If an Indian business is taking a franchise or licence from a foreign brand, the agreement should do much more than give permission to use a logo. It should clearly deal with trademark rights, territory, royalties, quality control, taxes, foreign-exchange remittances, termination, competition restrictions and dispute resolution.
India does not have a single standalone central franchise statute. A cross-border franchise arrangement is instead governed by a combination of contract law, intellectual-property law, FEMA and RBI rules, tax laws, competition law and any regulations applicable to the particular business sector.
For businesses entering into international commercial arrangements, Edvisars’ work also covers India Entry & Cross-Border Advisory and commercial agreement drafting and review.
What is the difference between a master franchise and a single franchise?
A single franchise generally allows the franchisee to operate a business using the brand under the terms of the franchise agreement. A master franchise, on the other hand, may give the master franchisee the right to develop the brand across an agreed territory and appoint sub-franchisees, subject to the franchisor’s approval and the terms of the agreement.
The agreement should clearly state whether sub-franchising is permitted, whether each sub-franchisee requires prior written approval, and whether the franchisor can enforce brand standards directly against sub-franchisees. It should also establish which agreement prevails if the master franchise agreement and a sub-franchise agreement contain conflicting terms.
These points are particularly important because the master franchisee may be responsible for managing several outlets or franchisees, while the foreign brand owner needs to retain appropriate control over its intellectual property and brand standards.
What exactly is the foreign brand licensing to the Indian franchisee?
The agreement should identify precisely which intellectual-property rights the Indian business is allowed to use.
This may include:
the brand name and trademarks;
logos and trade dress;
operating manuals;
proprietary systems and processes;
software;
advertising material;
recipes or product specifications;
copyrighted content; and
confidential know-how.
The agreement should also state whether the licence is exclusive or non-exclusive, the permitted territory, the products or services covered and whether sublicensing is allowed.
Under the Trade Marks Act, 1999, trademark use can be permitted by the proprietor through a written arrangement. Sections 48 and 49 separately provide a statutory mechanism for registration of a person as a “registered user”. Registration as a registered user can also affect enforcement rights: section 52 permits a registered user, subject to the agreement, to institute infringement proceedings, whereas section 53 restricts that right for certain other permitted users.
Official source: Trade Marks Act, 1999 — India Code
Before signing, the Indian franchisee should therefore verify that the foreign party actually owns, or is legally entitled to license, the trademarks being offered in India.
Should the agreement give the franchisee an exclusive territory?
If territorial exclusivity is commercially important, it should be written precisely rather than left to assumptions.
For example, the agreement should clarify whether the franchisee has:
exclusive rights in a particular city, State or region;
protection against another franchise being opened nearby;
rights to online sales originating from that territory;
rights over institutional or corporate customers; and
any minimum sales or performance requirements for retaining exclusivity.
An agreement stating merely that the franchisee will operate “in Delhi” may not answer whether the foreign brand can appoint another franchisee in Gurugram, sell directly through its website or supply major customers independently.
Where the franchisee receives an exclusive territory, the agreement should also explain what it must do to retain that exclusivity. For example, a master franchise agreement may require the franchisee to open a specified number of outlets within agreed timelines or meet minimum development targets.
The agreement should define what happens if those targets are missed, including any applicable shortfall threshold and cure period. Depending on the commercial arrangement, the franchisor may be entitled to convert the exclusive territory into a non-exclusive one, reduce the territory or terminate the agreement if the shortfall is not remedied. These consequences should be clearly stated rather than left to the franchisor’s discretion.
How should royalties and franchise fees be drafted?
Every payment to the foreign franchisor should be clearly identified.
Common payment provisions include:
upfront franchise fees;
recurring royalties;
marketing or advertising contributions;
technology or software fees;
training fees;
product-purchase payments; and
renewal charges.
The royalty calculation should state whether it is based on gross sales, net sales, revenue actually collected or another defined amount. Deductions for GST, refunds, discounts, cancellations and bad debts should also be addressed.
Cross-border payments require particular care. Under FEMA, current-account transactions are generally permitted subject to applicable restrictions and regulatory requirements. RBI's remittance framework specifically addresses foreign technical collaboration arrangements and remittances connected with trademarks and franchises.
Official source: RBI Master Direction — Other Remittance Facilities
Where the commercial arrangement includes revenue sharing, the agreement should explain how the relevant revenue will be calculated and distributed. This is particularly important where the franchisor or master franchisee earns margins from approved suppliers, product sales or supply-chain arrangements, or where contributions collected for an advertising fund exceed actual expenditure. The agreement should specify who receives these amounts, how any surplus is handled and whether supporting statements must be provided.
