How to Review a Distribution / Reseller Agreement in India

A distribution agreement is the contract that lets one business, the distributor or reseller, buy a manufacturer's or supplier's goods and resell them, usually in a defined territory, for a margin instead of a fee. This guide reviews it from either side, with a heavy lean toward what an Indian principal or distributor actually gets penalised for: resale price control and unchecked exclusivity, both live enforcement risks under the Competition Act, not theoretical ones. Adira, which publishes this guide, sells contract review and CLM software, so it benefits when you manage more distribution paper through a system. Everything here works either way, and you can mark up a distribution agreement clause by clause, free, in Weave, our browser tool, without creating an account.

Two things separate a distribution agreement from most commercial contracts. First, title to goods actually passes, the distributor buys and resells at its own risk, unlike an agent who never takes title (that structure gets its own guide, how to review an agency agreement). Second, because the arrangement usually restricts territory, price, or both, it sits directly inside Section 3(4) of the Competition Act, 2002, the one part of Indian contract drafting where a routine-looking clause can trigger a regulator, not just a counterparty.

Clause by clause: what to check

Walk the draft in this order.

• Appointment and territory. A geographic map, a customer list, or both, not vague language like "the region."
• Exclusivity. Is the principal barred from appointing another distributor in the territory, or the distributor barred from selling competing products? Covered below, and in our exclusivity clause guide.
• Minimum purchase or sales targets. A real number, tied to a period, with a stated consequence if missed, not "best efforts."
• Pricing and margins. How the buy-in price is set, and separately, whether the agreement tries to control the distributor's resale price. Covered below.
• IP and trademark use. A licence to use the principal's marks, not an assignment, expiring on termination with no residual right to the name or domain.
• Term and renewal. A fixed term with a defined renewal mechanism, not silent auto-continuation.
• Termination and post-termination stock. Notice, grounds, and what happens to unsold branded inventory once the relationship ends. Most templates go silent on stock.
• Competition-law compliance. A clause requiring both sides to comply with the Competition Act independently of the contract.

Exclusivity and the Competition Act: when territory becomes a violation

An exclusive distribution clause, whether it locks the distributor to one principal or locks the principal to one distributor in a territory, falls inside Section 3(4) of the Competition Act, 2002, which covers "any other agreement amongst enterprises or persons... at different stages or levels of the production chain... in respect of production, supply, distribution, storage, sale or price of, or trade in goods," naming "(b) exclusive dealing agreement" and "(c) exclusive distribution agreement" among the categories it reaches. Source: Section 3(4), Competition Act, 2002 (Indian Kanoon). The Explanation defines exclusive distribution as including "any agreement to limit, restrict or withhold the output or supply of any goods or services or allocate any area or market for the disposal or sale of the goods or services," a territorial distribution clause, in the statute's own words.

Section 3(4) is not a ban. It applies a rule-of-reason test: the agreement is unlawful only "if such agreement causes or is likely to cause an appreciable adverse effect on competition in India" (AAEC). In Esys Information Technologies Pvt. Ltd. v. Intel Corporation and Ors (CCI, Case No. 48 of 2011, decided 16 January 2014), the Commission examined an exclusive distribution arrangement and found no AAEC, since the market had enough alternative suppliers and the arrangement did not foreclose competitors. Source: Esys Information Technologies v. Intel, CCI order. Exclusivity survives scrutiny when it does not meaningfully shut out rivals, not merely because it is labelled "reasonable."

Resale price maintenance: the clause that has actually cost Indian companies money

This is the risk a template adapted from a US or UK precedent is most likely to miss, because RPM is enforced more aggressively in India's automobile and FMCG sectors than most drafters expect.

Explanation (e) to Section 3(4) defines resale price maintenance as including "any direct or indirect restriction that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged." Source: Section 3(4), Competition Act, 2002 (Indian Kanoon). Read that last clause carefully: the statute gives its own safe harbour. A price list is lawful as a maximum retail price (MRP) or a recommended price, provided the distributor is free to sell below it. The violation is stopping the distributor from discounting, not suggesting a price.

Two CCI orders show what this looks like in practice. In Fx Enterprise Solutions India Pvt. Ltd. and Anr v. Hyundai Motor India Limited (CCI, Case Nos. 36 and 82 of 2014, order dated 14 June 2017), the Commission found Hyundai operated a "discount control mechanism" that monitored and capped the discounts its dealers could offer, and imposed a penalty of about Rs 87 crore. Source: Fx Enterprise Solutions v. Hyundai Motor India, CCI order. Hyundai's appeal succeeded before the NCLAT in 2018, but only on procedural grounds, the tribunal found the relevant market was not properly established, not that discount control was lawful. Source: Hyundai Motor India Ltd v. CCI & Ors, NCLAT, 19 September 2018.

