Shimla: The Himachal Pradesh High Court on Thursday dismissed an appeal of East India Hotels Ltd (EIH Ltd) and others against the state in a matter relating to Oberoi Group’s Wildflower Hall, a luxury spa on the outskirts of the state capital.
A division bench of Justice Tarlok Singh Chauhan and Justice Chander Bhusan Barowalia passed this order on an appeal filed by EIH Ltd under the Arbitration and Conciliation Act.
The Himachal Pradesh government was the owner of Wildflower Hall, which was earlier used by the HP State Tourism Development Corporation as a hotel. In 1993, a devastating fire broke out in the hotel and it got completely burnt down.
The state decided to explore methods and possibilities of putting the hotel back in operation. In furtherance thereto, the state floated global tenders inviting offers from various interested parties for making and running of a five-star hotel at that site.
The appellant, EIH Ltd, which already had an established hotel chain in the country and abroad, participated in the tender process.
A high-power committee was formed and after prolonged deliberations, discussions and negotiations, the state government decided to partner with EIH Ltd.
Under the joint venture, the state envisaged effective participation in all significant decisions which require approval of the state. The parties agreed to incorporate a Joint Venture Company by the name of Mashobra Resorts Ltd (MRL) for the purpose of running Wildflower Hall.
As per the venture, the state was to enjoy shareholding of not less than 35 per cent in MRL, whereas EIH Ltd was to enjoy shareholding of not less than 36 per cent but not more than 55 per cent. The balance 10 per cent was to be reserved for public issue.
The government was entitled to terminate the venture by a written notice in the event the hotel was not made fully commercially operational within four years from the date of handing over of possession of land.
However, the state may in its discretion choose not to terminate the agreement even after expiry of four years. In that case a penalty of Rs 2 crore per annum was to be payable by EIH Ltd to the government.
After expiry of six years from the effective date, if the hotel was still not fully commercially operational, the venture was to stand automatically terminated.
On February 6, 1997, a registered conveyance deed was executed by the government in favour of MRL qua the land at Wildflower Hall. On May 3, 2000, the period of four years from the date of handing over of possession expired without the hotel at Wildflower Hall being made fully commercially operational.
The government, in its discretion, chose not to terminate the venture. However, EIH Ltd failed to pay the penalty amount of Rs 2 crore per annum for the period beyond four years.
On October 31, 2000, MRL submitted application for registration of entire 85 rooms of the hotel to the department. The Tourism Department after carrying out inspection found that out of 85 rooms, only 28 rooms were fully functional and ready for occupation.
Accordingly, the department directed MRL to obtain completion certificate from the Town and Country Planning Department for 28 rooms, without which registration of the rooms could not be granted.
The appellants contended that the joint venture agreement was executed only between EIH Ltd and the government and as such it could not bind MRL which had not even been incorporated.
It was further submitted that there was no legal requirement for completion certificate under the state local laws. The appellants also argued that there were various delays on the part of the government which contributed to delay in completion of the project.
The court found the appellant has failed to make the hotel fully commercially operational by May 3, 2002, which resulted in automatic reversion of the property to the government.
The court found no merit in this appeal and accordingly dismissed it.
Wildflower Hall, sought-after by high-end tourists and celebrities, was long under litigation between the two partners.
British-era Wildflower Hall was once the residence of Lord Kitchener, Field Marshal in the British Army who played a significant role in the early part of World War I.
After India’s Independence, the building was handed over to the Himachal Pradesh Tourism Development Corporation for running a hotel.
Wildflower Hall is located at Charabra at a height of 8,300 feet, and commands a breathtaking view.
–IANS