Taj Mansingh auction certain, decision on modalities today

Taj Mansingh's 33-year lease agreement with NDMC expired last year and was extended by a year

The Taj Mahal hotel, popularly known as the Taj Mansingh, the iconic five-star hotel in Lutyens’ Delhi, was at the centre of attention today, with senior sector representatives lobbying hard ahead of the crucial NDMC (New Delhi Municipal Council) meeting.

Tomorrow’s meeting, to decide the fate of the hotel operated by the Tata group, is expected to firm up plans on how the property should be auctioned, at what deposit and reserve price and the terms of lease.

It is fairly certain that Taj Mansingh, whose 33-year lease agreement with NDMC expired last year and extended for a year, will not get another lease extension, sources close to the development say. “At this point, not allowing an auction will be like repeating a 2G scam,” said one of the sources. With agencies such as the CBI, CAG and CVC watching the development, an auction is the only option before the council, headed by Delhi Chief Minister Sheila Dikshit.

While the Tata group is learnt to be of the view that it has the first right of refusal, many in the legal fraternity argue there is no such provision for the incumbent in the lease agreement. First right is the “natural expectation” of the incumbent, but there is no automatic right in law, points out Diljeet Titus, managing partner, Titus & Co. However, the council may allow the Tatas to match the highest bid in the auction, says another lawyer, who does not want to be named. The right of first refusal is a contractual right that gives its holder the option to enter a business transaction with the owner of something, according to specified terms, before the owner is entitled to enter into that transaction with a third party.

While Tata group of hotels bigwigs, including managing director Krishna Kumar, are here, a source says the group has decided the property must be retained “at all reasonable cost”. But it’s hard to assess at this point what that “reasonable cost” could be, as it would depend on the bid amounts of other players. The probables looking at managing the property include the Oberoi group, Sahara, Accor and ITC, among several others, who will present their revenue-sharing bids.

The Taj group pays NDMC 10.5 per cent of its gross revenue annually as rent and it is expected the proposed auction could result in a substantial increase in the figure. For the extended period, Indian Hotels Company, which runs Taj Mansingh, has been asked to pay 17.5 per cent of gross revenue as rent.

The lease issue has acquired a political colour, with Congress and the BJP countering each other. Karan Singh Tanwar, BJP MLA and a member of the council, pointed out Sheila Dikshit was of the view the lease should be extended. “But it will be illegal because there are no terms and conditions to extend the lease,” Tanwar said. He also touched upon the current sentiment of maximising value through the process of auction.

The latest advice from Additional Solicitor General Rakesh Kumar Khanna is NDMC must go for auction. “Any extension would be a case of fresh grant” as there is no clause in the agreement — between NDMC and Indian Hotels Company Ltd (IHC) — for extension of lease, he observes. The auction will determine the “fair market price”, according to the advice.

Council members include Dikshit, Union sports minister and Delhi MP Ajay Maken, Tanwar and Congress nominee Tajdar Babar. The NDMC had appointed Ernst & Young as consultant to advise on the future course of action on the lease expiring in October. It recommended the Tatas had the right to match the highest bid in an open auction. Harish Salve is the legal counsel for the case.

NDMC was not available for comments. The Tata group has maintained it does not want to talk on the matter.