Oberoi Hotel Wildflower Hall dispute out of court settlement on the table

Shimla: With Oberoi’s having offered to settle the long pending Hotel Wildflower Hall ownership dispute out of court, top government officials are considering the proposal that makes the state owner of the hotel in accordance with an arbitration award handed out in 2005.

A board meeting of Mashobra Resorts Ltd, the joint venture (JV) company between the state and Oberoi company EIH which runs the hotel, was held today. The offer made by Oberoi’s was said to have been discussed in the board meet.

Chief Minister Prem Kumar Dhumal when contacted said, “Settlement offers have been made by the Oberoi’s earlier also but nothing has been settled upon yet.”

However reliable sources said that Oberoi’s have offered to accept the 2005 arbitration award, which recommends doing away the JV, handing management responsibility of the hotel to Oberoi’s after converting the JV into a leasehold deed.

With the state remaining owner of the property, arbitrator RS Sethi in his 2005 award after citing irreconcilable differences between the partners, had recommended doing away with the JV, converting the agreement into an leasehold one for Rs 95 Cr that Oberoi’s was to pay over a 40 years lease period.

Sources claimed that the settlement offer made by Oberoils also offers to pay for interest losses incurred by the state for not recovering the lease amount during the period under which the hotel has been under dispute.

The hotel has been in a long protracted legal battle after an equity participation of 65:35 in favour of Oberoi’s agreed upon in 1995 for a Rs 40 Cr project was upset when the project completion costs in 2003 for a 84 room luxury hotel was shown at Rs 100 Cr.

With the state not pitching in any more equity, its share holding was reduced to 21 percent, giving rise to the dispute after the government made an attempt to forcibly acquire the property.

The matter went to court and an arbitrator was appointed. However, Oberoi’s challenged the arbitrators award.

Subsequently, between 2005-2011 accounts of the company turned up losses for operating the hotel and had accumulated to Rs 100 Cr losses on its books which were shown as unsecured loans from promoter company EIH.

The state had to knock the courts door again for restraining the company to convert debt into equity, which would further reduce its share to just 4 percent.

Separately, the government in 2010 approached the Comptroller and Auditor General for doing an audit of the cost escalation of a Rs 40 Cr project to Rs 100 Cr.

In turn, CAG in June 2011 had agreed to do an audit of Mashobra Resorts Ltd before the out of court settlement offers was made.

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