AIRPORTS AUTHORITY OF INDIA vs MUMBAI INTERNATIONAL AIRPORT LIMITED

* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 15 May 2024
Judgment pronounced on: 18 October 2024
+ O.M.P. (COMM) 17/2023 & IA Nos. 785/2023, 787/2023
AIRPORTS AUTHORITY OF INDIA ….. Petitioner
Through: Mr. Tushar Mehta, SG with Mr. Raghav Shankar, Mr. Prateek Arora, Mr. Karan, Mr. Anubhab Atreya, Ms. Rishieka Ray, and Ms. Pallavi Misra, Advs.
versus
DELHI INTERNATIONAL AIRPORT LTD. ….. Respondent
Through: Mr. Sandeep Sethi, Sr. Adv. with Mr. Milanka Chaudhury, Ms. Naina Dubey, Ms. Harshita Agarwal, Mr. Ravneet Singh, Mr. Lynn Pereira, and Mr. Chaitanya Kaushik, Ms. Seema Mehta, Mr. Vikalp Mudgal, Mr. Saket Sikri, Ms. Priya Singh, Advs.
+ O.M.P. (COMM) 18/2023 & IA Nos. 788/2023, 790/2023
AIRPORTS AUTHORITY OF INDIA ….. Petitioner
Through: Mr. Tushar Mehta, SG with Mr. Raghav Shankar, Mr. Prateek Arora, Mr. Karan, Mr. Anubhab Atreya, Ms. Rishieka Ray, and Ms. Pallavi Misra, Advs.
versus
MUMBAI INTERNATIONAL AIRPORT LTD… Respondent
Through: Mr. Kapil Sibal, Mr. Rajiv Nayyar, Sr. Advs. with Mr. Saket Sikri, Mr. Mahesh Agarwal, Mr. Manu Krishnan, Ms. Pallavi, Mr. R.K. Mohit, Mr. Ajay Pal Singh, Mr. K.V. Srinivas, Ms. Priya Singh, Mr. Vignesh Raj, Mr. Ankur Chawla, Mr. Aditya Samaddar and Mr. R.K. Mohit Gupta, Advs.
CORAM:
HON’BLE MR. JUSTICE YASHWANT VARMA
J U D G M E N T

YASHWANT VARMA, J.
TABLE OF CONTENTS
A. Introduction 3
i. The Operation, Management and Development Agreement and related agreements 11
ii. The Dispute 21
B. The Arbitral Award 30
iii. The Minority Opinion 30
iv. The Majority Opinion 60
C. Submissions 79
v. AAI’s submissions 79
vi. DIAL/MIAL’s submissions 97
D. A Brief Background 131
vii. An Overview of the OMDA and SSA 133
viii. The Role of AERA 161
E. Analysis 162
ix. The Scope of Section 34 163
x. Interpretation of “Revenue” 184
xi. Other Income 222
xii. Payments to Relevant Authorities and receipts for provision of electricity, water, sewage, or analogous utilities 230
xiii. The Role of the Independent Auditor 230
F. Conclusion 241

A. INTRODUCTION
1. These two petitions under Section 34 of the Arbitration and Conciliation Act, 19961 instituted by the Airport Authority of India2 seek to assail the Awards dated 16 July 2022 as corrected in terms of Section 33 of the Act by an order dated 29 August 2022 for Mumbai International Airport Ltd3. The Arbitral Tribunal4 which comprised of three former Supreme Court Justices has rendered an Award, with two of the learned Arbitrators joining in rendering the Majority Opinion with the Presiding Arbitrator delivering a dissent. The Court shall, for the sake of brevity, refer to the views as expressed as the Minority and Majority Opinions. Both MIAL as well as the Delhi International Airport Limited5 had raised similar disputes. The operative part of the impugned Award made in the matter of DIAL is extracted hereinbelow:
“Operative portion of the Award
The Award consists of two parts – (1) the A ward made by the Presiding Arbitrator; and (2) the Award made by the two Co-Arbitrators (Justice J. Chelameswar and Justice B. Sudershan Reddy).
The award of the Presiding Arbitrator sets out the facts and deals with all claims/reliefs. The award by the Co-Arbitrators deals with those claims/reliefs in respect of which they have taken a view differing from that of the Presiding Arbitrator.
In regard to the claims/reliefs on which the two Co-Arbitrators have taken a view different from that of the Presiding Arbitrator, their award, being the majority award would be the decision of the Tribunal and the award of the Presiding Arbitrator on those matters, will be the minority award.
Where the Co-Arbitrators have agreed with the decision of the Presiding Arbitrator on any particular claim/relief, or do not take a view different from the view of the Presiding Arbitrator, the decisions in the A ward of the Presiding Arbitrator become the unanimous decisions of the Tribunal. In view of the above, to avoid any confusion and to bring clarity, the position emerging from the award of the Presiding Arbitrator and the award of the two Co-Arbitrators is set out below after consolidation (with the concurrence of all three members of the Tribunal):-
Prayer para
Claim
Award
78(a)(i)

78(a)(ii)

78(a)(iii)

78(a)(iv)
Declaration that the Annual Fee is payable by the Claimant to the Respondent only on the revenue generated from the Aeronautical Services (Aeronautical Charges less cost relating to Aeronautical Assets recovered) and Non-Aeronautical Services, provided at IGI Airport, with exclusions specified in the definition of “Revenue” under OMDA.
Declaration that the MAF/Annual Fee is payable on the “Revenue” as defined in OMDA and not on the basis of the gross receipts credited to P&L Account.
Declaration that Annual Fee is not payable on depreciation, interest on borrowed funds and the return on equity to investors (Capital Costs) and the same shall be deducted from Aeronautical Charges while arriving at ‘pre-tax gross revenue”.
Declaration that UDF and/or PSF being an appropriate and relevant proxy for the Capital Costs component shall be deducted from Aeronautical Charges while arriving at “Revenue”.
(i) It is declared that for the purpose of computing the Annual Fee payable by JVC the amounts representing the costs relating to aeronautical assets shall be excluded from the shareable revenue of JVC i.e.
a) the amounts spent from the borrowed capital proportionate to each succeeding year along with the interest payable thereon) and
b) the amount spent from the equity of JVC towards the costs relating to the aeronautical assets are liable to be excluded from the ‘Revenue’ of the JVC.
(ii) the JVC is entitled for a further declaration regarding the excess payment made by JVC from 21.06.2015 by mistakenly computing the Annual Fee without deducting the amounts falling under the above mentioned Heads mentioned in the previous sub- paragraph, are liable to be refunded.
78(b)(i)
Declaration that in computing the applicable Revenue, the Claimant is entitled to exclude from the ‘pre-tax gross revenue’, the following payments made by the Claimant, if any, for the activities undertaken by the Relevant Authorities [exclusion (a) in the definition of “Revenue”].

(i) Power/Electricity Charges;

(ii) Charges for supply of water, sewage removal and analogous services.

(iii) Property taxes paid to municipal authorities.

(iv) Upfront fee of Rs.156.19 Crores paid by DIAL to AAI.

(v) Amount incurred for initial capital works-in-progress.

(vi) Payments towards voluntary retirement scheme.

(vii) Payment of officers support cost (personnel).

