BANGALORE INTERNATIONAL AIRPORT LIMITED vs AIRPORT ECONOMIC REGULATORY AUTHORITY & ANR. on 4 November 2026

JUDGEMENT

Per Justice D.N. PATEL, Chairperson

SUMMARIUM

The present appeal has been preferred by Bangalore International Airport Limited ("BIAL"), the operator of the Kempegowda International Airport, Bengaluru ("KIAB"), under Section 18(2) of the Airports Economic Regulatory Authority of India Act, 2008 ("AERA Act"), assailing Order No. 11/2021-22 dated 28.08.2021 passed by the Airports Economic Regulatory Authority of India ("AERA"). By the Impugned Tariff Order, AERA has determined the aeronautical tariff for KIAB for the Third Control Period commencing on 01.04.2021 and ending on 31.03.2026. The present appeal raises a large number of issues concerning the regulatory treatment of capital expenditure, financing costs, pre-control period claims, pre-opening expenditure, depreciation, taxation, Cost of Debt, Regulatory Asset Base, Operation and Maintenance expenditure, personnel expenditure, asset and expense allocation, aeronautical and non-aeronautical revenues, commercial land development, interest income, Cargo, Ground Handling and Fuel/Fuelling services, and the extent of AERA’s statutory jurisdiction under the AERA Act. The appeal also concerns the treatment of expenditure relating to Terminal 2, the Eastern Connectivity Tunnel, metro-related infrastructure, notional lease rentals, COVID-19 related expenditure and relief measures, and the carry forward of a portion of the Aggregate Revenue Requirement to the succeeding Control Period. BIAL contends that several determinations made by AERA in the Impugned Tariff Order are contrary to the AERA Act, the Concession Agreement, the applicable Tariff Guidelines and the regulatory principles governing KIAB. It is further contended that AERA has, in several instances, substituted actual or prudently incurred expenditure with normative ceilings, notional assumptions or allocation methodologies lacking sufficient nexus with the underlying asset, activity or cost centre; failed to give due effect to the contractual concessions granted to BIAL; and continued to apply earlier regulatory positions notwithstanding subsequent pronouncements of this Tribunal and the Hon’ble Supreme Court. The Respondent No.1 i.e., AERA, conversely, supports the Impugned Tariff Order and contends that the determinations have been made in discharge of its statutory functions under Section 13 of the AERA Act after undertaking the prescribed consultation process. AERA submits that tariff determination is not a mechanical reimbursement exercise and that it is entitled to scrutinise the necessity, efficiency, prudence and reasonableness of expenditure, determine appropriate allocation methodologies, moderate forecasts where required, undertake true-up on actuals and ensure that passengers and other Airport users are not burdened with inefficient, premature or inadmissible costs. The Respondent No.2 i.e. Federation of Indian Airlines (“FIA”) has substantially adopted and supported the submissions advanced on behalf of AERA. FIA emphasises the impact of the claims advanced by BIAL upon airlines and passengers and contends that only prudent and properly attributable expenditure ought to be passed through the tariff mechanism. This Tribunal is, therefore, called upon to examine the competing submissions of the parties and determine whether the impugned regulatory treatment of the respective tariff building blocks is legal, proper and correct. The issues are required to be adjudicated within the framework of the AERA Act, the governing concession documents, the established principles of tariff regulation and the binding precedents of this Tribunal and the Hon'ble Supreme Court. ABBREVIATIONS Abbreviations Expansion AAI Airports Authority of India AERA Act Airports Economic Regulatory Authority of India Act,

AERA Airports Economic Regulatory Authority of India AO Airport Operator AOC Airline Operating Committee AoD Airport Opening Date ARFF Airport Rescue and Fire Fighting ARR Aggregate Revenue Requirement ATS Air Traffic Services ATM Air Traffic Management BAHL Bangalore Airport Hotel Limited BASHM Bird Aircraft Strike Hazard Management BAC Base Airport Charges BCAS Bureau of Civil Aviation Security

BIAL Bangalore International Airport Limited BIAL Judgment Judgment dated 16.12.2020 in Bangalore International Airport Limited v. AERA, AERA Appeal No. 8 of 2018 BMRCL Bangalore Metro Rail Corporation Limited BRS Baggage Reconciliation System BSSDPL Bharat Stars Services (Delhi) Private Limited CAGR Compounded Annual Growth Rate CGF Cargo, Ground Handling and Fuel Farm CIC Common Infrastructure Charges CNS Communication, Navigation and Surveillance CP Consultation Paper CMP Cash Management Process CUSS Common User Self Service CUTE Common User Terminal Equipment CWIP Capital Work-in-Progress DIAL Delhi International Airport Limited DIAL Judgment Judgment dated 21.07.2023 in Delhi International Airport Limited v. AERA, AERA Appeal No. 1 of 2021. DIAL SC

Judgment

Judgment dated 11.07.2022 in Delhi International Airport Limited v. AERA, Civil Appeal No. 8378 of 2018, reported as (2024) 1 SCC 716. ECT Eastern Connectivity Tunnel EPC Engineering, Procurement, and Construction FAR Fixed Asset Register

FCP First Control Period (1 April 2011 to 31 March 2016) FCP Tariff Order AERA Order No. 8/2014-15 dated 10 June 2014 FIA Federation of Indian Airlines FRoR Fair Rate of Return FY Financial Year GoI Government of India GoK Government of Karnataka GST Goods and Services Tax HIAL GMR Hyderabad International Airport Limited HIAL Judgment

Judgment

dated 14.02.2024 in Hyderabad International Airport Limited v. AERA, AERA Appeal No.

HVAC Heating, Ventilation and Air Conditioning ICAO International Civil Aviation Organization ICT Information and Communication Technology IDC Interest During Construction IRA Independent Regulatory Authority, as referred to in the Concession Agreement KIAB Kempegowda International Airport, Bengaluru KIAL Kannur International Airport Limited LPH Landing, Parking and Housing charges MAT Minimum Alternate Tax MCLR Marginal Cost of Funds based Lending Rate MIAL Mumbai International Airport Limited

MIAL Judgment Judgment dated 06.10.2023 in Mumbai International Airport Limited v. AERA, AERA Appeal No. 2 of 2021. MMTH Multi Modal Transport Hub MPPA Million Passengers Per Annum MoCA Ministry of Civil Aviation MYTP Multi Year Tariff Proposal NAR Non-Aeronautical Revenue NCAP National Civil Aviation Policy, 2016 NSPR New South Parallel Runway Order No. 35 AERA’s Order No. 35/2017-18 dated 12.01.2018 in the matter of Determination of Useful Life of Airport Assets. O&M Operation and Maintenance Expenses PBT Profit before Tax PMC Project Management Consultancy P&L Account Profit and Loss Account PPP Public Private Partnership PSF Passenger Service Fee RAB Regulatory Asset Base RoI Return on Investment RBI Reserve Bank of India RITES Rail India Technical and Economic Service Ltd RSA Revenue Share Assets SBI State Bank of India SCP Second Control Period (01.04.2016 to 31.03.2021)

SCP Tariff Order Order No. 18/2018-19 dated 31.08.2018. SIB State Intelligence Bureau SPV Special Purpose Vehicle SSA State Support Agreement TCP Third Control Period TDSAT Telecom Disputes Settlement and Appellate Tribunal UDF User Development Fee TR Target Revenue WACC Weighted Average Cost of Capital WHMP Wildlife Hazard Management Programme YoY Year on Year

AERA APPEAL NO. 05 OF 2021

1. The present appeal has been preferred under Section 18(2) of the Airports Economic Regulatory Authority of India Act, 2008 (hereinafter referred to as the ‘AERA Act, 2008’ for the sake of brevity) challenging the order passed by Respondent No.1 -Airports Economic Regulatory Authority of India, (hereinafter referred to as ‘AERA’ for the sake of brevity) dated 28.08.2021, being

Order

No.11/2021-22, whereby, the Respondent has determined Aeronautical Tariff for the Third

Control Period i.e. from 01.04.2021 to 31.03.2026. The Impugned Tariff Order is at Annexure A-1 to the Memo of AERA Appeal.

2. The impugned order has been passed by Respondent No.1, in exercise of its powers under Section 13 (1) (a) of the AERA Act, 2008 for Kempegowda International Airport, Bengaluru (hereinafter referred to as ‘KIAB’). The said Order was communicated to the Appellant–Bangalore International Airport Limited (hereinafter referred to as ‘BIAL’) by email dated 31.08.2021. FACTUAL MATRIX i. BIAL was incorporated as a Special Purpose Vehicle on 05.01.2001 for the purpose of developing and maintaining an international airport at Bengaluru. BIAL was established as the first Greenfield airport developed under the Public Private Partnership model, with AAI and KSIIDC holding 13% equity each, while the private promoters collectively held the remaining 74% equity. The private promoters were selected pursuant to an international competitive bidding process.

ii. A Shareholders Agreement dated 23.01.2002 was entered into between KSIIDC, AAI and the private promoters of BIAL. Thereafter, a Concession Agreement dated 05.07.2004 was executed between BIAL and the President of India acting through the Secretary, MoCA, whereby BIAL was granted the concession to develop, construct and operate KIAB. The Concession Agreement was subsequently amended on 20.11.2006.

iii. State Support Agreement dated 20.01.2005 was entered into between BIAL and the Government of Karnataka. A Land Lease Deed dated 30.04.2005 was thereafter executed between KSIIDC and BIAL. The State Support Agreement was subsequently amended on 20.06.2006. Similarly, Land Lease Agreement, dated 30.04.2005 was also amended subsequently. BIAL achieved financial closure on 23.06.2005 and commercial operations at KIAB commenced on 24.05.2008.

iv. AERA was established under Section 3 of the AERA Act on 12.05.2009, while Section 13, conferring upon AERA, inter alia, the function of determining tariff for aeronautical services at major airports, was brought into force on 01.09.2009. v. The First Control Period for BIAL was from 01.04.2011 to 31.03.2016. AERA determined the aeronautical tariff for the said period by Order No. 8/2014-15 dated 10.06.2014. BIAL challenged various determinations contained therein by filing AERA Appeal No. 3 of 2014 before this Tribunal.

vi. The Second Control Period was from 01.04.2016 to 31.03.2021. During the pendency of AERA Appeal No. 3 of 2014, AERA passed Order No. 18/2018-19 dated 31.08.2018 determining tariff for the Second Control Period, followed by a Corrigendum dated 04.09.2018.

vii. During this period, BIAL commenced a substantial expansion of KIAB, which included construction of the New South Parallel Runway, Terminal 2 having a capacity of 25 million passengers per annum, landside projects and associated infrastructure. The said expansion was approved by AERA in the Second Control Period Tariff Order. BIAL challenged various determinations contained therein by filing AERA Appeal No. 8 of 2018.

viii. Certain expansion projects approved during the Second Control Period were envisaged to be completed by 31.03.2021. In that context, AERA issued a clarificatory letter dated 13.09.2018, recording that where completion of a project beyond March 2021 was occasioned by reasons beyond the control of BIAL or its contracting agency and was properly justified, the same would be considered at the stage of true-up in respect of IDC and PMC.

ix. In March 2020, the COVID-19 pandemic and the consequent restrictions imposed by the Central and State Governments affected the execution of the expansion works. In the meantime, and prior to disposal of the appeals relating to the First and Second Control Periods, BIAL submitted its Multi-Year Tariff Proposal (“MYTP”) dated 24.07.2020 to AERA for determination of aeronautical tariff for the Third Control Period, namely 01.04.2021 to 31.03.2026.

x. By a common judgment dated 16.12.2020, single member of this Tribunal disposed of, inter alia, AERA Appeal No. 3 of 2014 and AERA Appeal No. 8 of 2018, concerning the First and Second Control Periods respectively. BIAL thereafter challenged the said judgment before the Hon’ble Supreme Court in Civil Appeal Nos. 1798-1799 of 2021, while issues arising from the connected proceedings are also the subject matter of Civil Appeal No. 1806 of 2021. The said proceedings concern the tariff determinations for the earlier Control Periods.

xi. Thereafter, on 22.06.2021, AERA issued Consultation Paper No. 10/2021-22 containing its proposals for determination of aeronautical tariff for the Third Control Period. A stakeholder consultation was held on 09.07.2021. BIAL submitted its response to the Consultation Paper by letter dated 22.07.2021, submitted its Annual Tariff Proposal on 29.07.2021, and thereafter filed its counter-submissions to the responses received from other stakeholders on 30.07.2021.

xii. Upon completion of the consultation process, AERA passed

Order

No. 11/2021-22 dated 28.08.2021, determining the aeronautical tariff for KIAB for the Third Control Period. The Impugned Tariff Order was communicated to BIAL on 31.08.2021.

xiii. Being aggrieved by several determinations contained in the Impugned Tariff Order, BIAL preferred the present AERA Appeal No. 05 of 2021 under Section 18(2) of the AERA Act, 2008, inter alia, on the ground that the Impugned Tariff Order does not give due effect to the provisions of the AERA Act, 2008, the Concession Agreement, the applicable Tariff Guidelines and the governing regulatory framework. BIAL has accordingly sought setting aside of the Impugned Tariff Order to the extent challenged in the present appeal and consequential re-determination of tariff.

xiv. BIAL filed additional documents through M.A. No. 170 of 2024. This M.A. was filed on 22.04.2024 whereby additional documents were brought on record.

xv. BIAL filed through M.A. No. 171 OF 2024 with additional grounds on 22.04.2024. After hearing the parties, this tribunal has allowed M.As. vide order dated 31.07.2024

xvi. During the pendency of the present appeal, the Appellant has filed an Additional Affidavit dated 18.12.2025, wherein it has decided not to press Issue No. XXVIII and Issue No. XXIX, while reserving liberty to seek inclusion in the Fourth

ARGUMENTS CANVASSED BY APPELLANT- BIAL

3. Mr. Sajan Poovayya, learned Senior Advocate appearing on behalf of the Appellant–BIAL, submitted that several issues have already been decided by this Tribunal in AERA Appeal No.1 of 2021 judgment dated 21.07.2023 (DIAL Judgement) as well as by the decision of Hon'ble the Supreme Court of India reported in (2024) 1 SCC 716 and that a number of them are further covered by the judgments of this Tribunal in Hyderabad International Airport Limited Vs. AERA, being AERA Appeal No. 4 of 2021 (HIAL Judgement), Mumbai International Airport Limited Vs. AERA, being AERA Appeal No. 2 of 2021 (MIAL Judgement), Mangaluru International Airport Limited Vs.

AERA, being AERA Appeal No. 1 of 2023 and AERA Appeal No. 1 of 2024, Goa International Airport Limited versus AERA.

4. Ld. Senior Advocate for the Appellant has submitted that AERA disallowed the increase in Project Management Consultancy cost incurred after 31st March 2021 for Terminal 2, although the time beyond that date was attributable only to the lockdown and to the disruption of supply from China, Germany, Israel and elsewhere.

5. It is stated that about four thousand workers remained on site when the lockdown was announced and works were recommenced as soon as the notification of 15th April 2020 permitted activity where labour was available in situ. Productivity remained lower because of social distancing norms and import delay.

6. Learned Senior Counsel submitted that AERA itself, by its communication dated 13.09.2018, had represented that where completion beyond March 2021 resulted from circumstances beyond the control of BIAL or its contracting agency, properly justified IDC and PMC expenditure would be considered at true- up. The impugned refusal to recognise the additional PMC cost was therefore said to be contrary not only to Sections

13(1)(a)(i) and (iii) of the AERA Act but also to AERA’s own prior regulatory assurance. It was urged that once the delay in commissioning itself had been recognised, the necessary time- related PMC consequence could not rationally be severed from that delay.

7. Learned Senior Counsel submitted that AERA had previously allowed Financing Allowance upon work-in-progress assets, including projects approved during the Second Control Period, and BIAL had made substantial equity investment on that basis. According to BIAL, withdrawal of such allowance merely because portions of the approved projects came to be completed during the Third Control Period, substantially due to COVID-related delay, defeated legitimate expectation and the regulatory framework under which the investment had originally been made.

8. As regards the period from 24.05.2008 to 31.08.2009, learned Senior Counsel contended that Chapter III of the AERA Act came into force only on 01.09.2009. AERA could not, therefore, apply a statutory regime retrospectively to a period during which it was not in force. AERA was in substance completing the exercise which the Ministry of Civil Aviation would otherwise have undertaken under the Concession Agreement and the other Project Agreements.

9. In the alternative, it was argued that if the statutory methodology is to be applied to that period, it must be applied in its entirety, including financing allowance and every other building block, and not only in those elements which operate against the Appellant.

10. It was contended that the sum of ₹53.30 crore represented genuine expenditure incurred in planning, designing, constructing and bringing the Airport into operational existence and was reflected in duly certified books of account. The expenditure included administrative expenditure, legal fees, power and fuel, taxes and other costs incurred for establishment of the Initial Phase.

11. It was argued that whether an expenditure was charged to the Profit and Loss Account or capitalised, the same could not determine whether the economic cost of creating the Airport was recoverable through the regulated tariff and had the same expenditure been capitalised, BIAL would have obtained depreciation and return upon it; BIAL was instead seeking only reimbursement of expenditure actually incurred.

12. With regard to the Eastern Connectivity Tunnel, it was submitted that Phase I was constructed together with the eastern cross-field taxiway as a matter of prudence. Constructing it later beneath the operational airfield would have cost about Rupees one hundred eighty crore (Rs. 180 crore) and required closure of the cross-field taxiway, whereas the Appellant completed it for about Rupees eighty-six crore (Rs. 86 crore). The asset has been capitalised upon being put to use and must be considered under Section 13(1)(a)(iii) and

(iv) . Reliance was placed upon paragraph 440 of the HIAL Judgment, where this Tribunal held that AERA has no jurisdiction to dictate how an operator shall utilise its assets.

13. The Ld. Senior Counsel submitted that AERA does not have the power to reckon notional lease rentals under Section 13(1)(a)(v) of the AERA Act, which empowers it to reckon revenue "received". The decision to reckon notional lease is ultra vires the Act, manifestly arbitrary, and violative of Article

14. AERA has failed to provide any basis for the sums arrived at and has applied them retrospectively from the AoD when the hotel was not even constructed. This is a non-speaking order and violates the principles of natural justice.

14. It is further submitted that AERA has erroneously considered a notional lease from AAI. The CNS/ATM agreement between BIAL and AAI was on a cost-recovery basis, and the cost of the assets has been fully recovered. The Greenfield Airports Policy, 2008, mandates that the airport company provide the required infrastructure to AAI free of cost. AERA is bound by this policy. By imposing a notional revenue, AERA is acting contrary to the policy and reclassifying income from aeronautical to non- aeronautical to achieve a higher amount through cross- subsidization, which is a colourable exercise of power.

15. The Ld. Senior Counsel submitted that AERA was not justified in disallowing the additional transportation costs of Rs. 8.25 Crore incurred towards the Terminal-2 Apron. The construction plan involved using the ECT, but it could not be used until September 2020 due to a delay in receiving security clearance from the Bureau of Civil Aviation Security (BCAS). This delay was entirely beyond BIAL's control.

16. It is submitted that BIAL acted expeditiously by applying for clearance in February 2019 and subsequently complying with all directives from BCAS and the Expert Committee. The delay in security permissions resulted in construction material having to be transported over a significantly longer distance of approximately 20 kms through villages, leading to the additional cost. BIAL cannot be penalized for delays arising from the actions of a statutory regulator.

17. The Ld. Senior Counsel submitted that AERA's decision to exclude the capital expenditure for the KIA West Metro Station from the RAB is violative of the AERA Act. The station is designed to decongest traffic by ensuring that while passengers alight at the Airport Terminal Station, other airport users, including statutory agencies, airline staff, and concessionaires, alight at the KIA West station. This improves the quality of services and ensures smooth passenger movement. AERA's reasoning that the station is used only by non-aeronautical concessionaires is incorrect and fails to recognize its role as a common asset that benefits the entire airport ecosystem.

18. It is submitted that AERA has erroneously disallowed the capital expenditure for metro-enabling works, which are an integral part of the Multi-Modal Transport Hub (MMTH). These works, which have been capitalised in FY 2023, are necessary to enable the construction of the Airport Terminal Metro Station while isolating the work from the operating Terminal-2. without these works, the MMTH cannot be completed. AERA has baselessly linked the metro commissioning with the enabling works, which is an economically imprudent decision that exposes airport users to avoidable risks and costs.

19. The Ld. Senior Counsel submitted that AERA's in terrorem direction to apply notional lease rentals on commercial land development is legally unsustainable and outside the scope of its statutory powers. AERA's jurisdiction is confined to determining tariffs for aeronautical services. It has no power to direct BIAL to undertake non-airport activities or to urge the Government of Karnataka to do so. This is a clear overreach of its jurisdiction and a violation of the principles of natural justice, as BIAL was not consulted on this specific proposal.

20. The Ld. Senior Counsel submitted that AERA's imposition of a cap on the cost of debt and the adoption of a fixed interest rate of 7.85% for a five-year period is arbitrary and contrary to settled regulatory principles. This Hon'ble Tribunal has consistently held that AERA does not have the power to cap the cost of debt, as seen in the HIAL and MIAL Judgments. The interest rate of 7.85% was a floating rate with an annual reset clause, and fixing it for five years would impede BIAL's viable operations, especially considering the current cost of debt is 8.88%.

21. The Ld. Senior Counsel submitted that AERA has incorrectly treated the tariff discounts of Rs. 4.61 crore given to airlines during the COVID-19 lockdown as aeronautical revenue for the true-up of the SCP. BIAL did not receive this sum. By notionally considering it as revenue, AERA has acted arbitrarily. The Airlines Operating Committee itself had submitted that such discounts should be appreciated and not accrued to BIAL.

22. The Ld. Senior Counsel submitted that AERA's decision to cap pre-operative expenses at Rs. 156 crore for true-up is arbitrary, irrational, and violative of Article 14. This Hon'ble Tribunal has repeatedly held that AERA must consider actual capital expenditure and cannot put a pre-emptive cap. The SCP Tariff Order provided for an ad hoc sum with a true-up at actuals, and the TCP order has retrospectively withdrawn this benefit without assigning any reasons, thus violating BIAL's legitimate expectation.

23. The Ld. Senior Counsel submitted that AERA's decision to cap the Design and PMC costs at 5% of the project cost is unsustainable. AERA is not empowered to put a pre-emptive cap on capital expenditure. BIAL incurred PMC and Design costs of Rs. 551 crores, which resulted in overall efficiency and savings of Rs. 723 crores. By capping the cost, AERA has effectively refused to consider a portion of the legitimate capital expenditure incurred, violating Section 13(1)(a) of the AERA Act and cannot be sustained in view of the principles laid down subsequently in the case of in the DIAL & HIAL.

24. The Ld. Senior Advocate forcefully submitted that AERA’s depreciation determination is legally & factually unsustainable. AERA arbitrarily doubled the useful life of Plant & Machinery from 7.5 to 15 years for the SCP and TCP true-up, ignoring BIAL’s technical assessment on continuous /extra-shift operations under AERA’s Amendment to Order No. 35.

25. It is submitted that AERA has wrongly treated non-RCC, temporary and specialised assets such as Canopy, Project Office and Nursery as permanent buildings with 30-year lives, disregarding BIAL’s technical report. AERA fixed the existing runway’s life at 30 years despite the Concession Agreement and Order No. 35 specifying 20 years, and assigned 30 years to the runway top layer despite 5-year resurfacing cycles and

AERA’s own amortisation practice. Finally, AERA failed to compute depreciation asset-wise from BIAL’s FAR, applying instead a generic aeronautical ratio. The determination is thus arbitrary and legally untenable.

26. The Ld. Senior Advocate submitted that AERA's decision to carry forward the ARR shortfall of ₹940.63 crore to the next control period is patently illegal and violates the AERA Act. This Hon'ble Tribunal in the HIAL Judgment has held that AERA has no power to direct an airport operator to recover part of the ARR of one control period in the next. AERA's jurisdiction is limited to regulating airport tariffs and does not extend to ensuring the viability of airlines. The decision was not part of the consultation paper and thus violates the principles of natural justice. The carry-forward has effectively reduced BIAL's return on equity from 15.05% to 9.55%, which is a denial of its legitimate returns.

27. It is submitted that AERA has no jurisdiction to consider interest income for the purpose of tariff determination. This Hon'ble Tribunal has consistently held this in the MIAL, DIAL, and HIAL Judgments. Interest income is earned due to better cash management and is not generated from the provision of any aeronautical or non-aeronautical service. Considering it for tariff determination amounts to double-dipping into BIAL's legitimately earned revenues.

28. The Ld. Senior Counsel submitted that AERA has erred in not considering 30% of non-aeronautical revenues while computing aeronautical taxation. The 30% of non-aeronautical revenue, when used to cross-subsidize aeronautical charges, becomes part of the ARR and has a color of aeronautical revenue. Therefore, it must be considered in the base for calculating taxes. Reliance is placed on the HIAL Judgment and DIAL Judgment.

29. The Ld. Senior Counsel submitted that AERA has wrongly exercised jurisdiction by considering revenue from land development activities, which are non-airport activities rendered outside the precincts of the airport. This Hon'ble Tribunal in the HIAL Judgment has held that such income is outside the purview of AERA's jurisdiction. The Concession Agreement provides distinct definitions for "Airport" and "Site," and non-airport activities undertaken at the Site are beyond AERA's regulatory ambit, as also opined by the then Attorney General of India.

30. It is submitted that AERA has exceeded its jurisdiction by determining tariffs for Cargo, Ground Handling, and Fuel Farm (CGF) services. These services are non-aeronautical in nature and are not part of the "Regulated Charges" under Schedule 6 of BIAL's Concession Agreement. This Hon'ble Tribunal in the HIAL Judgment has held that CGF services are non- aeronautical and revenues therefrom are non-aeronautical. The Concession Agreement, being a pre-legislative contract, grants BIAL the freedom to determine charges for these services, and this concession must be honored by AERA under Section 13(1)(a)(vi) of the AERA Act.

31. Ld. Senior Counsel submitted that AERA's estimation of Operation and Maintenance (O&M) and personnel expenses for the TCP is grossly inadequate and unreasonable. AERA has benchmarked these costs without any empirical study and has failed to consider the massive increase in infrastructure, including the commissioning of Terminal-2 and the MMTH. The terminal is operating at near-full capacity, necessitating higher O&M and manpower costs.

32. The Ld. Senior Counsel submitted that AERA has no jurisdiction, power, or authority under the AERA Act to levy any

form of penalty. This issue is no longer res integra, as this Hon'ble Tribunal has held in the HIAL, Mangaluru International Airport, and MIAL judgments that AERA does not have the power to impose penalties. The AERA Act does not confer such a power, and MoCA has itself clarified this position.

33. The Ld. Senior Counsel submitted that AERA has incorrectly deducted one-time depreciation before computing aeronautical tax for FY 2019. BIAL paid Minimum Alternate Tax (MAT) based on its P&L account, which did not include the one-time depreciation as it was charged to reserves as per Order No. 35. AERA's action of adding it back to compute the tax liability is contrary to the actual tax paid and the law laid down by the Hon'ble Supreme Court in the DIAL Judgment.

34. It is further submitted that AERA has applied incorrect MAT rates for FY 2020 and FY 2021. The basis for the aero tax percentage was not shared with BIAL, and the tax paid for FY 2021 was erroneously shown as a negative figure, which is impossible. This requires a fresh consideration after providing BIAL an opportunity of hearing.

35. Lastly, the Appellant challenged the allocation of assets and of expenses. It was submitted that, despite its commitment in the orders for the First and Second Control Periods to an independent study, AERA declined to accept the Appellant’s allocation of the opening Regulatory Asset Base. AERA applied the terminal area ratio of 85.73 per cent to capital expenditure instead of the ratio of 91 per cent derived from the Fixed Asset Register, although the terminal area ratio can apply only to common assets. Electrical and powerhouse equipment, chiller plants and water-harvesting assets were said to be core utility assets, and their classification as common was said to be inconsistent with AERA’s treatment of the net utility cost as aeronautical.

36. Similarly, the Chief Operating Officer and the Corporate Affairs, Terminal Operations, Operations Planning and Project Co- ordination, Customer Engagement and Service Quality, Landside Equipment and Utilities teams were said to be engaged in core airport operations, with no role in respect of non-aeronautical concessionaires, so that their costs are wholly aeronautical.

37. In aid of the aforesaid submissions, learned Senior Advocate appearing for BIAL placed reliance, inter alia, upon the judgments of this Tribunal in; DIAL v. AERA, AERA Appeal No.

1 of 2021, decided on 21.07.2023; MIAL v. AERA, AERA Appeal No. 2 of 2021, decided on 06.10.2023; HIAL v. AERA, AERA Appeal No. 4 of 2021, decided on 14.02.2024; Mangaluru International Airport Ltd. v. AERA, AERA Appeal No. 1 of 2023 and connected matters, decided on 11.09.2025; and GMR Goa International Airport Ltd. v. AERA, AERA Appeal No. 1 of 2024, decided on 11.09.2025.

38. The Ld. Senior Advocate has also placed reliance was also placed upon the judgment of the Hon’ble Supreme Court in DIAL v. AERA, (2024) 1 SCC 716; BSES Rajdhani Power Ltd. v. DERC, (2023) 4 SCC 788; DERC v. BSES Yamuna Power Ltd., (2007) 3 SCC 33; Cellular Operators Association of India v. TRAI, (2016) 7 SCC 703; Mohinder Singh Gill v. Chief Election Commissioner, (1978) 1 SCC 405; Gurudevdatta VKSSS Maryadit v. State of Maharashtra, (2001) 4 SCC 534; Nasiruddin v. Sita Ram Agarwal, (2003) 2 SCC 577; Siemens Engineering & Manufacturing Co. of India Ltd. v. Union of India, (1976) 2 SCC 981; Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P., (1979) 2 SCC 409 and Cheran Transport Co. Ltd. v. Kanan Lorry Services, (1977) 1 SCC 604.

39. It is submitted by learned Senior Counsel appearing for the Appellant that, during the pendency of the present appeal, the Appellant has filed an Additional Affidavit dated 18.12.2025, wherein it has decided not to press Issue No. XXVIII, relating to refusal to factor in interim revisions to the tariff order, and Issue No. XXIX, relating to non-consideration of capital expenditure towards the Airport Terminal Metro Station.

40. Insofar as Issue No. XXVIII is concerned, it has been stated that, the Third Control Period being at the verge of its conclusion on 31.03.2026, the relief of an interim revision of tariff has, by passage of time, ceased to possess practical efficacy, and the Appellant has therefore sought to leave the question involved therein open for consideration in an appropriate subsequent control period.

41. As regards Issue No. XXIX, the Appellant has stated that, although substantial expenditure has already been incurred towards the Airport Terminal Metro Station, its operationalisation is now expected only during the succeeding control period, after the airport metro line is made operational by the Bangalore Metro Rail Corporation Limited, and that its commencement and completion are additionally dependent upon several governmental approvals.

42. In view of the submissions advanced hereinabove, Ld. Senior Advocate appearing for BIAL prayed that the present appeal be allowed and the impugned determinations made by AERA, to the extent assailed under the surviving issues, be set aside or suitably modified in accordance with law and the judgments relied upon by BIAL. It was further prayed that AERA be directed to undertake the necessary re-computation and true- up, and to give effect to the resultant financial adjustments, including carrying cost wherever admissible, in the Fourth

ARGUMENTS CANVASSED BY RESPONDENT No. 1 – AERA

43. Per contra, Ms. Shweta Bharti, learned Counsel appearing for AERA, supported the impugned order. She submitted that AERA acted within the powers conferred by Section 13 of the AERA Act, 2008 and in conformity with the Airport Guidelines of 2011, the National Civil Aviation Policy, 2016 and the principles of the International Civil Aviation Organization. The order was preceded by the consultation which Section 13(4) requires, comprising the consultation paper dated 22.06.2021, the comments of stakeholders and the stakeholder meeting held on 09.07.2021.

44. It is submitted by the Ld. Counsel that the regulator is bound to balance the interests of all stakeholders, including airlines and passengers, and not just the airport operator. Reliance was placed upon AERA Vs. Delhi International Airport Limited, 2024 INSC 791, decided on 18.10.2024 in Civil Appeal Nos. 3098-3099 of 2023, where the Hon’ble Supreme Court held that tariff determination is a regulatory function.

45. Learned Counsel for Respondent No.1, AERA, submitted that several of the issues now raised were decided against the Appellant by the judgment of this Tribunal dated 16.12.2020 in AERA Appeal No. 3 of 2014 and AERA Appeal No. 8 of 2018, which is the subject of Civil Appeal Nos. 1798-1799 of 2021 and Civil Appeal No. 1806 of 2021 before the Hon’ble Supreme Court. On that footing, AERA contended that the Appellant cannot re- agitate those issues, invoking Section 10 of the Code of Civil Procedure, 1908 in relation to Bengaluru Airport Hotel Limited. It further contended that, pending the Civil Appeals, it is entitled to continue the method it adopted in the Second Control Period in relation to commercial land development.

46. In support of the disallowance of additional consultancy cost, learned Counsel relied upon paragraph 5.5.9 of the impugned order. While work at the site was disrupted, the Appellant ought to have retained only such consultancy staff as the limited ongoing work required. The mitigation measures claimed were unsupported by evidence, and AERA, acting in the public interest, has struck a balance between the operator and the users.

47. It was submitted that paragraphs 5.5.19 to 5.5.21 of the impugned order set out the reasons for disallowing financing allowance on assets to be capitalised from the Third Control Period and that the financing allowance is a notional amount representing a return at the cost of debt upon equity invested in work in progress assets, and equity cannot be treated as a debt instrument with an assured return. Financing allowance was provided to greenfield airports in their initial stages because of the long wait for any return, but the Appellant's operations have matured over a decade and its new construction is an extension of an operating airport, so that its risks are now akin to those of brownfield airports.

48. It is submitted by Ld. Counsel that AERA was not required, in respect of the period preceding 01.09.2009, to step into the shoes of MoCA and undertake tariff determination dehors the AERA Act. It was submitted that AERA is itself a creature of the AERA Act and can perform tariff-determination functions only within the statutory framework from which its jurisdiction emanates. According to AERA, the fact that relevant historical expenditure or revenue relates to a period preceding enforcement of Section 13 does not require the regulator, while subsequently carrying out the tariff exercise, to discard the governing statutory methodology.

49. Ld. Counsel for AERA submitted that the pre-opening losses of Rs. 53.30 crore were rightly not considered. The investment in regulatory building blocks was not available for utilization by users/passengers before the airport opening date. The users/passengers cannot be asked to pay for services they could not avail. The claim for pre-opening losses defies logic and is also sub-judice before the Hon'ble Supreme Court in Civil Appeal No. 1798-1799 of 2021.

50. Ld. Counsel for AERA submitted that the Eastern Connectivity Tunnel was intended to give passengers access from the eastern side, a purpose it does not presently serve. Only completed projects put to their intended use may be capitalised, a principle upheld in the judgment dated 16.12.2020, and regulatory classification does not follow the Companies Act or the accounting standards.

51. Learned Counsel further submitted that responsibility for timely clearances from the Bureau of Civil Aviation Security rested upon the Appellant as project developer. The impugned order considered the alternative route, but held that cost arising from delayed clearances is not, by that fact alone, efficient capital expenditure.

52. In support of the notional lease rentals, it was submitted that the agreement for construction of the hotel subsisted from 2006, so that rental from the airport opening date in 2008 is reasonable, and a lessee must pay rent irrespective of its profitability. The office space provided to the Airports Authority of India forms part of the Regulatory Asset Base, upon which the Appellant earns a return, and to forgo rent would confer a double benefit upon the Appellant at the cost of passengers.

53. It is submitted by Ld. Counsel for Respondent No.1 that as recorded in paragraph 5.5.28 of the impugned order, the KIA

West Metro Station serves the Appellant’s employees and the users of commercial services, and not passengers, who cannot be charged for a facility they do not use. Under Clause 12.2 of the State Support Agreement, transport connectivity is the responsibility of the Government of Karnataka. As recorded in paragraphs 5.2.29 and 5.5.15, the first phase of the Multi-Modal Transport Hub comprises only the enabling works and the baggage sorting area.

54. These will be put to use only upon commissioning of the metro, and passengers cannot be required to pre-fund them. By its letter dated 25.10.2021, AERA clarified that the cost would be capitalised in the year of commissioning, and the Appellant produced no material to show that the works were required independently of the metro.

55. It was submitted by Ld. Counsel while defending paragraph 8.5.8 of the impugned order and the treatment of revenue from land development, learned Counsel submitted that, under the National Civil Aviation Policy, 2016, only thirty per cent of non- aeronautical revenue is applied to cross-subsidy, precisely so that the operator is encouraged to develop commercially. It was urged that land provided at concessional rates for the viability of the airport nonetheless remains underutilised, and the resulting shortfall in non-aeronautical revenue raises the tariff.

56. Reliance was placed upon paragraphs 34 and 38 of the judgment dated 16.12.2020, which give the expression “Airport” a meaning extending to the Site. Reliance was also placed upon Clause 3.2.1(iii) of the Concession Agreement and upon the letter of the Government of Karnataka dated 06.03.2014, which states that no land was earmarked exclusively for non-airport activity. Section 13(1)(a)(iv) and (vii), read with Section 13(4), empowers AERA to take such revenue into account. When the Concession Agreement was executed, the single till prevailed, and the Appellant now retains seventy per cent of its non-aeronautical revenue under the hybrid till.

57. Learned Counsel submitted that the cost of debt of 7.85 per cent, under paragraphs 6.6.3 and 6.6.4, is subject to true-up upon actuals, subject to reasonableness and efficiency. Reliance was placed upon paragraph 87 of the judgment dated 16.12.2020, which held that a cost of debt allowed as a pass-through must be efficient and commensurate with the prevailing reasonable cost. As regards the discounts given during the pandemic, paragraph 3.10.11 records that amounts recovered through tariff would cease to be discounts and become deferred payments by the very users to whom they were given and no agreement for repayment was ever entered into.

58. Learned Counsel submitted in respect of pre-operative expenses, learned Counsel relied upon paragraphs 3.3.70 to 3.3.72. AERA allowed up to Rupees one hundred fifty-six crore (Rs. 156 crore), as approved in the Second Control Period order. Of that amount, Rupees ninety-three crore sixty-one lakh (Rs. 93.61 crore) was capitalised in that period, and the balance is subject to true-up. An auditor’s certificate establishes that expenditure was incurred, not that it was reasonable, and to allow these expenses again would result in unjust enrichment.

59. The ceiling of five per cent on design and consultancy cost rests upon the study by RITES Limited and by the letter dated 25.10.2021, AERA clarified that these costs will be trued up after commissioning, subject to reasonableness. The corresponding decision in the Second Control Period order was never challenged.

60. On depreciation, it was submitted that Order No. 35 permits a technical determination of useful life only for assets not listed in it, whereas plant and machinery is listed, and many such assets remain in service beyond seven and a half years. The canopy, project office and nursery fall within the class of buildings, for which no lower life is prescribed. The life of thirty years for the existing runway was fixed by paragraph 10.6.4 of the Second Control Period order, which was not challenged.

61. The top layer is an integral part of the runway, and the cost of resurfacing is separately allowed as repair and maintenance amortised over five years. The aeronautical asset ratio secures consistency across airports, and total depreciation is taken from the audited accounts.

62. It is submitted by Ld. Counsel for AERA, Ms. Shweta Bharti that the decision not to increase tariff inFY 2021-22 and to carry forward about 13.85 per cent of the Aggregate Revenue Requirement was fully reasoned in Chapter 14 of the impugned order. It was taken in exercise of the powers conferred by Section 13, in keeping with the principles of the International Civil Aviation Organization and Clause 12(c) of the National Civil Aviation Policy, 2016, and upon a consideration of the stakeholder comments recorded in Chapter 13.

63. It was submitted that comparable orders were passed for other airports. Airlines are stakeholders within Section 2(o), and the deferred amount is recoverable in net present value terms, so that deferment is not denial, the deferred amount being recoverable in net present value terms in the next control period through the true up, so that the Appellant suffers no loss.

64. It was submitted that the Appellant itself treated interest income as non-aeronautical in its multi-year tariff proposal, and cannot approbate and reprobate. The surplus which earns interest is generated from aeronautical and non-aeronautical revenue alike, and since interest during construction is passed on to passengers, a share of the interest earned ought to cross- subsidise aeronautical charges.

65. As to the tax base, the thirty per cent of non-aeronautical revenue is a subsidy for airport users, upon which the operator has already paid tax. Treating it as aeronautical income would overstate the tax and dilute the cross-subsidy. That question is pending before the Hon’ble Supreme Court in the appeal against the DIAL Judgment, and the Delhi and Mumbai airports, governed by the Operation, Management and Development Agreement, are not comparable.

66. Learned Counsel submitted that Section 2(a) of the AERA Act, in clauses (iv), (v) and (vi), expressly includes ground handling services, the cargo facility and the supply of fuel within aeronautical services, and that where the words of a statute are plain they must be given effect. The Act was enacted in 2008 with knowledge of the Concession Agreement of 2004, and the deliberate inclusion of these services reflects the legislative intent, which is borne out by the recommendation of the Parliamentary Standing Committee upon the Bill and by the statement of the Ministry of Civil Aviation recorded in the 94th Report of the Public Accounts Committee.

67. It is submitted that Ministry's letter dated 24.09.2013 was a directive under Section 42 of the Act which had to be accepted in whole, including the aeronautical treatment of cargo, ground handling and fuel revenue, that Clause 10.1 of the Concession Agreement is subject to Applicable Law, and that any other interpretation would create a diarchy in tariff determination.

68. It was further submitted that the Independent Regulatory Authority is defined in the Concession Agreement as an authority set up to regulate any aspect of Airport Activities, which include these services under Schedule 3, that the grant of concession under Clause 3.1.1 is itself subject to Applicable Law, and that the charges in Schedule 6 are only indicative and not exhaustive.

69. As regards operation and maintenance expenses, it was submitted that the nil percentage for the year of capitalisation follows the Appellant’s own business plan, and that the costs consequent upon the deferred capitalisation of Terminal 2 will be trued up. The percentages of gross block fixed in paragraphs 7.5.10 to 7.5.12 reflect the expectation that the new terminal will operate below design capacity.

70. It was further submitted that with regard to personnel expenses, the Appellant’s own data shows that about forty per cent of the employees added in FY 2019 and FY 2020 were for Terminal 1. The Appellant nonetheless sought the original headcount additions although Terminal 2 was postponed by nine months, and the escalation of 5.80 per cent was derived from the Appellant’s own presentation.

71. It is submitted that the readjustment of one per cent provided for delayed capitalisation ensures that capital works allowed in the tariff are completed as assured. It rests upon Sections 13(1)(f), 14(4) and 15 of the AERA Act and Clause 9.2.9 of the Concession Agreement. A similar measure was upheld in the judgment dated 16.12.2020, upon AERA’s assurance that it would examine any appropriate case on merits. To put the matter beyond doubt AERA is not describing the measure as a ‘penalty’, and ‘no deduction has yet been made’.

72. It is submitted by Ld. Counsel for AERA that own methodology, and it applied the ratio of aeronautical to total profit before tax to the actual tax paid, as it did in the Second Control Period.

73. It was further submitted by Ld. Counsel for AERA, that the sum of Rupees four crore fifty-six lakh (Rs. 4.56 crore) claimed in the memorandum of appeal is deferred tax expense. The tax actually paid for FY 2019 was Minimum Alternate Tax of Rupees one hundred thirty-one crore four lakh (Rs. 131.04 crore), upon which AERA allowed aeronautical tax of Rupees fifty-two crore ten lakh (Rs. 52.10 crore). Since the one-time depreciation is allowed as a pass-through in the Aggregate Revenue Requirement, it must equally reduce the aeronautical profit before tax. The effective rate is derived from the actual tax and the actual profit, and cannot be displaced by the statutory rate for a single year.

74. It was submitted by Ld. Counsel w.r.t to allocation, as recorded in paragraph 3.3.73, the true-up of the First Control Period attained finality with the Second Control Period order. A study of the asset additions of the Second Control Period was nonetheless conducted pursuant to the judgment dated 16.12.2020. The gross block ratio of 91 per cent is a composite ratio and cannot be applied selectively to particular projects. The terminal area ratio of 85.73 per cent corresponds to the Appellant’s own segregation of common assets and is subject to true-up. Utility infrastructure serves both classes of users during the development phase.

75. The Appellant itself classified the chiller plant as common in earlier years, and the allocation study for Hyderabad treats terminal air-conditioning likewise. As regards expenses, the terminal operations cost relates to a building which houses both classes of services, and it was bifurcated on directly attributable costs, with food, beverage and lounge items already reclassified as non-aeronautical. The Chief Operating Officer and the Operations Planning, Customer Engagement, Corporate Affairs and Utilities teams serve the airport as a whole, and the central air-conditioning maintained by the Landside Equipment team is a common asset under Table 17 of the allocation study of April 2021. AERA accordingly prayed that the appeal be dismissed.

76. Learned Counsel appearing for AERA, in aid of the aforesaid submissions, placed reliance primarily upon the judgments in

BIAL v. AERA being AERA Appeal No. 8 of 2018, decided on 16.12.2020 and AERA v. DIAL & Ors., 2024 INSC 791. It was submitted that the aforesaid authorities, inter alia, support AERA’s submissions concerning the regulatory character and amplitude of tariff determination, the need for efficiency and consistency in economic regulation, and the settled principles governing interpretation of statutory provisions.

77. In view of the aforesaid submissions, it is submitted that there is no substance in the present AERA Appeal and the same ought to be dismissed by this Tribunal. ARGUMENTS CANVASSED BY FEDERATION OF INDIAN AIRLINES (FIA) – RESPONDENT NO.2

78. Mr. Buddy Rangandhan, Learned Senior Counsel appearing on behalf of Respondent No. 2–Federation of Indian Airlines (“FIA”), adopted the submissions advanced on behalf of Respondent No. 1–AERA and supported the determinations contained in the Impugned Order.

79. It is submitted by the Ld. Counsel for FIA that AERA has committed no error in passing Order No. 11/2021-22 dated 28.08.2021 for determination of the aeronautical tariff for KIAB

for the Third Control Period. The Impugned Order is well- reasoned, considers the interests of all stakeholders, and is in consonance with the AERA Act, 2008, the Tariff Guidelines, 2011, the NCAP, 2016, and ICAO principles. The appeal is liable to be dismissed.

80. Ld. Counsel submitted that the governing principle throughout the tariff exercise ought to be that passengers and airlines should bear only such costs as are properly attributable to facilities and services made available for their use. On this basis, FIA supported AERA’s rejection of the pre-opening losses of ₹53.30 crore and submitted that expenditure incurred before the Airport Opening Date could not be shifted upon future users merely because it had been charged to BIAL’s Profit and Loss Account. It was contended that legitimate development expenditure would, where appropriate, stand reflected in the RAB, and a separate recovery of historical losses carried the risk of conferring a double benefit upon BIAL.

81. Ld. Counsel specifically supported AERA’s treatment of the ₹4.61 crore COVID relief granted by BIAL to airlines. FIA, representing the airlines which had received such relief, submitted that the concession was understood and accepted as a genuine waiver or discount and not as a deferred payment recoverable from airlines or passengers at a later stage.

82. It is submitted that, as no agreement providing for future repayment had been entered into, neither was any corresponding deferred revenue stated to have been recognised. BIAL could therefore not, after extending the relief, convert the same through true-up into a subsequent recovery from Airport users.

83. On asset and expense allocation, learned Counsel submitted that AERA had adopted a rational methodology in distinguishing aeronautical, and common assets and expenses. FIA supported AERA’s position that matters relating to Opening RAB could not remain perpetually open after completion of the earlier true-up exercise; that the composite Gross Block Ratio of 91% could not selectively be applied only to common assets; and that the Terminal Area Ratio of 85.73% constituted an appropriate basis for allocating genuinely common assets.

84. It is further submitted that electrical and powerhouse equipment, water-harvesting facilities and HVAC infrastructure served both aeronautical and non-aeronautical areas and could therefore legitimately be treated as common and similar submission are advanced in support of the classification of cost centres such as

COO, Corporate Affairs, Terminal Operations and Utilities as common expenses where their functions benefited the Airport as a whole.

85. In view of the aforesaid submissions, learned Counsel appearing for FIA submitted that AERA had committed no error warranting appellate interference in passing Order No. 11/2021-22 dated 28.08.2021 for determination of aeronautical tariff for KIAB for the Third Control Period. FIA accordingly prayed that the challenge raised by BIAL be rejected and the Impugned Order be sustained, reiterating that it supports and adopts the argument and the case advanced on behalf of Respondent No.1 -AERA. REASONS & ANALYSIS

86. Taking into consideration the above legal submissions and documents on record, it appears to us that in the present AERA appeal; there are as many as 29 issues that have been raised, and at present only 27 issues are pressed before us during the course of arguments and taking into consideration Additional Affidavit dated 18.12.2025.

87. It would not be out of place to mention that most of the issues that has been agitated before us in the present appeal has already been decided by earlier decisions rendered by this Tribunal in different AERA Appeals.

88. The peculiar feature of these litigations in general, has resulted in disconcerting nature in which manner AERA has dealt with the binding decisions of this tribunal, wherein, despite the decisions rendered by this Tribunal, the same has not been implemented at all by AERA, for the simple expedient reasons that AERA has preferred appeal against the decisions rendered by this Tribunal before Hon’ble Supreme Court.

89. For the purpose of present dispute, upon hearing learned Counsel for the parties and considering the pleadings and material on record, the following issues arise for determination: I. Whether AERA was justified in disallowing the additional Project Management Consultancy (PMC) costs incurred for completion of Terminal-2, despite such costs having arisen solely due to project delays caused by mandatory COVID-19 lockdown restrictions beyond the control of the airport operator?

II. Whether AERA acted contrary to the AERA Act, 2008 and established regulatory principles in denying

Financing Allowance on Capital Work-in-Progress pertaining to assets to be capitalised during the Third Control Period?

III. Whether AERA has incorrectly applied the AERA Act, 2008 for the period between 24.05.2008 to 31-08-2009 for determining pre-control period shortfall?

IV. Whether the refusal to consider pre-opening losses and expenses amounting to ₹ 53,30,00,000/-, incurred as an integral part of airport development prior to commencement of operations, is arbitrary and legally unsustainable?

V. Whether Disallowance of Capital Expenditure towards Eastern Connectivity Tunnel (ECT) by AERA is just and proper?

VI. Whether AERA failed to lawfully consider notional lease rentals attributable to land leased to Bangalore Airport Hotel Limited (BAHL) while determining the tariff for the Third Control Period?

VII. Whether AERA has properly considered the Notional Lease rentals from AAI?

VIII. Whether AERA was justified in disallowing additional transportation costs to the tune of Rs. 8.25 Crore incurred towards Terminal-2 Apron?

IX. Whether AERA was justified in excluding capital expenditure for KIA West Metro Station in RAB for TCP?

X. Whether AERA was justified in disallowing capital expenditure incurred for metro-enabling works proposed to be capitalized as part of the Multi-Modal Transport Hub (MMTH)?

XI. Whether the direction issued by the Airports Economic Regulatory Authority of India, in terrorem, to apply notional lease rentals on commercial land development is legally sustainable and within the scope of its statutory powers?

XII. Whether the imposition of a cap on the cost of debt and the adoption of a fixed interest rate of 7.85% for a period of five years for the Third Control Period is arbitrary and contrary to the AERA Act, 2008 and settled regulatory principles?

XIII. Whether non-recognition of COVID relief measures given to airlines for true up in second control period is legally tenable?

XIV. Whether the decision of AERA of capping of pre- operative expense for true up is just and proper?

XV. Whether the refusal of the Airports Economic Regulatory Authority of India to consider Design and Project Management Consultancy (PMC) costs incurred for expansion works, and to grant true-up thereof, is permissible in law?

XVI. Whether the determination of depreciation by the Airports Economic Regulatory Authority of India is legally sustainable, particularly in respect of the following

a. Alteration of the useful life of Plant and Machinery to 15 years instead of 7.5 years for true-up of the Second and Third Control Periods;

b. AERA has incorrectly fixed the useful life of Canopy, New Project Office, and Nursery at 30 years;

c. AERA has incorrectly fixed the useful life of the existing runway at 30 years instead of 20 years;

d. AERA has incorrectly fixed the useful life of the runway top layer at 30 years instead of 5 years; e. AERA has Failed to compute Depreciation at Individual Asset level.

XVII. Whether the decision of the Airports Economic Regulatory Authority of India to carry forward the Aggregate Revenue Requirement (ARR) amounting to ₹940.63 crore as on 03.03.2022 to the subsequent control period is legally tenable?

XVIII. Whether AERA possesses jurisdiction under the AERA Act, 2008 to take interest income into account for the purpose of tariff determination?

XIX. Whether the exclusion of 30% of non-aeronautical revenue, utilized for cross-subsidization of the aeronautical revenue base, from consideration while computing aeronautical tax is legally justified? XX. Whether AERA exceeded its jurisdiction, while considering revenues from land development activities constituting non-airport activities undertaken outside the precincts of the airport for the purpose of tariff determination?

XXI. Whether AERA has jurisdiction under the AERA Act, 2008 to determine or regulate tariffs in respect of Cargo, Ground Handling and Fuel Farm (CGF) services?

XXII. Whether the estimation of Operation and Maintenance (O&M) expenses for the Third Control Period by AERA is unreasonable, resulting in grossly inadequate allocation of O&M costs?

XXIII. Whether AERA erred in computing unreasonably low estimates of personnel expenses and in rejecting, without adequate justification, the estimates submitted by BIAL in the Multi-Year Tariff Proposal (MYTP)?

XXIV. Whether AERA has the jurisdiction, power, or authority under the AERA Act, 2008 to levy or impose any form of penalty?

