McDonald's India posts biggest ever loss of Rs 305 crore amid legal battle in FY17-18

McDonald's India's legal battle with its domestic partner Connaught Plaza Restaurants Limited (CPRL) has cost it dear with the US multinational's Indian subsidiary posting highest ever loss of Rs 305 crore in the financial year that ended in March. The company has made a provision of Rs 198.2 crore in its financial statements to cut back losses accumulated due to CPRL.  

The legal battle between McDonald's and its India partner Vikram Bakshi, also managing director of CPRL, has been going on for five years. Its northern and eastern business is still operated by Bakshi's company, despite the company terminating the franchise agreement of 169 outlets last year. Hardcastle Restaurants Private Limited, led by Smita Jatia, handles its south and west India business through its wholly owned subsidiary Westlife Development Limited.

Amid the legal fight, Bakshi in August 2017 had hit out at the fast food major, saying it follows 'different standards' for India compared to other countries and that continuously ignored the food quality concerns raised by him in the past years.

According to a report published in the Economic Times, McDonald's India, in a regulatory filing said, "Considering that CPRL is having significant accumulated losses as of date and considering that the company has terminated all its franchise arrangements in favour of CPRL, the management feels that its investments in CPRL are impaired and accordingly a provision of Rs 198.20 crore has been considered in the financial statements of the company for diminution in value of investments in CPRL."

Other factors that added to the woes of the company are Rs 105-crore tax liability it had to clear towards the Income Tax Department and Mutual Agreement Procedure (MAP) proceedings following transfer price additions in its royalty payment to its parent company in the US from 2004 to 2012. Facing continuous losses ever since its launch in India in 1996, the company's accumulated loss now stands at Rs 422 crore.

The fight between McDonald's and Bakshi began in 2013 after fast food giant removed Bakshi as the Managing Director of CPRL. The National Company Law Tribunal later reinstated him and also refrained McDonald from interfering in the functioning of CPRL besides appointing an administrator to oversee the smooth functioning of CPRL. The battle gained a momentum after Bakhshi's ouster turned ugly as McDonald's India terminated the franchise agreement of 169 outlets in August 2017. Both the parties are now fighting out their case in various legal forums including NCLT, NCLAT and Delhi high court.