(viii) Payment of consultancy and audit cost.

(ix) Payment of security equipment maintenance cost.

(x) Payment of maintenance expenses with respect to the area occupied by the Relevant Authorities.

It is declared that in computing the “Revenue”, the Claimant is entitled to exclude from the ‘pre-tax gross revenue’, the Power/electricity charges (paid by DIAL to BSES Rajadhan Power Ltd) less the ‘Pass-through amount received by DIAL (that is any payment received by DIAL for provision of electricity to its concessionaires/ licensees to the extent of amount paid for such utility to BSES Rajadhani Power Ltd.).

It is declared that in computing the “Revenue”, the Claimant is entitled to exclude from the ‘pre-tax gross revenue’, the charges for supply of water, removal of sewage or analogous utilities paid by DIAL to Relevant Authorities, less any ‘Pass-through amounts’ received by DIAL (that is any payment received for provision of water, sewerage and analogous utilities to its concessionaires/ licensees to the extent of the amount paid for such utilities to third party service providers).

It is declared that in computing the “Revenue”, the Claimant is entitled to exclude from the ‘pre-tax gross revenue’, all Property taxes paid by DIAL to the municipal authorities.

Rejected.

Rejected (as not pressed)

Rejected

Rejected

Rejected

It is declared that in computing the “Revenue”, the Claimant is entitled to exclude from the ‘pre-tax gross revenue’, all payments towards security equipment maintenance cost.

Rejected
78(b)(ii)
Declaration that in computing the applicable Revenue, the Claimant is entitled to exclude from the pre-tax gross revenue’ payments received by the Claimant from the provision of electricity, water, sewerage or analogous utilities to the extent of amounts paid for such utilities to third party service providers.
It is declared that in computing the “Revenue”, the Claimant is entitled to exclude from the ‘pre-tax gross revenue’ payments received by the Claimant from the provision of electricity, water, sewerage or analogous utilities to the extent of amounts paid for such utilities to third party service providers.
78(b)(iii)
Declaration that in computing the applicable Revenue, the Claimant is entitled to exclude from the ‘pre-tax gross revenue’ entire consideration that accrues to the Claimant from the sale of any capital assets or items.
It is declared that in computing ‘Revenue’, the Claimant is entitled to exclude from the ‘pre-tax gross revenue’, the entire consideration that accrues to the Claimant from the sale of any capital assets or items. However, the prayer for return of Rs.8.95 Crores (45.99% of Rs.19.46 Crores) on account of sale of capital assets is rejected (on the ground of limitation etc).
78(c)
Declaration that no Annual Fee is payable on the Other Income, i.e., income other than from Aeronautical Services and Non-Aeronautical Services provided by the Claimant.
It is declared that in computing the ‘Revenue’, the Claimant is entitled to exclude from the ‘pre-tax gross revenue’, its ‘Other Income’ (i.e., income other than from Aeronautical Services and Non-Aeronautical Services).
78(d)

78(f)
Grant restitution by directing the Respondent to return the excess amount of Annual Fee paid by the Claimant under a mistake to the following extent:
(i) Rs.10,537.20 Crores comprising Rs.6,663.26 Crores towards restitution/ return of excess Annual Fee paid by the Claimant from 03.05.2006 to 30.09.2018 and interest thereon amounting to Rs.3,873.94 Crores for the period 03.05.2006 to 30.09.2018, along with further interest on the said amount of Rs. 10,537.20 Crores at the rate equivalent to SBI PLR+ 300bps per annum thereon, from 01.10.2018 till the date of return of the aforesaid amount:
AND
(ii) Further amounts (to be quantified) towards restitution / return of excess Annual Fee paid by the Claimant from 01.10.2018 till the date of the Award along with interest at the rate equivalent to SBI PLR + 300bps per annum, calculated. from the end of each quarter in which such excess Annual Fee was paid till the date of return of the aforesaid amounts;

Direction that the Claimant shall be entitled to set-off the amounts. awarded in terms of Prayers (a) to (e) above or any part thereof against any and all amounts including Annual Fee payable to the Respondent from time to time until full recovery/payments of the awarded amounts;
For arriving at the actual figure of the amount which are liable to be deducted from the total receipts of JVC under the heads of Aeronautical Charges and Non-Aeronautical Charges, it requires a very careful examination of the accounts of JVC for the period commencing from 21.06.2015. Therefore, such examination shall be undertaken by the Independent Auditor to determine the actual amounts liable to be deducted for the period commencing from 21.06.2015 to the date of this Award. Once such determination is made, the Annual Fee payable by JVC for each succeeding financial year commencing from 21.06.2015, is required to be re-calculated by the Independent Auditor. The difference between the actual amounts already paid towards the Annual Fee by JVC for each of the above mentioned years and the amount determined by the Independent Auditor as Annual Fee, as mentioned above, is liable to be refunded. However, we deem it appropriate that such amounts be given credit to while computing the Annual Fee payable by JVC in future. Whether the entire amount (liable to be refunded) is required to be given credit to in one or in three equal installments in three different financial years, is at the discretion of the AA?.
78(e)
Grant all costs of the arbitration to the Claimant.
Both parties are directed to bear their respective costs.
78(g)
Grant such further and other reliefs as the nature and circumstances of the case may require.
NIL

