Franchise Agreement Drafting in India: Key Clauses for Foreign Franchisors

A common surprise for foreign franchisors entering India is that there is no standalone franchise law. Unlike countries such as the US and Australia, India relies on general commercial legislation to regulate franchise relationships. This makes the franchise agreement in India the most important legal document in the entire arrangement.

Instead, franchise relationships in India are governed by general commercial laws such as the Indian Contract Act, 1872, the Trade Marks Act, 1999, FEMA, the Competition Act, 2002, and the Consumer Protection Act, 2019. While these laws were not created specifically for franchising, they collectively shape how franchise arrangements are regulated.

That leaves the agreement itself carrying almost the entire legal weight of the relationship. Courts read ambiguity against whoever drafted the contract, and in a cross-border deal, that’s usually the foreign franchisor’s lawyers, not the Indian franchisee’s. Get the drafting loose, and you’re exposed on IP ownership, on getting royalties out of the country, on walking away cleanly if the franchisee stops performing.

This piece goes through the legal framework, the clauses that actually matter, and where foreign franchisors specifically tend to get a franchise agreement India wrong.

What Law Actually Governs a Franchise Agreement in India?

In the absence of a standalone franchise law, a franchise agreement in India is governed by several commercial laws working together. Each one regulates a different aspect of the franchise relationship, while the agreement itself sets out the commercial terms between the parties.

Because no single law owns franchising end to end, a gap in the contract doesn’t get patched by some franchise-specific fallback rule. It gets patched by ordinary contract law, when they signed.

What Does the Grant of Rights Clause Need to Cover?

This is where most India franchise disputes actually start, not in the fee structure, not in termination, in vague grant language nobody thought hard enough about at signing.

The grant clause should remove uncertainty from the franchise relationship. It needs to specify the intellectual property being licensed, the territory, the duration of the arrangement, whether the franchise is exclusive, and whether the franchisee has the right to grant sub-franchises.

Exclusivity isn’t just a commercial decision either. Section 3 of the Competition Act 2002 gives the Competition Commission of India room to scrutinise exclusive supply or distribution arrangements if they appreciably restrict competition, and the same section catches resale price maintenance, where a franchisor tells the franchisee exactly what to charge end customers. Franchisors coming from markets where tight brand control over pricing is normal need to loosen that instinct a bit when drafting for India.

A master franchise agreement in India adds one more layer here: the grant clause needs to spell out the master franchisee’s development obligations too. How many sub-franchises, by when, and what happens if they fall behind, does the arrangement convert to non-exclusive, or does it just terminate.

How Should the Fee and Royalty Structure Be Built?

Two moving parts, usually. An upfront initial fee, paid once, and ongoing royalties calculated as a slice of gross sales. Both need FEMA and GST built into the structure from day one, not bolted on afterward when someone realises the numbers don’t add up.

The initial fee is typically a one-time payment at signing, and for a master franchise agreement in India it tends to run higher given the sub-franchising rights that come with it. Specify the currency, the payment timeline, and whether it’s refundable under any circumstance (usually it isn’t, but silence on this point invites arguments later).

Royalties generally land somewhere between 4% and 8% of gross sales, billed monthly. The clause needs to pin down the royalty base (gross revenue, net revenue, or some other defined number), the franchisee’s obligation to report accurate monthly figures, the franchisor’s right to audit those figures independently, and the currency payment happens in.

On the FEMA side, royalty payments from an Indian franchisee to a foreign franchisor count as current account transactions, which means they’re permitted under the Automatic Route with no prior RBI approval needed. Worth knowing: the old caps, 5% on domestic sales and 8% on exports, were scrapped back in December 2009. There’s no regulatory ceiling on royalty amounts anymore, though payments still need to move through an authorised dealer bank under the correct purpose code.

Then there’s GST. Both the initial fee and the ongoing royalties attract 18% GST. If the franchisor is a foreign entity with no fixed establishment in India, the Indian franchisee ends up paying that GST under reverse charge, meaning they account for it on whatever gets remitted abroad. Build this into the fee structure explicitly, otherwise one side treats it as a surprise cost mid-relationship.

Royalties paid to a non-resident franchisor also attract TDS under the Income Tax Act, 20% plus surcharge and cess at the domestic rate. Where a DTAA exists between India and the franchisor’s home country (India-Japan, India-UAE, India-UK, and so on), a lower treaty rate can apply, but only once the franchisor has actually furnished a valid Tax Residency Certificate and Form 10F before payment goes out, not after.

What IP Protection Does the Agreement Need to Build In?

Since there’s no franchise-specific law protecting the franchisor’s system in India, IP protection comes down entirely to what the contract says and what’s actually been registered under the relevant statutes. Nothing fills the gap if the drafting doesn’t.

A few positions the agreement has to take unambiguously: trademark ownership stays with the foreign franchisor throughout, full stop, the franchisee is a licensee and the contract should say so in plain language rather than implying it. Any goodwill built up through use of the marks in India belongs to the franchisor, not the person who did the day-to-day selling. The franchisee can’t register anything similar to the franchisor’s marks and can’t challenge the franchisor’s ownership of what’s already registered. The Operations Manual and any proprietary systems count as confidential information, and giving the franchisee access to them doesn’t hand over any ownership stake.

Post-termination is where this gets tested in practice. The franchisee needs to stop using the marks, trade dress, and proprietary systems immediately, and “immediately” should be defined concretely: signage down, domain transferred, branded social accounts deactivated, not left to interpretation.

One thing that gets missed more often than it should: a trademark licence in India ought to be filed as a registered user agreement with the Trade Marks Registry under Section 49 of the Trademarks Act 1999. Skip that step, and the licence might not hold up against third parties. Foreign franchisors entering India frequently skip it anyway, and courts have in some cases treated the unregistered arrangement as informal, which is not a position you want to discover you’re in during a dispute.

