Bombay HC quashes cancellation of GAL contract to build new international airport at Nagpur

GAL had won the bid to build the new international airport here in 2018 and was issued a letter of award (LoA) on March 7, 2019, three years after the bid process was initiated in 2016. But a year later, on March 19, 2020, GAL was informed that its bid was cancelled “as per directions from government of Maharashtra”. No reason was cited for the cancellation.

GAL had fielded senior Supreme Court lawyer Abhishek Manu Singhvi to plead its case. He was assisted by Charuhas Dharmadhikari.

The new international airport is part of the Multimodal International Hub Airport at Nagpur (MIHAN) project that envisages developing an international air cargo and passenger hub at Nagpur. The project, dating back to over two decades, has still not taken off as planned.

The Dr Babasaheb Ambedkar International Airport, as it is officially known, is currently run by MIHAN (India) Limited (MIL), a joint venture company of Maharashtra Airport Development Company and the Airports Authority of India (AAI), which have a share-holding of 51 per cent and 49 per cent, respectively.

“The process of privatisation of the airport was initiated as it was the main mandate of MIL,” said a senior MIL official.

MIL, which was a respondent in the case along with the Maharashtra government, has been directed by the HC to complete the contract process formalities within the next six weeks.

The company winning the bid was supposed to make an investment of Rs 1,685 crore in the first four years and continue to invest in later stages as per the passenger flow.

GAL was the highest bidder, offering 5.76 per cent of the gross revenue of the airport, which was subsequently raised to 14.49 per cent during the post-bid negotiations.

The Nagpur airport was operating at barely break-even level of revenue versus losses in 2016-17. However, it showed a ‘profit before tax’ of Rs 49 crore in the subsequent year. In a later development, the Ministry of Civil Aviation questioned the GAL contract offer vis-a-vis the revenue sharing arrangement.

The main query was regarding low realisation of revenue by MIL in light of the hike in its revenue to the level of Rs 49 crore. The Ministry also pointed out that there would be a projected passenger volume growth of about 15-20 per cent and, as such, MIL was tipped to register further increase in its revenue. A similar opinion was also expressed by the then Project Monitoring and Implementation Committee (PMIC) of the state government, headed by the chief secretary.

GAL, however, argued that the subsequent hike in the airport’s profit was due to increase in user development fee, which was to be used for augmenting passenger facilities at the airport.

Following no progress by MIL in executing the “concession agreement (contract)” with GAL, the latter moved the High Court in March last year, seeking implementation of the contract.

The court issued notices on March 11 to MIL and the state government and listed the case for final disposal on March 18 last year. But on March 16, the state government informed MIL that it was annulling the said contract on the basis of the opinion by PMIC in October 2019. MIL informed GAL about the same in a letter issued on March 19.

GAL then moved another writ petition, seeking quashing of the annulment of contract.

MIL lawyer M G Bhangde argued that the contract was annulled not only because of the low realisation of the revenue but also because of non-receipt of approval from the Centre.

GAL pleader Singhvi argued that the so-called letter of acceptance, as the MIL prefers to call it, is actually a letter of award as per the stipulations in the bid document. He also argued that the necessity of a subsequent approval from the government of India was a mere post-bid formality. Singhvi also argued that after GAL submitted the signed duplicate copy of the agreement to MIL within the stipulated seven days and paid the bid security of Rs 16.85 crore, the said contract should have been considered as complete. Singhvi described MIL’s decision to annul the contract as arbitrary.

The HC, after scrutinising the bid stipulations, accepted the petitioner’s arguments and quashed the annulment of contract while allowing the GAL petition. “We find that in the entire Request for Proposal (bid invitation), it has not been stated anywhere that acceptance of bid and issuance of LoA would be subject to further approval of Government of India. But in the letter dated March 7, 2019, the acceptance, though given, has been made subject to such approval. This condition is a post-bid condition, as rightly submitted by learned senior counsel for the petitioner, and therefore would not prevent the birth of a contract from taking place,” the bench observed.

“We further find that a direction to the respondents is necessary to take further steps in the matter,” the bench said.

‘The ball is now in the Centre’s court’

MIL lawyer M G Bhangde pointed out that the High Court has made an important observation in its judgment where it says, “After all, there is a difference in forging of a contact between the parties and its execution being frustrated by something not within the control of parties to the contract. It would then mean that if the approval is obtained, the contract is on and the Concessionaire has to take further steps. If the approval is rejected, it would only lead to frustration of the contract with attendant consequences. But, here, in this case, it is an established fact that not a single letter was sent by the respondent to the GoI seeking its specific approval.

“The ball is now in the Centre’s court. If the central government refuses to approve it, the contract would frustrate.”

GAL lawyer Charuhas Dharmadhikari, however, said, “Union of India and state government have already given their in-principle approval and hence there is no question of MIL now wriggling out of the obligations as vested rights have been created in favour of petitioner.”