2. For the purposes of evaluating the challenge which stands raised, we deem it apposite to take note of the following essential facts. AAI is an authority constituted under the Airports Authority of India Act, 19946 for the better administration and management of airports and civil aviation infrastructure. The Airports Authority of India (Amendment) Act, 20037 saw the introduction of Section 12-A in the aforesaid enactment and which enabled AAI to lease out premises of an airport in furtherance of the statutory functions entrusted to it.
3. Seeking private sector participation in order to scale up the standard of airports, the Government of India is stated to have invited bids for the infusion of private equity in respect of the Delhi and Mumbai airports. AAI, in furtherance of the above, is stated to have selected Joint Venture Companies8 as private partners for grant of its functions in connection with the operation, maintenance, upgradation modernization, and development of the domestic and international airports at Mumbai and Delhi.
4. The concession for the Chhatrapati Shivaji Maharaj International Airport9 in Mumbai ultimately came to be awarded to a GVK-led consortium and which was followed by the incorporation of MIAL as a ‘Joint Venture Special Purpose Vehicle’10. The JVC of MIAL comprised of GVK (now known as Adani Airport Holdings Ltd. with effect from 14 July 2021) with approximately 74% of the shareholding and the balance 26% being held by AAI. A similar exercise was undertaken by AAI seeking infusion of private equity and the identification of a party which would undertake the restructuring and modernization of the Indira Gandhi International Airport11 in New Delhi. A consortium led by the GMR Group came to be identified as the successful bidder. This was followed by the JVC of DIAL being incorporated in which the GMR-led consortium acquired 74% shares and the remaining 26% was held by AAI.
i. The Operation, Management and Development Agreement12 and related agreements
5. Pursuant to the finalization of the bidding process, the successful bidders along with AAI executed the OMDA. The OMDA for both DIAL and MIAL were dated 04 April 2006. One of the central provisions of OMDA related to the Annual Fee which was payable by the JVC to AAI and constituted the revenue-sharing model between the principal stakeholders. The OMDA also envisaged additional and complimentary agreements being executed and which included a State Support Agreement13 for each airport and which came to be entered into between the Government of India with the JVCs on 26 April 2006. Along with the OMDA and the SSA, which has been noticed hereinabove, the parties signed the Registered Lease Deed, State Government Support Agreement, Shareholders Agreement, Substitution Agreement, CNS-ATM Agreement, Airport Operator Agreement, and Escrow Agreement. These nine covenants were collectively defined as the ‘Project Agreements’ in Article 1.1 of OMDA.
6. Since the OMDA pertaining to DIAL and MIAL are more or less identical, we would for the sake of convenience, be referring to the provisions as they appear in the OMDA of DIAL. Article 2.1 the OMDA defined the scope of the grant in favour of the JVC and read as under:
“SCOPE OF GRANT
2.1 Grant of Function
2.1.1 AAI hereby grants to the JVC, the exclusive right and authority during the Term to undertake some of the functions of the AAI being the functions of operation, maintenance, development, design, construction, upgradation, modernization, finance and management of the Airport and to perform services and activities constituting Aeronautical Services, and Non- Aeronautical Services (but excluding Reserved Activities) at the Airport and the JVC hereby agrees to undertake the functions of operation, maintenance, development, design, construction, upgradation, modernization, finance and management of the Airport and at all times keep in good repair and operating condition the Airport and to perform services and activities constituting Aeronautical Services and Non-Aeronautical Services (but excluding Reserved Activities) at the Airport, in accordance with the terms and conditions of this Agreement (the “Grant”).
2.1.2 Without prejudice to the aforesaid, AAI recognizes the exclusive right of the JVC during the Term, in accordance with the terms and conditions of this Agreement, to:
(i) develop, finance, design, construct, modernize, operate, maintain, use and regulate the use by third parties of the Airport;
(ii) enjoy complete and uninterrupted possession and control of the Airport Site and the Existing Assets for the purpose of providing Aeronautical Services and Non-Aeronautical Services;
(iii) determine, demand, collect, retain and appropriate charges from the users of the Airport in accordance with Article 12 hereto; and
(iv) Contract and/or sub contract with third parties to undertake functions on behalf of the JVC, and sub-lease and/or license the Demised Premises in accordance with Article 8.5.7.”
7. The provision of criticality and which constituted the fulcrum of the dispute which arose between the parties is the definition of ‘Revenue’ and which read as follows:
““Revenue” means all pre-tax gross revenue of JVC, excluding the following: (a) payments made by JVC, if any, for the activities undertaken by Relevant Authorities or payments received by JVC for provision of electricity, water, sewerage, or analogous utilities to the extent of amounts paid for such utilities to third party service providers; (b) insurance proceeds except insurance indemnification for loss of revenue; (c) any amount that accrues to JVC from sale of any capital assets or items; (d) payments and/or monies collected by JVC for and on behalf of any governmental authorities under Applicable Law (e) any bad debts written off provided these pertain to past revenues on which annual fee has been paid to AAI. It is clarified that annual fee payable to AAI pursuant to Article 11 and Operational Support Cost payable to AAI shall not be deducted from Revenue”.”
8. Chapter XI of the OMDA dealt with the Annual Fee which was payable by the JVC to AAI and the relevant parts whereof are reproduced hereinbelow:
“11.1.2 Annual Fee
11.1.2.1 The JVC shall also pay to the AAI an annual fee (“AF”) for each Year during the Term of this Agreement of the amount set forth below:
AF = 45.99% of projected Revenue for the said Year
Where projected Revenue for each Year shall be as set forth in the Business Plan.
11.1.2.2 The AF shall be payable in twelve equal monthly instalments, each instalment (hereinafter referred to as “Monthly AF” or “MAF”) to be paid on the first day of each calendar month. The JVC shall from time to time cause the Escrow Bank to make payment of the MAF to AAI in advance on or prior to the 7th day of each month by cheque drawn in favour of AAI. IF AAI does not receive the payment of MAF due hereunder by the due date provided herein, the amount owed shall bear interest for the period starting on and including the due date for payment and ending on but excluding the date when payment is made calculated at State Bank of India Prime Lending Rate + 10% p.a. Notwithstanding anything contained herein, the JVC shall at all times be liable to pay the MAF in advance on or prior to the 7th day of each month by cheque drawn in favour of AAI. If AAI does not receive the payment of MAF due hereunder by the due date provided herein, the amount owed shall bear interest for the period starting on and including the due date for payment and ending on but excluding the date when payment is made calculated at State Bank of India Prime Lending Rate+ 10% p.a. Notwithstanding anything contained herein, the JVC shall at all times be liable to pay the MAF in advance on or prior to the 7th day of each month.
11.1.2.3 (i) In the event that in any quarter the actual Revenue exceeds the projected Revenue, then JVC shall pay to AAI the additional AF attributable to such difference between the actual quarterly Revenue and the projected quarterly Revenue within 15 days of the commencement of the next quarter; and (ii) in the event that the projected Revenue in any quarter exceeds the actual Revenue, then AAI shall pay to JVC such portion of the AF received as is attributable to the difference between that projected Revenue and the actual Revenue by way of an adjustment against the AF payable by the JVC to AAI in the current quarter; provided further that in the event the actual Revenue in any quarter is greater than 110% of the projected Revenue of such quarter, the JVC shall pay to AAI interest for difference between the actual Revenue and the projected Revenue at the rate of State Bank of India Prime Lending Rate plus 300bps in the following manner:
(i) interest of three (3) months on 1/3rd of the difference between the projected Revenue and the actual Revenue;
(ii) interest of two (2) months on 1/3rd of the difference between the projected Revenue and the actual Revenue;
(iii) interest of one (1) month on 1/3rd of the difference between the projected Revenue and the actual Revenue.
