How to Set Dispute Resolution Terms for a Franchise in India

When expanding your existing business into a franchise network, setting the terms for the start of the partnership is not enough. Disagreements may arise over payment records, marketing promises or the interpretation of responsibilities. A clear dispute resolution process in the agreement ensures that both parties know where to send a complaint, when to expect a response and what happens if no solution is reached.

1. Establish the right foundation under Indian law

India has no separate central franchising law, mandatory national franchise registration or franchise-specific pre-sale disclosure regime. This does not mean that franchise agreements sit outside the law. The Indian Contract Act, 1872 applies to matters such as the validity of an agreement, consent and breach of contract. Injunctions and other remedies may be sought in appropriate cases under the Specific Relief Act, 1963.

The Trade Marks Act, 1999 covers brand rights. The Competition Act, 2002, along with applicable tax, privacy and local business rules, may also be relevant depending on the circumstances. Where foreign parties or cross-border payments are involved, foreign exchange rules also need to be reviewed.

If the parties wish to refer disputes to arbitration, the Arbitration and Conciliation Act, 1996 is important. Arbitration here means a private dispute resolution process in which a decision is issued; it is distinct from mediation, where an impartial person helps the parties reach a voluntary settlement. Vague wording about resolving disputes through a neutral third party can blur the distinction between these processes.

First step: Ask your lawyer to clarify which disputes will be addressed through negotiation, which will go to arbitration and when the parties may turn to the courts. Not every type of dispute becomes eligible for arbitration simply because the contract says so.

2. Set out a step-by-step route from complaint to resolution

Rather than going straight to a formal legal notice, establish a short, written procedure. Its purpose is not to suppress complaints, but to ensure they reach the right person promptly. Nor should the process be so lengthy that either party can use it to delay payments or decisions.

The following stages can be included in a schedule to the agreement:

• Written complaint: Describe the incident, the relevant contractual provision, the available evidence and the remedy sought.
• Acknowledgement of receipt: An authorised representative should acknowledge the complaint and identify the person responsible for handling it.
• Initial review: An operational representative should review the documents and provide a written response.
• Senior-level negotiation: If the matter remains unresolved, representatives from both parties with authority to make decisions should meet.
• Next formal step: If no agreement is reached within the specified period, the chosen dispute resolution process should begin.

Specify the deadline for each stage, how it is calculated and how extensions may be agreed in writing. If ordinary complaints and formal legal notices must be sent to different addresses, state both clearly. Also specify the obligation to notify the other party of any change of email address.

For example, if a marketing expenditure report is incomplete, the first step could be to request a breakdown of the expenditure and supporting records. This is a more useful starting point than making accusations. However, where there is a risk of immediate harm or evidence being destroyed, the preliminary stages should not prevent a party from seeking urgent relief.

3. Make the arbitration clause comprehensive and fair

Simply stating that ‘all disputes will be resolved through arbitration’ is not enough. An unclear clause can lead to disagreements about the procedure before the underlying dispute is even addressed. Ask your lawyer to cover at least the following points:

Scope and rules: Which contractual disputes will be covered? Will the arbitration follow the rules of an arbitration institution, or will the parties manage the process themselves? If choosing an institution, understand its rules and fees first.

Appointment: Specify the number of arbitrators and an impartial appointment procedure. An arrangement giving only the brand owner the right to appoint the sole arbitrator may raise serious questions about its validity. Provide a legally valid fallback appointment procedure if the parties cannot agree.

Legal seat and hearings: The legal seat of arbitration affects the role of the relevant courts. Holding hearings in another city or online does not automatically change the legal seat. Address these two matters separately and clearly.

Language and costs: Specify the language requirements for documents, hearings and translations. State who will pay initial deposits and administrative costs, while leaving the final allocation of costs subject to the applicable law, rules and award.

Interim relief: Preserve the ability to seek interim relief from a competent court or arbitral tribunal where necessary. A court jurisdiction clause cannot confer jurisdiction on a court that does not have it under the law.

4. Plan for business continuity during a dispute

The agreement should specify which undisputed obligations will continue while a dispute is pending. Do not leave customer service, safe operations or record preservation uncertain. Establish a process for distinguishing disputed sums from undisputed amounts due; a complaint should not automatically entitle a party to withhold all payments.

Keep secure records of emails, meeting minutes, payment details and complaints. If a settlement is reached, have it approved in writing by authorised representatives, and record who is responsible for taking action and by when. Confidentiality provisions should not impose unreasonable restrictions on required legal reporting or on seeking advice.

Practical takeaway: Before granting your first franchise, test the entire process using a hypothetical complaint. If the contact person, deadlines, evidence requirements and next steps are unclear, have the clause revised before signing. A fair dispute resolution process helps preserve trust across the franchise network.