What goes in a franchise agreement in India

India has no franchise-specific statute. There is no mandated disclosure document, no registration regime, no statutory cooling-off period. What governs the relationship is contract law, trade-mark law, competition law where it bites, and whatever you wrote down.

That cuts both ways. You have enormous freedom to design the relationship — and no statutory backstop when the agreement is silent. Every gap is decided later, expensively.

This is a working guide to what each clause has to do. It is not a template and not legal advice; have counsel draft and review the actual document.

The clauses, and what each one is for

1. Grant and the parties

What is being granted, to whom, and in what capacity. Precision here prevents the most fundamental confusion in Indian franchising: whether the franchisee may sub-franchise.

• A unit franchise operates one outlet and grants nothing onward.
• A master franchise may appoint sub-franchisees in a region.
• An area developer commits to opening a number of units itself, with no right to sub-franchise.

Those are three different businesses. Name which one you are granting in the first clause.

2. Territory and exclusivity

The single most disputed clause in franchising. It should answer:

• The territory’s boundary, described precisely — a pin-code list or a mapped radius, not “South Mumbai”.
• Whether it is exclusive, non-exclusive, or exclusive subject to performance.
• Whether the franchisor may open company-owned outlets in it.
• How online and delivery orders are treated when they originate in the territory but are fulfilled elsewhere. Aggregator delivery has made this clause urgent in a way older templates never anticipated.

Exclusivity granted loosely and then breached is where franchisors lose litigation. If exclusivity is conditional on performance, state the metric and the measurement period.

3. Term, renewal and what renewal costs

The initial term (commonly three to ten years, depending on the format and the fit-out investment), the renewal right, and the conditions attached to it: notice period, good standing, refurbishment obligations, renewal fee, and whether renewal is on the then-current agreement — which usually means the then-current royalty rate.

A franchisee investing in a fit-out that takes four years to amortise on a three-year term is a dispute waiting to happen. Term should be defensible against the investment you are asking for.

4. Fees

Every payment obligation, its trigger, and its basis:

• Initial franchise fee, and whether any part is refundable if the outlet never opens.
• Royalty — the structure and, critically, the definition of the base.
• Advertising or brand-fund contribution, and what the fund may be spent on.
• Technology, training, supply and renewal fees.
• Interest or late-payment consequences.

State that fees are exclusive of GST and that applicable taxes are payable in addition. State whether TDS is to be deducted — it will be, by operation of law, but silence causes arguments about whether the quoted figure was net.

5. Brand standards and the operations manual

The manual carries the operating detail and can be updated without amending the agreement — which is precisely why the agreement must define the limits of that power. A manual that can be changed unilaterally to impose material new cost is a clause a franchisee’s counsel will fight.

Cover audit rights, scoring, the consequences of failing an audit, and the cure period before any of those consequences apply.

6. Supply and approved vendors

Whether the franchisee must buy from the franchisor or approved suppliers, and on what terms. Mandated purchase arrangements sit close to competition law: exclusive supply and tie-in arrangements are the kind of vertical restraint that can attract scrutiny where market power exists. Take advice if supply margin is a material part of your model.

7. Intellectual property

The franchisee gets a limited licence to use the marks, and nothing more. Say so, and say what happens to that licence on termination. Where the marks are registered, consider recording permitted use under trade-mark law. Address who owns goodwill generated locally, and who owns customer data collected at the outlet — a question the DPDP Act now gives real teeth.

8. Transfer and assignment

Franchisees eventually want to sell. The agreement should cover the franchisor’s consent right and the conditions for it, any transfer fee, a right of first refusal if you want one, and what happens on the death or incapacity of an individual franchisee. That last one is unglamorous and comes up more often than anyone expects.

9. Termination, cure and consequences

Distinguish clearly between:

• Breaches capable of cure, with a defined cure period.
• Breaches justifying immediate termination — insolvency, brand-damaging conduct, abandonment.

Then set out post-termination obligations: de-identification of the premises, return of the manual, handover of the location and phone numbers if applicable, and any non-compete. Draft non-competes narrowly in scope, geography and duration; an unreasonable restraint risks being unenforceable, and an unenforceable clause protects nobody.

10. Dispute resolution

Choose the forum deliberately. Arbitration under the Arbitration and Conciliation Act is common in franchise agreements; specify the seat, the number of arbitrators and the language. Consider a tiered clause — negotiation, then mediation, then arbitration — which resolves most commercial disagreements before they become expensive.

The six clauses that cause most of the trouble

1. Territory drafted loosely, then tested by a delivery kitchen two kilometres away.
2. The royalty base, undefined, so every promotion becomes a negotiation.
3. Renewal on then-current terms, unnoticed at signing, discovered at year five.
4. Manual amendment powers used to impose material new cost.
5. Ad-fund spending with no accounting to the people funding it.
6. Post-termination non-competes drafted so broadly that they cannot be relied on.

Signing, execution and stamp duty

Electronic execution is workable for franchise agreements: electronic records and signatures are recognised under Indian law, and click-wrap acceptance with verified OTP plus a full audit trail — who signed, when, from which IP — is the common commercial standard.

Two practical caveats:

• Stamp duty is a state subject and applies to instruments; get the position for your state before choosing an execution route.
• Property leases attached to the outlet usually still want wet ink and physical stamping, regardless of how the franchise agreement itself is executed.

What to keep after signing

The signed PDF is the least useful artifact the process produces. What the business needs on hand is the data: term dates, renewal windows, territory, fee structure, obligations with dates. If those live only inside a document in a folder, the renewal is discovered late and the territory is promised twice.

A checklist before you send the next one out

• The grant names unit, master or area-developer status explicitly.
• The territory has a precise boundary and an answer for delivery and online orders.
• The royalty base is defined against GST, discounts, aggregators and refunds.
• The term is defensible against the fit-out investment you are requiring.
• Cure periods exist for anything short of brand-damaging breach.
• The non-compete is narrow enough that you would be willing to litigate it.
• The dates and obligations end up in a system, not just in the file.