Buying a Franchise in India: Check the Dispute Resolution Clauses

When buying a franchise, it is easy to overlook the dispute resolution clause tucked away in the final pages of the agreement. Yet if there are incorrect charges, late payments or a breach of contract, this clause can determine how easy—and expensive—it will be to put your case forward. A healthy franchising community needs fair procedures as well as trust. When choosing a brand, look beyond its promises and examine its written arrangements for resolving complaints.

1. Understand the protection Indian law provides

India has no separate central law governing franchising, dedicated regulator or mandatory statutory franchise code of conduct. Nor is there generally a requirement to provide a disclosure document in a prescribed format before selling a franchise. No separate registration is required simply because a business is a franchise, although other registrations and licences applicable to the business may still be necessary.

This does not mean that a franchisee’s rights are limited to the contract. The Indian Contract Act, 1872 applies to matters such as the validity, performance and breach of contracts, as well as fraud and misrepresentation. Any remedy will depend on the facts and the legal requirements; not every incorrect statement automatically entitles you to compensation.

If the agreement provides for arbitration, the Arbitration and Conciliation Act, 1996 is important. In arbitration, an independent decision-maker, known as an arbitrator, hears the parties’ arguments and issues a decision. This differs from negotiation or a process that helps the parties reach an agreed settlement. An arbitral award cannot be reopened in the same way as an ordinary appeal; the legal grounds for challenging it are limited.

Trade mark, competition, tax and other applicable laws also remain relevant. A dispute resolution clause cannot override mandatory law.

2. Set out the route from complaint to formal action

A good clause does not move straight to litigation or arbitration. It should establish a clear sequence for submitting a complaint, receiving a response and holding discussions between senior representatives. However, the process should not be so lengthy that it prevents access to urgent relief.

Look for answers to these questions in the draft:

• Who receives the notice? The relevant company’s correct legal name, address and designated email address should be recorded.
• When is notice deemed to have been received? It should be clear whether sending it is enough or proof of receipt is required.
• How long is allowed for a response and discussions? There should be fixed deadlines, not an indefinite wait.
• What happens if the dispute remains unresolved? The next step—arbitration, a court with jurisdiction or another agreed process—should be clear.
• How can urgent relief be obtained? The route to seeking interim relief from the appropriate court or tribunal should not be unnecessarily obstructed where harm is imminent.

An internal complaints procedure and the legal deadline for bringing a claim are separate matters. Do not assume that ongoing discussions automatically pause the limitation period. As soon as a dispute arises, ask a lawyer to check the deadline and serve notice in accordance with the contract.

3. Assess the seat, language and impartiality of arbitration

Simply stating that “disputes will be resolved by arbitration” is not enough. The legal seat of arbitration, the physical hearing venue and the court jurisdiction clause can have different effects. Choosing the legal seat generally determines which courts will supervise the arbitration. Holding hearings online does not automatically change that seat.

If your outlet is in one city but the clause provides for arbitration in a distant city or overseas, understand the additional costs of travel, local lawyers and the proceedings. Even for a domestic franchise purchase, a foreign legal seat calls for specialist advice.

Check how the arbitrator will be appointed. An arrangement giving the brand sole authority to choose the decision-maker may raise questions about impartiality and legal validity. Do not assume that such a term is unquestionably valid simply because the agreement has been signed. Ask for a clear appointment procedure based on mutual agreement, an agreed independent institution or the applicable law.

Whether there will be one arbitrator or several, the language of the proceedings and whether documents will need translating all affect costs. If an institution’s rules apply, obtain those rules and its fee schedule before signing.

4. Plan for costs and evidence in advance

It is a mistake to assume that arbitration is always cheaper or faster. Arbitrators’ fees, institutional charges, lawyers, experts, translation and travel can make even a small claim expensive. Ask who must pay the initial deposit, how payments will be shared and how the final allocation of costs will be decided. Seek specific legal advice on any clause stating that “the franchisee will bear all costs in all circumstances”.

Before signing, run a practical test: if the brand imposes an incorrect additional charge and refuses to correct it, who would you write to, where would you bring your claim and how would you cover the initial costs? If the answers are unclear, the clause is incomplete.

Keep your evidence organised too:

• the signed agreement, appendices and subsequent amendments;
• invoices, proof of payment and fee calculations;
• complaints, responses and proof of receipt of notices;
• relevant sales records and authorised reports generated by the system.

Put arrangements for accessing relevant business records and obtaining copies in writing. Withholding fees or breaching other obligations during a dispute could expose you to further risk; take advice first.

Practical takeaway: Sign only when the complaints process, impartial decision-maker, legal seat and likely costs are clear. Treat the dispute resolution clause not as a formality, but as the practical means of exercising your rights.