The payment clause should also specify the due date, any applicable grace period and the interest payable on overdue amounts. The interest rate should be commercially reasonable and expressly agreed by the parties.
The agreement should not simply state that the Indian franchisee must “pay USD 50,000 overseas.” It should allocate responsibility for bank documentation, applicable withholding, taxes and regulatory compliance.
Who bears Indian tax and GST obligations?
The agreement should state whether payments are inclusive or exclusive of Indian taxes and who bears withholding-tax and GST obligations.
Section 195 of the Income-tax Act can require tax deduction where a payment to a non-resident or foreign company represents a sum chargeable to tax in India. Depending on the transaction, Form 15CA and, in specified cases, Form 15CB or other supporting documentation may also become relevant.
Official guidance: Income Tax Department — Form 15CA FAQs
GST must also be examined independently. Where services supplied from outside India qualify as an import of services, the Indian recipient may have an IGST liability under the reverse-charge mechanism, depending on the applicable statutory provisions and facts.
The agreement should therefore contain an appropriately drafted tax clause rather than assuming that the invoice amount is the franchisee's only financial liability.
What reporting and audit rights should the agreement provide?
The franchisor may need access to sales and operational information to verify royalty payments, monitor performance and ensure that brand standards are being followed. The agreement should therefore specify what records the franchisee must maintain and how frequently it must provide sales reports, financial statements and other required information.
Where outlets use a point-of-sale (POS) system, the agreement may provide for access to relevant sales data, subject to appropriate confidentiality and data-protection safeguards. It should also specify the franchisor’s right to inspect books and records, the notice required for an audit and how any underpayment identified during an audit will be corrected.
The parties should agree who bears the audit costs. For example, the franchisee may bear the cost where an audit reveals an underpayment exceeding an agreed threshold, while routine audits may be paid for by the franchisor. The agreement should also establish record-retention periods and a process for resolving disputes over audit findings.
Why are quality-control clauses important?
A foreign brand normally wants the Indian franchisee to maintain consistent standards.
The agreement may therefore specify:
outlet appearance;
approved products and suppliers;
product quality;
staff training;
customer-service standards;
advertising guidelines;
brand manuals;
inspection rights; and
procedures for correcting non-compliance.
Quality-control provisions are particularly important in trademark licensing because the brand owner is allowing another business to trade under its identity and reputation.
However, the franchisor's control should be drafted carefully. The agreement should distinguish legitimate brand-quality requirements from unnecessary control over the Indian company's independent day-to-day management.
For related commercial contract considerations, see Edvisars’ overview of Commercial Contracts and other practice areas.
Who is responsible for local licences and regulatory compliance?
A foreign brand’s approval to operate in India does not automatically satisfy the regulatory requirements applicable to each Indian outlet. The agreement should identify which party is responsible for obtaining, maintaining and renewing the licences and registrations required for the business.
For example, a food franchise may require an applicable FSSAI licence or registration, along with local trade, fire-safety and other approvals depending on the location and nature of its operations. The franchisee will commonly be responsible for licences relating to its own local operations, while the franchisor should remain responsible for obligations relating to the rights it grants and the accuracy of its representations concerning the brand and licensed intellectual property.
The agreement should also address cooperation in regulatory inspections, the reporting of violations, corrective action and responsibility for losses arising from each party’s breach. A general clause making the franchisee responsible for all Indian compliance should not be used to obscure obligations that legally belong to the franchisor.
Can the foreign brand restrict competition?
Competition and non-compete provisions require careful drafting in India.
Section 27 of the Indian Contract Act, 1872 provides that agreements restraining a person from exercising a lawful profession, trade or business are void to that extent, subject to the statutory exception relating to sale of goodwill.
The Supreme Court has nevertheless distinguished restrictions operating while a commercial agreement remains in force from certain restraints intended to operate after termination. In Gujarat Bottling Co. Ltd. v. Coca Cola Co., (1995) 5 SCC 545, the Court considered a negative stipulation operating during the subsistence of a commercial arrangement rather than treating every such restriction automatically as a prohibited restraint of trade. The enforceability of a particular provision remains highly dependent on its wording and commercial context.
