Have put in effort to build McDonald's brand in India, says Vikram Bakshi

The National Company Law Tribunal (NCLT) has reinstated Vikram Bakshi as the Managing Director of Connaught Plaza Restaurants (CPRL) - a  joint venture between Bakshi and McDonald's that operates the fast food chain in north and east India. This brings to an end a three-year long protracted legal battle between the US-based food giant and Bakshi.

Speaking to CNBC-TV18, Bakshi said he hopes that the NCLT decision will restore some normalcy between both the parties.

On the business front, he said that a lot of efforts have been put in to build the McDonald's brand in India.

Below is the verbatim transcript of the interview:

Prashant: It's been a long battle. You have come out on top. You have been reinstated as the chief at the company. Your first reaction on the NCLT order, what in the order stands out and what is the way forward as you see it from here?

A: I feel fully vindicated that the NCLT has stated clearly that our case of operation has been proved. Further what one is elated about is that it has put into position a methodology on the basis of which the company can go back to its original functions, original way of working.

Prashant: Which is essentially the fact that they have appointed an ex-Supreme court judge, right?

A: In reality what will happen is that while I regain my saddle of the Managing Director, the purpose of putting an administrator is largely to ensure that decisions for the benefit of the company are taken. You do appreciate, this is a 50-50 joint venture and the either partner could hold up the function of the company on the basis of the voting rights. So the NCLT chairman and the other members have very clearly stated that the purpose of putting the administrator in this place is to ensure that decisions for the benefit of the company are pushed through.

Priya: As we speak there are some proceedings that are still remaining in the London Court of International Arbitration. What is going to be your strategy there? Will you be taking the NCLT order there and how soon can we expect resolution?

A: One of the other things, if you go carefully through the order, which is of great importance, is that the NCLT has stated that all steps pursuant to my non re-election of MD is unfair, is wrong and therefore we believe and that is my belief that the NCLT order has fast reaching effect because arbitration started only after the first step and that was my non re-election.

Priya: In terms of legal proceedings going forward, is there a timeline that you have in mind and how soon can we expect things to normalise going forward?

A: The normalcy would normally return when two partners can sit across the table and sought out the issues and one really hopes that with this decision which is very clear, categorical, there will be some rethinking and we could sit across the table and bring normalcy back to the lives of about 7,000 people that work with us.

Prashant: The London arbitration proceedings can go either way. I am just trying to understand. Hypothetically, if they were to rule in favour of McDonald's which is the order which is going to stand? What the NCLT has said or what the arbitration court decides?

A: I am not a lawyer so I do not think I can effectively answer your question.

Prashant: Spoken with your lawyers in terms of what happens if they go the other way. I am just trying to understand broadly?

A: My belief is that the NCLT proceeding is dated. It's the one that started first, so therefore my belief is that the NCLT order which is far reaching and far more comprehensive than what arbitration could do, should be the one that should be more effective. However, having said that the NCLT itself has said that all steps taken pursuant to the non re-election are unfair, unjust and malicious.

Prashant: The order is scathing. We have gone through the main points of the order and it is absolutely scathing. So it is very clear where the court here stands. The point though is that when you entered into the joint venture with McDonald's you would have agreed where disputes etc, would be heard. I am assuming that is how the arbitration has gone to the London court, the international arbitration is happening there. You would have agreed to it when you would have entered the joint venture, right?

A: Correct.

Prashant: So in that case since you agreed to it in the first place and it is now there and they decide one way or the other wouldn't that in a way overwrite whatever the NCLT has said?

A: I cannot be the one to comment on that and I am sure there are enough legal experts which will argue on either side. So we will have to leave it to what the final decision of the arbitration is going to be but from our side we have already informed the arbitrators that this is the order that has come in the NCLT and they should take cognisance of this order.

Prashant: By when are you expecting, is it close to a verdict there?

A: Again, I cannot say that. There is a programme which is set up. I guess it is left to the arbitrators to decide when they right the order in and give the verdict.

Prashant: It is pretty clear and correct if I am wrong that this joint venture after these differences over all these years and these very stiff differences is not exactly durable from here. Would you agree with me?

