Tata's Taj Group can keep Mansingh, no need to even bid: Solicitor General

Indu Bhan Posted online: Thursday, Apr 24, 2014 at 0000 hrs
New Delhi : Tata Group’s The Indian Hotels Company (IHCL) can continue to run the Taj Mahal hotel located on Mansingh Road in Lutyen’s Delhi by extension of the lease agreement if the New Delhi Municipal Council (NDMC) goes by the legal opinion submitted by Solicitor general Mohan Parasaran.

Responding to the NDMC’s query on whether the lease can be extended by mutual consultation or whether it should call for bids by giving IHCL the right of first refusal (RoFR), Parasaran in his 60-page opinion, has categorically ruled out the bidding route along with the RoFR since it violates the Central Vigilance Commission’s guidelines of post-tendering negotiations. The solicitor general has held that any bidding process that comes along with the RoFR is tantamount to post-tendering negotiations.

He has also ruled out a third option — public auction and termination of existing arrangement between IHCL and NDMC because it would neither serve the “common good” nor completely safeguard the interests of NDMC. If this option is pursued, the ensuing litigation would ensure that NDMC is not able to realise fair revenue.

In gist, the solicitor general’s opinion states that since the agreement between the two is in the nature of a joint venture and in the last more than 30 years NDMC has benefited in terms of revenue share earning the best course would be to extend the lease; however, it should be done in a manner that NDMC realises the fair market value. “...in my view, subject to all the safeguards..., the option to renew the licence in favour of IHCL provided that a fair, market value is arrived at, the NDMC’s decision cannot be termed as unfair and would be within the requirements of statutory and constitutional parameters,” Parasaran has stated.

He has also suggested that apart from evaluating the offer of IHCL as to whether it would safeguard interests by maximising revenue share, NDMC should get the offer verified by a reputed and independent expert valuer.

“...if the NDMC chooses to go ahead with this option of negotiating the licence with IHCL and arriving at a revenue-sharing model at market value which will best serve the financial and revenue interests, it cannot be termed as unlawful or arbitrary”.

The land on which the hotel is located belongs to NDMC which was leased to IHCL for 33 years for running the hotel on a revenue-sharing basis, with IHCL paying 17.5% of the gross revenue. The lease is on a temporary extension since October 2011. In October 2012, NDMC decided to conduct an auction by giving the Tatas the RoFR. Subsequently, IHCL moved the Delhi High Court which though did not stay the auction, but gave IHCL the liberty to come back to it if it felt any coercive action has been taken against it.

The SG's view was sought since there were divergent views on giving the first right of refusal to IHCL.

While the NDMC was was in favour of giving the RoFR, the home ministry was against it arguing that it may attract lower bids. When the home ministry asked NDMC not to give IHCL the first right of refusal while auctioning the property, the civic body went to the Solicitor General to seek his opinion on the matter..

Elaborating on the beneficial relationship between the NDMC and the IHCL, the SG has noted that the increase in the overall turnover of the hotel from Rs 8.96 crore in 1979-80 to Rs 194.29 crore in 2010-11 has also benefitted the NDMC by increasing its share of the gross revenue by way of licence fee per annum which increased from Rs 94 lakh to Rs 20.40 crore during the period, thus taking the NDMC's earnings cumulatively to Rs 237.78 crore, against NDMC's total original investment of Rs 6.26 crore. “Therefore, from the NDMC's own records and resolution, it appears that the association with IHCL has been financially very fruitful owing to the financial success of the hotel itself,” the opinion said.

Parasaran has also said that the fact that the road on which the hotel stand has obtained secondary meaning and also generically referred to as the Taj Mansingh Road is “testament to its popularity” and NDMC will be within its statutory, constitutional and contractual obligations and mandate if it chooses to renew the licence in favour of the Taj Group”.