Official statute: Indian Contract Act, 1872 — India Code
The Competition Act, 2002 must also be considered. Section 3(4) covers vertical arrangements including tie-in arrangements, exclusive dealing, exclusive distribution, refusal to deal and resale price maintenance where the statutory test concerning appreciable adverse effect on competition is satisfied.
This is particularly relevant where the franchise agreement requires the Indian franchisee to purchase exclusively from specified suppliers or imposes controls over resale pricing.
Exclusive purchasing obligations, territory restrictions and supply-chain arrangements should be assessed individually. The agreement should identify whether the franchisee must purchase from nominated suppliers, whether alternatives are permitted with approval, and how pricing and supplier margins are determined. These provisions should protect legitimate brand and quality requirements without imposing restrictions that may create competition-law concerns under the applicable Indian framework.
Can the franchise agreement be transferred or assigned?
The agreement should specify whether either party can transfer its rights or obligations to another entity. A franchisee may wish to sell its business, bring in a new investor or reorganise its corporate structure. The agreement should state whether the franchisor’s prior written consent is required and what conditions apply to the proposed transfer.
The agreement should also address changes in ownership or control of the franchisee, including any financial, operational or brand-related criteria that must be satisfied by the incoming owner. The process should identify the documents, approvals and fees, if any, required for the transfer.
The franchisor’s own ability to sell or transfer the brand, trademarks or franchise business should also be addressed. The agreement should clarify whether the incoming owner must assume the franchisor’s contractual obligations and continue providing the agreed rights and support.
Where the arrangement involves an acquisition, the parties should also consider the legal and regulatory checks that may apply to the transaction. See Edvisars’ guide on whether a foreign company can acquire an Indian business, subject to inserting the specific article link once it is published.
What should happen when the franchise agreement ends?
Termination provisions are among the most important parts of a franchise agreement.
The contract should state:
the duration of the franchise;
renewal conditions;
events permitting immediate termination;
whether breaches must first be cured;
the cure period;
consequences of insolvency or regulatory violations;
treatment of outstanding royalties;
return or destruction of confidential materials; and
removal of trademarks and branded signage.
The agreement should also state what happens to unsold branded inventory.
Without a clear exit mechanism, the parties may agree that the relationship has ended while continuing to disagree over stock, customer data, websites, domain names, signage and intellectual property.
Where the master franchisee has appointed sub-franchisees, the agreement should explain what happens to those sub-franchise arrangements if the master franchise agreement expires or is terminated. Depending on the agreed structure, the franchisor may require the right to take over, assign or directly continue certain sub-franchise agreements, subject to applicable law and the relevant contractual terms. The agreement should address the necessary consents, notices and transition arrangements.
The parties should also clarify whether any royalties or other recurring payments remain payable after termination, and, if so, the basis and duration of those payments. Any continuing royalty obligation should be expressly defined and linked to the rights or business activity that continues after termination, rather than left open-ended.
Who owns customer data and digital assets?
Modern franchise agreements should deal expressly with digital assets.
They should specify ownership and control of:
websites;
domain names;
Google Business profiles;
social-media accounts;
customer databases;
telephone numbers;
marketplace accounts; and
locally created advertising content.
This becomes particularly important on termination.
The agreement should also allocate responsibility for compliance with applicable Indian data-protection and cybersecurity requirements where personal information is collected or transferred.
Which law should govern a foreign franchise agreement?
Cross-border contracts should distinguish between three separate questions:
Which law governs the contract?
Where will disputes be resolved?
How will the resulting judgment or arbitral award be enforced?
A foreign franchisor may prefer its home-country law and courts. An Indian franchisee may prefer Indian law and dispute resolution in India.
International commercial arbitration is often considered because parties can select the arbitral seat, institutional rules, language and governing law.
Under section 28 of the Arbitration and Conciliation Act, 1996, where an international commercial arbitration is seated in India, parties may designate the rules of law applicable to the substance of the dispute.
Official source: Arbitration and Conciliation Act, 1996 — India Code
The clause should avoid vague wording such as “disputes shall be settled by arbitration mutually.” It should normally identify the seat, rules or appointment mechanism, number of arbitrators and language.
14. Should the agreement contain indemnity and liability clauses?
Yes. A cross-border franchise agreement should allocate the major business risks between the parties.
For example, the foreign brand may seek protection against claims arising from:
the Indian franchisee's local operations;
employee claims;
regulatory violations;
misleading advertisements;
product handling; or
unauthorised trademark use.
