Himachal govt wins tussle over Shimla’s Wildflower Hall as SC dismisses Oberoi Group firm’s appeal

Himachal govt wins tussle over Shimla’s Wildflower Hall as SC dismisses Oberoi Group firm’s appeal

New Delhi: The Supreme Court Tuesday refused to interfere with a Himachal Pradesh High Court order directing East India Hotels (EIH) Limited, an Oberoi Group company, to hand over its iconic Wildflower Hall hotel in Shimla’s Chharabra to the state government.

A bench led by Justice Abhay S. Oka dismissed an EIH appeal against the 6 January order but gave the company a year to comply with it. The HC had given the company two months to vacate and hand over the hotel’s possession.

The HC order said EIH had failed to comply with a July 2005 arbitration award that required the company to execute a fresh lease deed with the state government. It came after the state government filed a petition, seeking the execution of the arbitration award. The state government had also said it was willing to run the place.

In an earlier 17 November order, the HC said EIH had not completed the formalities outlined in the arbitration award to continue with its leasehold rights and asked the state government whether it was keen to take over the hotel.

However, instead of waiting for the next court hearing, the state sent an IAS officer and three dozen policemen to execute an order signed by the principal secretary of tourism to take over the hotel. The HC intervened but later decided in the state’s favour and asked EIH to vacate the premises.

On Tuesday, EIH’s lawyer and senior advocate Shyam Divan contested the HC’s observation that the company did not comply with the terms of the arbitration award. However, senior counsels Mukul Rohatgi and Dhruv Mehta, who opposed the EIH appeal on behalf of the state, argued that according to the arbitration award, the company should have executed a lease deed within three months of the declaration of the award. EIH lost the right to manage the hotel when it failed to do so, they said.

Since the state appeared on caveat before it, the Supreme Court did not issue any formal notice seeking its response. It simply rejected the EIH appeal.

Case dates back to 2002

The legal tussle between the Himachal Pradesh government and the EIH dates back to 2002, seven years after the two parties entered into a Joint Venture (JV) to construct and run a “five-star hotel” in Chharabra. Since the land on which the hotel stands belongs to the state government, the JV tasked the EIH with bearing the construction cost.

Differences arose when the state government proposed to terminate the JV while allowing the EIH to continue operating the hotel with all its rights and liabilities on a leasehold basis.

The EIH opposed this redrawing of the agreement and took the matter to court. It first raised the issue before the Company Law Board — a quasi-judicial body, and the Himachal Pradesh High Court.

In December 2003, a two-judge HC bench referred all questions of dispute to an arbitral tribunal headed by former Supreme Court judge Justice R.P. Sethi.

Following a detailed hearing, the tribunal, in July 2005, concluded that the state could have called off the JV to let the EIH run the property under a land lease agreement. It also directed the state to facilitate the transfer of all its shares to the EIH on payment of a consolidated sum of Rs 12 crore. This amount included Rs 7.5 crore, the cost of land, and Rs 1 crore for use of the land despite the termination of the JV.

The tribunal said the lease shall initially be for 40 years from the date of its award, renewable, thereafter, with the consent of the parties. In case of a disagreement, the parties could approach the court.

The tribunal order fixed the lease rent the EIH would have to pay — Rs 1.25 crore annually for the first five years, with an increase suggested every four years. By the end of the 40th year, the tribunal said, the EIH would be paying Rs 4 crore annually as lease money to the state.

The tribunal also directed the government to provide all facilities for the proper running of the hotel and accord the registration of an additional 57 rooms in the original certificate.

Among the significant declarations in EIH’s favour, the tribunal upheld the construction of the hotel as outlined in the revised sanctioned plan despite it being found “defective”.

It gave the EIH three months to act, and in case of failure, the government would have the liberty to take a fresh decision and action to take over Wildflower Hall and run it.

The EIH chose to challenge the award before a single-judge bench of the HC and lost that case in February 2016.

A division bench also dismissed an appeal against the single-judge bench’s decision in October 2022 and held that the EIH’s failure to make the hotel fully commercially operational by March 2002 resulted in the automatic reversion of the property to the state.

The EIH did not challenge this decision, so the arbitration award gained finality.

Later, both sides moved the HC for the execution of the 2005 arbitration award. Both blamed each other before a single-judge bench for delaying the award’s implementation.

The HC bench, in its 17 November 2023 judgment, called “absurd” the EIH argument that its liability to pay lease rent would begin only after the execution of a formal lease order.

“The first party (EIH) has already utilised the benefits of property by successfully running Hotel Wildflower Hall from the date of award,” it observed, upholding that the EIH would have to pay the lease amount from the date of announcement of the arbitration award in 2005.

However, the bench agreed with the EIH’s plea that the payment of the consolidated amount of Rs 12 crore should be subject to an annual simple interest of 18 percent.

(Edited by Madhurita Goswami)