The point was reinforced more decisively in In Re: Alleged anti-competitive conduct by Maruti Suzuki India Limited in implementing discount control policy vis-a-vis dealers (CCI, Suo Motu Case No. 1 of 2019, order dated 23 August 2021): the Commission found Maruti Suzuki enforced a Discount Control Policy using mystery-shopping agencies to check compliance and penalising dealers who discounted beyond the permitted range, and imposed a penalty of Rs 200 crore. Source: CCI order, Suo Motu Case No. 1 of 2019 (Maruti Suzuki). Quick test: search your draft for any clause letting the principal audit, cap, or penalise resale discounting. Without a "may charge lower" carve-out, it is drafted as RPM.

India notes: three things a foreign-precedent template gets wrong

There is no automatic compensation for the distributor on termination. Several EU member states, following the logic of the Commercial Agents Directive (86/653/EEC), give a terminated agent or distributor a statutory goodwill indemnity for the customer base it built up. India has no equivalent statute. Termination follows whatever the contract says, so a distributor who built the brand's market for a decade can be let go on notice with no compensation, unless the contract itself promises something. Protection has to be negotiated and written in, not assumed.

A trademark licence to a distributor should be scoped as permitted use, not ownership. Section 2(1)(r) of the Trade Marks Act, 1999 defines "permitted use" as use of a registered mark by someone other than the proprietor, connected to the goods "in the course of trade," under the proprietor's consent. Source: Section 2, Trade Marks Act, 1999 (Indian Kanoon). The distributor's right to use the brand exists only for the term and creates no ownership interest; the agreement should say so, with a requirement to hand back or take down brand-marked signage, packaging, and digital assets on termination.

A post-termination non-compete on the distributor is void, with one narrow exception. Section 27 of the Indian Contract Act, 1872 states: "Every agreement by which any one is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void." Source: Section 27, Indian Contract Act, 1872 (Indian Kanoon). A clause stopping a terminated distributor from selling a competing brand is void, with the narrow statutory exception for the sale of goodwill of a business. A restraint operating only during the term is different and generally enforceable.

Red flags

Normal	Red flag	Why it matters
Price list marked "MRP" or "recommended," distributor free to discount	Clause caps, monitors, or penalises resale discount	Textbook RPM under Explanation (e) to Section 3(4), the conduct penalised in Maruti Suzuki and Hyundai
Exclusivity scoped to a territory with real alternative suppliers or channels	Near-total market coverage or blocked online resale	Raises the AAEC risk the Esys order avoided; foreclosure is what regulators look for
Purchase target is a stated number, period, and cure right	"Best efforts" target, or automatic termination on any shortfall	Unmeasurable obligation, or a one-sided trigger the principal alone controls
Trademark clause is a licence under Section 2(1)(r), reverting on termination	Silent on ownership, or distributor registers the mark or domain itself	Principal loses control of its own brand assets after termination
Post-termination restraint limited to confidentiality and IP	Non-compete clause surviving after termination	Void under Section 27, with a narrow exception; unenforceable as drafted
Termination states buy-back, sell-off period, or destruction for stock	Silent on stock and marketing material after termination	Distributor left holding branded inventory with nowhere to sell it
Competition-law compliance clause stated independently of other terms	No compliance clause, or one assuming the contract is automatically lawful	Competition law binds regardless of the contract; silence is no defence
Termination notice and grounds are specific and mutual	Principal can terminate at will, distributor locked in	One-sided allocation invites a dispute over the real reason for termination
Structure named clearly: distributor buys and resells, does not bind principal	Contract uses "agent" and "distributor" interchangeably	Confuses who bears stock risk and who can bind the principal to third parties

Bad clause versus better clause: the pricing clause

Bad: "Distributor shall sell the Products only at the prices set out in Company's price list issued from time to time, and shall not offer any discount, rebate, or reduced price to any customer without Company's prior written consent."

What is wrong: this is resale price maintenance on its face. It fixes the resale price and requires prior consent for any discount, the conduct penalised in the Maruti Suzuki and Fx Enterprise orders, with no carve-out for selling lower.