The Indian franchisee may seek protection if the foreign franchisor does not actually own the intellectual property it has licensed or if the licensed brand infringes third-party rights.
Liability caps, exclusions and indemnities should be drafted together rather than copied from unrelated agreements.
The parties should also assess whether the proposed liability cap is commercially meaningful. A cap calculated solely by reference to a small initial franchise fee may provide inadequate protection where the potential losses are substantially higher. The appropriate cap should be negotiated with reference to the fees payable, the risks allocated under the agreement and the likely exposure. The agreement should separately consider any exclusions from the cap, including fraud, wilful misconduct, confidentiality breaches, intellectual-property infringement and indemnity obligations, as appropriate.
The agreement may also require each party to maintain appropriate insurance for its responsibilities. Depending on the business, this may include public liability, product liability, property, employee-related and other relevant insurance. The required coverage, limits, evidence of insurance and responsibility for premiums should be specified.
15. Is stamp duty relevant?
Yes. The appropriate stamp-duty treatment should be checked where the agreement is executed or brought into use.
Stamp-duty requirements can vary because States have amended or replaced parts of the Indian Stamp Act framework. A standard franchise agreement downloaded from another State should therefore not be assumed to have the correct stamp treatment everywhere.
The agreement should also state which party is responsible for paying the applicable stamp duty and, where relevant, registration charges. The parties may agree to share these costs or allocate them to one party, but the agreed arrangement should be checked against the applicable State stamp law. A contractual allocation of the cost does not remove any statutory obligation relating to stamping or admissibility of the document.
A practical checklist before signing a foreign-brand franchise agreement
Before committing, the Indian business should confirm:
the foreign party's legal identity and authority;
ownership and Indian status of the trademarks;
exact licensed intellectual property;
territory and exclusivity;
franchise fees and royalty calculation;
foreign-exchange payment arrangements;
withholding-tax and GST responsibility;
purchasing obligations;
quality-control requirements;
advertising obligations;
minimum performance requirements;
duration and renewal;
termination rights;
treatment of stock after termination;
confidentiality and know-how protection;
non-compete and exclusivity restrictions;
ownership of customer and digital assets;
governing law;
arbitration or court jurisdiction; and
applicable stamp duty.
Frequently Asked Questions
Does a foreign franchisor need to register its trademark in India?
Indian trademark registration is strongly advisable where the foreign brand intends to operate or franchise in India because registration provides statutory protection and strengthens enforcement rights. Foreign brands may also use the Madrid Protocol route where its requirements are satisfied.
Must every franchisee be registered as a “registered user” of the trademark?
Not necessarily. The Trade Marks Act recognises permitted use in circumstances beyond registration as a registered user. However, registered-user status has specific statutory consequences, including in relation to infringement proceedings, so the appropriate structure should be considered for the particular relationship.
Can an Indian franchisee pay royalties to a foreign brand?
Cross-border royalty and franchise-related remittances may be possible, but FEMA, RBI banking procedures, taxation and supporting documentation must be checked for the actual transaction.
Can the franchisor fix the franchisee's resale prices?
Care is required. Resale price maintenance is specifically recognised under section 3(4) of the Competition Act and may contravene section 3(1) where the statutory competition-effects test is met.
Can a franchise agreement prohibit the franchisee from competing after termination?
A broad post-termination restraint can encounter section 27 of the Indian Contract Act. Its enforceability should not be assumed merely because the clause appears in a foreign franchisor's standard agreement.
Should the foreign company's standard global franchise agreement simply be used in India?
Usually not without an India-law review. Provisions written for another jurisdiction may conflict with Indian rules relating to restraint of trade, trademarks, taxation, foreign exchange, competition, stamping or dispute resolution.
Should disputes be resolved in India or overseas?
There is no single correct answer. The parties should consider governing law, arbitral seat, cost, interim-relief requirements, location of assets and practical enforceability before deciding.
Final takeaway
Licensing an established international brand can provide an Indian business with immediate commercial advantages, but the value of the relationship depends heavily on how the franchise agreement is drafted.
The safest approach is to identify what the foreign brand is actually providing, what the Indian franchisee is paying for, how intellectual-property rights can be used, which restrictions apply during and after the relationship, and how the parties can exit or resolve a dispute.
A global template should therefore be treated as a starting point—not as a substitute for an India-specific agreement.
Businesses considering a foreign-brand arrangement can also review Edvisars’ India-entry and cross-border legal services and its guide on starting an Indian company with foreign founders.
