Delhi High Court: In a batch of petitions filed by the Airport Authority of India (‘AAI’) under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’) to challenge the awards dated 16-07-2022 as corrected in terms of Section 33 of the Act by an order dated 29-08-2022 for Mumbai International Airport Ltd. (‘MIAL’), a Single Judge Bench of Yashwant Varma, J. perused the majority as well as the minority opinion rendered in the award and found no grounds to interfere with the same.
Background
The Arbitral Tribunal, which passed the award in question comprised of three former Supreme Court Justices. Two Arbitrators joined in rendering the majority opinion and the presiding Arbitrator delivered a dissent. Both MIAL and Delhi International Airport Limited (‘DIAL’) had raised similar disputes.
Seeking private sector participation to scale up the standard of airports, the Government invited bids for the infusion of private equity in respect of the Delhi and Mumbai airports. AAI selected Joint Venture Companies (JVC’) as private partners for the grant of its functions in connection with the development of the domestic and international airports at Mumbai and Delhi.
The concession for the Chhatrapati Shivaji Maharaj International Airport (‘CSMIA’) was awarded to a GVK-led consortium which was followed by the incorporation of MIAL as a ‘Joint Venture Special Purpose Vehicle’. The JVC of MIAL comprised of GVK (presently Adani Airport Holdings Ltd.) with 74 percent of the shareholding and the remaining 26 percent was held by AAI.
For the Indira Gandhi International Airport (‘IGIA’), a consortium led by the GMR group was the successful bidder. Thereafter, the JVC of DIAL was incorporated wherein the GMR-led consortium acquired 74 percent shares and the remaining 26 percent was held by AAI.
The Operation, Management, and Development Agreement (‘OMDA’), dated 04-04-2006, for both DIAL and MIAL had a central provision related to the annual fee that was payable by the JVC to AAI and constituted the revenue-sharing model between the principal stakeholders. Additionally, the OMDA envisaged complimentary agreements which included a State Support Agreement (‘SSA’) for each airport which was entered into by the Government with the JVCs on 26-04-2006. The parties signed nine other covenants which were collectively defined as the Project Agreements.
The dispute, in the present matter, arose in the light of AAI and DIAL/MIAL taking a divergent view regarding the scope and meaning of the term ‘Revenue’ as mentioned in the OMDA, which set out the process for computation of the annual fee that was payable to AAI.
Both DIAL and MIAL asserted that they had been paying the annual fee based on the gross receipts credited to their respective profit and loss accounts. It was contended that the annual fee incorrectly came to be remitted on the basis of gross receipts instead of the amount of revenue as projected in the business plan.
While the OMDA explained ‘Revenue’ to mean all pre-tax gross revenue excluding the five principal heads of exclusion specified therein, Article 11.1.2 placed the JVC under an obligation to pay an annual fee that was prescribed to be 45.99 percent for DIAL and 38.7 percent for MIAL of the ‘projected revenue’ in the business plan.
The Arbitral Tribunal noted that DIAL and MIAL continued to pay annual fee based on the gross receipts credited to their individual profit and loss accounts till they allegedly discovered a mistake. DIAL contended that due to this mistake, it had paid an excess amount of Rs. 6663.25 crores as of 30-09-2018. The minority opinion rendered in the award took note of MIAL’s contention which said that an excess payment of Rs. 3582.92 crores were made.
Analysis and Decision
The Court noted that the Arbitrators rendering the majority opinion principally found that both sides had misconstrued the terms of the contract and opined that the JVC was obliged to share ‘projected revenue’ as opposed to ‘Revenue’.
The Court noted that apart from the upfront fee, the JVC was liable to pay AAI an annual fee for each year which was prescribed to be 45.99 percent and 38.7 percent of the projected revenue as mentioned in the business plan. It was also noted that the annual fee was payable in 12 equal monthly instalments and to be paid on the first day of each calendar month.
The Court took note of Article 11.1.2.3 and said that it was provided that in case for any quarter, the actual revenue exceeded the projected revenue, the JVC would become liable to pay additional annual fee representing the difference between the actual quarterly and projected quarterly revenue.
Further, while defining the extent of Section 34 of the Act, the Court said that the remedy under this provision is neither intended to be resorted to correct an error of judgment nor is it liable to be wielded to review an award based on an independent formation of opinion of what the court may consider to be more eminent or justified. It was noted that in the present matter, the Court was principally concerned with the interpretation of the contract.
The Court referred to DLF Universal Ltd. v. Town and Country Planning Department, (2010) 14 SCC 1 wherein the Supreme Court explained that the primary test of interpretation of contracts is of ascertainment of purpose and objective on the basis of which parties formed the contract.
