The Indian Competition Act 2002 (the Act) which comes into force in stages between 2007 and 2011 is likely to have a significant impact on franchisors entering the subcontinent. The CCI have begun to impose fines and have sought to break the cartels which have been in existence India for some time, especially in relation to price fixing and various practices which affected consumers. It is likely to now focus on vertically integrated systems, including franchising. Franchising is covered by Section 3 of the Act. It covers issues such as:
- resale price maintenance;
- purchase ties;
- exclusive supply;
- exclusive distribution;
- refusal to deal;
- exclusive territories, customers or supplier groups;
- limiting or controlling production or technical development.
The rule of reason will be applied. There is no pre-clearance protocol or block exemption in place for vertical agreements. Each complaint is considered on a case by case basis on its merits. There is no presumption that the activities in Section 3 of the Act actually adversely affects competition and a complainant has the burden of proof to show that the activity complained of adversely affects competition in India.
Although there are no reported franchising cases under Section 3 yet, it is thought to be only a matter of time before one arises given the growth of franchising. Foreign franchisors are likely to be an easy target if they have not fully taken into account the provisions of Section 3.
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