McDonald’s terminates franchise agreement in North, East India

The long-standing legal tussle between American burger chain McDonald’s Corporation and its estranged Indian partner Vikram Bakshi has further intensified.

On Monday, McDonald’s India Pvt Ltd (MIPL), the Indian subsidiary of the company, announced termination of its franchise agreements with Connaught Plaza Restaurants Private Limited (CPRL), which runs 169 restaurants in North and East India. It has also asked CPRL to cease from using any of the intellectual properties of McDonald’s at these restaurants within 15 days of the termination notice. CPRL is a 50:50 joint venture between McDonald’s India and Bakshi. The partners have been mired in a legal tussle since 2013.

The move comes a month after the National Company Law Tribunal reinstated Bakshi as Managing Director of CPRL.

Asked if this was a reaction to the NCLT order, Ron Christianson - Global Head of Corporate Relations, Foundational Markets, McDonald’s Corporation, told BusinessLine: “The termination is a completely separate matter. The termination is a result of CPRL’s violation of certain essential obligations and terms of the franchise agreement. More specifically, it is due to the default in payment of royalty to MIPL for approximately two years.”

Impact on employees

The move has put the future of these restaurants and its employees under a cloud of uncertainty. Just two months ago, CPRL was forced to shut down 43 restaurants in Delhi after failing to renew the “eating house licences” for these restaurants. MIPL, has however said it is open to working with CPRL to mitigate the impact on affected parties such as employees and suppliers.

The company also said it remains fully committed to the opportunity in North and East India, and will take necessary steps to rebuild the brand. “We are in the initial stages of finding a Development Licensee partner for North and East India,” Christianson added.

Replying to a query on the status of the arbitration initiated by the company to resolve the issue at London, he said it was still going on.

‘Desparate action’

Reacting to the development, Bakshi said this was a “desperate action” taken by McDonald’s Corporation and is an open challenge to the NCLT judgement. He said CPRL is considering appropriate legal remedies.

“The timing of this notice is suspicious because it comes on the morning of the first board meeting scheduled by the Administrator (a former Supreme Court judge appointed by the NCLT), which the two foreign nominee directors of McDonald’s declined to attend, despite receiving sufficient advance notice,” he said.

Bakshi said this was a completely contemptuous, mala fide and oppressive act by McDonald’s Corporation to sabotage the order of the NCLT.

He also said that one of the items on the agenda of the scheduled board meeting was to discuss the reopening of the 43 restaurants, whose operations lie currently suspended.