Indian Hotels Moves Delhi High Court, Challenges Order Permitting Taj Mansingh’s Auction
Tata group challenges Taj Mansingh auction in the Delhi HC.
Tata group owned Indian Hotels Company Ltd. moved the Delhi high court today, challenging a September 5 order that permitted the auction of the iconic hotel on One Mansingh Road in New Delhi.
IHCL, which has run the hotel for the last 38 years, challenged Monday’s order by a single judge bench before a two-judge bench in the same court. The Delhi High Court will consider the company’s plea today.
The single judge bench had ruled that IHCL was not entitled to an extension to run the hotel. IHCL had challenged the New Delhi Municipal Corporation (NDMC) decision to auction the hotel via a civil suit in the Delhi High Court.
In 2011, a committee of senior government officials was set up to look into the company’s proposal for a 30 year extension to run the hotel owned by the NDMC. However, in 2012 the Council decided to opt for a public auction of the hotel despite assurances of granting the proposed extension.
New Delhi Municipal Council in its meeting held on 27th September, 2012 had considered a proposal on the above cited subject and had resolved to opt for public auction in a fair and transparent manner of its property at 1 Mansingh Road, New Delhi with first right of refusal to Indian Hotels Company Limited. The recourse to public auction would serve to determine the market price and the licence fee that Messrs. IHCL would have to match if they wish to run the hotel at this propertyNDMC communication to IHCL in September, 2012
After IHCL objected to NDMC’s decision to auction the Mansingh property, NDMC granted a year’s extension to the group to continue running the hotel.
In March 2013, NDMC reiterated its stance on auctioning the hotel property and a Ministry of Home Affairs letter denied the Tata company a first right of refusal in the auction.
It is observed that the said proposal to allow IHCL to have the first right to refusal in the said public auction has not been provided for in the lease deed. A provision of the first right of refusal will result in lower bids in the public auction. Therefore, Ministry of Home Affairs is of the considered opinion that the first right of refusal should not be allowed to IHCL in the proposed auction and fresh lease should be granted by open public auction.Ministry of Home Affairs letter to IHCL on May 10, 2013
In April 2013 IHCL filed a civil suit against NDMC in the Delhi High Court. The Tata Group company argued it had “brought in huge goodwill and the brand equity associated with the name ‘Taj Group of Hotels’ and the reputation of the industrial house which runs the same.”
IHCL and NDMC signed a joint venture agreement for the eleven storey hotel in 1978, in which land and construction costs were borne by NDMC and the operation and maintenance of the hotel was done by IHCL.
The agreement was on a revenue share basis and the Delhi High Court order disclosed that “By this joint venture hotel project, NDMC has earned by way of licence fee cumulatively a sum of Rs 266.22 crore up to 31.3.2012 as against its total investment of Rs. 6.26 crore in the hotel project.”
In court IHCL had claimed equity in the Mansingh property on grounds that it had made massive investments in the property. The company had argued that the relationship between NDMC and IHCL “is not of a mere licencee but of equal status as partners in collaboration.”
However, Justice V Kameswar Rao of the Delhi High Court rejected this argument by holding that IHCL lacks any rights for extension and the “relationship between the two parties is governed by agreements, which have been entered with open eyes, clear understanding and knowing the implications.”
He ruled that NDMC is “within its right to take a decision and act in a fair and transparent manner, which is in larger public interest and equity has no role to play.”
The court order also said IHCL’s license expired in 2011 and ad-hoc extensions were granted to the company till January 31, 2016.
Thereafter, there is no extension except on the strength of the statement made by learned Additional Solicitor General (ASG) that no coercive steps shall be taken against the plaintiff (IHCL).Justice V Kameswar Rao, Delhi High Court order on September 5
In conclusion Justice Rao said “the request of the plaintiff (IHCL) for renewal of licence for further period has not been acceded to and noting that the plaintiff (IHCL) has no right seeking renewal or grant of licence for further period and the decision of the defendant (NDMC) to go for auction, the plaintiff (IHCL) is not entitled to extension of licence as claimed in the suit. This issue is decided against the plaintiff (IHCL).”