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Mezzanine Floor, Please

Lease in limbo, will the Taj Mahal hotel in Delhi change hands from the Tatas?

Mezzanine Floor, Please
Sanjay Rawat
Mezzanine Floor, Please
Who Will Blink First?
The Taj Mansingh case players

Rajnath Singh, MHA
UPA was pushing for auction without first right of refusal to the Tatas. The Modi government has been quiet, but is seen to be pro-business (read Tatas) on the issue. Its decision is expected by year end.

Jalaj Shrivastava, NDMC
Taj is the civic agency’s biggest revenue contributor and it wants to get the maximum value from it. Suggested auction with first right to Tatas, but has to follow parent ministry’s (MHA) diktat.

Cyrus Mistry, Tata Group
Wants to keep the property, one of its most prestigious in India, at any cost. Went to court against auction, something the original agreement with NDMC did not talk about.


It’s ironic that Delhi’s favourite watering hole for fixers, industrialists, politicians and journalists is in need of some serious fixing. But then, for more than two years now, the future of Delhi’s iconic Taj Mahal Hotel has been uncertain and caught between intense political play. The lease of the hotel, known popularly as Taj Man Singh because of its location on Man Singh Road, ended in October 2011. Since then, the case has been tossed around between the New Delhi Muni­cipal Council (NDMC) which owns the property and its parent ministry, the ministry of home affairs (MHA).

The UPA government kept the issue hanging without giving a clear verdict on whether the hotel’s lease should be renewed in favour of the Indian Hotels Co Ltd (IHCL), which runs the Tatas’ Taj group of hotels. There has been a mysterious silence so far from the BJP-led government on the issue as well. In July, the NDMC gave yet another six-month extension to IHCL, its fifth in the absence of any clear decision on the issue. What’s going on in Delhi’s new dispensation? And more importantly, why is the legendary clout of the House of Tatas not working?

At stake is a property that has generated public interest because of its prime location as well as the revenue it can generate for the government. Over the last decade or so, say officials, the Taj Mahal Hotel has been the biggest contributor by far to NDMC’s revenues (among the seven hotels under it) and has never defaulted in payments. Acc­or­ding to the agreement, IHCL had to pay 10.5 per cent of its revenues annually to NDMC. The lease was for 33 years.

The MHA in the former government had initially proposed to auction the property following an opinion of the then additional solicitor general but fell silent towards the end of its tenure. Sources say that some powerful Union ministers were rooting for the Tata Group and had delayed any final verdict on the issue. Says former Delhi BJP MLA and NDMC member Karan Singh Tanwar, “I don’t know why this extension was given. This is what the Con­g­ress was doing as the Delhi government had put its weight behind the Taj Group. Now it’s being done again.”

The talk of auctions was also heightened by reports that some big business groups and hotel chains—the Sahara group, French hotel chain Accor Hotels and itc—were interested in bidding for the property. (Of course, the recent withdrawal of supposedly aggressive bidder Sahara from the race—thanks to the incarceration of its head Subroto Roy—has reduced the pressure on the Tatas.) In December 2012, the NDMC took a decision to auction the property on the grounds that the value of the property had appreciated and it needed to find its market value. They also dec­ided that IHCL will be given the First Right of Refusal (FROR) and be allowed to match the highest bid.

“The auction route is a last resort. After negotiations on revenue, IHCL’s lease should be renewed.”
Mohan Parasaran, Solicitor-General

Then, in April this year, solicitor-general Mohan Parasaran, whose opinion was sought by the NDMC, said that the civic body had to renew the lease with IHCL after negotiations on revenue. “Once the market value is arrived at after negotiations, it has to be put bef­ore independent valuers to ascertain market value to safeguard the commercial considerations. If even that is not possible, only then the auction route without FROR should be opted for,” Parasaran told Outlook.

So, there are three potential solutions. The present MHA has not moved bey­ond the UPA proposal of auction without giving IHCL the option to match the highest bid. Then, there’s NDMC’s decision to auction the property with an FROR to the Tatas. Finally, there’s Par­as­aran’s view that all that is needed is a simple renewal of the lease. The Tata group has already approached the courts against auction of the property. When contacted, an IHCL spokesperson refused to comment since the matter was subjudice.

At present, NDMC says that it is awaiting a decision from the MHA to proceed on the matter. “There’s been no communica­tion from the MHA. We are ready to proceed on any of the three opt­ions,” says NDMC chairman Jalaj Shri­va­stava who took over in July-August ’13. The MHA did not respond to Outlook’s queries.

The present government is yet to firm up its opinion on the issue and any decision, say sources, will come only tow­ards the end of the year as the matter has become politically sensitive for the Modi government which does not want to send wrong signals to business. Says a source close to the developments, “The Tatas are a big group and a big investor in Gujarat. The Modi administration will not do anything that hurts general business sentiments.”

That could be a big reason for the delay, feel hotel industry experts. Says hospitality industry consultant Neeran Chibber, “One builds and invests in property on the premise that at the end of the lease, it will be renewed at a mut­ually agreed rate. Why that is not being done defies logic. The bureaucracy is scared to take a decision and is deferring it as it has become a high-profile case.”

Legal experts point out that NDMC’s ‘auction with FROR’ proposal may not be tenable in court as it was against the CVC guidelines under which post-ten­der negotiations were not allowed, except for special circumstances.

According to the agreement, at the end of the lease period, the licensee, IHCL, if it was desirous of renewing the licence, had to give the licensor, the NDMC in this case, a letter 60 days in advance of the expiry of the lease. This effectively means there was no provision for auction unless IHCL exited voluntarily. 

In 2012, the NDMC appointed consultants Ernst & Young to evaluate the situation. In its report, E&Y also gave an opinion in favour of the Tatas. It said the statutory mandate for NDMC was “to ensure the most competitive market value for the property which, in the present circumstances, seems to be best served by renewing the licence with IHCL and continuing the collaboration in running the hotel”.

It’s evident the Taj Mahal Hotel issue has got more than its warranted dose of publicity because of the value attached to both property and brand. The lease of IHCL’s other hotel in Delhi, the Taj Pal­ace, ended in similar circumstances two years ago and was renewed without a sniff. In the Taj Bengal Hotel case in Calcutta, the SC allowed the Taj Group to continue on the property after negotiations. Hasn’t the uncertainty over Taj Mansingh gone on for far too long?

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