The board of Connaught Plaza Restaurant Ltd. (CPRL), under the chairmanship of Justice GS Singhvi, passed a resolution on 17 September to reopen 21 McDonald’s outlets in the national capital.
This comes in the backdrop of the fast food giant terminating its franchise agreement with CPRL for 169 restaurants across North and East India on 21 August. According to the termination notice, CPRL was supposed to cease using the name, trademarks, designs, operational and marketing strategy as well as food recipes from 6 September.
The Bakshi-McDonald’s India tussle goes back to 2013, when the latter voted against his re-election as Managing Director of CPRL. Following this, Bakshi challenged his removal in the National Company Law Tribunal and was reinstated as MD in July 2017.
McDonald’s petition against the order is now pending before NCLAT.
Q. What was the outcome of the Connaught Plaza Restaurants Ltd. board meeting on 17 September, 2017?
Vikram Bakshi: The nominee directors of McDonald’s India did not attend the board meeting even after prior intimation. They asked for the meeting to be deferred. The board took a decision to reopen 21 outlets out of the 41 which are shut. 18 of the outlets reopened this morning as usual for public. The other 3 outlets will open tomorrow. The licences for these outlets are in place.
Q. Were there any other significant decisions taken during the meeting?
Vikram Bakshi: None of the meetings were attended by the nominees of McDonald’s till 6 September. They were waiting for the time period of the notice to pass which was 15 days. I kept writing to CPRL to call for an urgent meeting. Even this time, the nominees were not present. However, the notice of termination was deliberated. The administrator who chaired the meeting ruled out that CPRL has the complete right for legal recourse.
The administrator said, “After due deliberation, it was resolved that the Managing Director has the right to appropriate legal remedies through the notice of 21 August, 2017 and other consequential action taken by the directors.”
Q. What were some of the significant events preceding the notice of termination?
Vikram Bakshi: The notice of termination was issued for non-payment of royalty to McDonald’s. Though CPRL had not paid the royalty since October 2015, the notice of termination was given only on 21 August, 2017. It was given at such a time because the ulterior motive was to scuttle the order of NCLT.
The notice was sent to CPRL before the board convened its meeting. This indicates that the two director representatives of McDonald’s on the CPRL board were fully aware of the non-payment of royalty. The funds of the company meant for payment of royalty were diverted to pay the banks and other debtors. In the 21 years of the existence of CPRL, such a large debt amounting to Rs. 46 crores have never been paid off.
“The funds were misused after NCLT’s decision of re-appointing me as the Managing Director. It was a move to disrupt the functioning of the company.”
Q. Did the company raise a red flag to McDonald’s about the fund crunch?
Vikram Bakshi: Managing the financial limits was always in the hands of the Treasury of McDonald’s Corporation. Once I was removed as the Managing Director, the fund limits were cut down.
Some banks might have been induced to seek payment. But, the company did not have sufficient money to repay them. CPRL paid it out of the cash flow of the company. I even protested for alternate channels of funds to be provided. This seems like a game plan.
Q. Were there similar cases of non-payment of royalty in the past?
Vikram Bakshi: CPRL had not paid royalty in 2008. It was later paid after one year. McDonald’s did not have a problem with non-payment. The agreement itself says that in case of any delays, there is a provision of adjustment by way of interest payment. This issue could have been easily resolved within the board of CPRL itself.
As the Managing Director, I will pursue all the legal remedies available with the company. By the end of the day, it is all about saving the jobs of the 6,800 people directly employees and the 5,000 people indirectly associated with the company. I am always ready to resolve differences amicably by sitting across the table.Vikram Bakshi
The London Court of International Arbitration (LCIA) directed the appointment of experts to determine a fair and mutually agreeable valuation of the shares held in the joint venture so that the stake can be sold to McDonald’s.
Q. What do you have to say about the ruling of the London Court of International Arbitration? Any comments on this partial award?
Vikram Bakshi: We are still studying the award itself. I cannot talk too much about this as it is confidential till one of the parties files an appeal. I don’t know how the other party has so blatantly spoken about it.
My only demand is a fair market valuation under the laws of India. As per law, the determination of fair market value is to be done on internationally accepted methods of valuation. Hence, I was never against a third party valuation.
McDonald’s had stated that the value of CPRL is close to nothing even after 18 years of operating 169 outlets. On the other hand, Westlife Development who operate 262 outlets in South and West India is valued at Rs 4,000 crore.
Q. You had stated that the reason for non-renewal of licenses was quality concerns. What exactly were the concerns?
Vikram Bakshi: The company received no support from McDonalds for the last three years. We found foreign objects in the food – screws, nails, hair, etc. In Kolkata, there was an incident where rodents were found. Cats were lying in the kitchen area and another one jumped onto a customer’s table. All kinds of cases were filed against and the police was at our doorstep to arrest us.
I had been writing to McDonald’s raising multiple quality concerns. I even attached all the incident reports. I did not receive any response from them. It did not make sense to renew the licenses any longer and hence, I withdrew my signature.
McDonalds was aware of the non-renewal of licenses. No attempts were made to resolve the matter. Instead, they decided to shut down the outlets and suspend services.
“After considering the net interest of the company, once I was re-appointed as Managing Director, I applied for new licenses.”
Q. What were the costs incurred when it comes to maintenance of the shut outlets?
Vikram Bakshi: We have spent over Rs 15 crore for maintaining the outlets in the last three months. The company has paid all the stakeholders. We have paid all the maintenance charges, rent, electricity bills.
Also Read: Lovin’ It No Longer, McDonald’s Ends Franchise Agreement With CPRL
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