A: If you ask me, I do not believe so because if you see, right up to 2012 end, we were putting in more money into the joint venture. So if this joint venture was seriously into trouble, why would the partners continue to put money into the joint venture? Why would you increase the pace of your growth? Remember, we opened 27 restaurants in the year of 2012 and there was enough record which says that there was not even a thought of winding up this joint venture. Yes, of course, McDonald's had been trying all along to buy my shareholding which they started out as far back as 2008, but while continuing to make offers, we continue to make progress. So it was shocking to us and that is what the order says that the way they went about not re-electing me as the MD and then pushing for the call option to try and buy my shares, the verdict is very clear that whole act was malicious.

Prashant: Do you seriously believe that McDonald's and you as joint venture can continue for another 5-10 years? What are the chances of that? After so much, if one reads through the order and as I said, we have gone through the main parts of it, it is quite damning and very serious and strong language. So there are very stiff serious differences over the last couple of years. I take your point till 2012 money was being put in. but it has been a few years since then. What is really the resolution here?

A: Again, this is a question that is best asked for McDonald's. I have been given a job right now by the NCLT to go back and get the company back into action, to re-saddle the position of the MD and to ensure that we take all decisions for the benefit of the company. Now, it is for McDonald's to decide that is this a fight of two individuals, I do not believe so, is it something that is irreversible, I do not think so. So it is a call that they have to take.

Prashant: Let me put you on the spot in a way. If McDonald's decides to pull out, essentially take the brand away, you have the network, they have the brand, but without the brand, there is no McDonalds, so what options would you have then?

A: If you see the joint venture agreement, that is not what it envisaged. It envisaged 25 years of working together with the brand. So if you are asking me did I build restaurants, no. Restaurants were just a part of what I built. What I built was the brand. The effort that has been put in by us Indians is in developing the brand and getting into position of number one as far as back as early 2013. So, if somebody says and their belief is you just snatch the brand and everything comes down tumbling, while the truth is we all worked towards developing the brand and that is what we should be trying to save and not destroying.

Prashant: I take your point and I think there is no one who has tracked the journey of McDonald's and the successes that you have had over the years would say otherwise. Absolutely. But the fact remains that McDonald's owns the brand and there have been serious differences over the last few years. There has been a case and one case is still going on. McDonald's may decide that they do not want to be in the joint venture anymore or they do not want you in the joint venture anymore. That essentially seems to be what the case was all about, the crux of it. So if they pull out, what options do you have? Can you go solo?

A: All one says is when two partners cannot get around with each other, the best thing is to sit across the table, sort out the issues and make sure that the other part of who exits is given a fair valuation for the hard work that the partner put in. I think it is as simple as that. It is a question of who bells the cat.

Prashant: So you are not saying it, but you are saying that you would be open to selling out your stake if given a fair valuation. Is that what you are telling us?

A: That has always been the case. If you see, right from 2008, when they first made me an offer, that is all I said. That is okay. It is a journey. You take a journey up to a certain point and you take off. So that is what it was. All that one said was treat me fairly for what I have done, give me a valuation that is as per the laws of the country.

Prashant: And what is the right valuation according to you?

A: Why should I be the one to judge what is the right valuation? All one can say, there is another venture which looks after a part of the country. As I understand today, it is valued at about Rs 3,500 crore. Now I am not trying to give a valuation to my venture on that basis. All I am saying is just go ahead and give it to any of the four largest companies that exist, put it out there and let them do the work. There are a number of ways in which you can bell the cat. The fact of the matter is all these companies know how to do a fair market valuation. Why should they be shy of it.

Prashant: Three years back when this entire dispute started, was it about valuation, you were not being able to agree at a right valuation?

A: Three years back we were growing rapidly. So where was the question of talking about valuations at that time? At that time it was more about trying to see how we could grow and grow rapidly.

