Why McDonald's four-year-long battle with Vikram Bakshi is a glorious mess

In a game of who blinks first, the battle between McDonald's and its estranged partner Vikram Bakshi looks set to play out in various courts before it is settled in the boardroom.
Sumant Banerji   New Delhi     Print Edition: September 24, 2017
Tortuous Times

The four-year-long battle of one-upmanship between the American fast food major McDonald's and its master franchisee in North and East India, Vikram Bakshi, is a glorious mess. Only last month, it had looked like Bakshi held all the aces when the National Company Law Tribunal (NCLT) in Delhi ordered his reinstatement as the managing director of Connaught Plaza Restaurants Pvt Ltd (CPRL), the 20-year-old joint venture between Bakshi and the US company.

McDonald's, however, turned the tables swiftly. Earlier this month, in fact on the same morning when a CPRL board meeting was scheduled, the US firm decided to terminate its franchise agreements with all the 169 outlets in north and east India. In one fell swoop, it had disarmed CPRL, forbidding it from using the McDonald's system and any of its intellectual property, including the brand name, trademark, design, operating and marketing practices and policies, food recipes and specifications. It also made its intention clear that a new franchise partner would be appointed for North and East. Amit Jatia, its partner in South and West, is considered to be the front runner.

Illustration by Raj Verma

That the differences between McDonald's and Bakshi are irreconcilable is quite clear from the latest turn of events. Bakshi knows that his reinstatement at CPRL notwithstanding, the glory days of the joint venture will never return. He is holding out for a fair valuation of his stake in the joint venture firm. However, the difference in what he is seeking (Rs 1,800 crore at last count) and what McDonald's is willing to offer (Rs 120 crore) is so huge that a quick fix to the impasse is ruled out. Worse still, the partners intend to play hardball and are not even close to discussing the issue.

Due to the impasse, the fate of 6,000 people directly involved with the brand hangs in the balance. The company has not opened a new store in years and its balance sheet, once very strong, is now fragile.

Even though the next hearing has been scheduled on September 21, the National Company Law Appellate Tribunal (NCLAT), which is hearing two cases on the issue, did not order a status quo on CPRL's functioning. It means that the 169 outlets in question face closure from September 6 as per McDonald's notice to CPRL on August 21.

Of the two cases being heard by NCLAT, one has been brought by McDonald's India against the NCLT's July order that reinstated Bakshi as the Managing Director of CPRL. The other has been filed by Bakshi requesting a fair valuation of the fast food chain's outlets in northern and eastern India.

Bakshi would need a stay order from the court to keep the outlets functional beyond the deadline. While that may not be too difficult to obtain, he would need the judiciary to act in his favour and force McDonald's to make an offer as the latter seems intent on playing the waiting game. For an international firm that employs a battery of lawyers on its payroll, court cases are part of doing business. A protracted litigation, however, will begin to take its toll on Bakshi at some point.

The resolution will be eventually reached in the boardroom. But the way to get there could be past several courtrooms.

@sumantbanerji

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