Setback for Tata group, Supreme Court orders e-auction of iconic Taj Mahal Hotel

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New Delhi | Published: April 21, 2017 8:08 AM

Supreme Court agrees to hotel lease auction; Taj gets to stay for six months after e-auction, only hope is to top others.

A bench comprising justices PC Ghose and RF Nariman ordered for e-auction while allowing the plea of NDMC that the Tata Group firm cannot have the right to refusal in auctioning of the hotel.

Six years after the lease of Tata Group’s Indian Hotels Company Limited (IHCL) to manage the iconic Taj Mahal Hotel on Mansingh Road in Lutyen’s Delhi expired, the Supreme Court on Thursday ordered that the rights of managing the hotel be e-auctioned by the New Delhi Municipal Council (NDMC) without any right of first refusal (RoFR) to the Tata Group. A bench comprising justices P C Ghose and R F Nariman ordered for e-auction while allowing the plea of NDMC that the Tata Group firm cannot have the right to refusal in auctioning of the hotel.

The bench, however, asked the civic body to grant six months’ “breathing time” to the company in vacating the hotel in case they lose out in the e-auction. It also said the “blemish-free” record of IHCL may be taken into account by NDMC during the auction. After the SC order, the Tata Group which was since October 31, 2011, managing the hotel through several extensions and was opposed to any auction said in a statement that it respects the order and would participate in the auction. “We respect the decision of the honourable Supreme Court and intend to participate in the e-auction when it is held. We stay committed to our colleagues and guests, whose loyalty and trust remain our biggest asset,” an IHCL spokesperson said.

Thursday’s development comes after the NDMC, on March 2, unanimously decided to auction the rights of managing the hotel for a higher revenue share for the land which belongs to it. Earlier, IHCL had moved the apex court against a Delhi High Court order which had allowed NDMC to go ahead with a public auction against the group’s contention that the lease be renewed by mutual discussion. NDMC vice-chairman Karan Singh Tanwar had explained its stance for auctioning the property stating that the council is not bound to give IHCL extension as per contract, and also there was no mention of a right of RoFR to IHCL anywhere in the contract.

I HCL had told the apex court that it was “not clear” why NDMC wanted to auction the prime property which gave it the “best revenue”. The company had submitted that an NDMC expert report suggests that the council would “lose revenue” if the hotel was auctioned to other players. On November 21 last year, the SC had restrained NDMC from going ahead with the auction process and also from initiating eviction proceedings against IHCL for vacating the property. The apex court had asked NDMC not to “arm-twist” IHCL, which has been running the five-star ;property in one of the prime locations of central Delhi for 33 years.

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There has been several twists in the case since 2011 when the 33-year lease came to an end and was extended for a year. NDMC wanted to conduct auctions but by providing the right of first refusal (RoFR) to IHCL. However, the home ministry was not in favour of giving any RoFR. Subsequently, two legal opinions were sought – one from Mohan Parasaran, solicitor general during the UPA government and later from attorney general Mukul Rohatgi. Both advised against auction and renewing the lease based on mutual negotiations.

“…a public auction with an RoFR is impractical and would never yield a correct and fair price. The real choice is between negotiating for renewal or an outright public auction,” the A-G had said. “I agree with the opinion of the then solicitor general that it will not be illegal for NDMC to conduct mutual negotiations to arrive at a figure which would represent market value,” the A-G added. The property owned by NDMC was given to IHCL on a lease for 33 years, which ended in October 31, 2011. IHCL has been managing the property since then through several extensions. During the extended period, NDMC’s revenue share was around 17.5% of the gross revenue. Prior to it, IHCL paid 10.5% of its gross revenue to NDMC.

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