McDonald's 169 outlets likely to close: What is the burger company's fight with Vikram Bakshi, CPRL?

McDonald's India today said that it has terminated the franchise agreement for 169 fast-food outlets in North and East India run by Connaught Plaza Restaurant Ltd or CPRL. McDonald's India had a 50:50 joint venture with CPRL, a company led by Vikram Bakshi. CPRL was the master franchisee for McDonald's India in North and East India. The decision comes weeks after 43 outlets run by CPRL in the national capital were shut due to non-renewal of eating house licenses by local authorities.
 
WHAT HAS LED TO THE CURRENT SITUATION?
McDonald's India and Vikram Bakshi had been fighting a court battle for some time. It all started when CPRL chief Vikram Bakshi was removed from the post of the Managing Director of the company in August 2013. McDonald's alleged that Bakshi had leased out his property to a rival company, suggeting a conflict-of-interest scenario. The US-based McDonald's further said that Bakshi had pledged 51,300 of his CPRL shares to get a loan of Rs 20 crore so that his company Ascot Estate (Manesar) Pvt Ltd could develop the Savoy Outlet Mall and service apartments in Manesar. McDonald's said that Bakshi did not take the company's approval before pledging his shares. It also pointed at a 2007 transfer of Rs 7 lakh from the company's account to his group company called Vikram Bakshi and Company Pvt Ltd. McDonald's said Bakshi was being selfish and not devoting enough time to CPRL.
 
VIKRAM BAKSHI CHALLENGED THE REMOVAL IN NCLT
Vikram Bakshi refuted all these allegations and moved to the National Company Law Tribunal or NCLT. The NCLT later ordered his reinstatement saying, "The proceedings of the meeting of the Board of Directors held on 06.08.2013 relating to re-election of Mr Vikram Bakshi as the Managing Director of the Company are set aside and declared illegal, unjust and mala fide." "The status of Mr Vikram Bakshi as Managing Director is restored," the NCLT said.
 
WHAT WENT WRONG
But the battle between Vikram and McDonald's had stared even before 2013. Back in 2008, McDonald's offered to buy Bakshi's stake for USD 5 million and later for USD 7 million. Bakshi waved Grant Thornton's report that pegged CPRL's enterprise value at USD 331 million and demanded upwards of USD 100 million. In early 2014, Bakshi offered to buy McDonald's stake at a net asset value of Rs 150 crore. The US company made a Rs 48-50 crore offer for Bakshi's stake. The latter insisted on fair market value and offered to sell initially for Rs 2,500 crore and later for Rs 1,800 crore. McDonald's did not respond. As this went on, the Delhi High Court stayed the arbitration proceedings in December 2014. Due to tussle between both - Vikram and McDonald's -  CPRL failed to renew licenses of 43 outlets in Delhi, resulting in shut down.
 
WHAT HAPPENS TO THE McDONALD'S OUTLETS NOW?
After McDonald's terminated its joint venture with CPRL, the latter can't use its brand for any operations. The company has ceased using McDonalds's name, system, trademark, designs and its associated intellectual property, among others within 15 days of the termination notice. McDonald's in a statement said: "Today, we have issued the CPRL board a notice of termination of the franchise agreement between McDonald's India Pvt Ltd and CPRL for 169 McDonald's restaurants operated by CPRL in north and east India." McDonald's India said that it was committed to find the right 'developmental licensee partner for north and east India and was taking steps to do so.

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