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Laws Affecting Franchising in India
Laws Affecting Franchising in India
Franchising Association of Indias Workshop in Mumbai on Legal Issues in Franchising July 12, 2008
Perhaps the first answer may well be that Franchising is a method of marketing goods and services. The root word Franchise comes from old French meaning privilege/ freedom. In middle ages a franchise was a privilege/ a right. Essentially a marketing concept, Franchising is an innovative method of distributing goods and services.
Franchise is an arrangement under which a person earns profit or income by exploiting a right conferred by the arrangement to use a trade name or design or other intellectual property or the goodwill attached to it. 1st US franchising legislation of California defines Franchise as a contract/ agreement between 2 or more persons by which, inter alia, the operation of the franchisees business pursuant to such plan or system is substantially associated with the franchisees TM, SM, trade name, logo type, advertising or other commercial symbol designating or its affiliate.
as, the sole right granted by the owner of a trademark or trade name to engage in business or to sell a good or service in certain area. In India, chapter 5 of the Finance Act defines franchise as an agreement by which the franchisee is granted representational rights to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved..
The concept of Franchising as we know today 1st started in Germany in 1840 when:
Certain major ale brewers granted franchises to
certain taverns, granting those taverns the exclusive right to sell their ale.
In 1851, Singer Sewing Machine Co. began granting distribution franchises for its sewing machines. Thus began the modern concept of franchising.
most dominant form of franchising; the Business Format Franchising (BFF). Elements of BBF include a franchise relationship based upon a formal contract, a successful business format of the franchisor, which is identified with a brand name, TM, SM and/or trade name, formal training to franchisee, support of franchisor in operation of the business, franchisees ownership of business, payment to franchisor, etc. Franchising of foreign brands evolved in India as an unregulated method of introducing foreign brands in India.
franchisee retailer directly sells the franchisors products e.g. Kodak Express, Bose Corp., Wellspun, Shehnaz Hussain. Manufacturer-Wholesaler Licensed Franchisee, under this model, manufactures & distributes the franchisors products, e.g. bottling of soft drinks Coke & Pepsi.
retailer purchases products for retail sale from the Franchisor, e.g. lifestyle products, Florista. Retailer-Retailer - Here the franchisor markets a service or a product under a common name and a standardized system, through a network of franchisees, e.g. The Medicine Shoppe, Big Bazaar, Shoppers Stop.
India does not have a specific legislation to regulate franchising. Hence, a plethora of legislations govern franchising in India, including:
Foreign Exchange Management Act, 1999 This
law regulates all franchising activities involving foreign investments and foreign remittances. The Contract Act, 1872 - Franchising in India is basically built on the principles of Contract law.
Act, 1969 This law regulates monopolies and restricts unfair and restrictive trade practices. The Competition Act, 2002 - This Act will replace the MRTP Act and will regulate competition and fairness in business. The Specific Relief Act, 1963 - This Act provides specific enforcement for breach of contract by a party.
the consumers. The Sale of Goods Act, 1930; Direct & Indirect Taxation Laws & Cesses; Activity Specific Legislations including:
The Prevention of Food Adulteration Act, 1954; The Drug & Cosmetic Act, 1940; The Pharmacy Act, 1948.
to manufacture, bottle, sell & distribute various beverages for which TMs were acquired by Coca Cola. Agreements negative stipulation required GBC to work vigorously & diligently to promote & solicit sale of beverages produced under the TMs owned of Coca Cola Co. Shares of GCB were transferred to Pepsi, a rival of Coca Cola. Coca Cola obtained an order of injunction from High Court restraining the transfer of shares from GBC to Pepsi.
to confidential & detailed info. about Turbostop (T), a patented product of FIL; FIL bound them with contractual obligation of non-use of confidential info. acquired in course of employment & by a non-compete obligation; Defendant 3, a contractor of FIL had access to confidential info. about T & was bound by a confidentiality & noncompete contract. All 3 violated contractual obligations. Court granted order of temporary injunction against them.
Staff Training Quality Checks Surprise Audits Customer Feedback Care for the Environment
Indias vast geographical spread, diversity, growing economy, purchase power, young population & acceptance of western concepts are huge enablers for franchising. Growth sectors include reality, food & beverages, hospitality, health & fitness, tourism, education, etc. For the last several years, franchising is growing in India at a steady rate of 25-30%. Established brands like Pizza Hut, MacDonalds, Kodak, Crossword, KFC, Subway are consolidating.