McDonald's nominees knew that royalty was not being paid: Vikram Bakshi

With Bakshi making fresh allegations, his battle with the US food chain is set to intensify

Surajeet Das Gupta  |  New Delhi 

Vikram Bakshi, Mc Donald's
Vikram Bakshi

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 Restuarants Ltd (CPRL) were aware that the royalty payments were not being made 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 the McDonald’s contention, told Business Standard: “The of McDonalds 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.”
 
Sources close to Bakshi said that the average interest payout was earlier pegged at around 2.5 per cent of CPRL’s revenues. In the past two years, however, 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, Mitsubishi Bank of Tokyo and BOA.
 
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 several legal cases, both sides have failed to reach an agreed solution. An offer by McDonald’s to buy out Bakshi in the joint venture was rejected by the latter as the offered price did not meet his expectations. 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.