XXV. Whether AERA has incorrectly applied income-tax principles in tariff determination, particularly by: A. Deduction of One-Time Depreciation before computing aeronautical tax.

B. Applying incorrect Minimum Alternate Tax (MAT) rates for Financial Years 2019–20 and 2020–21 while calculating tax liability for the Third Control Period. XXVI. Whether AERA has erred in the exercise of asset allocation, inter alia, by:

A. Failing to accept BIAL’s asset allocation for determination of the opening Regulatory Asset Base (RAB);

B. Applying a terminal area ratio of 85.73% instead of the ratio of 91% submitted by BIAL for allocation of capital expenditure in FY 2021 and the Third Control Period;

C. Classification of electrical and powerhouse equipment, chiller plant, and water harvesting assets as common assets rather than aeronautical assets.

XXVII. Whether the decision of AERA incorrectly classifies the costs incurred towards COO, Corporate Affairs team Terminal Operations team Operations planning, project co-ordination and Customer engagement and service quality management Land side equipment team Utilities team as “common” instead of “aeronautical”? ISSUE NO.I: Denial of additional PMC costs incurred for completion of Terminal 2 due to additional time spent being attributable to lockdown restrictions for COVID19.

90. By virtue of the impugned order dated 28th August 2021, pertaining to the Third Control Period, i.e., from 1st April 2021 to 31st March 2026, in respect of KIAB, AERA, while exercising its powers under Section 13 of the AERA Act, disallowed the increase in Project Management Consultancy (PMC) costs incurred by the Airport Operator-Appellant after 31st March 2021 for the completion of the Terminal-2 Building of KIAB Airport.

91. Looking to the facts and circumstances of the present case, it appears that the stipulated time for completion of the Terminal-2 Building was up to 31st March, 2021. However, due to circumstances beyond the control of the Appellant, particularly the restrictions and disruptions caused by the COVID-19 pandemic, additional time was required for completion of the work, including for the procurement of materials and other related activities.

92. Therefore, the additional expenditure incurred towards Project Management Consultancy (PMC) on account of such delay ought to have been allowed by AERA while determining the tariff under Section 13 of the AERA Act, 2008.

93. The announcement of lockdown was made on 24th March 2020. There were approximately 4,000 workers at site, as submitted by the counsel appearing for the appellant. Initially, the work for construction was not allowed to continue because of COVID-19. Thereafter, by notification dated 15.04.2020, construction activity was permitted where workers were available in situ/on-site, and the present appellant recommenced the construction works, but, work was slower than estimated/planned before onset of COVID- 19 due to various issues, threats and protocols which were associated with COVID-19.

94. There was considerable delay in supply of products and systems imported by the appellant from the countries such as China, Germany, Israel, etc. Due to global lockdown, essential protocols had to be maintained among the workers, which has also resulted in the reduction in the productivity and in the pace of construction, which has resulted into delay in completion of the project. These aspects of the matter have not been properly appreciated by AERA while passing the impugned order.

95. Moreover, AERA has allowed the deferment of the date of commencement of the project; however, AERA has failed to consider the appreciated costs incurred towards Project Management Consultancy (PMC). Once the deferment of the date of commencement of the project has been allowed, it means that the delay in the completion of the project was attributable to genuine and justifiable reasons. Therefore, the additional PMC cost actually incurred by the Appellant for the completion of the Terminal-2 Building, on account of the additional time spent due to the lockdown restrictions imposed during the COVID-19, should have been allowed by AERA.

96. The Ministry of Labour, Government of India, issued communication and advisory dated 20th March 2020, wherein, the employers were advised not to terminate their employees, particularly casual and contractual workers. In compliance with the said advisories, and with a view to reducing the associated costs, the Appellant took the following steps to comply with the advisories and reduce the associated costs. Which are as follows:

I. The Appellant changed its deployment plan and other arrangements to optimize the utilization of the Project Management Consultancy (PMC). II. The Appellant also renegotiated the agreement with the PMC to obtain a discount from the PMC in the form of agreeing upon a lump-sum value for a ceiling limit of the deployment. III. Escalation clause contained in the agreement was removed to reduce the cost by negotiations with the PMC. As per PMC contract, the consultant was entitled to an annual escalation of 8% YoY (year-on-year) in respect of the price of deployed resources. This was renegotiated and the PMC cost was reduced. These communications were dated 23rd February 2021 and 28th April 2021, which are also on record with record with Annexure A-20. IV. The deployment of the PMC staff was also reconstructed so as to reduce the PMC cost.

97. In view of the aforesaid steps initiated by the appellant, it cannot be said that BIAL took no measures to reduce or mitigate the additional PMC cost. On the contrary, appellant has taken all the steps to reduce the PMC cost. Nonetheless, looking to the COVID-19 situation prevailing at the relevant time, as stated hereinabove, there was additional PMC cost actually incurred by the appellant for completion of Terminal 2 building at BIAL airport.

98. PMC service contract between BIAL and its PMC was entered into after a transparent bidding process. The said contract is based upon fixed duration and on a fixed cost basis. The contract was executed before COVID-19, and therefore, if the costs are incurred under such contracts and there is an overrun for reasons beyond BIAL's control, the same ought to have been considered by AERA, as BIAL has exercised commercial expediency to mitigate the losses upon advent of COVID-19.

99. At this juncture it has been rightly relied upon by the appellant, the letter issued by AERA to BIAL dated 13th September 2018, which is at Annexure A-7 to the memo of this appeal, especially paragraphs 1, 2 and 3 thereof. The relevant part of the said communication dated 13th September 2018 reads as under:

“1. The Authority had not considered the cost of Terminal 2 phase 1 project in consultation paper as the project was proposed to be completed in FY 2022 as per submission of BIAL.

2. However, subsequent to the issue of consultation paper, the Bangalore airport had revised the timelines of the project and had given an assurance to the Authority that the terminal 2 phase 1 project would be completed and capitalized by March 2021. Based on the assurance given by BIAL, the Authority included Rs. 3710.92 crores in Aeronautical RAB for determining the tariff for the 2nd control period. This consequently resulted in higher ARR being granted to the airport. The Authority felt that the inclusion of project cost of Rs.3710.92 crores in RAB is based on the assurance given by BIAL, and there should be a penalty in case there is a delay in completion /operationalization of the project beyond March 2021. The Authority further decided not to consider any IDC and PMC charges beyond 31st March, in case of delay in completion/operationalization of the project.

3. It is clarified that in case there is delay in completion of project beyond March 2021, due to any reason beyond the control of BIAL or its contracting agency and is properly justified, the same would be considered by the Authority while truing up the actual cost at the time of determination of tariff for the 3rd control period in respect of IDC and PMC. However, there will be no waiver of penalty in case phase 1 of Terminal 2 project is delayed beyond 31st March, 2021 under any circumstances.”

100. As the delay was not attributable to BIAL, in view of the aforesaid communication AERA ought to have allowed the justifiable IDC and Project Management Cost (PMC) overruns to the extent of Rs.50 Crores in the third control period (TCP). In fact, the delay in the present case in completion of Terminal 2 building was neither attributable to the users nor to BIAL, but to COVID-19, which is a circumstance beyond the control of BIAL and, therefore, also AERA should have allowed additional PMC cost actually incurred by the appellant for the completion of Terminal 2 building.

101. Further, in view of the aforesaid communication dated 13th September 2018 (Annexure A-7 to the memo of this AERA appeal); AERA has estopped from denying the additional PMC cost. For the ready reference, Section 13 (1) (a) (i) of the AERA Act, 2008 reads as under: “POWERS AND FUNCTIONS OF THE AUTHORITY

13. Functions of Authority. –

(1) The Authority shall perform the following functions in respect of major airports, namely: -

(a) to determine the tariff for the aeronautical services taking into consideration—

(i) the capital expenditure incurred and timely investment in improvement of airport facilities;

102. Looking to the provisions of AERA Act 2008, the actual expenditure incurred by the Airport Operator has to be allowed while determining the tariff. AERA cannot disregard the contracts entered into by BIAL. AERA cannot apply an empirical or subjective standard to the expenditure incurred by BIAL.

103. In view of the aforesaid provisions of the AERA Act, once the appellant has actually incurred the PMC cost towards the development of airport facilities, namely the Terminal 2 Building, which is being constructed to provide efficient services to passengers, such additional PMC cost ought to be allowed by AERA while determining the tariff under Section 13 of the AERA Act, 2008.

104. Earlier, the date of completion of project was 31.03.2021 which was extended up to 31.03.2022. This extension was permitted by the Authority and, therefore also, additional PMC cost ought to have been allowed by AERA. In fact, this Terminal-2 building was to be completed during Second Control Period (01.04.2016 to 31.03.2021), but due to COVID- 19 it was completed on 31.12.2022.

105. The material placed before AERA disclosed shortage and dislocation of labour, restrictions upon movement, requirements of physical distancing and other health protocols, besides substantial disruption of domestic and international supply chains. BIAL had specifically referred to delays in procurement of products and systems sourced from countries including China, Germany and Israel. These circumstances necessarily had a bearing upon the pace at which a project of the magnitude and complexity of Terminal 2 could be executed.

106. It is without a doubt that AERA itself accepted the existence and effect of these circumstances. In paragraph 5.2.14 & 5.2.18 of the impugned order, AERA recorded that COVID 19

had affected infrastructure projects in India and had resulted in delay.

107. It further found that the reasons furnished by BIAL, supported by data concerning labour shortages and disruption of the supply chain, appeared reasonable to justify completion of Terminal 2 beyond 31.03.2021. For ready reference paragraphs 5.2.14, 5.2.18 & 5.5.8 of the impugned order passed by AERA dated 28.08.2021 (Annexure A-1 to the memo of this appeal) reads as under: “5.2.14 The Authority has noted that COVID-19 has affected the Indian infrastructure projects and has led to delay in the projects. The Authority is of the view that the reasons provided by BIAL with the data on labour shortages and supply chain seems reasonable to justify that the project will get delayed beyond 31 March 2021. … …

5.2.18 The Authority proposes to levy the reduction (adjustment) of 1% in the project cost of Terminal 2 in case BIAL fails to commission and capitalize Terminal 2 Phase I by 31 March 2022. It is clarified that in case there is delay in completion of project beyond March 2022, due to any reason beyond the control of BIAL or its contracting agency and is properly justified, the same would be considered by the Authority while truing up the actual cost at the time of determination of tariff for the 4th control period in respect of IDC and PMC. However, there will be no waiver of penalty in case Phase I of Terminal 2 project is delayed beyond 31 March 2022 under any circumstances. … …

5.5.8 The Authority has noted BIAL's submission to postpone the commissioning date of Terminal 2 to December 2022 and accordingly, the Authority has made changes to the capitalization of the Terminal 2.”

108. In view of the aforesaid observations by AERA in their impugned order, it appears that AERA has accepted the fact that COVID-19 has affected the Indian infrastructure projects. By the virtue of the aforesaid paragraph, AERA has also accepted the fact that BIAL has supplied the data for labour shortage and supply chain which has also been affected due to COVID-19 and there was proper justification given by BIAL that the project will get delayed beyond 31.03.2021.

109. Moreover, looking to paragraph 5.2.18 of the impugned order, AERA proposes not to levy any penalty for non- completion of Terminal-2 Phase-I project up to 31.03.2022. Thus, time to complete Terminal-2 Phase-I project was extended up to 31.03.2022.

110. In view of these aspects of the matter and especially looking to the reasons given by AERA especially in paragraph nos. 5.2.14 and 5.2.18, AERA ought to have allowed additional PMC cost, actually incurred by the Appellant for completion of Terminal-2 building due to additional time spent which is attributable to lockdown restrictions for COVID 19.

111. In view of the aforesaid observations by AERA in the impugned order, it appears that the authority had made changes to capitalization of Terminal -2 building but has observed in para 5.5.9 that the delay in execution of Terminal- 2 building is not on account of airport users and hence, user should not be loaded with additional costs; for ready reference paragraph 5.5.9 of the impugned order reads as under: “5.5.9. The Authority has examined the submission of BIAL to allow the additional PMC cost on account of delay in the Terminal capitalization . BIAL has submitted that the increase in the PMC cost is on account of the increase in the man-months of the PMC consultant and not related to scope. The Authority is of the view that in case the work at the project site has been disrupted by the COVID-19 pandemic, then BIAL should have incurred only the staff cost of the PMC consultant which is required for the limited ongoing work undertaken during this time and not for the entire or unnecessary staff of the PMC consultant. The delay in execution of Terminal 2 is not on account of the airport users and hence the users should not be loaded with additional costs. Further, the Authority noted that it is a general practice to consider the PMC cost as a percentage of the total capital expenditure on the project. Therefore, the Authority does not consider it correct to link the PMC cost with the project duration. Hence, the Authority is of the view that the increase in the PMC cost as submitted by BIAL lacks sufficient justification and rationale and therefore, the increase in PMC cost for Terminal 2 is considered by the Authority as inefficient. Accordingly, the Authority decides to disallow increase in PMC cost of Terminal 2 incurred after 31 March 2021.”

112. This reasoning given by AERA is hereby quashed and set aside mainly for the reason that the delay in execution of Terminal- 2 building project was neither because of users nor because of the appellant, but, because of COVID 19- circumstances beyond the control of the appellant and, therefore, as per Section 13 (1)(a)(i) of the AERA Act, AERA ought to have allowed actual expenditure incurred by the Airport Operator- BIAL while determining tariff. Thus, reason given in paragraph 5.5.9 of the impugned order are without appreciation of tenets of law and facts on record, thereby being arbitrary and preserve in nature and cannot be sustained on law and facts on record.

113. We find a further infirmity in the approach adopted by AERA. In paragraph 5.2.14 of the impugned order, the Authority itself accepted that the material placed by BIAL concerning shortage of labour and disruption of the supply chain furnished a reasonable justification for the delay in completion of Terminal 2 beyond 31.03.2021. Having accepted the cause of prolongation as genuine and beyond the control of the Appellant, AERA thereafter proceeded, in paragraph 5.5.9, to characterise the consequential increase in PMC expenditure as inefficient, without identifying any particular deployment of personnel, contractual payment or item of expenditure which was found to be unnecessary, excessive or imprudent.

114. The reasoning provided by AERA that there was no increase in the scope of work also does not, in our considered view, answer the claim. Scope and duration are distinct incidents of project execution. The former concerns the nature and extent of the work required to be undertaken, whereas the latter concerns the period over which the resources necessary for execution and supervision of such work are required to remain deployed. A project may retain precisely the same physical scope and yet, because of circumstances beyond the control of the project developer, require a substantially longer period for completion.

115. Learned senior counsel for the appellant Mr. Sajan Poovayya has also taken this Tribunal to Annexure R-27 at page 3559 and 3560 which are office memorandum published by the Government of India dated 23.03.2020 and by Ministry of Labour and Employment and vide DO communication dated 20th March, 2020.

116. It has been pointed by the learned counsel that by the virtue of these communications, employees may not be terminated nor the wages can be reduced particularly casual or contractual workers during COVID-19 period. In view of these facts also, when the date of completion of Terminal-2 building project was extended, there will be additional PMC cost and the same should have been allowed by AERA.

117. It is a well settled principle of regulatory jurisprudence that a regulator while assessing the prudence of costs incurred by a regulated entity must apply the standard of what was known at the time when the expenses were incurred and not what is known in hindsight.

118. In the present case the approach of AERA is to criticise the Appellant, based on presumptuous finding that the appellant should have incurred only the staff cost required for limited ongoing work and not for the entire or unnecessary staff of the PMC consultant is a classic instance of hindsight bias. The Authority is evaluating decisions made in March and April 2020 when the pandemic was in its incipient stages and when no one could have predicted its duration or severity. The Appellant had no way of knowing how long the disruption would last.

119. AERA has not denied the fact that demobilising the PMC staff would have exposed the Appellant to the risk of being unable to remobilise them at short notice when work resumed. The expectation of demobilisation is therefore commercially untenable.

120. Thus, we remind the Ld. AERA again that the concept of prudence in regulatory law is not to be confused with a roving inquiry into every decision taken by the regulated entity. The regulator is not an appellate authority over the commercial decisions of the airport operator. The role of the regulator is to ensure that the costs claimed are legitimate and that they have been incurred in a manner consistent with the ordinary principles of commercial prudence.

121. The test is not whether the regulator would have taken the same decision but whether the decision was one which a reasonable and prudent businessman faced with the same circumstances could have taken. The decision of the Appellant to continue with the PMC contract during the COVID 19 period rather than demobilise the staff and risk the consequences of demobilisation was a decision which any prudent businessman could have taken.

122. We are of the opinion that the clarificatory letter dated 13.09.2018 must be interpreted in a reasonable and purposive manner. The letter was issued by the Authority to clarify the consequences of a delay in the completion of the project and it states that if there is delay in completion of the project beyond March 2021 due to any reason beyond the control of the Appellant or its contracting agency and is properly justified the same would be considered by the Authority while truing up the actual cost at the time of determination of tariff for the Third Control Period in respect of IDC and PMC.

123. The words appearing in the letter stating any reason beyond the control of the Appellant are wide enough to cover the COVID 19 pandemic and the subsequent fact that the Authority itself has accepted that the pandemic created genuine issues for completion of the project.

124. The words while truing up the actual cost mean that the Authority must examine the actual cost incurred and allow it if it is found to be reasonable. The Authority has failed to carry out this exercise. Instead, what appears to us from the record is that the Authority has disallowed the cost in limine on the ground that it is inefficient. This is contrary to the letter and spirit of the clarificatory letter.

125. We are also of the opinion that the communication dated 13.09.2018 did not confer an unconditional entitlement to reimbursement of every additional expenditure that might subsequently be claimed. Nor could such a communication denude AERA of its statutory obligation to undertake a prudence examination. AERA had itself represented, as part of its regulatory treatment of Terminal 2, that a properly

justified delay beyond the control of the airport operator would be considered at true up in respect of IDC and PMC.

126. When the very contingency contemplated in that communication materialised in the form of an unprecedented pandemic, AERA was required to examine the resulting expenditure on that footing. A categorical rejection founded substantially upon the propositions that the users were not responsible for the delay and that PMC cost should ordinarily be expressed as a percentage of project cost does not satisfy that requirement and mandate of Section 13(1)(a)(i) of the AERA Act requires the Authority, while determining tariff for aeronautical services, to take into consideration “the capital expenditure incurred and timely investment in improvement of airport facilities.”

127. Even if there were any ambiguity in the clarificatory letter the ambiguity must be resolved against the Authority which drafted the letter. The principle of contra proferentem applies with full force to documents issued by public authorities. The Authority cannot take advantage of an ambiguity in its own document to deny the Appellant the benefit of the representation contained therein.

128. We must also note that where delay is attributable entirely to the project developer, the financial consequence may legitimately remain with it. Where the delay results from causes beyond its control and absence of imprudence is established, the additional cost occasioned by the time overrun is capable of being recognised, subject to the regulator’s prudence check and appropriate adjustment of corresponding recoveries.

129. Looking to the facts of the present case, we are of the opinion that present appellant- BIAL's decision was prudent and as per industry practice, especially for highly skilled infrastructure projects like Terminal 2 building, especially when BIAL has already incurred the expenditure under the contract. AERA cannot rewrite the contract nor can change the amount of construction under the contract.

130. These aspects of the matter have not been properly appreciated by AERA. Hence, we quash and set aside the decision of AERA of disallowance of increase in PMC cost incurred after 31st March 2021. We hereby direct AERA to allow the additional PMC cost actually incurred by the appellant for completion of Terminal 2 building due to additional time spent being attributable to lockdown restrictions for COVID-19.

131. The Third Control Period came to a close on 31st March 2026 during the pendency of this appeal. The Appellant has accordingly sought that the additional consultancy cost be trued up in the determination of tariff for the Fourth Control Period, and the relief is moulded accordingly.

132. In view of the aforesaid facts and reasons, we hereby quash and set aside the decision of AERA as mentioned in paragraph 5.5.9 of the impugned order (Annexure A-1) of not allowing the increase in the PMC cost incurred by appellant after 31.03.2021 for Terminal-2 building. We hereby direct AERA to allow additional PMC cost incurred for completion of Terminal-2 building due to additional time spent, necessary true -up shall be given by AERA for additional PMC cost during 4th Control Period. Hence, Issue No. I is accordingly answered in favour of the Appellant.

Issue No. II. Denial of Financing Allowance on Capital Work-in-Progress pertaining to assets to be capitalised during the Third Control Period

133. It is submitted by learned senior counsel for the appellant that AERA while passing the impugned order dated 28.08.2021 for 3rd Control Period (Annexure A-1) has disallowed the financing allowance for BIAL on the assets which will be capitalized from Third Control Period onwards. It is further submitted that AERA should have allowed financing allowance with true-up in Fourth Control Period. Per contra, it is submitted by learned counsel for AERA, financing allowance was not allowed to other airports such as DIAL, MIAL and KIAB.

134. Having heard the counsels for both the sides and looking to the facts and circumstances of the case, it appears that AERA had allowed financing allowance for projects approved for completion in Second Control Period (01.04.2016 to 31.03.2021). There were several projects as for e.g. Terminal-2 Phase-I project, Runway-II project, Taxiway and Apron Phase-Ia, etc. For all these projects, financing allowance was allowed while passing the tariff order for Second Control Period.

135. In view of the aforesaid order passed by AERA, which is a tariff order for Second Period Control (decision in paragraph no.6.a(i) to be read with Table No.27 of Second Period Control tariff order) BIAL has made equity investments to the tune of Rs.2425 Crores as of 31.03.2021 for the said projects. Because of delay due to COVID-19, portions of the said projects were expected to be completed by 31.12.2022 in 3rd Control Period and in fact they have been completed in FY 2023.

136. Surprisingly, the financing allowance was granted in Second Period Control tariff order for the part of the projects but during 3rd Control Period, the projects which were completed by FY2023, the financing allowance was disallowed by AERA, this is absolutely arbitrary in nature, there cannot be a zig-zag approach of AERA in fact, this is a whimsical approach and reflects non- application of mind by AERA because such deferred projects which were in construction during 3rd Control Period, AERA has withdrawn the financing allowance.

137. It ought to have been appreciated by AERA that investment and financing allowance for projects in Second Control Period was approved by AERA and, therefore, BIAL-Appellant has a vested right to receive financing allowance, for the said projects till the date of completion of the projects, as approved by AERA, irrespective of which Control Period, the same are completed in. Thus, withdrawal of financing allowance for the work in progress takes away a vested right of the appellant, which is impermissible, as AERA has observed in para nos. 5.5.19 and 5.5.20 of the impugned order, which is at Annexure A-1 to the memo of this AERA appeal and reads as under: “5.5.19 On the financing allowance, the Authority noted that the financing allowance is a notional amount arising from the return of cost of debt given to the equity investment in the capital work in progress assets. The Authority is of the view that the equity invested in work in progress assets cannot be treated as a debt instrument with an assured return of cost of debt. The Authority noted that such assured return on equity investments on the work in progress assets are not available to the developers of other infrastructure. It is expected that the future returns from the project should generate adequate returns to cover the cost of the equity during the construction stage. Therefore, the Authority adequately compensates the risks associated with the equity investments in a construction project once the project is capitalized by means of a reasonable cost of equity.

5.5.20 The Authority considers that giving an assured return on the equity investment even on the work in progress assets would result in reducing the risks associated with equity investment in capital projects which then needs to be accounted while determining the cost of equity. Therefore, the Authority is of the opinion that the return on equity that is entitled to the airport operator would remain the same whether the Authority allows or disallows financing allowance.”

138. In view of the aforesaid observations in the impugned tariff order AERA acknowledges financing allowance as a major of recompense for equity invested during construction phase. The amount of equity/internal accruals which are shareholders funded invested by this appellant, based on the above promise made for Second Control Period approved projects, cannot go unrewarded. This aspect has not been properly appreciated by AERA while passing the impugned order of disallowing the financing allowance for BIAL on the assets which will be capitalized from 3rd Control Period onwards as stated in para 5.5.21.

139. It has been held by this Tribunal in case of DIAL Vs. AERA in AERA Appeal No.10 of 2012 judgment dated 23.04.2018 in paragraph no.105 as under: “105. In the SSA the meaning of WACC requires taking in account weighted average cost of capital. But the presumption that cost of capital for any monetary investment other than by way of equity must be judged only on the basis of interest liability is unwarranted and unjust. Whether voluntarily or mandatorily, there is no doubt that the RSD amount has been used as an investment in the project and that SSA allows a fair return on the investment which is to be proportionate to the cost of investment. Conceptually, the cost of investment can never be zero since that would imply an infinite return {by general definition, return on investment = (gains from investment – cost of investment)/cost of investment)}. Thus it is obvious that if this fund has been used as an investment, there is a cost attached to it which cannot be obviated by saying that it is a zero cost debt.”

140. It has been contended by learned counsel Ms. Shweta Bharti for AERA that financing allowance was not allowed by AERA because it was never rewarded to other airports such as DIAL, MIAL and KIAL. This contention is not accepted by this Tribunal for the following reasons: I. BIAL cannot be compared with DIAL and MIAL because DIAL and MIAL are brownfield airports whereas BIAL is a greenfield airport; II. When DIAL and MIAL were leased to their Airport Operators, there were existing structures whereas BIAL had to build everything with funds infused through equity and debt; III. The risk undertaken by the Airport Operator in case of greenfield airports, which is associated with investment of equity, is to be compensated with financing allowance;

IV. Moreover, as per the provision of AERA Act, 2008, AERA is empowered to provide different tariff structures to different airports and, therefore, even if financing allowance is not provided for DIAL, MIAL and KIAL, it can always be provided to BIAL {as per proviso Section 13

(1) (a)}; V. KIAL did not seek financing allowance from AERA hence, the same was not provided to KIAL in its tariff order hence the case of KIAL is different from the case of BIAL; VI. Looking at the order passed for tariff order in Second Control Period, wherein financing allowance was allowed for BIAL, BIAL invested a sizable amount to the tune of Rs.2425 Crores which is equity investments and, therefore, even if the portions of the project were completed in 3rd Control Period, the financing allowance ought to have been allowed by AERA.

141. It has also been contended by learned counsel for AERA that financing allowance is being disallowed because investment has taken place through internal accruals instead of direct equity infusion by its shareholders. This contention is not accepted by this Tribunal mainly for the following reasons:

(i) Internal accruals or retained earnings are the entitlement of the shareholders and are shareholders’ funds retained at the company. As per Schedule III read with Section 129 of Companies Act, 2013, Reserves and Surplus forms part of shareholders’ funds;

(ii) It ought to be kept in mind by AERA that any amount of equity which is infused into BIAL-Appellant either through equity infusion or from internal accruals, must be considered as shareholders’ funds. The decision to fund BIAL through equity or through internal accruals is an operational decision with which AERA cannot interfere, and AERA has no power, jurisdiction and authority to decide the same;

(iii) For grant of financing allowance, it makes no difference whether any amount of equity has been infused into BIAL either through equity infusion or from internal accruals;

(iv) Infusion of the funds into the present appellant-BIAL through equity infusion or from internal accruals, is one and the same;

(v) AERA’s classification viz.- “investment through internal accrual” and “investment through direct equity infusion by its shareholders” is not logical and as stated herein above, as per Schedule III to be read with Section 129 of the Companies Act, infusion of fund through internal accruals or through equity infusion is one and the same. As per Annexure A-15 to the memo of this AERA Appeal a letter was written by this Appellant – BIAL to AERA dated 27.8.2012.

(vi) In reply to the aforesaid communication, AERA issued a clarificatory letter dated 22.10.2012 (Annexure A- 16 to the memo of this appeal which reads as under: “ F. No. AERA/20010/МYТР/BIAL/2011-12 Airports Economic Regulatory Authority of India *** AERA Building, Administrative Complex, Safdarjung Airport, New. Delhi - 110003 Dated 22nd October, 2012 To, Shri B. Bhaskar, Director (Finance), Bangalore International Airport Limited, Alpha 2, Bengaluru International Airport, Devanhalli, Bangalore-560 300

Sir, I am directed to refer to your email dated 29.08.2012 seeking clarifications on the Financing allowance as per the Authority's Guidelines - Direction No. 5-2010-11 for Order No.14 (dated

28.02.2011) - treatment of Financing allowance as contained in Direction No. 5 and to say as under:

i.) BIAL's understanding that the Financing Allowance is computed on the total Work in Progress balance (whether funded through debt/ equity/ internal accruals) and is capitalized as a part of commissioned assets for RAB computation is correct vis-à-vis Authority's Guidelines.

ii.) As regards the clarifications on the computation of the financing allowance assuming there is no contribution on account of Capital receipts, the formula for Financing Allowance would be: Rd x (Opening WIP + (Capital Expenditure - Commissioned Assets)/2), where Rd is the Cost of Debt.

iii.) As regards BIAL's clarification that there would be requirement to maintain different sets of books for Regulatory Purposes and Financial Records for various reasons. BIAL'S understanding is correct in this aspect, vis-à-vis Authority's Guidelines, as the RAB figures may not match the fixed asset values in the financial records for various reasons.

2. Further, during the presentation held on 21.08.2012, BIAL had pointed out that a number of issues required to be reviewed including Traffic Forecast, capital Expenditure, means of financing of project and that the revised MYTP would be ready for submission by end of September' 2012. Needless to say that any further delay in submission of the requisite information/ details/ certifications would only delay the determination of aeronautical charges for Bangalore International Airport and the impact due to such delay would be on account of such delayed submissions by BIAL. Hence, you are kindly requested to expedite and send the same by 31.10.2012.

Yours faithfully,

C.V. Deepak OSD-II

Airports Economic Regulatory Authority of India, IInd foor, AERA Building, Administrative Block, Safdarjung Airport, New Delhi - 110003 India Tel: 91 11 24695043 Fax: 91 11 24695048 Email: cv.deepak@aera.gov.in "Alternate Email: cvdeep@gmail.com ”

142. The financing allowance is a creature of the regulatory framework established by the Authority itself. Clause 17.5.4.c of Order No 13/2010-11 dated 12.01.2011, provides for financing allowance. Clause 5.2.7 of Direction No 5 issued by the Authority provides for the detailed methodology to be used for calculating financing allowance for work in progress assets. The formula prescribed is that the value of work in progress assets at the end of a tariff year is equal to the value at the end of the previous tariff year plus capital expenditure plus financing allowance minus capital receipts minus commissioned assets.

143. The financing allowance is calculated as the cost of debt multiplied by the sum of the opening work in progress and half of the difference between capital expenditure and commissioned assets. This formula was expressly clarified by the Authority in its letter dated 22nd October 2012.

144. The said letter was issued in response to a communication from the Appellant dated 27th August 2012. The Appellant had sought clarifications on the financing allowance as per the Authority's Guidelines contained in Direction No 5. The Authority clarified that the Appellant's understanding that the financing allowance is computed on the total work in progress balance, whether funded through debt, equity or internal accruals, and is capitalised as a part of commissioned assets for regulatory asset base computation, is correct vis à vis the Authority's Guidelines.

145. In view of the aforesaid clarification given by AERA to BIAL – appellant it has been stated by AERA that financing allowance is computed on work in progress assets whether funded through debt/equity/internal accruals.

146. Further in view of the aforesaid annexures Annexure A-15 and A- 16, AERA is estopped from contending that since the projects were funded by internal accruals, financing allowance cannot be permitted. In fact, appellant-BIAL has acted as per the clarification given by AERA and, therefore, appellant had invested Rs.2425 Crores in the said projects, portion of which were expected to be completed by 31.12.2022 in 3rd Control Period have in fact was completed by FY2023.

147. It is worth noting that a regulated entity which makes investment decisions of the magnitude of hundreds of crores does so upon the faith of the regulatory framework as declared at the time of the investment. The financing allowance for the SCP-approved projects was not a gratuity but a constituent element of the regulatory compact, as the Authority included the project costs in the RAB, allowed financing allowance on the work-in-progress, and thereby represented that equity locked in during construction would carry a financing allowance until capitalization.

148. It is only conceivable that such representation indeed matured into a legitimate expectation, upon the investment having been irrevocably made, into an accrued entitlement which cannot be withdrawn without the Authority demonstrating overriding public interest or cogent clear material on record to disallow the same, this burden was not discharged by AERA.

149. These aspects of the matter have not been appreciated by AERA while passing the impugned order especially of disallowing the financing allowance on the assets which are capitalized from 3rd Control Period onwards as stated in paragraph 5.5.21 of the impugned order. The reasoning given by AERA in 5.5.21

for disallowing the financing allowance are hereby quashed and set aside.

150. It has also been contended by counsel for AERA that BIAL has been considered as a brownfield airport as operations have matured and a brown field airport is not provided with financing allowance. This contention is not accepted by this Tribunal for the following reasons:

(i) As per the Concession Agreement dated 05.07.2004 Annexure A-3, to be read with Annexure A-4 which is the amendment of Concession Agreement of the year 2006, BIAL is classified as a green field airport at all times during the subsistence of the Concession Agreement.

(ii) “Airport” has been defined under the Concession Agreement as per clause 1.1 to be read with the definition of “Initial Phase” to be read with Schedule 2 of the Concession Agreement.

(iii) As per the provisions of the Concession Agreement of the definition of the “Airport”, definition of “Initial Phase” to be read with Schedule 2, the “Airport” comprising of “Initial Phase” and any expansion thereof is a part of greenfield airport concessioned to BIAL, meaning thereby to, BIAL does not become a brown field airport merely because a second terminal is being constructed by BIAL.

(iv) It is neither under the AERA Act nor under the Concession Agreement (Annexure A-3 & A-4) or under the AERA Guidelines there is any provision that financing allowance is applicable only for greenfield airports. In fact, financing allowance clauses are applicable to all major airports, there is no sub-classification therein;

(v) AERA is stopped from retrospectively altering its tariff determination mechanism. During First Control Period tariff order and during Second Control Period tariff order, financing allowance has been recognized and allowed but without any justifiable reason in 3rd Control Period tariff order (Annexure A-1), the financing allowance has been disallowed by AERA, this is not permissible.

151. We are sanguine of another aspect of the matter which, in our view, assumes considerable significance. In its reply before this Tribunal, AERA has itself stated that, with a view to maintaining consistency with the regulatory framework adopted for the Second Control Period, it considered Financing Allowance instead of Interest During Construction for the purpose of true up of that period. On the basis of the Auditor’s certificate furnished by BIAL, the Authority accepted a revised total Financing Allowance of Rs. 230 crore, of which Rs. 219 crore represented the aeronautical component.

152. In fact, Paragraph 3.3.78 of the impugned order proceeds on the same basis. The position which emerges is therefore that AERA recognised the applicability of Financing Allowance to the very class of capital works which had been undertaken during the Second Control Period. In the present case, the projects did not undergo any transformation merely because their completion and capitalisation, owing inter alia to the intervening pandemic, extended beyond 31.03.2021. The underlying capital remained deployed in Work in Progress. In the absence of any corresponding alteration in the applicable Guidelines, the date on which the asset crossed from one Control Period into another could not, by itself, supply the juridical basis for extinguishing Financing Allowance.

153. Our conclusion is fortified by the regulatory instruments which governed AERA itself while undertaking the present tariff determination. It is pertinent to note that Order No. 13 of 2010- 11, dated 12.01.2011, was issued by AERA in the matter of its

Regulatory Philosophy and Approach in Economic Regulation of Airport Operators. The Order constitutes the foundation upon which the subsequent Airport Guidelines were framed.

154. In relation to capital expenditure remaining under construction, AERA consciously adopted the principle that Work in Progress Assets would not enter the Regulatory Asset Base until commissioning, but that the capital remaining locked during the construction period would receive Financing Allowance calculated with reference to the cost of debt.

155. It is worth noting that the Paragraph 17.5.4(c) of the said Order accordingly recognises Financing Allowance as part of the cumulative cost of bringing an asset into operation and contemplates its capitalisation as part of the Work in Progress asset. For ready reference Paragraph 17.5.4 (c) reads as under: “17.5.4.c. Work in Progress (WIP) assets would not be included in the RAB until they have been commissioned and are in use. The Authority adopts an approach whereby (subject to the position stated in respect of assets financed through pre-funding) an allowance for an appropriate rate of return on the cumulative cost of bringing the asset into operation will be capitalised as part of WIP assets. The Authority's assessment of the Fair Rate of Return for such assets will be its assessment of cost of debt.”

156. The regulatory philosophy contained in Order No. 13 was thereafter operationalised through the Airports Economic Regulatory Authority of India Terms and Conditions for Determination of Tariffs for Airport Operators Guidelines, 2011 dated 28th February 2011 and Direction No. 5 issued in that framework. The Appellant has annexed Direction No. 5 as Annexure A-17 to the memo of this appeal.

157. It is pertinent to note that Clause 5.2.7 of Direction No. 5 is of particular importance as it defines Work in Progress Assets as assets which have not been commissioned during the relevant Tariff Year or Control Period and expressly incorporates Financing Allowance into the computation of the closing Work in Progress balance. The formula prescribed therein treats the opening Work in Progress, the capital expenditure incurred during the year, capital receipts and commissioned assets as the relevant variables and computes Financing Allowance by applying the cost of debt determined by AERA under Clause 5.1.4. For ready Reference Clause 5.1.4 & 5.2.7 of the Direction No. 5 reads as under: “ 5. 1.4. Cost of Debt

(a) The Authority shall consider the forecast cost of existing debt, subject to the Authority being assured of the reasonableness of such costs based on a review including of its source(s), procedure(s) and method(s) used for raising such debt(s).

(b) The Authority shall consider the forecast for future cost of: (i) debt proposed to be raised during the Control Period; or (ii) such debt which may be subject to a floating rate of interest subject to the Authority being assured of the reasonableness of such costs, based on a review including of its source(s), procedure(s) and method(s) to be used for raising such debt(s).

(c) The Authority shall determine a weighted average cost of debt, according to the formula indicated in the illustration 2 below Clause 5.1.7, in a Control Period for the· purpose of determination of FRoR. The determination of such weighted average cost of debt shall be based on the forecast quantum of debt for each Tariff Year in a Control Period and shall have reference to the projected quantum of debt submitted by. the Airport Operator.

(d) The Authority shall not consider any, short term debt, deposits etc. with maturity of less than 12 months, for its determination of weighted average cost of debt. The Authority shall instead review such debt according to C1ause 5.4.

(e) . Financing costs associated with debt considered for the determination of weighted average cost of debt, shall be considered in the capital costs of the project and not as an adjustment to the cost of debt.

5.2.7. Work In Progress assets

(a) Work in Progress Assets (WIPA) are such assets as have not been commissioned during a Tariff Year or Control period, as the case maybe. Work in Progress assets shall be accounted for as:

(b) Assets acquired or commissioned within the same Tariff Year, (including such assets as may be commissioned immediately upon acquisition) shall be included both in Capital Expenditure and Commissioned Assets.

(c) The Authority shall determine a forecast for Work in Progress assets (including value of Commissioned Assets in each Tariff Year) in the determination of the Aggregate Revenue Requirement and the determination of forecast RAB.

158. Thus, from the above the consequences are quite clear as Financing Allowance was not devised as an ad hoc concession available at the discretion of AERA from one tariff order to another. It formed an express component of the methodology prescribed by AERA itself for regulatory treatment of capital expenditure during the period preceding commissioning.

159. More importantly, paragraph 1.2.2 of the impugned order itself proceeds on the basis that the relevant tariff Guidelines constitute part of the principles governing the determination. AERA could not, therefore, introduce through paragraph 5.5.21; a restriction which the governing methodology itself did not contain, merely by describing the airport as having matured over time. If the regulatory methodology was to be altered, such departure required an identifiable legal basis and reasons capable of demonstrating why the existing treatment was no longer applicable. No such exercise is discernible from the impugned determination.

160. The position emerging from the AERA’s own regulatory instruments is therefore unambiguous. The Third Control Period determination continued to be governed by the regulatory philosophy contained in Order No. 13 and by the methodology prescribed in the Airport Guidelines, save to the extent of subsequent express modifications. No subsequent order or direction has been shown to us by which Clause 5.2.7 of the Decision No. 5 was withdrawn, amended or rendered inapplicable to BIAL before issuance of the impugned tariff order. Nor does paragraph 5.5.21 of the impugned Tariff Order identify any such amendment. The Authority instead proceeded to deny Financing Allowance on the basis that BIAL had, with the passage of time, become a mature or brownfield airport and that its operations had stabilised.

161. In our considered view, such reasoning cannot override the regulatory framework which the Authority itself declared to be applicable. The distinction sought to be introduced between a greenfield airport and a mature airport finds no expression in Clause 5.2.7 of the Decision No.5 as that provision is concerned with the character of the asset as Work in Progress and the capital deployed in bringing that asset into operation. It does not make the entitlement dependent upon the age of the airport, the number of years for which the airport has been operational, or the stage of maturity of its existing business. What is relevant under the prescribed methodology is whether capital remains deployed in an asset which has not yet been commissioned.

162. We may clarify that regulatory guidelines are not incapable of prospective alteration. AERA, being a statutory regulator, may revise its methodology where such revision is authorised by law and is supported by a rational regulatory basis. The present case, however, does not involve a formally altered regulatory framework. It involves an individual tariff determination in which the Authority professed continued adherence to the existing Guidelines and yet introduced, through paragraph 5.5.21, a substantive qualification which those Guidelines did not contain.

163. We are of the opinion that a change of that nature could not be brought about merely by describing BIAL as a mature airport, particularly when the capital projects in question had already been approved and were continuing as Work in Progress under the very framework which recognised Financing Allowance.

164. The impugned order does not explain how this framework ceased to govern the very same category of Work in Progress Assets upon commencement of the Third Control Period. In the absence of an express modification of the governing methodology or a statutory basis for introducing the new restriction, paragraph 5.5.21, cannot be sustained merely on the ground that the operational profile of the airport had changed with the passage of time. The regulatory treatment of an uncommissioned asset must follow the methodology governing Work in Progress unless and until that methodology is lawfully altered.

165. In view of the aforesaid facts and reasons, we hereby quash and set aside the impugned decision of AERA of disallowing the financing allowance for BIAL on the assets which are capitalized in 3rd Control Period and onwards as mentioned in paragraph 5.5.21 of the impugned order. We hereby direct AERA to allow financing allowance for BIAL on the assets which are capitalized in 3rd Control Period (01.04.2021 to 31.03.2026) and onwards. Accordingly, Issue No. II stands answered in favour of the Appellant. Issue No. III: Applicability of AERA Act, 2008 or otherwise for the period between May 2008 to 31.08.2009 for determining pre-control period shortfall.

166. The present issue concerns the legal regime applicable for determination of the Appellant's tariff entitlement and consequential shortfall for the period commencing from the Airport Opening Date on 24.05.2008 and ending on 31.08.2009.

167. The AERA Bill as passed by parliament received the assent from the President on 05.12.2008 and certain provisions of AERA Act, 2008 were notified with effect from 01.01.2009. AERA was established on 12.05.2009 and Chapter III of the AERA Act which is about AERA’s function to determine tariff under Section 13(1)(a) and to determine UDF under Section 13(1)(b) were notified on 01.09.2009. In view of these factual aspects for determination of ARR for period between 24.05.2008 to 31.08.2009, which is a period prior to First Control Period tariff order, AERA Act, 2008 cannot be applied because Chapter III of AERA Act was not in force during that period.

168. The Appellant commenced commercial operations on 24th May 2008, well before Chapter III of the AERA Act came into force. Until 1st September 2009, the tariff payable by the Appellant was fixed by the Ministry of Civil Aviation, on an ad hoc basis, under the user development fee provisions of Schedule 6 of the Concession Agreement.

169. In fact, AERA took over the unfinished exercise of tariff determination which was originally initiated by MoCA in view of BIAL’s judgment. For ready reference paragraph 47 of the judgement of this Tribunal in the case of BIAL vs AERA in AERA APPEAL No. 8 of 2018 judgment dated 16.12.2020

“47. In the considered opinion of this Tribunal, it will not be proper to hold that in the exercise of its statutory powers to provide for a purposeful and good tariff order, the AERA should depend upon a direction from MoCA to look into facts relating to ad hoc rates and resultant loss, if any. Similarly, for the lapses of MoCA, if any, it will not be proper now to refer the task of looking into deficiencies in tariff formulation

for the period prior to First Control Period to MoCA. The relevant facts, figures and accounts for the earlier period should have been gone into by AERA to find out whether there was any merit in the claim of BIAL. Since that has not been done, the claim for per-control period losses as determined in various parts of Para 5 of the tariff order for the First Control Period and virtually reiterated in the next tariff order are set aside for the purpose of remitting the claim back to AERA for fresh consideration on its own merits and in accordance with law and this order.”

170. In view of the aforesaid decision, AERA ought to carry out the tariff determination for the period between 25.05.2008 to 31.08.2009 which is a period prior to First Control Period tariff order, in the same manner as was being done by MoCA i.e., by relying upon provisions of Concession Agreement (Annexure A-3 & A-4) and other project agreements. These Concession Agreements and other project agreements are the complete Codes for tariff determination for the period prior to First Control Period tariff order which is the period between 25.08.2008 to 31.08.2009.

171. We think it is necessary to examine this issue at greater length, because the point, though narrow, goes to the root of AERA's jurisdiction over a defined historical period. It is a fundamental rule of construction, restated by a Constitution Bench of the Hon'ble Supreme Court in Commissioner of Income Tax versus Vatika Township Private Limited, (2015) 1 SCC 1, that no statute shall be construed to have retrospective operation unless such a construction appears very clearly in the terms of the enactment, or arises by necessary and distinct implication. For ready reference Paragraphs no. 27 to 29 of the aforesaid judgement reads as under: “27. A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non- fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of “interpretation of statutes”. Vis-à- vis ordinary prose, a legislation differs in its provenance, layout and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof.

28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips v. Eyre [(1870) LR 6 QB 1] , a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.

29. The obvious basis of the principle against retrospectivity is the principle of “fairness”, which must be the basis of every legal rule as was observed in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. [(1994) 1 AC 486 : (1994) 2 WLR 39 : (1994) 1 All ER 20 (HL)] Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.”

172. That the Hon’ble Supreme Court in the case of Keshavan Madhava Menon v. State of Bombay, AIR 1951 SC 128, on prospective operation of the constitution and especially Article 13 thereof, had held as follows: “13. Every statute is prima facie prospective unless it is expressly or by necessary implications made to have retrospective operation. There is no reason why this rule of interpretation should not be applied for the purpose of interpreting our Constitution. We find nothing in the language of Article 13(1) which may be read as indicating an intention to give it retrospective operation. On the contrary, the language clearly points the other way. The provisions of Part III guarantee what are called fundamental rights. Indeed, the heading of Part III is “Fundamental Rights”. These rights are given, for the first time, by and under our Constitution. Before the Constitution came into force there was no such thing as fundamental right. What Article 13(1) provides is that all existing laws which clash with the exercise of the fundamental rights (which are for the first time created by the Constitution) shall to that extent be void. As the fundamental rights became operative only on and from the date of the Constitution the question of the inconsistency of the existing laws with those rights must necessarily arise on and from the date those rights came into being. It must follow, therefore, that Article 13(1) can have no retrospective effect but is wholly prospective in its operation. After this first point is noted, it should further be seen that Article 13(1) does not in terms make the existing laws which are inconsistent with the fundamental rights void ab initio or for all purposes. On the contrary, it provides that all existing laws, insofar as they are inconsistent with the fundamental rights, shall be void to the extent of their inconsistency. They are not void for all purposes but they are void only to the extent they come into conflict with the fundamental rights.

14. In other words, on and after the commencement of the Constitution no existing law will be permitted to stand in the way of the exercise of any of the fundamental rights. Therefore, the voidness of the existing law is limited to the future exercise of the fundamental rights. Article 13(1) cannot be read as obliterating the entire operation of the inconsistent laws, or to wipe them out altogether from the statute book, for to do so will be to give them retrospective effect which, we have said, they do not possess. Such laws exist for all past transactions and for enforcing all rights and liabilities accrued before the date of the Constitution.

29. According to the contention of the learned counsel, the principles applicable to repealed statutes are not in terms applicable to such a case, whether they are to be found in the rules of the common law of England or whether they are contained in the Interpretation Act or the General Clauses Act. Those rules are applicable to cases either of repeal or to cases of a statute dying a natural death by efflux of time. None of those however have any application to the construction of statutes framed in languages like the one contained in Article 13(1) of the Constitution. Besides the rule of construction which applies to repealed statutes or to temporary statutes our attention was not drawn to any other rule of construction under which a person who commits an offence against an Act during its existence as a law becomes unpunishable on its termination. Both on considerations of convenience and also on grounds of justice and reason I am inclined to think that penalties incurred under a law in force at the time when the act was committed would survive its extinction so that persons who violate its provisions might afterwards be punished. Persons who during the continuance of a statute have obtained rights under it cannot be affected by a declaration that the statute with effect from a certain date will become an inoperative statute.

30. When in the case of repeal of a statute, which according to Tindal, C.J. obliterates it completely from the records of Parliament as if it had never been passed, the common law rule has been abrogated by statute, it is difficult to apply that rule on any sentimental grounds at this date to the case of statutes which are declared void or declared to have no effect whatsoever after a certain date only. The expression “void” has no larger effect on the statute so declared than the word “repeal”. The expression “repeal” according to common law rule obliterates a statute completely as if it had never been passed and thus operates retrospectively on past transactions in the absence of a saving clause or in the absence of provisions such as are contained in the Interpretation Act, 1889, or in the General Clauses Act, 1897, while a provision in a statute that with effect from a particular date an existing law would be void to the extent of the repugnancy has no such retrospective operation and cannot affect pending prosecutions or actions taken under such laws. There is in such a situation no necessity of introducing a saving clause and it does not need the aid of a legislative provision of the nature contained in the Interpretation Act or the General Clauses Act. To hold that a prospective declaration that a statute is void affects pending cases is to give it indirectly retrospective operation and that result is repugnant to the clear phraseology employed in the various articles in Part III of the Constitution.”

173. We reiterate that Chapter III of the AERA Act contains nothing, whether in its text or by necessary implication, to suggest that the tariff determining power conferred by Section 13 was intended to reach back and govern a period that had already elapsed before that Chapter was ever brought into force.

174. In the absence of any such indication, the presumption against retrospective operation must prevail, and AERA cannot, merely because it happens now to be exercising its Section 13 power in the year 2021, apply the substantive methodology of that provision to a period, namely 24th May 2008 to 31st August 2009, during which the provision itself had no existence in law.

175. At this juncture it is important to draw our attention to the judgement of Hon’ble Supreme Court in the case of Selvi J. Jayalalithaa Vs. State of Karnataka & Ors., 2014 2 SCC 401, wherein under Para 29, the Hon’ble Court has observed as follows:-

“29. We find force in the submissions advanced by the learned Attorney General that this Court generally should not pass any order in exercise of its extraordinary power under Article 142 of the Constitution to do complete justice if such order violates any statutory provisions. We do not intend to say that it would be illegal to extend the term of the Special Judge, but that it is a matter within the jurisdiction of the State in accordance with the relevant law.

There is yet an uncontroverted legal principle that when the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. In other words, where a statute requires to do a certain thing in a certain way, the thing must be done in that way and not contrary to it at all, are impliedly and necessarily forbidden. The aforesaid settle legal proposition is based on a legal maxim “Expressio unius est exclusio alterius”, meaning thereby that if a statute provides for a thing to be done in a particular way, then it has to be done in that manner and in no other manner and following any other course in not permissible. In State of Uttar Pradesh vs. Singhara Singh & Ors., AIR 1964 SC 358, this court held as under:-

“8. The rule adopted in Taylor vs. Taylor, (1876) 1 Ch D 426 is well recognised and is founded on sound principle. Its result is that if a statute has conferred a power to do an act and has laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any other manner than that which has been prescribed. The principle behind the rule is that if this were not so, the statutory provision might as well not have been enacted.” [See also: Accountant General, State of Madhya Pradesh vs. S.K. Dubey & Anr.*, (2012)4 SCC 578]”

176. It was submitted on behalf of AERA, that if the Appellant's argument were accepted, AERA could not have determined tariff for the First Control Period at all by taking into consideration any factor that came into existence before the enactment of the AERA Act, since every tariff order necessarily draws upon the airport's asset base, traffic and financial history, much of which predates the Act.

177. At the outset, we state that, this submission conflates two distinct things; a statute is not rendered retrospective merely because part of the requisites for its action is drawn from a time antecedent to its passing. AERA is entitled, indeed obliged, when exercising its current Section 13 power, to look at antecedent facts, such as the Regulatory Asset Base as it stood on the date a control period begins, or the traffic history of the airport, as inputs into a computation that it is undertaking prospectively.

178. In our considered view, what AERA may not do is use its Section 13 methodology itself, a methodology that includes concepts such as the shared till and the specific formula for computing an Aggregate Revenue Requirement under the Act, as the yardstick for measuring what tariff ought to have been charged, or what shortfall ought to be recognised, during a period when Section 13 did not exist and a different, contractual regime governed the relationship between the Appellant and its users.

179. To clearly put it, the former is the ordinary and unobjectionable use of antecedent facts in a current determination and the latter is the retrospective application of a substantive statutory formula to a period, which the formula never governed.

180. It is demonstrated by AERA's own conduct across three successive tariff orders, the tariff order for the First Control Period, being Order No. 08/2014-15 dated 10.06.2014, AERA recorded its position on the pre control period in terms that leave no room for doubt. For ready reference Para 5.33 & 5.34 of the aforesaid order passed by AERA in First Control Period reads as under: “5.33 The Authority notes BIAL’s comments regarding the Pre- control period that the losses incurred before Airport Operation should be considered as part of Pre-Control period loss. The Authority has examined this in detail and provided its comments in CP 14. Also further, as the Authority’s jurisdiction begins only from the period September 2009, when the Authority was formed (as elaborated in CP 22) the Authority does not propose to consider any financial results before September 2009 leave alone the period before the commencement of Airport Operations.

