Franchising industry in India is growing at the rate of 40 percent per year. It is estimated that there are more than 850 franchisors and 60,000 franchisees in sectors ranging from education and retailing to hospitality and healthcare.

A franchise agreement is governed by the Indian Contract Act, 1872 and the Specific Relief Act, 1963. It provides for both specific enforcement of covenants in a contract and remedies in the form of damages for breach of contract. Indian franchise laws are lop-sided towards the franchisor so the franchisee has to take necessary precaution while signing a franchise agreement.

Benefits of franchising

For a franchisee to seek legal remedy in case of breach of the agreement, the contract should be tightly drafted, clearly defining all the rights and remedies. The franchisee should ensure that all the promises made by the franchisor are specified on paper. Subsequently, if the latter backtracks, the franchisee has the option to initiate a suit for specific performance in Indian courts and apply for relief in the form of a temporary or permanent injunction, which may be granted at the discretion of the court considering the balance of convenience and the interests of justice. In order to obtain an injunction, the party instituting the suit is required to establish a prima facie case of serious breach by the defendant, the bona fide of the dispute and he is likely to suffer irreparable injury if the injunction is not granted.

However, in many cases a franchisee has little legal recourse if the agreement is a unilateral contract or contracts of adhesion, wherein the terms are generally pro-franchisor when there is conflict in the relationship. Thus, with the terms clearly specified in the contract, the franchisee has legal remedy against the franchisor but in case he has relied upon undocumented information, the advantage is lost even if a breach occurs.