The Court said that while the presiding Arbitrator chose to adhere to more strict and traditional rules of interpretation, the Co-Arbitrators adopted the route of business efficacy and a consideration of the larger contractual bargain that emerged from a conjoint reading of the Project Agreements.
Further, the Court opined that when the Co-Arbitrators faced a situation where the word ‘Revenue’ had not been independently deployed or utilized, they were justified in proceeding to analyze and search for the underlying intent of the parties when they penned the contract. It was said that the Court was cognizant of the fact that the term ‘Revenue’ appeared in the OMDA, and thus, adequate weight was liable to be accorded to that covenant in the contract.
The Court noted that while ‘Revenue’ was independently defined, the clause itself clarified that neither the upfront fee nor the annual fee would be liable to be deducted therefrom. The definition clause went no further and made no attempt to regulate the revenue that was shareable between AAI and the JVCs. Thus, the upfront fee and the annual fee were left to be determined on the basis of the provisions contained in Chapter XI of the OMDA.
The Court found that although the OMDA defined ‘Revenue’, the expression was not independently employed in the latter parts of the contract. It was also said that the right conferred upon the JVC to recover the costs incurred in creating aeronautical assets could have neither been ignored nor could the import thereof have been doubted. The Court mentioned that a covenant which enables a party to recover costs incurred cannot derogate from the creation of assets and infrastructure in terms of overarching contractual obligations.
The Court opined that the view expressed by the presiding Arbitrator regarding ‘Revenue’ was based on an extremely narrow and constricted construction of the OMDA and failed to consider the interplay and reciprocity which parties intended to convey while alluding to the Project Agreements. It was said that this interpretation struck at the very root and foundation of the contract’s commercial principles.
The Court said that the presiding Arbitrator while referring to the SSA for determining the meaning of ‘Revenue’, had clearly erred in holding that the OMDA was liable to be interpreted in isolation because this view failed to consider the indubitable fact that the grant represented the first initiative for infusion of equity and takeover of airports by a private entity.
The Court said that the majority had correctly considered the status and position of AAI, which, apart from being entitled to revenue from upfront fee and annual fee, was also a JV partner and held a substantial stake of 26 percent in the JVCs. Therefore, the Court said that this was not a case where the interests of the AAI stood confined to the fees payable in terms of Chapter XI.
The Court said that the majority’s view ultimately rested upon a harmonious interpretation of the Project Agreements, the necessity of striking a just balance between the creation of infrastructure and facilities, and the agreements embodying enabling provisions aimed at the JVC recouping costs and generating a reasonable return. The Court said that the said view could not be said to be suffering from unpardonable perversity.
Further, the Court could not accept the contention of AAI that the majority opinion added to the five enumerated exclusions specified in the definition of ‘Revenue’. It was noted that the shareable revenue in terms of Chapter XI was liable to be quantified based on the income that the JVC would have earned from the charges it imposed and collected while performing and providing Aeronautical and Non-Aeronautical services.
The Court said that the investment activity and the income generated therefrom were to benefit the constituents of the JVC itself, which would necessarily include AAI. It was said that even the SSA did not take ‘other income’ into account for the purposes of tariff fixation and that the Co-Arbitrators had taken a correct view in this aspect as well.
The Court found no error that would warrant interference with the ultimate conclusion rendered by the Arbitral Tribunal regarding the issue of payments to relevant authorities and receipts for the provision of electricity, water, sewage, or analogous utilities.
Further, the Court stated that the exercise of computation had not been entrusted to a stranger to the contract since the office of the Independent Auditor stood duly recognized in Chapter XI of the OMDA itself, and power was vested upon said Independent Auditor by the Arbitral Tribunal in the absence of agreement among the parties to choose an independent authority.
The Court said that the AAI’s submission that fresh evidence would have to be led and presented before the Independent Auditor or that a core decision-making function had been placed upon the same appeared to be erroneous and unsustainable.
Thus, the Court found no grounds to interfere with the Awards rendered by the Arbitral Tribunal and dismissed the petition.
[Airports Authority of India v. Delhi International Airport Ltd., 2024 SCC OnLine Del 7284, Decided on 18-10-2024]
Advocates who appeared in this case :
For Petitioner — SG Tushar Mehta, Advocate Raghav Shankar, Advocate Prateek Arora, Advocate Karan, Advocate Anubhab Atreya, Advocate Rishieka Ray, Advocate Pallavi Misra
For Respondent — Sr. Advocate Sandeep Sethi, Advocate Milanka Chaudhury, Advocate Naina Dubey, Advocate Harshita Agarwal, Advocate Ravneet Singh, Advocate Lynn Pereira, Advocate Chaitanya Kaushik, Advocate Seema Mehta, Advocate Vikalp Mudgal, Advocate Saket Sikri, Advocate Priya Singh
Buy Arbitration and Conciliation Act, 1996 HERE
