New Delhi: The tug-of-war between the Himachal Pradesh government and EIH Limited for the control of the iconic Wildflower Hall hotel, located in a reserved forest area of Chhabra, Shimla, intensified over the weekend.
High drama was witnessed Saturday as the state government sent a team to take over the hotel’s management, prompting EIH Limited, an Oberoi Group company, to approach the Himachal Pradesh High Court, seeking urgent intervention.
A single-judge bench was constituted to take up EIH’s application.
Justice Satyen Vaidya subsequently directed the state not to interfere in the “day-to-day management”, and with the possession of the hotel.
ThePrint has accessed a copy of the order.
The legal dispute between the Himachal Pradesh government and EIH Limited dates back to 2002, seven years after the two parties entered into a Joint Venture (JV) agreement to construct and run a “five-star hotel” in Chhabra.
Since the land on which the hotel stands belongs to the state government, the JV tasked EIH with bearing the construction cost.
Under the JV, which is part of case papers accessed by ThePrint, 35 percent equity shares were reserved in favour of the state.
Differences arose when the Himachal Pradesh government proposed to terminate the JV, while allowing EIH to continue operating the hotel with all its rights and liabilities on a leasehold basis.
EIH opposed this redrawing of the agreement and took the matter to court.
ThePrint traces the history of this two-decade-old litigation, the nature of the dispute, and the court orders delivered over the years.
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Over two decades
EIH first raised a legal dispute with the state government before the Company Law Board, a quasi-judicial body, and the Himachal Pradesh High Court, where it opposed the state’s move to end the JV and replace it with a lease agreement.
In December 2003, a two-judge bench referred all questions of dispute to an arbitral tribunal headed by former Supreme Court judge Justice R.P. Sethi.
According to the terms of reference, the tribunal was asked to adjudicate upon the legality of the state government’s action to cancel the JV agreement.
Following a detailed hearing, the tribunal, in July 2005, concluded that the state could have called off the JV to let EIH run the property under a land-lease agreement.
It directed the state to facilitate the transfer of all its shares to EIH on payment of a consolidated sum of Rs 12 crore.
This amount included the cost of land — Rs 7.5 crore — and Rs 1 crore for using 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 were allowed to approach the court.
The lease rent to be paid by EIH was also fixed in the tribunal’s order. For the first five years, it was to be Rs 1.25 crore annually, with an increase suggested every four years. By the end of the 40th year, EIH would be paying Rs 4 crore annually as lease money to the state, the tribunal said.
The state, meanwhile, was directed to provide all facilities for the proper running of the hotel in accordance with the law, and accord the registration of an additional 57 rooms in the original certificate.
One of the significant declarations in EIH’s favour was that the tribunal upheld the construction of the hotel, as outlined in the revised sanctioned plan, though it was found to be “defective”.
This, the tribunal said, was in the interest and benefit of the parties. However, it said deviations should be compounded — excused — by the director for town and country planning on the payment of a “lump sum amount of Rs 5 lakh”.
EIH was given three months to act in accordance with the law.
In case of its failure to do so, the arbitral tribunal gave the state liberty to take a fresh decision and action to take over Wildflower Hall hotel and run it.
The tribunal restrained the two parties from claiming damages from each other.
Trading blame
EIH chose to challenge the award before a single-judge bench of the Himachal Pradesh High Court, and lost in February 2016.
An appeal against the single-judge’s decision was also dismissed in October 2022 by a division bench, which held that EIH’s failure to make the hotel fully commercially operational by March 2002 resulted in automatic reversion of the property to the state government.
Since the division-bench decision remained unchallenged, the arbitration award became final. This led to filing of two separate petitions in the Himachal Pradesh High Court, where both the state and EIH sought execution of the arbitration award of 2005.
This was done because none of the two sides took steps to implement the arbitration award.
In the HC, both blamed each other for delaying the implementation of the award.
EIH claimed it had already deposited the amount as was required of them, even as it continued to litigate, and said the state should have come forward to execute the lease deed in terms of the arbitration award.
The state contended the arbitration award obligated EIH to take steps within three months of the tribunal’s decision. Since EIH had failed to fulfil the obligation, it said, it had lost rights, title and interest in the property, and the state had, as a consequence, become entitled to take over the property.
The state also contested EIH’s assertion of having paid money in terms of the arbitration award. It accused EIH of dragging the litigation for 17 years after the tribunal pronounced its award.
Even after the dismissal of its appeal, EIH never performed its part of the obligation under the award within three months, it said.
In its petition, the state demanded an 18 percent compound interest on the lease amount fixed by the arbitral tribunal. It said the state should be “compensated for undue delay caused at the end of EIH in implementation of the award”.
The state claimed EIH owed it more than Rs 400 crore in terms of lease money. This amount, it said, included the statutory interest. It also claimed interest on the consolidated amount of Rs 12 crore, which included the compounding fee for regularising deviations in the building.
In response, EIH asked the HC to direct the state to execute and register a lease deed in its favour in terms of the arbitration award. As for the interest, EIH maintained that since the arbitrator never specified the rate of interest to be paid on the award amount, the law entitled it to pay 18 percent simple interest.
Delivering its judgment on 17 November, the HC said EIH had not completed the necessary formalities outlined in the arbitration award to continue with its lease-hold rights.
It also held as absurd EIH’s argument that its liability to pay lease rent would begin only after the execution of a formal lease order.
“The first party has already utilised the benefits of property by successfully running Hotel Wildflower Hall from the date of award,” the HC observed, holding that EIH would have to pay the lease amount from the date when the arbitration award was announced in 2005.
However, the bench agreed with EIH’s plea that payment of the consolidated amount of Rs 12 crore should be subject to annual simple interest of 18 percent.
Simultaneously, the bench also asked the state to decide whether it was ready to resume and take possession of the property immediately. This question was posed as the arbitration award granted the state the right to do so on non-compliance of the obligation by EIH, which the HC held was made out.
While the state was asked to respond on 15 December, it chose to take over the hotel’s possession before informing the court about its decision.
(Edited by Sunanda Ranjan)
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