Under an agreement between the two parties signed in 2006, MIAL pays 38.7 per cent of its projected revenue as an annual fee.
The Delhi High Court
has restrained the Airports Authority of India (AAI) from collecting 38.7 per cent of Mumbai airport’s revenue as annual fee in view of the adverse financial impact of the Covid-19 pandemic.
had invoked the force majeure clause to challenge the transfer of Rs 29 crore from its escrow account to the AAI
Last Friday, the HC granted interim relief to MIAL
and restrained AAI
from transferring funds from the escrow account to itself. The relief will be in place till an arbitral tribunal decides on the matter.
The court also ruled that 38.7 per cent of the actual payments received by MIAL
from the functioning of the airport will be deposited in the escrow account from a prospective basis from the date of judgment. Both the parties have also been directed to appoint an arbitrator each within 10 days to decide on the dispute in detail.
The order is a setback for AAI, which is likely to post a loss in financial year 2020-21 and may appeal it. Revenue share from Delhi and Mumbai airports forms an important source of revenue for the government-owned operator.
MIAL, set for a change in ownership, is a joint venture of AAI
and the GVK group. (In August, Adani group announced the takeover of the airport from GVK group, but the process is underway).
Under an agreement between the two parties signed in 2006, MIAL
pays 38.7 per cent of its projected revenue as an annual fee.
An escrow account has been set up and all receivables of the Mumbai airport
are deposited in it, and are then used to pay statutory dues and annual fee to AAI.
In March, MIAL invoked the force majeure clause under the agreement to suspend the revenue share agreement as the pandemic was impacting traffic flows and revenue.
The AAI allowed a three month deferral till July 15 for April-June dues “on account of a force majeure event”. However, it said the fee would have to be paid from July.
MIAL said it should be entitled to force majeure benefit for the entire duration of the pandemic. It moved the HC seeking interim relief under the Arbitration and Conciliation Act after Rs 29 crore was transferred from the escrow account to AAI on July 7.
In its judgment, the HC said that prima facie a case exists in favour of MIAL, as regards the adverse financial impact of Covid-19 and the resultant restrictions.
The court said it was not enough for the AAI to emphasise that MIAL was required to pay a percentage of its revenue to it, but also demonstrate that MIAL had the financial wherewithal to do so. “It cannot be said, on the basis of the materials on record that the AAI has succeeded in bridging this gap,” Justice C Hari Shankar observed.
A senior AAI executive said the authority will consult its lawyers and decide on future course of action.
“The judgment has appreciated the effects of Covid-19 on the aviation sector and, in particular, the airport operator and has as such restrained AAI from transferring any amounts to it under the operations, management and development agreement. In fact, the court has also recognised the fact that at present only limited operations are being carried out by the airport and that as such prima facie the annual fees to AAI cannot be said to be payable till the level of activity existing prior to the pandemic,” said advocate Kartik Nayar, who appeared for Mumbai airport.
“In doing so, the court has also appreciated the fact that apart from reduced airport operations, even collection of revenue has been affected owing to the pandemic and, therefore, has held that payments cannot be said to be due to AAI on an accrual basis as was being done under the agreement,” Nayar said.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.