McDonald's-Bakshi battle turns ugly, CPRL faces closure in a fortnight

The protracted battle between US burger major McDonald's and its North and East master franchisee Vikram Bakshi got even murkier on Monday as the Illinois based firm terminated the franchise agreements for all its 169 outlets in the region jeopardizing the future of thousands employed with the brand.

The company said it was compelled to take this step because Connaught Plaza Restaurants Ltd (the joint venture franchise company) materially breached the terms of the respective franchise agreements, and failed to remedy the breaches despite being provided with an opportunity.

"As a result, CPRL is required to cease using the McDonald's System and its associated intellectual property in relation to these restaurants within 15 days of the termination notice," the company said in a notice.
 
The termination came a little over a month after the National Company Law Tribunal in a scathing verdict ruled in favor of Bakshi and ordered his reinstatement as the managing director of CPRL. Incidentally, the first board meeting of CPRL scheduled by former Supreme Court Judge Justice G S Singhvi who was appointed as an administrator by the NCLT, was also held on Monday. The two foreign nominee directors from McDonald's at CPRL did not attend the meeting.

Monday's notice adds another chapter in the over four year old dispute that has been raging between the two partners. In August 2013 Bakshi was unceremoniously ousted as the managing director CPRL citing charges of mismanagement and financial bungling. There have been multiple rounds of litigation between the partners ever since without an amicable resolution in sight. The operations of CPRL have suffered in the bargain. It hit rock bottom in June earlier this year when  43 of the firm's 55 outlets in Delhi-NCR were shut down for failing to renew eating house licenses. Lack of leadership at the firm has taken its toll. Now, it stares at a complete closure in a fortnight.

McDonald's has said it was open to working with CPRL to mitigate the impact of the decision to terminate the franchises on affected parties such as its employees, suppliers and landlords. It also indicated it was keen a life beyond Bakshi and was already taking steps to identify the right partner for its operations in the region.  

"We understand that this action brings uncertainty for many.  It will take time to bring the current situation to a final resolution. However, we remain fully committed to the opportunity in North and East of India and are already looking at the necessary steps to rebuild the brand.  As part of this we are committed to finding the right Developmental Licensee (DL) partner for North & East India, and are taking steps to do so," the statement said. "McDonald's looks forward to growing the business and meeting the needs of our Indian customers.  Our priority is to have a reliable, safe and enjoyable experience for our customers and employees in North and East of India, and a strong, profitable business well into the future."

As in the past, Bakshi remains combative. Reacting to the termination notice, he said CPRL will consider appropriate legal remedies.  

"This desperate action taken by the McDonalds Corporation, is a direct affront on the Indian legal system of the Sovereign, Democratic Republic of India and an open challenge to the judgment by the Hon'ble NCLT principal bench. This  bench restored the equal Indian equity partner, as the MD of CPRL who  has been the  MD for 22 years. In addition, the NCLT  labeled all actions taken in the instant case, against the MD, by the McDonalds Corp as "Illegal, Unlawful, Unjust and Malicious, " he said.

Further, he said the US firm has gone against the court order which had restrained it from interfering with the smooth functioning of CPRL. "This is a completely contemptuous, malafide and yet another oppressive act indulged in by the McDonalds corporation to sabotage the order of the Hon'ble NCLT, " he said.

With no partner backing down, the future may be very confusing for the brand. With the dispute being heard at various courts including the London Court of International Justice, CPRL may continue to function as it has in the past disregarding Monday's franchise termination notice. McDonald's can in the interim drag CPRL to court for breach of agreement on use of its brand and unilaterally authorise another master franchise to build a separate network.

"We are looking at multiple litigation on different facets of the dispute and potentially two different set ups of the same brand," says a lawyer. "One would be under Bakshi and the other under whoever McDonald's appoints. In such a case, the brand will be irreversibly damaged. Any global brand works on standardization. Imagine, one McDonald's store being completely different from the other within a kilometer radius. That will be a catastrophe for everybody." 

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