Biased Business?

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Why did an MHA bureaucrat not extend the lease of this reputed hotel to Indian Hotels, especially when the JV between it and NDMC followed all proper norms?

By: Puran Chand Tamta


A famous proverb says: “If it ain’t broke, don’t fix it.” But if the bureaucracy has its way, it would break the best to fit in with its plans. Something similar is being witnessed in the case of Taj Majal Hotel (Taj Mansingh) in New Delhi.

Keshav Kumar Pathak, joint secretary in the Ministry of Home Affairs (MHA), has issued directions that Indian Hotels Co Ltd (IHCL) cease operating Taj Mahal Hotel. But this goes against its legal rights for extension.

Taj Mahal Hotel was a unique joint venture (JV) between New Delhi Municipal Council (NDMC) and IHCL, with NDMC providing 3.78 acres and funding the construction. IHCL did the construction and also provided equipment, furniture, fixtures and all other assets at its own cost. Right from the time NDMC conceived this project, it was put on record that it would be a JV. This is evident from NDMC’s Resolution No 35, dated April 2, 1976, wherein it accepted joint participation in construction and running of the hotel by IHCL.

There were two agreements between NDMC and IHCL—a collaboration agreement for construction of the hotel and a license deed under which IHCL would run and operate it. Under the license deed, IHCL was obligated to pay NDMC a license fee every year. This was paid regularly. The initial term of the license deed was for 33 years, which expired on October 10, 2011.

However, the license deed provides for an extension and when IHCL sought it, NDMC constituted a committee to consider this request. Simultaneously, NDMC sought the opinion of its standing counsel, who held that the license vested a contractual right with IHCL to seek extension. The committee also recommended further extension for 30 years on revised commercial terms. On November 14, 2011, the Ministry of Urban Development (MUD) reviewed the matter and recorded that NDMC should try to get as close to the market rent for the hotel as possible, even if it had to negotiate with IHCL.

KK Pathak JS MHA

 

Joint Secretary KK Pathak  dismissed IHCL’s Right of First Refusal 

NDMC even appointed a consultant (Ernst & Young) to advice them on this issue. Its report said that the municipal council could re-negotiate the terms and it would gain the most if the agreement with IHCL was renegotiated and extended.

This matter was also presented to the present attorney general of India who, as per media reports in September 2014, endorsed the legal opinion given by the erstwhile solicitor general of India that extension of license by mutual negotiations with IHCL was the best option available to NDMC.
One would have thought that the matter ended there. But surprisingly, as per file notings, directions were issued by MHA (then under Sushil Kumar Shinde and under which NDMC comes), which put a spanner in the works. The directions came from Dr KK Pathak. This was strange considering neither were involved in the matter.

The letter to NDMC stated that the hotel should be auctioned and that the Right of First Refusal (ROFR) should not be granted to Taj. Further, this letter was followed by a show-cause notice to NDMC to further enforce this decision.

It is strange why Pathak enforced this decision when legal luminaries and financial consultants had recommended that the IHCL license agreement should be renewed with revised terms and conditions. And why is the same policy being followed by other officials in the MHA?
And why this bias against Taj Mahal Hotel, when the MUD had granted license agreement extensions to Taj Palace Hotel and the MHA to Hotel Lalit. Could someone answer these valid questions?

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