Module 7

MODULE 7
INTRODUCTION TO FOOD AND BEVERAGE LAW

7.1 INTRODUCTION TO FOOD AND BEVERAGE INDUSTRY
Food and Beverage industry is considered as one the fastest growing industry in India. ‘The
Indian food industry is poised for huge growth, increasing its contribution to world food trade
every year. In India, the food sector has emerged as a high-growth and high-profit sector due to
its immense potential for value addition, particularly within the food processing industry.’1 The
industry can be broadly classified into three major sectors i.e. farming, processing and
distributing.

Food and Beverage Industry

Farming Processing Distribution

Food Beverages I-confectionary

Grocers/Supermarkets Quick Service Upscale
Restaurants/ Restaurants
Franchises

7.1.1 Agricultural/Farming Laws in India
India being a member of the Food Agriculture Organization of the United Nations since 1945 has
to make laws in order to comply with their prescribed standards. Further, India signed the
International Plant Protection Convention and became a member of World Animal Health

1 Indian Brand Equity Foundation, “Indian Food Processing”, Published on May 2017,
<https://www.ibef.org/industry/indian-food-industry.aspx>

Organization. Farming is not limited to production and collection of raw agricultural
commodities but also includes animals. Thus there are various laws which must be complied
with. For example, a person owning a dairy farm has to comply with certain rules, regulations
and standards established by the legislation. Further the legislation is too made in a manner to
honor international treaties and obligations. Similarly there are various laws which are laid down
in order to protect the agricultural land and an individual or company investing in the agricultural
sector must be well versed all the respective laws.

7.1.2 Food Processing
It is an integral part of the value chain and involves the processing of raw food commodities into
forms that can be easily distributed and sold to consumers. The Indian Food Processing industry
is regulated by several laws which govern aspects like sanitation, licensing, standardization,
packaging and labeling laws, various permits etc. Earlier the legislation that dealt with food
safety law in India was Prevention of Food Adulteration Act, 1954. The objective of the act was
to protect the public from poisonous and harmful food, avert the sale of substandard foods and to
protect the interest of the consumer by eradicating fraudulent practices. However the act could
not meet the changing demands of the growing food industry thus emerged a demand for a new
legislation. The act that replaced the Prevention of Food Adulteration Act, 1954 was the Food
Safety and Standards Act, 2006 which has an overriding effect over all other food laws. It
specifically repealed eight laws which were in operation prior to the enforcement of FSSA. The
repealed eight laws prior to enforcement of FFSA are:

§ The Prevention of Food Adulteration Act, 1954
§ The Fruit Products Order, 1955
§ The Meat Food Products Order, 1973
§ The Vegetable Oil Products (Control) Order, 1947
§ The Edible Oils Packaging (Regulation) Order, 1998
§ The Solvent Extracted Oil, De oiled Meal, and Edible Flour (Control) Order, 1967
§ The Milk and Milk Products Order, 1992
§ Essential Commodities Act, 1955

The emergence of FSSA, its regulations, licensing and other important aspects will be dealt with
detail in Module 2. The Food Processing unit is majorly divided into three sectors that is Food,
Beverages and I-confectionary. However it is not limited to only these categories as Food and
Beverage industry is comprehensive in nature it encompasses various other elements too.

7.1.3 Distribution

The final stage of the Food and Beverage Industry is Distribution. Distribution may include
distribution to retailer, consumer, manufacturer etc. There are various laws governing the
aspect of distribution such as Anti-trust competition laws, tax laws, packaging and branding
laws etc. The distribution aspect of Food and Beverage Industry is also closely related with
laws governing Intellectual Property, which shall be discussed in length further modules.
Franchises also form a part of the Distribution framework, franchising forms an integral part
of the Food and Beverage Industry. However, it is important to differentiate between
Franchises and Upscale Restaurants. Franchise Business is when the owner i.e. “Franchisors”
sells right to their business logo, name, and model to a third party called as “Franchisees”.
Upscale Restaurants on the other hand are restaurants which are independent in nature and
have their own separate identity. The upscale restaurants have a more independent
management than the Franchises as in Franchises the decisions of the third party have to be
in consonance with the interest of the Franchisors.

7.2 PRE-REQUISITES FOR STARTING A RESTAURANT IN INDIA

7.2.1 Choice of Business Entity

The first legal or financial decision that entrepreneur has to take regarding the restaurant is to
choose the business entity i.e. Proprietorship, Partnership, Limited Liability Partnership, Private
Limited Company or a One Person Company. Each business entity has its own set of advantages
and disadvantages. The entrepreneur can choose the Business Entity after considering following
parameters:

§ Number of partners
Limited Liability Partnership and One Person Company must be preferred over
partnership or proprietorship firms as they have low incorporation cost in India. Further
Partnership/ proprietorship firms do not provide limited liability or separation of business
and personal assets or continuous existence as compared to Limited Liability Partnership.
Limited Liability Partnership can be considered as the safest business entity. However it
depends upon the number of partners/inventors, sole proprietorship is advisable for an
individual entrepreneur. An individual may include a family member and opt for Private
limited Company too.