5.34 The Authority notes that BIAL has stated that the tariff determined by MoCA was adhoc and the final determination of the tariff did not take place. The Authority notes that MoCA has not provided any directive to the Authority to carry out an analysis of the adhoc tariff that had been determined by MOCA. Hence, as elaborated in CP 22, the Authority decides not to reckon, in the current tariff determination any period before the Authority’s powers were notified effective September 2009.”

181. Furthermore, AERA accordingly recorded, in Decision No. 2 of that order, that from the date its powers under Chapter III were notified, that is, 1st September 2009, the Appellant had posted no losses in its profit and loss statements for the periods 2009 to 2010 and 2010 to 2011, and that the question of any pre control period shortfall therefore did not arise.

182. In our considered view, AERA proceeded to premise that decision upon the express note of the contours of AERA's jurisdiction, and hence its power to reckon any shortfall at all, began only in September 2009, and nowhere further back, as AERA cannot, sua sponte, assume jurisdiction over the pre-control period. For ready reference, Decision No.2 of the aforesaid order reads as under: “5.36 The Authority decides not to consider any Pre-control period losses to be reckoned in computation of Aeronautical Tariffs for the current control period. Decision No. 2. Pre-Control Period losses of BIAL

a. The Authority notes that from the date the powers of the Authority under Chapter 3 of the Act were notified (this date being 1st September 2009) BIAL has not posted any losses in its Profit and Loss statements for the period 2009-10 and 2010-11. Hence the question of considering any Pre-control period shortfall for the purpose of determination of Aeronautical Tariffs for the current control period does not arise.”

183. Subsequently in the tariff order for the Second Control Period, AERA modified this position, but only to the extent of deciding, at paragraph 5.6.9 of that order, that it might take into consideration any shortfall in revenues from the Aggregate Revenue Requirement from the time of its formation, that is, 1st September 2009, and not from any earlier date.

184. Even at that later stage, therefore, AERA continued to treat 1st September 2009 as the outer limit of the period over which its own statutory yardstick could operate. For ready reference

Paragraph 5.6.9 of the Order No. 18 of 2018-19 dated 31.08.2018 for the Second Control Period i.e. 01.04.2016 to 31.03.2021 reads as under: “5.6.9. Having regard to all the above factors, the Authority has re-examined its approach to the claim of the Airport Operator for pre-control period losses and decides on the following:

5.6.9.1. Normally the Authority should confine its Tariff determination process to the Control Period.

5.6.9.2. In case an Airport Operator claims that there were losses in the Pre Control Period, the Authority may take into consideration any shortfall in revenues from the ARR from the time of its formation i.e. 1st September 2009.

5.6.9.3. The Authority shall consider the shortfall in revenues and not the losses as in the books of accounts.

5.6.9.4. In case there is no shortfall, the Authority shall limit its tariff determination process only to the control period.”

185. It is only in the impugned order, passed for the Third Control Period, that AERA has, for the first time, undertaken a computation of the alleged shortfall commencing from the Airport Opening Date, namely 24 May 2008. In carrying out that exercise, however, AERA has applied to the entire pre control period regulatory concepts and methodologies which came to be employed under the subsequent statutory regime.

186. It is important to note that Table No. 4 of the impugned order presents an evident difficulty in this regard. While AERA records that the pre control period from 24.05.2008 to 31.03.2011 is being considered in accordance with the provisions of the Concession Agreement, the computation which follows does not confine itself to that contractual framework. It introduces regulatory assumptions and building blocks which do not emanate from the Concession Agreement and which formed part of the regime subsequently administered by AERA. For ready reference Table No. 4 reads as under: Table 4 Changes proposed by the Authority to BIAL’s computation of ARR for the pre-control period Particulars Claim by BIAL Proposed changes by the Authority Duration of pre-control period Consider shortfall incurred from inception of BIAL to the start of the First

Consider the pre-control period from the Airport Opening Date, 24 May 2008, to 31 March 2011, being the commencement of the First Control Period, as per the provisions of the Concession Agreement. Cost of Equity 23.61 per cent Cost of Equity proposed at 16 per cent, being the same rate as approved for the First and Second Control Periods.

Opening P&L Shortfall Opening accumulated losses as on 1 April 2008 amounting to Rs. 53.3 crore claimed as shortfall in FY 2009. Compute WACC considering shareholders’ funds and reserves and surplus, if positive. CGF Treat CGF as non- aeronautical. Treat CGF revenues as aeronautical in terms of the AERA Act, 2008, AERA Guidelines, the BIAL Concession Agreement and the judgment of this Tribunal dated 16 December 2020. Waivers and Bad Debts Include as part of operating expenditure. Exclude waivers and bad debts from operating expenditure for computation of ARR. AERA also relied upon the judgment of this Tribunal dated 16 December 2020 as having accepted its position. Adjustment to RAB as per EIL Report No separate claim recorded in Table 4. Adjust the opening RAB of FY 2009 in accordance with the EIL Report. AERA also relied upon the judgment of this Tribunal dated 16 December 2020 as having accepted its position. Bifurcation of Assets No separate claim recorded in Table 4. Bifurcate the asset block between aeronautical and non-aeronautical assets by adopting an approach similar to that followed for the First

Utility Recoveries from Non- Aeronautica l Concessiona ires No separate claim recorded in Table 4. Treat utility recoveries from non- aeronautical concessionaires as non- aeronautical revenues. AERA also relied upon the judgment of this Tribunal dated 16 December 2020 as having accepted its position. Real Estate Revenue Not considered as part of non- aeronautical revenues. Treat real estate revenue as non- aeronautical revenue on the basis of the AERA Act, 2008, AERA Guidelines, the BIAL Concession Agreement and the judgment of this Tribunal dated 16 December 2020.

Rental Income on Land No separate claim recorded in Table 4. Consider rental income in respect of land leased to the airport hotel. Interest Income Not considered as part of non- aeronautical revenues. Consider interest income in full, without excluding interest earned on cash received from the hotel as deposit. AERA also relied upon the judgment of this Tribunal dated 16 December 2020 as having accepted its position. Rent and Land Lease No separate claim recorded in Table 4. Treat rent and land lease income received from concessionaires as aeronautical revenue. AERA also relied upon the judgment of this Tribunal dated 16 December 2020 as having accepted its position. Taxation Add 30 per cent of non-aeronautical revenues to revenues while computing aeronautical tax. Do not add 30 per cent of non- aeronautical revenues to aeronautical revenues while computing aeronautical tax, with reference to paragraphs 3.8.6, 3.8.7, 3.8.8 and 3.8.9 of the impugned order. Till No separate claim recorded in Table 4. Compute ARR for the pre-control period on the basis of a 30 per cent shared till.

187. In our considered view, the period selected for examination and the legal standard by which that period is examined cannot rest upon two different regimes without a reasoned explanation. AERA could not invoke the Concession Agreement as the foundation for travelling back to the Airport Opening Date and, at the same time, employ a subsequently evolved statutory methodology for determining the financial consequences of that earlier period.

188. We are conscious that paragraph 47 of the judgment dated 16.12.2020, extracted hereinabove, directed AERA to examine the relevant facts, figures and accounts pertaining to the earlier period. A direction to examine a claim arising during an earlier period necessarily requires the authority concerned to ascertain the legal regime which governed that period. The present jurisdiction of the authority and the substantive law applicable to the claim are distinct matters. AERA presently possesses the jurisdiction to complete the exercise because that task was remitted to it by this Tribunal.

189. The rights and obligations which fall for determination, however, arose between 24 May 2008 and 31 August 2009. During that period, the contractual structure contemplated by Article 10 of the Concession Agreement continued to govern the approval of Regulated Charges. The statutory tariff determining powers of AERA under Chapter III had not yet come into force. The remand could not, by implication, confer retrospective substantive operation upon provisions which were themselves brought into force only from 1 September 2009.

190. For the reasons aforesaid, we hold that Chapter III of the Airports Economic Regulatory Authority of India Act, 2008, and the tariff methodology deriving from the statutory regime which became operative thereafter, could not have been applied for determining the Appellant's tariff entitlement for the period from 24 May 2008 to 31 August 2009. To that extent, the decision embodied in paragraph 2.5.2 read with Table 4 of the impugned order cannot be sustained and is accordingly set aside.

191. We therefore, quash and set aside the decision of AERA (Annexure A-1), whereby it has been decided that AERA Act is applicable for determining pre-control period ARR /shortfall as mentioned in paragraph 2.5.2 to be read with Table no.4 of the impugned order.

192. We hereby direct AERA to apply the provisions of the Concession Agreement (Annexure A-3 & A-4) and other project agreements to carry out tariff determination for the period running from 24.05.2008 to 31.08.2009 which is the period prior to FCP tariff order. The financial consequence of the fresh determination shall be appropriately given effect to in the tariff determination and true up for the

Fourth Control Period in accordance with law. Issue No. III is accordingly answered in favour of the Appellant. ISSUE IV: Non-consideration of expenses to the tune of Rs.53.3 Crores incurred by the appellant prior to Airport Opening Date (AoD).

193. AERA by the impugned order for 3rd Control Period has disallowed expenses incurred by the Airport Operator prior to Airport Opening Date which is the period prior to First Control Period tariff order.

194. The Airport Opening Date for Bengaluru Airport is 24.05.2008. First Control Period starts from 01.04.2011 to 31.03.2016. It should be kept in mind that after Airport Opening Date i.e. 24.05.2008 till 31.03.2011, the Airport Operator has incurred sizable expenditure to the tune of Rs.53.3 Crores. First Control Period starts from 01.04.2011. Therefore, for the period prior to 01.04.2011, the expenditure actually incurred by the Airport Operator ought to have been considered by AERA while determining tariff under Section 13 of the AERA Act, 2008.

195. BIAL contended before AERA that the disputed expenditure comprised, inter alia, of employee costs, administrative expenditure, legal and professional charges, technical consultancy, travel, establishment costs and other expenditure incurred while the greenfield airport was being developed.

196. Ld. Senior counsel appearing on behalf of BIAL had submitted that there case is that these expenses were necessarily incurred in bringing the Airport into existence, but could not be directly attributed to an individual capital asset and were therefore charged to the Profit and Loss Account in accordance with the accounting standards then applicable.

197. It is worth nothing that AERA did not reject the claim on the footing that the expenditure was fictitious or that the audited accounts were unreliable. Nor did AERA identify the entire amount as expenditure unrelated to the Airport project. In paragraph 2.4.3 of the impugned order, AERA accepted that the applicable accounting standards and Direction No. 5 permitted costs not directly relatable to construction activity to be charged to the Profit and Loss Account, but proceeded to hold that, since the corresponding investment or building block was not available for utilisation by passengers before 24.05.2008, the passengers could not be required to bear such expenditure. AERA further relied upon the fact that Schedule 6 of the Concession Agreement permitted levy of UDF only from the Airport Opening Date, for ready reference Paragraph 2.4.3 of the Impugned Order reads as under: “2.4.3 The Authority noted from BIAL 's submission as well as the comments from Siemens and APAO that BIAL was unable to capitalize Pre - Airport opening expenses due to the then prevailing accounting standards, and hence, had expensed these costs to the P&L. The Authority also noted BIAL's reference to the Direction 5 of the Authority's guidelines regarding capitalization and non-capitalization of various costs. The Authority accordingly reviewed and analyzed Accounting Standard 10 and Direction 5 of its guidelines. The Authority is of the view that though the accounting standards and Direction 5 allow the airport operator to expense the costs not related to construction activity as part of the P&L, however, if the investment in the building block is not available for utilization to the users/passengers, they cannot be asked to pay for the same. Since, BIAL started its operations on 24th May 2008. Any claims prior to the airport opening has no logic. The Authority had also elaborated the same as part of its decisions in the first and second control period order as well as in the proposal presented in Consultation Paper no. 1012021-22 for the Third Control Period for BIAL . The same are reproduced below:

Consultation Paper/ or the First Control Period "The Authority proposes to compute WACC considering the full value of Equity invested (without reducing the Accumulated losses). Hence. the Authority proposes not to allow accumulated losses as of Airport opening date (i.e Rs. 53.3 Crores) to be added to the shortfall computations."

Second Control Period Order "5.6.9.3 The Authority shedl consider the shortfall in revenues and not the losses as in the books of accounts.

Consultation Paper for the Third Control Period

a) BIAL being a greenfield airport, the airport was under construction/trial run prior to 24 May 2008.Thus, the investment/ expenditure in regulatory building blocks by BIAL were not available for utilization to users/ passengers. There/ore. the users/ passengers cannot be asked to pay before availing the services offered by the airport. Further. the operational losses prior to the airport becoming operational has no logic.

b) Schedule 6 of the Concession Agreement is given below:

"BlAL will be allowed to levy UDF. w.e.f Airport Opening Date. duly increased in the subsequent years with inflation index as set out hereunder. From embarking domestic and international passengers, for the provision of passenger amenities. services and facilities and the UDF will be used/or the development, management, maintenance, operation and expansion of the facilities at the Airport.The Authority has reviewed the Schedule 6 of the concession agreement which states that BIAL's UDF shall be applicable only from the airport opening date. Further, the Authority noted that the investment in the aeronautical RAB will get capitalized from the airport opening date and consequently, the users should start paying from that date onwards. Therefore, the Authority proposes that the determination of airport charges/or the pre-control period shall be determined from the airport opening date.

c) The Authority proposes to compute WACC considering the shareholders 'fund and the reserves and surplus, if positive, that is. without reducing the negative reserves and surplus on account of the accumulated losses/or FY 2009. Hence, the Authority proposes not to allow accumulated losses as of airport opening date in the shortfall computations.”

198. It is worth considering that Schedule 6 of the Concession Agreement, upon which AERA has placed considerable reliance, does not compel a contrary conclusion. The stipulation that UDF may be levied with effect from the Airport Opening Date determines the date from which the charge may be collected from passengers. It does not state that the tariff collected after that date can recognise only expenditure incurred after the Airport has opened.

199. It must be noted that the date of commencement of a levy and the historical cost base which may legitimately enter into the determination of that levy are distinct concepts; were it otherwise, a substantial portion of the cost of every greenfield infrastructure facility would necessarily become unrecoverable merely because, by definition, the expenditure required to create the facility precedes its availability for public use.

200. It has been held as stated hereinabove in para 47 of the judgment and order passed by this Tribunal in case of BIAL Vs. AERA in AERA Appeal No. 8 of 2018 judgment dated 16.12.2020, it has been held by this Tribunal that losses incurred for the

period prior to Airport Opening Date must be factored in, during tariff determination.

201. AERA has failed to carry out purposeful exercise for this appellant for pre-control period losses in the impugned tariff order, as directed by this Tribunal. A purposeful exercise would mean that costs and expenses actually incurred for the purposes of the airport ought to have been allowed while determining tariff in the impugned tariff order (Annexure A-1). It has been held by this Tribunal in the case of DIAL v. AERA, being AERA Appeal No. 10 of 2012 judgment dated 23.04.2018, under Paragraph nos.67, 68 and 88 as follows:

“67. The aforesaid technical plea has been raised by learned counsels appearing for different respondents as well. In view of a clear and categorical reply that it has no direct bearing with the substance of a tariff formulation exercise, this plea is rejected outrightly for the simple reason that none of the parties are adversely affected on this account. Even if the rightful authority, the Central Government had initiated the exercise of tariff formulation for the period of 5 years beginning from 01.04.2009, it would have remained inclusive and liable to be criticized as an action by an interested party and not an independent statutory authority. Once AERA was legally constituted from September 2009, the unfinished exercise could have been finished only by AERA. Clearly, the Central

Government had the authority to consult independent expert body for the period between 01.04.2009 and 01.09.2009 when AERA came into existence. The exercise by AERA for that period has been within the knowledge of Central Government which has issued communications relating to tariff formulation. In absence of any objection from any quarters including Central Government, it would be futile to direct the Central Government to go through the formality of fixing tariffs for the 5 months between April 2009 and August 2009 when Central Government cannot complete that exercise in a meaningful and proper manner so as to avoid retrospectivity and delay. Further, the Central Government can always adopt and approve the studied view of AERA which it appears to have done by not raising any objections at any stage. Nothing has been pointed out in the OMDA and SSA against such action and Section 13 of the Act gives sufficient latitude in selecting an appropriate beginning of the first regulatory term of 5 years subject to rules of transparency and fairness.

68. Even the criticism that Tariff Order published in May 2012 is bad for acting retrospectively for the earlier period, in our view deserves to be rejected outrightly. Such objection raised by many of the counsels ignores the entire scheme of tariff formulation which requires adequate consultation with all stakeholders and transparency. The stakeholders are aware of the need as well as principles relating to determination of tariff. Allowing a significant period to escape from the effect of periodic tariff revision, is bound to lead to accumulation of financial burden for all the stakeholders and shall cause difficulty to all, in addition to defeating the very object and purpose for which the entire exercise has to be undertaken. The purpose of OMDA and SSA as well as object of the Act leave no manner of doubt that same delay in finalizing the tariff for a specified period which has started to run will not require aborting the entire process. There is no adverse effect on any party and no vested rights are taken away if a holistic and broad view of the exercise is kept in mind. Rule against retrospective action by the executive is only to protect the vested rights getting affected from a back date. Benefits can always be granted even from an earlier date. The exercise of periodic formulation of tariff to serve the purposes of OMDA, SSA and the Act is to the benefit of all the stakeholders in the ultimate analysis and hence mere delay in finalizing the tariff order neither requires re-initiation of the entire process nor to apply the revised tariff only for a period which has yet not begun. Such a view is impractical, unwarranted by the provisions of the Act read in conjunction with OMDA and SSA and shall not help any of the stakeholders. Such objection is, therefore, also found to be without any substance.

88. On the other hand, on behalf of AERA, Mr.Dhir has taken a firm stand that in the task of tariff determination, the project cost can be looked at from a narrow hole, only to examine the incurred cost as per available records and see that it relates to the approved and essential parts of the Airport. According to him, this had to be done on the basis of accounts bearing certificates granted or approved by the Chartered Accountant. His clear stand is that such cost cannot be re-examined on the yardstick of efficient cost but has to be taken as the incurred cost only, as appearing in the duly certified books of accounts. This submission appears to be weighty and deserves acceptance.”

202. In view of the aforesaid decision, AERA should have allowed losses/expenses incurred by the Airport Operator-Appellant-BIAL for the period prior to Airport Opening Date till the start of First Control Period i.e., from 24.05.2008 to 31.03.2011.

203. We are unable to accept the proposition that an expenditure otherwise incurred for bringing a greenfield airport into existence becomes incapable of recognition merely because passengers had not begun using the Airport on the date when the expenditure was incurred and such an approach confuses the time at which the cost is incurred with the time at which that cost may be recovered from users. These are conceptually different matters.

204. In our humble opinion, a greenfield airport cannot become available for passenger use unless substantial expenditure is first incurred in its planning, design, construction, commissioning and organisational preparation. The Concession Agreement itself proceeds on that basis. BIAL was obliged to design, procure, construct, complete, test and commission the Initial Phase and to organise the Site and undertake the multitude of activities necessary for achieving Airport Opening within the contractual period. Expenditure incurred in performing those obligations does not lose its nexus with the Airport merely because it necessarily precedes the date on which passengers first enter the facility.

205. AERA should have appreciated the fact that the present appellant has to incur expenses for planning, designing, construction and development of the Bengaluru airport from 24.05.2008 to 31.03.2011.

206. AERA ought to have appreciated that the Appellant had to incur expenses for the planning, designing, construction and development of the Bengaluru airport in the period leading up to the Airport Opening Date. Pre Airport Opening Date losses are, in substance, expenditure of the nature contemplated by Section 13(1)(a)(i) of the AERA Act, incurred to ensure the economic and viable operation of the airport within the meaning of Section 13(1)(a)(iv).

207. It is contended by learned counsel for AERA that AERA has denied these expenses because the said investment was not available for utilization for users/passengers (as mentioned in para 2.4.6 of the impugned order). This contention is not accepted by this Tribunal mainly for the reason:

(i) the Airport Operator is a joint venture incorporated to construct, develop and manage a green field airport. Prior to AoD, airport development was the only activity which used to be carried out by the Airport Operator-BIAL and therefore expenses actually incurred by the Airport Operator were for the purpose of or were related to making the airport operational and consequently these expenses were for the benefit of the users of the airport;

(ii) BIAL, being a regulated entity, has no other means of recovering pre-opening losses/expenses other than through True-Up of the ARR being provided by AERA.

208. It has been pointed out to this Tribunal that in a similar case of DIAL, AERA has allowed administrative expenses in the operational expenses category in tariff order no.5 of 2022-23 order dated 03.06.2022 while determining tariff for M/s. BSSDPL at IGI, Delhi. This bid award cost by AERA is an indirect cost similar to the expenses which have been disallowed for BIAL.

209. There is a nuanced legal position before us, which AERA has given a complete go by, it is the elementary principle that there is a distinction between the setting up of a business and the commencement of that business, and the treatment to be accorded to expenditure incurred in the interval between the two, is well settled in the jurisprudence upon the Income Tax Act, 1961, and the underlying accounting and commercial principle is of general application and not confined to that statute.

210. To appreciate the above, it would be wise to allude to the decision of the Division Bench of the Hon’ble High Court of Delhi in the case of ‘Carefour WC&C India Pvt. Ltd. v. Deputy Commissioner of Income Tax’, I.T.A. No. 42 of 2014, judgement dated 22.09.2014, the relevant paragraph of which

“9. Having considered the rival submissions made by the learned counsel for the parties, the question which arises for consideration in the present appeal is as to when does the assessee is said to have set up its business? It has to be borne in mind that there is a distinction between setting up of a business and commencement of a business. The Bombay High Court in Western India Vegetables Products Ltd. vs. CIT [1954] 26 ITR 151 has examined the concept and noticed the difference between commencement and setting up of a business by observing:- “The important question that has got to be considered is from which date are the expenses of this business to be considered permissible deductions and for that purpose the section that we have got to look to is section 2(11) and that section defines the “previous year‟ and for the purpose of a business the previous year begins from the date of setting up of the business. Therefore, it is only after the business is set up that the previous year of that business commences and in that previous year the expenses incurred in the business can be claimed as permissible deductions. Any expenses incurred prior to setting up a business would obviously not be permissible deductions because those expenses would be incurred at a point of time when the previous years of the business would not have commenced.”

10. The Gujarat High Court in a subsequent judgment in the case of CIT, Gujarat Vs. M/s. Saurashtra Cement and Chemical Industries Ltd. (1973) 91 ITR 170 (Guj.), has held a business is said to have commenced as soon as an essential activity of that business is started. On the question of setting up, the following observations are relevant:- “...A business activity consists of three stages: the first stage relates to the activity necessary for the purpose of acquiring the raw material and establishment of plant and machinery and the second activity comprises the processing

and manufacturing by using the raw material and the plants and machinery set up for the purpose and the third category consisted of the marketing thereof. The first in point of time lays the foundation for the second activity and the second activity when completed lays the foundation for the third activity. Therefore, the expenditure incurred for carrying on any of these activities including the first activity is also deductible in computing the profits and gains of the assessee for the relevant year when the activity is undertaken. In Sarabhai Management Corporation Ltd. v. CIT, [1976] 102 ITR 25, the Gujarat High Court took the same view and held that the business commences with the first activity for acquiring by purchase or otherwise, immovable property. There may be an interval between the setting up of the business and the commencement of the business. All expenses incurred during that interval are also permissible for deduction. In CIT v. Sarabhai Management Corporation Ltd., [1991] 192 ITR 151 (SC) the decision of the Gujarat High Court was affirmed and went a step ahead that even the activities at a preparatory stage is also admissible.”

11. On a reading of the above referred quotations, it is clear that it is only after the business is set up, that the expenses incurred in the business can be claimed as permissible deduction under Section 37 of the Act. For commencement of a business, there must be in place some income generating asset or income earning structure. In several cases, there is a gap or an interval between setting up and commencement.

When the business is set up, is a mixed question of law and fact and depends upon the line, nature and character of the business /professional activity. For example, for manufacturing business, purchase of new material or electricity connection may be relevant point to determine setting up but in case of a property dealer, the moment, he puts up a chair and table, or starts talking, his business is set up.”

211. Moreover, the Hon’ble Supreme Court, in the case of ‘Commissioner of Income Tax v. Sarabhai Management Corporation Limited’, (1991) 192 ITR 151, affirmed precisely this proposition and reads as under: “The question in this appeal which arises out of an income-tax reference is as to the date of commencement of the respondent-assessee's business. The Tribunal was of the opinion that the business of the assessee could not be said to have commenced during the year which ended on March 31, 1965. The High Court has, however, taken a contrary view [ vide judgment reported in [1976] 102 ITR 25 (Guj)] and answered the question in favour of the assessee. Hence, this appeal by the Department……

…

….It has analysed the various component activities of the assessee's business and pointed out that two categories of the activities of the business had been carried on during the previous year in question. The assessee had purchased a property; it was on the look out for persons to whom it could be let out; it had been able to get a customer; and it had carried out repairs, rewiring, installation of lift and other steps in the process of getting the premises converted from a residential house into a business and storage accommodation conforming to the requirements of the customer. Even if, as submitted by Dr. Gauri Shankar, the first category of activity referred to by the High Court, viz., the acquisition of a property for being let out can be said to be only a preparatory stage (analogous to the acquisition of buildings, plant and machinery in a manufacturing business), the subsequent activities certainly constitute activities in the course of the carrying on of the assessee's business. It would not be correct, as rightly pointed out by the High Court, to treat the assessee as having commenced its business only when the licensee or lessee occupied the premises or started paying rent. In these circumstances, we are of the opinion that the High Court was right in interfering with the finding of the Appellate Tribunal which was based on a misdirection in law.”

212. Therefore, applying aforesaid principle to the facts of the present case, it appears to us that the Appellant was, from the date of the Concession Agreement, a special purpose vehicle whose sole business was the construction and development of the Bengaluru airport. Every expense it incurred before the Airport Opening Date was incurred for that business, and for no other, and the circumstance that the airport was not yet open for passengers is no more a ground for excluding those expenses from consideration than it would be a ground for disallowing them as a business deduction under ordinary principles of taxation.

213. AERA's reasoning that operational losses prior to an airport becoming operational have no logic does not survive this well- established distinction between the setting up and the commencement of a business, a distinction well known to company law and accountancy, and one that AERA, as an economic regulator, ought itself to have applied.

214. We are also of the view that the impugned order, does not meet the standard of transparency that Section 13(4)(c) of the AERA Act itself prescribes, namely that all decisions of AERA be fully documented and explained. AERA does not, in the impugned order, dispute that the sum of Rupees fifty three crore thirty lakh was in fact expended, or that it was expended for purposes connected with the construction of the airport, or that it stands reflected in audited accounts.

215. For these reasons, the reasoning adopted by AERA in paragraphs 2.4.3 to 2.4.8 cannot be sustained insofar as it excludes the pre Airport Opening Date claim merely because the Airport had not become available for use by passengers. The decisive consideration is whether the expenditure was genuinely incurred for the establishment and development of the Airport, was required for performance of BIAL’s obligations under the governing project framework and has not already been recovered or recognised under another head.

216. We, therefore, quash and set aside the decision of AERA dated 28.08.2021 (Annexure A-1) whereby AERA has disallowed or not considered losses/expenses incurred by BIAL from the period running from 24.05.2008 till 31.03.2011. We, hereby direct AERA to allow losses/expenses actually incurred by Airport Operator for the period running from 24.05.2008 till 31.03.2011. Issue No. IV is answered accordingly in favour of the Appellant.

ISSUE V: Disallowance of Capital Expenditure towards Eastern Connectivity Tunnel (ECT)

217. Looking to the impugned order passed by AERA (Annexure A-

1) AERA has not allowed capital expenditure incurred by the Airport Operator towards Eastern Connectivity Tunnel (ECT) as a part of RAB as of 01.04.2021.

218. Additional Commissioner of Traffic had requested for creating access to the eastern side of Bengaluru Airport, a similar request was also made by ACS (Home) for creating access to the eastern side of the Bengaluru Airport. Even the

Infrastructure Development Department, Govt. of Karnataka had also stated that ECT is required for alternate access point to the airport from security stand point.

219. The total length of the ECT is 2.76 Kms. which was to be constructed in a phase-wise manner. In the first phase of ECT, a 300 meters long tunnel was constructed, under the Eastern Cross Field Taxiway which connects the existing and new runway.

220. The construction of the first phase was completed in November, 2019. In September 2020, the appellant obtained an approval from Bureau of Civil Aviation Security (BCAS) for operationalization of the constructed part of ECT below the eastern crossfield taxiway for men, material and vehicles for project construction activities and airport related operational purposes. The approval granted by BCAS is at Annexure A-24 (to the memo of this appeal).

221. Learned Counsel Ms. Shweta Bharti appearing for AERA has submitted that AERA has disallowed capital expenditure towards ECT as a part of RAB because it is not being used by the passengers. This contention is not accepted by this Tribunal mainly for the following reasons:

(i) Eastern Connectivity Tunnel (ECT) is being used by the Airport Operator-appellant-BIAL to perform the following aeronautical activities –

(a) For regular patrolling of the airside perimeter wall and perimeter road; (b) Conducting safety checks on both the sides of the ECT;

(c) For patrolling around the perimeter of the airport, Phase-I of ECT provides easy access for security personnel, as an alternate route from the west to the east side is approximately 20 Kms. via roads outside the premises and through villages. Thus, by the use of ECT, instead of travelling 20 Kms. outside the Bengaluru airport which takes approximately 1 hr. time, east to west can be connected easily. Sometimes, outside the Bangalore Airport, village roads are not accessible all the time; (d) ECT is highly useful for emergency response; (e) Bird Aircraft Strike Hazard Management (BASHM) Team has to carry out regular habitat monitoring for effective Wildlife Hazard Management Programme (WHMP); (f) Moreover, this is in accordance with the requirements stated in ICAO 9981 Part 3, Paragraph 6.3.1 and ICAO 9137 5th Edition Chapter 9. The prominent habitat areas, near airport vicinity, are located on the southeast side of the runway 27L9 (Forest Belt) and north of 27R (Bettakotte Lake) which are exposed to bird and wildlife hazards and therefore the ECT is a critical for a quick access to the east area of the airport; (g) AERA has failed to appreciate the aforesaid aeronautical uses of the ECT;

(ii) The logic and reasons advanced by AERA that ECT cannot be a part of RAB because it is not being used by the passengers, this reasoning is thoroughly arbitrary and is full of ignorance of the airport activities. There are several activities at the airport to which the passengers have no access like- (a) Airport Operations Control Center (AOCC);

(b) Basement of Terminal for houses the baggage management system;

(c) Airport rescue and firefighting unit, etc.

(iii) ECT is an essential for airport operations’ perspective and it is being utilized for aeronautical and aviation related activities. Hence, capital expenditure incurred by the Airport Operator towards ECT should have been allowed as a part of RAB;

(iv) AERA has failed to appreciate that if Phase-1 of ECT was to be constructed after New South Parallel Runway (NSPR) and the eastern crossfield taxiway were operational, the eastern crossfield taxiway would have to be closed until the ECT under it was constructed. Learned Counsel appearing for the appellant has pointed out several advantages of construction of ECT and has summarized that the present appellant has saved Rs.180 Crores of expenditure by constructing Phase-1 of ECT.

222. It is also pertinent to avert to the earlier decision of this Tribunal in the case of HIAL Vs. AERA, being AERA Appeal No. 04 of 2021, judgement dated 14.02.2024, wherein under paragraph 440, this Tribunal held as follows:

“440. AERA has no jurisdiction to dictate, how the assets are to be utilised by HIAL. Merely because HIAL has not utilised an asset as desired by AERA, cannot be the basis to arbitrarily reduce RAB. Both the aforesaid buildings, IIDT and IDAT have been used for the purposes of passengers and other stakeholders and, therefore, the segregation in Aero and Non-Aero cannot be done by AERA for the aforesaid two buildings.”

223. We are also noticing a recurrent feature in tariff orders passed by AERA, where the Ld. AERA, has unique ability, which is actually a curse, because said ability, ensures that AERA, develops a myopic and forgetful nature while undertaking tariff determination exercise. AERA it seems to us has mastered the art of forgetfulness, where while determining the tariff for subsequent control period, AERA conveniently forgets its own earlier decision in preceding control period.

224. An exhibit to the above is found from AERA own conduct, while passing the impugned order, AERA has failed to appreciate its own Tariff Order No. 18/2018-2019 for Second Control Period dated 31.08.2018, especially paragraph 9.2.12 thereof, which

“9.2.12 The Authority had noted submissions made by BIAL with respect to the additional project viz. Eastern

Tunnel Works. The Authority noted that this was at a very initial conceptual stage and there is a need for carrying out stakeholder consultations for the project. The Authority accordingly proposed to not consider the submission made relating to Eastern Tunnel Works for the purpose of estimating the additions to RAB. The Authority sought views from stakeholders on the same and would true up the same after these are incurred and capitalized, based on detailed review and evaluation of the actual costs incurred, comments from stakeholders and the reasonableness of costs incurred.

225. From the above, during the Tariff determination exercise for Second Control Period for BIAL, AERA, identified the precise reason why the project was not then included in the RAB and the precise basis upon which it was to be reconsidered thereafter. The exclusion during the Second Control Period was because the project was at an initial conceptual stage. AERA expressly contemplated a subsequent examination after the expenditure had been incurred and capitalised, with the inquiry then directed to actual cost, stakeholder comments and reasonableness of the expenditure.

226. By the time the impugned order came to be passed, the factual position had materially advanced from that which existed when paragraph 9.2.12 was framed. The completed portion of Phase

I had been capitalised and had been brought into operational use. Indeed, paragraph 3.3.79 of the impugned order itself records that BIAL had capitalised the ECT and was using it for vehicular movement, security and safety related patrolling and Bird Aircraft Strike Hazard Management. The conditions which had led AERA to defer consideration of the project in the Second Control Period had, therefore, ceased to exist in relation to the completed Phase I. For ready reference Paragraph 3.3.79 of the impugned order reads as under: “Eastern Connectivity Tunnel

3.3.79 The Authority has examined the comments of BIAL, Government of Karnataka and IDD (GoK) on the inclusion of eastern connectivity tunnel (ECT) in the RAB. The Authority noted from GoK and IDD comments that the ECT construction was finalized based on the Government of Karnataka's directions. The Authority has noted that BIAL has capitalized the ECT and using it for vehicular movements, security and safety related patrolling, BASHM etc. However, the Authority is of the view that the ECT was envisaged to provide access to the airport for the passengers from the eastern side. Since, it is not being fully utilized for the purpose for which it was built, the Authority cannot consider it as part of RAB and hence decides to exclude it from the RAB of BIAL.”

227. At that stage, the regulatory course indicated in paragraph 9.2.12 required AERA to examine the actual expenditure incurred upon the commissioned portion, its reasonableness, the stakeholder comments and also its operational utility.

228. To us the bare perusal of Paragraph 3.3.79 indicates that AERA did not reject the expenditure upon an examination of its actual cost or upon a finding that the cost was imprudent or unreasonable. Further AERA does not hold that the commissioned portion is lying idle. To the contrary, the Authority expressly acknowledges its operational use.

229. The expenditure is nevertheless excluded because, according to AERA, the tunnel had originally been conceived as an eastern passenger access and was not being fully utilised for that purpose. The criterion applied in the impugned order is therefore materially different from the criterion which the Authority had announced in paragraph 9.2.12 of the Second Control Period order. The impugned order contains no explanation for this change.

230. We must underscore that a tariff order does not operate in isolation from the regulatory history which precedes it. Where, in an earlier Control Period, AERA has consciously adopted a particular treatment for a project and has indicated the manner in which that treatment will be revisited at true up, elementary regulatory discipline requires that AERA, in the succeeding Control Period, either to follow that course or to disclose cogent reasons for departing from it.

231. An unexplained departure from an earlier regulatory position introduces uncertainty into a regime in which substantial and long term investments are necessarily made on the basis of the regulatory framework declared by AERA.

232. The Hon'ble Supreme Court, in Securities and Exchange Board of India Vs. Sunil Krishna Khaitan, (2023) 2 SCC 643, decided on 11.07.2022, has held that regularity and predictability, along with certainty, are hallmarks of good regulation and governance. For ready reference paragraphs No. 59-60 reads as under: “59. It is important for the regulator to be consistent and predictable. Further regulations must be clear as ambiguous regulations cause confusion and uncertainty. Regularity and predictability, along with certainty, are hallmarks of good regulation and governance. These principles underpin the “rule of law”, check arbitrariness and are read as the intent of the legislation, which the Courts, if need be, will enforce as a principle of interpretation. The Board is entrusted to preform legislative, executive, investigative and adjudicatory functions. A regulator when it executes statutory functions interprets the enactment and gives meaning and, in that sense, lays down what it believes is the rule. As a legislator who constructs and states at the first instance what is the rule, the Board tacitly promises and prophesies the interpretation that appeals to them. Any good regulatory system must promote and adhere to principle of certainty and consistency, providing assurance to the individual as to the consequence of transactions forming part of his daily affairs. [Union of India v. Raghubir Singh, (1989) 2 SCC 754. Also see, The Nature of the Judicial Process, Benjamin N. Cardozo, p. 33:“I am not to mar the symmetry of the legal structure by the introduction of inconsistencies and irrelevancies and artificial exceptions unless for some sufficient reason, which will commonly be some consideration of history or custom or policy or justice. Lacking such a reason, I must be logical just as I must be impartial, and upon like grounds. It will not do to decide the same question one way between one set of litigants and the opposite way between another.”(emphasis supplied)] Lord Diplock has aptly said “unless men know what the rule of conduct is they cannot regulate their actions to confirm to it”. Otherwise the regulator “fails in its primary function as a rule maker”. [ Francis Bennion, Bennion on Statutory Interpretation, 5th Edn. (Indian reprint), Section 266 at p. 801.] This does not mean that the regulator/authorities cannot deviate from the past practice, albeit any such deviation or change must be predicated on greater public interest or harm. This is the mandate of Article 14 of the Constitution of India which requires fairness in action by the State, and non-arbitrariness in essence and substance. Therefore, to examine the question of inconsistency, the analysis is to ascertain the need and functional value of the change, as consistency is a matter of operational effectiveness. Sometimes changes are desirable and necessary. Referring to these aspects, in some cases, the Indian courts have applied the doctrine of substantive legitimate expectation [ See, Council of Civil Service Unions v. Minister for Civil Service, 1985 AC 374 : (1984) 3 WLR 1174 (HL), wherein it was observed in that case that for a legitimate expectation to arise, the decisions of the administrative authority must affect the person by depriving him of some benefit or advantage which either (i) he had in the past been permitted by the decision-maker to enjoy and which he can legitimately expect to be permitted to continue to do until there has been communicated to him some rational grounds for withdrawing it on which he has been given an opportunity to comment; or (ii) he has received assurance from the decision-maker that they will not be withdrawn without giving him first an opportunity of advancing reasons for contending that they should not be withdrawn.] observing that the change in policy should not be irrational or perverse or one which no reasonable person could have made. In other words, principles of Wednesbury's reasonableness would apply. Such a principle stems, but is somewhat different from the foundational idea of procedural legitimate expectation, which applies where a particular mode is prescribed for doing an act and there is no impediment in adopting the procedure, the deviation to act in similar manner without any reasonable principle, can be labelled as arbitrary. [Bannari Amman Sugars Ltd. v. CTO, (2005) 1 SCC 625]

60. In Punjab Communications Ltd. v. Union of India [Punjab Communications Ltd. v. Union of India, (1999) 4 SCC 727] , it is observed that for a legitimate expectation to arise, the decisions of the administrative authority must affect the person by depriving him of some benefit or advantage which he had in the past been permitted by the decision-maker

to enjoy, and which he can legitimately expect to be permitted to continue to do until he has been communicated some rational grounds for withdrawing it and he has been given an opportunity to comment. It also means that the assurance given by the decision-maker will not be withdrawn, without giving him an opportunity of advancing reasons to contend that they should not be withdrawn. Reference can also be made to a recent decision of this Court in State of Jharkhand v. Brahmputra Metallics Ltd. [State of Jharkhand v. Brahmputra Metallics Ltd., (2021) 18 SCC 536 : 2020 SCC OnLine SC 968] wherein reference was made to earlier judgment in National Buildings Construction Corpn. v. S. Raghunathan [National Buildings Construction Corpn. v. S. Raghunathan, (1998) 7 SCC 66 : 1998 SCC (L&S) 1770] to reiterate that claims based on legitimate expectations have been held to acquire reliance on the representations and resulting detriment to the complainant in the same way as claims based on promissory estoppel.”

233. Moreover, the Hon’ble Supreme Court in the case of ‘State of Bihar Vs. Shyama Nandan Mishra’, (2022) 17 SCC 420, decided on 05.05.2022, held that where a substantive legitimate expectation is not ultra vires the power of the authority, the State cannot be allowed to change course and belie that expectation, and that regularity, predictability, certainty and fairness are necessary concomitants of governmental action. For ready reference paragraph no. 35 to 37 reads as under:

“35. To understand the legal consequences arising therefrom, useful reference can be made to R. v. IRC [R. v. IRC, (1990) 1 WLR 1545] (1989) where Thomas Bingham, L.J. while invoking fairness as a rationale for protecting legitimate expectations, expressed the following : (WLR pp. 1569-70)

“… If a public authority so conducts itself as to create a legitimate expectation that a certain course will be followed it would often be unfair if the authority were permitted to follow a different course to the detriment of one who entertained the expectation, particularly if he acted on it. … The doctrine of legitimate expectation is rooted in fairness.”

36. Another facet of denial of legitimate expectations is underscored by the Court of Appeal of England and Wales in the seminal case of Coughlan [R. v. North and East Devon Health Authority, ex p Coughlan, 2001 QB 213 : (2000) 2 WLR 622 (CA)] , where the Court preferred to use abuse of power as one of the criteria for testing whether a public body could resile from a prima facie legitimate expectation. In the Court's opinion, if the government authority induced an expectation which was substantive, the upsetting of that expectation, through departure from the expected course of action in the absence of compelling public interest, would be so unfair, that it would amount to abuse of power. In the present case, the abuse of power is discernible in the State's disparate decision in encadering the +2 lecturers with the teachers of nationalised schools, notwithstanding the contrary representation through the 1985 notification which created the +2 lecturer posts and the advertisement under which, the respondents entered service. Such manifest departure from the projected course smacks of arbitrariness and the government action, to selectively protect the interest of the BES cadre, does not conform to rules of justice and fair play.

37. Taking a cue from above, where the substantive legitimate expectation is not ultra vires the power of the authority and the court is in a position to protect it, the State cannot be allowed to change course and belie the legitimate expectation of the respondents. As is well known, regularity, predictability, certainty and fairness are necessary concomitants of Government's action and the Bihar Government in our opinion, failed to keep to their commitment by the impugned decision, which we find was rightly interdicted by the High Court.”

234. It ought to be made clear that governing test for inclusion of an asset in the Regulatory Asset Base is not one of AERA's own devising, but is fixed by Clause 5.2.7(a) of the Airports Economic Regulatory Authority of India (Terms and Conditions for Determination of Tariff for Airport Operators) Guidelines, 2011, issued under Direction No. 5 of 2010-11 dated 28t.02.2011, which is at Annexure A-17 to the memo of this appeal.

235. Thus, from the perusal of the aforesaid clause it is apparent that it defines a Commissioned Asset as the accumulated value of Work in Progress Assets attributable to all assets that have been put into effective operation during a Tariff Year. The test, in terms, is whether the asset has been put into effective operation. It is not whether the asset is being used for the particular purpose originally envisaged for it, still less whether it is being used by passengers specifically.

236. It is worth noting that AERA's itself notes at paragraph 3.3.79, records in the same breath that the Appellant has capitalised the tunnel and is using it for vehicular movements, security and safety related patrolling, and activities connected with the Bird Aircraft Strike Hazard Management programme. Upon AERA's own recorded findings, the tunnel has plainly been put into effective operation within the meaning of Clause 5.2.7(a).

237. Regulatory certainty assumes particular importance in capital intensive infrastructure sectors. Investment decisions are ordinarily taken years before the corresponding asset becomes operational and are made against the regulatory framework then prevailing.

238. In fact, where a specific project has already moved forward under an identified regulatory treatment, an unexplained alteration of the governing criterion after the expenditure has been incurred undermines the predictability which an orderly regulatory regime requires. Section 13 itself obliges AERA, while determining tariff, to take into account capital expenditure incurred, timely investment in improvement of airport facilities, efficiency and the economic and viable operation of major airports.

239. In view of the aforesaid tariff order for Second Control Period (Annexure A-6), it was held by AERA that once the cost for Eastern Tunnel Works is already incurred and the project is capitalized then true-up will be given based upon actual cost incurred. This aspect of the matter has not been properly appreciated by AERA while passing the tariff order for 3rd Control Period. This is an error apparent on the face of the record. AERA should have maintained consistency in their tariff orders, especially for the very same airport, AERA should have appreciated their own observations in their earlier tariff order while passing the latest tariff order. Inconsistency in the decision by AERA brings uncertainty for those who are managing the affairs of the airport. Consistency in the decision allows the correct prediction about the future law.

240. These aspects of the matter have not been properly appreciated by AERA while passing the impugned order

(Annexure A-1) of disallowing the capital expenditure incurred towards ECT as a part of RAB as of 01.04.2021 hence, the reasons given in paragraph 3.3.79 in the impugned order passed by AERA deserves to be quashed and set aside.

241. In the facts of the present case, AERA has failed to maintain consistency for the very same airport. This is not permissible in the eye of law hence also, the observations made by AERA in impugned order in paragraph 3.3.79, so far as it relates to the capital expenditure towards ECT is concerned, deserves to be quashed and set aside. We, hereby direct AERA to allow the capital expenditure actually incurred towards ECT as part of RAB as of 01.04.2021. Issue No. V is accordingly answered in favour of the Appellant. ISSUE VI: Notional Lease Rentals for Bengaluru Airport Hotel Ltd.

242. AERA has decided by the impugned order, in paragraph 2.4.5, to consider notional lease rentals from Bengaluru airport hotel Ltd. to BIAL from Airport Opening Date (AoD) (24.05.2008) as per the notional lease rentals prescribed in a Second Control Period tariff order.

243. It appears from the facts of the case that notional lease rental was also assigned by AERA in Second Control tariff order at Rs.9.26 Crores per annum from FY2017 (Table No. 61 of the impugned order). This very reasoning is also applied for 3rd Control Period tariff order (Annexure A-1) especially as stated in paragraph 3.9.24 of the impugned order.

244. Looking to the impugned order especially paragraphs 3.9.24 and 2.4.5, it appears that AERA has considered “most suitable data” but no such data or report have been provided by AERA to the appellant, to indicate how the said amount of notional lease rent is arrived at. Moreover, AERA has applied the notional rent with retrospective effect from AoD which is 24.05.2008.

245. This decision of AERA is absolutely illegal since, it is in violation of Section 13 of AERA Act, 2008 and is arbitrary in nature because as on AoD, there was no hotel and there were no Concession Agreement with the Bengaluru Airport Hotel Ltd., hence, no question of notional rent whatsoever arises.

246. Moreover, looking to the provisions of AERA Act especially Section 13(1)(a)(v) while determining tariff AERA should take into consideration the revenue “actually received”. The words

“revenue received” do not include notional rent for the hotels which were never in existence.

247. It ought to have been kept in mind by AERA that BIAL is a greenfield airport, sometime is bound to be consumed in construction of airport and hotels. Even after constructing hotels, lease agreements may take sometime and therefore, actual revenue received by the Airport Operator from BAHL should have been considered under Section 13(1)(a)(v) of the AERA Act.

248. The very concept of notional rent is not applicable while determining tariff by AERA u/s Section 13 of the AERA Act, 2008. In fact, AERA has no power, jurisdiction and authority to take into consideration any notional rent or any notional revenue while determining tariff u/s Section 13 of the AERA Act because Section 13(1)(a)(v) has used the words “revenue actually received”. For ready reference, section 13(1)(a)(v) of the AERA Act, 2008

“Chapter III

POWERS AND FUNCTIONS OF THE AUTHORITY

13. Functions of Authority.—(1) The Authority shall perform the following functions in respect of major airports, namely:—

(a) to determine the tariff for the aeronautical services taking into consideration— .. ..

(v) revenue received from services other than the aeronautical services;”

249. In view of the aforesaid provisions of the AERA Act, notional lease rentals from BAHL can never be considered while determining tariff for the airport by AERA, much less, the same can be considered from airport operation date (24.05.2008). Too much enthusiastic approach leads to illegality. The facts which are not in existence, can never be presumed by AERA, this is very true, especially in the case of “income or revenue”. It is highly risky to presume income or revenue and it is always wise to accept the actual income and revenue therefore, AERA Act, 2008 has used the words “revenue received from services…” as per Section 13(1)(a)(v) of the AERA Act, 2008.

250. It is settled that where the words of a statute are plain and unambiguous, effect must be given to them according to their natural sense, since the legislature must be taken to have meant what it has plainly said. This principle was reiterated by the Hon'ble Supreme Court in Gurudevdatta VKSSS Maryadit Vs.

State of Maharashtra, (2001) 4 SCC 534, for ready reference paragraph No. 26 reads as under: “26. Further we wish to clarify that it is a cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless there is something in the context or in the object of the statute to suggest to the contrary. The golden rule is that the words of a statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of the statute are clear, plain and unambiguous, then the courts are bound to give effect to that meaning, irrespective of the consequences. It is said that the words themselves best declare the intention of the law-giver. The courts have adhered to the principle that efforts should be made to give meaning to each and every word used by the legislature and it is not a sound principle of construction to brush aside words in a statute as being inapposite surpluses, if they can have a proper application in circumstances conceivable within the contemplation of the statute. Bearing in mind, the aforesaid principle of construction, if the expression “any new member society” occurring in the proviso to sub-section (3) of Section 27 is construed, it conveys the only meaning that it refers to the societies to be formed hereafter and not of those societies which have already become member societies of the federal society. Therefore, the requirement of the completion of the period of three years from the date of its investing any part of its fund in the shares of such federal society would apply only to those societies which became member society of the federal society after 23-8-2000. In this view of the matter, the impugned judgment of the High Court does not suffer from any infirmity. Even if there remained any doubt in the matter of interpreting the proviso, in the Ordinance that has been promulgated on 27-2-2001, called Maharashtra Ordinance 10 of 2001, after the first proviso to sub- section (3), a second proviso had been inserted, which has removed any doubt or controversy inasmuch as it has been indicated therein that the first proviso will not apply to the member society which has invested any part of its fund in the share of the federal society before the commencement of the Maharashtra Cooperative Societies (Amendment) Act, 2000 dated 23-8-2000. The aforesaid Ordinance also has been given a retrospective effect, to be effective from 23-8-2000. The Ordinance having been held to be valid by us as stated above, the so-called prohibition contained in the first proviso to sub- section (3) of Section 27 will not apply to all those societies which have already become members of the federal society prior to 23-8-2000.”

251. The above principle was reiterated by the Hon’ble Supreme Court in the case of Nasiruddin v. Sita Ram Agarwal, (2003) 2 SCC 577, wherein, under the Paragraph No. 20 & 37, the Hon’ble Court observed as follows: “20. This Court in Bhavnagar University v. Palitana Sugar Mill (P) Ltd. [(2003) 2 SCC 111 : (2002) 9 Scale 102] has observed: (SCC p. 121, para 25)

“25. Scope of the legislation on the intention of the legislature cannot be enlarged when the language of the provision is plain and unambiguous. In other words statutory enactments must ordinarily be construed according to its plain meaning and no words shall be added, altered or modified unless it is plainly necessary to do so to prevent a provision from being unintelligible, absurd, unreasonable, unworkable or totally irreconcilable with the rest of the statute.”[See also Unique Butyle Tube Industries (P) Ltd. v. U.P. Financial Corpn. [(2003) 2 SCC 455 : (2002) 9 Scale 778] ]

37. The court's jurisdiction to interpret a statute can be invoked when the same is ambiguous. It is well known that in a given case the court can iron out the fabric but it cannot change the texture of the fabric. It cannot enlarge the scope of legislation or intention when the language of the provision is plain and unambiguous. It cannot add or subtract words to a statute or read something into it which is not there. It cannot rewrite or recast legislation. It is also necessary to determine that there exists a presumption that the legislature has not used any superfluous words. It is well settled that the real intention of the legislation must be gathered from the language used. It may be true that use of the expression “shall or may” is not decisive for arriving at a finding as to whether the statute is directory or mandatory. But the intention of the legislature must be found out from the scheme of the Act. It is also equally well settled that when negative words are used the courts will presume that the intention of the legislature was that the provisions are mandatory in character.”

252. Moreover, looking to Annexure A-14 to the memo of this appeal, dated 12.01.2011, AERA’s Order No.13/2010-11 which is in the matter of Regulatory Philosophy and Approach in Economic Regulations of Airport Operators. It has been observed in paragraph 5.12 which reads as under: “5.12. Authority thus notes that ICAO's guidelines speak of "contributions from revenues accruing from the operation of the airport to its operators". Common reading of these words would indicate that whatever contributions from non-aeronautical revenues accrue to the Airport Operators should be taken into account for determination of aeronautical charges.”

