Shimla: With Oberoi’s having coming around to seek an out of court settlement over the decade old Hotel Wildflower Hall dispute, the government has been sitting on the offer for two months that would revert back its sole ownership rights on the prime property and annul an old joint-venture agreement into a leasehold one.
On conditions of anonymity, a senior government official said that the offer by Oberoi’s for an out of court settlement and in accordance with the arbitration award of 2005 for Wildflower Hall was under the active consideration.
However, nothing short of the arbitration award which professed to turn around the joint venture agreement for setting up Mashobra Resorts Ltd, the company that operates the star property into a 40 year leasehold one is acceptable to the government, said the source.
On their part, Oberoi group company EIH Ltd, which is the majority shareholder in Mashobra Resorts, had let the Himachal Pradesh High Court know at the last hearing that the company was talking to the government for an out of court settlement.
A settlement offer by Oberoi’s in black and white accepting the 2005 arbitration order has been put to the government about two months ago, but they are yet to respond, said a source involved in trying to settle the decade old dispute.
The point of contention was, he said, while the government wants the 40 year old leasehold agreement to start from the year 2005, but negotiators on Oberoi’s behalf hold that any new agreement to settle the issue can only be signed with a 40 year prospective period and not a retrospective one.
The negotiator, who did not want to named, said that a 1995 agreement to setup a joint venture company cannot be annulled in 2011 with a backdate of 2005, the year an arbitrator appointed by the High Court announced his award.
Mashobra Resorts is an existing company that cannot be dissolved with a retrospective date and if any lease deed has to be signed today, it can only be with a prospective period in mind, he added.
Oberoi’s have also offered to pay interest on the amount for any delayed payments, said the negotiator.
With no one in the government willing to bell the cat that would revert back public ownership of the prime property, dissolve the joint-venture company and make Oberoi’s the sole lease holder for running Hotel Wildflower Hall for a 40 year period, the dispute lingers on.
Court appointed arbitrator RS Sethi in 2005 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 year period.
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 the luxury hotel was put 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. The government even made an attempt to forcibly acquire the property but was stalled by the courts.
Between 2005-2011, the star hotel had accumulated over Rs 100 Cr losses on its books which have been shown as unsecured loans from promoter company EIH.
The state had to knock the courts door again to restrain the company from converting debt into equity that would have further reduced its share to just 4 percent.
Separately, the government in 2010 approached the Comptroller and Auditor General (CAG) 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.