It is clarified that if the projected quarterly Revenue is equal to or less than 110% of the actual quarterly Revenue, then no interest shall be payable; interest shall only be payable on the difference between the actual quarterly Revenue and the projected quarterly Revenue in the event the actual quarterly Revenue is greater than 110% of the projected quarterly Revenue.
11.1.2.4 The applicable Revenue used for final verification/reconciliation of the AF shall be the Revenue of the JFC as certified by the Independent Auditor every quarter.””
9. Chapter XII of OMDA dealt with the subject of ‘Tariff and Regulation’ and is extracted hereunder:
“CHAPTER XII
TARIFF AND REGULATION
12.1 Tariff
12.1.1 For the purpose of this Agreement, the charges to be levied at the Airport by the JVC for the provision of Aeronautical Services and consequent recovery of costs relating to Aeronautical Assets shall be referred to as Aeronautical Charges.
12.1.2 The JVC shall at all times ensure that the Aeronautical Charges levied at the Airport shall be as determined as per the provisions of the State Support Agreement. It is hereby expressly clarified that any penalties or damages payable by the JVC under any of the Project Agreements shall not form a part of the Aeronautical Charges and not be passed on to the users of the Airport.
12.2 Charges for Non-Aeronautical Services
Subject to Applicable Law, the JVC shall be free to fix the charges for Non- Aeronautical Services, subject to the provisions of the existing contracts and other agreements.
12.3 Charges for Essential Services
12.3.1 Notwithstanding the foregoing, those Aeronautical or Non-Aeronautical Services that are also Essential Services, shall be provided free of charge to passengers.
12.4 Passenger Service Fees
12.4.1 The Passenger Service Fees shall be collected and disbursed in accordance with the provisions of the State Support Agreement.”
10. Of equal significance are the following expressions which stood defined in the OMDA:
“”Aeronautical Assets” shall mean those assets, which are necessary or required for the performance of Aeronautical Services at the Airport and such other assets as JVC procures in accordance with the provisions of the Project Agreements (or otherwise on the written directions of the GOI/ AAI) for or in relation to, provision of any Reserved Activities and shall specifically include all land (including Excluded Premises), property and structures thereon acquired or leased during the Term in relation to such Aeronautical Assets.
“Aeronautical Services” shall have the meaning assigned hereto in Schedule 5 hereof.
“Aeronautical Charges” shall have the same meaning assigned thereto in Article 12.1.1.
“Airport Business” shall mean the business of operating, maintaining, developing, designing, constructing, upgrading, modernising, financing and managing the Airport, and providing Airport Services.
“Airport Services” shall mean the services constituting Aeronautical Services, and Non-Aeronautical Services.
“Business Plan” means the plan for the Airport Business, updated periodically from time to time, that sets out how it is intended to operate, manage and develop the Airport over a planning horizon and will include financial projections for the plan period.
“Major Development Plan” shall mean a plan prepared for each major aeronautical or other development or groupings of developments which sets out the detail of the proposed development which has been set out in broad terms in the Master Plan and will include functional specification, design, drawings, costs, financing plan, timetable for construction and capital budget.
“Master Plan” means the master plan for the development of the Airport, evolved and prepared by the JVC in the manner set forth in the State Support Agreement, which sets out the plans for the staged development of the full Airport area, covering Aeronautical Services and Non-Aeronautical Services, and which is for a twenty (20) year time horizon and which is updated and each such updation is subject to review/ observations of and interaction with the GOI in the manner described in the State Support Agreement.
“Non-Aeronautical Assets” shall mean:
1. all assets required or necessary for the performance of Non-Aeronautical Services at the Airport as listed in Part I of Schedule 6 and any other services mutually agreed to be added to the Schedule 6 hereof as located at the Airport (irrespective of whether they are owned by the JVC or any third Entity); and
2. all assets required or necessary for the performance of Non-Aeronautical Services at the Airport as listed in Part II of Schedule 6 hereof as located at the Airport (irrespective of whether they are owned by the JVC or any third Entity), to the extent such assets (a) are located within or form part of any terminal building; (b) are conjoined to any other Aeronautical Assets, asset included in paragraph (i) above and such assets are incapable of independent access and independent existence; or (c) are predominantly servicing/ catering any terminal complex/cargo complex
and shall specifically include all additional land (other than the Demised Premises), property and structures thereon acquired or leased during the Term, in relation to such Non-Aeronautical Assets.
“Non-Aeronautical Services” shall mean such services as are listed in Part I and Part II of Schedule 6 hereof.
“Project Agreements” shall mean the following agreements:
1. This Agreement;
2. The State Support Agreement;
3. Shareholders Agreement;
4. CNS-ATM Agreement;
5. Airport Operator Agreement;
6. State Government Support Agreement;
7. The Lease Deed;
8. Substitution Agreement; and
9. Escrow Agreement. and
Project Agreement shall mean any one of them.
xxxx xxxx xxxx
11. 2 Independent Auditor
(i) Appointment of Independent Auditor
(a) An Independent Auditor shall be appointed for the purposes mentioned herein.
(b) The procedure of the appointment of the Independent Auditor shall be as follows:
AAI shall nominate a panel of six (6) Chartered Accountancy Firms to the JVC. The JVC shall have the right to object to one or more of such nominees but not in any circumstance exceeding three (3) nominees. AAI shall appoint any one of the nominees to whom JVC has not objected, as the Independent Auditor.
(c) JVC and AAI shall bear equally all costs of, including costs associated with the appointment of, the Independent Auditor.”
11. Schedule 5 of OMDA defined the scope of Aeronautical Services in the following terms:
“SCHEDULE 5
AERONAUTICAL SERVICES
“Aeronautical Services” means the provision of the following facilities and services:
1. provision of flight operation assistance and crew support systems;
2. ensuring the safe and secure operation of the Airport, excluding national security interest;
3. the movement and parking of aircraft and control facilities;
4. general maintenance and upkeep of the Airport;
5. the maintenance facilities and the control of them and hangarage of aircraft;
6. flight information display screens;
7. rescue and fire fighting services;
8. management and administration of personnel employed at the Airport;
9. the movement of staff and passengers and their inter-change between all modes of transport at the Airport;
10. operation and maintenance of passenger boarding and disembarking systems, including vehicles to perform remote boarding; and
11. any other services deemed to be necessary for the safe and efficient operation of the Airport.
A more detailed list of the above facilities and services would include the following:
12. Aerodrome control services
13. Airfield
14. Airfield lighting
15. Air Taxi Services
16. Airside and landside access roads and forecourts including writing, traffic signals, signage and monitoring
17. Common hydrant infrastructure for aircraft fuelling services by authorized providers
18. Apron and aircraft parking area
19. Apron control and allocation of aircraft stands
20. Arrivals concourses and meeting areas
21. Baggage systems including outbound and reclaim
22 Bird scaring
23. Check-in concourses
24. Cleaning, heating, lighting and air conditioning public areas
25. Customs and immigration halls
26. Emergency services
27. Facilities for the disabled and other special needs people
28. Fire service
29. Flight information and public-address systems
30. Foul and surface water drainage
31. Guidance systems and marshalling
32. Information desks
33. Inter-terminal transit systems
34. Lifts, escalators and passenger conveyors
35. Loading bridges
36. Lost property
37. Passenger and hand baggage search
38. Piers and gate rooms
39. Policing and general security
40. Prayer Rooms
41. Infrastructure/ Facilities for Post Offices
42. Infrastructure/ Facilities for Public telephones
43. Infrastructure/ Facilities for Banks
44. Infrastructure/ Facilities for Bureaux de Change
45. Runways
46. Signage
47. Staff search
48. Taxiways
49. Toilets and nursing mothers rooms
50. Waste and refuse treatment and disposal
51. X-Ray service for carry on and checked-in luggage
52. VIP / special lounges”