Better: "Company shall issue an indicative maximum retail price (MRP) list for the Products from time to time. Distributor may sell the Products at or below the MRP at its own commercial discretion, and nothing in this Agreement restricts Distributor's right to offer discounts, rebates, or promotional pricing to customers. Company may monitor market pricing for its own commercial planning but shall not condition supply, credit terms, or continuation of this Agreement on Distributor's resale pricing decisions."

What changed: the clause now states a maximum, not a fixed price, expressly preserves the right to discount, and separates ordinary monitoring from any consequence tied to pricing, closing off the mechanism the CCI penalised in both cases.

The distribution agreement checklist

1. Territory defined by geography, channel, or customer list, without ambiguity?
2. Exclusivity, if any, scoped narrowly enough that competitors are not foreclosed?
3. Purchase or sales target a real number, tied to a period, with a cure right before termination?
4. Price list framed as MRP or recommended, distributor expressly free to discount?
5. Any clause that lets the principal cap, monitor for penalty, or punish resale pricing?
6. Trademark clause a licence, not an assignment, reverting on termination?
7. Any restraint on the distributor applies only during the term, not after?
8. Termination states what happens to unsold stock and branded material?
9. Standalone competition-law compliance clause, independent of the rest of the contract?
10. Termination grounds and notice periods mutual, not one-sided?
11. Agreement clearly says the distributor buys and resells, and does not bind the principal?
12. Any promise, express or implied, of termination compensation, and is that intended?

How this differs from an agency agreement

The dividing line is title and authority. A distributor buys the goods and owns the risk of unsold stock. An agent never takes title, sells or contracts on the principal's behalf, and can bind the principal within its authority, governed by Sections 182 to 238 of the Indian Contract Act, 1872. Getting the label wrong does not change the substance, a court or the CCI looks at what the arrangement actually does, but it changes which risks apply. See our guide to reviewing an agency agreement if the counterparty sells on your behalf.

US and global contrast

The US has no single federal distribution-law equivalent to India's treatment of RPM; it was long automatically illegal under the Sherman Act until the Supreme Court's 2007 Leegin decision moved it to a rule-of-reason standard, similar in shape to India's AAEC test but arrived at by case law rather than statute. Several US states also have dealer-protection statutes (automobile franchise laws are the clearest example) requiring "good cause" before a manufacturer can terminate a dealer, a protection Indian law does not generally offer. Several EU jurisdictions, on the other side, give a terminated distributor a statutory goodwill indemnity that India does not have. The result: an Indian distributor's protection on termination is only what the contract gives it, which makes the termination and post-termination-stock clauses worth more negotiating time here.

FAQ

Can a principal legally set a maximum retail price for its distributors in India? Yes. Explanation (e) to Section 3(4) only reaches restrictions that stop a distributor from selling below the stated price. An MRP or recommended price the distributor is free to undercut is lawful; the violation is removing that freedom.

Is exclusive distribution automatically illegal under the Competition Act? No. Section 3(4) applies a rule-of-reason (AAEC) test, not an outright ban. The CCI cleared an exclusive arrangement in Esys v. Intel because the market had enough alternative supply; exclusivity becomes a problem when it forecloses competitors, not merely because it exists.

Does my distributor get any compensation if I terminate the agreement after ten years? Not automatically. Indian law has no statutory goodwill indemnity for distributors comparable to some EU jurisdictions. Whatever the distributor gets is only what the contract promises, so any intended transition payment or extended sell-off period has to be written in.

Can I stop a terminated distributor from selling a competing brand? Only while it is still appointed under the agreement. A restraint that survives termination is void under Section 27 of the Indian Contract Act, with a narrow exception tied to the sale of a business's goodwill, which rarely fits an ordinary distribution termination.

What happens to my branded stock still sitting with a distributor after termination? Whatever the contract says, since Indian law imposes no default rule. A buy-back obligation, a defined sell-off period, or a requirement to destroy or de-brand stock are the common approaches; silence usually produces a dispute.

Do I need a separate agreement for each product line, or can one agreement cover all products? One master distribution agreement, with product schedules that can be amended, works for most relationships and stays easier to keep consistent than several parallel agreements with the same distributor.

This guide covers how a distribution or reseller agreement should be structured under Indian law, including exclusivity and resale price maintenance, where the Competition Act creates real regulatory exposure beyond the usual commercial risks. It is not legal advice, and it does not tell you whether your specific pricing or exclusivity clause would survive a CCI review on your facts. For that, especially before rolling out a discount-control policy or a nationwide exclusive arrangement, have a lawyer with competition-law experience review the document.