253. As per aforesaid order, the guiding principle for deciding airport tariff provides for consideration of revenues accruing or accrued to the Airport Operator and not notional revenue. Moreover, looking to paragraph 30 of ICAO’s Policies on Charges for Airports and Air Navigation Service being -ICAO Document 9082, Eight Edition, 2009 reads as under:

“30. The Council also states that in determining the cost basis for airport charges the following principles should be applied:

i) The cost to be shared is the full cost of providing the airport and its essential ancillary services, including appropriate amounts for cost of capital and depreciation of assets, as well as the costs of maintenance, operation, management and administration but allowing for all revenues plus contributions from non-aeronautical revenues accruing from the operation of the airport to its operators.

ii) In general, aircraft operators and other airport users should not be charged for facilities and services they do not use, other than those provided for and implemented under the Regional Air Navigation Plan.

iii) Only the cost of those facilities and services in general use by international air services should be included, and the cost of facilities or premises exclusively leased or occupied and charged for separately should be excluded.

iv) While airports should maintain cost data in sufficient detail to facilitate consultation, transparency and economic oversight, it may be beneficial to develop more aggregated cost bases in certain circumstances for the purpose of settling charges However, the aggregation should be done in a logical and transparent manner accompanied by safeguards, as appropriate regarding consultation and where possible, agreements with users to avoid discrimination among users.

v) An allocation of costs should be considered in respect of space or facilities utilized by government authorities.

vi) The proportion of costs allocable to various categories of users including State aircraft should be determined on an equitable basis, so that no users shall be burdened with costs not properly allocable to them according to sound accounting principles.

vii) Costs related to the provision of approach and aerodrome control should be separately identified. (Principles applicable to the recovery of such costs are addressed in paragraph 5O.)

viii) Airports may produce sufficient revenues to exceed all direct and Indirect operating costs (including general administration. etc.) and so provide for a reasonable return on assets at a sufficient level to secure financing on favorable terms In capital markets for the purpose of investing in new or expanded airport infrastructure and, where relevant, to remunerate adequately holders of airport equity.

ix) The capacity of users to pay should not be taken into account until all costs are fully assessed and distributed on an objective basis. At that stage the contributing capability of States and communities concerned should be taken into consideration, it being understood that any State or charging authority may recover less than its full costs in recognition or local, regional or national benefits received.”

254. In view of the aforesaid ICAO Airport Charging Policy, while determining tariff for airport consideration of revenues accruing or accrued to the Airport Operator is to be appreciated and not the notional revenues. These aspects of the matter have not been appreciated by AERA while passing the impugned order.

255. AERA has presumed about the tenant and the rent. Even in absence of a hotel or a contract between lessor and lessee the rent has been presumed which tantamount to excessive usage of powers by AERA while determining tariff under Section 13 of the AERA Act. The guiding factors given under Section 13 should have been followed by AERA while determining tariff. AERA has applied notional rental values under the lease for hotel activities from AoD (24.05.2008) without appreciating the fact that as on 24.05.2008, hotel concessionaire was not even in operation. This unnecessary presumption about the tenant/lessee and its rent leads to reduction of ARR for the AO.

256. From bare perusal of Section 13(1)(a)(v) it is clearly evident that the same speaks of revenue received, a participial phrase in the past tense that denotes an event that has actually occurred, and not revenue that might, could, or in the regulator's estimation should, have been received had the Appellant conducted its non- airport business differently.

257. We find that there is no ambiguity in the provision calling for any departure from this plain reading, and AERA has advanced no reason, beyond its own view of administrative convenience, for reading into the provision a power to impute revenue that the text does not confer.

258. This Tribunal vide its judgement dated 14.02.2024 in the case of HIAL Vs. AERA, being AERA Appeal No. 04 of 2021, has held that income from real estate development is revenue from a non airport activity, that it can be treated neither as aeronautical nor as non-aeronautical revenue, and that AERA has no power or jurisdiction over such revenue at all. For ready reference paragraph no. 341-342 reads as under: “341. AERA has relied upon the decision of Learned Single Bench dated 16.12.2020 in case of BIAL. This judgment has not appreciated the clauses of the Concession Agreement as stated hereinabove to be read with the clauses of Land Lease Agreement. The said judgment has also not appreciated the fact that "site" as defined in the Concession Agreement includes Airport but reverse is not true meaning thereby to "airport" and not to be construed as "site". This distinction has been overlooked and we therefore do not agree with the interpretation of the Learned Single judge of this tribunal in judgment dated 16.12.2020 in case of BIAL. In fact, both the terms have been defined separately and, therefore, "Site" and "Airport" are not inter- changeable terms otherwise there would have been no need to define them separately.

342. In view of the aforesaid facts and reasons, provisions of land lease agreement to be read with provisions of AERA Act, 2008, the decision of AERA to consider income of appellant from Real Estate Development under its regulatory purview is incorrect, improper and not justified. We, hereby, hold that income from Real Estate Development (RED) is from Non- Airport Activities and it cannot be treated as Aeronautical, nor it can be treated as Non- Aeronautical but they are simply "Non-Airport Activity" revenue. AERA has no power or jurisdiction over such revenue.”

259. Further, this Tribunal in the case of GMR Goa International Airport Limited Vs. AERA, being AERA Appeal No. 01 of 2024, vide judgement dated 11.09.2025, under paragraph no. 215 has held as follows: “215. In view of the aforesaid provision of Section 13(1)(a)(v) of the AERA Act, 2008, AERA has to appreciate “revenue received” from services other than aeronautical services, meaning thereby to, AERA has to accept the figures of revenue from services other than aeronautical services, as it is. AERA cannot fix minimum non- aeronautical revenue, it is beyond the powers conferred upon AERA under Section 13 of the AERA Act, 2008.”

260. At this point we would also like to reiterate that this Tribunal in the case of Mangaluru International Airport Ltd. v. AERA, being AERA Appeal No. 01 of 2023, vide judgement dated 11.09.2025, under paragraph no. 186 has held as follows: “186. AERA cannot presume that the Airport Operator must earn a particular amount of non- aeronautical revenue. On the contrary, once the bidding process is just, proper and equitable and there are no allegation of arbitrariness, illegality and unfairness, non-aeronautical revenue received by airport operator neither can be increased nor can be decreased by AERA. In the present case, AERA has presumed nonaeronautical revenue at Rs.17.36 Crores for FY 2022-23. AERA has further presumed that there must be a 5% increase in non-aeronautical revenue every year. Instead of these presumptions, AERA should have looked at the actual non- aeronautical revenue received by the Airport Operator through a Master Service Provider.

261. Thus, it follows from above that as AERA has no jurisdiction over actual income from the commercial exploitation of land at an airport, it follows, a fortiori, that it can have no jurisdiction to impute income from such exploitation where none has in fact been realised.

262. We must also state that earlier L&T Bangalore Airport Hotel Limited had been incorporated in December 2006 for development and operation of the airport hotel and land measuring approximately 4 acres and 19 guntas had been made available for that purpose under a long term arrangement. The project thereafter encountered difficulties arising, inter alia, from the restriction imposed upon the permissible height of the hotel structure. These dispute led to the an Arbitration proceeding.

263. Subsequently, BIAL acquired the entire shareholding of the hotel company and undertook completion of the remaining works. The hotel eventually commenced commercial operations on 30.09.2016. Thereafter, with effect from 01.04.2019, an arrangement providing for annual lease rent of Rs. 2.48 crore, with escalation, became operative.

264. We have also considered the submission of AERA that the agreement to construct the hotel was itself in existence from the year 2006, and that it was accordingly reasonable to reckon notional rent from the Airport Opening Date onward. An arrangement to construct a hotel is not the accrual of rent for its use.

265. By following the literal rule of construction it is obvious to us that the Section 13(1)(a)(v) is concerned with revenue received from services, and no service was rendered, and no rent fell due under any instrument, until the hotel came into existence and a lessor and lessee stood in relation to one another. The existence of a plan to build is not the receipt of revenue from what is built, and AERA has conflates the two.

266. In this vein we are equally unable to accept the contention that the mere existence of land earmarked for a hotel establishes that rental revenue must be notionally presumed from the Airport Opening Date. The existence of an asset capable of commercial exploitation is not synonymous with receipt or accrual of revenue. The statutory tariff exercise does not authorise AERA to reconstruct, with hindsight, the commercial decisions which the airport operator might ideally have made and then treat the income which might have resulted as if it had actually arisen. We cannot permit the Regulatory scrutiny of prudence to turn into a creation of a fictional historical revenue stream.

267. The submission of AERA that the present issue cannot be examined because a challenge concerning the Second Control Period is pending before the Hon’ble Supreme Court also does not conclude the matter. The impugned order is a fresh tariff determination for the Third Control Period and produces independent financial consequences. The earlier judgment dated 16.12.2020 did not adjudicate the merits of the BAHL notional rental issue.

268. More importantly, the present order itself extends and applies the treatment afresh, including from the Airport Opening Date. In the absence of any order staying adjudication of the present statutory appeal on this issue, the legality of the operative TCP determination must necessarily be examined by this Tribunal.

269. In our considered view, approach of AERA in attributing to BIAL a notional lease of Rs. 9.26 Crore Per annum is also inconsistent with the express language of Section 13(1)(a)(v) of the AERA Act, 2008. The statutory consideration is the “revenue received from services other than the aeronautical services.” Parliament has thus made the revenue received by the Airport Operator a relevant consideration in tariff determination. The provision does not authorise AERA, while carrying out a historical true up, to substitute for such revenue an assumed earning capacity of the Airport Operator.

270. We reiterate that the Capacity to earn is a matter of commercial possibility; revenue received is a matter of financial fact. The former may depend upon assumptions as to how an airport operator could have commercially exploited an asset, whereas the latter reflects the revenue which has in fact arisen under the relevant commercial arrangement.

271. AERA cannot convert the former into the latter merely because, in its assessment, the Airport Operator could or ought to have earned a higher amount. Which is to say that AERA cannot convert a hypothetical earning capacity into historical revenue at true-up, contrary to Section 13(1)(a)(v), its own commitment to true up non-aeronautical revenue on actuals, and without identifying the evidentiary basis by which the hypothetical amount was derived.

272. It ought to be kept in mind that capacity to earn is different from actual revenue received under what is permitted under Section 13 to be considered as aeronautical a is the revenue received by the Airport Operator and not the capacity of the Airport Operator to receive the revenue.

273. We therefore hold that AERA was not justified in attributing to BIAL a notional lease rental of Rs. 9.26 crore per annum merely upon the assumption that such revenue ought to have been earned from the hotel land. We quash and set aside Paragraphs 2.4.5 and 3.9.24 of the impugned order, to that extent, as they cannot be sustained in law and facts.

274. We accordingly hold that, for the purpose of true up, AERA must take into account the revenue received or otherwise shown to have legally accrued to BIAL under the applicable contractual arrangements and cannot impute a hypothetical rental merely by reference to BIAL’s perceived capacity to earn from the land. Any actual contractual arrangement may, of course, be examined for its genuineness, but the statutory inquiry cannot be replaced by a notional reconstruction of the commercial income which AERA considers BIAL might have earned. Issue No. VI is accordingly answered in favour of the Appellant.

ISSUE VII. Notional lease rentals from AAI

275. Looking to the impugned order, it has been decided by AERA that notional lease from AAI to the extent of Rs.39.09 Crores in Second Control Period and Rs.80.13 Crores in 3rd Control Period has been considered while determining tariff order as per paragraph 8.2.34 to be read with Table no.161 to be read with paragraph 8.6.1 and Table no.169 to be read with paragraph 3.9.13 and paragraph 3.9.14 of the impugned order (Annexure A-1 to the memo of this appeal).

276. As per Annexure A-25 to the memo of this appeal, prior to AERA’s establishment, CNS/ATM agreement dated 06.04.2005 was executed between the present appellant and AAI under which space was leased to AAI to provide CNS/ATM services which continues to be provided by AAI at Bengaluru Airport. For ready reference Clause 7.4. of CNS/ATM agreement dated 06.04.2005, which is at Annexure A-25 to the memo of this appeal reads as under: “7.4. Rental Fee payable by AAI

AAI shall pay a rental fee to BIAL in consideration for providing the Facility and office space as set out in Schedule 2. The rental rate shall be calculated on cost

recovery basis and mutually agreed. It shall not exceed the rental rate applicable to other similar Government agencies. The lease rental shall be payable in advance on a quarterly basis effective from the Airport Opening Date until the termination of this Agreement. The rental fee shall not be increased by more than 10% once in every three years.”

277. In view of the aforesaid provision of the agreement, Airport Operator can recover the cost of the assets of the control tower, etc. which was at Rs.14,69,61,924/- was to be recovered (Annexure A-26). This amount is to be paid by AAI by way of rent. AAI had requested for a waiver of Rs.22,586/- as rental which was accepted by BIAL (A-27).

278. Thus as the cost is to be recovered from AAI by way of rent, once the cost recovery has completed there are no further lease rentals payable by AAI to BIAL. This aspect has not been properly appreciated by AERA and, therefore, AERA has wrongly presumed notional lease rentals from AAI. This presumption of AERA of notional rent from AAI to BIAL even after the cost recovery has completed is running counter to Clause 7.4 of CNS/ATM agreement dated 06.04.2005 (Annexure A-25).

279. The contract entered into between Airport Operator and AAI dated 06.04.2005 has to be considered by AERA meaning thereby to AERA cannot ignore CNS/ATM Agreement. AERA cannot rewrite the Clauses of the agreement between AAI and Airport Operator. AERA cannot decide airport tariff under Section 13 of the AERA Act in violation of Clause 7.4 of CNS/ATM Agreement dated 06.04.2005.

280. Pursuant to operationalization of new runway-NSPR and considering the terminal expansion, AAI was given additional office space to carry out CNS/ATM activities. This additional space was provided to AAI in pursuance of Greenfield Airports Policy, 2008 (Annexure A-28), issued by MoCA which provides as under: “ Air Traffic Services (ATS): Functions related to ATS are being discharged by AAI. The Applicant will have to enter into a CNS/ATM Agreement with AAI for the provision of ATS services at the proposed airport. ATS would be provided on a cost recovery basis and AAI would publish a standard agreement for this purpose. The Airport Company would also provide the acquired infrastructure to AAI free of cost for provisions of ATS.”

281. AERA has itself observed in paragraph 3.9.25 of the impugned order as under:

“3.9.25 The Authority's noted BIAL's comment related to the notional lease rental from AAI. The Authority noted that BIAL has submitted the following clause on the CNS/ATM agreement dated 6 April 2005: "AAI shall/ pay a rental fee to BIAL in consideration/or providing the facility and office space and the rental rate shall be calculated on cost recovery basis ... " and shared the correspondences between AAI and BIAL in which both parties have mutually agreed that the cost recovery is completed and AAI is no longer required to pay the rental fee. However, the Authority noted that the capital cost of the office space leased to AAI is part of the RAB of the airport operator. Therefore, the Authority decides to consider the notional lease rental for AAI office space.

282. The aforesaid reasoning given by AERA is running counter to the provisions of AERA Act especially, Section 13(1)(a) thereof because the amount recovered by BIAL under the agreement has been considered as aeronautical revenue for ARR calculations meaning thereby to, the amount recovered by BIAL has reduced the tariff to that extent and thereby benefitted passengers for First Control Period and Second Control Period. Thus, the entire benefit has already been passed on to the airport users.

283. Moreover, BIAL has to recover the original capital expenditure and associated returns over a longer period of 30 years and therefore, merely because AAI has paid the rentals which is equal to the cost of capital expenditure incurred for construction of control tower etc. cannot allow AERA to presume the notional rent from AAI to BIAL even after the cost is recovered.

284. Learned Senior Counsel Mr. Sajjan Povayya appearing for the appellant has drawn our attention to Annexure R-28 of rejoinder filed by BIAL to AERA’s reply and especially to Clause 7.5 thereof which is a standard agreement by AAI which indicates that no lease rentals are payable by AAI in line with Greenfield Airports Policy, 2008 which is at Annexure A-28 to the memo of this appeal. It also prescribes that infrastructure should be provided to AAI free of cost hence also, AERA cannot prescribe notional lease and cannot presume notional rent for the said infrastructure.

285. In fact, BIAL is precluded by Greenfield Airports Policy, 2008 from levying lease rentals. These aspects of the matter have not been appreciated by AERA while passing the impugned order and hence also, the decision of AERA whereby AERA has presumed notional lease rentals by AAI deserves to be quashed and set aside.

286. Moreover, looking to the impugned order, AERA has categorized the lease rentals from aeronautical to non- aeronautical on erroneous premises that for the First Control Period and Second

Control Period the same was treated as non- aeronautical. In fact, looking to First Control Period and Second Control Period tariff orders, AERA has considered the entire lease rentals from AAI as aeronautical income. Thus, incorrect facts have been taken into consideration by AERA while passing the impugned order.

287. We are of the opinion that AERA has no jurisdiction to take into account notional revenue while determining tariff under Section 13 of the AERA Act 2008. The AERA’s jurisdiction is confined to the factors enumerated in Section 13 and none of those factors permits the Authority to take into account notional revenue. The Authority cannot import into the statute a power that the legislature has not conferred upon it. The Authority is a creature of the statute and must act within the four corners of the statute.

288. The submission of AERA that Section 13 of the AERA Act 2008 empowers it to consider any other revenue for tariff determination is misconceived. The words any other revenue must be read in the context of the other factors enumerated in Section 13 and those factors relate to actual revenues and actual costs. AERA cannot use the residuary clause to expand its jurisdiction beyond the scope of the statute.

289. It ought to be understood that merely the inclusion of an asset in the RAB and the existence of revenue receivable from a third party are two separate regulatory questions. RAB reflects the regulatory treatment of capital invested in an aeronautical asset and revenue represents an actual or legally accruing receipt. The continued presence of an asset in RAB cannot, without more, create a contractual revenue stream which does not otherwise exist in the peculiar facts of the present case.

290. AERA’s has argued in substance, that because users continue to bear depreciation and return on the asset through the RAB, cessation of rental payments from AAI confers a double benefit upon BIAL. This contention could not be allowed simply invent another stream of revenue.

291. The record before us depicts in BIAL’s specific case that the amounts earlier recovered from AAI were themselves treated in the tariff computation as aeronautical revenue and were therefore brought into account in determining the amount recoverable from airport users. BIAL accordingly contends that the benefit of those receipts already stood passed through in the tariff exercise, whereas depreciation and return upon the underlying asset arise over its regulatory useful life.

292. AERA has not demonstrated in paragraph 3.9.25 that the same capital cost has in fact been recovered twice. It merely assumes duplication because the asset remains in RAB. If a regulator apprehends double recovery, the answer is to trace the relevant cost and revenue through the building blocks and identify the duplication. It cannot cure an assumed duplication on the asset side by manufacturing hypothetical income on the revenue side.

293. The matter is placed beyond doubt by the statutory language considered by us while deciding Issue No. VI. Section 13(1)(a)(v) permits AERA to take into consideration “revenue received from services other than the aeronautical services.” A capacity to charge rent is not revenue received. Nor does continued inclusion of an asset in the RAB transform a non- existent contractual receivable into revenue. For the reasons already recorded under Issue No. VI, the distinction between actual or legally accrued revenue and a hypothetical earning capacity applies with equal force to the present issue.

294. The later decisions of this Tribunal concerning notional revenue reinforce this conclusion. In GMR Goa International Airport Limited v. AERA, AERA Appeal No. 1 of 2024, this Tribunal held that Section 13(1)(a)(v) requires consideration of the revenue received and does not authorise AERA to prescribe a minimum non-aeronautical revenue which the operator is assumed to have earned. Likewise, in Mangaluru International Airport Limited v. AERA, this Tribunal rejected substitution of a hypothetical amount for revenue generated under an actual commercial arrangement. The principle stated in GMR Hyderabad International Airport Limited v. AERA that an actual figure cannot casually be displaced by a notional estimate, though arising in the context of capital expenditure, rests upon the same regulatory discipline.

295. We therefore hold that AERA was not justified in imputing a notional lease rental merely because the CNS/ATM facilities continued to form part of the RAB. In relation to the original facilities governed by the agreement dated 06.04.2005, AERA was required to give effect to the actual contractual arrangement and to the subsequent settlement between BIAL and AAI which AERA itself records as having brought the rental obligation to an end upon completion of cost recovery.

296. In view of the aforesaid facts and reasons and also looking to CNS/ATM Agreement and Greenfield Airports Policy, 2008, and provisions of AERA Act, 2008; AERA

cannot consider a notional lease from AAI to the extent of Rs.39.09 Crores in Second Control Period and Rs.80.13 Crores in 3rd Control Period. We, therefore, quash and set aside this decision of AERA in the impugned order. We, hereby direct AERA to carry out necessary true-up for 3rd Control Period in 4th Control Period tariff orders. Issue No. VII is accordingly answered in favour of the Appellant.

ISSUE VIII. Disallowance of additional transportation cost to the tune of Rs.8.25 Crore incurred towards Terminal - 2 Apron

297. By the virtue of the impugned order, AERA has excluded the additional transportation cost of Rs.20.50 Crores, which currently stand at Rs. 8.25 Crore towards construction of Terminal-2 Apron phase-2 from RAB as stated in paragraph 5.5.17.

298. Terminal-2 apron construction works were planned to be carried out using ECT. Terminal-2 apron is located on western side of ECT with the batching plant and earth’s stock piles being

located on the eastern side of ECT. Soil from the batching plant and soil excavated during construction activities at Terminal-2 apron site had to be transported through the ECT.

299. It should have been noted by AERA that ECT was completed in November, 2019, but, could not be used till September, 2020 because though BIAL applied for clearance from Bureau of Civil Aviation Security (BCAS) the said authority gave its approval for operationalization of ECT for movement of construction men, material and vehicles for project construction activities at Bengaluru airport on 04.09.2020 (Annexure A-24).

300. Thus, application was made on 12.02.2019 by the appellant for usage of ECT, but, permission was given by BCAS on 04.09.2020, the appellant had to incur additional cost of Rs.20.50 Crores, which was renegotiated for Rs. 8.25 Crore for removal of the earth excavated through a longer route having a distance of approximately 20 Kms.

301. Upon operationalisation of the new south parallel runway, the Bureau of Civil Aviation Security, by its approval dated 5th December 2019, imposed a condition that both ends of the newly constructed tunnel be closed. It was this condition that rendered the tunnel unavailable for the movement of construction material from that date.

302. Thus, for the period for which ECT was not allowed to be used by BCAS through a circuitous route, the earth excavated was to be removed through trucks which has resulted with an additional cost of Rs.20.50 Crores, which BIAL renegotiated and currently account for Rs. 8.25 Crore. This aspect of the matter has not been properly appreciated by AERA while passing the impugned order. In fact, this additional expenditure incurred by AERA to the tune of Rs.8.25 Crores towards Terminal-2 apron construction has to be included in RAB.

303. The reasons given by AERA that there was a delay on part of BIAL in receiving necessary approvals from BCAS. This reasoning is incorrect and away from facts. BIAL can apply for permission to use ECT, but, it is in the hands of BCAS to grant the approval for operationalization of ECT. an Application was preferred on 12.02.2019 by BIAL for usage of ECT. This application was preferred to BCAS which had the expert committee constituted from the members from:

a. BCAS; b. AAI; c. DRDO; d. SIB; and e. BIAL.

304. An expert committee, comprising the members of government departments named above, thereupon inspected the site and the drawings of the tunnel and recommended that a standing committee be constituted to examine the security aspects of its operationalisation. That standing committee was constituted on 7th January 2020, and the Appellant made a presentation before it on 14th January 2020, citing, among other things, protests by villagers along the alternative route, congestion on the main approach road affecting passengers, adverse impact upon the environmental targets set for the project, and a ban imposed by the State Mining department upon the movement of soil between the affected areas.

305. The standing committee recommended, on 14th January 2020, that the tunnel be opened as an interim measure for one and a half hours each day, when the runway was not operational and subject to security checks by the Central Industrial Security Force, and it was only thereafter, on 4th September 2020, that the Bureau of Civil Aviation Security granted approval for its fuller operationalisation.

306. The unavailability of the tunnel between December 2019 and September 2020 was accordingly the direct consequence of a security condition imposed by a statutory aviation security authority, followed by a structured and multi-agency review process in which the Appellant participated but which it did not control at any stage.

307. We must observe that AERA's finding, that the delay is attributable to the Appellant, is in substance a finding about the pace and adequacy of the process followed by the Bureau of Civil Aviation Security, a statutory authority responsible for aviation security and not a party to the proceedings before AERA or before us. AERA possesses no jurisdiction to adjudicate upon the reasonableness of the security clearance process of that Bureau, and has, without any material capable of supporting such a finding, attributed the consequences of that process to the Appellant.

308. The Hon’ble Supreme Court in the case of ‘The Cheran Transport Co Ltd v Kanan Lorry Services, 1977 1 SCC 604 has held that a party who has suffered a detriment on account of circumstances beyond its control is entitled to relief. For ready reference paragraph 7 reads as under: “7. (1) No permit or renewal, except to the extent expressly saved by Section 68-F(1-D), can be granted by the RTA during the period between the date of publication of any scheme and the date of publication of the approved scheme. (2) If a permit expires after the publication of any draft scheme such permit is eligible for renewal for a limited period as set out in the proviso. This special provision cannot be stretched, on the ground of possible anomalies or unjust consequences, to cover permits expiring even before the publication of the draft scheme. Where the language is plain, interpretation cannot take the shape of addition or interstitial legislation. (3) A rider to Proposition 2 has to be added. If a permit holder whose permit is about to expire, diligently does, in the normal course, all that he need and all that he can, that is to say, apply for renewal before 120 days, in the manner laid down in Section 58 of the Act, he sets in motion the legal machinery for the grant of renewal which must ordinarily culminate in renewal within 120 days. The fact that a scheme is published before the actual grant of renewal will not intercept or extinguish the process of law set in motion by the application for renewal. In such cases the RTA has to act promptly and if the application for renewal is in conformity with the law it has to consider it and grant or reject according to merit. If, for reasons beyond the control of the applicant, the renewal process gets delayed or prolonged he cannot be penalised. Renewal is a legal process, not the final act. Save in this category of cases, all other permits which have expired before the draft scheme is published, suffer the ban of Section 68-F(1-D). However, no permit can enure beyond the time of the publication of the approved scheme. This saves cases of bona fide applications for renewal of permits, not calculated to thwart a scheme, and helps the travelling public during the interregnum when the scheme is under scrutiny. The wider proposition accepted by the High Court that all permits which have expired before the draft scheme is published can be renewed does not appear to be correct and does not have our approval.”

309. Applying these principles to the facts of the present case the delay in the grant of security clearance by the Bureau of Civil Aviation Security was a circumstance beyond the control of the appellant. The appellant is therefore entitled to the consequential costs including the additional transportation cost incurred due to the non-availability of the Eastern Connectivity Tunnel.

310. We are concerned by the flip flop and zig zag approach of AERA, as it can be seen from the AERA’s treatment of the ECT which we have noticed while dealing with Issue No. V. For the purpose of denying capitalisation of Phase I, AERA proceeds on the basis that the tunnel was not being fully utilised for its originally conceived passenger access function.

311. For the present issue, however, AERA proceeds on the footing that the tunnel ought to have been available for construction traffic at an earlier stage and places the financial consequence of its non-availability upon BIAL. These two regulatory positions are irreconcilable in law, the impugned order was required to explain how BIAL could simultaneously be faulted for not having the tunnel available for unrestricted construction use while its actual use was itself subject to mandatory BCAS security vetting.

312. It only trite to state that the statutory scheme does not proceed upon a principle that airport users bear only those costs which they themselves cause. They bear the efficient and prudent cost of providing airport infrastructure and aeronautical services and security compliance is an inseparable incident of providing those services. A cost reasonably and necessarily incurred because an airport operator was required to comply with aviation security restrictions cannot be excluded simply by saying that passengers were not at fault.

313. In view of these facts, the reasons given by AERA in paragraph 5.5.17 of the impugned order that there was a delay on the part of BIAL in getting the necessary approvals from BCAS is not tenable at law. In fact, there is no delay on part of BIAL in receiving the necessary approvals from BCAS for using ECT. In fact, AERA has no power to find out fault with BCAS and, therefore, has thrown the burden upon BIAL.

314. For the reasons stated herein above decision of AERA in disallowing the additional transportation cost is quashed and set aside. The Authority is directed to allow the additional transportation cost actually incurred by the appellant for the construction of the Terminal 2 Apron due to the non-availability of the ECT. The Authority shall consider the revised cost of Rs 8.25 crores as submitted by the appellant. The Authority shall carry out the necessary true up in respect of the additional transportation cost during the Fourth Control Period. Issue No. VIII is accordingly answered in favour of the Appellant. ISSUE IX. Exclusion of KIA West Metro Station from RAB of 3rd Control Period

315. By the impugned order dated 28.08.2021, under paragraph 5.5.28, AERA has decided that capital expenditure incurred on the KIA West Metro Station would not be considered in the Regulatory Asset Base for the Third Control Period and the aforesaid paragraph reads as under : “5.5.28 The Authority noted BIAL's comment for consideration of the City Side Metro Station (KIA West Metro Station) in the RAB. The Authority is of the view that the city side metro station is constructed by BIAL for its employees and the users of commercial services and does not serve the airport passengers. Hence, the airport operator cannot charge the passengers/airlines for the facility which is not used by them. Therefore, the Authority decides to exclude the capital expenditure of city side metro station from the RAB of BIAL.”

316. For ready reference, and to make the spatial relationship between the two stations, it may be recorded that the airport premises, as they stand, contain two metro stations, one being the Airport Terminal Station, situated within the terminal complex itself and serving embarking and disembarking passengers directly, and the other being the KIA West Metro Station, situated at the western periphery of the airport, in proximity to the office buildings, utility centres, cargo terminal, ground handling facilities and other support installations located on that side of the airport. A detailed Map of KIAB has been submitted to us by the Appellant and forms part of the record of the Appeal, however due to sensitive nature

of the information in the map, we have decided not to reproduce the same.

317. Nevertheless, it is worth nothing that AERA has allowed the capital expenditure for the Airport Terminal Metro Station to be included in the Regulatory Asset Base, whereas the capital expenditure incurred for the KIA West Metro Station has not been allowed inclusion, mainly on the ground that it is utilised by the employees of the Appellant and by users of commercial services and does not serve airport passengers. This reasoning is arbitrary in nature and runs counter to the provisions of the AERA Act.

318. At this juncture it would be prudent to allude to certain definition as contained in the AERA Act, 2008, wherein Sections 2(c), 2(n) and 2(o) of the AERA Act define airport user, service provider and stake holder respectively, and read as under: “2(c) airport user means any person availing of passenger or cargo facilities at an airport;” 2(n) service provider means any person who provides aeronautical services and is eligible to levy and charge user development fees from the embarking passengers at any airport and includes the authority which manages the airport;” 2(o) stakeholder includes a licensee of an airport, airlines operating thereat, a person who provides aeronautical services, and any association of individuals, which in the opinion of the Authority, represents the passenger or cargo facility users;”

319. In view of the aforesaid definitions, in our view the KIA West Metro Station is used by airport users, and it ought to be kept in mind that the expression airport user does not mean exclusively passengers travelling by air. Even a person availing cargo facilities at the airport, though not himself a passenger, falls within the definition, and the capital expenditure incurred by the Appellant for the KIA West Metro Station ought accordingly to have been included in the Regulatory Asset Base to that extent.

320. Similarly, looking to the definitions of service provider under Section 2(n) and stake holder under Section 2(o), stake holders include cargo facility users. This aspect of the matter has not been appreciated by AERA, and the reasoning given in paragraph 5.5.28 of the impugned order runs counter to the provisions of the AERA Act.

321. The decision of AERA is also in violation of Section 13(1)(a)(ii), Section 13(1)(a)(iii) and Section 13(1)(a)(iv) of the AERA Act, because the Appellant has built two metro stations inside the airport to ensure decongestion of traffic, by ensuring that while passengers alight at the Airport Terminal Station, other airport users, including those connected with cargo facilities, alight at the KIA West Metro Station. The presence of two stations increases the quality and efficiency of the airport's operations and ensures smooth and decongested movement for passengers.

322. Looking to Annexure A10, being the Appellant's response to the consultation paper, at page 1855-56 of the memo of this appeal, the Appellant has pointed out the major users and beneficiaries of the KIA West Metro Station as under: “Major Users or Beneficiary of West Metro Station at KIAB  The total airport wide employees working at KIAB (including BIAL and Concessionaires) are approximately 22,000 in year 2019.  There will be a substantial requirement for skilled, semi-skilled personnel to helm the growth at KIAB. Hence, a potential increase is expected in aviation related employment at the airport and approximately 117000 employees are expected by the end of the final / ultimate development phase of BIAL i.e. by FY 33-35.  The forecast details are shown in the table below. Forecast Total Users (including both BIAL and Concessionaires ) Total Cargo personn el Total

FY 24-

26500 30000 56500 FY 29-30 41000 46000 87000 FY 33-35 61000 56000 117000

• Out of these employees, 50% of them are working in and around terminal forecourt area and the remaining 50% are working with:  Cargo Terminal Operators  Cargo Warehouses  Ground Handling Agencies  IOCL Fuel Farm  LSG and Taj Stats Catering  CISF and Other Government Agencies  Retailers and Other Concessionaires at the Airport  BIAL and Airlines staff on landside and airside  BIAL staff working at Utility Centers and other airport support facilities”

323. In view of the aforesaid figures, approximately twenty two thousand employees, including those of the Appellant and its concessionaires, were working at the airport in the year 2019, and the projected number of employees for the years 2033 to 2035 is approximately one lakh seventeen thousand. For a workforce of this magnitude, two metro stations were envisaged in advance, and upon the approval of the appropriate construction committee, the KIA West Metro Station came to be constructed. Its capital expenditure must accordingly be added to the Regulatory Asset Base.

324. Moreover, looking to page 1856 of Annexure A10 to the memo of this appeal, being the Appellant's response to the consultation paper, a year wise forecast of airport users has been set out herein above.

325. In view of the aforesaid probable users of the appellant airport by no stretch of imagination it can be concluded by AERA that KIA West Metro Station is not being used by “Airport Users”. It has not been appreciated by AERA that if no stretch of imagination would not have been planned, it would increase the traffic movement in and around the terminal forecourt area creating congestion on landside roads due to provision of shuttle service to commute from Terminal metro station to the areas located on west and vice versa. Moreover, additional infrastructure would be required to meet the increased ridership to the terminal metro station which will further increase the terminal metro station capex, apart from causing congestion.

326. Furthermore, AERA's reason for the impugned decision, that the KIA West Metro Station is used only by employees of the Appellant and by non aeronautical users, that is, commercial, concessionaires, is incorrect, because the station will be used by airport users as defined in Section 2(c) of the AERA Act, including the Central Industrial Security Force, customs and other government agencies, staff of the Appellant and of the airlines on the landside and the airside, staff of the Appellant working at utility centres and other airport support facilities, retailers and other concessionaires at the airport, catering agencies, and ground handling, fuel facility and cargo facility users.

327. It would be worth noting that the West Station was not conceived merely as a private amenity for BIAL’s employees. The proposal formed part of the airport metro alignment prepared by BMRCL and approved by the Government of Karnataka. The Government proceedings dated 19.12.2017 expressly identify West KIA Station and the Kempegowda International Airport Terminal Station as part of the approved alignment.

328. The State’s letter dated 13.12.2017 to AERA further recorded that two stations were proposed within KIA, that BMRCL expected BIAL to provide financial support of approximately Rs.1,000 crore towards airport metro connectivity, and that a user fee comparable to that considered for metro connectivity at Mumbai and Delhi be examined.

329. AERA’s own response dated 05.02.2018 stated that where KIA funded the portion of the metro line within the airport premises, such asset could be considered as a Regulatory Asset for determination of aeronautical tariff upon commissioning, subject to ownership, capitalisation and the asset being put to use. For ready reference AERA’s response dated 05.02.2018 is reproduced below: “S. MACHENDRANATHAN Chairman Airports Economic Regulatory Authority of India AERA Building, Administrative Complex Safdarjung Airport, New Delhi-110003 Tel.: 011-24695043, Fax: 011-24695040 E-mail: chairperson@aera.gov.in D.O. No. AERA/20010/MYTP/BIAL/CP-II/2016- 17/Vol.II 5th February, 2018 Dear Shri Sandeep Dave,

1. I am happy to learn that the Government of Karnataka has proposed to construct a metro line from Nagwara to Kempegowda International Airport (KIA) at a cost of Rs. 5950 crores. This will lead to enhanced connectivity to the Airport and greater passenger convenience and satisfaction. It has also been informed by you that the Karnataka Government expects the Kempegowda International Airport (KIA) to contribute Rs. 1,000 crores towards the cost of metro line on non-refundable basis. For this purpose, it has also been suggested that a User Fee be levied on the passengers for the same.

2. In this regard I wish to bring to your notice that the AERA Act empowers AERA to determine Development Fee (DF) as provided in the Airport Authority of India Act, 1994 and DF is applicable only to AAI airports. In the case of Delhi and Bombay airports, the orders for levying of DF were issued by Ministry of Civil Aviation under Section 22A of Airports Authority of India Act as these are AAI airports, under lease to the Joint Ventures i.e., DIAL & MIAL. KIA, being a private greenfield airport, the AAI Act cannot be applied to it. Therefore, levying DF may not be legally possible.

3. However, in case the KIA funds that portion of the metro line within the airport premises, the same can be considered as a Regulatory Asset of KIA for determination of tariff of KIA on commissioning of the asset. The assets related to the metro line can be considered as Regulated assets only if these assets belong to KIA and a fair rate of return shall be paid on the capital amount incurred by KIA to create such assets, once the assets are capitalised and put to use.

4. Hence, in this situation, it may not be possible for the Authority to approve any special levy upfront to fund the construction of the proposed metro line. With regards, Yours sincerely, (Sd/-) (S. Machendranathan) Dr. Dr. Sandeep Dave, I.A.S. Addl. Chief Secretary to Government Infrastructure Development Department Room No. 28, Ground Floor,Vikas Soudha, Bengaluru-56001.”

330. As it can be seen from paragraph 3 of the communication, that it does not confine this statement to the Terminal Station alone. It speaks in terms of the portion of the metro line within the airport premises. However, AERA, while dealing with this issue in Paragraph 5.5.28 of the impugned order does not advert to or explain any cogent reason for departure from that earlier regulatory position.

331. We accordingly hold that paragraph 5.5.28 of the impugned order, insofar as it directs the categorical exclusion of KIA West Metro Station from RAB merely because it was expected to be used principally by BIAL employees and users of commercial services rather than airline passengers, cannot be sustained.

332. For the reasons recorded in the body of this judgment and in the supplemental reasoning above, we quash and set aside the decision of AERA, contained in paragraph 5.5.28 of the impugned order, excluding the capital expenditure of the KIA West Metro Station from the Regulatory Asset Base. We direct AERA to include the capital expenditure incurred by the Appellant for the KIA West Metro Station as a part of the Regulatory Asset Base as on 1st April 2021, and to give effect to this direction in the

determination of tariff for the Fourth Control Period, subject to verification of the actual cost incurred against the Appellant's audited and certified books of account. Issue No. IX is accordingly answered in favour of the Appellant. ISSUE X: Disallowance of CapEx to be incurred for metro enabling works to be capitalized as a part of Multi Model Transportation Hub (MMTH).

333. It ought to be kept in mind by AERA that metro enabling works are an integral part of MMTH structure and not the metro as it is effectively one side of the wall of the MMTH. Without the completion of enabling work, MMTH cannot be completed and capitalised. Moreover, the enabling works are enclosed and protected, within the MMTH to enable the construction of the Terminal Metro Station – while isolating this construction work from the operating Terminal 2 and related passenger moments.

334. The metro enabling works relates to construction of retaining wall on either side of metro station and columns to support various levels of the Terminal Metro Station, relocation of existing drains and utilities, earth work, etc., on the route taken by while entering the MMTH.

335. Metro enabling works have already been capitalised in FY2023 which is during the 3CP hence in our opinion, the capex incurred by the AO for metro enabling works which is already capitalised as a part of MMTH should have been included in RAB for 3CP.

336. AERA ought to have understood that as per Sec 13(1)(a)(i) of the AERA Act, 2008 while determining the tariff, capex incurred towards metro enabling works must be considered by AERA.

337. “Metro Commissioning" and “Metro Enabling Works” are different, AERA has linked both these aspects and therefore has erroneously disallowed the capex for capitalised “Metro Enabling Works” as part of RAB. Once the scope works plan for MMTH was allowed in TCP, “metro enabling works” which is a part thereof ought to have been considered as a part of RAB. The outcome of “metro enabling works” was to make MMTH operational and not the metro station.

338. This Tribunal, in GMR Hyderabad International Airport Limited v. Airports Economic Regulatory Authority of

India, AERA Appeal No. 4 of 2021, judgment dated 14.02.2024, has held under paragraphs 384 and 385 as follows: “384. This decision of AERA is far away from the facts that the actual construction is 2,58,089 sq. mtrs. AUCC document is nothing but merely a statement of intent instead of the actual final design of the expansion in question. AERA ought to appreciate that it is within the power, jurisdiction and authority of airport operator to propose the need and nature of construction and the same has to be approved by the committee which is a multimember committee including the members of Government and other experts.

385. Once, this committee is approving the need, nature, and expenditures of construction that perhaps there is little or practically no scope of interference by AERA and that too with the help of some consultant’s report under the guise of “efficient cost”. If this type of interference by AERA is permitted by this Tribunal, then it tantamount to sitting in appeal against the decision of the committee which is a multimember committee.”

339. From AERA's own consultation paper, which reproduced within the impugned order and recorded in paragraph 5.2.29, and Table 78 accompanying it, which discloses that Phase I of the hub, proposed to be commissioned in the financial year 2022, comprises several distinct components, bifurcated floor by floor into aeronautical, non-aeronautical and common categories. Of these, the baggage sorting area, located at Basement 3, is classified by AERA itself as aeronautical.

340. This classification is tied to the function the space performs, namely the sorting of passenger baggage, a function that has nothing to do with whether or when the metro station above or beside it begins to operate. However, Paragraph 5.5.15 of the impugned order nonetheless excludes the metro enabling works and the baggage sorting area together, as a single bundled item, deferring both to the year of metro commissioning upon the sole footing that neither will be put to use until that event occurs.

341. We ought to remind ourselves that the governing regulatory framework reinforces this distinction. Clause 5.2.6 of the 2011 Guidelines describes Commissioned Assets as investments “brought into use during Tariff Year t”, while Clause 5.2.7 treats Commissioned Assets as the accumulated value attributable to assets which have been “put into effective operation during Tariff Year t.”

342. Therefore, the test is thus directed to the condition and operational status of the asset whose capitalisation is under consideration. It does not permit the commissioning of one asset to be indefinitely postponed merely because another future facility with which it is associated has not yet commenced operations.

343. The general principle is the one already applied by us under Issue No. V above, in connection with the Eastern Connectivity Tunnel, namely that the test for inclusion of an asset in the Regulatory Asset Base, fixed by Clause 5.2.7(a) of the Tariff Guidelines of 2011, is whether the asset has been put into effective operation, and not whether it continues to serve the particular purpose originally envisaged for it.

344. As per AERA's own order records that the metro enabling works were undertaken by the Appellant in the financial year 2022 and were capitalised as part of the hub. If the hub itself, or a floor or component of it, has in fact been brought into effective operation, whether for baggage sorting, for bus or taxi movement, or for the passenger circulation Table 78 itself records at Level 1, the components physically necessary to that operation, including the enabling works that support the structure housing them, cannot be excluded merely because one further component of the same structure, the metro station itself, remains to commission.

345. In the peculiar facts of the present case, it would not be wise to postpone necessary structural works until the future commissioning of the Metro Station would have produced the very inefficiency which Section 13 requires the Authority to guard against. Undertaking retaining walls, supporting columns, utility relocation and excavation after completion and operation of the MMTH would require reopening completed infrastructure and carrying out substantial construction activity within an operational passenger environment. In our opinion, AERA was required to examine that engineering reality and economic cost of the same, while undertaking tariff determination exercise and perusal of Paragraph 5.5.15, it is evident that AERA did not do so.

346. In view of these facts, the decision of AERA is in violation of provisions of AERA Act and AERA has failed to consider that completion of “metro enabling works” was an economically prudent decision because if such work is undertaken after the completion of MMTH, its cost will be too high and there will be lot of inconvenience to the airport users. These aspects have not been appreciated by AERA hence we quash and set aside the decision of AERA in Clause 5.5.15 of the impugned tariff order (Annexure A-1).

347. For the reasons recorded in the body of this judgment and in the supplemental reasoning above, we quash and set aside the decision of AERA, contained in paragraph 5.5.15 of the impugned order, deferring the capitalisation of the metro enabling works and the baggage sorting area to the year of metro commissioning. We direct AERA to include the baggage sorting area, and the metro enabling works to the extent they are shown, upon verification, to have been put into effective operation as part of the hub independently of the commissioning of the metro line, as a part of the Regulatory Asset Base for the Third Control Period, with the necessary true up in the determination of tariff for the Fourth Control Period. Issue No. X is accordingly answered in favour of the Appellant. ISSUE XI: Notional lease rentals on commercial land development

348. Looking to the facts of the case and especially the Impugned order under Paragraph No. 8.5.8, AERA has deiced to factor in notional income from real estate development for cross- subsidization in future tariff orders. For ready reference para 8.5.8 of the impugned order (Annexure A-1) as under: “8.5.8 The land lease agreement of BIAL and the state support agreement provide that the land provided (at concessional rates) by the State government to BIAL for development and commercial viability of the airport for benefit of the public in general. However, by not developing the real estate and bringing more non- aeronautical revenues for cross-subsidization, BIAL is not fulfilling that mandate. The Authority would urge the State Government of Karnataka to direct BIAL to take action in this regard. The Authority may decide to take notional income from real estate development for cross-subsidization in future tariff orders if no efforts are made in this regard.”

349. Under the provisions of AERA Act, especially Section 13(1)(a)(v) of the AERA Act, AERA can consider the revenue received and not the notional revenue, the language of the section is plain and clear. The language of this section is unequivocal and unambiguous. We are of the firm view that words cannot be added in the statute by AERA. The Hon’ble Supreme Cour in the case of Union of India v. Pfizer Ltd., (2018) 2 SCC 39, under Paragraph 26, has observed as follows: “26. Also, as a matter of statutory interpretation, words can only be added if the literal interpretation of the section leads to an absurd result. As has been stated by us, the construction of Section 26-A on a literal reading thereof does not lead to any such result. Dr Singhvi's argument to read in words to save Section 26-A must, therefore, be rejected.”

350. The principle governing the construction of Section 13(1)(a)(v) is does not require elaborate restatement. In Gurudevdatta VKSSS Maryadit v State of Maharashtra, Supra, the Hon’ble Supreme Court affirmed that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to absurdity or unless the context or the object of the statute suggests to the contrary.

351. It is the golden rule of statutory construction that the words of a statute must prima facie be given their ordinary meaning. When the words are clear, plain and unambiguous, the court is bound to give effect to that meaning irrespective of the consequences. It is not open to the court to brush aside words as surplusage if they can have a proper application.

352. This principle was reiterated by Hon’ble Supreme Court in Nasiruddin v Sita Ram Agarwal, supra, where it was held that the court cannot enlarge the scope of legislation when the language is plain. It cannot add or subtract words. It cannot read

into the statute something which is not there. The real intention of the legislature must be gathered from the language used, and there is a presumption that the legislature has not employed superfluous words.

353. We are of the opinion that upon application of above principles, the conclusion is inescapable as Section 13(1)(a)(v) of the AERA Act 2008 speaks of revenue received from services other than aeronautical services. The word ‘received’ is not surplusage and it is certainly not a stray expression. In fact it is of vital importance as it fixes the character of the revenue that the Authority may take into account. The legislature has deliberately employed the past participle of the verb to receive.

354. It is worth noting had the legislature intended that the Authority may take into account revenue that ought to have been received, or revenue that could have been received, it would have said so and as per the prevailing statutory language it has not.

355. Therefore, the words are plain and they are unambiguous. They admit of no other construction. To read into the section a power to impute notional revenue would be to add words to the statute. It would be to change the texture of the fabric. The Authority has therefore acted beyond its jurisdiction in directing that it may take notional income from real estate development for cross subsidization. The direction is contrary to the plain language of Section 13(1)(a)(v) and cannot be sustained.

356. It ought to be noted that BIAL is a greenfield airport. Plain barren land was given to the Airport Operator. Rome was not built in a day. Development takes time and therefore, it cannot be said that notional rent for the open rent can be considered as revenue received under the AERA Act, 2008.

357. The fanciful idea of AERA as pointed out in para 8.5.8 of the impugned order was never mentioned in the Consultation Paper published by AERA (Annexure A-9) therefore, in absence of any proposal in the Consultation Paper, no opportunity was given to the appellant to point out that why notional rent cannot be the part of revenue received. Thus, there is a violation of principles of natural justice. The authority has failed to maintain transparency as envisaged by Section 13(4) of the AERA Act.

358. The land to be developed for commercial purposes is a non- airport activity. AERA has no power, jurisdiction and authority to decide about how non- airport activities should be carried out. Commercial land development is absolutely a non-airport activity and, therefore, AERA has no jurisdiction to reckon revenues from commercial land development activities and, therefore, also the observations of AERA in paragraph 8.5.8 of the impugned order deserves to be quashed and set aside.

359. In fact, AERA does not have jurisdiction to direct Airport Operator to undertake non-airport activities. Neither the Concession Agreement (Annexures A-3 & A-4) nor the Land Lease Deed (LLD) confers any power to AERA with respect to non-airport activity. Similarly, neither under Concession Agreement nor under LLD AERA can consider how and to what extent BIAL should develop non-aero activities.

360. Looking to Annexure R-23 which is a State Support Agreement between State of Karnataka and BIAL dated 20.01.2005, SSA does not mandate that BIAL necessarily has to develop the land within a particular stipulated time therefore, any such interpretation by AERA will be in violation of SSA (Annexure R- 23).

361. It has also been contended by the Appellant that the Consultation Paper contained no proposal to apply notional rent to undeveloped commercial land or it contained any proposal to write to the State Government. It was urged to us that Section

13(4) of the AERA Act requires the Authority to hold due consultations with all stakeholders, to allow all stakeholders to make their submissions, and to make all its decisions fully documented and explained.

362. We tend to agree with the argument of appellant that a direction born after the consultation process has ended is not a documented and explained decision and indeed it is a surprise sprung upon the appellant as the appellant had no opportunity to meet it. Which resulted into a scenario that the appellant had no opportunity to place before the Authority the commercial realities of land development, the time required for obtaining statutory approvals, the market conditions, or the terms on which the land had been leased.

363. The Land Lease Deed and the industrial policy under which the land was given are not a concessional gift that carries a duty, enforceable by the Authority, to build malls on a timetable that the Authority prefers. The appellant has placed on record its calculation of the lease payable to the State over the first sixty years. That calculation shows a liability of Rs 3503.55 crores.

364. From perusal of Paragraph 8.5.8 of the impugned order it is evident that it does not answer this calculation and in fact it does not even mention it. The Authority has proceeded on the assumption that the land was given at a concessional rate, despite the fact that such assumption is factually contested. The Authority has not examined the terms of the lease or the terms of the industrial policy. The Authority has not examined the payment obligations of the appellant. The finding that the land was given at a concessional rate is therefore without any evidentiary basis.

365. The direction contained in paragraph 8.5.8 is in terrorem. It threatens the appellant with a notional income entry in future tariff orders if the appellant does not develop the land. The threat is coercive. It is intended to compel the appellant to act in a particular manner. The Authority has no power to issue such a direction. The Authority's function is to determine tariff on the basis of actual revenues and actual costs. It is not to threaten the appellant with notional entries in order to achieve a regulatory objective that the Authority has set for itself. The direction is beyond the jurisdiction of the Authority and is liable to be set aside.

366. In view of the aforesaid facts and reasons and provisions of AERA Act, we hereby quash and set aside the observations in paragraph 8.5.8 in impugned order passed by AERA and we hereby hold that notional lease rentals on commercial land development cannot be considered by AERA. It is beyond the power, jurisdiction and authority of AERA to consider notional rent; what is permitted under AERA Act, 2008 is “revenue received”, as per Section 13(1)(a)(v) of the AERA Act.

367. We hold that AERA has no power under Section 13(1)(a)(v) of the AERA Act to impute notional income from commercial land development, whether presently or in any future tariff order, in the absence of revenue actually received, and that the direction to the State Government of Karnataka, and the intimation of a future notional imputation, recorded in that paragraph, are accordingly without jurisdiction and are set aside. Issue No. XI is accordingly answered in favour of the Appellant. ISSUE XII: Cap on cost of debt and fixing the same at 7.85% throughout as interest rate

368. By the impugned tariff order dated 28.08.2021, AERA has, in paragraph 6.6.3, considered 7.85% as the Cost of Debt for the entire Third Control Period commencing from 01.04.2021 and ending on 31.03.2026. Paragraph 6.6.4 further provides that the Cost of Debt shall be trued up on actuals subject to its reasonableness and efficiency. Thus, 7.85% has been adopted as the Cost of Debt for purposes of determining the tariff during the Control Period, while the final adjustment has been reserved for true up.

369. Whereas it is contended by the counsel for appellant that AERA should consider rate of interest at actuals. Looking to the provisions of Section 13 (1) (a) (i) of AERA Act, 2008, AERA has to consider “capex incurred”, meaning thereby to AERA should have considered the actual rate of interest on debt. AERA has no power, jurisdiction and authority to put a cap upon the Cost of Debt.

370. AERA has failed to appreciate that 7.85% per annum interest rate was a floating rate with an annual reset clause linked with MCLR levels prevailing at the time of reset and therefore fixing the rate of interest or putting a cap of Cost of Debt at the rate of 7.85% for 5 years is not only in violation of provisions of AERA Act but would also impede viability of the operations at the airport. BIAL has taken a loan of Rs.10,206 crores and the financial impact of 1% change in the interest rate would be approximately Rs.100

crores. The current Cost of Debt as claimed by BIAL is 8.88% which is substantially more than 7.85% which is considered for 3rd Control Period and, therefore, the overall impact due to variation of 1% will tantamount to Rs.100 crores for every year of 3rd Control Period.

