Assignment 1:

Franchise: A licensing contract in which a holder of certain legal rights gives another to sell or
package those rights. (Black’s Law Dictionary, (6 Ed.) Centennial Edition (1891–1991) at p.
658).
“Franchise” means an agreement by which the franchisee is granted representational right to
sell or manufacture goods or to provide a service or undertake any process identified with the
franchisor, whether or not a trademark, service mark, trade name or logo or any such symbol,
as the case may be, is involved (Section 65 (47) of Finance Act, 1994 as amended).
In a normal franchise agreement, there are at least two parties involved:
a. the franchisor, who lends his trademark or trade name (or other intellectual property rights)
and the business system; and
b. the franchisee, who pays a royalty and often an initial fee for the right to do business under
the franchisor’s name and business system.

Legal terms related:

Consensus ad idem- meeting of minds
Disclosure norm: Certain countries practice disclosure laws, according to which the franchisors
must provide the required information to franchisees before signing any contract. The
applicability of pre-disclosure obligations in India is determined based on the franchise
agreement by way of explicitly capturing detailed disclosure requirements in the said franchise
agreement. With respect to this context, the readers may note that “consensus ad idem” as per
the provisions of the Contract Act, 1857, is applicable.

Regulation and affiliation:

Franchise agreements in India aren’t governed by any franchise-specific legislation but by
various applicable statutory enactments of the country. A few of them includes the Indian
Contract Act 1872; the Consumer Protection Act, 1986; the Trade Marks Act, 1999; the
Copyright Act, 1957; the Patents Act, 1970; the Design Act, 2000; the Specific Relief Act,
1963; the Foreign Exchange Management Act, 1999; the Transfer of Property Act, 1882; the
Indian Stamp Act, 1899; the Income Tax Act, 1961; the Arbitration and Conciliation Act, 1996;
and the Information Technology Act, 2000.

Indian laws do not require the franchisor to be registered with any professional or regulatory
body before entering into a franchise arrangement (including offering a franchise, signing up
franchisees or taking payments from franchisees).
An issue that could arise is of competing with the franchisor’s business during the term of the
franchising relationship. In the landmark case of Gujarat Bottling Co. Ltd. and others v.
Coca Cola Co. and others, the Coca Cola Co. had imposed a restriction on Gujarat Bottling
Co. Ltd from entering into an agreement with any other beverage manufacturing company
during the term of their contract. When the case came up before the Supreme Court as being in
restraint of trade,
the Court held the following: “There is a growing trend to regulate distribution of goods and
services through franchise agreements providing for grant of franchise by the franchiser on
certain terms and conditions to the franchisee. Such agreements often incorporate a condition
that the franchisee shall not deal with competing goods. Such a condition restricting the right
of the franchisee to deal with competing goods is for facilitating the distribution of the goods
of the franchiser and it cannot be regarded as in restraint of trade.”
The Court therefore held that a negative agreement restraining the franchisee from
manufacturing, bottling, selling, dealing or otherwise being concerned with the products or
beverages of any other brands or trademarks/trade names during the subsistence of a franchise
agreement including the period of the period of one years' notice, is not violative of Section 27
of the Contract Act.i

All franchising agreements involve the transfer of some form of intellectual property, either
an invention or a patent for the invention or a design (in the case of a manufacturing agreement),
or a trademark or trade name (eg. Bata shoes) or a business format / know-how / trade secret
(eg. McDonalds and Barista coffee chain) or copyright (in the case of character merchandising
agreements). Since the intellectual property licence lies at the core of a franchise, the laws
governing licensing of intellectual property constitute the heart and arteries of franchise laws.

The Competition Act, 2002 prohibits arrangements related to production, supply, distribution,
storage, acquisition or control of goods or provision of services that cause or are likely to cause
an appreciable adverse effect on competition within India. This is in an effort to ensure that
large franchise arrangements do not create a monopoly.
Governing Law: It is good practice to mention the governing laws and jurisdiction for the
operation of the franchise agreement although, it is not a mandatory requirement. In the case
of a franchise agreement between an Indian entity and foreign entity, the parties to the franchise
agreement, can designate the law of a foreign country as the governing law and submit
exclusive or nonexclusive jurisdiction to a foreign court, provided such foreign court has
inherent jurisdiction over the dispute.

7 steps to franchise a small business:

1. Get organized: find and prepare all the exact details and guidelines needed for the
business to go up and running.
2. Hire an attorney: getting expert advice is essential.
3. Choose wisely: pick your franchise correctly and wisely.
4. Build and protect your brand: Clear guidelines should be established for the use of all
of the brand assets.
5. Find a mentor: There will always be people who are willing to give you advice.
 6. Know how you want to grow: Steady, strategic growth is ideal.
7. Support your franchisees.

i
MANU /SC /0472 /1995
Gujarat Bottling Co. Ltd. and Ors. vs. Coca Cola Company and Ors. (04.08.1995 - SC) : MANU/SC/0472/1995

2. https://www.indiafilings.com/learn/franchising-law-in-india/
3. http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Legal_issues_in_Franchising.pdf (explains every
legal domain in relation to franchise business)
4. https://www.forbes.com/sites/theyec/2012/11/14/want-to-franchise-your-small-business-8-tips-to-get-started

Ananya Singh
NMIMS, School of Law, Navi Mumbai
sinngh.ananya@gmail.com