sort of inconvenience as a result of flawed and faulty products sold to them. This act is focused on franchisees and Master Franchisees that manufacture and sell merchandise for the Indian customers.

Consumer Protection Law in India: Consumers are largely becoming aware every now and then about their consumer rights and how they can exercise them. Consumer Protection Act 1986 is the most relevant in this case. The customers who are the consumer of the products sold by the franchise brands have these laws at their disposal. These include manufacturers, assemblers, distributors, wholesalers, retailers, packers and franchisor or franchisee of goods. However, at present, there is no provision for disputes arising specifically out of franchising in relation to consumer protection. If such a case happens, general law and statutes present can offer a degree of respite to the consumer.

Indian law governing Intellectual Property Rights: Intellectual Property Rights (IPR) is the most valuable asset for a franchisor. In order to safeguard the value of the intellectual property right, a franchisor not only has to carefully draft the franchise agreement but also avail various remedies under the Indian law. The Statute and Common Law in relation to trademark, design and copyright are particularly effective against infringement and trafficking in trademarks. The IPR can be covered under major Acts namely the Trademarks Act, 1999, Designs Act, 1911 and Copyrights Act, 1957. The Trademarks Act, 1999 deals with the registration and the better protection of the trademark. It also prevents usage of fraudulent marks on merchandise. Whereas, for the protection of the original designs, franchising manuals, data related to advertising and so on can be dealt under the Designs Act, 1911 and Copyrights Act, 1957.

Labour Laws in India: Labour laws are essential in franchising in relation to the number of outlets or offices where employees are recruited. Even the franchise agreement cannot derogate the applicability of the labour laws whether it is mentioned or not. The labour laws comprises of a number of Acts, which a domestic or foreign franchisor must know before taking up the franchise route to expand the business. Some of the Acts are listed below:

  • Apprentices Act, 1961
  • Contract Labour (Regulation and Abolition) Act, 1970
  • Employees Provident Funds and Miscellaneous Provisions Act, 1952
  • Employees State Insurance Act, 1948
  • Equal Remuneration Act, 1976
  • Factories Act, 1948
  • Industrial Disputes Act, 1947
  • Minimum Wages Act, 1948
  • Payment of Bonus Act, 1965
  • Workmen’s Compensation Act, 1923
  • Payment of Gratuity Act, 1972
  • Payment of Wages Act, 1936

No doubt, the above mentioned laws are governing Indian franchise industry to a great extent. However, considering the tremendous growth of the franchise industry, an initiative is also required on the part of the Government of India to take some serious steps towards regulating the legal framework of the Indian franchise industry.

Related: Code of conduct for expansion

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