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McDonald’s battles to regain control of brand in India

McDonald’s restaurants across north India are still open and selling their burgers six weeks after losing their contract to do so, as the global fast-food chain battles to regain control of its brand from its local business partner.

It was on March 21 when the first sign of impending trouble emerged. The mandatory health and police licenses for running 43 out of McDonald’s restaurants Delhi were set to expire in days. Vikram Bakshi, the former managing director of Connaught Plaza Restaurants Private Limited (CPRL), had made up his mind that Bakshi may no longer be MD .He and wife Madhurima Bakshi are two of the four members on the board of the 50:50 joint venture with McDonald’s that runs the fast food chain in north and east India. Bakshi shot off an email to the two foreign directors on the CPRL board, informing them of his decision not to sign any documents needed for renewal. His reason was unsafe food being served by some outlets, and his inability to control the food supply.

But according to two highly-placed sources privy to the development, Bakshi didn’t want to take the risk of being prosecuted ‘alone’ for any untoward incident that might have arisen either due to consumer complaints or running the outlets illegally after March 31. The foreign directors had expressed ,repeatedly that they were not in charge of daily operations in which case Bakshi would be in a pickle if there were any legal issues.

Another board meeting, scheduled for May 22, was called off. Finally, on the morning of June 29, after running the outlets illegally for almost three months, an emergency board meeting took place via Skype. All four directors on board unanimously decide to suspend operations of 43 restaurants in the Capital.

In August, the fast-food group cancelled the franchise agreement for its 169 restaurants in north India.Yet six weeks later, the restaurants are still open and Mr Bakshi remains in charge, with McDonald’s now involved in several parallel lawsuits. McDonald’s opened its first restaurant in India in 1996 — its first outlet not to serve beef or pork — as part of a joint venture with Mr Bakshi called Connaught Plaza Restaurants. It now has more than 400 restaurants across India and became a household name and go to restaurant.

McDonald’s has told its Indian suppliers that it has cancelled the franchise agreement, but most have continued to sell to Connaught Plaza, because their contracts are with the Indian joint venture rather than the US fast-food group.

McDonald’s said the ending of its franchise agreements means Connaught Plaza “is no longer authorised to use the McDonald’s system and its associated intellectual property. We are now in the process of working to enforce our legal and contractual rights consequent on termination through the appropriate legal forums”. Connaught Plaza insists it has the legal right to serve branded food and drinks following a ruling from an Indian tribunal that McDonald’s should reinstate Mr Bakshi as chief executive and not “interfere with the smooth functioning” of the business.

McDonald’s and Mr Bakshi first fell out in 2008, when the US company tried to buy him out of their joint venture for far less than he thought it was worth. The dispute rumbled on — in both the boardroom and the courts — before coming to a head in August when McDonald’s unilaterally cancelled its franchise agreement. Mrs Bakshi, who said she and her fellow directors were willing to sell their stake for a fair value, said: “If they tried to remove our signage, we would involve the police. There is a lot that can go wrong if you try and physically disturb a running business.”

India is Asia’s third-biggest fast-food market, worth $18.9 Billion according to Euromonitor.

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