Delhi High Court Upholds Arbitral Award In Dispute Over Interpretation Of “Revenue” In Agreement Between AAI, DIAL/MIAL

The Delhi High Court bench of Justice Yashwant Varma, while adjudicating the petitions filed by the Airports Authority of India (AAI) under Section 34 of the Arbitration and Conciliation Act, 1996, has held that courts while evaluating a challenge under Section 34 would not be justified in faulting an award merely because an alternative view was possible or where they find that, in their opinion and when independently evaluated, a more just conclusion could have been possibly reached. The court dismissed the petitions and concurred with the majority opinion of the arbitral tribunal. Brief Facts: AAI filed two petitions under Section 34 of the Arbitration and Conciliation Act, 1996, challenging the arbitral awards dated 16.07.2022. These awards were rendered in disputes between the AAI and Mumbai International Airport Ltd (MIAL) / Delhi International Airport Ltd (DIAL). The Airports Authority of India (Amendment) Act, 2003, introduced Section 12-A, which enabled AAI to lease airport premises. The Government of India invited bids for the infusion of private equity at the Delhi and Mumbai airports. AAI selected Joint Venture Companies (JVCs) as private partners for the operation, maintenance, upgradation, modernization, and development of these airports. The concession for Chhatrapati Shivaji Maharaj International Airport was awarded to a GVK-led consortium. MIAL was incorporated as a 'Joint Venture Special Purpose Vehicle'. A GMR Group-led consortium was the successful bidder for Indira Gandhi International Airport. Pursuant to the bidding process, the successful bidders and AAI executed the Operation, Management and Development Agreement (OMDA) on 04.04.2006. One of the provisions of OMDA related to the Annual Fee which was payable by the JVC to AAI and constituted the revenue-sharing model. The dispute arose between AAI and JVCs over the meaning and scope of the term "Revenue" under the OMDA. The OMDA had explained Revenue to mean “all pre-tax gross revenue”. The 'Projected Revenue' was identified as that which stood disclosed in the Business Plan. The disagreement was whether the JVCs were required to pay the Annual Fee based on their gross receipts or the "Revenue" defined in OMDA, which included certain exclusions. DIAL and MIAL had been paying Annual Fee based on gross receipts credited to their Profit & Loss accounts until they discovered a mistake in 2016 and 2019. They alleged to have overpaid due to a misinterpretation of their obligations and sought restitution for the excess payments made to AAI, amounting to Rs. 6663.25 crores for DIAL and Rs. 3582.92 crores for MIAL. The JVCs prayed that the Tribunal declare that the Annual Fee should be calculated based on "Revenue" as defined in OMDA, not on gross receipts. They also sought a refund of the excess amount paid. The AAI opposed their contentions and submitted that Revenue was to be given its ordinary meaning under OMDA and that the Respondents did not overpay. The Minority opinion rendered by the Arbitral Tribunal rejected AAI's prayer to refund the 'excess payments' made under a mistake. The Majority opinion decided in favour of AAI. It affirmed that the Annual Fee should be calculated based on "Revenue" defined in the OMDA. The Tribunal declared that costs related to aeronautical assets were to be excluded from the JVC's shareable revenue when calculating the Annual Fee. The JVC was entitled to a refund for excess payments made from 21.06.2015. Power, utility, property taxes, security equipment maintenance costs, and payments received for utilities (to the extent paid to third-party providers) were to be excluded from the “pretax gross revenue”. Capital asset sale revenue was also excluded. "Other Income" not from Aeronautical or Non-Aeronautical Services was also excluded. An Independent Auditor was appointed to audit JVC's accounts from 21.06.2015 to recalculate the Annual Fee. The Petitioner challenged the award dated 16.07.2022 before the Delhi High Court under Section 34 of the Arbitration and Conciliation Act, 1996. Submissions: By AAI: The Tribunal misinterpreted the definition of "Revenue" under the OMDA. The reliance on "Projected Revenue" by the Majority in the Impugned Award was erroneous since neither DIAL nor MIAL argued for such an interpretation. The Tribunal's departure from the definition of "Revenue" to "Projected Revenue" constituted a violation of due process, as the parties were not notified nor given an opportunity to address this new line of reasoning.The procedure adopted by the Co-Arbitrators was violative of Section 34(2)(a)(iii) of the Act as was explained by the Supreme Court in Ssangyong Engineering & Construction Co. Ltd. vs. NHAI, where it was observed that if a tribunal considers materials without giving the parties an opportunity to comment, it constitutes a violation of due process.The opinion of...

Delhi High Court Upholds Arbitral Award In Dispute Over Interpretation Of “Revenue” In Agreement Between AAI, DIAL/MIAL

Tazeen Ahmed

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