What Should the Term, Renewal, and Termination Clauses Say?

Indian courts apply the Contract Act when franchise termination disputes land in front of them. If the clause doesn’t spell out notice periods, cure periods, and what happens after termination, the court fills that gap with general contract principles, which can mean “reasonable notice” regardless of what you thought you’d agreed.

Most unit franchise agreements run 5 to 10 years, master franchise agreements 10 to 15, roughly matching how long it takes the franchisee to recover their investment. Renewal should sit as the franchisee’s right, conditional on having actually complied during the initial term, and the agreement needs to say whether renewal happens automatically, needs formal notice, or gets subjected to whatever the franchisor’s standard terms look like at that future point.

Immediate termination is usually defensible for a specific, narrow set of things: insolvency, a criminal conviction involving the franchisee or key personnel, walking away from the business outright, transferring the franchise without authorisation, or breaching confidentiality and IP restrictions. Everything else, anything that isn’t that serious, needs a notice-and-cure structure. Thirty days’ notice with a thirty-day cure window is the common approach. Skip the notice and cure for something that was actually fixable, and you’re inviting a wrongful termination claim under the Contract Act.

What has to survive termination, spelled out explicitly rather than assumed: return of confidential materials, an end to mark usage, settlement of any outstanding royalties, and the scope and length of the non-compete.

How Should Non-Compete and Confidentiality Clauses Be Drafted?

India has no dedicated trade secrets statute, so confidentiality and non-compete obligations lean on the Contract Act, and Indian courts have historically been sceptical of post-termination non-competes under Section 27, which voids agreements that restrain trade, with only narrow exceptions.

Courts have generally struck down post-termination restraints, in both employment and commercial contexts, if they stop someone from earning a living or doing business across too broad a geography. For franchise agreements specifically, the law isn’t fully settled here. In-term of non-competes, restrictions that apply while the franchise is actually running, tend to hold up fine. Post-termination restraints get much stricter scrutiny.

In practice, foreign franchisors should keep post-termination non-compete obligations reasonable. A restriction of 12 to 24 months is generally more defensible than five years. It should also be limited to the areas where the franchisee operated and apply only to genuinely competing businesses.

Confidentiality runs into a related problem: there’s no dedicated trade secrets law in India either, so protection again runs through the Contract Act and general common law principles. The DPDPA 2023 adds obligations around personal data collected through franchise operations, but it doesn’t touch know-how or trade secrets directly. The confidentiality clause needs to define what counts as confidential precisely, and the obligation should be written to survive termination indefinitely, not for some arbitrary fixed period.

How Should Dispute Resolution Be Structured?

Most foreign franchisors skip Indian courts by default and build in international arbitration instead, and it’s not hard to see why. Indian litigation is slow and expensive, and arbitration under SIAC, ICC, or LCIA rules with a neutral seat has become the standard for cross-border franchise disputes.

A few drafting decisions matter more than they might look at first glance. On governing law, many foreign franchisors specify their home jurisdiction’s law, and Indian courts will generally respect that in a commercial contract, but for IP enforcement and specific performance actually happening on Indian soil, Indian courts apply Indian law regardless of what the contract says. On seat, Singapore comes up most often for India-related commercial disputes, with London and Dubai also common; a foreign seat means the award is enforceable in India through the New York Convention. For this the award must qualify as a foreign award under Indian law and the relevant convention requirements must be satisfied.

It’s worth explicitly preserving the right to seek urgent injunctive relief from Indian courts too, particularly if a terminated franchisee keeps using the brand after the relationship ends. Section 9 of the Arbitration and Conciliation Act 1996 lets Indian courts grant that kind of interim relief even while an international arbitration is running in parallel. On language, English is the practical default for anything involving a foreign franchisor.

For a master franchise agreement in India, there’s an additional wrinkle: disputes between the master franchisee and its own sub-franchisees. The foreign franchisor shouldn’t get pulled into those, and the agreement should say clearly that the foreign franchisor isn’t a party to whatever arrangements the master franchisee has with sub-franchisees.

How Is a Master Franchise Agreement in India Structured Differently?

Under a master franchise agreement in India, the master franchisee not only operates the business but also builds and manages the franchise network within an agreed territory. Because of these additional responsibilities, the agreement is usually more detailed than a standard franchise contract.

It should include a development schedule, procedures for approving sub-franchisees, provisions for sharing franchise fees and royalties, quality control requirements, inspection rights, and liability clauses. Many agreements also include step-in rights so the foreign franchisor can take over the network if the master franchisee fails to meet its obligations.

The Bottom Line

A franchise agreement in India is, practically speaking, the only real protection a foreign franchisor has in a market with no statute built for this specific relationship. The Contract Act gives it teeth. Registered trademarks receive statutory protection under the Trade Marks Act, while unregistered marks may, in appropriate circumstances, be protected through the common-law action of passing off. Registration of a franchisee as a registered user under Sections 48–49 is a separate mechanism and is not a mandatory filing requirement for every trademark licence.. FEMA governs how the money leaves the country. The Competition Act limits how much exclusivity and pricing control a franchisor can actually demand.

Every clause worth including in a franchise agreement in India is filling a specific gap that exists precisely because no franchise statute is there to fill it automatically. Foreign franchisors who bring over a template built for their home market, without adjusting for Indian court interpretation of post-termination restraints and the regulatory requirements sitting underneath it, are taking on risk they didn’t need to.

Corporate Legit Consulting LLP advises foreign franchisors on franchise agreement India drafting, master franchise agreement India structuring, trademark licence registration, FEMA compliance for royalty remittances, and GST treatment of cross-border franchise payments. Talk to us before the first agreement gets signed in India, not after.