Back in Driving Seat

The National Company Law Tribunal’s strongly worded judgement gives Vikram Bakshi the edge in his battle with McDonald’s, but the fight is far from over

NCLT’s judgment gives Vikram Bakshi the edge in his battle with McDonald’s

For 62-year-old Vikram Bakshi, who owns half the stake in the US fast food restaurant chain McDonald’s North and East India operations, July 13 (2017) might have been one of his best Thursdays ever. On this day, the National Company Law Tribunal ( NCLT) in Delhi ordered his reinstatement as the managing director of Connaught Plaza Restaurants Pvt. Ltd ( CPRL), the 23- year- old 50: 50 joint venture ( JV) between Bakshi and McDonald’s India Pvt. Ltd ( MIPL). CPRL is the master franchisee for MIPL in North and East India.

Bakshi and McDonald’s have been at loggerheads ever since he was unceremoniously ousted as the Managing Director of CPRL in August 2013.

“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 judgement says. “The status of Mr Vikram Bakshi as Managing Director is restored.”

What led to McDonald’s loss of trust in its partner who had once been the very face of the brand in India? Bakshi’s real estate business was part of the problem. McDonald’s alleged he had leased out his property to a rival company, hinting at a conflict-of-interest scenario.

He was also accused of financial bungling at CPRL. The US firm said Bakshi had pledged 51,300 of his CPRL shares to get a loan of `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 he did not take the company’s approval before pledging his shares. It also pointed at a 2007 transfer of ` 7 lakh from the company’s account to his group company called Vikram Bakshi and Company Pvt. Ltd. This action further “highlighted glaring inadequacies with respect to internal control systems”, Bakshi’s focus on his other businesses and the directorship of 25

other companies. In brief, McDonald’s said Bakshi was being selfish and not devoting enough time to CPRL.

NCLT’s 134-page ruling is scathing and quashes almost all these allegations. It also seeks to avoid a repeat of August 2013 by appointing former Supreme Court judge Justice G. S. Singhvi as an administrator with the power to vote in CPRL’s future board meetings. Justice Singhvi can also, if needed, alter articles of association of the JV to avoid any further attempt at ousting Bakshi as the managing director unjustly and unfairly.

The kid gloves might have come off only after that fateful August board meeting, but the first sign of trouble was there in 2008. It was when McDonald’s offered to buy Bakshi’s stake for $ 5 million and later for $7 million ( see The Timeline). In response, Bakshi waved a valuation done by Granton Thornton that put the enterprise value of CPRL at $200 million and demanded $100 million for his shares.

As the litigation intensified after August 2013, Bakshi approached the Company Law Board ( CLB) against his dismissal while McDonald’s went to the London Court of International Arbitration and a second round of bidding for each other’s shares started. In early 2014, Bakshi offered to buy McDonald’s stake in the JV at a net asset value of `150 crore. The US firm shrugged it aside and countered with a ` 48- 50 crore offer for Bakshi’s stake. The latter then insisted on a fair market value and offered to sell his stake initially for `2,500 crore and then for `1,800 crore. These did not elicit any response from McDonald’s, and finally petered out.

CPRL Bears the Brunt

CPRL, which runs 168 outlets for McDonald’s India, has borne the brunt of the fight between the partners. Since 2013, the firm’s expansion plans have come to a grinding halt, and it has faced an employee exodus and loss in market share. Its supply chain and quality control have gone haywire, and profitability has nosedived.

After opening 27 outlets in 2012, CPRL came up with 14 in 2013