Decoding McDonald’s Vikram Bakshi That Jeopardised 169 Outlets

169 outlets operated by the JVC will have to stop using the McDonald’s brand name.

Vikram Bakshi.

(Photo Courtesy: National Restaurant Association of India)

The litigation between McDonald’s and Vikram Bakshi has been ongoing for about four years now. As we sit on the anvil of another round of litigation, arising from the termination of the franchise agreements by McDonald’s, let’s briefly recap the proceedings till now.

In 1995, Bakshi entered into a joint venture agreement with McDonald’s India Private Limited and McDonald’s Corporation (Deleware) and Connaught Plaza Restaurants Limited [‘JVC’] was formed. In this JVC, Bakshi and Bakshi Holdings and McDonald’s India Private Limited were equal shareholders.

The Tiff Between McDonald’s and Vikram Bakshi

In terms of the JV agreement, Bakshi was made the Managing Director of the JVC for two years. The agreement provided for his re-election as managing director, subject to him continuing to perform certain obligations.

One such obligation was that he spends substantially, all of his business time in the performance of his obligations under the JV agreement, and the Operating License Agreements executed thereunder. Another obligation was that he discharge the responsibilities of management of JVC in a competent and faithful manner.

McDonald’s had an option to purchase the 50 percent shares held by Bakshi and Bakshi Holdings Pvt Ltd, only in case Bakshi failed to reside in New Delhi and/or failed to devote substantial time and effort to the JVC, or upon termination of the JVA, in accordance with the terms of the agreement, and in accordance with the formula provided in the agreement.

In August 2013, McDonald’s refused to re-appoint Bakshi as the Managing Director, and issued a notice electing to exercise their option to purchase his shares. McDonald’s allegations against Bakshi pertained to spending substantially his business time in performance of his obligations under the JV agreement, discharge of his duties as Managing Director and thereby, violating conditions postulated in the JV agreement. In November 2013, McDonald’s issued a second call notice and sought to terminate the JVC.

Bakshi Alleges Mismanagement in McDonald’s

Bakshi approached the then Company Law Board under the Companies Act, 1956, alleging oppression and mismanagement against McDonald’s. The National Company Law Tribunal (NCLT) has recently disposed off the company petition, and decided the issue of whether non-voting in favour of Bakshi for his re-election as Managing Director, at the instance of nominee directors of McDonald’s India, amounted to an act of oppression. Vide a detailed judgment dated 13 July 2017, the NCLT restored Bakshi’s status as Managing Director of the JVC.

The NCLT found Bakshi, along with his wife, had given full business time to the JVC, and on account of their sincere efforts, the JVC was running a large number of 154 restaurants.

The NCLT took the view that non-voting in favour of Bakshi was based on extraneous consideration, causing great prejudice to Bakshi and Bakshi Holdings, was against the interests of the JVC and is detrimental to public interest and a large number of employees would suffer.

The NCLT noted that this was a not a simple non-voting to re-elect Bakshi as Managing Director. The consequences would be triggering off McDonald’s option to purchase Bakshi’s shares in terms of the formula provided in the JV agreement.

The NCLT also appointed Justice Singhvi as administrator of the JVC to break the impasse since the warring parties had 50-50 shares. The administrator is required to ensure that all resolutions in respect of the JVC are passed to advance the interest of the JVC, and none of the two groups is oppressed.

McDonald’s Corporation was specifically restrained by the NCLT from interfering with the smooth functioning of the JVC and all its 154 restaurants.

Arbitration Proceedings

The JV agreement contained an arbitration clause. McDonald’s invoked arbitration in November 2013 after issuance of the call cum termination notice. Bakshi was unsuccessful in opposing the reference of disputes to arbitration. In the arbitration proceedings, McDonald’s claimed relief in relation to the termination of the JV agreement and the purchase of the shares of Bakshi and Bakshi Holdings Pvt Ltd by McDonald’s. The award in the arbitration proceedings is still awaited.

Recent Shutting of Outlets

In June 2017, 43 outlets of McDonald’s were shut down because their eating house license was not renewed.

More recently, on 21 August 2017, McDonald’s announced that it has terminated its franchise agreement with the JVC, which means that the 169 restaurants operated by the JVC will have to stop using the McDonald’s brand name. Connaught Plaza has issued an official statement, stating that it is considering the appropriate legal remedies available under law.

Thus, the legal battle is far from over.

(The author is a Delhi High Court advocate. This is an opinion piece and the views expressed above are the author’s own.The Quint neither endorses nor is responsible for the same.)

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