Wildflower hall law suit: Major set back to Oberoi group as HP HC dismisses decades old litigation 

The High Court of Himachal Pradesh, has today dismissed an filed by EIH Ltd. (East India Hotels Ltd.) and others against State of H.P and others, in a matter/despute pertaining to property named ‘Hotel Wildflower Hall, Chharabra, near Shimla.

A Division Bench comprising Justice Tarlok Singh Chauhan and Justice Chander Bhusan Barowalia, passed this order on a appeal filed by EIH Ltd. (East India Hotels Ltd.), under Arbitration and Conciliation Act.

The crux of the matter is that State of H.P. was the owner of the property named ‘Hotel Wildflower Hall, Chharabra, near Shimla’, which was being used for running a hotel by the H.P. State Tourism Development Corporation. In or around 1993, a devastating fire broke out in the hotel and the same got completely burnt down. The State Govt. decided to explore various methods and possibilities of putting the hotel back in operation. In furtherance thereto, respondent floated global tenders inviting offers from various interested parties for making and running of a Five Star Hotel at that site. Appellant EIH Ltd., which already had most established hotel chain in the Country as also 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 the Appellant East India Hotels Limited. Under the Joint Venture option, the State envisaged effective participation in all significant decisions which require mandatory 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 a 5 Star Deluxe Hotel at Wild Flower Hall. As per the JVA, the State Government was to enjoy shareholding of not less than 35% in MRL whereas EIH was to enjoy shareholding of not less than 36% but not more than 55%. The balance 10% was to be reserved for public issue.

The State Government was entitled to terminate the JVA by a written notice in the event the hotel was not made fully commercially operational within 4 years from the date of handing over of possession of land. However, the State Government may in its discretion choose not to terminate the agreement even after expiry of 4 years, in that case a penalty of Rs. 2 crores per annum was to be payable by EIH to the State Government. After expiry of 6 years from the effective date, if the hotel was still not fully commercially operational, the JVA was to stand automatically terminated.

On 06.02.1997, registered conveyance deed was executed by the State Government in favour of MRL qua the land at Wildflower Hall. On 03.05.2000, 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 State Government, in its discretion, chose not to terminate the JVA, however, EIH failed to pay the penalty amount of Rs. 2 crores per annum for the period beyond four years. On 31.10.2000, MRL submitted application for registration of entire 85 rooms of the hotel to the Tourism 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 Tourism Department directed MRL to obtain completion certificate from Town and Country Planning Department for 28 rooms, without which registration of the rooms could not be granted. On 09.02.2001, the Town & Country Planning Department granted NOC to MRL. On the basis of this NOC, the Tourism Department granted registration certificate dated 30.03.2001 qua 28 rooms to MRL.

Since there was breach of material terms of the JVA by the Appellant the State Government issued an order dated 06.03.2002, terminating the JVA with EIH inter alia on the ground that the latter had failed to make the hotel at Wildflower Hall fully commercially operational even after lapse of 6 years from the date of execution of the JVA.

EIH filed Company Petition before Company Law Board against actions taken by the State Govt. Company Law Board allowed the petition filed by EIH Ltd.  The State Government preferred Review Petition before the High Court. On 17.12.2003, High Court, by way of a consent order disposed of both the Review Petition as well as the Company Appeal by referring all outstanding disputes between the parties to a Sole Arbitrator.

The Arbitrator found that although the termination order dated 06.03.2002 issued by the State Government was premature, however, the latter was legally entitled to terminate the JVA, as the hotel was not fully commercially operational even after six years.

EIH challenged the Award dated 23.07.2005, before the High Court. The Single Judge, vide judgment dated 25.02.2016 dismissed EIH’s objections to the Award. Subsequently, on 01.06.2016, the instant appeal was filed.

The appellants contended that the JV Agreement was executed only between EIH and the State Govt. 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 relevant HP local laws. The appellants also argued that there were various delays on the part of the State Government which contributed to delay in completion of the project.

The Court found that in the instant case the Appellant have failed to make the hotel fully commercially operational by 03.05.2002, which resulted in automatic reversion of the property to the State Government. The Court found no merit in this appeal and accordingly dismissed the same.