12. Similarly, Schedule 6 identified the Non-Aeronautical Services to be the following:
“SCHEDULE 6
NON-AERONAUTICAL SERVICES
“Non-Aeronautical Services” shall mean the following facilities and services (including Part I and Part II):
Part I
1. Aircraft cleaning services
2. Airline Lounges
3. Cargo handling
4. Cargo terminals
5. General aviation services (other than those used for commercial air transport services ferrying passengers or cargo or a combination of both)
6. Ground handling services
7. Hangars
8. Heavy maintenance services for aircrafts
9. Observation terrace
Part II
10. Banks I ATM*
11. Bureaux de Change*
12. Business Centre*
13. Conference Centre*
14. Duty free sales
15. Flight catering services
16. Freight consolidators/forwarders or agents
17. General retail shops*
18. Hotels and Motels
19. Hotel reservation services
20. Line maintenance services
21. Locker rental
22. Logistic Centers*
23. Messenger services
24. Potier service
25. Restaurants, bars and other refreshment facilities
26. Special Assistance Services
27. Tourist information services
28. Travel agency
29. Vehicle fuelling services
30. Vehicle rental
31. Vehicle parking
32. Vending machines
33. Warehouses*
34. Welcoming services
35. Other activities related to passenger services at the Airport, if the same is a Non- Aeronautical Asset
* These activities/ services can only be undertaken/ provided, if the same are located within the terminal complex/cargo complex and are primarily meant for catering the needs of passengers, air traffic services and air transport services.”
ii. The Dispute
13. The dispute, as noted above, arose in light of AAI and DIAL/MIAL taking a divergent view with respect to the scope and meaning of the term “Revenue” as occurring in the OMDA, as well as Article 11.1.2, which set out the process for computation of the Annual Fee which was payable to AAI. Both DIAL and MIAL asserted that they had been paying the Annual Fee on the basis of the gross receipts credited to their respective Profit & Loss accounts and which comprised charges for Aeronautical Services, Charges for Non-Aeronautical Services and Other Income. It was their case that the Annual Fee incorrectly came to be remitted on the basis of gross receipts instead of the amount of “Revenue” as projected in the Business Plan.
14. It is pertinent to note that while OMDA in Chapter I relating to ‘Definitions and Interpretation’ had explained “Revenue” to mean ‘all pre-tax gross revenue’ excluding the five principal heads of exclusion specified therein, Article 11.1.2 placed the JVC under an obligation to pay Annual Fee which was prescribed to be 45.99% for DIAL and 38.7% for MIAL of the ‘projected Revenue’ in the Business Plan.
15. ‘Projected Revenue’ was thus identified to be that which stood disclosed in the Business Plan. Further, Article 11.1.2.4 of the OMDA embodied a reconciliation exercise being undertaken dependent upon the difference that may ultimately be found to exist between projected and actual Revenue. In terms of that provision, the aforenoted reconciliation exercise was to be undertaken on the basis of a quarterly review to be overseen and certified by an Independent Auditor.
16. It has been noted by the Tribunal that both DIAL and MIAL continued to pay Annual Fee on the basis of the gross receipts credited to their individual Profit & Loss accounts till they allegedly discovered a mistake in February 2016 for DIAL and January 2019 for MIAL.
17. Due to the aforesaid mistake, DIAL asserted that it had paid an excess amount of INR 6663.25 crores as of 30 September 2018. This was sought to be explained by way of the following chart which stands extracted in the Minority Opinion:

