Tatas may lose their marquee Taj Mansingh hotel in New Delhi

The New Delhi Municipal Council (NDMC) on Thursday deferred the public auction of Taj Mansigh after the Union home ministry wrote to the civic body to cancel Tata-owned Indian Hotels Company’s first right of refusal as it may result in lower bids in the public auction.

Following this, NMDC has sought the opinion of the Solicitor General on the future of Taj Mansingh .

Taj Mansingh Hotel at Mansingh Road in New Delhi is managed by the Tatas but the New Delhi Municipal Council owns the building.

The 33-year lease agreement between NMDC and IHCL ended in October 2011, after which the civic body decided to opt for a public auction, instead of renewing the lease as it would maximise the annual licence fee.

The lease was, however, extended by a year last year, which will end in October 2013. During the period, the civic body had appointed Ernst & Young to value the property. E&Y, in its report, suggested auctioning the property, with the first right of refusal resting with Taj.

In other words, since the Tata group has run the property for 34 years, NDMC had earlier granted the group the right to match the highest bid when controlling rights for the hotel are auctioned. Through the right of first refusal, the conglomerate will be allowed to match the highest bid at the auction and if it does not, it will be given a notice to vacate the property as soon as the auction is completed. However, now the union home ministry believes that allowing IHCL the right to first refusal would mean loss of revenue.

According to media reports , the home ministry, in a letter to NDMC, said “the proposal to allow IHCL to have the ‘first right of refusal’ in the public auction has not been provided for in the lease deed. A provision of ‘first right of refusal’ will result in lower bids in the public auction. Therefore, the ministry of home affairs is of the opinion that ‘first right of refusal’ should not be allowed to IHCL in the proposed auction and fresh lease should be granted by open public auction.”

A report in Business Standard also notes that NDMC is also supposed to reply to IHCL’s plea for a stay order on the auction of the hotel in Delhi High Court on July 18. The court will pass its order on the injunction suit after listening to both the parties. Indian Hotels in its plea had claimed part ownership of the Taj Mansingh hotel and had a right to seek an extension of the lease because it “built a permanent structure” and invested in development of the area.

IHCL had filed an injunction suit in the High Court seeking a stay on the auction of the iconic hotel in Delhi after its two year lease extension came to an end in October 2013.

Rumour has it that rivals like the PRS Oberoi-led EIH, which owns the Oberoi Group of hotels, Sahara and Accor groups have shown interest in the property should there be an auction. If the Tata group were to lose this property, it would be big blow for the company financially as well as strategically.