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An estimated 2-minute read

The Law of Franchise and Distributor Agreements

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By- Sagnik Chatterjee


The term ‘agent’ is often inappropriately used when the legal relationship entered into by parties is not that of ‘agency’ but that of distributorship and franchise arrangements. In legal terminology a difference exists as to the role of an agent, a franchisee and a distributor.

Franchisee Agreements in India

A franchise is an agreement wherein an entrepreneur with a product, instead of selling directly, sells through another known as the ‘franchisee’, licensing the use of his intellectual property rights.

There is no specific legislation governing franchisee arrangements in this country, as such the agreements are subjected to the provisions of Indian Contract Act, 1872; Specific Relief Act, 1963 and Taxation; Property; Labour and Insurance Laws.Additionally, laws and regulations applying to specific sectors of goods and services will also apply depending on the franchised. 

A franchise agreement involves a contract between the franchisor and the franchisee. As such, the Indian Contract Act, 1872 governing contracts is the fundamental legislation adhered to while entering into a franchise agreement. Specific enforcement of covenants is provided for in the Specific Relief Act, 1963 which provides for in addition to it remedies in the form of damages for breach of contract. If a party to the franchise agreement commits a breach of contract, the aggrieved party has the option to initiate a suit for specific performance in Indian courts and apply for relief in the form of a temporary or permanent injunction, which may be granted at the discretion of the court considering the balance of convenience and the interests of justice. An order granting or rejecting an injunction may be appealed by an aggrieved party.

Application of foreign laws

The lack of an Indian legislation on franchise often results in a foreign franchisor subjecting his Indian franchisee to laws of his land or vice versa. The following are the some of the laws on franchise in different countries.

a) United States:

The Federal Trade Commission’s Rules on Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures (1979) regulate the information a franchisor is required to supply the prospective franchisee in order to enable the franchisee to make an informed decision on the prospects of venturing into the business.

b) United Kingdom:

In the absence of a specific legislation on franchise, different aspects are governed by norms laid down by the British Franchise Association (BFA), the regulatory body of the franchise industry in the United Kingdom

c) Canada:

In 2000, the Ontario Legislature in Canada adopted the Arthur Wishart Act which deals comprehensively with disclosure requirements as well as important aspects of the franchisee-franchisor relationship.

d) China:

On 31 December 2004 the Ministry of Commerce of the People’s Republic of China promulgated the Measures for the Regulation of Commercial Franchises which became the sole legal framework for franchising in China.

e) Japan:

In April 2002, the Japan Fair Trade Commission (JFTC), the competition authority of Japan, published new guidelines on franchising.


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