Franchise Agreements in India: No Dedicated Statute, and What That Means
Rohit Menon
· Founder & Product Architect· 3 min read
Unlike several jurisdictions, India has no franchise disclosure law and no mandatory registration. That places the entire burden on the agreement, and makes the quality of drafting unusually consequential.
- ✓No specific franchise legislation exists; general contract law governs.
- ✓Trademark licensing must be properly documented to preserve the mark.
- ✓Territorial exclusivity and resale price maintenance raise competition issues.
- ✓Franchise fees and royalties attract GST at eighteen per cent.
The legal framework
The relationship is governed by the Indian Contract Act, the Trade Marks Act for the licensed brand, the Competition Act for restrictions on the franchisee, the Income Tax Act for royalty characterisation, and GST for the supply of services.
There is no pre-contract disclosure obligation, which places an onus on the franchisee to conduct their own diligence on unit economics and on the franchisor's existing network.
Trademark licensing
The agreement must license the marks expressly, specify quality control by the franchisor, and reserve ownership. Quality control is not merely commercial: a licence without it risks the mark being challenged for lack of control over use.
Registered user entries under the Trade Marks Act are optional but worth considering where the licence is substantial and long-term.
Competition law limits
Exclusive territories, exclusive supply obligations, tie-in arrangements and resale price maintenance are all vertical restraints assessable under Section 3(4) of the Competition Act, on an effects basis.
A franchisor with limited market share generally has room; one with significant presence should take advice before imposing minimum resale prices or absolute territorial protection.
The commercial terms that matter
- Initial franchise fee and what it buys — training, fit-out support, launch marketing.
- Ongoing royalty, as a percentage of gross or net sales, and the audit rights that accompany it.
- Marketing contributions and how the fund is spent and accounted for.
- Territory, and whether exclusivity is absolute or subject to performance.
- Term, renewal conditions and transfer rights on sale of the business.
- Post-termination obligations: de-identification, return of materials, and the limits of any restraint.
Frequently asked questions
### Is there a franchise law in India?
No. There is no dedicated franchise statute and no mandatory disclosure or registration regime. The relationship is governed by the Contract Act, trademark law, competition law and tax law together, which places unusual weight on the agreement itself.
### Is GST payable on franchise fees?
Yes, generally at eighteen per cent, as a supply of services. Both the initial franchise fee and ongoing royalties attract GST, and the franchisee can usually claim input credit against them.
### Can a franchisor fix resale prices?
With caution. Resale price maintenance is a vertical restraint assessable under Section 3(4) of the Competition Act on an effects basis. Recommended prices are generally safer than mandated minimums, particularly for a franchisor with significant market presence.
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Frequently Asked Questions
Is there a franchise law in India?
No. There is no dedicated franchise statute and no mandatory disclosure or registration regime. The relationship is governed by the Contract Act, trademark law, competition law and tax law together, which places unusual weight on the agreement itself.
Is GST payable on franchise fees?
Yes, generally at eighteen per cent, as a supply of services. Both the initial franchise fee and ongoing royalties attract GST, and the franchisee can usually claim input credit against them.
Can a franchisor fix resale prices?
With caution. Resale price maintenance is a vertical restraint assessable under Section 3(4) of the Competition Act on an effects basis. Recommended prices are generally safer than mandated minimums, particularly for a franchisor with significant market presence.
Rohit Menon
Founder & Product ArchitectArchitecting business document operating systems and automated billing workflows for Indian SMBs, agencies, and enterprises.