371. Upon examination of Paragraph 6.6.3, it takes the rate prevailing on the day of the tariff order to be applicable for five years. It ought to be understood that the loans are not fixed rate loans and as they are floating loans they reset with the marginal cost of funds based lending rate.

372. The appellant placed before us at Page No. 1882 of Volume IX which is at Annexure A-10, the average of historic rates of the State Bank of India and Axis Bank, which works out to about 8.8 to 8.9 percent. The Organisation for Economic Co-operation and Development forecast placed at page 1883 pointed to a rise in Indian long term rates from the first quarter of 2022. For ready reference the same reads as under:  “In the second control period, SBI 1-year MCLR has ranged between 7%-9.20%. In the first six months of calendar year 2020, it has fallen from 7.90% to 7%. In a rising interest rate scenario also, we may see such rapid rate increases as well. It may be noted that the transmission of interest rate reduction by private sector banks has not been to the same extent as SB! or other public sector banks. BIAL also has a private sector bank (Axis Bank) in its fold and the MCLR of this bank will also be a determinant of interest rate on BIAL's expansion loan.  BIAL's loan for Expansion is based on SBI 1-year MCLR with a spread of 50 basis points or Axis Bank 1-year MCLR with a spread of 30 basis points, whichever may be higher, subject to the effective lending rate of any lender not being less than the MCLR of that lender.

 Historical MCLR Rates movement for SBI & Axis Bank is given below.

Average 1-year MCLR % FY 17 FY 18 FY 19 FY20 FY 21 Axis Bank 9.01 8.28 8.69 8.42 7.57 SB! 8.81 8.00 8.39 8.14 7.05

Average 1-year MCLR % For 4 years (excluding Covid yearofFY21) Axis Bank 8.60 SBI 8.33

 Adding the spreads as described above, the interest rates work out to 8.8-8.9% and hence the Authority has to take cognizance of this trend and not consider the rock bottom interest rates that is currently applicable for BIAL. .. ..  The long-term interest rate forecast by the Organisation for Economic Co-operation and Development (OECD) indicates interest rates in India

going up from Ql 2022, with an increase of 50 bps during the year.

373. We again place reliance upon Section 13(1)(a)(i) of the AERA Act requires AERA, while determining tariff, to take into consideration the capital expenditure incurred and timely investment in improvement of airport facilities. At the same time, clauses (iii) and (iv) require consideration of the cost of improving efficiency and the economic and viable operation of major airports. These provisions ought to be read together.

374. In our considered view, the statute neither permits an inefficient borrowing to be passed through merely because it has actually been incurred, nor does it permit an efficiently incurred financing cost to be displaced by an artificial ceiling unrelated to the contractual and market conditions governing the borrowing.

375. This Tribunal has already considered the same question in Mumbai International Airport Limited v. Airports Economic Regulatory Authority of India, AERA Appeal No. 2 of 2021 along with AERA Appeal No. 9 of 2016, decided on 06.10.2023, wherein under paragraphs no. 313 and 321, this tribunal held as follows:

“313. This contention of respondent no.1 is not accepted by this Tribunal mainly for the reason that there cannot be a fixed cost of debt for the entire 3rd Control Period of five years which is from 2019-2024. The cost of debt which is actually incurred by the appellant should have been considered by AERA. The cost of debt depends upon marginal cost of funds- based lending rate and the time period within which the loan is to be repaid. Inflation is one of the most important factor for determination of market forces for further determination of MCLR rates. Moreover, the spread for the time within which loan is to be repaid depends upon the credit profile of the entity.

321. In view of the aforesaid provision, AERA ought to have allowed actual cost of debt incurred by the appellant especially looking to the fact that debt availed by this appellant is from reputed lenders. Putting a cap upon cost of debt is uncalled for,as AERA has in fact, allowed actual interest rate for First Control Period and Second Control Period and therefore the same methodology should be applied for Third Control Period as well. We therefore direct AERA to consider actual cost of debt and necessary true up shall be done accordingly.”

376. The same principle was thereafter reiterated by this Tribunal in Hyderabad International Airport Limited v. Airports Economic Regulatory Authority of India, AERA Appeal No. 4 of 2021, decided on 14.02.2024, under paragraphs 462 to 463, which reads as under:

“462. In view of the aforesaid facts, it appears that the actual interest expenditure incurred by HIAL for the FY 2018 is 9.28% and AERA has reduced the same at 7.94%. This is not permissible mainly for the reason that while passing the tariff order for the 2nd Control Period, it has already been decided by AERA as per paragraph number 4.3.6 of the impugned order that tentatively the Cost of Debt has been considered at 7.90% but the true up shall be given in 3rd Control Period based on actual interest expenditure incurred by HIAL.

463. HIAL has already pointed out in its MYTP that during FY 2018, this appellant has incurred actual interest expenditure at 9.28% and hence, this aspect of the matter has not been appreciated by AERA and hence, the Impugned decision of AERA of not to give correction in Cost of Debt is hereby quashed and set aside.”

377. Further this Tribunal in the case of Goa International Airport Limited v. Airports Economic Regulatory Authority of India, AERA Appeal No. 1 of 2024, judgment dated 11.09.2025, under Paragraph No. 122 & 134 held as follows: “122. As per Clause 5.1.4 (b) of the AERA Tariff Guidelines, it requires AERA to forecast future CoD considering the floating Rate of Interest. For ready reference, Clause 5.1.4 (b) of the AERA Tariff Guidelines, 2011

“5.1.4. Cost of Debt… (b) The Authority shall consider the forecast for future cost of: (i) debt proposed to be raised during the

Control Period; or (ii) such debt which may be subject to a floating rate of interest subject to the Authority being assured of the reasonableness of such costs, based on a review including of its source(s), procedure(s) and method(s) to be used for raising such debt(s)…” … …

134. The Section 13(1)(a)(iv) obliges the regulator to secure the “economic and viable operation of major airports.” A CoD below actual market incidence achieved by transplanting a parent’s credit or by cherry-picked comparators does not serve viability; it suppresses legitimate financing costs, strains debt covenants, and can destabilise the regulated enterprise, particularly in the ramp-up years of a greenfield asset. That outcome is antithetical to the statutory object.”

378. From above it can be seen that Clause 5.1.4(b) of the Airport Guidelines, 2011, which requires AERA, when forecasting cost of debt, to consider a floating rate of interest on debt that is subject to reset, subject only to assurance of reasonableness upon a review of source, procedure and method.

379. For the reasons stated herein above the decision of the Authority in paragraph 6.6.3 of the impugned order fixing the cost of debt at 7.85 percent for the entire Third

Control Period is quashed and set aside and directions contained in Paragraph 6.6.4 shall be applied accordingly. Consequently, an actual Cost of Debt cannot be reduced merely because it exceeds 7.85%.

380. At the stage of true up, AERA shall ascertain the actual weighted average Cost of Debt incurred by BIAL during the relevant years of the Third Control Period on the basis of the financing agreements, actual debt drawls, applicable benchmark rates and resets, interest payments and other admissible financing components. The exercise shall be confined to debt properly attributable under the applicable regulatory framework. Issue No. XII is accordingly answered in favour of the Appellant. ISSUE XIII: Non-recognition of COVID relief measures given to the airlines in True Up in SCP

381. Looking to the impugned order, especially paragraph 3.10.11, the Authority has not allowed the aeronautical tariff discounts given by the appellant in the financial year 2021 to be considered as aeronautical revenue for the true up of aeronautical revenues of the Second Control Period. For ready reference Paragraph 3.10.11 reads as under: “3.10.11 The Authority noted comments of BIAL and lATA and the response by BIAL to IATA's comment on the aeronautical tariff discounts of INR 4.61 cr. given by the BIAL to the airlines in FY21. The Authority noted BIAL's submission that it has offered these discounts on account of the requests to extend support from airlines and MoCA in the wake of the COVID-19 crisis. The Authority appreciates the efforts taken by BIAL to support the aviation ecosystem by offering tariff discounts to the other stakeholders in the COVID-19 crisis. However, BIAL is asking for reimbursement of such support. If the Authority allows such reimbursement of these discounts, then such reimbursement could no more be termed as discounts but such amount would have to be termed as deferred payment by the users to whom the discounts were given. If the intention of BIAL at the time of giving discounts to the users was to consider it as passthrough then it should have entered into an agreement with the users to repay it at a later date. However, in the absence of such agreement. the Authority cannot permit BIAL to charge its users to repay its ' discounts' . Therefore, the Authority decides to consider the aeronautical tariff discounts given by BIAL in FY21 as aeronautical revenues for the true-up of the aeronautical revenues of the Second Control Period.”

382. AERA should have appreciated the fact that it was UOI through MoCA sought for waiver of landing charges by the Airport Operator in the wake of COVID 19. This request was made by

MoCA vide their communication dated 15.09.2020 (A-32). Similarly, the airlines operating committee had also requested BIAL and sought for similar relief from BIAL vide their communication dated 10.06.2020 (Annexure A-33).

383. As the cumulative effect of the aforesaid communications of the Ministry of Civil Aviation and the Airlines Operating Committee, and in order to sustain the community of airlines operating at the airport, discounts were extended by the Appellant towards parking and housing charges during the period of restrictions, to the extent of Rupees four crore sixty one lakh (Rs. 4.61 crore). This sum was not received by the Appellant, on account of the discount so extended at the behest of the aforesaid communications, and AERA cannot treat it as though it had been notionally received.

384. We must state that certain facts concerning the period in question are of such notoriety, and are so widely and officially documented, that it is a matter of public record, evidenced by the circulars of the Directorate General of Civil Aviation itself, that scheduled international commercial passenger services to and from India were suspended with effect from 23rd March 2020, and that scheduled domestic commercial passenger services were suspended with effect from midnight on 24th March 2020, both suspensions continuing, with only limited and calibrated relaxation, through the whole of the year 2020, being the very year in which the discounts in question were extended. It is equally a matter of public record that international scheduled services remained suspended well beyond that year.

385. We are of the opinion that Section 13(1)(a)(v) of the AERA Act permits AERA to have regard to revenue received from services other than aeronautical services, and we have held, that this expression, cast as it is in the past participle, does not extend to revenue a regulator considers ought to have been received. If the imputation of revenue that never existed is impermissible under Section 13(1)(a)(v), the imputation of revenue that was deliberately waived, in response to a request from the administrative ministry responsible for the sector, is impermissible a fortiori.

386. We have considered the reasoning advanced in paragraph 3.10.11 itself, that if the discount were reimbursed it would cease to be a discount and would instead become a deferred payment recoverable from the very users to whom it was extended, and that the Appellant ought to have entered into an agreement with

those users to that effect, and we do not accept this rationale of AERA; because this reasoning treats a concession granted in response to an unprecedented and unforeseen public emergency as though it were an ordinary commercial transaction capable of being structured in advance with the foresight such structuring requires. It ought to be kept in mind that in April 2020, when the request for relief first came from the Ministry of Civil Aviation, no airport operator could reasonably have been expected to negotiate a bilateral repayment instrument with every airline it chose to support, in the midst of a crisis whose duration and severity were themselves unknown, without risking the very appearance of self-interest that would have undermined the relief being extended.

387. We quash and set aside the decision of AERA at paragraph 3.10.11 of the impugned order, treating the aeronautical tariff discounts of Rs. 4,61,00,000/- extended by the Appellant in the financial year 2021 as aeronautical revenue for the truing up of the Second Control Period. We direct AERA to exclude this sum from the computation of aeronautical revenue actually received for that period, and to give effect to this direction as part of the true up to be carried out in the determination of tariff for the Fourth Control Period. Issue No. XIII is accordingly answered in favor of the Appellant. ISSUE XIV. Capping of pre-operative expenses for true- up

388. The challenge under this issue is to the decision of AERA contained principally in paragraphs 3.3.70 to 3.3.72 and paragraph 5.5.23 of the impugned tariff order whereby pre- operative expenses relating to the capital expenditure projects approved in the Second Control Period and deferred into the Third Control Period have been subjected to an overall ceiling of ₹156 crore. For ready reference the aforesaid paragraphs of the Impugned Order reads as under: “Pre-operative expenses 3.3.70 The Authority has examined the comments of BIAL, FIH, Siemens, APAO and IATA on the preoperative expenses. In the Second Control Period order of BIAL, the Authority has noted that it had approved pre-operative expenses of INR 156 cr. (incl. GST) and decided that it will review and trueup the same after the projects are commissioned based on a study of the actual cost incurred and its reasonableness . The Authority examined its decisions with regards to the pre-operative expenses for other airports. The Authority notes that it is a general practice at airports to employ a project management team whose expenses are capitalized with the commissioning of the project. The Authority has also taken a note of the segregation of roles and responsibility of the project team and the PMC consultants for the PAL I projects.

3.3.71 The Authority has noted its guidelines which specify the requirement to submit separately the payroll costs of capitalized projects and the costs related to administrative and general expenses incurred for capital projects. The Authority has also examined the statutory auditor's opinion submitted by BIAL on the capitalization of the pre-operative expenses. The auditor's certificate has given detailed reasoning of capitalization for each expense. Based on the above evaluation, the Authority decides to allow pre-operative expenses upto INR 156 cr. for the projects proposed to be capitalized in the Second Control Period order of BIAL to provide consistent treatment of the pre-operative expenses across airports.

3.3.72 The Authority further noted that the pre- operative expenses proposed to be capitalized in the second control period is INR 93.61 cr. which is less than the approved amount of INR 156cr. (incl. GST) since the remaining cost is proposed to be capitalized in the Third Control Period. The Authority decides to consider the pre-operative expenses capitalized in the second control period for true-up of the second control period. The treatment of pre-operative cost beyond INR

93.61 cr has been provided in Chapter 5 on regulatory asset base and depreciation for the Third Control Period. … … …

5.5.23 Based on the Authority's decision to allow the pre-operative cost of BIAL's project monitoring division in the true-up of the SOP in para 3.3.71, the Authority decides to allow the pre-operative on the capital expenditure projects deferred from the Second Control Period to the Third Control Period subject to the total cap of INR 156 cr. The Authority noted that BIAL has capitalized INR 93.61 cr. in SCP and therefore, decides to allow the remaining INR 62.39 cr. in TCP. The Authority based on its decision in the Second Control Period Order decides to true-up the pre- operative expenses for the capital expenditure projects deferred from the Second Control Period to the Third Control Period after the projects are commissioned based on the review of the actual cost incurred and its reasonableness.”

389. From the bare perusal of Paragraph No. 5.5.23, it appears that there is an irreconcilable internal contradiction. In one breath, the paragraph stipulates that pre-operative expenses will be trued- up after the commissioning of projects, based on a rigorous review of actual costs incurred and their economic reasonableness. In the very next breath, it subjects the entirety of these expenses to a rigid, absolute ceiling of Rs. 156 crores.

390. AERA has in access to their jurisdiction put a cap upon pre- operative expenses of Rs.156 Crores without assigning any reasons. There were no justifications by AERA as to why and how the figure of Rs.156 Crores was fixed.

391. We empathically state that remind AERA that a "true-up" exercise is, by statutory design, a retrospective reconciliation intended to replace prospective estimates with actual, audited expenditures. To hold that actual costs will be trued-up, but only up to the threshold of the preliminary estimate itself, renders the statutory mechanism of a true-up illusory and devoid of practical meaning.

392. AERA has placed reliance in its reply upon paragraph 3.3.36 of the impugned order as furnishing cogent reasons for refusing pre operative expenses. That paragraph is a proposal recorded at the stage of the consultation paper, in which the AERA proposed to exclude a sum of Rs. 77 crore as a redundant cost, upon the view that design and project management cost had already been accounted for. For ready reference the same reads as under: “3.3.36 The Authority further noted that the pre-operative expenses proposed to be capitalized in the Second Control Period is INR 77 cr. The Authority noted that the pre-operative expenses includes the cost of employees involved in undertaking the capital expenditure in Second Control Period and other miscellaneous administrative expenses. The Authority has already accounted the design and PMC cost for the capital expenditure in the Second Control Period and is of the view that the pre-operative expenses are redundant cost. The Authority proposes to exclude the pre- operative expenses from the asset additions of the Second Control Period.

393. In our view paragraph 3.3.36 does not provide any reasons and it merely notes the proposal. The decision is rendered, after stakeholder comments, which is in paragraphs 3.3.70 to 3.3.72, and it is materially different as AERA in aforesaid paragraphs records that it is a general practice at airports to employ a project management team whose expenses are capitalised with the commissioning of the project, and that it has taken note of the segregation of roles and responsibilities between the project team and the consultants. The premise of redundancy on which the earlier proposal rested was thus abandoned by the Authority itself.

394. The vacillation of AERA is evident from the Order No. 18/2018- 19, being Tariff Order for KIAB for Second Control Period (01.04.2016 to 31.03.2021), wherein under Paragraph 9.2.11; AERA stated that it would undertake a study of the actual cost incurred and its reasonableness after commissioning. In the impugned order, the contemplated study has disappeared and the earlier estimate has instead become the ceiling. There is no explanation as to what intervening material justified that change in methodology. For ready reference Para 9.2.11 of SCP reads as follows: “9.2.11. The Authority had reviewed the certificate provided. The Authority also noted that certain costs relating to Pre-Operative Expenses were carried over from the year 2015-16 (and may be before too). The Authority also noted that BIAL had submitted details of the personnel deployed, cost of which would be debited to Pre-Operative Expenses. The Authority noted that there was a need to have an own Project Management Team when large scale Capital Expenditure Projects are being executed. The Authority urged BIAL to ensure that the costs relating to Pre-Operative Expenses be optimally managed based on the requirements of the stated projects only. As these costs were proposed to be incurred over the second control period, the Authority proposed to consider an amount of Rs. 150 crores towards the same, as against BIAL's submission, for the purpose of estimating the costs and capitalisation for MYTP. The Authority would review and true up the same after the Projects are commissioned based on a study of the actual cost incurred and its reasonableness.”

395. In our view, having announced this regulatory methodology, AERA was bound to adhere to it or provide a compelling, legally sustainable justification for its departure as regulatory certainty, predictability, and consistency are fundamental tenets of economic governance, and any departure from an established regulatory approach must be justified by an overriding public interest or clear statutory imperative

396. It is reiterated that this Tribunal in DIAL v AERA, being AERA Appeal No 10 of 2012 dated 23.04.2018 under paragraph 88, considered the challenge to project cost and recorded the Authority’s stand that project cost is to be seen as the incurred cost appearing in the duly certified books of accounts, relating to approved and essential parts of the airport, and that such cost for ready reference Paragraph 88 reads as under: “88. On the other hand, on behalf of AERA, Mr.Dhir has taken a firm stand that in the task of tariff determination, the project cost can be looked at from a narrow hole, only to examine the incurred cost as per available records and see that it relates to the approved and essential parts of the Airport. According to him, this had to be done on the basis of accounts bearing certificates granted or approved by the Chartered Accountant. His clear stand is that such cost cannot be re-examined on the yardstick of efficient cost but has to be taken as the incurred cost only, as appearing in the duly certified books of accounts. This submission appears to be weighty and deserves acceptance.”

397. The Hon’ble Supreme Court in Delhi International Airport Limited v. Airports Economic Regulatory Authority of

India (2024) 1 SCC 716, noted in paragraph 139 the stand of the Authority, accepted by this Tribunal in AERA Appeal No. 10 of 2012, that project cost is to be seen as the incurred cost appearing in the certified books, relating to approved and essential parts of the airport, and that such cost cannot be re- examined on the yardstick of efficient cost and in paragraphs 149 and 150 the Hon’ble Supreme Court held that Section 13(1)(a)(i) and Section 13(1)(a)(iii) are distinct, that clause (i) requires capital expenditure incurred to be taken into consideration, for ready reference the relevant paragraph reads as under: “139. AERA sought to rebut these contentions before TDSAT. It was contended that the avowed task of determining the project cost could only be looked at from a narrow hole - i.e. in order to examine the incurred cost as per available records and verify whether it relates to the approved and essential parts of the airport. This in turn had to be taken on the basis of accounts bearing certificates granted or approved by the Chartered Accountant. It was vehemently argued that such cost cannot be reexamined on the yardstick of efficient cost but has to be taken as the incurred cost only, as appearing in the duly certified books of accounts. The aforesaid plea of AERA found favour with TDSAT and was accepted.

140. If we turn to TDSAT's order dated 20-3-2020~, this aspect has been dealt with in sec Online TDSAT paras 22, 23 and 24. It was held that AERA could not have had much latitude in dealing with rising project costs as it had little or no scope to do so within its limited statutory role under the said Act. TDSAT found that AERA had referred to the reports of the two experts and had consulted with all stakeholders, who had been given sufficient opportunity to make their submissions. This would meet the requirement of Section 13(4) of the said Act which requires AERA to ensure transparency in exercising its powers and discharging its functions. The only caveat put by TDSAT was that the exclusions mandated by AERA from DIAL's project cost to the tune of Rs 354.14 crores should be allowed. TDSAT's order dated 16-7-2020 with respect to MIAL's project cost held that no new grounds had been raised and the issue stood settled in DIAL's case.

144. On the other hand, the airport operators contended that Section 13(1)(a)(i) of the said Act deals with capital expenditure while Section 13(1)(a)(iii) deals with the cost of improving efficiency. The said provisions read as under:

"13. Functions of Authority.-(1) The Authority shall perform the following functions in respect of major airports, namely- (a) to determine the tariff for the aeronautical services taking into consideration-

(i) the capital expenditure incurred and timely investment in improvement of airport facilities;

* * *

(iii) the cost for improving efficiency;"

145. The cost for improving efficiency as used in sub- clause (iii) was submitted to be very different from efficient cost in respect of capital expenditure and, thus, elements of (iii) could be read into (i). There is no test of efficiency laid out in the said Act in terms of capital expenditure and thus AERA only had a limited role qua determining the project costs.

150. In our view, the provisions have been separately made because the concept of Section 13(1)(a)(i) requires AERA to determine the tariff by including capital expenditure incurred and timely investment in improvement of airport facilities. One of the other distinct factors to be considered is the cost of improving efficiency as under Section 13(1)(a) (iii). These aspects have no doubt been examined by the authority concerned, although not necessarily in the manner FIA seeks them to. Does it really lie with us to superimpose a view which has not been found feasible in the given conspectus of the large number of reports and documents before AERA as well as TDSAT. We thus reject the contention.

151. In the end, we do believe that the matter having traversed from AERA to the appellate authority to this Court, the parties and the counsel may have become fully aware of the nitty-gritties of the various matters and thus sought to embark on canvassing the case almost as we are some kind of first authority on these aspects. We are unwilling to do so. We have analysed all the contentions in a broad perspective, keeping in mind that the Authority has performed its task and so has the appellate authority. Despite the course of action followed by the counsel, we have still analysed the matter in such depth as was required to be done by this Court in rejecting all aspects in these appeals and cross- appeals except one aspect which arose from terminology and its definition.”

398. In DIAL v. AERA; being AERA Appeal No 1 of 2021, judgement dated 21st July 2023, in paragraph 165(f), this Tribunal has held that once the committee is approving the need nature and expenditures of construction there is little or practically no scope of interference by the Authority under the guise of efficient cost, for ready reference the aforesaid paragraph reads as under: “165…(f) As per Section 13 (1)(a)(i) of the AERA Act, 2008, it was a power coupled with a duty vested in AERA to determine the tariff for the aeronautical services taking into consideration, “the capital expenditure incurred and timely investment in the improvement of airport facilities” which is on “actual basis” meaning thereby, if the actual capital expenditure is incurred by the appellant, the same has to be considered by AERA as per aforesaid provision of AERA Act and it cannot be so easily brushed and set aside by AERA under the guise of “the efficient cost”;

399. As stated in several decisions rendered by this Tribunal in different AERA Appeals and also in present decision herein above, even at the cost of repetition, we emphatically point out that under Section u/s 13(1)(a)(i), AERA has to consider while determining tariff actual expenses incurred by the Airport Operator. AERA has no power, jurisdiction and authority to put a cap upon the capex.

400. Moreover, the projects approved in Second Control Period and which were started in Second Control Period and completed by 31.12.2022 (during 3rd Control Period), its capex cannot be curtailed by putting imaginary cap on notional basis, without assigning any reasons at Rs.156 Crores. The benefit which is already accrued to BIAL cannot be withdrawn with retrospective effect by AERA. Hence, the decision of AERA is arbitrary and irrational.

401. AERA ought to be mindful of fundamental jurisdictional facts that neither Concession Agreement (Annexure A-3 to be read with Annexure A-4) nor SSA (Annexure R-23) nor airport tariff guidelines, 2011, nor AERA Act,2008 permits AERA to ‘put a cap upon capex’ or ‘they never permit AERA to ignore the actual capex incurred’ and to allow only notional and imaginary capex.

402. We have considered AERA’s submission that a certificate issued by statutory auditors is evidence of accounting entry and incurrence, but does not conclusively establish economic reasonableness. We accept that proposition as a matter of regulatory law.

403. It is trite law that an auditor’s certificate confirming that an expense was incurred and properly capitalized in accordance with accounting standards does not divest AERA of its statutory mandate to examine whether the expenditure was efficient and reasonable.

404. However, the record demonstrates that AERA examined the statutory auditor’s opinion and noted that the certificate provided itemized justification for the capitalization of each expense. Having recorded this, AERA did not identify a single expenditure entry as extravagant, unviable, duplicated, or unrelated to the approved expansion works. Hence, AERA found nothing deficient in any expenditure, yet proceeded to enforce a fixed financial cap.

405. It ought to be noted that the statutory power under Section 13(1)(a)(i) to test individual expenses for reasonableness cannot be expanded into an unbridled license to impose a pre-emptive ceiling on aggregate expenditure without conducting a line-item prudence review.

406. We are likewise unable to accept AERA’s contention that recognition of expenditure beyond ₹156 crore would necessarily result in unjust enrichment or double counting. The Guidelines themselves require payroll costs attributable to capital projects and the corresponding administrative and general expenses to be separately disclosed. AERA has also accepted that the responsibilities of the internal project team and those of the external PMC are distinct.

407. It bears repetition that Section 13(1)(a)(i) requires consideration of capital expenditure incurred, while the other factors in Section 13(1)(a), including efficiency and viable operation, continue to inform the tariff exercise. At true up, AERA may therefore require BIAL to establish the incurrence, capitalisation, project nexus and regulatory eligibility of every material component claimed.

408. It may exclude any amount which is unincurred, unrelated to the approved project, incorrectly capitalised, duplicated, already recognised under another regulatory head or otherwise shown on identifiable material to be inadmissible.

409. For the reasons recorded herein above, we quash and set aside the decision of AERA in paragraph 5.5.23 of the impugned order, in so far as it caps the pre operative expenses for the capital expenditure projects deferred from the Second Control Period to the Third Control Period at Rs. 156 crores. We direct AERA to consider the actual pre operative expenses incurred by the Appellant on those projects, on the basis of its audited financial statements and the certification of its statutory auditors, and to give effect to the result in the true up to be carried out in the determination of tariff for the Fourth Control Period.Issue No. XIV is accordingly answered in favour of the Appellant. ISSUE XV: Capping of design and Project Management Consultancy Cost for expansion works

410. The present issue concerns the decision of AERA to consider Design and Project Management Consultancy costs at 5% of the project cost for the Third Control Period. Ld. Senior Advocate for the Appellant has directed his challenge principally against paragraph 5.5.18 of the impugned tariff order, which reads as under: “5.5.18 The Authority has noted BIAL's request to consider the design and PMC cost as per its justification

provided in the true-up of the second control period. The Authority in the true-up of the Second Control Period had decided to allow design and PMC cost as 5% of the project cost based on the independent consultant's study . In line with the decision for the true-up of the Second Control Period, the Authority decides to consider the Design and PMC cost as 5% of the project cost for the Third Control Period.”

411. From bare perusal of the aforesaid paragraph, it can be seen that as per impugned tariff order, AERA has put a cap upon design and PMC cost at 5% of the project cost for 3rd Control Period which is under challenge in this AERA Appeal.

412. It ought to be seen that Consultation Paper No. 10 of 2021-22, at paragraph 5.2.41, proposed to allow five per cent of the project cost for design and Project Management Consultancy cost, and, in the very same paragraph, proposed to review and true up that cost after the project is commissioned and subject to its reasonableness. The impugned order, at paragraph 5.5.18, carries the five per cent figure forward but drops the true up altogether. The words review and true up, present in the proposal, do not appear in the decision. For ready reference Paragraph 5.2.41 reads as under: “5.2.41. The Authority has decided to allow 5% of the project cost for Design and PMC costs based on the independent study undertaken by RITES Limited in the Second Control Period order. The Authority proposes to consider 5% of the project cost for Design and PMC costs for the capital expenditure deferred from Second Control Period. The Authority proposes to review and true-up the design and PMC costs after the project is commissioned and subject to its reasonableness.”

413. In our view, it is evident that the Authority has not explained why a review it had proposed to conduct was silently abandoned between the consultation paper and the final order. It must be noted that Section 13(4)(c) of the AERA Act requires every decision of the Authority to be fully documented and explained. Since the decision of AERA rests substantially upon what it describes as an independent study undertaken by RITES Limited, it becomes necessary to examine that study itself.

414. The RITES report is annexed to the memo of this appeal as Annexure R-16 to the Rejoinder filed by BIAL and is dated January 2018 with titled being “Analysis of Capital Expenditure on Expansion of Bangalore International Airport (Terminal Building, Taxiway and Apron) for the Second Control Period (01/04/2016 to 31/03/2021)”.

415. We have examined the report of Rail India Technical and Economic Service Limited, upon which the Authority rests its five per cent figure. The report compared the Appellant's soft costs, including design and Project Management Consultancy costs, against projects at Jaipur International Airport, Chennai International Airport, Lokapriya Gopinath Bordoloi International Airport at Guwahati, Tiruchirappalli International Airport and Chaudhary Charan Singh Airport at Lucknow.

416. In our humble opinion, none of these projects, upon the material before us, involved the construction of a new runway or a scale of airside works comparable to the Appellant's own expansion, which includes a new runway and a second terminal.

417. We are of firm belief that a benchmark drawn from projects of a materially different scale and complexity does not become a reliable benchmark merely because it is contained in an expert report and a regulator that adopts such a benchmark in a manner of rubber stamping without examining whether the comparators are truly comparable has not brought an independent mind to bear upon the question.

418. From the record it is apparent that AERA has failed to test the comparators chosen by RITES against the scale of the Appellant's own works and a report that has not been so tested cannot be treated as conclusive of what a reasonable design and Project

Management Consultancy cost for this Appellant's expansion would be.

419. The Hon’ble Supreme Court of India in the case of Gastrade International versus Commissioner of Customs, Kandla, 2025 INSC 411, decided on 28.03.2025, has held that an expert opinion, however weighty, is not binding, and is subject to scrutiny where it suffers from shortcomings, ambiguity or a lack of clarity and such a report is not binding upon the court, and the court is expected to analyse the report, read it in conjunction with the other evidence on record, and then form its own conclusion, the relevant paragraph of the judgement reads as under: “56. Section 45 of the Evidence Act of 1872 deals with expert opinion, which reads as follows: “Section 45. Opinions of experts. When the Court has to form an opinion upon a point of foreign law, or of science or art, or as to identity of handwriting or finger impressions, the opinions upon that point of persons specially skilled in such foreign law, science or art, or in questions as to identity of handwriting or finger- impressions are relevant facts. Such persons are called experts

57. The opinion of the experts, however weighty they may be, are not binding on the court and is only relevant for the court to consider it to come to a final decision on any fact in issue. However, since courts are not experts in the discipline of science, they ordinarily accept the scientific report and act upon it. But where the expert opinion suffers from certain shortcomings or ambiguities, lack of clarity, or inadequacy it would be subject to judicial scrutiny and it would not be safe to rely wholly on the same under such circumstances.

59. This Court in State of H.P. v. Jai Lal, (1999) 7 SCC 280 observed that the credibility of expert witness depends on the reasons stated in support of his conclusions and the data and material furnished which form the basis of his conclusions. It was thus observed as follows: “18. An expert is not a witness of fact. His evidence is really of an advisory character. The duty of an expert witness is to furnish the Judge with the necessary scientific criteria for testing the accuracy of the conclusions so as to enable the Judge to form his independent judgment by the application of this criteria to the facts proved by the evidence of the case. The scientific opinion evidence, if intelligible, convincing and tested becomes a factor and often an important factor for consideration along with the other evidence of the case. The credibility of such a witness depends on the reasons stated in support of his conclusions and the data and material furnished which form the basis of his conclusions” (emphasis added)

60. This Court in Dayal Singh v. State of Uttaranchal, (2012) 8 SCC 263 reiterated the aforesaid view. It was also observed that the essential principle governing expert evidence is that the expert is not only to rovide reasons to support his opinion but the result should be directly demonstrable. Thus, if the report of an expert is slipshod, inadequate or cryptic and the information of similarities or dissimilarities is not available in his report and his evidence in the case, then his opinion is of no use. It was reiterated that the purpose of an expert opinion is primarily to assist the court in arriving at the final conclusion. Such report is not binding upon the court. The court is expected to analyse the report, read it in conjunction with the other evidence on record, and then form its final opinion as to whether such report is worthy of reliance or not. It was thus observed as follows: “35. This brings us to an ancillary issue as to how the Court would appreciate the evidence in such cases………………. The courts, normally, look at expert evidence with a greater sense of acceptability, but it is equally true that the courts are not absolutely guided by the report of the experts, especially if such reports are perfunctory, unsustainable and are the result of a deliberate attempt to misdirect the prosecution………… xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

39. The Indian law on expert evidence does not proceed on any significantly different footing. The skill and experience of an expert is the ethos of his opinion, which itself should be reasoned and convincing. Not to say that no other view would be possible, but if the view of the expert has to find due weightage in the mind of the court, it has to be well authored and convincing. ………………..

40. We really need not reiterate various judgments which have taken the view that the purpose of an expert opinion is primarily to assist the court in arriving at a final conclusion. Such report is not binding upon the court. The court is expected to analyse the report, read it in conjunction with the other evidence on record and then form its final opinion as to whether such report is worthy of reliance or not………………….”

420. We apply that principle here by analogy, since a regulator's reliance upon a consultant's report stands upon no firmer footing than a court's reliance upon an expert witness. AERA does not appear to have applied its own independent mind to the RITES report.

421. AERA has not considered the objections raised by the Appellant to the report specifically contained in MYTP dated 24.07.2020 annexed as Annexure A-8 to the Memo of this Appeal and specifically looking to pages 1210 to 1213 of Vol VI . AERA has not considered the fact that the comparators are not comparable. The submission of AERA that the report furnishes a sufficient basis for the cap cannot be accepted.

422. This Tribunal, in the case of Delhi International Airport Limited versus AERA, being AERA Appeal No. 1 of 2021, judgment dated 21.07.2023, under 165(f), has held as under.

“165…(f) As per Section 13 (1)(a)(i) of the AERA Act, 2008, it was a power coupled with a duty vested in AERA to determine the tariff for the aeronautical services taking into consideration, “the capital expenditure incurred and timely investment in the improvement of airport facilities” which is on “actual basis” meaning thereby, if the actual capital expenditure is incurred by the appellant, the same has to be considered by AERA as per aforesaid provision of AERA Act and it cannot be so easily brushed and set aside by AERA under the guise of “the efficient cost”;

423. AERA ought to have appreciated that Section 13(1)(a)(i) requires AERA, while determining tariff for aeronautical services, to take into consideration the capital expenditure incurred and timely investment in improvement of airport facilities. Design and PMC expenditure, to the extent properly attributable to creation of the approved capital assets, forms part of the capital expenditure required for execution of such projects.

424. Moreover, this Tribunal, in the case of Hyderabad International Airport Limited versus AERA, being AERA Appeal No. 4 of 2021, judgment dated 14.02.2024, under paragraphs 380 and 381, has held that AERA lacks jurisdiction to intervene in capital expenditure decisions in the absence of irregularity, fraud or malice, and cannot rely upon a notional or

estimated price when the actual price is available, and the same reads as under: “380. In the absence of any claims of procedural irregularities, fraudulent conduct, or malicious intent, AERA lacks the jurisdiction to intervene in the capital expenditure decisions made for this significant expansion project. It is beyond AERA’s scope to revise or override a legally sound and valid contract between HIAL and the foremost successful bidder. Consequently, this Tribunal does not uphold the arguments presented by the counsels for respondent no.1 and respondent no.2 seeking the disallowance of a portion of the capital expenditure incurred by HIAL for the enhancement project designed to expand the capacity of RGIA, Hyderabad to 34 MPPA.

381. Looking to the Section 13(1)(a)(i) of AERA Act, 2008, AERA cannot rely on any notional or estimated price when the actual price is available for the expansion project in question. AERA has relied upon estimated cost for the project in question given by the consultant – RITES - appointed by AERA, ignoring the actual “Market Discovered Price” (MDP) arrived at through competitive bidding process.”

425. As stated hereinabove, as per the provisions of AERA Act especially Section 13 (1) (a) (i), capex actually incurred should have been considered by AERA while determining tariff.

426. pronouncements we hereby quash and set aside the decision of AERA for putting a cap upon design and PMC Cost for expansion works undertaken by the appellant. We, therefore, direct AERA to consider actual cost incurred by Airport Operator towards design and PMC costs for expansion work based on audited financial statements in true up of 3rd Control Period and 4th Control Period tariff orders. Issue No. XV is accordingly answered in favour of the Appellant. ISSUE XVI. Consideration of Depreciation

427. The challenge under this issue concerns the manner in which the Authority has determined depreciation for the Second Control Period at the stage of true up and for the Third Control Period. They relate to the useful life of Plant and Machinery, the useful life of the Canopy, New Project Office and Nursery, the useful life of the existing Runway and Taxiway, the treatment of the top layer of the Runway, and the methodology for determining aeronautical depreciation.

428. Before we begin to examine each head individually, it is pertinent to denote that depreciation necessarily proceeds upon identification of the asset or component, its prescribed or technically established useful life, and its regulatory classification. In fact, Order No. 35/2017-18, which is annexed as Annexure R- 18 & 41 to the rejoinder of this appeal itself recognises this distinction. A. Plant and Machinery

429. As per third control period tariff order dated 28th August, 2021 (Annexure A1) of AERA especially looking to paragraph 3.6.29 thereof has considered useful life for plant and machinery as 15 years for true-up for second control period. For the ready reference, paragraph 3.6.29(a) of the impugned order reads as under: “3.6.29 The Authority has carefully examined comments from BIAL, FIH, Siemens, MIAL and APAO on the true-up of the depreciation of SCP and have given its analysis and decision below:

a) Asset Class - Plant and Machinery (Aerobridges, Airport Communication, Baggage Handling, Escalators/ Elevators, HVAC Equipment, Other Airport Equipment and Security/ Safety Equipment):

The Authority has given its detailed reasoning for considering the useful life of 7.5 years for these assets in para 3.6.6 of the Consultation Paper no. 10/2021-22 for BIAL. The Authority would clarity to BIAL that the amendment no. I to the Order no. 35/ 2017-18 dated

9th April 2018 provided the clarity that the airport operators can adopt extra shift depreciation subject to consideration of the technical justification to the satisfaction of the Authority. The Authority has evaluated the submission of the addendum to the technical evaluation for considering the lower useful life for these assets. Below are extracts from the technical evaluation report:

"Item-wise explanation for having reckoned Useful Life of Equipments as 7.5years is given below:

I. Baggage Handling System. Passenger Boarding Bridges. Escalators, Elevators, Travellators, HVAC etc.

Unlike other industries. these systems/equipments in a busy airport which works get loaded/unloaded continuously for 365 days. Also, these systems/equipments undergo very frequent ONOFF cycles resulting in the reduction of useful life.

2. Baggage Handling System (BHS) are more than a simple mechanical system and are built along with a complex SCADA (Supervisory Control and Data Acquisition) system to move the passenger baggage/bags from check-in to aircraft baggage trolleys and during this process, pass through Screening System, Diverters. Position Sensors at multiple levels. A complex baggage system comprises of more than 100 smaller segments and many 0/the sections operate in different speed controlled through the SCADA system. As such, the life gets reduced compare to a conventional and more predictable manufacturing/process systems. Due to faster technology improvements/changes the SCADA operating system gets redundant sooner and needs to be upgraded/replaced due to global/local regulation changes. Reckoning the above factor s, the baggage handling system can be qualified for lesser Use/iii Life and also supported by AERA amendment No. I to order number 35 clause 2.7.1

3. Equipments such as Passenger Boarding Bridges, during operation are extended, retracted raised lowered, Swiveled to connect the bridge to various types of aircrafts and are also exposed to various open weather conditions.

4. Equipments such as Escalators. Elevators and Travellators are used continuously or 24 hours in busy airports. Hence serviceability and safety compliance requirements are exclusively)' high since these are exclusively used by airport personnel/passengers.

5. VDCS (Visual Docking Guidance System) which helps safe docking of aircraft to stands are installed in "open to sky " environment. These systems are operating with Laser technology and in severe weather conditions, they deteriorate/aster and as such with Electronic circuits playing a major role have a useful life of not greater than 7.5 y ears.

6. Automatic sliding doors: There are multiple automatic sliding doors installed at the Departure Entrance, Boarding gates and Arrival entry/exit. These doors operate continuously based on people movement and is subject to heavy number of ON- OFF cycles. which deteriorates the normal design life of the equipment.

Managements strategic ally assess the investment in capital expenditures for acquisitions, along with ancillary costs and the costs associated with the repair and maintenance requirements of those assets while they are in service. For this reason, determining accurate costs using an LCC (Life Cycle Costing) approach is critical. In the Airport's case. this is necessary to safely and cost-effectively accommodate the growing number of passengers with the efficiency that passengers expect. The airports must manage risk since the failure of older assets car, pose a danger to travelers, airport Personnel and visitors.

It may also be noted that sometimes new technology is likely to render these e running equipments obsolete much before the scheduled useful life as reckoned. Hence to avoid risks of spares availability and drop in efficiency, these equipments will need to replaced much earlier.

In view of all the above and considering that the process of determining the useful life of the equipment is permitted to be reduced for 2/3 shift operation, it is recommended that, the useful life of Electromechanical equipment working in the airports to be determined at 7.5 years instead of 15 years.

Order 35 provides for specific determination of life through technical evaluation for specific assets other than those listed in the Order based on specific requirement of the Airport. The Authority notes from the above technical evaluation that the shorter life is proposed by the airport operator for the assets under Plant and Equipment which are already included in the order and therefore, these are not new equipment for specific requirement of the airport. The Authority has also noted that BIAL has requested for a usefuI life of 7.5 years for some of the items, yet many of them still continue to be in operation even after 7.5 years. Therefore, the Authority does not find any merit in reducing the useful life of such assets.”

430. Moreover, for third control period, AERA has decided useful life for plant and machinery, aero bridges, airport communication, baggage handling, escalators, elevators, HVAC equipment, other airport equipment and security safety equipment, as revised from 7.5 years to 15 years.

431. Learned Senior Counsel, Mr. Sajan Povayya appearing on behalf of appellant, has drawn our attention to AERA's order No.35/2017-18 dated 12th January, 2018, as amended by Amendment No.1/2017-18 dated 9th April 2018, of useful life, asset category, which is one of the guiding principles of AERA's tariff determination methodology (Annexure R41 to the memo of rejoinder).

432. Looking to this Annexure R41, which is the amendment No. 01 dated 09.04.2018 to AERA Order No. 35/2017-18 dated 12.01.2018, it appears that Clause 2.5 and Clause 2.7.1 are relevant for the purpose of determination of issue raised in the present AERA appeal and said clauses reads as under:

“2.5. The Authority notes that certain Plant & Machinery in certain very large Airports / Airports with higher volume of operations would need to be running continuously or run extra shifts. Accordingly, appropriate considerations as detailed in aforementioned pronouncements should be factored and given effect to. 2.7.1 Useful lives of Plant & Machinery iş determined as 15 years. In case the airport operator wants the useful life to be lower due to extra shift operations, it will be considered based on technical justification to the satisfaction of the Authority."

433. In view of the aforesaid order issued by AERA, the present appellant carried out technical assessment and the appellant had technical report dated 12th April, 2018 by Chartered Engineer and detailed justification was provided (Annexure R19 to the memo of rejoinder affidavit). This technical assessment was submitted to AERA during tariff determination process of second control period as well as tariff determination process of third control period.

434. In view of the full set provisions of useful life of assets years passed by AERA, (Annexure R-41), and looking into the technical assessment report of the Chartered Engineer (Annexure R-19), it appears that AERA has to consider the same. AERA cannot brush aside the technical assessment report at (Annexure R-19). “Useful life of Assets Order” provides 15 years’ life, but it is

mere indication and not a gospel truth about the life of assets at the airport. If lesser useful life is prescribed by the airport operator along with the technical report by Chartered Engineer, the said report must have been considered by AERA and if AERA is accepting the said report of lesser useful life, then reasons ought to have been given by AERA for rejecting the technical reasons given by the Airport Operator, this mandatory requirement is reinforced by Section 13(4) of the AERA Act, 2008, which obliges AERA to ensure transparency and, inter alia, to make its decisions fully documented and explained.

435. In the facts of the present case, AERA has never given any notice to the airport operator that why AERA is not accepting the technical report of useful life of the assets, which is given by the Chartered Engineer in Annexure R19, is not accepted by AERA. AERA cannot ignore the technical report given by the Chartered Engineer in view of useful life of assets order issued by AERA in Annexure R41.

436. It has been held by this Tribunal in Mangaluru International Airport Ltd. Vs. AERA in AERA Appeal No.1 of 2023 dated 11.09.2025, paragraphs 289 to 296, which reads as under:

“289. AERA has decided to make an adjustment in depreciation on account of change in Useful Life and revision in asset addition whereby AERA had considered depreciation for Mangaluru Airport for First Control Period at Rs.130.96 Crores as against Rs.239.51 Crores as proposed by the appellant. The Respondent No.1- AERA has relied upon Order No.35/2017-18 dated 12.01.2018 as amended by AERA regarding determination of Useful Life of the Airports (Useful Life of Asset Order).

290. Looking to the Useful Life of Asset Order, it is mentioned, if the period of Useful Life of Asset is considered differently, the Airport Operator shall document the same and provide the reasons/justifications and basis for period considered in determination of Useful Life of Asset for purpose of tariff determination which shall be examined and considered by the Authority.

291. The aforesaid aspect of the matter which is mentioned in “useful life of assets order” has not been properly appreciated by AERA.

292. The appellant has provided a detailed report, document, justification and reasons by way of an independent expert report. “Technical report of Useful Life of Assets has already been submitted by the Airport Operator” which is a technical report with reasons and justifications as to why the shorter life-span should not be considered. This report provided by airport operator is absolutely in consonance with “useful life of assets order passed by AERA” and as stated hereinabove, if the Airport Operator canvassing the shorter life of the assets for the purpose of tariff determination, the same should have been documented and reasons and justifications should have been given and in that eventuality, AERA shall examine the same while considering the same. In the facts of the present case, when Airport Operator has presented a detailed technical study and has given detailed reasons and justifications for shorter useful life of assets, the purpose of justification has neither been considered nor has been examined by AERA.

293. Thus, AERA has committed violation of “useful life of assets order”.

294. It ought to be kept in mind that the Useful Life of Assets Order prescribes the life of assets as guidelines only. In case, if the Airport Operator gives any document or provides reasons for justification and basis for shorter useful life of assets then what is mentioned in the “Useful Life of Asset Order”, in that eventuality, AERA is bound to examine and consider the same. The life span of the assets mentioned in “useful life of assets order” is not conclusive or a gospel truth, it is just an indication and nothing beyond it. If the Airport Operator is not treating shorter life-span of their assets as what is mentioned in the “useful life of assets order”, then in that eventuality, the life span of the assets mentioned in “useful life of assets order” shall be accepted as it is. Thus, whenever any Airport Operator is claiming shorter life span than what is mentioned in “useful life of assets order” then in that eventuality the Airport Operator shall submit the documents and provide reasons, justification and basis for shorter life span and AERA is bound to examine and consider the same and without any analysis of the report submitted by Airport Operator, it cannot be brushed aside or overlooked nor can it be rejected without any reasoning. Meaning thereby to, such justifications/reasons and the basis supplied by Airport Operator ought to be examined and considered by AERA and if the same is to be rejected, AERA should give reasons for rejecting and not accepting the justification/basis supplied by Airport Operator.

295. AERA has failed to acknowledge that increase in depreciation will result in decrease of RAB and accordingly the return on RAB as sought by the appellant is adjusted to the said extent. Thus, the statement made by AERA with respect to “shorter useful life of the asset would increase the per year rate of depreciation of the airport assets and would result in higher amount of Depreciation (D) to be added in ARR formula” is incorrect as on one hand, there will be increase in depreciation and on the other hand, there will be decrease in return on RAB.

296. In the facts of the present case, the reasons, justifications and with basis for claiming shorter life span than what is mentioned in “useful life of assets order” have been given by AO in the form of Report. This report is not appreciated at all by AERA. No reasons have been given by AERA for rejecting the said report. The report was given by “Kanti Karamsey and Co. (Govt. registered valuers)”. This report cannot be brushed aside by AERA without any reason. We therefore quash and set aside decision of AERA for mechanically following “useful life of assets order” No.35/2017-18 dated 12.01.2018 amended from time to time for determination of depreciation.”

437. The approach AERA has adopted in the present case, of reciting the existence of a technical report without engaging with its contents, and of treating the continued physical operation of an asset beyond its claimed useful life as though this were, by itself, an answer to the report.

438. It is worth noting that useful life, for the purpose of depreciation, is an accounting and a regulatory construct, which has to be measured for the period over which an asset is expected to be economically used in the ordinary course, and is distinct from the outer limit of an asset's physical survival. An asset that continues to function after its useful life has expired, whether through additional maintenance, reduced efficiency or simple good fortune, does not thereby demonstrate that its useful life was wrongly assessed, any more than a person who lives beyond the actuarial life expectancy for their age demonstrates that actuarial tables are wrong.

439. The Hon’ble Supreme Court has held in Delhi Electricity Regulatory Commission Vs. BSES Yamuna Power Limited, (2007) 3 SCC 33, at paragraph 43, that the basic object of providing depreciation is to allocate the amount of depreciation of an asset over its useful life and not its actual life. For ready reference Paragraph 43 reads as under: “43. Before concluding, we may state that the basic object of providing depreciation is to allocate the amount of depreciation of an asset over its useful life and not actual life so as to exhibit a true and fair view of the financial statements of an enterprise. Useful life is a period over which a depreciable asset is expected to be used. Useful life of an asset in a capital intensive industry is generally shorter than its physical life. Useful life is predetermined by contractual limits or by amount of extraction or consumption dependent on the extent of use and physical deterioration on account of wear and tear which depends on operational factors such as the number of shifts, repair and maintenance policy of the utility and reduced by obsolescence arising from technological changes, improvement in production methods, etc. In the present case, DERC has not considered the difference between the physical life of an asset and the useful life of the asset.”

440. AERA's stated reason for rejecting the technical report, that many of the assets continue to operate beyond seven and a half years, does not engage with the report at all, and is not a reason within the meaning of Clause 2.7.1 of the Useful Life of Assets Order, which requires that a shorter life be considered upon technical justification, not accepted or refused upon the coincidence of continued physical survival.

441. AERA had taken a decision to consider useful life of plant and machinery at 7.5 years for second control period. Now when the time of true-up is coming, AERA cannot change its decision. Time to give true-up is always given in next control period. Truing-up is not the stage where any new principle, methodology can be adopted by AERA nor AERA can do denovo re-determine or modify principles, premises and issues involved in the initial projections of ARR.

442. While truing-up, AERA has to undertake only financial true-up, or in other words, adjusted calculation based on the principles already applied. Not to give true-up in next control period after deciding to give a true-up in a previous tariff control period order, tantamount to modification, alteration or re-revising the decision of tariff order of earlier control periods. This is not permissible in the eye of law. Once operating year is passed for the earlier tariff control period, it cannot be altered or modified while passing the next control period tariff order.

443. It has been held by Hon'ble the Supreme Court of India in BSES Rajdhani Power Limited Vs. DERC reported in

(2023) 4 SCC 788 in paragraph 55 and 56, which reads as under: “55. "Truing up" has been held by APTEL in State Load Dispatch Centre v. Gujarat Electricity Regulatory Commission to mean the adjustment of actual amounts incurred by the licensee against the estimated/projected amounts determined under the ARR. Concept of "truing up" has been dealt with in much detail by APTEL in its judgment in North Delhi Power Ltd. v. Delhi Electricity Regulatory Commission® wherein it was held as under: (North Delhi Power case®, SCC OnLine APTEL para 60)

60. Before parting with the judgment we are constrained to remark that the Commission has not properly understood the concept of truing up. While considering the Tariff Petition of the utility the Commission has to reasonably anticipate the Revenue required by a particular utility and such assessment should be based on practical considerations. ...The truing up exercise is meant (sic) to fill the gap between the actual expenses at the end of the year and anticipated expenses in the beginning of the year. When the utility gives its own statement of anticipated expenditure, the Commission has to accept the same except where the Commission has reasons to differ with the statement of the utility and records reasons thereof or where the Commission is able to suggest some method of reducing the anticipated expenditure. This process of restricting the

claim of the utility by not allowing the reasonably anticipated expenditure and offering to do the needful in the truing up exercise is not prudence."

56. This view has been consistently followed by APTEL in its subsequent judgments and we are in complete agreement with the above view of APTEL. In our opinion, "truing up" stage is not an opportunity for the DERC to rethink de novo on the basic principles, premises and issues involved in the initial projections of the revenue requirement of the licensee. "Truing up" exercise cannot be done to retrospectively change the methodology/principles of tariff determination and reopening the original tariff determination order thereby setting the tariff determination process to a naught at "true- up” stage.”

