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The trend is simply hard to miss. But the friction between Indian and foreign partners in fast moving consumer goods and retail appears to be on the rise. The last one year alone has seen quite a few high-profile cases from Reebok to Bharti-Walmart, McDonald's, Faber-Castell, Gillette, Beam Global, Bunge and Di Bella Coffee.
Lawyers and industry experts point to the growing differences between Indian and foreign partners over business issues for this schism. But the timing is not lost on many - coming when sectors such as retail are being opened up (100% FDI, for instance, has been permitted in single-brand retail) with foreign partners, technically speaking, no longer needing the assistance of Indian players to help them run operations in the country.
A senior lawyer from one of the top three law firms in India, who declined to be quoted since he is involved in a high-profile case pertaining to an Indian and foreign partner says, "You'd be surprised to note that having an Indian partner can actually increase the risk for a foreign promoter. Why? Because the foreign promoter more than not has no control over the business here. If an Indian partner then is involved in fraud or misappropriation of funds, it can actually set the international company back impacting its potential to do business in India and nearby countries. Not to mention that there is an impact on its brand name and credibility as well."
In the case of Di Bella Coffee, Australia's fastest growing coffee chain, for example, the feud between it and Indian partner Sachin Sabharwal surfaced within a year of launching operations, with the two sides dragging each other to court over allegations of professional and personal misconduct, defamation and damaging the Di Bella brand name. Founder Phillip Di Bella said, " We repeatedly received complaints from suppliers that he (Sachin Sabharwal) hadn't cleared their bills. There are criminal charges pertaining to cheating and rape against him in Mumbai and he also attempted to register completely unrelated Australian brands in India in complete violation of the license agreement the JV company ( Di Bella India) had with Espresso."
Sabharwal, on the other hand, claimed that Di Bella was defaming him and that he was pressing charges against him under section 499 of the Indian Penal Code as well as the IT Act.
Retail experts admit that the patience between Indian and foreign promoters is slowly wearing out prompting many to go in for an early breakup. "Differences between partners on how the business should be run and how much time and money should be put into operations is growing. Both sides very often allege that the other partner is simply not working according to plan thereby claiming that the agreement between the two has been violated. In my view, there is a trust deficit that exists between partners today," says Arvind Singhal, chairman od Gurgaon-based retail consultancy Technopak Advisors.
A corporate lawyer from the Zia-Mody-led-AZB & Partners says that Indian players quite often get mired in corporate governance issues, with foreign partners frequently accusing them of not being transparent and clean, and more importantly of siphoning off funds from the company. The Reebok issue that rocked Corporate India last year is a case in point. The company had alleged in a police complaint filed in Gurgaon that its MD Subhinder Singh Prem and CFO Vishnu Bhagat had indulged in fraud and misappropriation of goods, resulting in a loss of Rs 870 crore to the sportswear maker.
At the Indian unit of Beam Global, the fourth-largest spirits maker in the world, company MD Harish Moolchandani alongwith other senior executives were asked not to report to work following allegations of financial irregularities last year. The company interestingly announced today that it had appointed a new MD in Vidyut Arte, who replaces Arthur Aroney, MD for emerging markets, who was managing operations at the Indian unit following the departure of Moolchandani.
At McDonald's, Indian partner Vikram Bakshi. meanwhile, has accused the world's second-largest fast food chain of colluding with franchisee Hardcastle, owned by the Mumbai-based BL Jatia Group, which manages the west and southern regions, of pressurising him to exit the JV company Connaught Plaza Restaurants, set up for the the north and eastern parts of the country, at a cheap price. The matter is currently being heard at the Company Law Board. Ditto for Faber-Castell, where the German major, which has 90% stake in Indian arm A.W. Faber Castell, has accused Indian partner Anup Bhaskaran Rana, who is the MD and has a 10% stake in the company, of mismanagement. This matter too is being fought at the CLB.
