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Bakshi opens new front in McDonald's war

CPRL promoter says partner's nominees okayed non-payment of royalty to McDonald's Corp

Surajeet Das Gupta  |  New Delhi 

McD, McDonald's

The battle between McDonald’s and its estranged partner is expected to intensify further, with the latter alleging that the two on the board of Connaught Plaza Restaurants Private Limited (CPRL) were aware that the royalty payments were not being made to McDonald’s Corporation and the cash was being used to pay for a steep increase in approved by nominees.

On Monday, McDonald’s slapped CPRL, an equal joint venture between Bakshi and the US-based quick-service restaurant (QSR) chain, with a notice cancelling the franchise agreement for running stores in North and East India. The move is set to lead to the closure of 169 stores and make the future of over 6,500 direct employees uncertain.

Challenging McDonald’s contention, Bakshi told Business Standard: “The of McDonald’s knew that royalty was not being paid and the cash was being used to repay loans. It was endorsed by them; they did it to show default and use it as their last silver bullet to terminate the agreement.” Bakshi has also questioned as to how, with McDonald’s having a 50 per cent shareholding and two nominees on the board, it is possible to have two different plans for investment in the same company.    

Sources close to Bakshi said the average interest payout was earlier pegged at around 2.5 per cent of CPRL’s revenues. In the past two years, in a plan cleared by Aysel Melbye, one of the McDonald’s directors overseeing finances, it was decided that the loans would be paid off at a faster pace — as much as Rs 46 crore worth of loans were repaid in two years. This accounted for a substantial 25 per cent of the company’s total Rs 186-crore debt.

The banks to which the payouts were made include RBS, Bank of Tokyo-Mitsubishi UFJ, Ltd, and Bank of America.

Sources say the two had been abreast of the weekly cash flow; all major payments were released only after informing them. There even was monthly correspondence telling them about the cash required for loan repayments and they would approve all such payments.

Responding to the allegations, a McDonald’s spokesperson said: “It is not our practice to comment on CPRL’s internal matters. We need to note that these allegations have been made by someone with whom we have a highly publicised legal dispute. CPRL is aware of the consequences of breach.”

He added that this action brought uncertainty to many, including CPRL, and it would take time to bring the current situation to a final resolution. “We are already looking at the necessary steps to rebuild the brand and find the right developmental licensee partner for North and East India. We will focus our efforts on that while exercising our contractual rights consequent on termination,” the spokesperson added.

The battle has been running for over five years. 

And, amid legal cases, both sides have failed to reach a solution. 

An offer by McDonald’s to buy out Bakshi in the joint venture was rejected by the latter as the offer price did not meet his expectations. The crisis deepened a few months ago after over 43 of 53 outlets were forced to close in Delhi-NCR after Bakshi refused to sign on the papers seeking permission for renewal of their licences from the government. 

Also, Bakshi recently won a temporary reprieve as the National Company Law Tribunal reinstated him as the managing director of CPRL, a position from which he had been removed by the McDonald’s nominees on the board.

First Published: Thu, August 24 2017. 07:42 IST
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