444. In view of the aforesaid facts and also looking to the fact that AERA has never given any reason for not accepting the technical report submitted by the Airport Operator for useful life of 7.5 years. In these circumstances AERA ought to have accepted useful life of 7.5 years instead of prescribed 15 years for third control period. AERA has mechanically followed Useful Life Order dated 9th April, 2018 (Annexure R-41), without appreciating the fact that there is a provision that there can be useful life which may be shorter than what is prescribed, but, in that eventuality airport operator shall supply the technical report.

445. In the facts of the present case, the airport operator- appellant, is claiming useful life as 7.5 years instead of 15 years for which technical assessment was carried out and the report was also submitted (Annexure R-19), dated 12th April, 2018, which was never denied by AERA, which was never controverted by AERA, for which notice/ communication given by AERA to the appellant that why AERA is not accepting (Annexure A-19) technical report submitted by the airport operator.

446. In fact, useful life order issued by AERA, which is an order 35/2017-18, amended as Amendment No.1 of 2017-18, dated 9th April, 2018 (Annexure R41), is just an indication of useful life. The figures of useful life mentioned in the order number 35/2017- 18 is not a final one. Airport operator can always claim useful life shorter than what is prescribed. This aspect of the matter is not being properly appreciated by AERA. Hence, we hereby quash and set aside the decision of AERA given in paragraph number 3.6.29 and in paragraph number 5.2.99 of the impugned tariff order (Annexure A1). We, hereby direct AERA to consider useful life for plant and machinery as 7.5 years for the second control period and third control period and for that purpose true-up shall be given by AERA.

B. Canopy, New Project Office and Nursery

447. As per the impugned tariff order, paragraph 3.6.29(b), AERA has considered the useful life of canopy, new project office and nursery as 30 years at par with building asset class. For ready reference Paragraph 3.2.29 (b) reads as under: “b) Asset class - Buildings: The Authority has noted the technical justification submitted by BIAL in relation to useful life of Canopy, New Project office and Nursery. Below are extracts from the technical evaluation report: "As regards to buildings/items like canopy. New Project Office. Nursery etc are not general buildings/items. Apart from their design and sustenance to the required cause of operatable on temporary nature and constructed in areas meant for future development as per Master plan, the material used for construction also temporary in nature to reduce the cost of construction of these temporary structures.” The Authority is of the view that the canopy is part of the building and therefore, it cannot have a separate useful life than the building's useful life of 30 years. Further. New Project Office and Nursery forms part of the building asset class and therefore, their useful life is also considered as 30 years.”

448. In paragraph 3.6.29(b) of the impugned order, AERA has treated these assets as part of the building asset class and has consequently applied the useful life associated with buildings and the appellant, on the other hand, has relied upon the technical assessment carried out in respect of these assets and has claimed separate useful lives, namely 9 years for the Canopy, 10 years for the New Project Office and 10 years for the Nursery.

449. Looking to Annexure R41, airport operator – appellant- BIAL had submitted a detailed project assessment report and has claimed useful life for canopy, new project office, and nursery. This technical report has been submitted in pursuance of AERA's order No.35/2017-18 by Amendment No.1/2017-18 dated 9th April, 2018 (Annexure R41).

450. Hence, here also technical assessment report submitted to AERA was accepted by AERA for second control tariff order. AERA has failed to appreciate the shorter life of the assets as the airport that with the help of technical assessment report dated 12th April 2018 (Annexure R19).

451. Looking to paragraph 10.1.5 and 10.2.3 of the Tariff Order for Second Control Period (Annexure A6), this technical assessment submitted by BIAL has been accepted by AERA in second control tariff order for third control period as well. The technical assessment was submitted by BIAL to AERA. For ready reference Paragraph 10.1.5 and 10.2.3 reads as under:

“10.1.5 BIAL had, on 25th April 2018 and 27th April 2018 submitted the computations relating to Extra shift depreciation and impact of changes to useful life in line with Authority's Order No. 35/ 2017-18. "...KIA is a fast-growing airport and has witnessed rapid passenger growth and high air traffic movement. Airport specific equipment such as aero bridges, baggage handling system, escalators, elevators, travellite, HVAC equipments, cargo ASRS, ETV Equipment, X Ray machine, RT set, DFMD, HHMD, security equipment are continuously used and need maintenance. Being used in triple shift, these equipments undergo wear and tear and this reduces their useful life. BIAL wishes to submit that it would adopt lower useful life for certain assets used 24/7 on triple shift based on technical justification. Based on the above AERA Order and technical evaluation done, summary of changes in useful life of assets, and one- time impact to opening reserves are summarised in below table...." xxx 10.2.3 The Authority noted that in certain cases, BIAL had projected a higher useful life and in certain cases BIAL had projected a lower useful life as compared to Order No. 35. The Authority noted that BIAL had submitted its estimate regarding the same as detailed in Para 10.1.6 above. The Authority noted that this estimate included a charge for assets where useful life had ended and extra shift depreciation for certain asset categories. The Authority also noted that BIAL had considered useful life of 20 years for Runway and Taxiway along with considering certain unique assets at specific rates, which needed to be technically justified. The Authority proposed to consider the estimates as provide by BIAL

for the purpose of considering depreciation and Average RAB for the consultation paper. The Authority asked BIAL to submit the complete calculations and relevant technical justifications and details for Authority's review, which would be evaluated and considered at the time of Order.”

452. However, in the impugned order, at the time of giving true-up of second control period, AERA has revised the useful life for canopy, new project office and nursery. This is not permissible. Moreover, for third control period, AERA has considered useful life of its own, ignoring technical assessment report at Annexure R19. Never any reasons have been given by AERA that why AERA is not accepting the technical report submitted by BIAL, because useful life prescribed in AERA's order No.35/2017-18, as amended by Amendment No.2017-18 dated 9th April, 2018, is mere indication of useful life.

453. There can be shorter useful life for several items at the airport. If airport operator is claiming any shorter life than what is prescribed by AERA in order 35/2017-18, then, in that eventuality, separate assessment order ought to have been supplied. In the facts of the present case, airport operator - appellant, has claimed the shorter useful life for canopy, new project office and nursery for which technical assessment report has already been submitted to AERA during second control period and third control period tariff determination process, which has been thoroughly ignored by AERA.

454. The technical assessment report submitted by airport operator for claiming shorter useful life for certain items at the airport, the same cannot be brushed aside without giving any reasons by AERA. “Read and Rejected” approach followed by AERA is not permissible. Reasons must have been given by AERA as to why AERA is not accepting the technical report for shorter useful life than what is prescribed in AERA in AERA’s order number 35/2017-

18.

455. It is pertinent to refer to Note 7 to Annexure 1 of Order No. 35/2017-18 (R-41), which in our view has assumed importance in this regard. It recognises that specific assets, other than those expressly listed in the Order, may be created at different airports on account of airport-specific requirements and that such assets are required to be individually evaluated technically for determination of their useful life. For ready reference relevant part of Annexure R-41 on Pages 4789-90 reads as under: Annexure - I

USEFUL LIFE OF ASSETS (Effective from 01.04.2018)

S. No. Asset Category Useful Life (in Yrs) Depreciation Rate (%) Remarks

Cost of Land Acquisition — No depreciation To be added to Land cost in the Owner's books

Land Development Cost — — Own Land — To be added to Land cost. Leased Land — Cost to be amortised over the lease period (See Note 6)

Terminal Building (including VIP Terminal, Bus Terminal, Haj Terminal)

3.33 / 1.67 Either 30 years or 60 years as evaluated by the Airport Operator

Building in Operational Area

3.33 / 1.67

Utility Building 30 / 60 3.33 / 1.67

Commercial Building — — Not Part of RAB. Depreciation can be accounted in books as per useful life determined by the Airport Operator

Cargo Complex

3.33 / 1.67 As per Companies Act

Residential Building

3.33 / 1.67 As per Companies Act

Main Access Roads, Roads in Operational area, Boundary wall, Security fencing

As per Companies Act

Baggage Handling System / Escalators / Elevators / Travellator / HVAC Equipments / Cargo ASRS / ETV Equipment

6.67 As per Companies Act

X-Ray Machine, RT Set, DFMD, HHMD, Security Equipment

6.67 As per Companies Act

Office Equipment

As per Companies Act

Furniture & Fixtures — Other than trolleys

14.29

Furniture & Fixtures — Trolleys

33.33

Cargo Equipment, Dollies, PPT

6.67 As per Companies Act

Computers — End User Devices

33.33 For items as defined under Companies Act

Computers — Servers and Networks

16.67 As per Companies Act

CUTE Equipment

16.67

Electrical Installation and Equipments — Electrical fittings, including Runway lighting system, Gen- set / Power Equipment

As per Companies Act

Flight Information System, AOCC Equipment

As per Companies Act

Light Motor Vehicles and Heavy Motor Vehicles

12.50 As per Companies Act

Crash Fire Tenders, Other Fire Equipment including Pumps, Sprinklers

6.67 As per Companies Act

Intangible assets — — — As per useful lives estimated by the

Computer Software Airport Operator supported by Technical Justifications

Runway, Taxiway, Apron

3.33 Extension of Runway: Cost to be kept separately. Depreciation to be charged on the useful life of the extended area. Upgradation of the Runway: The cost should be depreciated over the balance period of the useful life of the existing runway. Resurfacing of Runway: The cost of resurfacing of runway leading to restoration of original PCN value would be amortized over 05 years for the purpose of Tariff computations, while accounting of such costs could be done on the basis of applicable accounting principles and standards. (Also Refer Note 5)

Hangar

3.33 / 1.67 As per Companies Act

Notes:

1. The above rates shall be effective from Accounting periods commencing on / after 1st April 2018.

2. From the date this Schedule comes into effect, the book value of the asset as on that date (a) shall be depreciated over the remaining useful life of the asset as per this Schedule; (b) after retaining the residual value, shall be recognised in the opening balance of retained earnings where the remaining useful life of an asset is nil.

3. Useful life specified is for whole of the asset. Where cost of a part of the asset is significant to total cost of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part shall be determined separately.

4. Where assets are developed/ constructed/ put to use, they should be depreciated over the available lease period or the useful life prescribed, whichever is less. Value to be depreciated should be determined after reducing any asset realisation value that the Operator may get, when the lease is surrendered. For the purpose of identifying the balance useful life, balance period remaining out of the initial lease period plus the first extension at the option of the Operator should be considered, unless confirmed decision for non-renewal of lease is taken and recorded by the Airport Operator.

5. Runway/ Taxiway - If there is a different rate adopted by the Airport Operator, between 20 to 30 years, the same should be justified and backed up by suitable technical certification which will be critically examined by the Authority and a view taken on the same.

6. Land Development Costs - Separate cost may not be available in the financial records, for all such past works carried out in the past which have been already capitalised as of the date of the Order and hence this will be applicable for all capitalisations to be done from the effective date of this Order.

7. Specific assets, other than those listed above, could be created in different airports, based on the specific requirements. Such specific assets would have to be individually evaluated technically for its useful life and depreciated for which technical justification should be submitted to the Authority.

8. For assets not forming part of RAB, depreciation shall be charged based on Companies Act/ Technical evaluation of useful lives.

9. The Depreciation rate shall be applied on Straight Line Method.”

456. The very object of Note 7 is to ensure that specialised airport assets which do not appropriately fall within the standard categories are not mechanically assigned the useful life applicable to a generic asset class. The determination must depend upon the nature of the asset, its function, its intended period of use and the technical justification placed before AERA.

457. AERA ought to be mindful of the fact that merely because an asset possesses a structural element does not necessarily make it a "building" for the purpose of determining depreciation. The regulatory classification must have regard to the actual character and intended function of the asset.

458. Insofar as the New Project Office is concerned, the appellant has specifically contended that the structure was created for execution of major expansion projects including Terminal 2 and the second runway and that it is not intended to form part of the permanent airport infrastructure. The material placed before AERA was therefore required to be examined from the standpoint of the intended period of use of that particular asset rather than merely from the standpoint of the physical durability of the structure.

459. Similarly, the Nursery was stated to have been established for procuring, maintaining and acclimatising plants required for Terminal 2. Its functional character is therefore materially different from that of a permanent terminal building or other permanent civil structure.

460. The Canopy also required an asset-specific examination. The appellant had specifically placed reliance upon its structural composition and operational function and had contended that it was a standalone asset and not an integral part of a conventional RCC building.

461. In such circumstances, the issue before AERA was not whether the said structures could physically survive for a longer period, but whether, having regard to their intended use and technical characteristics, they were appropriately classifiable as buildings for the purpose of determination of depreciation.

462. Once BIAL had furnished a technical assessment in accordance with the very mechanism contemplated under Order No. 35/2017-18, AERA was required to examine and deal with the said assessment. A general observation that the assets belonged to the building category could not substitute such examination.

463. We are, therefore, of the view that AERA was not justified in mechanically treating the Canopy, New Project Office and Nursery as assets having the useful life applicable to buildings without properly considering the technical assessment produced by BIAL.

464. Consequently, the determination of AERA on this aspect is set aside and AERA is directed to give effect to the technically assessed useful lives claimed by BIAL, namely 9 years for the

Canopy, 10 years for the New Project Office and 10 years for the Nursery, with consequential recomputation of depreciation. C. Existing Runway and Taxiway

465. The next controversy relates to the useful life of the existing runway in Paragraph No. 3.6.29 (c) of the Impugned Order. AERA has considered the useful life of the existing runway as 30 years whereas the appellant has claimed that the useful life should be taken as 20 years. For ready reference Paragraph No. 3.6.29 (c) of the Impugned Order reads as under: “c) Asset class - Runway and Taxiway- The Authority has noted BIAL's submission to consider the useful life of existing runway as 20 years instead of 30 years. The Authority has given the justification for change in the useful life of runway to 3O years in para 3.6.6 (c) of the Consultation paper no. 10/ 2021-22 for BIAL and para 10.6.4 of the SCP order for BIAL. The Authority finds no additional information from BIAL in its stakeholder comments to change its proposal in the Consultation Paper.”

466. It is noteworthy that Note 5 to Annexure 1 of Order No. 35/2017- 18 itself recognises that the useful life of a Runway/Taxiway may vary between 20 and 30 years and provides that where a different rate is adopted by the airport operator within the said range, the same should be supported by suitable technical certification and would be critically examined by AERA, which reads as under: “5. Runway/Taxiway- If there is different rate adopted by airport operator between 20 to 30 years, the same should be justified and backed up suitable technical clarification, which will be critically examined by the authority and the view taken on the same.”

467. In pursuance of the aforesaid provisions, technical report was given and proper justification was given for shorter useful life given for runway and taxiway, which was thoroughly ignored by AERA. Even as per study report of useful life and depreciation rates submitted by ICAI (II), Order No.35/ 2017-18, have also suggested that useful life of such structure can be between 20 to 30 years. Thus, even under AERA's own regulatory framework, 30 years is not an inflexible useful life applicable to every runway irrespective of its design characteristics. The Order itself recognises airport-specific technical assessment.

468. AERA has not properly appreciated this aspect of the matter, instead considered its own order No.35/2017-18, as amended from time to time, which provides that flexibility of choosing, there can be shorter useful life of runway between 20 to 30 years, based upon technical assessment.

469. BIAL has relied upon the technical assessment dated 12th April, 2018 as well as the provisions of the Concession Agreement. Clause 1.1.10 of Schedule 9, Part 1 of the Concession Agreement prescribes a design life of 20 years for the flexible pavement. It is true that "design life" and "useful life" are not necessarily synonymous expressions. Nevertheless, where AERA's own Order permits useful life between 20 and 30 years and requires consideration of technical material, the design life prescribed in the Concession Agreement constitutes a material and relevant consideration which cannot be ignored.

470. As BIAL has submitted the technical assessment and justification for considering lower useful life for existing runway and taxiway in response to the consultation paper. The said report is at Annexure R-19 dated 12th April, 2018 and without considering the same AERA has stated that no new facts/details were provided by BIAL at the time of consultation paper, whereas every detail has already given in response to the consultation paper by this appellant.

471. It is highly dangerous to brush aside technical report submitted by BIAL for lower or shorter life of existing runway. AERA should not have replaced its own subjective decision against technical

report. Runway is the crucial part of the airport. If the technical report says its life is 20 years, normally must have been accepted by AERA. Slight error in this assessment will lead to disastrous consequences. It has been observed in paragraph 1.1.10 of Schedule 9, Part 1, of Concession Agreement, which is at Annexure A-3 Pg. 803, which provides as under: “… The design life for the flexible pavement is 20 years.”

472. Moreover, Clause 2.6.17 of Annexure II of Order No. 35/2017- 18, “useful life would depend on design life planned at the time of consideration of pavement……”

473. In conspectus of above, as the appellant had also placed technical justification before AERA in support of the claim of 20 years. The regulatory decision was therefore required to examine the airport-specific design and technical material and determine whether the appellant had satisfactorily justified adoption of the lower end of the 20–30 year range.

474. A general proposition that runways at other airports have been assigned a useful life of 30 years cannot displace this exercise. Regulatory consistency is relevant only where the underlying technical circumstances are comparable. The very existence of a permitted range under Order No. 35 indicates that AERA itself did not proceed on the premise that every runway necessarily possesses an identical useful life.

475. We are also unable to accept that the technical report could be disregarded merely because an earlier tariff order had adopted a different useful life. The impugned determination for the Third Control Period was required to be supported on the material relevant to the determination in question, particularly where the appellant had expressly relied upon Order No. 35, the Concession Agreement and technical assessment.

476. The runway is undoubtedly one of the most critical elements of airport infrastructure. Precisely for that reason, determination of its useful life must be founded upon technical material rather than upon a broad assumption derived from the treatment accorded to runways at other airports.

477. In view of this all the reasons stated herein above, and the concession agreement prescribes design life of existing runway as 20 years. It ought to have been considered by AERA. In fact, AERA should have been “extremely slow” in changing useful life of existing runway within what's assessed by the assessment report given by the airport operator, based upon technical assessment and the reasons given therein vide report dated 2018, (Annexure R19).

478. We, therefore, quash and set aside the decision of AERA of considering useful life of existing runway as 30 years. We hereby direct AERA to accept useful life of existing runway as 20 years. D. Runway Top Layer

479. As per impugned tariff order dated 28th August, 2021 (Annexure A1), especially looking to paragraph 3.6.29(d), to the AERA has considered useful life of runway top layer as against the demand of appellant to consider the useful life of top layer of runway as five years. For ready reference, the paragraph 3.6.29(d) of the impugned order reads as under. “3.6.29 The Authority has carefully examined comments from BIAL, FIH, Siemens, MIAL and APAO on the true-up of the depreciation of SCP and have given its analysis and decision below: .. ..

d) Asset class - Runway lop layer - The Authority has noted BIAL's submission to consider the useful life of the runway top layer as 5 years instead of 30 years as considered by the Authority. Similar to the canopy assets, the runway top layer is also part of the runway asset and therefore, the Authority cannot have two different useful life for runway top layer and the runway. Accordingly, the Authority decides to consider the useful life of 30 years for runway top layer similar to the runway. Further, it may be noted that the resurfacing of top layer of the runway is allowed as R&M cost and amortized over 5 year period.”

480. Here also in pursuance of useful life order published by AERA, order No.35/2017-18, if airport operator is claiming lower or shorter useful life, the technical assessment report ought to have been supplied along with the reasons in the facts of the present case. BIAL has carried out technical report and the report of Chartered Engineer has also been submitted by BIAL, dated 12th April, 2018 (Annexure R9), and as per technical report submitted by BIAL, useful life of top layers of runway is claimed as five years.

481. This report has not been considered at all by AERA while passing the impugned order. No reasons have been given by AERA for rejection of the said report, and hence also the impugned order passed by AERA considering useful life of 30 years

482. In our considered opinion here also AERA should have been extremely slow in its own subjective decision against objective assessment given in the form of technical report by the chartered engineer (Annexure R19).

483. Even as per the Companies Act and Order No. 35/2017-18, Annexure R-41, the useful life of top layer of runway is five years. Despite this fact, AERA has ignored this provision and considered useful life of top layer of runway as 30 years. For the ready reference, Note 5 of Order No.35/2017-18, Annexure R-41 reads as under: “5. Runway/Taxiway- If there is different rate adopted by airport operator between 20 to 30 years, the same should be justified and backed up suitable technical clarification, which will be critically examined by the authority and the view taken on the same.”

484. It has been observed by AERA while considering the useful life of top layer of runway as 30 years, thus, the same asset cannot have two different useful lives. Therefore, claim of airport operator was brushed aside.

485. Looking to Schedule II of Companies Act, it provides for componentization of assets, where if significant component of an asset has a different useful life vis-a-vis the useful life of remaining part of assets, then the useful life of that significant part shall be determined separately, i.e. in an aircraft engine has a different useful life then furniture and seating etc. have different useful life. Here also top layer of the runway has to be paved repeatedly keeping the base of runway as it's for the longer time.

486. It is a fact that the top layer performs a distinct function and is subjected directly to continuous impact, friction and weather exposure. Its consumption and renewal pattern is therefore capable of being materially different from the structural pavement forming the underlying runway. We are therefore of the considered view that the runway top layer is capable of separate treatment for depreciation purposes and that the claim of a five-year useful life could not have been rejected on the reasoning adopted by AERA.

487. This aspect of the matter has not been properly appreciated by AERA. Lament type of reasoning has been given by AERA and that too in highly technical aspect about the runway and its top layer at the airport. In fact, AERA should have accepted the technical assessment report for such a highly sensitive part of the airport as it is, instead of substituting its own arbitrary decision of the useful life period. AERA has converted useful life of five years of the top layer of the runway as 30 years, which is absolutely arbitrary and whimsical.

488. Accordingly, the decision contained in paragraph 3.6.29(d) is quashed and set aside and AERA is directed to consider the useful life of the runway top layer as five years for depreciation purposes. It is, however, clarified that there shall be no double recovery. If expenditure on subsequent resurfacing has independently been admitted under the Repair and Maintenance head and amortised over five years, the same expenditure cannot again be recovered through depreciation of the capitalised asset. E. Computation of depreciation at individual-asset level

489. The final limb of Issue No. XVI concerns the methodology adopted by AERA for computing aeronautical depreciation. Under paragraph 3.6.29(h) of the impugned order, AERA has computed aeronautical depreciation by applying the aeronautical asset ratio instead of computing depreciation at the level of individual assets.

For ready reference paragraph 3.6.29(h) of the impugned order reads as under: “… (h) The Authority has noted BIAL's comment related to the application of the aeronautical proportion of RAB of a respective year to compute the aeronautical depreciation. The Authority is of the view that the aeronautical asset ratio captures the aeronautical to non-aeronautical bifurcation of assets and the same can be adopted for computation of the aeronautical and non-aeronautical depreciation for the Second Control Period. Further, the approach adopted by the Authority brings consistency to the aeronautical depreciation computation across airports.”

490. BIAL has placed on record a detailed Fixed Asset Register wherein individual assets are separately identified and classified as aeronautical assets, non-aeronautical assets or common assets. According to the appellant, the depreciation attributable to aeronautical activities can therefore be directly determined for identifiable aeronautical assets, whereas only depreciation relating to common assets requires allocation in the appropriate aeronautical ratio.

491. AERA has justified its methodology on the ground that the aeronautical asset ratio captures the aeronautical and non- aeronautical bifurcation of the assets and that use of such ratio also provides consistency in depreciation computation across airports.

492. AERA's own order records that the aeronautical asset ratio is a proxy, described as capturing the aeronautical to non aeronautical bifurcation of assets. A proxy is, by definition, an approximation adopted in place of a more precise measure, and is ordinarily resorted to only where the more precise measure is unavailable or impractical to compute.

493. Here, the more precise measure, being individual asset wise depreciation drawn from the Appellant's own Fixed Asset Register, was placed before AERA. AERA has not found that Register to be unreliable, incomplete or impractical to use. It has simply preferred the proxy without explaining why the underlying data, once available, should be set aside in favour of an approximation of it.

494. The aforesaid approach of AERA is prima facie incorrect because different assets have different useful life. The present appellant has given detailed Fixed Asset Register (FAR), whereunder the individual asset details have been listed together with clarification under the heads of AERA asset, non-aeronautical assets, or common assets.

495. It ought to be noted that an overall ratio derived from the gross asset block may accurately represent the relative capital value of aeronautical and non-aeronautical assets, but it does not necessarily follow that annual depreciation will arise in precisely the same proportion.

496. To illustrate, a high-value asset having a long useful life may contribute significantly to gross block value but comparatively less to annual depreciation, whereas a lower-value asset having a shorter useful life may contribute disproportionately more to the annual depreciation charge. Consequently, application of the gross-block ratio to the aggregate depreciation amount can distort attribution of depreciation between aeronautical and non- aeronautical activities.

497. AERA should be mindful of the fact that where a detailed Fixed Asset Register exists and each individual asset is capable of identification and classification, the more accurate methodology is to compute depreciation with reference to the individual asset itself.

498. Directly identifiable aeronautical assets should therefore carry the depreciation attributable to those assets; directly identifiable non- aeronautical assets should similarly be separately accounted for; and only depreciation relating to genuinely common assets requires allocation between the aeronautical and non- aeronautical segments.

499. Learned senior counsel appearing on behalf of the appellant, Mr. Sajan Poovayya, has rightly submitted that there will be significant difference if the depreciation can be based upon asset allocation ratio and based upon individual asset depreciation. The same has been tabled as under: Particulars FY17 FY 18 FY 19 FY 20 AERA’s method 90.80% 90.35% 90.04% 92.78% BIAL’S method 92.44% 90.38% 88.75% 90.56%

500. In view of the aforesaid facts and reasons, we hereby quash and set aside the decision of AERA in paragraph 3.6.29 (h), whereby AERA has calculated depreciation on aero asset ratio. We hereby direct AERA to accept the calculation of depreciation based upon “individual assets”.

501. The object of maintaining consistency across airports cannot justify application of a methodology which ceases to reflect the actual depreciation attributable to the assets concerned. Regulatory consistency means that similarly situated cases should ordinarily be treated similarly; it does not require asset portfolios having materially different compositions and useful lives to be subjected to an identical mathematical approximation irrespective of the availability of more accurate asset-specific data.

502. In fact the proviso to Section 13(1)(a) of the AERA Act itself contemplates that different tariffs may be determined for different airports. The controlling consideration must therefore remain whether the adopted methodology produces a fair and rational attribution of the relevant regulatory building block.

503. In view of the aforesaid facts and reasons, we are of the considered view that the methodology adopted by AERA in paragraph 3.6.29(h) of the impugned order cannot be sustained. We hereby quash and set aside the decision of AERA contained in paragraph 3.6.29(h) insofar as depreciation has been computed by applying the overall aeronautical asset ratio.

504. AERA is directed to compute depreciation at the individual-asset level on the basis of the Fixed Asset Register and the appropriate classification of the concerned assets as aeronautical, non- aeronautical or common. In respect of common assets, the appropriate aeronautical allocation ratio may thereafter be applied to the depreciation attributable to such common assets.

505. Consequential effect shall accordingly be given while recomputing depreciation, Regulatory Asset Base, return on RAB, ARR and such other regulatory building blocks as are affected thereby. Issue No. XVI is accordingly answered in favour of the Appellant. ISSUE XVII: Carry forward of the Aggregate Revenue Requirement (ARR)

506. It is submitted by learned senior counsel Mr. Sajan Poovayya, appearing on behalf of the appellant, that AERA has allowed carried forward of shortfall of rupees 940.63 crores as on 31st March 2022 to the next control period 2026-2032. It has been observed in paragraph 13.6.3 of the impugned order, which reads as under: “13.6.3 To carry forward the shortfall of INR 940.63 cr. as on 31 March 2022 to the next control period.”

507. AERA must act under the Airports Economic Regulatory Authority of India Act, 2008, read with the Concession Agreement,

Annexures A-3 and A-4, and the State Support Agreement, Annexure R-23.

508. There is no provision under the AERA Act, 2008 that ARR (aggregate revenue required), after its determination for a particular control period, can be carried forward in the next control period, meaning thereby, part of ARR will not be allowed to be recovered, though it is required for running the concerned airport smoothly and efficiently, and such unreserved part of ARR will be allowed to be recovered from future passenger in the next control period. This practice has already been deprecated by this Tribunal in various decisions, and it has been held by this Tribunal that AERA has no power, jurisdiction and authorities to direct the airport operator to recover part of ARR of one control period in the next control period.

509. It has been held by this Tribunal in paragraph 485, 491 and 492 in case of HIAL Vs. AERA, in AERA Appeal No.4 of 2021, which reads as under: “485. AERA has no power, jurisdiction or authority to apply the “True Up Mechanism” by reducing the determined ARR to make it recoverable in the next Control Period. It ought to be kept in mind that ARR is determined in a particular Control Period which entitles the Airport Operator to recover the said amount during the period of 5 years of that Control Period and if there is any over- recovery or under-recovery by the Airport Operator, then “True Up Mechanism” can be applied during next Control Period, but, there is no power vested in AERA, not to allow the Airport Operator to recover part of ARR of one Control Period and thereafter to allow to recover that postponed part of ARR to be recovered in the next Control Period.

491. ‘Moreover, looking to Section 13(1)(a)(i) of the AERA Act, 2008 mandates AERA to determine tariff for aeronautical services taking into consideration the “Capital Expenditure incurred and timely investment in the improvement of the airport facilities”. There is also violation of Tariff Guidelines Clause 6.2 by AERA if postponement of recovery of ARR is allowed because “Y, Yield per Passenger, calculated by AERA must be equal to ARR divided by Volume estimated in the tariff year.

492. Meaning thereby to if the recovery of part of ARR is to be postponed, there will be mismatch of ARR and “Y”. We, therefore, quash and set aside the decision of AERA to postpone the part of recovery of ARR in the next Page 266 of 292 Control Period and direct AERA to allow Airport Operator to recover ARR during the Control Period.”

510. This Tribunal, in Mangaluru International Airport Limited v. AERA, being AERA Appeal No. 1 of 2023, paragraphs 163 to 179, has held to the same effect, that the Authority cannot postpone recovery of a determined Requirement into a later control period under the name of true up or of balance among stakeholders. For ready reference, relevant paragraphs reads as under: “166. Moreover, whenever such type of ARR is carried forward, it will lead to a situation that future passengers and other stakeholders will have to bear more burden which is carried forward from the earlier control periods.

167. Such type of carry forward of ARR will lead to a situation that significant funds for justified projects and operational expenses which are proposed (which are based on the actual cost), and which are considered in the current ARR and if the part of ARR is to be carried forward, it will have a direct impact upon the completion of justified projects and it will have a bearing upon operation and management of the airports. Once the ARR is decided by AERA, it has to be allowed to be recovered from the stakeholders. Such type of ARR or part thereof cannot be postponed to be recovered in the next control period. It ought to be kept in mind that ARR is to be arrived at by applying the following calculation methodology: ARR = (FRoR x RAB) + D + O + T – NAR

168. Thus, the aforesaid calculation of ARR is for 1st control period i.e. 1st April, 2021 to 31st March, 2026. All the parameters of the aforesaid formula are of the aforesaid period of 5 years. The airport operator has to purchase the services and the payments are to be made to various bodies by the airport operator. These payments etc. cannot be hampered by postponing recovery of part of ARR in the next control period, there are cascading effects of such type of orders by AERA.

169. It ought to be kept in mind by AERA that the airport operators - appellants have presented all the calculations for determination of ARR based upon, actual cost to be incurred, by the airport operator in 5 years. After accepting the figures based upon actual cost, AERA has been determining ARR and thereafter it is highly unreasonable for AERA to postpone the recovery of ARR which is known as carry forward of part of ARR in the next control period. Because of postponement of ARR, the cost to be incurred by the airport operator cannot be postponed. The gap between the two, will lead to further debt to be incurred by the airport operator and more the debt, more will be the cost of debt and more the cost of debt will result into more FRoR.

170. As per Section 13 of the AERA Act, 2008, AERA has to take into consideration several factors for determination of the tariff. After determining the tariff, AERA cannot defer ARR. AERA is acting beyond its jurisdiction because AERA Act, 2008 does not prescribe deferring the ARR.

171. The deferment of ARR in the next control period will tantamount to double jeopardy to the appellant because on one hand to fulfill the legal obligations under the Concession Agreement, airport operator has to make payment within a time bound schedule whereas on the other hand, the part of its ARR is getting deferred or carried forward in the next control period of 5 years, meaning thereby to, the cash flow of the airport operator will get impacted which has direct bearing and nexus with the Operation, Management and Development Agreement of the airport. There is already a delay in passing the impugned order by 2 years and, therefore, the airport operator is recovering tariffs at the

old rates and now a part of approximately 30% of ARR is being postponed or carried out in the next control period of 5 years. That is not permissible in the eyes of law, especially as per Section 13 of AERA Act, 2008.

172. If this cash flow is obstructed by the impugned order by postponing or by deferring a part of ARR in the next control period, which has direct bearing upon airport operations and potential of worsening credit profile of the appellant and will escalate the current Cost of Debt beyond 12%. No justifiable reasons are provided by AERA in the impugned order in support of decision of deferment of ARR in the next control period.

173. AERA should have appreciated that the Payment to Airport Authority of India is never postponed. Thus, 30% of ARR is postponed and out of the 70% of total ARR, all legal obligations including payments to Airport Authority of India has to be done, as if 100% ARR has been recovered, by the airport operator. A statutory regulator, respondent No.1 – AERA, is not only obligated, to create a balance, between the consumers and the stakeholders, but, also to balance the interest of airport operators.

174. AERA has not properly appreciated the National Civil Aviation Policy 2016, which emphasizes the need to encourage privatization and regulatory certainty in the airport sector. Under NCAP, 2016, there is no definition of the term “excess amount”. The term “excess amount” is a subjective term and has been used at a disadvantage of the appellant. AERA has failed to consider in the impugned order that there are two airport operators, namely Airport Authority of India and the appellant. ARR includes true-up for Airport Authority of India for the previous control period which is one of the key components in determination of ARR and the resultant tariff. True-up to the Respondent No. 2 - Airport Authority of India is to be made upfront whereas, appellant recovers the same over the control period of 5 years. Without appreciating these aspects of the matter, the Respondent No. 1- AERA has decided to carry forward approximately 30% of ARR to the next control period arbitrarily.

175. ARR cannot be recovered in a piecemeal manner, because the legal obligations to be carried out and the concession agreement have to be fulfilled at the same time and not in a piecemeal manner and therefore, it will create an imbalance between the payment schedule and “the income” which is determined in the form of ARR for operating the airport. ARR is a justified claim of the airport operator determined by AERA. Now this justified claim of ARR cannot be postponed under the AERA Act, 2008.

176. Moreover, it also appears from the facts of the case that Principles of Natural Justice have also been violated because AERA has never pointed out in the consultation paper that how much amount of ARR will be postponed or will be carried forward in the next control period of 5 years. Thus, without giving opportunity of being heard to the appellant, unilaterally AERA has decided to defer the part of collection of ARR which is approximately 30% to be recovered in the next control period. Therefore also, the decision of AERA to postpone the recovery of ARR or to carry forward some portion of ARR in the next control period is arbitrary and in violation of AERA Act, 2008 and the same is hereby quashed and set aside.”

511. There is no dispute that ARR represents the revenue requirement which, upon application of the regulatory building blocks and permissible adjustments, has been determined by AERA itself as being required for the economic and viable operation of the concerned airport during the relevant Control Period. Once such ARR has been determined, postponement of its recovery has consequences materially different from a subsequent true-up on account of an actual over-recovery or under-recovery.

512. In the facts of the present case, deferment of ₹940.63 crore of ARR to the succeeding Control Period was not proposed by AERA in the Consultation Paper. It is true that certain stakeholders had sought moderation or non-increase of tariff in the backdrop of the COVID-19 pandemic. A suggestion by stakeholders against increase of tariff, however, cannot by itself be equated with disclosure by the statutory regulator of a concrete proposal to carry forward ₹940.63 crore of determined ARR into another

513. If AERA intended to adopt deferment of ARR as a regulatory methodology, particularly to this substantial extent, the proposal ought to have formed part of the consultation exercise so that the Airport Operator as well as other stakeholders could address its legal basis, quantum, financial consequences, impact upon cash flows and consequences for passengers in the succeeding Control Period.

514. AERA is undoubtedly required to take into consideration the interests of all stakeholders, including airlines and passengers. The statutory obligation to balance stakeholder interests, however, operates within the powers conferred by the AERA Act. It cannot by itself constitute an independent source of jurisdiction to adopt a tariff methodology which the statute does not authorise.

515. It ought to be understood by AERA that Section 13(1)(a)(vii), which permits consideration of “any other factor which may be relevant for the purposes of this Act”, be construed as conferring an unrestricted equitable jurisdiction upon AERA. The expression “any other factor” enlarges the range of considerations relevant to exercise of the tariff-determination power; it does not enlarge the statutory power itself.

516. AERA is a creature of statute. The legitimacy of the objective sought to be achieved cannot substitute for the existence of statutory authority to employ the particular means adopted for achieving that objective. Thus, even if tariff moderation during the unprecedented COVID-19 period was a legitimate regulatory consideration, such consideration could be pursued only through a measure authorised by the statute and after compliance with the statutory procedure.

517. As per Section 13(4) of AERA Act 2008, AERA is publishing consultation paper and inviting objections about the report, tariff order, and after receiving suggestions from the stakeholders, from all the stakeholders, AERA has passed tariff order. In the facts of the present case, deferment of ARR for third control period was never proposed in the consultation paper and therefore this decision is violative of principles of natural justice and also violative under Section 13(4) of AERA Act 2008.

518. It has been stated by AERA that for Varanasi, Amritsar and Tiruchirappalli and Raipur, ARR was deferred. If this is a common practice adopted by AERA, then it should have been mentioned in the consultation paper. For Varanasi, Amritsar, an addendum of consultation paper was issued, whereas in the facts of the present case, deferment of ARR was never referred in the consultation paper nor addendum to consultation paper was ever published by AERA. Moreover, for DIAL and MIAL airports, there is no carry forward of ARR.

519. There is, in our considered view, a fundamental distinction between a true-up and a predetermined deferment of an admitted ARR. True-up operates after the event as it reconciles the forecast adopted at tariff determination with actual revenues, costs, traffic and other admissible parameters. Deferment of ARR of the kind presently under consideration operates at the anterior stage i.e. AERA first determines the legitimate revenue requirement and thereafter consciously prevents a quantified part thereof from being recovered during the very Control Period for which it was determined. To characterise the latter exercise as a mere species of true-up would conflate two conceptually distinct regulatory functions.

520. Moreover, Paragraph 12(c) of NCAP 2016 states, in substance, holds that if tariff in a particular year or contractual period turns out to be excessive, the airport operator and regulator should explore ways of keeping tariff reasonable and spreading the excess over the future. Two features of this policy are significant. First, the contemplated action arises where the tariff “turns out to be excessive”. Secondly, the Policy speaks of the airport operator and regulator exploring ways to deal with such excess. It does not confer upon AERA an independent statutory power unilaterally to excise a part of otherwise eligible ARR and postpone it to another Control Period.

521. Once AERA has itself examined the relevant regulatory building blocks and determined the eligible ARR, the resulting revenue requirement cannot, without further statutory foundation, simultaneously be characterised as an “excess amount” merely because recovery thereof would result in a higher tariff. A higher tariff and an unlawful or excessive tariff are not synonymous. Whether tariff is excessive must be determined within the statutory and regulatory framework; it cannot be inferred merely from the magnitude of the tariff resulting from an otherwise admitted ARR.

522. We are equally unable to accept the additional justification sought to be founded upon the guiding principles of the International Civil Aviation Organization or upon the assertion that the tariff sought by the Appellant was excessive, when such reasons do not form part of the impugned decision itself. The settled principle laid down by the Hon'ble Supreme Court in Mohinder Singh Gill v. Chief Election Commissioner, (1978) 1 SCC 405, is that the validity of an order made by a statutory authority must be judged on the reasons contained in the order and cannot thereafter be supplemented by fresh reasons through affidavits or pleadings. The principle applies with full force to the present case. A statutory order cannot be sustained by reasons discovered after its legality has been called in question.

523. We are of the considered opinion that AERA has traveled beyond the scheme of AERA Act. AERA has no equity jurisdiction. AERA is a body owing its existence because of statute and therefore AERA must be abide by the nature and the extent of its jurisdiction as defined in the statute itself. Deferment of ARR is not permissible even under Section 13(1)(a)(vii) of AERA Act, 2008.

524. We, therefore, quash and set aside the decision of AERA contained in paragraph 13.6.3 of the impugned Tariff Order insofar as it directs the carry forward of ₹940.63 crore of ARR from the Third Control Period to the Fourth

525. AERA shall, therefore, while giving effect to this judgment in the Fourth Control Period, undertake the consequential re-computation and adjustment necessary to place the appellant, so far as the tariff framework permits, in the same economic position in which it would

have stood had the unlawful deferment not been made, including the appropriate time-value/carrying-cost consequences, without reopening any other finally determined component except to the extent consequentially necessary. Issue No. XVII is accordingly answered in favour of the Appellant. ISSUE XVIII: Consideration of Interest Income for the purpose of tariff determination

526. AERA, while passing the impugned Tariff Order dated 28.08.2021, has, by its decision contained in paragraph 8.6.3 thereof, treated the interest income earned by the Airport Operator i.e. the Appellant as non-aeronautical revenue and has consequently brought the prescribed portion thereof within the computation of cross-subsidy for determination of aeronautical tariff.

527. For the purposes of the shared revenue till applicable to BIAL, the Aggregate Revenue Requirement for Aeronautical Services is determined broadly in accordance with the following formula: “ARRt= (FRoR x RABt) + Dt + Ot + Tt –(⍺ x NARt)”

528. In the aforesaid formula NARt represents the gross revenue received from services other than aeronautical services and ⍺ (alpha) represents the prescribed percentage thereof taken into consideration for determination of aeronautical tariff. Thus, by treating interest income as non-aeronautical revenue, AERA has subjected the prescribed portion of such interest income to cross- subsidisation of the aeronautical ARR.

529. Learned Senior Counsel Mr. Sajan Poovayya, appearing on behalf of the Appellant, has submitted that interest income does not partake of the character either of aeronautical revenue or of non- aeronautical revenue. According to the Appellant, such income is generated on account of deployment and management of surplus funds and is not consideration received for rendition of any aeronautical or non-aeronautical service.

530. We find considerable force in the aforesaid submission. Section 13(1)(a)(v) of the AERA Act permits AERA, while determining tariff for aeronautical services, to take into consideration the revenue received from services other than aeronautical services. The statutory emphasis is thus upon revenue having its source in the rendition of services and resultantly, interest earned by reason of deposit or investment of surplus funds does not, merely by reason of the source from which the corpus originated, become revenue received from an aeronautical or non-aeronautical service.

531. AERA ought to have understood these fine niceties and the distinction between the source of the corpus and the juridical source of the income earned upon deployment of that corpus. The mere fact that surplus cash may originally have arisen from airport operations does not necessarily determine the character of the return subsequently earned upon its investment. Interest earned from bank deposits, fixed deposits, treasury deployment or similar cash-management instruments arises from the financial deployment of surplus funds and not from rendition of airport services to passengers, airlines, concessionaires or any other users.

532. We are of the opinion that interest income earned through prudent cash management is, therefore, properly capable of being regarded as “Other Income”. It is neither consideration for an aeronautical service nor revenue received from a service other than an aeronautical service. AERA cannot enlarge the statutory expression “revenue received from services other than aeronautical services” so as to encompass every accretion to the funds of an Airport Operator irrespective of the juridical source of such accretion.

533. In fact several past decision of this tribunal has led to this issue no longer being res integra. This Tribunal in Mumbai International Airport Ltd. v. AERA, being AERA Appeal No. 2 of 2021, decided on 06.10.2023, examined substantially the same contention of AERA that dividend and interest income ultimately arose out of revenues generated from aeronautical and non- aeronautical activities. For ready reference the same reads as under: “210. Learned Senior Counsel for the respondent has further contended that interest income is derived by investing surplus funds which is primarily from aeronautical services and, therefore, interest income is a part of revenue from revenue share assets. This contention is also not accepted by this Tribunal mainly for the reason that “bank interest”, “interest on Fixed Deposit Receipts” (FDRs) are not included in Schedule-6 of OMDA because they are not arising out of Revenue Share Assets. Such type of income is to the appellant because of Cash Management Process (CMP). In fact, there is no legal base to treat “other income” as a part of revenue, from “Revenue Share Assets” for calculation of cross-subsidization (for calculation of “S” factor).

211. This kind of addition by AERA of “other income” as part of revenue from revenue share assets is beyond bargain (i.e. beyond the terms of contract).

212. In a situation where the terms of contract (i.e. SSA & OMDA) are explicitly clear, nobody can presume any addition, deletion or modification of the terms of the agreement/contract.

213. The position is similar in case of interest on delayed payment. This interest on delayed payment is levied by MIAL to ensure efficient timely recovery and fund carrying cost. In fact, this income is not relatable to rendition of any services by MIAL to its debtors, so that it can be included as revenue from non-aeronautical or aeronautical services and, therefore, interest on delayed payment is outside the purview of the revenue from “Revenue Share Assets”. Further, the approach of taking “Other income” as part of “S” will disincentivize MIAL to pursue for recovery of the outstanding amount due to MIAL and also from effectively investing the surplus funds in any manner, which will not be in the interest of any party.

214. AERA is required to maintain consistency in their approach. During First Control Period, “other income” of the appellant was not treated as part of revenue from “Revenue Share Assets” and no reasons have been given by AERA for departure from the principles adopted in First Control Period and thus, there is a violation of Section 13(4) of AERA Act, 2008. Unjustifiably inconsistent interpretations of the rules of the game are more problematic, in so far as they create severe uncertainty and unpredictability in the making of investments and for national regulatory choice. AERA cannot take different view in different Control Periods.”

534. This Tribunal in the case of Delhi International Airport Limited Vs. AERA, being AERA Appeal No. 1 of 2021, decided on 21.07.2023 has held that other income is not relatable to and generated from the provision of any service by the Airport Operator and therefore cannot be considered for cross- subsidization of aeronautical charges, and that such addition is beyond the terms of the contract.

535. We are conscious of the material fact that the DIAL and MIAL judgments arose under the contractual framework of OMDA and the respective State Support Agreements and that the terminology of “Revenue Share Assets” and “S-factor” employed therein does not form part of BIAL’s concession structure in precisely the same manner.

536. However, the relevance of the aforesaid judgements lies in the principle underlying the ratio decidendi being that a receipt which does not arise from rendition of a regulated service does not acquire the character of service revenue merely because the corpus employed to generate such receipt originally arose from airport operations.

537. Moreover, the applicability of that aforesaid principle, was extended to a greenfield airport operating under a concession framework closer to the present case in GMR Hyderabad International Airport Ltd. v. AERA, AERA Appeal No. 4 of

2021, decided on 14.02.2024. In paragraphs 346 to 350, this Tribunal held that interest income, treasury income and similar receipts were not relatable to or generated from provision of any service by the Airport Operator and were, therefore, outside AERA’s regulatory ambit. For ready reference the aforesaid paragraphs reads as under: “346.The impugned decision of AERA treating income of dividend and interest income from Cargo Subsidiary as aeronautical revenue and from duty free subsidiary as non-aeronautical revenue is not tenable in law mainly for the reason that the interest income and interest from treasury (e.g. income from fixed deposit/mutual fund etc.) in general, accruing to HIAL is not relatable to and generated from the provision of any service being provided by HIAL. This aspect of the matter has not been appreciated by AERA while passing the impugned order and hence, the same deserves to be quashed and set aside for the aforesaid point.

347. In the present case, AERA’s decision to treat dividend and interest income received by HIAL from investments made in HMACPL (providing cargo service) as aeronautical revenue is based on a misconceived premise that because AERA has decided to treat cargo services as aeronautical in nature any income incidental therefrom is also to be treated as aeronautical. Similarly, for investment made by HIAL in other entity which provides duty free services, AERA has proceeded to treat such income as non-aeronautical in nature and consider it for cross subsidization. HIAL itself does not provide these services and the interest income received by HIAL does not correspond to any services rendered by HIAL and as such, it is beyond the regulatory ambit of AERA.

348. Further, there is no specific provision to include “Other Income” such as Interest income while calculating Aggregate Revenue Requirement (ARR) as per the provisions of the Concession Agreement (Annexure A- 3).

349. HIAL-Appellant-Airport operator has received Interest income and treasury income from investing surplus fund from time to time. Income interest in general and treasury income accruing to HIAL is not relatable to any services rendered by HIAL.

350. Interest Income and Income from Treasury in general accruing to HIAL is not relatable to and generated from the provision of any service being provided by HIAL. Moreover, there is no specific provision to include Other Income such as interest income while calculating ARR as per the provisions of the Concession Agreement. The subsidiaries of HIAL providing these services are standalone entities and operate independently from HIAL. As such the classification of the nature of the services cannot constitute the basis of classification of the revenue accruing to HIAL. AERA has thus transgressed its statutory mandate by erroneously seeking to bring within its regulatory purview, the dividend and interest income received by HIAL on the investments made by it. The revenue generated by HIAL from Services only can be taken into consideration in the formula of ARR which is as under: “ARR= (FRoR x RAB) + D + O + T – NAR”

538. It ought to be seen that Section 13(1)(a)(v) of the AERA Act requires the Authority to take into consideration revenue received from services other than aeronautical services. The word services is of significant importance. The revenue must be received from a service. Interest income is not received from a service, rather it is received from the investment of funds. There is no causal connection between the interest income and any service rendered by the Airport Operator. The Authority cannot bring within the ambit of Section 13(1)(a)(v) income that has no connection with the provision of services.

539. pronouncements, AERA has no power, jurisdiction and authority to consider interest income for the purpose of tariff determination. We, therefore, quash and set aside the decision of AERA in paragraph 8.6.3 of the impugned tariff order (Annexure A1), and we hereby hold that AERA cannot consider the interest income for the purpose of tariff determination.

540. AERA is directed not to consider interest income and dividend income earned by the appellant through its cash management process as part of the revenue from revenue share assets for the purpose of determining the Aggregate Revenue Requirement. AERA shall carry out the necessary true up in the Fourth Control Period tariff order. Issue No. XVIII is accordingly answered in favour of the Appellant. ISSUE XIX: Consideration of 30% non-aeronautical revenue used to cross subsidize aeronautical revenue passed for computation of aeronautical taxes.

541. As per impugned tariff order, especially as per paragraph 9.2.5, AERA has decided not to consider 30% of non-aeronautical revenue while computing aeronautical taxation for the third control period. For the ready reference, paragraph 9.2.5 of the impugned tariff order reads as under: “9.2.5 The Authority, in line with its decision for other airports, proposes to not consider 30% of nonaeronautical revenues while computing aeronautical taxation for the Third Control Period.”

(Emphasis Supplied)

542. Under the Tariff Guidelines, 2011, Aggregate Revenue Requirement is determined in accordance with the following formula:

“ARR = (FRoR x RAB) + D + O + T – NAR”

543. In the aforesaid formula, under the hybrid-till mechanism applicable to the present tariff determination, only 30% of the Non-Aeronautical Revenue is utilised for cross-subsidisation of the aeronautical revenue requirement. Thus, to the extent of such 30%, the Non-Aeronautical Revenue operates as a mechanism for recovery of the otherwise eligible aeronautical ARR.

544. Learned Senior Counsel Mr. Sajan Poovayya, appearing on behalf of the Appellant, has submitted that once 30% of Non- Aeronautical Revenue is statutorily and regulatorily appropriated towards cross-subsidisation of aeronautical charges, the said amount necessarily partakes the character of aeronautical revenue for the limited purpose of determination of the tax component “T”. Consequently, while arriving at the aeronautical taxable base, tax attributable to such 30% NAR is required to be taken into consideration.

545. To appreciate the conceptual underpinnings of the Hybrid Till model adopted under the regulatory framework, it is necessary to analyze the statutory scheme of Section 13(1)(a) of the AERA Act, 2008 read alongside the Concession Agreement. Under a

Hybrid Till framework, while non-aeronautical activities are generally unregulated in terms of direct tariff fixation, a specified quantum i.e. 30% of Non-Aeronautical Revenue (-factor or credit) is statutorily and contractually deployed to lower the net revenue requirement that would otherwise be recovered entirely from aeronautical users (airlines and passengers). The 30% NAR operates as an indispensable credit offset in the mathematical equation defining the Aggregate Revenue Requirement ().

546. By mandating that 30% of non-aeronautical income be injected into the ARR equation to reduce aeronautical tariffs, the regulatory framework structurally converts that portion of non- aeronautical revenue into a direct substitute for aeronautical tariff realization. In economic and legal effect, what the airport operator surrenders from its non-aeronautical earnings directly replaces the tariff dollars that would otherwise have been levied upon aeronautical users. Consequently, the 30% NAR loses its pure non-aeronautical identity for regulatory accounting and partakes the intrinsic character and partakes colour of aeronautical revenue within the ARR matrix.

547. Turning to the tax component () in the ARR formula, is designed as a pass-through regulatory building block to ensure that the airport operator recovers the statutory corporate tax burden attributable to its regulated aeronautical operations. If 30% of NAR is mandated to form part of the aeronautical revenue entitlement to meet the Gross Target Revenue, the tax liability generated on that 30% income stream cannot be discarded or isolated.

548. Thus, excluding the tax on 30% NAR from the tax component () creates an artificial mismatch as it forces the operator to utilize 30% of its commercial earnings to subsidize airport users while simultaneously bearing the uncompensated tax burden arising from that very income.