§ Size of Business
In addition to the number of partners/investors the entrepreneur must also consider the
size of the business. The expected/ targeted annual turnover is a key indicator of the size
of the business If the entrepreneur expects a gross sale of more than Rs. 40,00,000/-
(Forty Lakhs) Private Limited or Sole Proprietorship are suggested business entities.
However if the expected gross sales are less than this and the capital investment does not
exceed Rs 25,00,000/- (Twenty-Five Lakh), Limited Liability Partnership is suitable as it
would limit the risk of inclusion of personal assets. Further, such companies do not have
to audit their accounts. The entrepreneur must weigh all options carefully after analyzing
and assessing his/her business plan.

§ Future plans
In case the entrepreneur is planning to raise a bank loan in future or a private equity a
Private limited company is suitable as Private limited Companies ownership is usually
decided by shareholding. Further shares of such company can be diluted to raise capital
for the business in future which could be used for expansion or creation of franchising
models.

§ Incorporation costs
Entrepreneur must also take into consideration incorporation costs of the business entity.
The lowest incorporation cost is of Sole Proprietorship. However the risk factor and size

of investment involved in Sole Proprietorship makes Limited Liability Partnership or
Private Limited Company a more apt business entity for entrepreneurs.

7.2.2 Food Business Operator License.

The Food Safety and Standard Act, 2006 makes it mandatory to have Food Business
Operator license for any person included in the production, distribution, import and sale of
food product within the territories of India. Thus, all restaurants require this license from the
Food Safety and Standards Authority of India. The state government is responsible for
providing the license and the respective licenses can be obtained prior to opening of the
restaurants. The procedure for application and documents required to obtain the license shall
be discussed in detail in Module No.

7.2.3 Shop and Establishment License

The Shop and Establishment License Act is regulated by the Department of Labor, it
basically regulates any premises wherein any trade, business or profession is carried out. The
act governs areas such as working hours, rest interval for employees, opening and closing
hours, closed days including national and religious holidays, rules regulating child
employment, annual leave, maternity leave, sickness and casual leave etc. For obtaining the
shop and establishment license the entrepreneur has to apply to the State Chief Inspector of
Department Labor. The license can easily be obtained by applying online and following the
procedures given on the Department Labor website.

7.2.4 Registration for Goods and Services Tax.

The One Hundred and Twenty Second Amendment Bill of the constitution of India which is
official known as One Hundred and First Amendment Act, 2016 has introduced a national
Goods and Services Tax in Indian from 1st July, 2017. The Goods and Services Tax shall
have an overriding effect over all the other tax. Thus GST has replaces other taxes like VAT,
Sales Tax, CESS, Swatch Bharat Tax etc. Thus the restaurant shall have to register itself

under this. Entrepreneur can apply online following the detailed procedure provided online
by uploading all the necessary documents.

7.2.5 Other important Licenses:

§ Health Trade License.
Health Trade license is a must for every restaurant owner without this license the owner
cannot operate his business. The license would be issued by the by the municipal
corporation or the health department of the concerned state. The license must be timely
renewed before expiration. However a grace period of one month is given for renewal of
license. The license shall be issued within 60 days from submission of renewal
application. The license can be obtained through the online portal as well in limited
states. The documents required for the license, duration of license, application of renewal
and all other aspects of Health Trade License shall be dealt in detail in Module No.

§ License for playing music or music videos
If recorded music or video is to be played in the premises then one has to obtain a license
in compliance to the Copyright Act of 1957 and the license can be obtained from
Phonographic Performance Limited or Indian performing Right Society. It must be noted
that a separate license is required to stage live band performances too, the license
required is Public Performance Background License. Violation of copyright is
Cognizable & Non-bailable offence, attracting heavy Penalties.

§ Approval from the Weights & Measures Department
As per the Legal Metrology Act, 2009, you have to go for the Approval of models of
weighing & measuring instruments from the Weights & Measures Department. No
person shall make, manufacture, sell or offer, expose or possess for repair any weight or
measure unless he holds a valid license issued in this behalf by the Controller of State or
any other person authorized by him. Every license issued under this section shall be in
prescribed form for a valid period on payment of fee. It shall be renewed from time to
time.

7.2.6 Fire Security Certificate

The restaurant premises should have proper fire security arrangements and for this one has to
acquire No Objection Certificate (NOC) from the fire department. Once you apply, the
inspection would be carried out and the decision will be taken by the officials of the Fire
Department for the grant of the NOC. This important pre-requisite as it governs the interest
of the society at large and minimizes the risk.

7.2.7 Insurance

The restaurant needs to have a proper insurance not only for its own safety but also for the
safety of its worker. Insurance minimizes the risk of the entrepreneur. There are various types
of insurances that an entrepreneur can opt for. For example, property insurance, fire
insurance, liquor liability, workers compensation, unemployment insurance food
contamination insurance, specific peril insurance etc. The types of insurances and their
essential details shall be discussed in detail in Module No. 5.