Prashant: What was the basic issue? We have seen what NCLT has said and they dismissed some of the allegations that McDonald's made against you. They have termed it completely unfair, but if it is not valuation, because there is Westlife Development as you said which has franchise for McDonald's in the south and western part of the country. That was basically 100 percent owned by the Jatia family. So it is not as if that was a 50-50 joint venture. It was 100 percent owned by an Indian entity and then recently, they did an initial public offering (IPO), not fairly recently. So it is not about control really. McDonald's is okay about 100 percent of the business being controlled by an Indian entity. So there was obviously more to it, right?

A: Let me run you a little bit into the history of the whole thing. The two joint ventures were signed together. Both started as 50-50 joint ventures right up to 2010. Then McDonald's sold off its share to Mr Jatia for 1 percent of their original investment. Now that is something I am sure, they will tell you it is our responsibility, it is us wanting to do whatever we want to do, leave it to us. That is fine, you can throw away your valuation for nothing, but you cannot take away my valuation or what it is.

So just to correct you, it was never 100 percent all the way. 100 percent, it only became sometime around 2010.

Prashant: So between 2010 till the IPO of Westlife, was 100 percent owned by the Jatia. So it is not completely about control. There were other issues right? I am talking about your dispute with McDonald's.

A: Like I mentioned to you that McDonald's wanted to buy me out as far back as 2008, so why even bring 2010 in between? And remember, one of the things that I must also clarify and make you understand in 2010, we were the profitable organisation. The other organisation was making losses. So I do not know what you want to read into that. What would you want to control and what would you want to give up?

Prashant: So the joint venture is intact right now? What is the status as of now?

A: The joint venture according McDonald's stands terminated and that is how they have gone to the arbitration in London.

Prashant: So that means that no stores can operate with a McDonald's franchise right? So how are stores operating? We know that a lot of stores in the National Capital Region (NCR) region have shut down recently.

A: But that has nothing to do with the running with the brand. So it has largely been because of some issues on the basis of which we could not extend our licences and we are making all efforts to see how quickly we can bring them back.

Prashant: I was trying to understand how are stores still operating in the north if there is no joint venture?

A: For each store, there is something called an operating agreement which is a 20 year agreement. So when each store opens, it has a separate operating agreement of 20 years. So the stores are operating on the basis of the operating agreement.

Prashant: Then the joint venture has no meaning? Irrespective of whether McDonald's wants it or not, the store can continue operation, is that what you are saying?

A: Yes, because stores are opened on the basis of operating agreements. So therefore, the stores continue operating even though the joint venture may finish.

Prashant: So whenever each store comes in, that 20 year period kicks of then? So it is separate for each store?

A: Yes, that is right. There is a separate operating agreement for each restaurant which comes into only when the store opens.

Priya: Give us some outlook as far as business is concerned going forward. Also, let us know about the 43 restaurants that have shut in Delhi. When can we expect a reopening out there?

A: Our restaurants are temporarily, the operations have been suspended because we did not have the adequate licence for them. While our aim is to try and get them back as soon as possible once we fulfil all the compliances. Now it will be wrong for me to give any particular date for a simple reason that I do not really command that. It will be finally when we put in our papers to the municipal authorities and whatever time it takes to get them open. But the aim would be to get them open as soon as possible.

Prashant: One final question. Leave us with a number. I know you said look at what Westlife's marketcap is and get study commissioned and come up with a value and all of that but you know this business, you know what the franchise is worth. Leave us with a number in the ballpark even. What is the valuation?

A: I have no numbers. I have always said that our valuations should be done on the basis of the Indian law. The RBI has a set formula which says this can be done on the basis of internationally accepted methods of valuation. I am not the expert, so I guess it is the valuation companies that will decide what the manner is in which it is supposed to be done. Is it supposed to be done on the basis of discounted cash flow (DCF), is it to be done on the basis of comparative, is it to be done on the basis of companies that are listed or is it to be done together with different weightages given. It is a call that will be taken by valuation companies. I am not an expert at this.

Prashant: Has Westlife approached you? Have they made an offer, formal or informal?

A: No, Westlife has not approached us.

Prashant: At all? And obviously you would consider if the value was right, right?

A: Why should I consider anything which is not right? We the people of Connaught Plaza have not set up this company on the basis of working for 20 years and then saying give us whatever you feel like. All we are saying is give us what we deserve.