One of the most popular ways for businesses to expand in India is through franchising. Franchising provides entrepreneurs with a low-risk way to join preexisting business ecosystems, but it also increases the likelihood of disputes between the two parties. Thus, an efficient franchise dispute resolution mechanism is not only advantageous, but also indispensable.
We will discuss the common reasons of franchise disputes, the various techniques for efficiently addressing them, and why a robust framework for resolving these conflicts is vital in the Indian setting in this blog.
Why Do Franchise Disputes Occur?
The following factors can lead to disagreements in even the best-written franchise agreements:
- Misunderstanding of the conditions of a contract
- Disagreements over operations
- Criteria for success
- Wars over territory
- Misuse of the brand or violation of guidelines
- Failure to pay fees or royalties
Therefore, the rapid escalation of such disputes, in the absence of an established plan for resolving them, can have devastating effects on the long-term profitability, operations, and reputation of the brands involved.
Current State of Franchising Law in India
Many statutes, such as the Indian Contract Act of 1872, the Competition Act of 2002, and regulations pertaining to particular industries, regulate franchising in India. Nevertheless, the nation lacks a comprehensive franchise legislation.. To mitigate the risks associated with litigation, franchise agreements should include a comprehensive dispute resolution clause that takes into account the current disjointed legal structure.
Why a Reliable Franchise Dispute Resolution Process Is Crucial?
Having a solid plan for resolving disputes is crucial for the following reasons:
#1. Maintains Credibility in the Corporate World
In franchise networks, where continuous collaboration is vital, an amicable settlement procedure aids in preserving long-term partnerships.
#2. Cuts Down on Legal Expenses
It could be costly and time-consuming to take franchise disputes to court in India. Arbitration and mediation are two forms of alternative dispute resolution (ADR) that can help parties save time and money.
#3. Protection of Confidentiality
Confidentiality is maintained through private resolution processes, as opposed to public court battles, which helps to preserve the brand’s image.
#4. Supports Equity and Efficiency
The use of a mutually agreed-upon arbitrator who specialises in franchise law might make alternative dispute resolution (ADR) procedures seem more impartial and expedited.
#5. Adapted to the franchise model’s requirements
Based on the franchise model’s complexity and character, the parties can establish individualised methods for resolution.
Due to the complexity of Indian law and the lack of specific franchise laws, it is essential that franchise agreements in India contain appropriate dispute resolution provisions.
If you’re a franchisor looking to franchise in India, here’s how to put up a strong dispute resolution clause. But first you must grasp the value of a conflict resolution provision..
What is the Dispute Resolution Clause?
In the event that any disagreements emerge throughout the course of the agreement’s duration, the parties are required by the contract to establish a procedure for resolving such issues. In the context of franchising, it seeks to safeguard the franchisor’s reputation, expedite dispute settlement, and forestall time-consuming and costly litigation.
Important Parts of an Agreement to Handle Franchise Disputes:
#1. Range of Disputes Addressed
Make it very clear which kinds of conflicts this provision is intended to cover. We can discuss:
- Termination of Contract
- Taking intellectual property (IP) or trademark unlawfully
- Issues pertaining to royalties or fees
- Disruptions in operations
- Problems with renewal or termination
#2. Favoured Approach to Conflict Resolution
Opt for one of these options:
- negotiation, which is typically required.
- Arbitration precedes mediation or conciliation, which might be voluntary or mandatory.
- In India, arbitration is the most popular and legally binding method
- Refrain from engaging in litigation unless it is absolutely necessary.
#3. The Location and Seat of the Arbitration
Make it very clear where the arbitration is going to take place. This has implications for both enforcement and procedural law (lex arbitri).
#4. Trade secrets and the reputation of the brand are both in protection by the confidentiality clause.
#5. Fees and Expenses: Make it clear how the costs of the arbitration will be settled.
Key Takeaways For Franchisors In India
- Adjust the clause so that it corresponds with the type of franchise you have (product versus service, single-unit versus master franchise).
- Before entering into a contract, be sure you’ve researched any applicable local labour or consumer protection legislation.
- A survival clause in the agreement may help ensure that dispute resolution procedures continue after the partnership ends..
- When not accompanied with well established procedures, ambiguous terms such as “in good faith” should be avoided.
Dispute Resolution Techniques That Are Widely Used in India
- The 1996 Arbitration and Conciliation Act governs a large number of franchise agreements in India.. Their preferred method of resolution.. In addition to being legally binding and effective, it lets franchise law experts get a name..
- Settlement by means of mediation: The process is informal and voluntary; an unbiased third party helps to negotiate. When maintaining professional connections is of utmost importance, it works wonders.
- Settlement via reconciliation: A compromise between the two extremes, it allows for some leeway but does not commit either party to anything until a resolution is set.
- Conflict resolution: Reserved for extreme cases. In cases where there is no evidence of fraud or criminal wrongdoing, this route is generally not in use by India’s judiciary.
Therefore, Opportunities abound in franchising in India, but they will only last if there is a system in place to resolve conflicts quickly and fairly and an atmosphere of mutual trust. A franchise dispute resolution mechanism that is both legally sound and well-organised is essential to the long-term viability of franchising in India.
Reach out to experts in the field of franchising at Sparkleminds for more assistance in getting all aspects correctly while franchising your business in India.
