McDonalds pulls the plug on Bakshi, JV in tatters

Written by Kaushal shroff | New Delhi | Updated: Dec 4 2013, 09:14am hrs
In an ugly turn of events, McDonalds has terminated its joint venture agreement with Vikram Bakshi, simultaneously moving the London Court of International Arbitration to settle the ongoing legal dispute between the two. The partnership between the US fast-food chain and Bakshi, a franchisee for the northern and eastern regions, was housed in Connaught Plaza Restaurants (CPRL), a 50:50 joint venture that runs 150 outlets in northern and eastern India. The JV was formed way back in 1995.

McDonalds counsel told the Company Law Board (CLB) on Tuesday the firm had moved the London Court of International Arbitration, which was within its contractual rights and also because that matter was independent of the proceedings in India. Bakshis counsel, however, objected to the move, saying the matter was sub-judice and saying McDonalds could not take such a step without CLB approval. The hearings will resume on December 16.

Bakshi is understood to have received a notice on November 30 from the London court, directing him to constitute an arbitration tribunal within 30 days of the receipt of the notice for disposal of the matter. Typically, the agreement between the parties gives them the right to determine the number of arbitrators and the composition of the arbitration tribunal.

McDonalds move seems to have surprised Bakshi, since at the recent hearings in October and November, McDonalds had requested the case be moved to the London Court of International Arbitration. The CLB was to hear and decide on this plea in its hearings on December 2 and 3.

Bakshis term as managing director of CPRL expired on July 17. Soon after, problems between the partners surfaced.

On August 30, McDonalds issued notices in select newspapers saying Bakshi had ceased to be the MD of CPRL. In early September, Bakshi moved the CLB for his reinstatement as MD, arguing that his appointment was made at a board meeting and was, therefore, not the subject matter of any arbitration agreement.

Bakshis affidavit also says the JV agreement does not cover the managing directors appointment by the board of directors, but only provides for the election of a managing director at a general meeting.

Legal experts believe that by scrapping the JV agreement, McDonalds has raised larger issues relating to the shareholders agreement wherein it was within rights to move for arbitration. They point out that since the CLB and the Arbitration court are adjudicating on different issues, the two matters can run concurrently.

Corporate lawyer Diljit Titus, founding partner, Titus & Co explained to FE that the matter before the CLB is over the contractual rights. McDonalds has moved for arbitration in London over larger issues; it has terminated the JV agreement. Once the agreement is scrapped, contractual rights cease to exist, only legal rights exist and the two can carry on concurrently, Titus opined. McDonalds action, he said, implied that the relationship was now beyond repair.

Concurring with Titus that the two matters can run concurrently, corporate lawyer Ranjana Roy outlined two likely scenarios. By moving the London Court of International Arbitration, McDonalds needs to tell CLB that the dispute is over the shareholders agreement and not about matters relating to the running of the company and can be adjudicated in the arbitration court, Roy observed. It was possible, she said, that in such a situation, the CLB may extinguish the case. However, if the other side is able to establish that the matter also relates to the running of the company, mismanagement etc, then the two matters can run concurrently, Roy explained.

Bakshi has alleged the BL Jatia Group promoted-Hardcastle Restaurants Pvt Ltd, which runs the McDondalds chains in the west and southern parts of the country, of influencing the US fast food chain to take oppressive steps against him.

In a petition before the CLB, Bakshi has claimed that since 2008, when the JV started making profits, McDonalds has been trying to buy him out. The first offer was made in August 2008 for $5 million, which he said was categorically rejected. A proposal to appoint a third party for an evaluation of his stake was rejected by McDonalds and instead, the offer to buy his entire shareholding in CPRL was increased from $5 million to $7 million. Bakshi has also claimed that since 2008, McDonalds stifled his remuneration as MD so much so that he was not given a raise in line with other employees for the last four years. McDonalds prevented the increase in remuneration on frivolous, baseless and supposedly technical grounds, Bakshis petition stated. In June this year, Bakshi had said that CPRL planned to invest up to Rs 500 crore to double total number of outlets to 300 by 2015.