The Tata Group faced a legal setback as the Delhi High Court rejected Indian Hotels Company Ltd.'s plea against the auction of Delhi's iconic Taj Mansingh hotel.
This order permits the New Delhi Municipal Corporation (NDMC) to auction the hotel that was being run by the Tata Group company for 33 years.
Indian Hotels had challenged the September 5 order by a single judge of the Delhi High Court that permitted the auction of the hotel on 1, Mansingh Road in New Delhi. IHCL challenged the single judge's ruling before a two-judge bench in the same court. The single judge had ruled that IHCL was not entitled to an extension to run the hotel.
No Extension
In 2011, a committee of senior government officials was set up to look into the company's proposal for a 30-year extension to run the hotel owned by NDMC. However, the council decided to opt for a public auction of the hotel despite the earlier assurance in 2012 that an extension would be granted. The issue of extension went back and forth and IHCL moved the Delhi High Court in 2013.
The 1978 Agreement
IHCL and NDMC signed a joint venture agreement for the eleven storey hotel in 1978, under which land and construction costs were borne by NDMC and the operation and maintenance charges were borne by IHCL.
IHCL's license expired in 2011 and ad-hoc extensions were granted to the company till January 31, 2016.
‘Goodwill' Of The Tata Brand
The Tata Group company's counsel, Harish Salve argued in court that the group holds huge goodwill which added to the popularity of the Delhi hotel. In its petition the company had stated that the company “brought in brand equity associated with the name ‘Taj Group of Hotels' and the reputation of the industrial house which runs the same.”
Lawyers close to the case said IHCL will challenge the Delhi High Court order in the Supreme Court.
Stock Pounded
The Indian Hotels stock fell as much as 11.4 percent in early trade due to the fallout of ousted Tata Sons chairman Cyrus Mistry's warning that the group could face writedowns to the tune of $18 billion dollars. The stock pared losses to 3.8 percent by around 10 a.m., only to fall again on the court's verdict.
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