McDonald's exits 169 outlets in north and east

McDonald's India has terminated the franchise agreement for 169 outlets in north and east India, run by the Connaught Plaza Restaurant Limited (CPRL), weeks after the fast foods chain shut its 43 outlets in the national capital.

McDonald's India on Monday served notice on the CPRL board ending a 22-year-old franchise agreement that allowed the American burger chain to open its first outlet in India in 1996.

McDonald's, which has been a fighting court battle with its franchise partner Vikram Bakshi for the past four years, says the action was taken because its partner CPRL failed to pay royalty on its burger menu for well over two consecutive years.

While the decision to close the restaurants has not been finalised yet, the termination of the franchise agreement with CPRL, alleging for breach of contract, could lead to closure of these outlets, rendering over 10,000 jobless.

The closure of 43 outlets in Delhi only helped to heighten the dispute between Vikram Bakshi and McDonald's India, which was already simmering for the past few years.

''CPRL had been notified about the breaches on its part to fulfil essential obligations in the franchise agreement and was provided with an opportunity to remedy those in the contract. But they failed to do so,'' said Ron Christianson, global head of corporate relations, Foundational Markets at McDonald's Corporation.

''We continue to remain committed in these markets and want to rebuild the brand. As a part of the process, it is also important to appoint franchise partner. We have just initiated the process. Finding the right franchise licensing partner will be critical for our future business,'' he added.

McDonald's has been engaged with a protracted legal battle with Bakshi since 2013, when he was ousted as the CPRL's MD over alleged misuse of funds. However, Bakshi was reinstated as CPRL's MD by the National Company Law Tribunal (NCLT) in July.

In June, around 43 McDonald's stores were closed down due to CPRL failing to get mandatory health licences for the outlets. McDonald's, which was waiting for an opportunity to make its move, used that as an excuse to close down the outlrets.

Bakshi said the timing of McDonald's notice of termination is hugely suspect because it comes on the morning of the first board meeting, scheduled by the administrator.

The administrator - a former judge of the Supreme Court of India - was appointed by the National Company Law Tribunal (NCLT).

Bakshi said the termination was an open challenge to the NCLT judgment, which had directed the CPRL board to meet to discuss various issues.

CPRL, formed in 1995, through a 50:50 joint venture between McDonald's India and Bakshi, along with Bakshi Holdings, currently employs 6,500 people directly. After Monday's development, their future remains uncertain as termination of the franchise agreement effectively means end of the road for CPRL.

Christianson said that McDonald's would enforce legal and contractual rights and its priority would be to mitigate the impact on affected parties, including CPRL's employees. ''We understand that the action brings uncertainty for many and we will work to get some clarity as quickly as possible,'' he said.

While, Bakshi (with Bakshi Holdings) and McDonald's India hold an equal number of equity shares in CPRL, over the years McDonald's has pumped in Rs 193 crore against non-convertible preference shares. In the past, the two parties remained unsuccessful in reaching an agreement, when each offered the other buy out options.

However, according to sources, to clear the mess and initiate its business with a fresh approach and a new partner, McDonald's is considering writing off its investments in CPRL.