SN Mookherjee, SAM get relief for Vikram Bakshi against McDonald’s at NCLT

The Delhi Bench of the National Company Law Tribunal (NCLT) on Thursday reinstated Vikram Bakshi as the managing director of Connaught Plaza Restaurants Ltd. (CP), the Joint Venture which partly owns the McDonald’s restaurant chain in India.

NCLT President Justice (Retd.) MM Kumar held that all steps taken in pursuance of non-election of Vikram Bakshi as managing director are “illegal, unlawful, unjust and malicious”.

Shardul  Amarchand Mangaldas Disputes Partner, Tejas Karia, who was representing Bakshi says,

“We welcome the NCLT order and I personally think this is a landmark decision. This order sets a very good example for NCLT to be able to resolve a deadlock in a 50-50 JV which is essentially a quasi-partnership; especially in the interest of company and its employees. In cases of deadlock between the shareholders, this the best way the NCLT can step in and resolve the impasse.”

In 1995, a JV agreement was entered into between McDonald’s USA, McDonald’s India and Vikram Bakshi, laying out the terms and conditions of the continuation of this JV. The venture, which was supposed to be a mass scale business, was to run on losses for 15 years, following which there was a promise of it being profitable.

Bakshi and his entity, Bakshi Holdings Pvt Ltd. hold 50% equity in CP while the rest 50% is owned by McDonalds India. As per the JV Agreement, of the total four members of the board of CP, two were to be nominated by Bakshi and two were to be nominated by McDonalds. It was also stipulated in the JV agreement that Bakshi would continue to hold the post of the Managing Director so long as he fulfilled four conditions:

1. resided in NCR Delhi;
2. continued to hold 50% of the equity;
3. discharged responsibilities of the management of the JV and
4. was not in breach of any of the terms of the JV agreement.

Ever since the JV was entered into, Bakshi claimed that he has gone out of his way to ensure the success of this business, including by the way of not charging rental for the property he leased out to McDonald’s for its operations and standing by the business through thick and thin despite facing political backlash.

While the JV was at the cusp of turning profitable, McDonald’s had started making buy-out offers to Bakshi for his 50% share in the CP, albeit at a “pittance”. Thereafter in August 2013, McDonald’s had voted against the re-election of Bakshi as MD of the JV, following which Bakshi challenged his ouster in the Company Law Board (now NCLT), accusing McDonald’s of mismanagement and oppression.

In the same year, McDonald’s revoked its JV with CP and invoked arbitration against Bakshi, which is being pursued at the London Court of International Arbitration. These proceedings were also challenged before the Delhi HC.

In December 2016, Justice VK Shali of the High Court stayed the arbitration proceedings until the civil suit was disposed of or until the Company Law Board vacated its stay, prohibiting any change in the shareholding of the Indian arm of the company. This order was lifted by the two-judge bench in July. As far as arbitration proceedings are concerned, arguments are over and award has been reserved. However, this order may have bearing on the outcome of the arbitration proceedings as well.

Separately, under an order passed by the Company Law Board on 16 September 2013, McDonald’s was directed to maintain status quo over the shareholding pattern and right of call option, which is still in operation.

The respondents, however, had accused Bakshi of financial irregularities inasmuch as he withdrew ₹7 crores from CP for benefit of his companies without prior approval of McDonald’s India. He was further accused of not implementing adequate internal controls and failure to devote his business time towards performance of duties of company. The NCLT, however, found no merit in these arguments.

The question, therefore, that arose before the NCLT was whether non-voting in favour of Bakshi for his re-election as MD at the instance of nominee directors of McDonald’s India amounts to oppression and is liable to be corrected by exercising power under Sections 397 and 402 of Companies Act, 1956.

In this regard, the NCLT held that the meeting which was held in August 2013 relating to re-electing (which resulted in non-election) of Bakshi be set aside and declared “illegal, unjust and malafide”. Additionally, ₹10 lakh has been imposed as costs on McDonald’s India to be paid to Bakshi.

McDonald’s USA has further been restrained from interfering in the smooth functioning of CP and all its restaurants in the North/East of India.

The NCLT has also appointed former Supreme Court judge Justice GS Singhvi as an administrator in CP with power to vote. Singhvi’s prior approval will now be required for placing any agenda before the board, which includes any agenda for re-election of Bakshi. As the administrator, he is  also vested with the powers to amend the articles of CP, to avoid “any ugly situation to oust Mr. Vikram Bakshi as Managing Director unjustly and unfairly”.

Bakshi was represented by Senior Counsel SN Mookherjee, who was briefed by Shardul Amarchand Mangaldas. The SAM team was led by Disputes Partner Tejas Karia, along with Pritpal Singh Nijjar, Manavendra Mishra and Karan Mehra.

McDonald’s was represented by Senior Advocates Sudipto Sarkar, Iqbal Chagla and Rajiv Nayyar along with Rahul Dave, Amit Dhingra, Rahul Narayan, Sumit Chopra, Rohan Jaitley, Shivam Raheja and Naira Jejeebhoy.

Will McDonald’s appeal?  They certainly have the right to approach the NCLAT, but we don’t know whether they’ll exercise that right or not.

(Read the order below)