The War Gets Uglier, McDonalds To Shut 43 Outlets In Delhi

The capital cheered when world’s biggest fast food chain decided to open its doors to the public. 21 years later, McDonalds as a brand has faced a number of legal battles arbitrations and sliding figures over the years. The brand, as a result of a business step taken by the franchise, has closed 43 outlets out of a total 55 in Delhi to the public today (29 June).

This step taken by the franchise has come as a result of a long going legal battle between Connaught Plaza Restaurants (CPRL) and McDonalds as a result of which the CPRL board has decided to shut these outlets in New Delhi. CPRL is a local joint venture between Vikram Bakshi, the former managing director and McDonalds that operates its business in north and east India with a 50:50 share.

Reportedly, CPRL failed to get some compulsory health regulation licenses renewed due to the ongoing legal battle between the former MD and McDonalds. The shutting down of these 43 outlets will surely hurt the sales and revenue of the franchise but this step leaves at least 1700 employees jobless.

In an official statement to BW Businessworld, McDonald’s India said, "The Eating House Licenses of a number of McDonald's restaurants in Delhi have expired. The Board of Connaught Plaza Restaurants Private Limited (or “CPRL”, McDonald’s licensee in North and East India) is working to obtain the required licenses. Pending this, CPRL is temporarily suspending the operations of the affected restaurants." 

"We apologize for the inconvenience this has caused. It’s our understanding that CPRL has notified the key affected stakeholders including employees, landlords and suppliers before the temporary suspension started on 28 June."

"India continues to be an important market for McDonald’s and we are committed to working with CPRL to resolve the issue as soon as possible. The comment in the media stories on employees becoming jobless is erroneous," added the company. 

While there are on-going legal disputes, suspending the operations of the restaurants is a collective decision of the CPRL Board of Directors.

McDonald's entered India via the ownership model. In 1995, it entered into a two way partnership with Vikram Bakshi and Amit Jatia and divided them geographically. Bakshi was given north and east, Jatia west and south. This was a 25 year old joint venture agreement, till 2022, with no structural difference among the two.

In 2010, however, McDonalds decided to sell off its shares in the Jatia venture. During the same period, the company did not renew Bakshi’s tenure as the MD. A petition was filed on September 9 by Bakshi with the Company Law Board (CLB), saying that twice in 2008 McDonald's offered to buy him out, but he refused. He has accused the company of "discriminatory and oppressive behaviour" to "fiscally disable us by hook or by crook, eventually forcibly causing us to sell out" and that it has "entered into a conspiracy" with Jatia.

The loggerhead between Bakshi and McDonalds has been taking its toll on the company, since the time Bakshi was dramatically ousted as the managing director of CRLP in august 2013.

McDonald's dramatically issued a public notice to announce a change of guard "Vikram Bakshi has ceased to be the managing director of CPRL pursuant to expiry of Bakshi's term on July 17."

Bakshi had dragged McDonald's to Company Law Board (CLB) in 2013, which is yet to announce its verdict. Apart from this McDonald's has been pursuing arbitration against Bakshi in the London Court of International Arbitration.

Bakshi had argued that McDonald's move to remove him was linked to its objective of buying his stake cheap. He also went on to claim that McDonald's had not invested any capital in the business over the last few years back then, leading to a loss of market share. The company was dethroned from its start position in 2013 itself as the largest quick service restaurant chain in the country by brands like Dominos, KFC.

Though no verdict of the legal battle has come out, there is only one clear looser – Brand McDonalds.