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Ronald McDonald versus a real estate magnate

After five years of conflict with franchisees fighting a fast food giant, northern and eastern India now finds itself without 169 McDonald’s restaurants.

McDonald’s entered the India market in 1996 by launching two joint ventures. One managed by Hardcastle Restaurants and Westlife Development and the other headed by Connaught Plaza Restaurants. The latter is owned by New Delhi real estate magnate Vikram Bakshi.

On August 21, the prominent burger chain gave Bakshi and Connaught Plaza notice that they were terminating the franchise agreement, giving the company 15 days to stop using their branding and recipes.

The legal action is a culmination of ongoing disputes between McDonald’s and Bakshi. In 2008, they offered to buy out his stake in the business, only to have their $5 million offer rejected with a counter-offer by Bakshi of 20 times that amount.

Five years later, the franchisor tried to exercise a buyout clause while refusing to support Bakshi’s re-election as managing director. An extended legal battle ended when the National Companies Law Tribunal ruled last month that Bakshi could resume that role.

McDonald’s is accusing Connaught Plaza of violating obligations in the franchise agreements, specifically defaulting on royalty payments and license lapsing for 43 restaurants in New Delhi that closed down in June.

Bakshi claims that he refused to sign the 43 licenses because of his concerns over the quality of food supplies managed by a separate team. He also alleges that McDonald’s knew about the unpaid royalties, but did not voice any objections. His company’s inability to cover those expenses was the result of falling sales and demands by the franchisor pay its bank debts instead of rolling over loan facilities.

Bakshi believes that McDonald’s is trying to force him out, referring to their business tactics as “oppression, oppression, oppression.” He voted to fight the termination in court.

Although McDonald’s is seeking a new partner, the future of the locations in northern and eastern India is in doubt. Hardcastle and Westlife continue to control their 260 locations in south and west India.

While not a dispute that has reached the audacity of the former El Salvador franchise locations, the legal battle will do little to turn around McDonald’s struggles to keep up with their rivals in India. Growth rate over the last three to four years has been on the decline. The fast food titan only has a 7.6 market share, compared to 10.9 that Domino’s Pizza and other franchises enjoy.

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Robert Kaufman has been selected as a 2013 Top Rated Lawyer in ‘Commercial Litigation’ as will be published in the May issue of The American Lawyer & Corporate Counsel magazine.Alex Kaufman has been selected as a 2013 Top Rated Lawyer in ‘Commercial Litigation’ as will be published in the December issue of The American Lawyer & Corporate Counsel magazine.

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