Ending a year-long battle over the lease agreement of iconic Taj Mansingh, the Supreme Court on Thursday allowed civic agency New Delhi Municipal Council or NDMC to e-auction the five-star hotel.
The Taj Mansingh is being run by Indian Hotel Company Ltd (IHCL), a Tata Group firm, but NDMC is the owner of the building. The Apex court has asked the civic body to grant six months "breathing time" to IHCL to vacate the hotel in case they lose out in the e-auction.
Here's how story unfolded:
- The Tata group and the NDMC had 33-year lease agreement to run the five-star hotel. The agreement ended in October 2011. Instead of renewing the lease, the civic body decided to opt for a public auction as it would maximise the annual licence fee.
- To which Tata Group objected and approached the court challenging the hotel's proposed auction by NDMC. Tata asserted its "right" for lease renewal and by underlining its investments over the years. The group said that it has invested 21 times more than the NDMC. Senior advocate Harish Salve, representing Taj Mansingh, told the court that NDMC invested merely Rs 6 crore while Taj pumped in over 129 crore with a paid license fee of over Rs 400 crore.
- However, the court refused to buy Tata's argument and said that NDMC was within its power to go for an auction. Meanwhile, the civic body appointed Ernst & Young to value the five-star hotel. Research firm E&Y suggested auctioning the Taj with the first 'right of refusal' resting with Taj as Tata group has run the property for 34 years. Acting on the suggestion, the NDMC granted the group the right to refusal. Right of first refusal is a contractual right that gives its holder, in this case Taj, the option to enter a business transaction with the owner, in this case NDMC, before the owner is entitled to enter into that transaction with a third party.
- However, the Union Home Ministry opposed the civic body's move as it would have resulted in loss of revenue and said: "The proposal to allow IHCL to have the 'first right of refusal' in the public auction has not been provided for in the lease deed. A provision of 'first right of refusal' will result in lower bids in the public auction. Therefore, the ministry of home affairs is of the opinion that 'first right of refusal' should not be allowed to IHCL in the proposed auction and fresh lease should be granted by open public auction."
- Earlier in October, the High Court said that Tata's IHCL will also not get the benefit of 'Right of First Refusal when NDMC auctions it. "To put it pithily, IHCL (which runs the hotel) has no right under the licence for a renewal thereof and therefore no further issue needs to be considered and decided," the court said. 'Right of first refusal' would have entitled IHCL to enter into negotiations with NDMC for a fresh contract.
- Explaining the reason behind the judgement, the court said that, "Unless there is a social or a welfare purpose or any other public interest which is served, an asset held for the benefit of the public, if commercially exploited should be by way of an auction or an open competitive bidding because it would then fetch the maximum revenue."