549. We are unable to accept AERA’s contention that inclusion of tax on such 30% NAR would amount to permitting over recovery of the tax or would dilute the benefit of cross-subsidisation. It must be noted that the cross-subsidy concerns the revenue required to be contributed towards aeronautical ARR; the tax component concerns the tax consequence arising upon the income which is treated as forming part of the aeronautical revenue base. Recognition of the latter does not restore to BIAL the 30% NAR already appropriated towards cross- subsidy, or does it permit recovery of that amount for a second time.

550. To put it differently, the hybrid-till mechanism cannot be applied asymmetrically. AERA cannot, for purposes of reducing aeronautical ARR, treat 30% NAR as a source of aeronautical recovery and, while calculating the tax attributable to that very recovery, revert to its original non-aeronautical character and exclude it from the aeronautical tax base. The same amount cannot be treated as aeronautical when it operates to reduce the recoverable ARR but as non-aeronautical when the corresponding tax consequence is to be recognised and such treatment would result in an internal inconsistency in the tariff computation itself.

551. This Tribunal has held, in the case of Delhi International Airport Limited versus AERA, being AERA Appeal No. 1 of 2021, judgment dated 21.07.2023, at paragraphs 137, 142, 143, 144 and 145, as under. “137. We do not agree with the aforesaid reasons by AERA mainly for the reason that because the target revenue as per the aforesaid formula is determined, based on aeronautical building block post cross subsidy of 30% revenue from Revenue Share Assets and, therefore, out of total target revenue, 30% has been recovered from the revenue generated by JVC from Revenue Share

Assets. In view of this formula of Target Revenue, it is abundantly clear that in a recovery of Target Revenue for aeronautical services, S-factor is one of the mechanism of calculation in the formula of TR thus, the amount of S-factor partakes the character of aeronautical revenue and, therefore, once the part of aeronautical revenue has been recovered from 30% of revenue from Revenue Share Assets, the effect of S- factor should also be given in T, that is, corporate tax pertaining to aeronautical services.”

142. Thus, in view of the aforesaid facts and reasons, in the formula of Target Revenue, amount equal to S factor also partakes the color of aeronautical revenue and looking to the definition of T in SSA which is a corporate taxes on earnings pertaining to aeronautical services and it is not on target revenue thus, upon an amount equal to S-factor also, an amount equal to corporate tax should be calculated.

143. We therefore quash and set aside the decision of AERA which is 2nd and 3rd Tariff Order which are impugned orders in these AERA Appeals to the extent that S-factor is excluded as a part of aeronautical revenue base while determining aeronautical taxes, that is, T. We hereby hold that S-factor is a part of aeronautical revenue base while determining aeronautical taxes, that is, T.

144. We do not agree with the contention of FIA that this appellant had not raised this issue in the 1st Control Period and, therefore, the appellant cannot raise this issue in the 2nd Control Period and 3rd Control Period. The present issue is based upon the correct interpretation of SSA and OMDA to be read with AERA Act, 2008 and, therefore, even if this appellant has not raised this issue in the 1st Control Period, for the 2nd Control Period and 3rd Control Period this issue can always be raised by this appellant. There is no need to maintain consistency for wrong interpretation by the appellant.

145. It ought to be kept in mind that in the formula of Target Revenue, TRi equals RBi multiplied by WACCi plus OMi plus Di plus Ti minus Si, T is to be calculated as an amount equal to corporate taxes on earnings pertaining to aeronautical services as defined in SSA, meaning thereby that irrespective of the fact that tax is actually paid or not, an amount equal to corporate taxes on the earnings pertaining to aeronautical services, including upon the amount of S-factor, should be added as T in the formula of Target Revenue. The formula of Target Revenue is an agreed formula as per the agreements between the appellant and the Government of India. The T factor is equal to an amount of corporate taxes. This definition cannot be amended nor the formula can be amended by AERA. We, therefore, quash and set aside observations of AERA for the 2nd Control Period as well as the 3rd Control Period, so far as they relate to exclusion of S-factor as part of the aeronautical revenue base while determining aeronautical taxes, that is, T. We hereby hold that S-factor is to be included as part of the aeronautical revenue base while determining aeronautical taxes, that is, T, for the 2nd as well as the 3rd Control Period, and consequently true up has to be given for the earlier control periods also.”

552. In view of the aforesaid decision, 30% of non-aeronautical revenue used to cross subsidise aeronautical revenue partakes

the character of aeronautical revenue, and ought accordingly to be considered for computation of aeronautical taxes in the formula for the Aggregate Revenue Requirement, which reads as under: “ARR = (FRoR x RAB) + D + O + T – NAR”

553. This Tribunal has further held, in the case of Hyderabad International Airport Limited versus AERA, being AERA Appeal No. 4 of 2021, judgment dated 14.02.2024, under paragraphs 423 and 424, which reads as follows: “423. The aforesaid facts of the matter have not been properly appreciated by AERA, and therefore, the decision of AERA not to consider 30% of Non-Aeronautical Revenue as part of Aeronautical Revenue Base for computation of aeronautical taxes is incorrect, improper and unjustified.

424. We, hereby direct AERA to consider (i) the calculation of T on 30% of Non-Aeronautical Revenue because it partakes the character of Aeronautical Revenue in calculation of ARR as per the aforesaid formula, (ii) the aeronautical taxable income computed as per the normal provisions of the Income Tax Act, 1961.”

554. This Tribunal, in the case of Mangaluru International Airport Limited versus AERA, being AERA Appeal No. 1 of 2023, under judgment dated 11.09.2025, considered the identical question under the very formula applicable to this Appellant, and held as under:

205. As per Tariff Guidelines, 2011 (Annexure A-16), the formula for arriving at Aggregate Revenue Requirement (ARR): ARR = (FRoR x RAB) + D + O + T – NAR In this formula, 30% of Non-Aeronautical Revenue is to be utilized for cross-subsidization and to that extent the value of ARR will be reduced. Thus, 30% of the NAR partakes character of aeronautical revenue. 30% of NAR will be treated as aeronautical revenue for the purpose of calculation of ARR and therefore the same is deducted from the total value of ARR. This is also known as Hybrid Till mechanism and therefore while computing factor ‘T’ in the aforesaid formula tax on 30% of NAR has to be included because ‘T’ is equal to amount equal to tax upon aeronautical revenue. As 30% of NAR is to be treated as aeronautical revenue (as per Hybrid Till mechanism) tax on 30% of NAR is to be added in the value of ‘T’. This aspect of the matter has already been argued out in more than one AERA appeals and repeatedly it has been decided that tax on 30% of NAR has to be calculated while computing factor ‘T’ in the aforesaid formula for arriving at ARR.

555. On the one hand, AERA contends that DIAL and MIAL cannot govern the present dispute because their contractual framework is materially different from that applicable to BIAL. On the other hand, it relies upon the pendency of the appeal arising from DIAL as a reason why the present Appellant should not obtain adjudication of its own challenge. The two positions cannot comfortably stand together. In any event, our conclusion does not rest on DIAL alone; it is independently supported by HIAL and, more particularly, by Mangaluru, which considers the same hybrid-till ARR formula.

556. The material placed before us also shows that AERA’s exclusion of the 30% NAR from the aeronautical tax base was treated as part of an existing regulatory methodology. There is nothing to indicate that, while making the impugned determination, AERA undertook any fresh examination capable of displacing the reasoning subsequently adopted by this Tribunal in the aforesaid judgments. Further AERA’s reliance upon the tax holiday under Section 80-IA of the Income Tax Act,1961 or upon the treatment of Minimum Alternate Tax does not alter our the answer to the present issue.

557. We make it clear that those questions concern the rate, incidence and methodology of computing the admissible tax component, whereas, the challenge before us in Issue No. XIX, presently, concerns the logically anterior question as to what constitutes the aeronautical revenue base upon which the tax component is to be calculated.

558. These two questions must not be conflated and mixed up as whatever may ultimately be the appropriate tax treatment under the Income Tax Act or under the tariff methodology, the 30% NAR which is utilised for cross-subsidisation cannot be excluded from the aeronautical revenue base merely on the ground that it originated as non-aeronautical income.

559. In view of the aforesaid facts, reason and judicial pronouncements, we hereby quash and set aside the decision of AERA in paragraph number 9.2.5 of the impugned tariff order, Annexure A1, of not to consider the 30% of non-aeronautical revenue while computing aeronautical revenue for third control period. We hereby direct AERA to consider tax on 30% of non-aeronautical revenue while computing aeronautical revenue in calculation of ARR for third control period. Issue No. XIX is accordingly answered in favour of the Appellant. ISSUE XX: Jurisdiction of AERA to consider revenue from Land Development Activities

560. Looking to the impugned tariff order dated 28th August, 2021 (Annexure A1) especially paragraph 8.2.48 thereof, AERA has treated income from real estate as a part of non-aeronautical revenue. For ready reference the same reads as under: “Real Estate 8.2.48 The Authority noted that BIAL had not considered real estate revenue as part of non – aeronautical revenue. As per the decision taken by the Authority in the Second Control Period order and based on the AERA Act, 2008, AERA guidelines, concession agreement of BIAL and Hon'ble TDSAT judgement dated 16th December 2020, the Authority proposes to treat income from real estate as part of non - aeronautical revenues.”

561. For appreciating the controversy, it is necessary to notice the distinct definitions of “Airport” and “Site” contained in Article 1.1 of the Concession Agreement. “Airport” means the greenfield international airport comprising the Initial Phase to be constructed and operated by BIAL at Devanahalli and includes its buildings, equipment, facilities and systems and, where the circumstances so require, any Expansion thereof as per the Master Plan. “Site”, on the other hand, means the land in which BIAL has or shall have a leasehold interest pursuant to the Land Lease Agreement, measuring approximately 4,300 acres, on, under and over which the Airport is to be constructed. For ready reference the definition of Airport” and “Site” in Concession Agreement (A-3) is reproduced below: "Airport" means the greenfield international airport comprising of the Initial Phase, to be constructed and operated by BIAL at Devanahalli, near Bangalore in the State of Karnataka and includes all its buildings, equipment, facilities and systems and including, where the circumstances so require, any Expansion thereof, as per the master plan annexed hereto as Attachment-1.

"Site" means the land in which BIAL has or shall have a leasehold interest pursuant to the Land Lease Agreement, and measuring approximately 4300 acres in area, on, under and over which the Airport is to be constructed.

562. The use of two separate expressions in the Concession Agreement is of significance as “Site” describes the larger parcel of land made available to BIAL and “Airport” identifies the airport infrastructure comprising the Initial Phase and expansions contemplated under the Concession Agreement. The two expressions cannot be treated as synonymous or interchangeable, for otherwise the separate definitions adopted by the contracting parties would be rendered without meaning.

563. The distinction becomes clearer when Article 2.1.2 and Article 3.2.1 of the Concession Agreement are read with Parts I and II of Schedule 3. Part I identifies “Airport Activities”, which include aeronautical services as well as other services rendered at the Airport. Part II separately identifies “Non-Airport Activities”. The contractual framework, therefore, expressly contemplates that activities may be undertaken upon the Site which do not, merely by reason of their geographical location upon leased land, become Airport Activities. For ready reference Article 2.1.2 and 3.2.1 of the Concessions Agreement reads as under: “ARTICLE 2 2 Scope of the Project 2.1 Scope of the Project 2.1.2 the operation and maintenance of the Airport and performance of the Airport Activities and Non-Airport Activities in accordance with the provisions of this Agreement; and xxx 3.2 Recognition of Rights 3.2.1 Subject to Applicable Laws and in accordance with the provisions of this Agreement, Gol recognises that BIAL may carry out:

(i) any activity or business related or ancillary to the activities referred to in Article 3.1 or which BIAL considers desirable or appropriate to be carried on or engaged in connection therewith (including any infrastructure service considered by BIAL to be reasonably necessary for the activities referred to in Article 3.1 ); and

(ii) any activity or business in connection with or related to the arrival, departure and/or handling of aircraft, passengers, baggage, cargo and/or mail at the Airport; and

(iii) any activity or business in connection with or related to the development of the Site or operation of the Airport to generate revenues including the development of commercial ventures such as hotels, restaurants, conference venues, meeting facilities, business centres, trade fairs, real estate, theme parks, amusement arcades, golf courses and other sports and/or entertainment facilities, banks and exchanges and shopping malls.”

564. We must, at this stage, deal specifically with the judgment dated 16.12.2020 rendered by the learned Single Member of this Tribunal in Bangalore International Airport Limited v. AERA, AERA Appeal Nos. 3 of 2014 and 8 of 2018, upon which AERA has expressly relied while taking the impugned decision in paragraph 8.2.48 of the Tariff Order.

565. In paragraphs 32 to 40 of the said judgment, the learned Single Member considered the contention of BIAL that revenue arising from land-development activities undertaken outside the precincts of the Airport was beyond the regulatory jurisdiction of AERA. The contention was rejected principally on the reasoning that, although the Concession Agreement separately defined the expressions “Airport” and “Site”, the Concession Agreement, State Support Agreement and Land Lease Agreement did not demarcate the Site into separate areas so as to identify a limited portion alone as constituting the Airport.

566. On that basis, it was held that the entire Site had been made available for construction and development of the Airport and that revenue generated from commercial ventures thereon could appropriately be treated as Non-Aeronautical Revenue under the shared-till regime.

567. The aforesaid interpretation has subsequently been expressly considered by the Division Bench of this Tribunal in Hyderabad International Airport Limited v. AERA, AERA Appeal No. 4 of 2021, decided on 14.02.2024. In paragraph 341 of the said judgment, the Division Bench specifically noticed the judgment dated 16.12.2020 in BIAL’s case and held that the said judgment had failed to appreciate the relevant provisions of the Concession Agreement read with the Land Lease Agreement and, more particularly, the distinction between “Airport” and “Site”. The Division Bench expressly recorded that it did not agree with the interpretation adopted by the learned Single Member in the BIAL judgment. For ready reference the relevant paragraphs reads as under: “341. AERA has relied upon the decision of Learned Single Bench dated 16.12.2020 in case of BIAL. This judgment has not appreciated the clauses of the Concession Agreement as stated hereinabove to be read with the clauses of Land Lease Agreement. The said judgment has also not appreciated the fact that “site” as defined in the Concession Agreement includes Airport but reverse is not true meaning thereby to “airport” and not to be construed as “site”. This distinction has been overlooked and we therefore do not agree with the interpretation of the Learned Single judge of this tribunal in judgment dated

16.12.2020 in case of BIAL. In fact, both the terms have been defined separately and, therefore, “Site” and “Airport” are not inter- changeable terms otherwise there would have been no need to define them separately. AERA's reliance on National Civil Aviation Policy (NCAP) (Annexure R-1 of AERA's Reply) is misplaced as (i) no specific provision of the NCAP has been pointed out by AERA that permits it to adopt the approach that it has;

(ii) assuming any provision of the NCAP provides that revenue from real estate development will be considered for the purpose of cross subsidization, no corresponding direction under Section 42 of the AERA Act, 2008 has been issued by MoCA to AERA. AERA cannot confer upon itself the jurisdiction to take into consideration revenues from Real Estate Development under the guise of NCAP where the said policy did not permit AERA to do so. Further, as stated earlier, MoCA has obtained opinion from the Ld. Attorney General on the issue of jurisdiction of AERA with regard to the land earmarked for Non-Airport Activities to which the Ld. Attorney General has clarified to MoCA that the land meant for Non-Airport Activities should be outside the purview of AERA since AERA is related to only regulation of airports and what is outside the precincts should not be in the jurisdiction of AERA Para no. 34 (page no. 918) of Annexure A-9 to the memo of this appeal.

342. In view of the aforesaid facts and reasons, provisions of land lease agreement to be read with provisions of AERA Act, 2008, the decision of AERA to consider income of appellant from Real Estate Development under its regulatory purview is incorrect, improper and not justified. We, hereby, hold that income from Real Estate Development (RED) is from Non-Airport Activities and it cannot be treated as Aeronautical, nor it can be treated as Non-Aeronautical but they are simply “Non- Airport Activity” revenue. AERA has no power or jurisdiction over such revenue.”

568. We respectfully agree with the view taken by the Division Bench in GMR Hyderabad International Airport Limited. The error in the earlier BIAL judgment lies in proceeding from the absence of a physical demarcation of the leased Site to the legal conclusion that every activity carried on anywhere upon the Site must necessarily constitute an Airport Activity. In our opinion such conclusion does not follow from the premise. The contractual classification of an activity does not depend merely upon the geographical location of the land upon which it is undertaken.

569. It has to be noted that the Concession Agreement itself uses the expressions “Airport” and “Site” distinctly. “Site” denotes the larger parcel of leased land upon which the Airport is to be constructed and developed. “Airport”, however, refers to the Initial Phase and subsequent Expansions together with the buildings, equipment, facilities and systems forming part thereof.

570. In our opinion merely the circumstance that the Airport is situated upon the Site does not render the two expressions to be read as co-extensive. The Site may comprehend the Airport; the

Airport does not necessarily comprehend the entirety of the Site.

571. To us, the same conclusion follows with greater clarity from reading of Schedule 3. Part I of the Concessions Agreement (A- 3), thereof separately enumerates “Airport Activities”, whereas Part II expressly enumerates “Non-Airport Activities”. If every activity carried on upon the Site were necessarily an Airport Activity merely because the entire Site had been leased in connection with the Airport project, the contractual classification of certain activities as “Non-Airport Activities” would be deprived of any substantive content.

572. Furthermore, upon reading of Article 3.2.1 (iii) of the Concession Agreement (A-3), which authorises BIAL to undertake activities and businesses in connection with or related to development of the Site or operation of the Airport, reinforces rather than obliterates the distinction. The use of the alternative expressions “development of the Site” and “operation of the Airport” demonstrates that development of the Site is capable of encompassing activities which are not themselves part of operation of the Airport.

573. The opinion dated 07.11.2014 of the then learned Attorney General of India, upon which the Appellant has relied, is also consistent with this construction. The opinion states, in substance, that activities lying outside the airport precincts ought logically to remain outside AERA’s jurisdiction because the statutory regulator is concerned with regulation of airports. We do not rest our conclusion upon that opinion, which is advisory and cannot determine the meaning of the statute. It nevertheless furnishes corroborative material consistent with the construction which flows independently from Section 13, the Concession Agreement and the later judgment of this Tribunal. The opinion forms part of the material specifically relied upon by BIAL

574. Section 13(1)(a)(v) of the AERA Act authorises AERA, while determining tariff for aeronautical services, to take into consideration “revenue received from services other than the aeronautical services”. The provision undoubtedly permits utilisation of eligible Non-Aeronautical Revenue for purposes of tariff determination in accordance with the applicable till methodology. It does not, however, confer upon AERA jurisdiction over an activity which, under the governing concession structure, is neither an aeronautical service nor a service other than an aeronautical service rendered as an Airport Activity at the airport.

575. It must be stated that revenue earned from an activity does not acquire the character of Non-Aeronautical Revenue merely because the activity is undertaken somewhere upon the Site. The anterior enquiry must always be whether the activity itself forms part of the Airport Activities falling within AERA’s statutory regulatory field. If the activity is contractually and functionally a Non-Airport Activity carried on outside the precincts of the Airport, the revenue arising therefrom does not fall within Section 13(1)(a)(v).

576. This distinction was not properly appreciated while passing the impugned Tariff Order. AERA appears to have proceeded upon the assumption that because the land forms part of the Site made available to BIAL, revenue generated from commercial development thereof necessarily constitutes Non-Aeronautical Revenue available for cross-subsidisation and such an approach overlooks the contractual distinction between the “Site” and the “Airport” and between “Airport Activities” and “Non-Airport Activities”.

577. In view of the aforesaid definitions given in the concession agreement at Annexure A3, it appears that the both the definitions are different. “Site” includes the entirety of the leased land. “Airport” is restricted to initial phase and expansions under the concession agreement Annexure A3. Moreover, looking to Clauses 2.1.2 and clauses 3.2.1 of the concession agreement read with Para, read with Part 1 of Schedule 3 and Part 2 of Schedule 3 makes it clear that the appellant carries out airport and non-airport activities at the site. Non-airport activities undertaken by the appellant BIAL at the site are unrelated to the operation of airport.

578. These non-airport activities provided beyond the precincts of airport are not aeronautical nor non-aeronautical services and, therefore, they are beyond the jurisdiction of AERA for tariff determination process. This aspect of the matter has not been properly appreciated by AERA while passing the impugned orders. Hence, the decision of AERA in paragraph 8.2.48 deserves to be quashed and set aside.

579. AERA, vide the impugned decision, has treated “Non-Airport Activities” as “Non-Aeronautical Services”, which is incorrect, runs counter to the clauses of the Concession Agreement and is in violation of the AERA Act, 2008. Looking to the Concession Agreement, it defines “Airport Activities” under Part 1 of Schedule 3 and “Non-Airport Activities” under Part 2 of Schedule 3 include both Aeronautical Services and Non-Aeronautical Services. whereas, the “Non-Airport Activities” enumerated in Part 2 of Schedule 3, which are provided on the landside beyond the precincts of the airport, constitute neither Aeronautical Services nor Non-Aeronautical Services, but are simply and purely “Non- Airport Activities”.

580. Looking to Article 7.2 and Article 13.5.2 of the Concession Agreement, which are identical in the Concession Agreements of BIAL and HIAL, the Government of India is under no obligation to take over the “Non-Airport Activities” at the end of the Concession Period, which in the facts of the present case BIAL is 60 years. These provisions deal with the capital expenditure incurred towards Non-Airport Activities and keep such activities outside the airport assets. therefore, the revenue generated from these activities also deserves the same treatment and cannot be brought within the regulatory purview of AERA. it also ought to be kept in ming that the revenue from Real Estate Development is not generated from the rendition of Non-Aeronautical Services

enlisted in Part 1 of Schedule 3 of the Concession Agreement and, therefore, it does not qualify as eligible revenue for the purpose of the 30% cross-subsidy.

581. For ready reference, Articles 7.2 and 13.5.2 of the Concession Agreement read as under: “7.2 Construction and Expansion BIAL shall design, procure, construct, complete, test and commission the Initial Phase, and remedy any defects in respect thereof, in accordance with the Master Plan, Good Industry Practice and Applicable Law. BIAL shall ensure that the Works shall conform with the Specifications and Good Industry Practice. BIAL shall, taking into account and subject to increased demand, the availability of funding, the economic and profitable operation of the Airport at that time and the reasonable requirements of users of the Airport, develop and implement detailed proposals for the Expansion of the Airport. To the extent that BIAL incurs any capital investments, amounts or costs in relation to the provision of Non-Airport Activities and requires such investments, amounts or costs to be included in the calculation of the

Termination Amount, Debt or Settlement Amount, BIAL shall seek the prior written consent of GoI.” “13.5.2 Notwithstanding anything contained in Article 13.5.1, prior to any transfer of the Airport, Gol shall have the right conduct a due diligence of the contracts and agreements pertaining to Non-Airport Activities, the rights and obligations of which it is assuming and shall not be bound to assume the rights and obligations of contracts that, in the sole opinion of Gol are unreasonably onerous, and would be considered onerous at the time that the contracts were entered into. Got shall conduct the due diligence and identify the contracts and agreements that it is prepared to assume within 45 days of the opening of a data room by BIAL for these purposes following the exercise of a right of termination by Gol or BIAL under Article 13.4. For the avoidance of doubt, to the extent Gol opts to take over Non-Airport Activities, which have not been approved by Gol in accordance with Article 7.2, the calculation of Termination Amount or the Settlement Amount shall include investments, amounts or costs of such Non-Airport Activities.”

582. Moreover, Section 13(1)(a)(v) of the AERA Act 2008 extends only to the airport activities carried out at major airport and not non- airport activities carried out at the site but outside the precincts of the airport. Schedule 3, Part 1 of BIAL’S concession agreement (Annexure A3) to be read with (Annexure A4), enlisted set of activities under the head of airport activities, which includes aeronautical services and other services rendered at the airport. Only these activities can be considered for the purpose of tariff determination under Section 13(1)(a)(v) of AERA Act 2008. Non- airport activities mentioned in Schedule 3, Part 2 of the concession agreement (Annexure A3 and Annexure A4) are outside the scope of AERA's power, jurisdiction and authority.

583. In view of these facts, revenue from land development activities, which are non-airport activities rendered outside the precincts of the airport, cannot be considered as a part of non-aeronautical revenue.

584. pronouncements, AERA has no power, jurisdiction and authority to treat the income from real estate development as the same is a non-airport activity and, therefore, this income cannot be treated as aeronautical revenue nor it can be treated as non-aeronautical revenue. We, therefore, quash and set aside the decision of AERA in the impugned tariff order, especially paragraph 8.2.48 (Annexure A1). Issue No. XX is accordingly answered in favour of the Appellant. ISSUE XXI: Jurisdiction of AERA to determine tariff for CGF services, cargo handling, ground handling and fuel services.

585. It has been decided by AERA while passing the impugned tariff order, (Annexure A1) especially in paragraph 8.2.2 to be read with Table No. 169 and looking to Para 8.6.1, AERA has clarified CGF, CUTE, CUSS, BRS, Aerobridge, ICT, CIC services as aeronautical services and treated the revenue therefrom as aeronautical revenue for third control period. This decision of AERA is under challenge under this issue. For ready reference Paragraph 8.2.2, 8.6.1 and Table No. 169 reads as under: Cargo, ground handling, fuel, CUTE/ CUSS, common infrastructure charges and aerobridges revenues 8.2.2 The Authority noted that BIAL had considered revenue from cargo, ground handling, fuel,

CUTE/ CUSS, common infrastructure charges and aerobridges (aviation concession revenues) as non aeronautical revenues. The Authority in line with its decision taken in the 2nd control period based on the AERA Act, 2008, AERA guidelines, concession agreement of BIAL and Hon'ble TDSAT judgement dated 16th December 2020 proposes to consider revenue from cargo, ground handling, fuel, CUTE/ CUSS, common infrastructure charges and aerobridges as aeronautical revenue for the Third Control Period.

Table 169: Non-aeronautical revenues decided by the Authority for the Third Control Period (Rs. crore) Particulars FY

FY

FY

FY

FY

Total Car Park revenue 37.40 80.63 110.04 134.44 163.97 526.48 Retail Revenue 27.69 113.63 145.36 175.51 209.49 671.69 F&B Revenue 23.73 54.37 72.42 88.36 107.58 346.47 Lounge Revenue 10.25 27.74 37.22 48.64 63.23 187.08 Advertising & promotion 38.94 84.41 103.96 127.01 154.91 509.23 Rent and land lease 38.88 50.29 52.78 59.27 62.14 263.37 Flight catering 8.35 9.08 11.71 12.74 13.87 55.75

Miscellaneous non- aeronautical revenues 22.89 25.32 27.62 30.20 33.05 139.08 Utility charges 3.07 3.07 3.37 3.54 3.71 16.76 Real estate 4.17 12.82 20.90 38.73 61.40 138.03 Interest income 20.84 12.77 3.51 5.38 19.40 61.91 Total NAR 236.21 474.15 588.89 723.84 892.75 2915.84

8.6.1 To consider non-aeronautical revenue as set out in Table 169 above for the Third Control Period Xxx

586. Learned Senior Counsel appearing for the appellant, Mr. Sajan Poovayya has drawn our attention on the concession agreement (Annexure A3 and Annexure A4). This concession agreement is a sovereign contract entered into by His Excellency President of India with BIAL. This concession agreement is dated 5th July, 2004.

587. The Concession Agreement between His Excellency the President of India and the Appellant was executed on 05.07.2004 (Annexure A-3 to the memo of appeal), and the Concession Agreement between His Excellency the President of India and Hyderabad International Airport Limited was executed on

20.12.2004 (Annexure R-34A to the Rejoinder). Both these Concession Agreements are identical in all material aspects. The major comparable clauses relevant to the present issue are as under: SCHEDULE-I Concession Agreements of BIAL and HIAL S l. Clause Concession Agreement of BIAL Concession Agreement of HIAL

Clause 10.1 10.1 Parties having right to impose charges Subject to Applicable Law, no Person (other than BIAL, any Service Provider Right Holder granted a relevant Service Provider Right or the AAI) may impose any charge or fee (a) in respect of the provision at the Airport of any facilities and/or services which are included within Airport Activities or (b) in respect of the movement of passenger, or vehicular traffic on the Airport or the Site. 10.1 Parties having right to impose charges Subject to Applicable Law, no Person (other than HIAL, any Service Provider Right Holder granted a relevant Service Provider Right or the AAI) may impose any charge or fee (a) in respect of the provision at the Airport of any facilities and/or services which are included within Airport Activities or (b) in respect of the movement of passenger, or vehicular traffic on the Airport or the Site.

Clause 10.2 10.2 Airport Charges 10.2.1 The Airport Charges specified in Schedule 6 ("Regulated Charges") shall 10.2 Airport Charges 10.2.1 The Airport Charges specified in Schedule

("Regulated Charges") shall be

S l. Clause Concession Agreement of BIAL Concession Agreement of HIAL be consistent with ICAO Policies.

10.2.2 The Regulated Charges set out in Schedule 6 shall be the indicative charges at the Airport. Prior to Airport Opening BIAL shall seek approval from the Ministry of Civil Aviation for the Regulated Charges which shall be based on the final audited project cost . The Ministry of Civil Aviation shall, subject to the proposed Regulated Charges being in compliance with the principles set out in Article 10.2.1, grant its approval thereto within a period of sixty (60) days of the date of the application being submitted by BIAL.

10.2.3 If at any time prior to the date the IRA has the power to approve the Regulated Charges BIAL wishes to amend such charges it shall seek consent from the Ministry of Civil Aviation for such amendments. The Ministry consistent with ICAO Policies.

10.2.2 The Regulated Charges set out in Schedule 6 shall be the indicative charges at the Airport. Prior to Airport Opening HIAL shall seek approval from the Ministry of Civil Aviation for the Regulated Charges, which shall be based on the final audited Project cost. The Ministry of Civil Aviation shall, subject to the proposed Regulated Charges being in compliance with the principles set out in Article 10.2.1, grant its approval thereto within a period of forty-five (45) days of the date of the application being submitted by HIAL. Within 120 days after the Airport Opening Date, HIAL shall submit the final audited Project cost to the Ministry of Civil Aviation.

10.2.3 If at any time prior to the date the IRA has the power to approve the Regulated Charges HIAL wishes to amend such charges it shall seek consent from the Ministry of Civil Aviation for such amendments. The Ministry of Civil Aviation shall, subject to the proposed charges being in

S l. Clause Concession Agreement of BIAL Concession Agreement of HIAL of Civil Aviation shall, subject to the proposed charges being in compliance with the principles set out in Article 10.2.1, grant its approval of such amendments within a period of sixty (60) days of the date of the application being submitted by BIAL.

10.2.4 From the date the IRA has the power to approve the Regulated Charges, BIAL shall be required to obtain approval thereof from the IRA. In this regard BIAL shall submit to the IRA, in accordance with any regulations framed b y t he I RA, details of the Regulated Charges proposed to be imposed for the next succeeding relevant period together with such information as the IRA may require for review. Unless otherwise agreed in writing between the Parties such approved Regulated Charges shall comply with the principles referred to in compliance with the principles set out in Article 10.2.1, grant its approval of such amendments within a period of forty-five (45) days of the date of the application being submitted by HIAL.

10.2.4 From the date the IRA has the power to approve the Regulated Charges, HIAL shall be required to obtain approval thereof from the IRA. In this regard H IAL s hall submit to the IRA, in accordance with any regulations framed by the IRA, details of the Regulated Charges proposed to be imposed for the next succeeding relevant period together with such information as the IRA may require for review. Unless otherwise agreed in writing between the Parties such approved Regulated Charges shall comply with the principles referred to in Article 10.2.1 until the earlier of (i) the date that outstanding Debt in respect of the Initial Phase has been repaid and (ii) fifteen (15) years from Airport Opening Date.

S l. Clause Concession Agreement of BIAL Concession Agreement of HIAL Article 10.2.1 until the earlier of (i) the date that outstanding Debt in respect of the Initial Phase has been repaid and (ii) fifteen (15) years from Financial Close.

Clause 10.3 10.3 Other Charges

BIAL and/or Service Provider Right Holders shall be free without any restriction to determine the charges to be imposed in respect of the facilities and services provided at the Airport or on the Site, other than the facilities and services in respect of which Regulated Charges are levied. 10.3 Other Charges

HIAL and/or Service Provider Right Holders shall be free without any restriction to determine the charges to be imposed in respect of the facilities and services provided at the Airport or on the Site, other than the facilities and services in respect of which Regulated Charges are levied.

Schedu le 3 List of Airport Activities contains inter alia Ground Handling Services, Cargo Handling, Cargo Terminal, Aircraft fuelling services List of Airport Activities contains inter alia Ground Handling Services, Cargo Handling and cargo terminal operations, custodial services, Aircraft fuelling services

Schedu le 6 Landing Housing Parking, UDF and Passenger Service Fee Landing Housing Parking, UDF and Passenger Service Fee

588. As it can be seen from above the Appellant has also drawn our attention to the Concession Agreement dated 20th December,

2004 relating to Hyderabad International Airport. A comparative reading of the relevant clauses demonstrates that Articles 10.1, 10.2 and 10.3 and Schedules 3 and 6 of the BIAL and HIAL Concession Agreements are substantially similar in all material respects relevant to the controversy presently before us.

589. Article 10.1 deals with the persons entitled to impose charges in respect of Airport Activities and movement of passengers and vehicular traffic. Article 10.2, however, deals specifically with “Airport Charges”, and Article 10.2.1 provides that the Airport Charges specified in Schedule 6 shall constitute “Regulated Charges”.

590. Article 10.3 thereafter separately deals with “Other Charges” and expressly provides that BIAL and/or Service Provider Right Holders shall be free, without any restriction, to determine charges in respect of facilities and services provided at the Airport or on the Site other than those in respect of which Regulated Charges are levied.

591. Furthermore, Schedule 3, Part I, contains a considerably wider list of “Airport Activities”. The said Schedule includes, inter alia, Aircraft Fuelling Services, Cargo Handling, Cargo Terminals, General Aviation Ground Handling, Ground Handling Services and

Ground Handling Equipment. Schedule 6, in contrast, identifies a much narrower category of Regulated Charges, namely Landing, Housing and Parking Charges, Passenger Service Fee and User Development Fee.

592. It is pertinent to denote that there is a fundamental distinction between Airport Activity and a Regulated Charge. Merely because an activity is an Airport Activity under Schedule 3 does not follow that every charge arising from such activity becomes a Regulated Charge under Schedule 6. If that were the intention of the parties, the elaborate and specific enumeration contained in Schedule 6 would serve little purpose.

593. This Tribunal has already decided in case of HIAL that CGF services are non-aeronautical services and therefore revenue therefrom are non-aeronautical revenues because they are not listed in Schedule 6 of the concession agreement.

594. It has been held by this Tribunal in case of HIAL Vs. AERA in AERA Appeal No.4 of 2021 dated 14.02.2024 in paragraphs 303 and 309, which reads as under: “303. AERA is empowered to regulate only the ‘Regulated Charges’ and it cannot assume jurisdiction over the ‘Airport Activities’. The terms Regulated Charges and Airport Charges/Activities

309. MoCA had sought for the opinion by the highest law officers of this country about Cargo, Ground Handling and Fuel Services. The Counsel for the Appellant has referred to the said Opinion obtained by MoCA obtained from the highest law officers of this country. AERA in the impugned order to fortify its decision has also relied on the letter issued by MoCA on 24.09.2013 issued specifically in the case of Bangalore International Airport Limited ('BIAL') as stated in Para 3.2.7 (page no.127) of Annexure A-1 to the memo of this appeal. However, reliance on Page 157 of 292 such letter in case of HIAL is misconceived as MoCA has not issued any such letter for HIAL. On the contrary, in the case of HIAL, MoCA in its affidavit filed in AERA Appeal No. 8 of 2011 Para no. 7 (page no. 2246) of Annexure A-16 to the memo of this appeal, has categorically stated that as per the Concession Agreement only those charges as mentioned in Schedule-6, shall alone be regulated. Further, when doubts were raised as to whether AERA could seek to rely upon the later enactment to attempt to regulate charges for certain activities like CGF, MoCA reinforced its own understanding of the binding contract and non-applicability of a later enactment, by obtaining an opinion dated 14.01.2015 from the Attorney General for India Para no. 34 (page no. 914-

918) of Annexure A-9 to the memo of this appeal, which was rendered in terms of Article 76(2) of the Constitution of India. The Ld. Attorney General for India, who is a constitutional appointee, under Article 76 (1) of the Constitution of India has opined that CGF are not to be found in Schedule 6 of the Concession Agreement and, therefore, they not Page 158 of 292 Regulated Charges. The opinion of such a constitutional functionary has persuasive value for AERA.”

595. We are of firm opinion that earlier decision in the case of BIAL, in the matter of AERA Appeal No. 3 of 2014 and AERA Appeal No. 8 of 2018, common judgment dated 16.12.2020, delivered by Learned Single Judge, requires reconsideration. We have perused the previous provisions of the Concession Agreement as well as the provisions of the AERA Act, 2008 and the State Support Agreement, and the details delivered by this Tribunal in the case of HIAL in AERA Appeal No. 4 of 2021, judgment dated 14.02.2024. We have also perused the Concession Agreement in the case of HIAL as well as in the case of BIAL. In fact, the Concession Agreement in the case of HIAL and BIAL are identical in most of the material aspects.

596. In view of Section 13(1)(a)(vi) of the AERA Act. Parliament has itself mandated that, while determining tariff for aeronautical services, AERA shall take into consideration the concession offered by the Central Government in any agreement, memorandum of understanding or otherwise.

597. The concession agreement entered into by His Excellency President of India with BIAL is a pre-legislative contract which is recognized under SOR (Statement of Objects and Reasons) of the AERA, 2008. Moreover, as per the provisions of Section

13(1)(a)(vi) of the AERA, 2008 mandates AERA to consider concessions granted by central government while determining tariff.

598. The Hon'ble Supreme Court in Delhi International Airport Ltd. v. Airports Economic Regulatory Authority of India, Civil Appeal No. 8378 of 2018, (2024) 1 SCC 716, decided on 11.07.2022 has specifically considered the effect of Section 13(1)(a)(vi). In paragraph 23, the Hon'ble Supreme Court observed that legislative intent itself incorporates and requires the prior agreements to be taken into consideration, along with the other statutory parameters. For ready reference the same

“23. Sub-clause (vi) of sub-section (l)(a) of Section 13 of the said Act clearly stipulates that in the determination of tariff for the aeronautical services, one of the considerations, is the concession offered by the Central Government in any agreement or memorandum of understanding or otherwise. Thus, the principle that legislative intent must prevail over any prior agreement would not really apply in the present scenario as the legislative intent itself incorporates and requires the prior agreements to be taken into consideration albeit along with certain other parameters/requirements .

599. Thus, we are of the opinion that mere fact that the Concession Agreement predates the AERA Act does not render its tariff- related concessions otiose upon enactment of the statute. On the contrary, Parliament has expressly incorporated such concessions as a mandatory consideration in tariff determination. The statute and the Concession Agreement are therefore required to be read harmoniously rather than on the assumption that the latter stood impliedly obliterated upon establishment of AERA. For ready reference Section 13(1)(a) of the AERA Act, 2008 reads as under:

13. Functions of Authority. —

(1) The Authority shall perform the following functions in respect of major airports, namely —

(a) to determine the tariff for the aeronautical services taking into consideration —

(i) the capital expenditure incurred and timely investment in improvement of airport facilities;

(ii) the service provided, its quality and other relevant factors;

(iii) the cost for improving efficiency;

(iv) economic and viable operation of major airports;

(v) revenue received from services other than the aeronautical services;

(vi) the concession offered by the Central Government in any agreement or memorandum of understanding or otherwise;

(vii) any other factor which may be relevant for the purposes of this Act: Provided that different tariff structures may be determined for different airports having regard to all or any of the above considerations specified at sub-clauses (i) to

(vii) .

600. In view of the provisions of AERA 2008, the concession agreement, which is a sovereign contract entered into by His Excellency President of India, with BIAL, dated 5th July, 2004 (Annexure A3) which is a pre-legislative contract, must be honoured while determining tariffs.

601. It has been held by this Tribunal in case of HIAL Vs AERA in AERA Appeal No. 4 of 2021, judgment dated 14.02.2024 in paragraph no 331 to 333, 336 and 338 as under: “331. AERA vide impugned decision has treated “Non-Airport Activities” as “Non-Aeronautical Services”. This is incorrect and running counter to the clauses of Concession Agreement and in violation of the AERA Act, 2008. In fact, Concession Agreement defines Airport Activities and Non-airport activities. It did not define “Aeronautical” and “Non-Aeronautical” as per Part 1 of Schedule 3 and as per Part 2 of Schedule 3 respectively. 332.

332. Looking to the Concession Agreement, “Airport Activities”

enumerated in Part 1 of Schedule 3 include, both Aeronautical Services and Non-Aeronautical Services, whereas, Non-Airport Activities enumerated in Part 2 of Schedule 3 which are provided in landside which is beyond the precincts of the airport, do not constitute either Aeronautical Services or Non-Aeronautical Services but they are simply and purely “Non-Airport Activities”. For ready the scheme of the above is depicted through a chart below:

Activities

333. In view of the aforesaid provisions of Concession Agreement, “Non-Airport Activities” are clearly beyond the power, jurisdiction and authority of AERA and they do not form the part of “Non-Aeronautical Services”. Airport Activities (Part 1 Schedule of the Concession Agreement) Non-Airport Activities (Part 2 of Schedule 3 of Concession Agreement) Aeronautical Services Non-Aeronautical Services

336. It ought to be kept in mind that revenue from Real Estate Development is not generated from the rendition from Non- Aeronautical Services, which are enlisted in Part 1 of Schedule3 and therefore, this revenue does not qualify as eligible revenue for 30% cross-subsidy.

338. In fact, looking to Clause 3.1 (b) of the Land Lease agreement to be read with their Concession Agreement, the appellant and the airport operator have been granted the additional rights to develop the additional land, purely for commercial purposes i.e. Non-Airport Activities and not relating to Airport Activity.”

602. Upon examination of Article 1.1 of the concession agreement, it provides two separate and distinct definitions of “airport charges” and “regulated charges”. The definition of “airport charges” and “regulated charges” as defined in the concession agreement and Clause 10.2.1 reads as under: "Airport Charges" means:

(i) amounts charged or imposed by BIAL in respect of the provision or use of the facilities and services which are included within Airport Activities;

(ii) amounts charged or imposed by BIAL on or in respect of passenger and cargo movement or aircraft traffic into, on, at or from the Airport; and

(iii) other amounts deemed by this Agreement to be Airport Charges and further including any amounts to be collected by BIAL on behalf of Gol, GoK or AAI. "Regulated Charges" shall be as defined in Article 10.2.1 10.2 Airport Charges 10.2.1 The Airport Charges specified in Schedule 6 ("Regulated Charges") shall be consistent with ICAO Policies.

603. In view of the aforesaid provision, it is explicitly clear that Part 1 of Schedule 3 envisages a larger categorization of airport activities to be performed by BIAL. For ready reference, Part 1 of Schedule 3 of the Concession Agreement reads as under: Schedule 3 Part 1 - Airport Activities Airport Activities include the following services, facilities and equipment:

 Aerodrome control services  Airfield  Airfield lighting  Air navigation services relating to the Airport  Airside and perimeter security including access control and patrolling

 Airside and landside access roads and forecourts including writing, traffic signals, signage and monitoring  Apron and aircraft parking area  Apron control and allocation of aircraft stands  Arrivals concourses and meeting areas  Baggage systems including outbound and reclaim  Bird scaring  Check-in concourses  Cleaning, heating, lighting and air conditioning public areas  Customs and immigration halls  Emergency services  Facilities for the disabled and other special needs people  Fire service  Flight information and public-address systems  Foul and surface water drainage  Guidance systems and marshalling  Information desks and staffing  Inter-terminal transit systems  Landscaping and horticulture  Lifts, escalators and passenger conveyors  Loading bridges  Lost property  Meteorological Services / AIS  Noise insulation and sound proofing  Passenger and hand baggage search  Piers and gate rooms  Policing and general security  Prayer Rooms  Runways  Scheduling committee support  Signage  Staff search  Taxiways  Toilets and nursing mothers’ rooms  Waste and refuse treatment and disposal  X-Ray service for carry on and checked-in luggage

 Aircraft cleaning services  Aircraft fueling services  Airline Lounges  Banks / ATM - BIAL to make investment for providing basic infrastructure facilities only  Bureaux de Change - BIAL to make investment for providing basic infrastructure facilities only  Business Centre - BIAL to make investment for providing basic infrastructure facilities only  Vehicle parking  Cargo handling  Cargo terminals  Conference Centre - BIAL to make investment for providing basic infrastructure facilities only  Duty free sales - BIAL to make investment for providing basic infrastructure facilities only  Flight catering services  Freight consolidators/forwarders or agents  General aviation ground handling  General aviation terminals  General retail shops - BIAL to make investment for providing basic infrastructure facilities only  Ground handling services  Ground handling equipment  Ground power for aircraft  Hangars  Heavy maintenance services - BIAL to undertake these only if such services are in relation to airport and/or aircraft  Hotel reservation services - BIAL to make investment for providing basic infrastructure facilities only Infrastructure for the airport complex like roads, drains, water supply etc.  Line maintenance services - BIAL to undertake these only if such services are in relation to airport and/or aircraft  Locker rental - BIAL to make investment for providing basic infrastructure facilities only

 Messenger services - BIAL to make investment for providing basic infrastructure facilities only  Observation terrace  Pre-conditioned air for aircraft  Porter service  Post Offices - BIAL to make investment for providing basic infrastructure facilities only  Public telephones - BIAL to make investment for providing basic infrastructure facilities only  Restaurants, bars and other refreshment facilities - BIAL to make investment for providing basic  infrastructure facilities only  Special Assistance Services  Tourist information services - BIAL to make investment for providing basic infrastructure facilities  only  Travel agency- BIAL to make investment for providing basic infrastructure facilities only  Trolley service  Utilities (including electricity, gas, telecommunications and water)  Vehicle fueling services - BIAL to undertake these only if such services are in relation to airport  and/or aircraft  Vehicle rental - BIAL to make investment for providing basic infrastructure facilities only  Vending machines - BIAL to make investment for providing basic infrastructure facilities only  VIP/Special lounges  Warehouses  Welcoming services xxx

604. Airport activities are larger categorization, which is enumerated herein above, whereas Article 10.2 carves out the limited set of activities from Schedule 3 and they are enlisted separately in

Schedule 6 as regulated by AERA once it is setup. Thus, concession agreement contemplates regulation only in Schedule 6 charges and not others. For the ready reference, Schedule 6 of the concession agreement reads as under: Schedule 6 Regulated Charges Pursuant to the principles set out in Article 10.2 of this Agreement, BIAL shall be entitled to levy and recover from airline operators, passengers and other users and in respect of both domestic and international aircraft and passenger movements, at rates consistent with ICAO Policies, the following Regulated Charges:

(i) Landing. Housing and Parking charges (Domestic and International): The charges to be adopted by BIAL at the time of airport opening will be the higher of:

(a) The AAI tariff effective 2001 duly increased with inflation index, as set out hereunder, upto the airport opening date Or (b) The then prevailing tariff at the other AAI airports

(ii) Passenger Service Fee (Domestic and International): The charges to be adopted by BIAL at the time of airport opening will be the higher of:

(a) The AAI tariff effective 2001 duly increased with inflation index, as set out hereunder, upto the airport opening date Or (b)

b) The then prevailing Passenger Service Fee at the other AAI airports The Passenger Service Fee chargeable by BIAL, as given above, is inclusive of the cost of Security Expenditure on Central Industrial Security Force (CISF). This component of cost towards Security Expenditure on CISF shall be revised upwards by BIAL as and when directed by GOI.

(iii) User Development Fee {UDF) (Domestic and International}: BIAL will be allowed to levy UDF, w.e.f Airport Opening Date, duly increased in the subsequent years with inflation index as set out hereunder, from embarking domestic and international passengers, for the provision of passenger amenities, services and facilities and the UDF will be used for the development, management, maintenance, operation and expansion of the facilities at the Airport. The Regulated Charges set out in Schedule 6 shall be the indicative charges at the Airport. Prior to Airport Opening BIAL shall seek approval from the Ministry of Civil Aviation for the Regulated Charges, which shall be based on the final audited project cost. Note: (a) Charges will be calculated on the basis of nearest MT (i.e. 1000 kgs)

(b) The minimum fee for per single landing will be INR 1000.0

c) Peak hour surcharge on International landing between 2301 hrs (IST) to 2400 hrs (IST) will be 5%

(d) If US $ rates are to be charged the following rule for conversion, US$ into INR the rate as on the 1st day of the month for 1st fortnight billing period and rates as on 16th of the month for the 2nd fortnightly billing period, will be applicable.

(e) All Tariffs are net for BIAL. Any taxes such as Service tax, if applicable, will be over and above the tariff proposed.”

605. In view of the aforesaid Schedule 6, which is to be read with Article 10.2 of the concession agreement, and these charges can be regulated by AERA and no other charges can be regulated by AERA. Thus, “airport charges” and “regulated charges” are separate and distinct. AERA can regulate only “regulated charges” as pointed out in Schedule 6 of the concession agreement.

606. CGF services are not a part of Schedule 6 regulated charges in the Concession Agreement. This aspect of the matter was not properly appreciated while deciding AERA Appeal No. 8 of 2018 and AERA Appeal No. 3 of 2014, judgment dated 16 December 2020, by the Learned Single Judge. Schedule 6 is the most crucial aspect of the matter. This is to be read with Section 13(1)(a) of the AERA Act, 2008.

607. Moreover, Article 10.3 of the Concession Agreement provides that BIAL shall be free, without any restriction, to determine the charges to be imposed in respect of charges for facilities and services provided at airport or on the site, other than regulated charges. For ready reference, Clause 10.3 of the Concession Agreement reads as under: “10.3 Other Charges BIAL and/or Service Provider Right Holders shall be free without any restriction to determine the charges to be imposed in respect of the facilities and services provided at the Airport or on the Site, other than the facilities and services in respect of which Regulated Charges are levied.”

608. The words and phrases "shall be free" and "without any restrictions" make the intentions explicitly clear. Neither IRA/AERA, while fixing the charges, nor in any manner, will lay any claim to the revenue or proceeds. Thus, BIAL can determine the charges in respect of charges for the facilities and services provided at the airport or on the site other than regulated charges and, therefore, CGF services, which are not a part and parcel of Schedule 6 of regulated charges in the Concession Agreement, and therefore revenue generated from CGF services are non- aeronautical services and they are excluded from AERA's regulated ambit. This aspect of the matter was not properly appreciated by the learned Single Judge of this Tribunal in AERA Appeal No. 3 of 2014 and in AERA Appeal No. 8 of 2018.

609. Moreover, every tariff order is a separate cause of action and, therefore, in the present appeal we hereby hold that CGF services are not aeronautical services and revenue therefrom are non- aeronautical revenue for BIAL and they are excluded from AERA's regulatory ambit because CGF services are not a part of Schedule 6 regulated charges in the Concession Agreement.

610. As per the Airports Infrastructure Policy, 1997, it has been mentioned in the Statement of Objects and Reasons of the AERA Act, 2008 that the Greenfield Airport at Bangalore under Public- Private Partnership is set up pursuant to the Airports Infrastructure Policy, 1997. Relevant part of Clause 12.4 of the Airports Infrastructure Policy, 1997 reads as under:

4. “Except for user developmental fees, there will be total freedom for airport operators in the matter of raising revenue through non-aeronautical charges and there will not be any Government control over the same.”

611. In view of the aforesaid Airports Infrastructure Policy, 1997, it is illustrated that CGF services are not regarded as aeronautical services at that point of time and Clause 14.2 and 14.3 of the said infrastructure policy, 1997 reads as under:

14. Financing of Airport Infrastructure 1…………………

2. The current pattern of financing is predominantly based on internally generated resources of the AAI. Funding through external assistance, external commercial borrowings, loans and equity has been negligible. The allocation of budgetary grants is limited to certain airports in remote and inaccessible areas. Considering the astronomical sums which seem to be required for modernization and upgradation of existing airports and for the new airports at Mumbai (Rs.10, 000 crores), Bangalore (Rs.1,600 crores) etc., there has to be a clear privatisation of projects so as to utilize state resources in the most optimal manner. Further, the financing strategies will have to be looked at from a thoroughly novel standpoint.

3. Taking the internal resources first, the following steps will be initiated:

a) Optimization of revenue from aeronautical charges, through negotiation with IATA and keeping Government approvals in view.

b) A revolutionary thrust towards raising of revenue from non-aeronautical commercial sources.

c) Rationalisation and optimisation of various charges like passenger service fee, user development charges, aerobridge charges, etc. and imposition of new levies like security charges, fuel throughput charges etc.

d) Massive economy in expenditure by manpower optimization, cost reduction, elimination of duplication, increased productivity, contracting out of services, etc.

e) Greater resource to additional sources like external assistance, public bonds, external commercial borrowings, public issues, loans from Government/financial institutions etc.”

612. In view of the aforesaid clauses of the Airports Infrastructure Policy, 1997, there will be a revolutionary thrust towards raising revenue from non-aeronautical commercial sources. Section 13(1)(a)(vi) of the AERA Act provides that a concession offered in an agreement or MOU or otherwise is to be considered while determining tariff. The Airports Infrastructure Policy, 1997 and the Concession Agreement fall in this category and, therefore, the Infrastructure Policy, 1997 deserves to be considered.

613. In view of these facts and looking to the provisions of the Airport Infrastructure Policy 1997, which has been recognized in the Statement of Objects and Reasons of AERA Act 2008, to be read with Schedule 6 of Concession Agreement, to be read with Article 1.1 and Article 10.2 and 10.3 of the Concession Agreement, makes it explicitly clear that CGF services are kept outside the tariff determination process and the revenue therefrom should be reckoned as non-aeronautical in terms of Airport Infrastructure Policy 1997, to be read with different provisions as stated hereinabove of the Concession Agreement.

