Author: ABHINAV SHARMA, IV year of B.B.A.,LL.B. from University of Petroleum and Energy Studies, School of Law
FACTS
In 1995, Vikram Bakshi and McDonald’s India Pvt. Ltd made a joint venture of 50 % - 50% equity share and named the joint venture as Connaught Plaza Restaurants Limited and Vikram Bakshi was appointed as Managing Director, This Venture was made to control and operate the McDonald Outlets in North and East India, All the Trademarks, Copyrights, Intellectual Property rights were with Connaught Plaza Restaurants Limited, and this Joint Venture got huge success in business in India.
The Joint Venture Agreement’s clause 7(e), mentioned four requirements for the qualification of the Joint Venture's managing director.
Managing Director should live in Delhi's National Capital Region and devotes nearly all of his working time to fulfilling his duties under this Agreement.
Managing Director and the Investing Company possess at least 50% of the equity shares of Joint Venture Company together.
Managing Director performs his managerial obligations for the Joint Venture Company competently and faithfully.
Managing Director should not violate any provision of this Agreement or any other agreement between the Joint Venture Parties, their affiliates, or subsidiaries.
Now in August 2013, McDonald India removed Vikram Bakshi from the post of Managing Director, by a resolution voted by their Nominee Directors at a meeting held on August 5, 2013. Mr Vikram Bakshi was accused of not being able to devote all of his business time to fulfilling his commitments to the Company, of failing to perform his duties faithfully and effectively, and of breaching significant conditions of his contractual agreements. After this dismissal Mr Vikram Bakshi was not given the opportunity to respond to the allegations in September 2013, Mr. Bakshi filed a petition with the Company Law Board alleging oppression and mismanagement, as well as a request to be reinstated as the Managing Director, under Sections 397,399,402,403 and 403 of the Companies Act, 1956. When the matter went to Delhi HC, McDonald India withdrew all food licences from Connaught Plaza Restaurants Limited and dissolved the joint venture, franchise deal between McDonald India and Connaught Plaza Restaurants Limited for 169 restaurants in North and East India was terminated, So Mr Bakshi can’t use McDonald’s Trademarks, Copyrights, Intellectual Property rights as a result of this termination. The major cause for the agreement's cancellation was to pay royalties to McDonald India as stated by McDonald India.
ISSUE
McDonald accused Mr Vikram Bakshi of not being able to devote all of his business time to fulfilling his commitments to the Company, of failing to perform his duties faithfully and effectively, and of breaching significant conditions of his contractual agreements. After this dismissal, Mr. Vikram Bakshi was not given the opportunity to respond to the allegations Mr. Bakshi filed a petition
HELD
The Joint Venture Agreement was included in the Article of Association since the Article Of Association includes all additional agreements and revisions made to the Joint Venture Agreement as well as referring to the Joint Venture Agreement directly, NCLT observed that Mr Bakshi handled the business operation of the Joint Venture very efficiently and effectively as the company grew from Zero to 154 outlets across India and after analysing the Audit Reports of the Connaught Plaza Restaurants Limited, the allegation of money diversion and debt were baseless, The NCLT further stated that the allegations were made exclusively for the purpose of removing Mr Bakshi as Managing Director and to buy Mr Bakshi’s shares
The NCLT concluded that such measures are oppressive under Sections 397, 398, and 402 of the Companies Act, 1956 and Mr. Vikram Bakshi was appointed as Managing Director again. and appointed Justice Singhvi as an Administrator with a power to vote in Board meetings, stating that the Tribunal can issue orders for the control of the company's conduct of business under Section 402 of the Companies Act, 1956.
ANALYSIS
In my opinion, Indian partners of International Corporations played a significant role in the growth of the multinational’s brands. In this case, Mr Bakshi builds the brand, businesses, and ecosystem for the brand McDonald to give business ventures sustainability and this was clearly observed by the NCLT,
According to the NCLT McDonald India had not filed any grievances against Mr. Vikram Bakshi in the previous 16 years, and there was ample evidence that the company appreciated his sincere efforts. Mr Vikram Bakshi had previously been contacted by McDonald India to sell his share of the company, which he had initially refused. According to the Joint Venture agreement, removing Mr Vikram Bakshi would allow McDonald India the opportunity to acquire his shares at a discounted price, so the company removed him from the Managing Director position on the basis of false allegation which amounts to oppression. So, it permits a party to bring an oppression claim to the NCLT in a role other than that of a shareholder or member, as long as he can establish that his shareholding or membership is ultimately affected.
In this case, certain clauses of the Joint Venture agreement were incorporated into the Articles of Association, the arguments advanced in this case were solely based on the provisions of the Joint Venture agreement, which is essentially a quasi-partnership, and by deciding the case under the provisions of oppression and mismanagement, the NCLT has further broadened the applicability of oppression and mismanagement provisions. So, the conclusion from this NCLT judgement is that Sections 398, 398, and 402 of the Companies Act, 1956 comprise a self-contained code for controlling company administration or management and ensuring that the Company’s or any of its shareholders' interests are not compromised. The CLB (now the NCLT) was given sweeping powers, allowing it to establish jurisdiction even when a separate Joint Venture Agreement has an arbitration clause.
REFERNCE
Vikram Bakshi v. Mc Donalds India Pvt. Ltd., 2014 SCC OnLine Del 7249
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