Supreme Court Dismisses Kerala Govt Challenge Against Lease Of Thiruvananthapuram Airport To Adani Enterprises Ltd

A bench comprising Chief Justice of India UU Lalit and Justice Bela M Trivedi dismissed the special leave petitions filed by the Kerala Government and certain unions of the employees of the airport against the judgment of the Kerala High Court which upheld the lease of the Airport to AEL in October 2020.

The bench noted from the High Court judgment that based on the mutual discussions between the State Government and the Central Government, it was agreed that an entity in which the State Government has at least 25% equity shares will be given the Right of First Refusal in the range of 10%. Accordingly, the Kerala State Industrial Development Corporation (KSIDC), a state-owned corporation, participated in the bid. However, the bid of the KSIDC was Rs 168 per passenger, whereas the bid of AEL was Rs 135 per passenger. Since the KSIDC bid was less by 20% of the top bid, it was rejected. The Court noted that the High Court "rightly rejected" the challenge in these circumstances.

As regards the grievance raised by the union that their service conditions will be affected by the private entity's take over of the airport, the Court noted that the employees were given an option to switch to airports under the Airports Authority of India (AAI) or to stay with the private bidder. 

"Considering these facts, as well as the fact that the private entity has been in operation since October 2021, we see no reason to interfere. Accordingly, these petitions are dismissed", the bench noted in the order.

However, the bench clarified that it has left open the issue raised by the State Government relating to the ownership of the land. The State argued that the land belongs to it, whereas the AAI contended that the ownership vests with it.

Senior Advocate Chander Uday Singh appeared for the State and Additional Solicitor General KM Nataraj appeared for the AAI.

Arguments in Court

Senior Advocate CU Singh submitted that the land in which the airport is situated belonged to the State Government. Also, the State has expended money to acquire additional land for the airport. Therefore, the State ought to have preferential rights.

He also contended that the conditions of the Request For Proposal(RFP) were "tailor made" to suit Adani group, as the condition regarding prior experience was taken away. He highlighted that the state entities have experience in managing the Cochin International Airport and the Kannur International Airport.

"Yes we had commissioned Kannur and Cochin airports. Cochin is world class airport now", Singh submitted.

But the bench pointed out that the State did not challenge the RFP conditions and later acquiesced to it by participating in the bid. 

During the hearing, the CJI asked the ASG "State has experience of two airports so they said we'll do it ourselves. It appears that while the matter was under consideration, you issued RFP. To which the answer could be that they sat quite for 2 months so they acquiesced it. But what happens to their capital?".

The ASG replied that the State accepted the offer that its corporation could be allowed to participate in the bid with a margin of 10%. The law officer invited the attention of the bench to the observations in the High Court judgment in this regard.

Noting that the State accepted the conditions, CJI Lalit noted "Once you had agreed, the matter stands in a different compartment".

"Whether the decision is good/ bad is not the point. Based on the order of HC, the airport is now operational", CJI Lalit further observed. The CJI also said that once the state gets into the realm of private contract, the considerations of public law will not apply.

Singh pointed out that it is not a case of a new airport being constructed but the management of an already functioning airport and hence argued that no prejudice will be caused due to court interference. "No immutable rights have been created because just the management has been handed over", Singh said. The ASG informed that the AEL has taken over the airport on October 14, 2021.

The bench also heard a counsel who appeared on behalf of the unions. He pointed out that a private employee under the AEL retires at the age of 58 years whereas an AAI employee retires at the age of 60 years. Also, there are vast differences in service conditions and retiral benefits.

High Court judgment 

 On October 19, 2020, a division bench comprising Justices K Vinod Chandran and CS Dias of the High Court had dismissed the petitions challenging the AAI tender to Adani group, observing that Court cannot interfere with a policy decision of the executive regarding privatisation of airports.

The State's challenge against the leasing out of the Airport was based on four grounds (1) promissory estoppel and legitimate expectation (2) arbitrariness in awarding the tender to the Adani Group who has no prior experience in developing and managing an Airport, (3) the financial requirements in the RFP(Request For Proposal) being tailor made to suit the Adani Group and (4) the AAI Act having not permitted any cross-subsidization, by way of utilization of the income generated from one Airport to augment the facilities of another.

"We reject the ground raised by the State, of legitimate expectation as there is no benefit promised to the State Government or enjoyed by it; by way of participation in the management of TIA, which can be deemed to have been taken away by the Central Government by reason of the lease proposed. There can also be no claim of promissory estoppel as we find no promise having been extended by the Central Government or the AAI, at any point of time.", the High Court said rejecting the first ground.

The HC also observed that when there were nine others bidding for the six Airports, there can be no allegation raised of the financial capacity being tailor-made for AEL. The other bidders failed in all the Airports only because AEL quoted the highest bid in each of the six Airports, it added.

"There are very few operators at the national level having Airport experience and hence the inclusion of the infrastructure sectors in the Harmonised Master List, is the submission. We also find the explanation, quite compelling; that otherwise there would be a monopoly exercised by those players having Airport experience, who would have an edge over others and be placed in a position from which they would dictate terms. We do not find any reason to hold the RFP to be vitiated for reason of the same being tailor-made for AEL, which remains in the realm of an allegation without substantiation.", the bench said while rejecting the 'no prior experience ground.

The SLP filed by the state government contends that the grant of concession to Adani is in violation of an earlier undertaking by the Ministry of Civil Aviation which had rejected the proposal of state government to form a Special Purpose Vehicle (SPV) to take over and run the Airport on a revenue-sharing basis.

Kerala Government states that the Government of India had given an assurance to the State of Kerala that when a decision is taken to induct private sector into the management of Thiruvananthapuram Airport, Government of India would consult the State Government taking into account the contribution made by the State towards acquisition of land to the airport, also shows that the expectations of the State Government is based on the statement made by the Government of India which has the duty of making the decision.

"It is submitted that crystallisation of such the legitimate expectation cannot be varied on an unfair and illegal act on the part of the Government of India," plea states.

Last year, the Karnataka High Court had issued notice on a petition filed by Airport Employees Union challenging the decision to hand over Managalore airport to Adani group.