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McDonald's India on Monday announced it had terminated the franchise agreement with Connaught Plaza Restaurants, effectively shutting down all 169 McDonald's outlets in northern and eastern India after a fortnight.
McDonald's India Pvt Ltd (MIPL) said it had ended the franchise with Vikram Bakshi's Connaught Plaza Restaurants Pvt Ltd (CPRL), which vowed to seek legal remedies.
The outlets run by CPRL will have to stop using the McDonald's brand name in 15 days. CPRL is a 50:50 joint venture between McDonald's India and Bakshi.
An industry source said there will be no McDonald's outlet in northern and eastern India after 15 days unless the globally popular fast food eatery embraces a new franchise partner.
Bakshi said that CPRL was considering appropriate "legal remedies". Calling it a "desperate action" by McDonald's, he said: "This is a completely contemptuous, malafide and yet another oppressive act indulged in by the McDonald's Corporation."
McDonald's India said it was compelled to take the step because CPRL had materially breached the terms of the franchise agreements relating to the restaurants and had failed to remedy the breaches despite being provided an opportunity to do so.
On June 29, CPRL temporarily suspended operations of more than 40 of its restaurants in Delhi after the 'Eating House Licences' of a number of outlets expired.
McDonald's India and Bakshi have for long been embroiled in a fight over CPRL's control.
The situation deteriorated when Bakshi, who was removed as Managing Director of CRPL in August 2013, was reinstated by the National Company Law Tribunal (NCLT) on July 13.
"This desperate action taken by McDonald's is a direct affront to the judgment by the NCLT principal bench. This bench restored the equal Indian equity partner, as the MD of CPRL who has been the MD for 22 years. In addition, the NCLT labelled all actions taken in the instant case, against the MD, by McDonald's as 'illegal, unlawful, unjust and malicious'," Bakshi said.
According to the NCLT order, McDonald's was refrained from interfering with the functioning of Connaught Plaza and its restaurants in the north and east India, he said.
"The timing of this notice is hugely suspected because it comes on the morning of the first board meeting, scheduled by the administrator (a former judge of the Supreme Court) appointed by NCLT and which the two foreign nominee directors of McDonald's declined to attend, despite receiving sufficient advance notice. One of the items on the agenda was to discuss the reopening of the 43 restaurants whose operations lie currently suspended," Bakshi added.
Meanwhile, McDonald's India said it was already scouting for a new partner to re-establish a profitable business in the north and east of the country.
The fate of the 169 McDonald's outlets' employees and suppliers is in jeopardy.
McDonald's said: "We understand this action brings uncertainty for many... Priority will be to mitigate impact on affected parties such as employees, suppliers and landlords. We are open to working with CPRL to achieve this."