Tuesday, January 15, 2013

FRANCHISING IN INDIA

- P.RAJENDRAN, ADVOCATE   www.prajendran.com

              What is a franchise business?   It is a business in which the owners, or franchisers, sell the rights to their business logo and model to third parties, called franchisees. Examples of well-known franchise business models include Baskin Robbins, Subway, McDonald's, TGI Friday's, Taco Bell, Pizza Hut, Dominos Pizza, Ruby Tuesdays, Barista, Costa, Wetzel Pretzel, Papa John's and KFC.  Beauty and Health Care Fitness clubs such as VLCC and Talwalkers have established chains while hair and beauty salons offering domestic branded products including Shanaz Hussein, Biotique and Habibs, and international brands, for example, L'Oreal and Tony & Guy, have marked their presence through the franchise model.
          There are many different types of franchises. Many people associate only fast food businesses with franchising. In fact, there are over 120 different types of franchise businesses available today, including automotive, cleaning & maintenance, health & fitness, financial services, and pet-related franchises, just to name a few. Franchising has become one of the most popular ways of doing business in today's marketplace.
 Franchise business opportunities are available across a variety of industries in India. Today, India is one of the biggest emerging markets for various goods and services, ranging from bare necessities to expensive luxuries. After the  coming into force of the Foreign Exchange Management Act, 1999 (FEMA), foreign investors found their passage into India with rules for entry becoming far more favourable. Today, a convenient medium of entry by foreign companies into the Indian market is franchising. Franchising also exists as a successful business module for local companies in India within various sectors

How to start a franchise business in India?  To invest in a franchise, the franchisee must first pay an initial fee for acquiring the rights to the business, training, and the equipment required by that particular franchise. Thereafter, the franchisee will generally pay the franchise business owner an ongoing royalty payment, either on a monthly or quarterly basis. This payment is usually calculated as a percentage of the franchise operation’s gross sales.

As a first step to start the franchise business a contract will have to be signed by the parties.  After the contract has been signed, the franchisee will open a replica of the franchise business, under the direction of the franchiser. The franchisee will not have as much control over the business as he or she would over his or her own, but may benefit from investing in an already-established brand. Generally, the franchiser will require that the business model stay the same. For example, the franchiser will require the franchisee to use the uniforms, business methods, and signs or logos particular to the business itself. The franchisee should remember that he or she is not just buying the right to sell the franchiser’s product, but is buying the right to use the successful and tested business process. The franchisee will also usually have to use the same or similar pricing, in order to keep the advertising streamlined. Apart from using the business model determined by the franchiser, the franchisee will otherwise remain an independent owner of the franchise.

However, there are no laws enacted solely for the purpose of regulating the growing business of franchising in India, even though many nations across the world have enacted such laws. The result is that when franchisors enter India they are governed by a number of different statutes and codes like the Indian Contract Act, the Competition Act, 2002, the Trademarks Act, 1999  the Consumer Protection Act, 1986, the Foreign Exchange Management Act, 1999  etc.,  rather than a single comprehensive enactment.  Therefore the parties proposing to enter into a franchise business should contact an experienced franchise attorney for assistance in order to comply with the legal requirements in India.  
 

Thursday, January 10, 2013

MINOR'S PROPERTY

  - P.RAJENDRAN   www.prajendran.com

       Whether the property of a minor can be alienated by his guardian?  This is the issue dealt with in this Article.  Who is a Minor?  Section 4 (a) of the Hindu Minority and Guardianship Act, 1956 defines a Minor as “a person who has not completed the age of eighteen years”. Under Section-6 of the said Act, the natural guardians of a Hindu minor, in respect of the minor's person as well as in respect of the minor's property (excluding his or her undivided interest in joint family property) are - 

 “(a) in the case of a boy or an unmarried girl—the father, and after him, the mother: provided that the custody of a minor who has not completed the age of five years shall ordinarily be with the mother;

 (b) in the case of an illegitimate boy or an illegitimate unmarried girl - the mother, and after her, the father;

 (c) in the case of a married girl - the husband;

 Provided that no person shall be entitled to act as the natural guardian of a minor under the provisions of this section—

 (a) if he has ceased to be a Hindu, or

 (b) if he has completely and finally renounced the world by becoming a hermit (vanaprastha) or an ascetic (yati or sanyasi)

Explanation.—In this section, the expressions 'father' and 'mother' do not include a step-father and a step-mother”.

Under Section-7 of the said Act, the natural guardianship of an adopted son who is a minor passes, on adoption, to the adoptive father and after him to the adoptive mother. Under Section-8 (2) of the Act,  the natural guardian shall not, without the previous permission of the court,—

 (a) mortgage or charge, or transfer by sale, gift, exchange or otherwise any part of the immovable property of the minor or 

 (b) lease any part of such property for a term exceeding five years or for a term extending more than one year beyond the date on which the minor will attain majority.

No court shall grant permission to the natural guardian to do any of the acts mentioned above except in case of necessity or for an evident advantage to the minor. Now, the question is whether any alienation made by a natural guardian without previous permission of the court is illegal for ever. Under Section 8 (3) any disposal of immovable property by a natural guardian, in contravention of the above provisions is voidable at the instance of the minor or any person claiming under him.  Therefore the alienation is not void but it is voidable at the instance of the minor or any person claiming under him.  If the minor, on attaining majority (18 years) chooses not to challenge the alienation, the alienation will be perfectly valid.  But, on the other hand, if he challenges the alienation, the validity of the alienation will be decided by the court. However, such a challenge should be made within 3 years after the attainment of majority. Any suit to set aside an alienation of minor’s property by the guardian filed more than three years after the attainment of majority is barred under Section-60 of the Limitation Act.  Therefore the alienation cannot be challenged by a minor after three years from the attainment of majority.

         In some cases, it may so happen that the elder son did not challenge the alienation within three years after attainment of majority but the younger son challenges within three years. In other words, the suit filed by the younger son is within three years. The question is whether the suit filed by the younger son (within three years of attainment of majority) is maintainable. Section-7 of the Limitation Act states as follows:-

     “Where one of several persons jointly entitled to institute a suit or make an application for the execution of a decree is under any such disability, and a discharge can be given without the concurrence of such person, time will run against them all; but, where no such discharge can be given, time will not run as against any of them until one of them becomes capable of giving such discharge without the concurrence of the others or until the disability has ceased.

Explanation I - This section applies to a discharge from every kind of liability, including a liability in respect of any immovable property.

 Explanation II - For the purposes of this section, the manager of a Hindu undivided family governed by the Mitakshara law shall be deemed to be capable of giving a discharge without the concurrence of the other members of the family only if he is in management of the joint-family property”
         
       The Full Bench of the Madras High Court has held that the claim being a joint claim and the suit having been brought more than three years after the attainment of majority by the elder brother (who was the manager of the joint family, competent to give discharge) the claim was barred by limitation even in respect of the share of the younger brother who had not yet completed 21 years. Therefore if the eldest male member and Manager of the Hindu Undivided Family does not file a suit within three years after his attainment of majority, he cannot do it after three years and the said disability would extend to the other younger members of the joint family also and they are barred from bringing any suit.  This is because as the eldest member and manager, he is deemed to be  capable of giving a discharge without the concurrence of the other members of the family.