18. The Minority Opinion rendered in the case of MIAL takes note of the assertion of a similar mistake and the excess payment being claimed to be quantifiable at INR 3582.92 crores, details whereof were noticed in Para 23. The tabular statement which has been taken into consideration for MIAL is extracted hereinbelow:

19. Both DIAL and MIAL appear to have asserted that the Annual Fee came to be mistakenly paid on the basis of gross receipts credited to their respective Profit & Loss accounts, as was insisted by AAI. It was their case that excess payments came to be made on account of an incorrect understanding of their contractual obligations and was thus liable to be returned by AAI. On the basis of the pleadings that were taken in the claim petition, DIAL and MIAL sought reliefs which were identified by the Presiding Arbitrator in the following terms :
“25. On the above pleadings, DIAL has sought the following reliefs (vide Para 78 of SoC):
a) Pass an Award declaring that:
(i) the Annual Fee is payable by the Claimant to the Respondent only on the revenue generated from the Aeronautical Services (Aeronautical Charges less cost relating to Aeronautical Assets recovered) and Non- Aeronautical Services, provided at IGI Airport, with exclusions specified in the definition of the term “Revenue” under OMDA.
(ii) the MAF/Annual Fee is payable on the “Revenue” as defined in OMDA and not on the basis of the gross receipts credited to P&L Account.
(iii) Annual Fee is not payable on depreciation, interest on borrowed funds and the return on equity to investors (Capital Costs) and the same shall be deducted from Aeronautical Charges while arriving at ‘pre-tax gross revenue’;
(iv) UDF and/or PSF being an appropriate and relevant proxy for the Capital Costs component shall be deducted from Aeronautical Charges while arriving at “Revenue”.
b) Pass an Award declaring that in computing the applicable Revenue, the Claimant is entitled to exclude from the ‘pre-tax gross revenue’ inter-alia the following:
(i) payments made by the Claimant, if any, for the activities undertaken by the Relevant Authorities;
(ii) payments received by the Claimant from the provision of electricity, water, sewerage or analogous utilities to the extent of amounts paid for such utilities to third party service providers;
(iii) entire consideration that accrues to the Claimant from the sale of any capital assets or items.
c) Pass an Award declaring that no Annual Fee is payable on the Other Income, i.e., income other than from Aeronautical Services and Non-Aeronautical Services provided by the Claimant.
d) Pass an Award granting restitution and directing the Respondent to return the excess amount of Annual Fee paid by the Claimant under a mistake to the following extent:
(i) Rs. 10,537.20 Crores comprising Rs.6.663.26 Crores towards restitution/return of excess Annual Fee paid by the Claimant from 03.05.2006 to 30.09.2018 and interest thereon amounting to Rs.3,873.94 Crores for the period 03.05.2006 to 30.09.2018, as set out in Annexure C-15 (Colly) annexed to this Statement of Claim, along with further interest on the said amount of Rs. 10,537.20 Crores at the rate equivalent to SBI PLR + 300bps per annum thereon, from 01.10.2018 till the date of return of the aforesaid amount;
(ii) Further amounts (to be quantified) towards restitution/return of excess Annual Fee paid by the Claimant from 01.10.2018 till the date of the Award along with interest at the rate equivalent to SBI PLR + 300bps per annum, calculated from the end of each quarter in which such excess Annual Fee was paid till the date of return of the aforesaid amounts:
e) Pass an Award granting all costs of the arbitration to the Claimant:
(f) Pass an Award directing that the Claimant shall be entitled to set-off the amounts awarded in terms of Prayers (a) to (e) above or any part thereof against any and all amounts including Annual Fee payable to the Respondent from time to time until full recovery/payments of the awarded amounts;
g) Grant such further and other reliefs as the nature and circumstances of the case may require.
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25. On the above pleadings, MIAL has sought the following reliefs:
a) Pass an award for the refund of the excess payment towards Annual Fee made by the Claimant to the Respondent of an principal amount of INR.3,582.90 crores as on 31.03.2018, along with an excess payment towards Annual Fee made by the Claimant to the Respondent principal amount of INR 585.07 for year ending 31.03.2019 and all such amount paid in excess towards Annual Fee thereafter, along with interest calculated thereon as per State Bank of India Prime Lending Rate plus 10% p.a. from 03.05.2006 (Effective Date) till the actual date of refund of excess Annual Fees paid;
b) Pass an award declaring that the Annual Fee payable by the Claimant to the Respondent would only be on the revenue generated from Aeronautical Services and Non-Aeronautical Services only along with exclusions as contained in the definition of ‘Revenue’ as provided under OMDA and also such deductions (depreciation, interest on borrowed funds and the return on equity to investors) which may be allowed from time to time, as the case may be;
c) Pass an award allowing the Claimant to set-off the amount awarded in terms of prayer (a) above against any amount payable by the Claimant to the Respondent including the Annual Fee, till full recovery of the awarded amount;
d) Pass an award directing the Respondent to pay full costs of this arbitration, to the Claimant; and
e) Pass such other or further orders as this Hon’ble Tribunal may deem fit and proper in the facts of the case, and in the interest of justice.”
20. On being placed on notice of the claim, AAI filed its Statement of Defence14 before the Tribunal and took identical objections to the claims that were raised by DIAL and MIAL. Since those objections were more or less common, we take note of the recordal of facts as appearing in the Minority Opinion in the case of DIAL and which identified those objections to be the following:
“Respondent’s case in brief
26. AAI has filed a detailed Statement of Defence dated 30.4.2019 seeking dismissal of all claims made by DIAL. AAI has contended:
(a) The disputes arising in respect of the claims made by DIAL are not arbitrable;
(b) DIAL is not entitled to benefit of Section 17 (1) of the Limitation Act, 1963. The Statement of Claim was filed on 22.1.2019. The period of limitation being three years, all claims pertaining to causes of action that arose prior to 22.1.2016 are barred by limitation.
(c) DIAL is liable to pay 45.99% of the “Revenue”, as defined in OMDA by way of Annual Fee in consideration of the grant of exclusive right and authority to undertake the enumerated functions of AAI in regard to the IGI Airport. The term “Revenue” is defined as the ‘all pre-tax gross revenue’ which means the cumulative value of all revenue of DIAL recognised in the Profit and Loss account without any deduction for taxes payable. The definition of “Revenue” is exhaustive in nature and no deductions or exclusions. except the five specific exclusions permitted under the definition of “Revenue” are permissible from the cumulative value of all revenue of DIAL recognising the P&L Account.
(d) The definition of term “Revenue” has to be given its plain and ordinary meaning. It is not permissible to deduct depreciation, interest on debt or return on equity from the Aeronautical Charges, or exclude the Other Income (income other than from Aeronautical Services and Non-Aeronautical Services), from the cumulative value of all revenue for the purpose of arriving at the ‘pre-tax gross revenue’.
(e) There was no excess payment by DIAL towards annual value nor was any excess payment made by DIAL by mistake.
(f) DIAL is not entitled to deduct the following as ‘payments made for the activities undertaken by Relevant Authorities under Exclusion No.(a) in the definition of “Revenue”: (i) Upfront fee under Article 11.1.1, (ii) payments for initial capital works in progress under Article 5.4, (iii) payments towards Voluntary Retirement Scheme under Article 6.1.4, (iv) payments towards Officers Support Cost under Article 6.2, (v) Consultancy and Audit Costs, (vi) power and electricity charges paid to BSES Rajadhani Power Ltd (vii) property tax, (viii) security equipment maintenance cost and (ix) maintenance expenses with respect to area occupied by Relevant Authorities.
(g) DIAL is entitled to exclude only the profit booked upon sale of a capital asset under Exclusion (c) of “Revenue” and is not entitled to deduct the entire consideration received by sale of capital asset.
(h) Meaning of “Revenue” has to be ascertained from the definition and from the terms of OMDA entered between DIAL and AAI. Even though SSA is a project document, it is not permissible to rely upon any provision of SSA in particular, principles 1 and 2 of tariff fixation contained in Schedule I of SSA, to interpret or understand the meaning of “Revenue”. The object and purpose of tariff fixation under SSA (to which AAI is not a party) and the object and purpose of Annual Fee under OMDA (to which AAI is a party) are different and one does not depend on the other.
(i) DIAL’s reliance upon the judgment dated 23.4.2015 of the TDSAT, in regard to the definition of “Revenue” is misconceived as the decision of TDSAT, was in the context of liberty granted by the Supreme Court in Union of India V. Association of Unified Telecom Service Providers of India – (20 11) 10 SCC 543 to challenge the demands raised by Government of India on Telecom Licensees and nothing to do with the determination of “Revenue” under OMDA.
The contentions of AAI are more fully set out while dealing with the different issues/ questions.”
21. A list of disputes is thereafter stated to have been drawn up. The points for determination in the case of DIAL and MIAL were ultimately identified to be the following:
