Franchising in India: Law, Agreements, Competition & Cross-Border

India has no dedicated franchise statute. A franchise runs on several bodies of law at once: the Indian Contract Act 1872 (the agreement itself), the Trade Marks Act 1999 (the brand licence at the centre of the system), the Competition Act 2002 (which polices exclusivity, territory and pricing restraints through the CCI), the Foreign Exchange Management Act 1999 (FEMA) and the Income-tax Act 2025 (the cross-border fee and royalty flows), and GST (which applies to franchise fees and royalties). Because there is no statutory disclosure document (no US-style FDD) and no statutory franchisee-protection regime (unlike the UAE’s agency law), the agreement carries the entire relationship and must be drafted to anticipate everything Indian law would otherwise leave open. Two features catch franchisors out. First, post-term restraints are largely unenforceable – s. 27 of the Contract Act voids agreements in restraint of trade, so a post-termination non-compete generally will not hold (in-term covenants are fine). Second, dictating a franchisee’s resale prices is treated as resale price maintenance and can attract CCI scrutiny. Confirm the current position before relying on it.

A practical guide to structuring and running franchises in India – the legal framework, the agreement and disclosure, brand licensing, the competition-law limits, termination, and the cross-border tax and FEMA picture.

At a glance

• No dedicated franchise law – franchises are governed by the Contract Act 1872, Trade Marks Act 1999, Competition Act 2002, FEMA 1999, the Income-tax Act 2025 and GST together
• No statutory disclosure (FDD) and no statutory franchisee protection – the agreement carries the whole relationship, so drafting is critical
• Brand licence at the centre: the trademark licence under the Trade Marks Act 1999, ideally recorded as a “registered user” (s. 49), with quality control essential to preserve the mark
• Competition limits: exclusivity and territory restraints are judged on a rule of reason (AAEC test, s. 3(4)); resale price maintenance is a real risk – the CCI has treated dictating dealer discounts as RPM
• Post-term non-competes: generally void under s. 27 of the Contract Act (in-term exclusivity is enforceable; Gujarat Bottling v Coca-Cola)
• Cross-border: franchise fees and royalties remit under the FEMA automatic route; withholding tax on royalty/fees to a foreign franchisor is 20% (before lower treaty rates – the India–UAE treaty caps royalty at 10%); franchise services attract GST (reverse charge on imports)
• Models: unit, area-development and master franchise (with sub-franchising) are all common

1. The franchising landscape in India

Franchising is a major route into India’s vast retail, food-and-beverage, education and services markets, but anyone expecting a single “franchise law” will not find one. Instead, a bouquet of statutes operates together. The Indian Contract Act 1872 governs the enforceability of the franchise agreement and supplies the default rules on formation, performance, breach and remedies. The Trade Marks Act 1999 governs the brand – the trademark, trade dress and goodwill the franchisee is licensed to use. The Competition Act 2002 controls the restraints a franchise typically contains (exclusivity, territory, tie-ins, pricing). FEMA 1999 and the Income-tax Act 2025 govern the cross-border money flows where a foreign franchisor is involved, and GST applies to the fees and royalties. The Consumer Protection Act 2019 and sector rules (for food, education, financial services and so on) may apply to the underlying business. Because no statute defines a “franchise” or prescribes its terms, the single most important point in India is that the agreement does the work the law does not – a theme that runs through every section below.

2. The legal building blocks

A franchise in India is assembled from the statutes above, and it helps to see what each contributes. The Contract Act 1872 makes the franchise agreement binding and enforceable, but also sets limits – most importantly s. 27, under which an agreement that restrains a person from carrying on a lawful trade is void (subject only to the narrow sale-of-goodwill exception). The Trade Marks Act 1999 allows the franchisor’s marks to be licensed and, through its registered-user provisions, to be recorded so the franchisee’s use is formally recognised. The Competition Act 2002 subjects the franchise’s vertical restraints to the appreciable-adverse-effect-on-competition (AAEC) test. FEMA 1999 treats franchise fees and royalties as current-account transactions and sets how they may be remitted abroad. The Income-tax Act 2025 fixes the withholding tax on payments to a foreign franchisor, and GST applies to the supply of franchise services. There is no franchise-specific regulator and no registration of franchises as such – though the franchisor will need GST registration, and recordal of the trademark licence is advisable. The franchise agreement therefore has to integrate all of these into one document.

3. The franchise agreement and disclosure

Because India has no statutory disclosure document – nothing equivalent to the US Franchise Disclosure Document – and no statutory code of franchisee protection, the agreement carries the entire relationship and must be drafted to anticipate every issue. A robust Indian franchise agreement addresses: the grant (unit, area-development or master) and its exclusivity and territory; the fees (initial franchise fee, ongoing royalties, marketing-fund contributions); the term, renewal and termination mechanics; the brand licence and quality-control standards (below); the franchisor’s audit, training and operational-manual rights; transfer and change-of-control; confidentiality and know-how protection; post-term obligations (drafted with s. 27 firmly in mind – see section 6); and the governing law, dispute resolution and jurisdiction. Although disclosure is not mandated, accurate pre-contract disclosure is still prudent – a franchisor that misrepresents the opportunity risks claims for misrepresentation and fraud under the Contract Act, and potentially under consumer law. Good practice in India is increasingly to provide a voluntary disclosure document and a clear, balanced agreement, both because it reduces dispute risk and because sophisticated franchisees now expect it.

