Supreme Court Allows NDMC to Auction Taj Mansingh

Tata Group entity loses legal battle to get unchallenged lease extension

 

Indian Hotels Company (IHC), the Tata Group entity which operates Taj brand of hotels, will have to participate in an open auction to protect its ownership of the Taj Mahal Hotel, the 294-room luxury property in the heart of Delhi and popularly called the Taj Mansingh, after the road it is on.

The Supreme Court on Thursday gave its nod to the New Delhi Municipal Council (NDMC), which owns the land on which the hotel stands, to go for an auction, after years of legal wrangling. IHC said it would participate.

Reacting to the development, the company’s stock price hit an intra-day low of Rs 123.80 at the BSE and then closed at Rs 126, down 1.3 per cent from the previous day. “We respect the decision and intend to participate in the e-auction when it is held,” said a spokesperson.

In January, the SC asked both parties to find an amicable solution to their dispute on lease extension. IHC contended it had invested a lot into building the Taj to its present reputation and should get an extension of the property; NDMC wanted an open auction to get a good price. This dispute has been on for years.

There was no settlement even after the SC advice and there were long arguments before a two-judge bench of P C Ghose and R F Nariman. Delhi chief minister Arvind Kejriwal, also a member of the NDMC, was for an auction. IHC has now lost in both the high court and the Supreme Court. 

The company was seeking a right of first refusal with regard to the property. However, the Court allowed the plea of NDMC that the Tata company could not be granted this. If the company loses the bid, it will get ‘breathing time’ of six months to vacate the hotel. The court also said the “blemish-free” record of IHC may be taken into account by NDMC while auctioning.

NDMC had earlier hired SBI Caps to conduct an auction. For IHC, the asset is estimated to generate annual revenue of Rs 150 crore, a small portion of its consolidated revenue of Rs 4,590 crore (FY16). The initial cost incurred by it before the hotel became operational in 1978 was Rs 4.61 crore. Additional investments went to modernise the property. A 33-year lease was given at the outset. When this was to expire, six years earlier, the civic body has wanted to call for an auction and IHC demanding a renewal, arguing it had invested heavily to build the place’s reputation. 

IHC had approached the apex court to challenge an earlier decision of the high court here, which had allowed NDMC to end the existing lease and proceed with the auction. In January, the SC had directed NDMC to review its decision. IHC had argued the Taj gave ‘best revenue’ to NDMC and this would be lost with an auction. Sector officials said they would like to wait for the detailed terms and conditions of the auction before deciding to bid. It is obvious that a new operator has to invest heavily on renovating the 40-year property. According to estimates, this could cost as much as Rs 300 crore, making it a challenge for any firm to make money.

The Indian Hotels and NDMC saga

• 1976: Indian Hotels (IH) (owners of Taj group) and NDMC sign pact for Taj Mahal Hotel
• 1978: Taj group inaugurates hotel
• 2011: 33-year agreement between IH and NDMC comes to an end
• 2012/2013: NDMC decides to auction the hotel
• 2013: IH challenges the auction in the HC
• Sep 2016: Single judge of HC allows NDMC to continue with the auction 
• Sep 2016: IH approaches bench of HC against September 5 verdict
• Oct 2016: Bench pronounces its judgement upholding the determination of the single judge and validating NDMC's move to auction
• Nov 2016: IH takes the matter to SC
• Jan 2017: SC asks NDMC to reconsider decision
• Mar 2017: NDMC decides to go ahead with auction
• Apr 2017: SC allows NDMC to conduct auction

Reference - http://www.business-standard.com/article/companies/supreme-court-allows-ndmc-to-auction-taj-mansingh-117042000894_1.html