Lease extension at market rate to let IHCL run Taj Mansingh

Written by Indu Bhan | Indu Bhan | New Delhi | Updated: Sep 4 2014, 06:25am hrs
Tata Groups Indian Hotels Company (IHCL) can continue to run the Taj Mahal hotel located on Mansingh Road in Delhi by extension of the lease agreement if it pays the market rate after consultation with the New Delhi Municipal Council (NDMC), Attorney General Mukul Rohtagi has said in his legal opinion to the municipal body.

Endorsing former Solicitor General Mohan Parasarans opinion, he has stated that extension by mutual consent is the best option since the other two options pure public auction or bids by giving IHCL the right of first refusal (RoFR), suffer from limitations which would not yield the right market price. He has also suggested that NDMC should ascertain the market rates, if necessary, with the help of reputed financial experts other than E&Y to safeguard NDMCs interests by maximising revenue share.

According to him, However, the AG said that auction with RoFR is not advisable as other serious bidders would then refrain from participating in the bidding process.

Even Parasaran in his opinion had categorically ruled out the bidding route along with the RoFR since it violates the Central Vigilance Commissions guidelines of post-tendering negotiations. The former solicitor general had said that any bidding process that comes along with the RoFR is tantamount to post-tendering negotiations.

He had also ruled out a third option of 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.

Both Rohtagi and Parasaran while giving the recommendations in favour of the Taj group took into consideration the NDMCs resolution of September 27, 2012 that observed that IHC not only has the clean record, but has also made regular payments of license fee to it till date. They had also taken into account the analysis given by consultants E&Y on licence fee earned from other hotel projects.

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.