4. Brand and intellectual-property licensing within the franchise

At the heart of every franchise is a licence of the franchisor’s intellectual property – the trademarks, trade dress, copyright works (manuals, designs, software) and confidential know-how that make up the system. In India the trademark licence is governed by the Trade Marks Act 1999. A licensee may be recorded as a “registered user” (s. 49), and while registration of the licence is not mandatory, recording it is advisable: it puts the use on the public record, helps the franchisee act against infringers, and evidences the controlled, permitted use that keeps the mark valid. Quality control is the essential counterpart – the franchisor must retain and exercise control over the quality of the goods or services offered under the mark, both commercially (to protect the brand) and legally (uncontrolled licensing can jeopardise the mark and the franchisor’s connection in the course of trade). The operating manuals, training materials and software are protected by the Copyright Act 1957, and the know-how and trade secrets are protected by contract (India has no standalone trade-secrets statute, so confidentiality terms do the heavy lifting). The IP-licensing terms – scope, exclusivity, quality control and what happens to the licence on termination – are therefore among the most important in the agreement, and connect directly to our Licensing page.

5. Competition-law limits on franchise restraints

A franchise is full of vertical restraints – exclusivity, territory, tie-ins, customer restrictions and pricing terms – and these are tested under s. 3(4) of the Competition Act 2002. The key point is that such restraints are not automatically unlawful: the CCI applies a rule of reason, assessing whether the restraint causes an appreciable adverse effect on competition (AAEC) by reference to the factors in s. 19(3) (barriers to entry, foreclosure of competitors, and the benefits to consumers). Exclusive distribution and territorial allocation within a franchise are usually defensible, and the CCI has rarely struck them down, because they can be justified by the legitimate need to protect the brand and the franchisee’s investment. Resale price maintenance (RPM) is the sharper risk: an arrangement that fixes or dictates the prices (or the maximum discounts) at which the franchisee may resell can be challenged – the CCI has, for example, treated a manufacturer’s dictation of the maximum discount dealers could offer as RPM with an anti-competitive effect. The practical lesson for franchisors is to set recommended (not mandatory) prices, to justify exclusivity and territorial terms commercially, and to be cautious with online-sales restrictions, which the CCI also scrutinises. These are points to build into the agreement from the start, not to discover in an investigation.

6. Termination, renewal and the limits on restraints

How a franchise ends is governed by the contract, not by a statutory protection regime – a major difference from jurisdictions (such as the UAE) that give a registered agent or franchisee statutory rights on termination and compensation. In India, termination, notice and renewal are whatever the agreement provides, subject to general contract-law doctrines: a termination must follow the contractual mechanism, and a franchisee may resist a termination that is mala fide, unconscionable or in breach of the agreed process. The decisive India-specific constraint is on restraints of trade. Under s. 27 of the Contract Act 1872, an agreement that restrains a person from exercising a lawful profession or trade is void – so a post-termination non-compete on the franchisee (preventing it from running a similar business after the franchise ends) is generally unenforceable, however it is drafted. The Supreme Court’s decision in Gujarat Bottling Co. v Coca-Cola Co. confirms the line: negative covenants that operate during the term of the agreement (such as an exclusivity or non-dealing obligation while the franchise subsists) are valid and not a restraint of trade, whereas restraints biting after the relationship ends fall foul of s. 27. Franchisors therefore protect themselves through in-term exclusivity, confidentiality and trademark/de-identification obligations (requiring the ex-franchisee to stop using the brand and return materials), rather than through post-term non-competes that Indian courts will not enforce.

7. Cross-border franchising – FEMA, tax and market entry

Most of the franchises the firm handles are cross-border – an international brand entering India, or an Indian brand expanding abroad – and the FEMA and tax overlay is central. On exchange control, payments of franchise fees, royalties and technical fees to a foreign franchisor are current-account transactions that may be remitted under the automatic route (no prior RBI approval and no statutory monetary cap, following the liberalisation of royalty rules), through an authorised-dealer bank and subject to the usual documentation and tax clearances. On tax, royalties and fees paid to a non-resident franchisor are subject to withholding tax – the domestic rate was raised from 10% to 20% (plus surcharge and cess) and carried into the Income-tax Act 2025, before any lower rate under an applicable double-tax treaty: the India–UAE treaty, for example, caps royalty taxation at 10%, available where the franchisor provides a tax-residency certificate and meets the treaty-access conditions. GST applies to franchise services at the standard rate, and where the service is imported from a foreign franchisor the Indian franchisee generally accounts for GST under the reverse-charge mechanism. Finally, market entry structure matters: the franchise licence itself is contractual and does not require FDI, but if the brand sets up or invests in an Indian operating or retail entity, the FDI policy (including the single-brand and multi-brand retail conditions) comes into play. These threads must be coordinated with our Cross-Border Structures work and, for the corridor, with the Franchising (UAE) page.

8. Disputes and drafting

How a franchise dispute is resolved should be decided at the drafting stage, not after it arises. Most Indian franchise agreements provide for arbitration under the Arbitration and Conciliation Act 1996 – chosen for confidentiality, speed relative to the courts, and (in cross-border deals) neutrality and enforceability; the seat, venue, governing law and institutional rules should be set expressly. Where litigation is the route, the agreement should fix jurisdiction clearly. A sound Indian franchise agreement ties the whole picture together: it makes the brand licence and quality control central; calibrates exclusivity, territory and pricing to the Competition Act; relies on in-term (not post-term) restraints and strong confidentiality and de-identification terms given s. 27; sets the fee, FEMA and tax mechanics for any cross-border flow; and chooses arbitration or a clear forum deliberately. For India–UAE clients the arrangement is usually two-sided, so the Indian position must be coordinated with the UAE structuring, recordals and tax. Franchising therefore rarely sits alone: it draws on Licensing, IP Assignment and Technology Transfer in this cluster, and on Commercial Contracts and Cross-Border Structures on the corporate side.

Key points at a glance

Frequently asked questions