“List of disputes
27. On the said pleadings, the parties formulated and filed the following joint list of disputes on 29.6.2019:
Joint List of Disputes
(1) Whether the disputes raised by the claimant are not arbitrable for the reasons stated in grounds (A), (B) and (C) in part III of the Statement of Defence?
(2) Whether the claims of claimant or part/s thereof are barred by limitation as contended by the respondent in ground (D) of Part III of the Statement of Defence?
(3) Whether claimant is entitled to any of the declaratory reliefs prayed for in para 78(a), (b) & (c) of the Statement of Claim?
(4) (a) Whether claimant has paid an excess annual fee of Rs.6,663.26 crores to respondent between 3.5.2006 and 30.9.2018?
(b) If so, whether respondent is liable to pay to claimant a sum of Rs.6.663.26 crores towards restitution/return of excess annual fee paid and Rs.3.873.94 crores as interest thereon for the said period?
(5) (a) Whether claimant has paid excess annual fee even from 1.10.2018?
(b) Whether respondent is liable to pay/refund the excess annual fee paid from 1.10.2018 to date?
(6) Whether claimant is entitled to interest on Rs.10,537.20 crores or any amount found due and payable under Dispute (5)(b), at a rate equivalent to SBI PLR plus 300 BPS per annum from 1.10.2018 till date of payment?
(7) Whether either party is entitled to costs?
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List of disputes
27. On the said pleadings, the parties formulated and filed the following joint list of points for determination on 13.10.2019:
Points for determination
(1) Whether the disputes raised by the Claimant or part(s) thereof are not arbitrable for the reasons stated under headings (A), (B) and (C) in Part III of the Statement of Defence?
(2) Whether the claims of the Claimants or part(s) thereof are barred by limitation as contended by the Respondent under heading (D) of Part III of the Statement of Defence?
(3) (a) Whether the Claimant has made an excess payment of Annual Fee to the Respondent of Rs. 3,582.90 Crores as on 31.03.2018 and Rs. 585.07 Crores for the year ended 31.03.2019?
(b) If so, whether the Claimant is entitled to claim set-off of a sum of Rs. 3,582.90 Crores + Rs. 585.07 Crores against amounts due and payable to the Respondent by the Claimant, as prayed for in Prayer (a) read with Prayer (c) at Pg. 42 of the Statement of Claim?
(4) Whether the Claimant is entitled to the declaratory relief prayed for at Prayer (b) at Pg. 42 of the Statement of Claim?
(5) Whether either party is entitled to costs?”
B. THE ARBITRAL AWARD
22. Insofar as the present petitions are concerned, submissions were principally urged on the question of the meaning liable to be ascribed to the terms ‘Revenue’ and ‘projected Revenue’ as appearing in the OMDA, the computation of Annual Fee payable to AAI and the heads of income which were liable to be excluded therefrom. Although a plethora of issues were urged for the consideration of the Arbitral Tribunal, the arguments before this Court stood confined to the following: – (a) the items of income which were liable to be excluded, if at all, from shareable revenue, (b) whether “Other income” could have formed part of shareable revenue and (c) whether the exercise of computation of the monetary claims of DIAL/MIAL could have been entrusted to an Independent Auditor.
iii. The Minority Opinion
23. The Presiding Arbitrator whose opinion constitutes the minority notes that the primary contention of DIAL was that “capital costs” were liable to be excluded from gross receipts. This becomes evident from a reading of Para 58 which is extracted hereinbelow:
“58. DIAL submits that neither the term “all pre-tax gross revenue” nor the term “pre-tax gross revenue” is defined either under the OMDA or under any applicable law or by the accounting standards. DIAL therefore contends that the phrase “pre-tax gross revenue” has to be interpreted and construed in terms of OMDA, and where necessary, aided by the terms of the other project agreements, in particular, the SSA; and on such interpretation, the “Revenue” is to be derived/arrived at from “gross receipts” and “pre-tax gross revenue” as under:
I. “GROSS RECEIPTS”
“Total receipts” of Claimant i.e., [(i) Aeronautical Charges + (ii) charges for Non- Aeronautical Services + (iii) Other Income of the Claimant]
?(minus)
(i) “Other income” of Claimant i.e., [income other than those arising from Aeronautical and Non-Aeronautical Services]
(ii) “Capital Cost Recovery” i.e., [(depreciation)+(interest on debt)+(return on equity) in relation to Aeronautical Assets]
= (equals)
II. “PRE-TAX GROSS REVENUE”
[Referred in the definition of “Revenue” in Article 1.1 of OMDA]
?(minus)
Items that are specified to be deducted from “pre-tax gross revenue” to arrive at revenue, as per the definition of “Revenue”:
(a) payments made by JVC, if any, for the activities undertaken by Relevant Authorities or payments received by JVC for provision of electricity, water, sewerage, or analogous utilities to the extent of amounts paid for such utilities to the party service providers;
(b) insurance proceeds except insurance indemnification for loss of revenue;
(c) any amount that accrues to JVC from sale of any capital assets or items;
(d) payments and/or monies collected by JVC for and on behalf of any governmental authorities under Applicable Law:
(e) any bad debts written off provided these pertain to past revenues on which annual fee has been paid to AAI.
= (equals)
III. “REVENUE”
[Note: 45.99% of which is payable to the Respondent as Annual Fee]”
24. AAI, on the other hand, had principally argued that ‘projected Revenue’ and which expression appears in Chapter XI of the OMDA would have to derive meaning and draw colour from the definition clause and consequently only the five exclusions specified therein being liable to be ignored and eliminated for the purposes of computation of ‘Revenue’. It appears to have been urged that bearing in mind the definition of ‘Revenue’ and the use of the expression ‘all pre-tax gross revenue’ therein, it could only mean the total receipts which fell in the hands of DIAL and MIAL and thus comprise of Aeronautical Charges, Non-Aeronautical Charges as well as Other Income. This becomes apparent from a reading of Para 59 of the Minority Opinion and which while recording the submissions of AAI has noted as under:
“59. AAI on the other hand contends that “pre-tax gross revenue” refers to the “Total receipts” of Claimant i.e., the aggregate of (i) Aeronautical Charges, (ii) charges for Non-Aeronautical Services and (iii) Other Income of the Claimant. In other words, what DIAL describes as “gross receipts”, is considered as “pre-tax gross revenue” by AAI. AAI further contends that there is no justification or legal basis, for deducting (i) depreciation, (ii) interest on borrowed funds, (iii) return on equity to investors, from the “total receipts” to arrive at “pre-tax gross revenue”. The answer to the question would depend upon the interpretation of the definition of the term “revenue” in OMDA. This would in turn depend upon the question whether the other project agreements can be looked into or relied upon for interpreting the definition of the term “revenue” in OMDA. It is therefore necessary to set out the Principles of Interpretation of Contract relevant to these two questions. ”
25. The crux of the dispute came to be succinctly identified in the Minority Opinion in Para 60 and which is extracted hereunder:
“60. There is no dispute that Aeronautical Charges and charges for Non- Aeronautical Services, are to be taken into account to arrive at “all pre-tax gross revenue”. The areas of difference are:
(i) While AAI contends that the total receipts by way of Aeronautical Charges form part of “all pre-tax gross revenue”, DIAL contends that the Capital Costs (depreciation, interest on debt and return on equity) should be deducted from the total receipts of Aeronautical Charges.
(ii) While AAI contends that “all pre-tax gross revenue”, would include Other Income of DIAL (i.e., income other than from Aeronautical Services and Non-Aeronautical Services), DIAL contends that its “Other Income” (i.e., income other than from Aeronautical Services and Non-Aeronautical Services), cannot be included to arrive at “all pre-tax gross revenue”.
(iii) What items would fall under Exclusion (a) in the definition of “Revenue” “Payments made for the activities undertaken by relevant authorities’.
(iv) While DIAL contends that Exclusion No.(c) in the definition of “Revenue” “any amount that accrues to DIAL from sale of any Capital Assets or Items” would refer to the entire sale proceeds, AAI contends it would only refer to the profit accrued to DIAL on sale of any capital asset/items.”
26. The Minority Opinion firstly proceeded to rule upon the question of whether capital costs and which were asserted to consist of depreciation, interest on debt and return on equity were liable to be deducted from the total receipts for the purposes of calculating ‘pre-tax gross revenue’. The aforesaid question ultimately came to be answered in the following terms:
“80. The “Annual Fee” is payable by DIAL to AAI in terms of Clause 11.1.2 of OMDA. The Annual Fee is 45.99% of the “Revenue”. As per the scheme relating to calculation and payment of Annual Fee, DIAL has to pay 45.99% of the projected Revenue (as set forth in the Business Plan) payable in 12 equal monthly instalments subject to correction/adjustment every quarter, if the actual Revenue exceeds or less than the actual Revenue. Revenue as earlier noted is defined as “pre-tax gross revenue of JVC”, excluding the five enumerated items. Each word, in the expression “pre-tax gross revenue of JVC” is clear and unambiguous.
