“Revenue” for Calculation in OMDA is Projected Revenue Not Gross Receipts

The recent ruling by the Hon’ble High Court of Delhi in the case of Airports Authority of India v. Delhi International Airport Ltd. and Mumbai International Airport Ltd., 2024 SCC OnLine Del 7284, dated October 18, 2024, sheds light on the complexities of revenue-sharing agreements in public-private partnerships. The dispute arose from differing interpretations of the term “Revenue” in the Operation, Management, and Development Agreements (OMDA), which governs the revenue-sharing model between AAI and the JVCs managing the Mumbai and Delhi airports Mumbai International Airport Ltd. (MIAL) and Delhi International Airport Ltd. (DIAL). MIAL argued that it had been overpaying its annual fees to AAI by mistakenly using gross receipts as the basis for calculations instead of “projected revenue” outlined in the business plan. Similarly, DIAL raised a comparable dispute, claiming an excess payment to AAI.

The arbitral tribunal, composed of three former Supreme Court justices, delivered a split decision. While two arbitrators in the majority supported MIAL’s claim, the presiding arbitrator dissented, holding that the term “Revenue” should be interpreted differently.

The Hon’ble High Court of Delhi upheld the tribunal’s findings in favor of MIAL, dismissing AAI’s challenge under Section 34 of the Arbitration and Conciliation Act, 1996. The Court found no legal grounds to interfere with the award and provided several key observations. The Court endorsed the majority’s view that both AAI and MIAL had misunderstood the meaning of “Revenue” as defined in the OMDA. It concluded that the term should be interpreted as “projected revenue”, rather than the gross receipts, to calculate the annual fee.

This interpretation was consistent with the business plan and the broader contractual framework. Drawing upon precedents such as DLF Universal Ltd. v. Town and Country Planning Department, (2010) 14 SCC 1, dated November 19, 2010, the Hon’ble High Court of Delhi emphasized that the interpretation of contracts must consider the purpose and objectives of the agreement. The arbitral tribunal’s majority opinion, which took a holistic view of the OMDA and related agreements, was deemed appropriate.

The court agreed that the revenue-sharing arrangement should account for the projected revenue, as envisaged in the business plan, rather than a narrow focus on gross receipts. The court further upheld the majority decision to rely on the Independent Auditor for resolving the issue of revenue calculation. The auditor’s role in determining the fee was well within the contract’s provisions under Chapter XI of the OMDA, and there was no need for new evidence to be presented. The appointment of the auditor was viewed as a legitimate means to resolve the dispute, countering AAI’s objections to this process.

The court rejected the presiding arbitrator’s narrow interpretation of the term “Revenue,” which focused on a more literal reading of the contract without considering the broader intent of the parties involved. The court stressed that the majority’s interpretation better aligned with the commercial principles underlying the OMDA and reflected a more balanced approach between MIAL’s cost recovery and infrastructure creation. While the upfront and annual fees were important, the agreements also allowed the JVCs to recover costs incurred in building aeronautical assets. This reinforced the contractual reciprocity between revenue sharing and infrastructure development.