The New Delhi Municipal Council (NDMC) on Thursday unanimously decided to auction the rights of managing the iconic Taj Mahal Hotel on Mansingh Road. (Source: Reuters)

In a setback for the Tata Group’s Indian Hotels Company (IHCL), the New Delhi Municipal Council (NDMC) on Thursday unanimously decided to auction the rights of managing the iconic Taj Mahal Hotel on Mansingh Road in the capital for a higher revenue share for the land that belongs to it and has been on a 33-year lease to the former. However, a final decision to this effect will be known only on Friday when the matter will come up for hearing in the Supreme Court.

IHCL had moved the apex court against a Delhi High Court order that 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 said that the council in its review meeting on Thursday decided to auction the five-star hotel. He said the council is not bound to give IHCL an extension as per the contract and added that there was no mention of a right of first refusal (RoFR) to IHCL anywhere in the contract. IHCL has no “inherent or vested right to renewal as the 33-year-old agreement has expired in 2011. Since then, it has been running the hotel on extensions. If the Tata Group wants to run the hotel, let it participate in the auction and if its bid turns out to be the highest, we will allow it,” he said.

On November 21 last year, the Supreme Court had restrained NDMC from going ahead with the auction process of the hotel 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 hotel in one of the prime locations in central Delhi for three decades.

There have 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 an auction but by providing the 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 regime, and later by attorney general Mukul Rohatgi. Both advised against the auction and suggested renewing the lease based on mutual negotiations. “…a public auction with a 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 AG had opined. “I agree with the opinion of the then solicitor general that it will not be illegal for the NDMC to conduct mutual negotiations to arrive at a figure which would represent market value,” the AG stated.
However, NDMC finally decided to conduct an auction without RoFR as it leads to post-tendering negotiations that violate Central Vigilance Commission guidelines.

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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. In the extended period NDMC’s revenue share is at around 17.5% of gross revenue. Prior to it IHCL paid 10.5% of its gross revenue to NDMC.