Delhi High Court Reiterates Limited Grounds For Challenging Arbitral Awards; Refuses To Interfere With Tribunal's Decision On AAI Petition
Delhi High Court Reiterates Limited Grounds for Challenging Arbitral Awards; Refuses to Interfere with Tribunal's Decision on AAI Petition
In a batch of petitions filed by the Airport Authority of India (AAI) under Section 34 of the Arbitration and Conciliation Act, 1996, Justice Yashwant Varma of the Delhi High Court reviewed awards dated July 16, 2022, corrected by an order dated August 29, 2022, concerning Mumbai International Airport Ltd. (MIAL). The Court found no grounds to interfere with the awards after examining both the majority and minority opinions rendered by the Arbitral Tribunal.
The Arbitral Tribunal, comprising three former Supreme Court Justices, issued the award in question, with two arbitrators supporting the majority opinion and the presiding arbitrator delivering a dissenting opinion. Both MIAL and Delhi International Airport Limited (DIAL) raised similar disputes. In a bid to enhance airport standards through private sector participation, the government invited bids for private equity infusion in the Delhi and Mumbai airports. The AAI selected Joint Venture Companies (JVCs) as private partners for the development of the domestic and international airports at Mumbai and Delhi.
The concession for Chhatrapati Shivaji Maharaj International Airport (CSMIA) was awarded to a GVK-led consortium, leading to the incorporation of MIAL as a ‘Joint Venture Special Purpose Vehicle.’ The JVC of MIAL consisted of GVK (now Adani Airport Holdings Ltd.) with 74% shareholding, while AAI held the remaining 26%.
A GMR-led consortium was the successful bidder for Indira Gandhi International Airport (IGIA), resulting in the incorporation of the JVC for DIAL, where GMR acquired 74% shares and AAI retained 26%. The Operation, Management, and Development Agreement (OMDA), dated April 4, 2006, for both DIAL and MIAL contained a central provision regarding the annual fee payable by the JVC to AAI, forming the revenue-sharing model between the primary stakeholders. TheOMDA also included supplementary agreements, such as the State Support Agreement (SSA) for each airport, entered into by the government and the JVCs on April 26, 2006. The parties signed nine other covenants, collectively termed the project agreements.
The current dispute arose from differing interpretations between AAI and DIAL/MIAL regarding the term'revenue'’ as defined in the OMDA, which outlined the process for calculating the annual fee payable to AAI. Both DIAL and MIAL claimed they had been remitting the annual fee based on gross receipts credited to their profit and loss accounts rather than the projected revenue outlined in the business plan.
While the OMDA defined ‘Revenue’ as all pre-tax gross revenue excluding five principal heads of exclusion, Article 11.1.2 obligated the JVC to pay an annual fee of 45.99% for DIAL and 38.7% for MIAL based on the projected revenue in the business plan. The Arbitral Tribunal noted that DIAL and MIAL had continued paying the annual fee based on gross receipts until they alleged a discovery of a mistake. DIAL contended that due to this error, it had overpaid an amount of ₹6,663.25 crores as of September 30, 2018, while MIAL asserted an excess payment of ₹3,582.92 crores.
The Court noted that the majority opinion of the arbitrators found that both parties had misinterpreted the contract's terms, concluding that the JVC was obliged to share ‘projected revenue’ instead of'revenue..’ The Court clarified that, apart from the upfront fee, the JVC was required to pay AAI an annual fee of 45.99% and 38.7% of the projected revenue as outlined in the business plan. This annual fee was to be paid in 12 equal monthly installments at the beginning of each calendar month.
The Court referenced Article 11.1.2.3, which stipulated that if actual revenue exceeded projected revenue for any quarter, the JVC would owe an additional annual fee reflecting the difference between the actual and projected quarterly revenue. In defining the scope of Section 34 of the Act, the Court emphasized that this remedy is not intended to correct errors of judgment or to be wielded for independent reviews of awards based on subjective opinionsof what may be more justified.
The Court examined DLF Universal Ltd. v. Town and Country Planning Department, (2010) 14 SCC 1, which articulated that the primary test of contract interpretation is to ascertain the purpose and objective underlying the contract formation. It noted that while the presiding arbitrator adhered to more traditional rules of interpretation, the co-Arbitrators applied a business efficacy approach, considering the larger contractual bargain derived from the project agreements.
The Court opined that when the Co-Arbitrators encountered the term'revenue,,’ which had not been distinctly utilized, they rightly analyzed the underlying intent of the parties in drafting the contract. Although ‘Revenue’ was defined in the OMDA, the clause itself did not attempt to regulate the revenue share between AAI and the JVCs. The upfront and annual fees were determined based on the provisions in Chapter XI of the OMDA.
The Court concluded that, although 'revenue'' was defined, it was not independently employed later in the contract. It acknowledged that the JVC's right to recover costs incurred in creating aerospace assets could not be disregarded. The covenant enabling cost recovery could not detract from the creation of essential infrastructure and assets per overarching contractual obligations.
The Court found that the presiding arbitrator's interpretation of 'revenue'’ was excessively narrow and failed to consider the reciprocity intended in the project agreements. It criticizedb the presiding arbitrator's assertion that the OMDA should be interpreted in isolation,highlighting that this perspective overlooked the fact that the grant represented a pioneering initiative for private equity infusion and airport management.
The Court stated that the majority opinion rightly recognized AAI's position, which, as a JV partner with a 26% stake in the JVCs, was entitled to revenue from both the upfront and annual fees. The majority’s approach was based on a harmonious interpretation of the project agreements, balancing infrastructure creation with the provisions allowing JVCs to recover costs and generate a reasonable return.
The Court dismissed AAI’s contention that the majority opinion added to the exclusions defined in the ‘Revenue’ definition. It clarified that the shareable revenue as per Chapter XI should be quantified based on the income earned from charges imposed and collected while providing aeronautical and non-aeronautical services. The income generated from investment activities was meant to benefit the JVC's constituents, including AAI.
The Court concluded that the majority's decision regarding payments to authorities and utility receipts was sound. It acknowledged that the computation exercise was entrusted to an independent auditor recognized in Chapter XI of the OMDA, with the arbitral tribunal empowering the auditor due to the absence of a mutually agreed authority. The Court found AAI's assertion that new evidence would need to be presented before the Independent Auditor to be incorrect.
Ultimately, the Court found no grounds to interfere with the Arbitral Tribunal's awards and dismissed the petition.