81. It is an admitted position on both sides that the phrase “pre-tax gross revenue” is neither defined in the OMDA nor under any applicable law nor in the accounting standards. But the words “pre-tax”, “gross” and “revenue” are terms used in accounting parlance, with generally recognised meaning (unless otherwise specifically defined).
82. The word “pre-tax” means “before tax” or “before provision for (or payment of) income tax” or “existing before the assessment or deduction of taxes” (vide Black’s Law Dictionary 8th Edition Page 1225 and P. Ramanatha Aiyar’s Advanced Law Lexicon). The word “pre-tax” is normally used, in the term “pre-tax earnings” or “pre-tax income”. In this case, the parties have clearly used the words “pre-tax gross revenue”, which means the total receipts (either by providing services or sale of products) without any kind of deduction. If the parties had intended that depreciation, interest on debt and return on equity, should be deducted from the total receipts to arrive at “pre-tax gross revenue” (in addition to the five specified exclusions), the parties would have enumerated them in addition to the specified exclusions, or would have defined “pre-tax gross revenue” as total receipts less ‘depreciation, interest on debt and return on equity’. Alternatively, the Parties would have used appropriate words or phrases which would have indicated that the three items (depreciation, interest on debt and return on equity) should also be excluded in addition to the five enumerated items, to arrive at the “Revenue” per year, 45.99% of which will have to be paid to AAI as “Annual Fee”.
83. ‘Receipts’, ‘Revenue’, ‘Income’, ‘Gross Income’, ‘Net Income’, ‘Earnings’, are commonly used phrases in accounting parlance. In generally followed accounting practice, ‘Receipts’ refers to any cash flow/receivables of a company; ‘Gross Revenue’ or ‘Revenue’ or ‘Gross Income refers to any form of income of a company (either by sale of products or by rendering of services, apart from interest, royalty and dividends wherever applicable) generated, before deducting expenses; ‘Capital Receipts’ will refer to non-recurring receipts that either increase the liability or decrease the assets; ‘Pre-tax Net Income’ or ‘Pre- tax Net Earnings’ will refer to Gross Income or Gross Revenue less operational expenses, overheads, depreciation and interest on borrowings. While all ‘Income’ are ‘Receipts’, all ‘Receipts’ are not ‘Income’. While ‘Revenue Receipts’ affect the statement of profit and loss, the ‘Capital Receipts’ will not affect the statement of profit and loss. These words may also have certain extended, restricted or special or specified meanings, if they are so defined in any statute or in contract, or so implied, depending on the context. The definition of ‘Revenue’ in the OMDA, is an example of the term ‘Revenue’ having a specific meaning as contrasted from the general meaning. Thus, wherever the parties intend that the general accounting terms should have specific or special meaning, the words would be accordingly defined. As noticed above, the parties gave a special definition to the term “Revenue”, but did not define the terms “pre-tax gross revenue”, “Capital Asset” and “Bad Debts” used in the definition of the term “Revenue”, thereby indicating those words in the definition of the term “Revenue” should carry the general meaning attached to those words in Indian accounting terminology.
xxxx xxxx xxxx
86. The use of the word ‘all’ preceding ‘pre-tax gross revenue’ is also significant. Referring to a similar provision where “gross revenue'”‘” was preceded by “all” and the definition contained a single exclusion, the Oregon Supreme Court held as under in Lane Electric Cooperative Inc. v. Department of Revenue – 765 P.2D 1237 (Or.1988):
“The legislature tied the tax to gross revenue and underscored its inclusive intent by prefacing that term with (an arguably redundant) “all.” No statutory language supports LEC’s argument that other adjustments to “all gross revenue” must be allowed. LEC’s argument that “all gross revenue” is subject to the adjustment it seeks in this case is defeated by the inclusion of a single express statutory exception (for revenue from government leases)…… With the single statutory exception, “all gross revenue” covers all pre-expenditure revenue.”
Therefore, the use of the word ‘all’ preceding the words ‘pre-tax gross revenue’ and the specific enumeration of the five items to be excluded from “pre-tax gross revenue”, give a clear indication that the “all pre-tax gross revenue” does not permit any additional exclusion of ‘depreciation, interest on debt and return on equity’ sought by DIAL.
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Whether words can be added to a provision in a contract to give business efficacy to the contract, when the terms of the contract are clear and unambiguous?
89. The definition of the term “Revenue” uses the words “Revenue means all pre-tax gross revenue of JVC excluding….”. The definition is thus self-contained and exhaustive. What are to be included and what are to be excluded are specifically stated in the definition. The definition is clear and ambiguous. Further, the use of the word ‘all’ before ‘pre-tax gross revenue of JVC’ and use of the words ‘excluding the following’ after “pre-tax gross revenue of JVC” would indicate that each and every revenue receipt, should be included in the “pre-tax gross revenue” and the only items are to be excluded from the “pre-tax gross revenue” are the five items enumerated in the definition.
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91. The following items enumerated as amounts to be deducted from the “pre-tax gross revenue” to arrive at “Revenue” also give an indication as to why the term “pre-tax gross revenue” used by the Parties in the definition of “Revenue” literally means only the “pre-tax gross revenue”:
(a) Payments made by DIAL, for the activities undertaken by Relevant Authorities or payments received by DIAL for provision of electricity, water, sewerage, or analogous utilities to the extent of amounts paid for such utilities to the party service providers;
(b) Insurance proceeds except insurance indemnification for loss of revenue;
(c) Any amount that accrues to DIAL from sale of any capital assets or items;
(d) Payments and/or monies collected by DIAL for and on behalf of any governmental authorities under Applicable Law;
(e) Any bad debts written off provided these pertain to past revenues on which annual fee has been paid to AAI.
The enumeration of five items to be excluded shows that the “pre-tax gross revenue” refers to total receipts by way of Aeronautical Services, Non- Aeronautical Services and other income. It is also significant that the parties used the term “all pre-tax gross revenue” (as contrasted from “total receipts” which would have impliedly included amounts received by way of ‘borrowings’ also).”
27. It appears to have been asserted by the JVCs’ before the Arbitral Tribunal that if the meaning of ‘Revenue’ as canvassed by AAI were to be accepted, it would lead to a complete commercial absurdity and fall foul of the principle of business efficacy which must imbue all commercial transactions. This argument came to be negated by the learned Arbitrator constituting the Minority as under:
“93. The Supreme Court has explained in what circumstances the business efficacy rule can be relied upon or implemented while interpreting contracts. In Transmission Corporation of Andhra Pradesh Vs.. GMR Vemagiri Power Generation Ltd., 2018 (3) SCC 716, the Supreme Court analysed the principles relating to interpretation of contracts with reference to the principles of business efficacy and held:
“21. In the event of any ambiguity arising, the terms of the contract will have to be interpreted by taking into consideration all surrounding facts and circumstances, including correspondence exchanged, to arrive at the real intendment of the parties, and not what one of the parties may contend subsequently to have been the intendment or to say as included afterwards, as observed.
24. …..The contextual background in which the PPA originally came to be made, the subsequent amendments, the understanding of the respondent of the agreement as reflected from its own communications and pleadings make it extremely relevant that a contextual interpretation be given to the question…..
26. A commercial document cannot be interpreted in a manner to arrive at a complete variance with what may originally have been the intendment of the parties. Such a situation can only be contemplated when the implied term can be considered necessary to lend efficacy to the terms of the contract. If the contract is capable of interpretation on its plain meaning with regard to the true intention of the parties it will not be prudent to read implied terms on the understanding of a party, or by the court, with regard to business efficacy as observed in Satya Jain v. Anis Ahmed Rushdie (2013) 8 SCC 131:
“33. The principle of business efficacy is normally invoked to read a term in an agreement or contract so as to achieve the result or the consequence intended by the parties acting as prudent businessmen. Business efficacy means the power to produce intended results. The classic test of business efficacy was proposed by Bowen, L.J. in Moorcock (1889) LR 14 PD 64 (CA). This test requires that a term can only be implied if it is necessary to give business efficacy to the contract to avoid such a failure of consideration that the parties cannot as reasonable businessmen have intended. But only the most limited term should then be implied the bare minimum to achieve this goal. If the contract makes business sense without the term, the courts will not imply the same. The following passage from the opinion of Bowen, L.J. in the Moorcock: …
‘In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are businessmen; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances.’
34. Tho