Friday, October 28, 2016

Tata plea to stall auction of Taj Mahal Hotel in New Delhi rejected

The Delhi high court on Thursday dismissed Tata group-owned Indian Hotels Co. Ltd’s (IHCL) plea against a decision to auction the Delhi-based Taj Mahal Hotel, in a blow to the conglomerate.

This means that the hotel will go up for auction. It’s also significant especially in the light of the allegations made by ousted chairperson of Tata Sons Ltd Cyrus Mistry, who, in a letter to the board of directors, said that IHCL, owing to poor acquisition strategies, has written down its net worth.

The Taj Mahal hotel is run and managed by IHCL, a subsidiary of the Tata group. A bench comprising justices Pradeep Nandrajog and Pratibha Rani dismissed IHCL’s appeal against a 5 September order of Justice V. Kameshwar Rao.

“IHCL has no right under the licence for a renewal thereof,” the court said in its judgment, interpreting Section 141 of the New Delhi Municipal Council Act, 1994, which talks about how to deal with property under the NDMC.

A lawyer for IHCL said that the company would appeal the high court ruling before the Supreme Court. The court also noted that auction was the means to derive a competitive price for an asset.

“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,” the 52-page verdict said.

The court also denied a right of first refusal to IHCL on the auction of the Taj Mansingh hotel as it would not bring the highest bidders to the table. “We are studying the judgment and will take necessary legal action,” said a spokesperson of IHCL.

Justice Rao, on 5 September, said that IHCL was not entitled to an automatic extension of its licence to run and manage the Taj hotel as the NDMC Act required any transfer of rights in the property at a “value at which such immovable property could be sold, leased or otherwise transferred in normal and fair competition”.

IHCL had approached the Delhi high court first in April 2013, seeking to restrain the NDMC from auctioning the Taj Mansingh Hotel after a committee declined to renew the licence in its favour for 30 years.

The New Delhi Municipal Committee (as then called) entered into an agreement with IHCL on 18 December 1976 to construct and run a five-star hotel in one of the prime locations in Central Delhi—1, Mansingh Road.

The hotel became functional on 10 October 1978. According to IHCL, the original licence agreement—with NDMC as the licensor and IHCL as the licencee—later became a joint venture with two equal partners. The high court rejected these claims.

The original licence operated for a period of 33 years from late 1976 and concluded in 2011. Thereafter, several ad hoc extensions were granted till 31 January.

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