Though there is so much opposition to allow foreign investment in retail sector, as we have liberalized our economy to a great extent even bothering the nations like America, franchise occupied its due place and great significance. Franchise provides one to use other’s trade mark, trade practices, good will etc. and allows one to distribute the other’s products and render services upon an understanding or agreement. The one who owns the asset like good will, trade mark etc. in franchise transaction is called “Franchisor”. The one who enters into an agreement with the franchisor is called “Franchisee”. Obviously, the franchisee will pay the remuneration to the franchisor either in the form of percentage or royalty and it depends upon the clauses in the Franchise Agreement.
The Franchise is useful for both the Franchisor and the Franchisee. The Franchisor may find it very difficult to directly operate and monitor the issues pertaining to sales and the Franchisee may find it very difficult to start his own internationally renowned business/trademark/product etc.
But, when it comes to drafting a Franchise Agreement, I would say that it is very complicated. Both the Franchisee and the Franchisor has to think a lot before finalizing the clauses to be incorporated in the Agreement as modification can be complicated most of the times.
Franchise Law in India:
There is no specific law in India dealing with Franchise. The law of contracts will govern Franchise Agreements too and we may witness some specific laws or regulations in future as the Franchise arrangements are bound to grow in India. It is to be noted that no clause in the Agreement should go against the substantive law of the land or opposed to public policy as enumerated in Indian Contracts Act.
Franchise Law in the World:
Most of the developed nations like USA and other European countries have their own Franchise Laws either directly dealing with Franchises in the form of state law or indirectly in the form of regulations by specialistic bodies with federal/state back-up. I would like to say that the regulations governing Franchise in foreign countries like USA are bit complicated as compared to the law applicable to Franchise in India.
Franchise Agreement between an Indian Company/Party and Foreign Company/party:
When an Indian Company enters into a Foreign Company, then, the parties should be careful about the law applicable to their arrangement. The applicable law as agreed between the parties will always subject to the substantive law of the land and also the public policy. It needs to be carefully understood.
Precautions to be taken while drafting a Franchise Agreement:
1. The Parties should think a lot before entering into preparation phase and must prepare detailed notes about their understanding.
2. Depending upon the subject in Franchise Agreement, it is better for the parties to engage their own specialists in the field.
3. An expert lawyer is must to draft a Franchise Agreement.
4. The Parties are to be very careful in drafting the clauses dealing with the consequences of violation of terms, the termination, the compensation etc.
5. The Parties to be careful about the law applicable to them.
6. The Parties to be careful and specific to the mode of adjudication and the place as such if they choose ADR as a dispute resolution mode in case of disputes.
Note:
Though the law of Franchise is a big subject to dealwith, only the out-line is dealtwith.
"Loved reading this piece by Member (Account Deleted)?
Join LAWyersClubIndia's network for daily News Updates, Judgment Summaries, Articles, Forum Threads, Online Law Courses, and MUCH MORE!!"
Join LAWyersClubIndia's network for daily News Updates, Judgment Summaries, Articles, Forum Threads, Online Law Courses, and MUCH MORE!!"
Tags :Corporate Law