614. These aspects of the matter were never placed before this Tribunal while adjudicating AERA Appeal No. 8 of 2018, judgment dated 16th December 2020, hence also the said judgment deserves to be revisited.

615. It has been rightly pointed out by learned senior counsel Mr. Sajan Poovayya appearing on behalf of the appellant, that MOCA had filed a counter affidavit in AERA Appeal No. 7 of 2011, filed on 18th July 2011, admits that as per Article 10 and Schedule 6 of concession agreement and Annexure A3 and Annexure A4, the only regulated charges are LPH, PSF, UDC, with charges. That is, this lease does not include CGF. For the ready reference, paragraphs 7 and 9 of the counter affidavit filed by MoCA in AERA Appeal No. 7 of 2011, filed on 18th July 2011, reads as under: “7. … As per the provisions laid down in Article 10 and Schedule 6 of these Concession Agreements, the only regulated charges at these airports are Landing, Parking and Housing charges (Domestic and International); Passenger Services Fee (Domestic and International); and User Development Fee (Domestic and International).

9. It is submitted that the Concession Agreement with the M/s Bangalore International Airport Ltd. and M/s Hyderabad International Airport Ltd. was approved by the Union Cabinet and the State Support Agreement with the M/s Delhi International Airport Ltd. and M/s Mumbai International Airport Ltd. was approved by the Empowered Group of Ministers (EGOM) constituted for restructuring and modernization of CI Airport, Mumbai and IGI Airport, Delhi. These two sets of documents, carrying the philosophy for economic regulation of aeronautical tariffs of the airports, have been approved at the highest level in the Government and has been providing the guiding principle to the Government in determination of aeronautical tariffs.”

616. MoCA, in its counter affidavit executed by the Under Secretary, Shri Prabhu Ram, dated 18th July 2011 in AERA Appeal No. 7 of 2011 (Annexure A48), at Paragraph 6, categorically and in unequivocal terms stated that the first reaction of the Government was that the adoption of the specific till methodology should be airport specific, keeping in mind the contractual obligations (if any). Further, at paragraph 7, MoCA admitted and clarified that it had entered into Concession Agreements with BIAL and HIAL and that Article 10 of these Concession Agreements lays down the criteria for determination of airport charges as specified in Schedule VI of the Concession Agreements. As per the provisions contained in Article 10 and

Schedule VI of these Concession Agreements, the only regulated charges at these airports are Landing, Parking and Housing Charges (Domestic and International), Passenger Service Fee (Domestic and International), and User Development Fee (Domestic and International).

617. In the very same affidavit, the GoI, at paragraph 9 further submitted that the Concession Agreements with BIAL and HIAL were approved by the Union Cabinet, while the State Support Agreements with DIAL and MIAL were approved by the Empowered Group of Ministers (EGoM) constituted for the restructuring and modernization of CSI Airport, Mumbai and IGI Airport, Delhi. The Government further stated that these two sets of documents, embodying the philosophy governing the economic regulation of aeronautical tariffs at the respective airports, had been approved at the highest levels of Government and had served as the guiding principles for the Government in the determination of aeronautical tariffs.

618. Further, at Paragraphs 15 and 16, the Government specifically apprised thew Hon’ble Appellate Tribunal of its contractual obligations and requested the Tribunal to decide the issue in light of the averments and submissions made therein.

619. The aforesaid pleadings leave little room for ambiguity. The GoI itself expressly acknowledged the contractual framework governing BIAL and HIAL, recognized the airport-specific nature of the applicable regulatory regime, and drew the attention of the Tribunal to the contractual obligations arising under the concession agreements. These submissions, made on oath before the appellate forum, are of considerable significance in understanding the Government’s contemporaneous position and understanding of the concession agreements and the regulatory framework governing these airports as an author of these contracts.

620. The aforesaid understanding of MoCA has subsequently been validated by the opinions obtained by MoCA from the highest law officers of the country on the subject. The learned Attorney General for India, in his opinion, dated 14.01.2015 (Annexure A47), has opined that Cargo, Ground Handling and Fuel (CGF) services are not found in Schedule 6 of the concession agreement and therefore, are not Regulated Charges. Similarly, the learned Solicitor General of India, in his opinion dated 24.12.2019 (Annexure A49), has opined that CGF is to be treated as a non- regulated activity for tariff determination by AERA. These opinions further clarify the position that AERA ought to arrive at, while giving due importance and consideration to the concession agreement as mandated under Section 13(1)(a)(vi) of the AERA Act, 2008.

621. the aforesaid position is further reinforced by Section 13

(1) (a)(ii), (iii), (iv), (v) and (vi) of the AERA Act, 2008, read together with the proviso thereto which in our considered view, reflects the clear legislative intent that tariff determination is required to be undertaken on an airport-specific basis, keeping in mind the contractual obligations governing the concerned airport. The statutory scheme itself contemplates that AERA may take into consideration any one or all of the factors enumerated therein, each of which is inherently airport-specific and dependent upon the unique contractual, financial and regulatory framework applicable to the respective airport. The Act, therefore, does not mandate a uniform or one-size-fits-all approach across all airports, except where relevant i.e., BIAL and HIAL as one set of contracts of concessions and DIAL and MIAL as another set of contracts of concessions in form of OMDA.

622. This assumes greater significance when viewed in the context of the airport privatization initiatives undertaken by the GoI at different points in time. Each such decision was taken in its own actual and economic setting, after taking into account the prevailing policy objectives, socio-economic considerations, infrastructure requirements and investment expectations relevant to that period. Consequently, a pioneering public-private partnership initiative undertaken by the Government through a pre-legislative contractual framework, dating back to the year 2000, cannot and ought not, be assessed through the lens of contractual and regulatory arrangements fashioned during a subsequent period and under materially different circumstances.

623. Accordingly, we are of the considered opinion that AERA while discharging it s statutory functions, ought to give due regard to the circumstances prevailing at the time of BIAL’s concession agreement was granted by His Excellency, President of India in 2004. The rights, obligations and commercial understanding embodied therein must be appreciated in the context in which that were conceived and granted, particularly when the legislative framework that subsequently culminated in the enactment of the AERA Act was still at a nascent and formative stage and had not evolved into its present form. Any interpretation divorced from such historical and contractual context would run the risk of unsettling the very foundations upon which the concession was originally structured and granted and the same cannot be countenanced.

624. In view thereof, we are of the considered view that CGF are non- regulated under the concession agreement and are to be treated as non-aeronautical.

625. In view of the aforesaid paragraphs 7 and 9, CGF services are non-aeronautical services because they are not covered by Schedule 6 of the Concession Agreement and hence revenue generated therefrom are non-aeronautical revenue. The allied services of CUTE, CUSS, BRS, ICT and CIC, which are part of ground handling services and consequently are non-aeronautical, as held in AERA Appeal No. 4 of 2021, judgment dated 14 February 2024, because the Concession Agreement in both cases, in case of HIAL and in case of BIAL, are identical in all material aspects.

626. Looking to the provisions of Section 2 of AERA Act 2008, which commensally, with words “unless the context otherwise requires”. The definitions contained in Section do not apply if the context otherwise provides.

627. As per proviso to Section 13 (1) (a) of the AERA Act, 2008 permits adoption of different tariff structure for different airport, having regard to all or in any of the considerations specified at sub- clauses (i) to (vii) of Section 13 of the AERA Act. One such consideration, under sub-clause (vi), is the concession offered by the Central Government. AERA did not consider this power while deciding to treat cargo, ground handling and fuel services as aeronautical services in the case of the Appellant, despite the specific concession contained in Article 10 of the Concession Agreement.

628. It ought to be noted that Article 10 of the Concession Agreement separates the Regulated Charges listed in Schedule 6 from the Other Charges under Article 10.3, which the Appellant is free to determine without any restriction. Cargo, ground handling and fuel services are not in Schedule 6. Treating their revenue as aeronautical would erase this distinction and render Part IV i.e. Financial Provisions of the Concession Agreement infructuous. That would be contrary to Section 13(1)(a)(vi) of the Airports Economic Regulatory Authority of India Act, 2008, which obliges AERA to take into consideration the concessions offered by the Central Government.

629. AERA itself has consistently classified CUTE, CUSS and BRS as components of Ground Handling Services. In paragraph 9.32 of HIAL’s Second Tariff Order dated 27.03.2020, AERA noted HIAL’s proposal to separate CUTE, CUSS and BRS from CIC and to treat the corresponding revenues as non-aeronautical. AERA declined that proposal on the specific ground that these services formed part of the overall Ground Handling activity. Since, at that stage, AERA was treating Ground Handling itself as an aeronautical service, it consequently treated the revenues from CUTE, CUSS and BRS as aeronautical revenue. Similar classification was adopted by AERA in MIAL’s First Control Period Tariff Order at paragraph 9.51 and Third Control Period Tariff Order at paragraph 7.6.27.

630. Therefore, once this Tribunal in HIAL v. AERA, AERA Appeal No. 4 of 2021, decided on 14.02.2024, held CGF activities to be non-regulated and the corresponding revenue non- aeronautical, the same principle requires consideration for CUTE, CUSS and BRS in the context of BIAL’s Concession Agreement. For ready reference paragraph 315, reads as follows: “315. This aspect of the matter has not been properly appreciated by AERA while passing the impugned order for the Third Control Period and hence, so far as Issue No. II, we hereby quash and set aside the decision of AERA, and we hold that the decision of AERA to treat Cargo, Ground Handling and Fuel Services as aeronautical services and the revenue generated therefrom as aeronautical revenue is incorrect, improper and unjustified. We hereby hold that the activities of CGF in case of HIAL are non- regulated activities and the revenue received by the Airport Operator, Appellant from the service providers of CGF are non-aeronautical charges.”

631. This ratio is applicable to BIAL, and consequently CUTE, CUSS, BRS, ICT, CIC charges should be treated as non-aeronautical and revenue generated therefrom is non-aeronautical revenue and AERA has no power, jurisdiction and authority to decide the tariff thereof, and they are excluded from AERA's regulatory ambit because concession agreement of HIAL and BIAL are identical in all material aspects. AERA has clarified CUET, CUSS, BRS services are as part of ground handling services in case of HIAL and in the case of MIAL also.

632. It ought to be kept in mind that the present appeal is heard by a Bench of two Members. It is settled by the Constitution Bench of the Hon'ble Supreme Court in Central Board of Dawoodi Bohra Community Vs. State of Maharashtra, (2005) 2 SCC 673, at paragraph 11-12, that the decision of a Bench of larger strength binds a Bench of lesser or coequal strength, and it follows that a Bench of larger strength is not bound by the view of a Bench of lesser strength. Nor does the principle of res judicata stand in the way. For ready reference the same reads as under: “11. In Raghubir Singh case [(1989) 2 SCC 754] a Bench of two learned Judges had made a reference to a larger Bench for reconsideration of the questions decided earlier by two Division Benches of the quorum of two and three respectively. The Constitution Bench then opined that the matter could be heard by the Constitution Bench on such reference. It is pertinent to note that in Raghubir Singh case [(1989) 2 SCC 754] the Constitution Bench has nowhere approved the practice and propriety of two-Judge Bench making a reference straightaway to the Constitution Bench disagreeing with a three-Judge Bench decision. On the contrary, the Constitution Bench had itself felt inclined to hear the issue arising for decision and therefore did not think it to be necessary to refer the matter back to a Bench of three Judges. Similar was the situation in Union of India v. Hansoli Devi [(2002) 7 SCC 273] . Therein the Constitution Bench has reiterated the principle of judicial discipline and propriety demanding that a Bench of two learned Judges should follow the decision of a Bench of three learned Judges and if a Bench of two learned Judges was inclined not to do so then the proper course for it to adopt would be (i) to refer the matter before it to a Bench of three learned Judges, and (ii) to set out the reasons why it could not agree with the earlier judgment. The Constitution Bench concluded “then if the Bench of three learned Judges also comes to the conclusion that the earlier judgment of a Bench of three

learned Judges is incorrect, then a reference could be made to a Bench of five learned Judges”. The Constitution Bench has very clearly concluded and recorded, “the very reference itself in the present case made by the two-Judge Bench was improper” (SCC p. 274). However, the Constitution Bench then proceeded to observe that as the question involved had very wide implications affecting a large number of cases, it considered it appropriate to answer the questions referred instead of sending the matter back to a Bench of three Judges for consideration. The decision of this Court in Pradip Chandra Parija [(2002) 1 SCC 1] was followed. Thus, the course adopted by the Constitution Bench in the case of Hansoli Devi [(2002) 7 SCC 273] was by way of an exception and not a rule.

12. Having carefully considered the submissions made by the learned Senior Counsel for the parties and having examined the law laid down by the Constitution Benches in the abovesaid decisions, we would like to sum up the legal position in the following terms:

(1) The law laid down by this Court in a decision delivered by a Bench of larger strength is binding on any subsequent Bench of lesser or coequal strength.

(2) A Bench of lesser quorum cannot disagree or dissent from the view of the law taken by a Bench of larger quorum. In case of doubt all that the Bench of lesser quorum can do is to invite the attention of the Chief Justice and request for the matter being placed for hearing before a Bench of larger quorum than the Bench whose decision has come up for consideration. It will be open only for a Bench of coequal strength to express an opinion doubting the correctness of the view taken by the earlier Bench of coequal strength, whereupon the matter may be placed for hearing before a Bench consisting of a quorum larger than the one which pronounced the decision laying down the law the correctness of which is doubted.

(3) The above rules are subject to two exceptions: (i) the abovesaid rules do not bind the discretion of the Chief Justice in whom vests the power of framing the roster and who can direct any particular matter to be placed for hearing before any particular Bench of any strength; and (ii) in spite of the rules laid down hereinabove, if the matter has already come up for hearing before a Bench of larger quorum and that Bench itself feels that the view of the law taken by a Bench of lesser quorum, which view is in doubt, needs correction or reconsideration then by way of exception (and not as a rule) and for reasons given by it, it may proceed to hear the case and examine the correctness of the previous decision in question dispensing with the need of a specific reference or the order of the Chief Justice constituting the Bench and such listing. Such was the situation in Raghubir Singh [(1989) 2 SCC 754] and Hansoli Devi [(2002) 7 SCC 273].”

633. The Hon'ble Supreme Court held in Mathura Prasad Bajoo Jaiswal Vs. Dossibai N.B. Jeejeebhoy, (1970) 1 SCC 613, that a decision upon a pure question of law touching the jurisdiction of a tribunal does not operate as res judicata in a subsequent proceeding between the same parties, since a tribunal cannot acquire, by an erroneous decision, a jurisdiction the law does not give it. For ready reference the same reads as under: “6. The authorities on the question whether a decision on a question of law operates as res judicata disclose widely differing views. In some cases it was decided that a decision on a question of law can never be res judicata in a subsequent proceeding between the same parties: Parthasardhi Ayyangar v. Chinnakrishna Ayyangar [ILR 5 Mad 304] ; Chamanlal v. Bapubhai [ILR 22 Bom 669] ; and Kanta Devi v. Kalawati. [AIR (1946) Lah 419] On the other hand Aikman, J., in Chandi Prasad v. Maharaja Mahendra Singh, [ILR 23 All 5] held that a decision on a question of law is always res judicata. But as observed by Rankin, C.J., in Tarini Charon Bhattacharjee v. Kedar Nath Haldar [ILR 56 Cal 723] : “Questions of law are of all kinds and cannot be dealt with as though they were all the same. Questions of procedure, questions affecting jurisdiction, questions of limitation, may all be questions of law. In such questions the rights of parties are not the only matter for consideration.”

7. Where the law is altered since the earlier decision, the earlier decision will not operate as res judicata between the same parties: Tarini Charan Bhattacharjee case. It is obvious that the matter in issue in a subsequent proceeding is not the same as in the previous proceeding, because the law interpreted is different.

9. A question of jurisdiction of the Court, or of procedure, or a pure question of law unrelated to the right of the parties to a previous suit, is not res judicata in the subsequent suit. Rankin, C.J., observed in Tarini Charan Bhattacharjee case: “The object of the doctrine of res judicata is not to fasten upon parties special principles of law as applicable to them inter se, but to ascertain their rights and the facts upon which these rights directly and substantially depend; and to prevent this ascertainment from becoming nugatory by precluding the parties from reopening or recontesting that which has been finally decided.”

10. A question relating to the jurisdiction of a Court cannot be deemed to have been finally determined by an erroneous decision of the Court. If by an erroneous interpretation of the statute the Court holds that it has no jurisdiction, the question would not, in our judgment, operate as res judicata. Similarly by an erroneous decision if the Court assumes jurisdiction which it does not possess under the statute, the question cannot operate as res judicata between the same parties, whether the cause of action in the subsequent litigation is the same or otherwise.

11. It is true that in determining the application of the rule of res judicata the Court is not concerned with the correctness or otherwise of the earlier judgment. The matter in issue, if it is one purely of fact, decided in the earlier proceeding by a competent Court must in a subsequent litigation between the same parties be regarded as finally decided and cannot be reopened. A mixed question of law and fact determined in the earlier proceeding between the same parties may not, for the same reason, be questioned in a subsequent proceeding between the same parties. But, where the decision is on a question of law i.e. the interpretation of a statute, it will be res judicata in a subsequent proceeding between the same parties where the cause of action is the same, for the expression “the matter in issue” in Section 11 of the Code of Civil Procedure means the right litigated between the parties i.e. the facts on which the right is claimed or denied and the law applicable to the determination of that issue. Where, however, the question is one purely of law and it relates to the jurisdiction of the Court or a decision of the Court sanctioning something which is illegal, by resort to the rule of res judicata a party affected by the decision will not be precluded from challenging the validity of that order under the rule of res judicata, for a rule of procedure cannot supersede the law of the land.”

634. In fact the present question before us is Whether AERA possesses jurisdiction to determine tariff for Cargo, Ground Handling and Fuel services at this airport is precisely such a question, and it now arises in relation to a distinct tariff order for a distinct control period.

635. We turn to AERA's submission, that Section 2(a) of the AERA Act, in its clauses (iv), (v) and (vi), includes within the expression aeronautical service the ground handling services relating to aircraft, passengers and cargo at an airport, the cargo facility at an airport, and the supplying of fuel to aircraft at an airport. AERA

contends that the words are plain and must be given effect. We accept that, in the generality of airports, these are aeronautical services within the statutory definition.

636. But the definition is expressly subject to the context, and the context is supplied by the very Section that confers the tariff function as Section 13(1)(a)(vi) requires AERA to take into consideration the concession offered by the Central Government in any agreement, and the proviso permits different tariff structures for different airports having regard to that consideration.

637. pronouncements, and also looking to the provisions of concession agreement read with Annexure A3 and Annexure A4, and looking to the provisions of Airport Infrastructure Policy, 1997 and looking to the provisions of AERA Act 2008, we hereby quash and set aside the decision of AERA of clarification of CGF, CUTE, CUSS, BRS, Aero Bridge, ICT and CIC services as aeronautical services. We also quash and set aside the AERA's decision of revenues generated from aforesaid services are aeronautical revenue.

638. We hereby quash and set aside the observation of AERA in paragraph number 8.2.2 to be read with Table 169. We also quash and set aside the observation of AERA in paragraph 8.6.1 of the impugned order, Annexure A1. We, hereby direct AERA to treat CUTE, CUSS, BRS, ICT and CIC as part of ground handling services and CGF services shall be treated as non-aeronautical services. Revenue generated from the aforesaid services are consequently non-aeronautical revenue. Issue No. XXI is accordingly answered in favour of the Appellant. ISSUE XXII. Consideration & Estimate of O&M Expenses.

639. By the impugned tariff order for the Third Control Period, 1st April 2021 to 31 March 2026, especially in paragraph 7.5.12 read with Table No. 118, the Authority has reduced the O&M expenses for the Third Control Period. This reduction is under challenge. For ready reference the aforesaid reads as under: “7.5.12 The Authority noted BIAL's comments on the concerns regarding percentages of gross block proposed by the Authority to calculate the O&M cost. The Authority noted that BIAL in its business plan submitted to the Authority for the Third Control Period had themselves considered 0% as the R&M cost for the capitalization year since the assets were proposed to be capitalized at the end of the year by BIAL. The Authority, accordingly, based on BIAL's submission had considered 0% as the cost for the year of capitalization of the assets. For the percentages thereafter, the Authority has given its view in the above paras and has noted that since the assets will be underutilized for major part of the Third Control Period, accordingly, the Authority sees no reason to revise its proposal given in the Consultation Paper.”

640. It is submitted by learned senior counsel appearing on behalf of the appellant that in the impugned order, as per Table No. 117, the demand of the appellant for O&M expenses for the Third Control Period is subject to true up on actual basis. Table No. 117 reflects the figures of estimated O&M expenses, because this proposal was given in the Multi Year Tariff Proposal.

641. Thereafter, the respondent issued consultation paper and invites submissions from different stakeholders. The present appellant had pointed out O&M expenses for the period of five years during third control period, 1.4.2021 to 31.3.2026. This estimation given by the appellant is based upon varieties of factors such as:

(i) addition of infrastructure;

(ii) increase area of operation including parking, MMTH, peripheral road network, etc.;

(iii) large proportion of the amount spent in nature, such as security, airside staff;

(iv) historical O&M cost percentage for forecast of O&M cost, etc.

642. On the basis of these several factors, which are based upon the data calculated for the previous years, the estimated O&M expenses were submitted by the appellant for the Third Control Period. These are reflected in Table No. 117 of the impugned order, which reads as under.

Table 117: Trends in total O&M cost as submitted by BIAL Operati ng expens es FY

FY

FY

FY

FY

FY

FY

Total (FY2

FY26 ) Total O&M cost as per BIAL

1,99

(Rs in Crores) % change

-3% 61% 61% 11% 15% 35%

643. In view of the aforesaid demand of the appellant towards O&M cost for the Third Control Period, which is mentioned in Table 117, the Authority approved O&M cost as a percentage of gross block. This is reflected in Table 118 of the impugned order, which reads as under: Table 118: O&M cost % of the respective gross block proposed by the Authority for the Third Control Period for the assets proposed to be capitalized in the Third Control Period Year O&M - Infrastructure (landside, airfield and utilities) O&M - ICT Year 1 (year of capitalization) 0.00% 0.00% Year 2 0.50% 5.00% Year 3 0.60% 5.00% Year 4 0.75% 5.00% Year 5 onwards 1.00% 5.00%

644. Thus, in view of the provisions made by the Authority, it appears that what is demanded is a two to eight per cent increase based on total of FY 22 to 26, and what is allowed is a 0.4 per cent, 0.5 per cent or 0.6 per cent increase.

645. The appellant had sought an increase in O&M expenses in proportion to the following additions to infrastructure, which were put in operation during the Third Control Period and these are as follows: Infrastruc ture At the time of issuance of SCP Order Third Control Period Airside facility One Runway Two Runways

66 Code E equivalent Stands 142 Code E equivalent Stands Terminal Single Terminal – 1.6 lakh sq. m approx 2 Terminals – Total 4.2 lakh sq. m approx Terminal Design Capacity 26.5 MPPA 51.5 MPPA Landside connectivity Main Access Road (2+2 lane) North Cargo Road (1+1 lane) Main Access Road (5+5lane) South Access Road (3+3 lane)

Southwest Connectivity (3+3 lane) North Cargo Road (2+2 lane) Landside access Open Car Park, Bus Bay Multi-modal Transport Hub

646. It also appears from the facts of the present case that the O&M expenses for the Third Control Period, as demanded by the appellant, had a causal connection with actual capacity utilisation. For ready reference, the same is reproduced in tabular format, which reads as under:

8.2. The actual capacity utilization for TCP is as follows: Details Airport Capacity (MPPA) Actual Traffic Overall Capacity utilization FY 22 26.5 16.29 61.47% FY 23 30.25* 31.91 97.56% FY 24 51.5 37.53 72.87% FY 25 51.5 41.88 81.32% FY 26 51.5 48.16 93.51%

On a weighted average basis considering 3 months of T2 availability.

647. It appears from the impugned order that the Authority has considered the financial year 2020 as a base. Thus, for projection of operational cost, the financial year 2019-2020 should have been considered by the Authority. It has been pointed out by learned senior counsel appearing for the appellant that for the airports at Chandigarh, Mumbai and Delhi, the Authority had considered the financial year 2019-20.

648. Thus, the base year for traffic and the base year for cost estimation cannot be different. This aspect of the matter has not been properly appreciated by AERA while exceeding the O&M expenses for the third control period.

649. AERA has stated, under paragraph 7.5.12 of the impugned order, that its decision to allow nothing for Operation and Maintenance in the year of capitalisation was based upon the Appellant's own submission and to us this does not appear to be correct reading of the record. In its multi year tariff proposal the Appellant had assumed that Terminal 2 would be capitalised at the very end of the financial year 2021 to 2022, that is, on 31st March 2022, and for that reason alone it had not provided for Operation and Maintenance cost in that year.

650. The capitalisation date of Terminal 2, Phase 1 was subsequently shifted to 31st December 2022, in the financial year 2022 to 2023, and three months of operation in that year ought therefore to have been provided for by AERA. The premise upon which the Appellant's original figure of nil rested had ceased to exist before the impugned order was passed.

651. In the tariff order for the Fourth Control Period of Delhi International Airport Limited, AERA has itself linked the increase in terminal area with the increase in Operation and Maintenance costs, adjusting the Operation and Maintenance cost by two thirds of the actual increase in terminal area. If the same approach is applied to the Appellant, the result is as under: Area of Terminal T1 163,535 m2 Area of Terminal T2 Phase 1 255,645 m2 Increase in Terminal Area 1.56 times Terminal Area increase factor based on principles laid down in DIAL Order 2/3 of 1.56 – 1.04 times Actual O&M Costs as of 31st March 2023 (Rs. Crs) 213.21

Incremental O&M Costs on a/c of T2 addition for FY24 (Rs. Crs) 213.21*1.04 = 221.74

652. Thus, the eligible incremental Operation and Maintenance cost of Rupees two hundred twenty one crore seventy four lakh (Rs. 221.74 crore), so computed, has been incurred over a staggered period of three years, namely the financial years 2023 to 2024, 2024 to 2025 and 2025 to 2026.

653. AERA’s submitted that the expanded terminal, runway, apron and supporting infrastructure were expected to operate below their design capacity for a substantial portion of the Third Control Period owing, inter alia, to the depressed traffic projections following the COVID-19 pandemic and thus, AERA considered historical O&M expenditure as a percentage of gross block to be an inappropriate basis for forecasting expenditure on newly commissioned assets.

654. However, where AERA substitutes the Airport Operator’s forecast with a normative benchmark of its own, the benchmark must have an intelligible evidentiary foundation and the reasons for the numerical assumption adopted must be capable of judicial scrutiny as Section 13(4) requires the Authority to ensure transparency and to make its decisions fully documented and explained.

655. The record does not disclose that AERA conducted any study before arriving at the benchmarks it has applied. AERA has not explained the basis on which it has arrived at the percentages of gross block. It has not referred to any comparable airport data. The benchmarks appear to have been arrived at without any empirical foundation. AERA cannot impose a cap on O&M expenses without a proper study.

656. Looking to paragraph 7.5.14 of the impugned tariff order, it appears that AERA has merely reiterated the proposal in its consultation paper in rejecting the submissions made by the Appellant. No reasons for such rejection of the submissions of the Appellant have been given in the impugned order.

657. AERA has failed to consider that Operation and Maintenance expenses increase disproportionately when utilisation exceeds capacity. Terminal 1 operated at more than one hundred per cent of its capacity in the financial year 2022 to 2023 for nine months, and again in the financial year 2025 to 2026, which has resulted in a significant increase in Operation and Maintenance expenses.

658. AERA has failed to consider that the maintenance of an asset begins on the date of its commissioning, and that annual maintenance contracts are required to be entered into for its upkeep from that date and such contracts were executed from the first day of operation for key equipment, including the Baggage Handling System, both electromechanical and control systems, the Passenger Boarding Bridges, the elevators and escalators, all equipment in the screening system, in line, standalone and explosive trace detection, the central heating, ventilation and air conditioning system, the electrical system, the fire alarm and fire safety systems, the firefighting system and the plumbing system.

659. If these contracts are not recognised from the day of capitalisation, the Appellant would not be compliant with the recommendations of the original equipment manufacturers for the operation and maintenance of those assets, and in the event of any breakdown there would be no vendor support. AERA's observation that newer assets need lower Operation and Maintenance costs is accordingly not correct.

660. In addition, spares and consumables required for normal operations, which are not covered by such contracts, must be procured by the Appellant, and inadequate maintenance of assets increases the insurable risk and leads to higher premiums. Besides the maintenance of civil, electromechanical, vehicle and utility assets, there are other expenses not directly related to the maintenance of assets which must be incurred for running the airport, such as housekeeping, facility maintenance, vehicle running costs including fuel, solid waste management and consumables.

661. AERA has submitted that the Appellant is provided with sustaining capital expenditure to carry out special repairs, in addition to its Operation and Maintenance costs. However, what ought to be kept in mind that these are two distinct heads. Sustaining capital expenditure relates to minor capital works and the replacement of assets, which are capital in nature and enter the Regulatory Asset Base.

662. Conversely, Operation and Maintenance expenses are revenue expenditure, which are incurred in the ordinary running and upkeep of the airport. A provision under one head does not diminish the need for expenditure under the other, and the reduction of one by reference to the other conflates capital and revenue expenditure.

663. In view of the aforesaid facts and reasons, the O&M expenses provided by AERA for the control period is hereby quashed and set aside because a variety of factors have not been properly appreciated by AERA while reducing the O&M expenses from the actual demands of the airport operator. Nonetheless, as third control period 1.4.2021 to 31.3.2026 is already over, we hereby direct AERA to allow O&M expenses actually incurred by the airport operator i.e. appellant and necessary true-up shall be given by AERA in the fourth control period tariff order.

664. It has been submitted by the learned counsel appearing for the respondent no.1 that now third control period is on its verge of completion and hence in the next control period, no true-up shall be given on actual basis.

665. The present matter is for third control period, which is by now already over. Hence, we see no reason to go in further details of this issue, but suffice it to say that estimated demands raised by the appellant was based upon varieties of factors as stated hereinabove, including the actual traffic, increase in airside facility, increase in terminal area substantially, increase in terminal capacity, because in the second control period it was

26.5 MPPA, whereas during third control period it is 51.5 MPPA. Similarly, O&M expenses have increased.

666. Similarly, while reducing the O&M expenses, the AERA has not properly appreciated this aspect of the matter. Hence we hereby quash and set aside the decision of 7.5.12 of the impugned order to be read with Table 118 of the impugned order, and we hereby direct AERA to allow the actual O&M expenses incurred by this appellant during third control period, unless necessary truing-up shall be given in the next fourth control tariff order as per section 13(1)(a)(i) AERA Act 2008, which mandates AERA shall consider actual O&M expenses incurred during third control period. AERA cannot put any cap upon O&M expenses.

667. For the reasons recorded above, we quash and set aside the decision of AERA at paragraph 7.5.12 of the impugned order read with Table No. 118. We direct AERA to true up the Operation and Maintenance expenses for the Third Control Period upon the actual expenses incurred by the Appellant, as reflected in its audited accounts, including the expenses of Terminal 2 from the date of its capitalisation, subject only to verification of each item for reasonableness upon recorded reasons, and to give effect to the true up in the determination of tariff for the Fourth Control Period. Accordingly, Issue No. XXII is answered in favour of the Appellant.

ISSUE XXIII: Consideration of Personnel Expenses during Third Control Period.

668. The present issue concerns the personnel expenditure allowed by AERA for the Third Control Period and, in particular, the reduction made by AERA in the manpower additions proposed by BIAL and the adoption of an escalation factor of 5.8% for determining the projected cost per employee as per Paragraph 7.5.7., 7.5.8 and Table No. 138 of the Impugned order which reads as under: “7.5.7 The Authority also examined the actual data for FY21 relating to personnel expenses and is of the view that the personnel expenses for FY21 are much lower than the FY20 personnel expenses despite addition of employees in FY21 and no retrenchment as per BIAL’s submission. As a result, the Authority has decided to make the following adjustments with regards to the projections of personnel expenses for TCP:

• The personnel expenses for FY22 are calculated by considering FY20 personnel cost/employee as base increased with the 8-year (FY12-FY20) CAGR of 5.8% which is then multiplied with the number of employees.

• The Authority decides to consider the allocation ratio of FY21 as the allocation ratio for the Third Control Period.

7.5.8 Based on the above, the personnel cost decided by the Authority for the Third Control Period is as follows:

Table 138: Personnel cost decided by the Authority for the Third Control Period Operating expenses FY

FY

FY

FY

FY

FY

FY

Tota l (FY2

FY2

Personnel cost/empl oyee 15.97 14.40 16.90 17.88 18.91 20.01 21.17

% increase

- 9.87 % 5.80 % 5.80 % 5.80 % 5.80 % 5.80 %

Number of Employee s 1,227 1,247 1,247 1,372 1,372 1,509 1,509 7,00

% increase

1.63 % 0.00 % 10.00 % 0.00 % 10.00 % 0.00 %

Total Personnel Cost

195.

179.

210.

245.

259.

301.

319. 1,33

Aero allocation ratio 88.94 % 87.65 % 87.65 % 87.65 % 87.65 % 87.65 % 87.65 %

Aero personnel cost

174.

157.

184.

214.

227.

264.

280. 1,17

669. Learned Senior Counsel Mr. Sajan Poovayya, appearing on behalf of the Appellant, has submitted that AERA ought to have allowed the manpower requirement and personnel expenditure projected by BIAL in its Multi-Year Tariff Proposal, subject ultimately to true-up on the basis of actual expenditure in the Fourth Control Period and for the same he has placed reliance upon the judgment of this Tribunal in Mangaluru International Airport Ltd. v. AERA, AERA Appeal No. 1 of 2023.

670. That this Tribunal in the case of Mangaluru International Airport Limited v. AERA, being AERA Appeal No. 1 of 2023, under paragraphs 226, 231, 234 and 238 has considered the relationship between airport expansion, contractual and safety obligations, actual manpower deployment and the power of AERA to rationalise personnel expenditure. For ready reference the same reads as under: “226. Covid-19 had occurred in our country after execution of the Concession Agreement dated 14.02.2020 (Annexure A-2). There cannot be any dispute that due to occurrence of Covid-19, the period to achieve COD was extended by Respondent No.2/AAI, by period of 90 days. It is not a case of Respondents that the Appellant was not required to fulfil its obligations to achieve COD as well as its post-COD obligations. The Respondents could not have expected that the manpower should have been laid off during Covid-19 to reduce the pre- COD expenses.

231. Looking to the aforesaid observation of AERA, AERA should have considered Truing-Up all the O&M Expenses actually incurred by the Airport Operator. Looking to the proposition of the Airport Operator demanding 15% growth rate, man-power expenses for both AAI employees and the appellant across all the five tariff years for the First Control Period and also looking to the overall growth in normal circumstances, AERA ought to have allowed at least 12% of growth rate towards the manpower expenses which is reasonable, just and equitable. We, therefore, quash and set aside the decision of AERA to consider only 6% growth rate towards the manpower expenses. We, therefore, set 168 of 229 aside the decision of AERA to allow only 6% increase in the manpower cost and direct AERA to consider actual increase on a Year-on-Year basis in the average cost of salaries for all employees including AAI

manpower and Airport Operator manpower as the same shall not be artificially capped at 6%.

234. Several factors have been pointed out by learned senior counsel for the appellant and it has been highlighted that Mangaluru Airport is undergoing terminal expansion from 37000 sq. m. to 47000 sq. m. and Parallel Taxi Track work has also been started by Respondent No. 2-AAI in the year 2018 and 2017 respectively, but, will be commissioned in FY 2023. Thus, the terminal area will be increased by 27% and it requires additional manpower.

238. Looking to the aforesaid aspects of the matter and looking to the obligations to be performed by the Airport Operator under Concession Agreement and also under the further requirement of DGCA for safety and security of airport operation as a priority and also looking to the size of Mangaluru Airport and also the number of footfall per annum at the airport, AERA ought to have allowed 188 personnel to be employees as 170 of 229 the Manpower headcount expenses for First Control Period. We, therefore, quash and set aside the decision of AERA of allowing only 140 employees for the Manpower headcount expenses for the First Control Period. We hereby direct AERA to allow actual manpower deployed by the Appellant as employees for the purpose of the Manpower Headcount Expenses for the FCP, as the same shall not be artificially capped at any notional number. The AERA’s decision of rationalization of cost and number of employees, both AAI employees and the employees of the Appellants, is unjustified and unreasonable. AERA shall consider the actual expenses incurred by the Appellant towards AAI employees and towards the employees of the appellant.”

671. From the perusal of the above it can be seen that under Paragraph 231 of the said judgment specifically rejected an artificial 6% ceiling upon the growth rate of manpower expenditure and directed AERA to consider the actual year-on- year increase in the average cost of salaries. This Tribunal observed that the actual O&M expenses incurred by the Airport Operator were required to be considered at true-up and that manpower expenditure could not be mechanically capped by reference to a normative percentage.

672. More importantly, paragraphs 234 to 238 dealt separately with headcount. This Tribunal took into consideration increase in terminal area, additional infrastructure, functions required under the Concession Agreement, and DGCA requirements concerning Airport Rescue and Fire Fighting and ultimately directed AERA to consider the actual manpower deployed rather than an artificially fixed notional number. Therefore, the principles emerging from the Mangaluru judgement is of direct relevance in the facts of the present case.

673. We must make it abundantly clear that ‘Personnel Expenditure’ has two distinct elements, first, the number and composition of employees reasonably required for operation of the

Airport; and secondly, the reasonable cost attributable to such manpower. AERA is entitled to examine both for efficiency and prudence. It cannot, however, determine either component through an unexplained numerical cap, which is divorced from the operational circumstances of the particular airport.

674. In view of the aforesaid requirement of manpower depends strictly upon size of the airport, footfall at the airport, the obligation of the airport operator under concession agreement, etc. As per the facts presented before this Tribunal, following is the chart of increase in the infrastructure in the third control period, which reads as under: Sl. No. Infrastructure Second Control Period Third control period

1. Airside facility One runway & 66 aprons Two runways & 147 aprons

2. Terminal 1 No with area of 1.6 lakh sq.m approx 2 Nos with total area of 4.2 lakh sq.m approx

3. Terminal capacity 26.5 mppa 51.5 mppa

4. Landside connectivity

• 4 lane Main Access Road

• 4 lane South Access Road

• Expanded 10 lane Main Access Road

• 4 lane South Access Road

• 4 lane Southwest Connectivity

• 4 lane North Cargo Road

5. Landside Access Open car park, bus bay Multi-modal transport hub with area of 175,000 sq.m approx.

675. As it can be seen from the above, the scale of infrastructure required to be operated by BIAL during the Third Control Period changed materially. The Airport moved from one runway to two runways; from one terminal of approximately 1.6 lakh square metres to two terminals aggregating approximately 4.2 lakh square metres; from a design capacity of 26.5 MPPA to approximately 51.5 MPPA; and acquired materially expanded landside connectivity and a Multi-Modal Transport Hub.

676. In view of the above increase in the infrastructure at the Bangalore airport and also looking to the traffic projections, which has already been reproduced in tabular format while determining issue number XXII reflects the fact that there is a need in the increase of manpower. Looking to the basis of the projections of the personnel cost as submitted by BIAL, it has been mentioned in Table 114 in the Impugned Order, which reads as under:

677. In view of the aforesaid Table No. 114, it appears that there is an annual increment of 10 per cent for the financial year 2022, thereafter 12 per cent for the year 2023, thereafter 10 per cent for the financial year 2024, then 10 per cent for the financial year 2025, and 12 per cent in the financial year 2026 of the manpower. Thus, the aforesaid projections of personnel, which are being increased by 10 to 12 per cent annually, with a massive addition of infrastructure and with a massive increase in the footfall at the Bangalore airport, the need for the additional manpower and the

proposed manpower cost cannot be said to be unreasonably excessive, nor can it be said that it is grossly disproportionate.

678. AERA ought to be mindful of the fact that manpower requirement cannot be assessed solely by reference to passenger traffic as certain airport functions are fixed or infrastructure-driven in character, such as Runway operations, Airport Operations Control Centre functions, Airport Rescue and Fire Fighting, safety, security, terminal management and other essential operational functions do not disappear merely because passenger throughput at a particular point in time is below the design capacity of the infrastructure.

679. The impugned decision of the Authority to reduce manpower is arbitrary and unfair, made without any empirical study on the manpower required to operate a similarly placed airport, or even based on the appellant's historical trends in manpower requirement per million traffic.

680. Equally, opening a second terminal does not amount merely to increasing the theoretical capacity of an existing facility. Two physically distinct operational terminals, require two runways and a substantially enlarged airside and landside estate necessarily entail operational functions which have to be staffed independently or additionally, subject of course to efficiencies capable of being achieved through common management and technology.

681. BIAL’s subsequent case is that, as against the aforesaid projected requirement, the actual addition ultimately made was 649 employees. The original MYTP contained a forecast; the true- up exercise now concerns actual deployment. The forecast may illuminate the assumptions made in 2021, but it is no longer necessary to determine the admissible expenditure solely by reference to that forecast.

682. It is rightly submitted by learned Senior Counsel Mr. Sajan Poovayya that AERA, in its tariff order for the Third Control Period of GMR Hyderabad International Airport Limited, Order No. 12 of 2021 to 2022, at paragraph 7.2.4, approved manpower additions by applying a benchmark of 43.15 employees per million passengers, derived from that airport's historical requirement. No such analysis or benchmark was applied to the Appellant. The Appellant's own proposal would have resulted in about 39 employees per million passengers, which is in line with its ten year historical benchmark of about 38 employees per million passengers.

683. The infrastructure additions at the Bengaluru airport justified the proposed hiring. With the new terminal being about one and a half times the area of Terminal 1, terminal management staff needed to grow proportionately, particularly as one terminal was operating near full capacity while the other was operating at about eighty per cent of its capacity. AERA, in its tariff order for the Fourth Control Period of Delhi International Airport Limited, has itself recognised terminal area, rather than passenger handling capacity, as the principal driver for projecting manpower growth, applying a factor of two thirds of the increase in terminal area.

684. As of 31st March 2021, the total manpower was 1,181. Based on the principle adopted by the Authority in the Fourth Control Period Tariff Order for DIAL, the incremental manpower addition for the appellant ought to be 821. Therefore, for the appellant's Third Control Period, the total manpower approved for the appellant ought to have been 1,181 plus 821, which equals 2,002. As against the above, the appellant has only added 649, and hence, the same should have been approved by the Authority.

685. AERA has considered an escalation of 5.80 per cent per annum in the cost per employee, whereas according to the Appellant the correct figure is 6.69 per cent. The methodology adopted by AERA divides the total personnel cost of each year by the headcount at the close of that year. That method takes no account of recruitment and exits during the year, of variations in cost across grades of employees, or of the effect of mid year additions to headcount, and it produced, for the financial year 2018, an apparent fall in the cost per employee, although the Appellant has never reduced salaries and has consistently given annual increments in line with industry benchmarks.

686. A weighted average method, based upon the average headcount during the year, would take these factors into account. The compound annual growth in the cost per employee under the three approaches placed before us is as under: (Rs in Lakhs) Details FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY2

Table 115 of TCP Order Cost/Em ployee 10.1

11.37 11.93 13.31 13.89 14.64 13.77 14.56 15.97 % change

11.80 % 4.93% 11.57 % 4.36% 5.40% (5.94 %) 5.74% 9.68%

5-year CAGR

7.56% 3.90% 4.06% 3.71% 8-year CAGR

5.80% Closing Head count approach by AERA with corrected data Personne l cost 72.59 83.81 90.37 99.67 109.8

118.7

121.2

153.1

195. Manpow er

1,046 1,22

Cost/Em ployee 9.96 11.12 11.99 12.78 13.54 14.69 14.86 14.64 15.9

% change

11.62 % 7.83% 6.61% 5.98% 8.50% 1.15% (1.48 %) 9.07 % 5-year CAGR

8.09% 5.98% 4.09% 4.56 % 8-year CAGR

6.08 % Average Headcount approach Personne l cost 72.59 83.81 90.37 99.67 109.8

118.7

121.2

153.1

195. Average manpow er

1,13

Cost/Em ployee 10.27 11.30 11.99 12.99 13.81 14.67 14.94 16.45 17.2

% change

10.08 % 6.04% 8.42% 6.25% 6.22% 1.84% 10.15 % 4.81 %

5-year CAGR

7.39% 5.73% 6.54% 5.82 % 8-year CAGR

6.69 %

687. Upon undertaking review of the proposed tabular format, it is evident that AERA has followed “closing head count approach”, which reflects average per employee compound annual growth computation of 6.08 percent, compound annual growth whereas it is submitted by the appellant airport operator that AERA should have followed “average head count approach”, which reflects average of 6.69 percent annual growth.

688. The summary of cost per employee as per the appellant's submission, as per the Authority's approval in the Third Control Period Tariff Order, and the actual cost incurred by the appellant is presented before us in tabular format, which reads as under: (Rs in Lakhs) Cost per employee FY22 FY23 FY24 FY25 FY26(P) BIAL

Submission

(a) 19.67 21.43 23.61 27.35 30.58

AERA Approval (b) 16.90 17.88 18.91 20.01 21.17 Actuals incurred by BIAL

(c) 18.80 20.08 19.97 22.03 24.00 Variance

(c) /(b)-1 11% 12% 6% 10% 13% In view of the aforesaid summarised table, cost escalations in every three years are in the range of 10 per cent, with a 2 per cent cost correction.

689. AERA has, in its own order, disclosed why its conclusion cannot stand. At paragraph 7.5.5 of the impugned order, AERA records that it has determined the personnel cost per employee without going into granular details such as departments and grades. Yet in its reply before us, AERA explains the fall in the cost per employee shown in its own Table No. 115 precisely by reference to the grade of the employees recruited, namely that about three quarters of the additions, 129 out of 171, were in the airport rescue and firefighting department, whose personnel are paid less than managerial staff. AERA thus accepts that the mix of grades distorts a simple division of total cost by closing headcount, while declining to examine that mix when fixing the escalation.

690. AERA's reason for reducing the manpower additions, under paragraph 7.5.4 of the impugned order, was that passenger traffic had fallen as a result of the pandemic and was not expected to cross pre pandemic levels until the financial year 2024, and that Terminal 2 would reach its peak capacity only at the end of the Third Control Period. But the facts set out under Issue No. XXII show that the airport operated at about ninety seven and a half per cent of its capacity in the financial year 2023, and that Terminal 1 operated above its design capacity in two years of the control period.

691. More fundamentally, the obligations of an airport operator to keep its runways, its rescue and fire fighting services, its operations control centre and its security arrangements fully manned do not rise and fall with passenger numbers, as this Tribunal recognised at paragraph 226 of the Mangaluru judgment in observing that manpower could not be expected to be laid off during the pandemic.

692. AERA in its reply further contends that, although the commissioning of Terminal 2 was postponed by nine months to 31st December 2022, the Appellant continued to claim the same headcount in the same years, and so claims a double advantage. That contention has force against the projection, but it has none against a true up upon actuals. If the Appellant recruited later than it had projected, the actual cost will show it, and the users will pay only for the manpower actually deployed and the cost actually incurred.

693. pronouncements, we quash and set aside the decision of AERA in paragraph 7.5.7 of the impugned order, Annexure A1. We direct AERA to allow the personnel expenses for the Third Control Period and the manpower additions actually made by the Appellant during that period. The manpower cost shall accordingly be allowed on actual basis, verified against the Appellant's audited accounts, and the necessary true up shall be given in the tariff order for the Fourth Control Period. Issue No. XXIII is accordingly answered in favour of the Appellant.

ISSUE XXIV: Penalty imposed by AERA upon the Appellant

694. Looking to the 5.5.6 & 5.5.7 of the impugned order (Annexure A1), AERA while passing the tariff order for third control period, has prescribed a penalty of 1% of project cost in the guise of ‘readjustment’ and proposed to deduct the same from ARR as phase 1 of terminal T- 2 project is delayed beyond 31st March, 2022. For the ready reference, 5.5.6 & 5.5.7 of the impugned order reads as under: “5.5.6 The Authority has examined the comments of BIAL, GoK, IDD, Siemens and FIA on the 1% readjustment in case of delay in implementation of the project. The Authority understands that BIAL has done due diligence while proposing the capitalization plan on which tariffs are determined for users. Thus, the contention of BIAL to not adjust 1% of the project cost does not make any justification. Accordingly, the Authority decides to reduce 1% of the project cost from ARR/Target Revenue as readjustment in case any particular project is not capitalized as per approval in the tariff order. It is further clarified that in case there is a delay in completion of the project beyond the timeline given in the tariff order, due to any reason beyond the control of BIAL or its contracting agency and is properly justified, the same would be considered by the Authority while truing up the actual cost at the time of determination of tariff for the 4th control period. Further, this decision is

applicable to all the projects forecasted to be capitalized in the third control period given in this tariff order. Hon'ble TDSAT in its judgement dated 16 December 2020 has also upheld the Authority's decision in this regard.

5.5.7. The Authority has examined the comment of APAO regarding reconsideration of the penalty proposed for capital programs for the Third Control Period. The Authority as part of its analysis in the Consultation Paper no. 10/2021-22 had detailed reasons for the 1% re-adjustment and accordingly sees no reason to revise the same.”

695. Learned Senior Counsel appearing for the Appellant, Mr. Sajan Poovayya, submitted that AERA possesses no statutory power, jurisdiction, or authority under AERA Act,2008 or under the Concession Agreement dated 05.07.2004 to levy any penalty or impose a compulsory financial exaction under the guise of a "1% re-adjustment" of the ARR. It was further submitted that the issue of AERA’s lack of penal jurisdiction is no longer res integra, having been conclusively settled in favour of airport operators by multiple authoritative coordinate bench judgments of this Tribunal.

696. AERA has sought to describe the measure not as a “penalty” but as a regulatory “re-adjustment” intended to ensure timely capitalisation of assets and to protect airport users against the financial consequences of delayed projects. According to AERA, unless some consequence follows from delayed capitalisation, an Airport Operator may continue to derive financing-related benefits without making the corresponding infrastructure available to passengers.

697. AERA further placed reliance on Section 13(1)(a), Section 13(1)(f), Section 14(4) of the AERA Act, Clause 9.2.9 of the Concession Agreement, and the earlier decision of a Single Bench of this Tribunal in BIAL v. AERA (AERA Appeal No. 8 of 2018, judgment dated 16.12.2020).

698. We have carefully considered the rival submissions, perused the material on record, and examined the statutory scheme of the AERA Act alongside the binding judicial precedents of this Tribunal.

699. We are unable to accept the proposition that the legal character of the measure depends upon the nomenclature assigned to it by the regulator; because a compulsory reduction of an otherwise determined Aggregate Revenue Requirement, imposed because the Airport Operator has failed to complete a project within the stipulated period and intended to operate as a deterrent against such delay, is punitive in substance and merely calling it a “re- adjustment”, “rationalisation” or “de-incentive” does not alter its juridical character.

700. AERA undoubtedly possesses substantial powers under the AERA Act to determine tariff, scrutinise capital expenditure, ensure timely investment, monitor performance standards and undertake true-up. Section 13(1)(a)(i) expressly requires consideration of capital expenditure and timely investment in improvement of airport facilities; Section 13(1)(a)(ii) permits consideration of service and its quality; Section 13(1)(a)(iii) permits consideration of the cost of improving efficiency; Section 14(4) empowers AERA to issue directions to monitor performance of service providers; and Section 15 authorises necessary directions for discharge of its statutory functions. For ready reference the relevant provisions of AERA Act,2008 is reproduced below and reads as under: Chapter III

POWERS AND FUNCTIONS OF THE AUTHORITY

13. Functions of Authority.—

(1) The Authority shall perform the following functions in respect of major airports, namely:—

(a) to determine the tariff for the aeronautical services taking into consideration—

(i) the capital expenditure incurred and timely investment in improvement of airport facilities;

(ii) the service provided, its quality and other relevant factors;

(iii) the cost for improving efficiency;

(iv) economic and viable operation of major airports;

(v) revenue received from services other than the aeronautical services;

(vi) the concession offered by the Central Government in any agreement or memorandum of understanding or otherwise;

(vii) any other factor which may be relevant for the purposes of this Act:

Provided that different tariff structures may be determined for different airports having regard to all or any of the above considerations specified at sub- clauses (i) to (vii); (b) to determine the amount of the development fees in respect of major airports;

(c) to determine the amount of the passengers service fee levied under Rule 88 of the Aircraft

Rules, 1937 made under the Aircraft Act, 1934 (22 of 1934);

(d) to monitor the set performance standards relating to quality, continuity and reliability of service as may be specified by the Central Government or any authority authorised by it in this behalf; (e) to call for such information as may be necessary to determine the tariff under clause (a); (f) to perform such other functions relating to tariff, as may be entrusted to it by the Central Government or as may be necessary to carry out the provisions of this Act.

(1-A) Notwithstanding anything contained in sub- sections (1) and (2), the Authority shall not determine the tariff or tariff structures or the amount of development fees in respect of an airport or part thereof, if such tariff or tariff structures or the amount of development fees has been incorporated in the bidding document, which is the basis for award of operatorship of that airport:

Provided that the Authority shall be consulted in advance regarding the tariff, tariff structures or the amount of development fees which is proposed to be incorporated in the said bidding document and such tariff, tariff structures or the amount of development fees shall be notified in the Official Gazette.]

(2) The Authority shall determine the tariff once in five years and may if so considered appropriate and in public interest, amend, from time to time during the said period of five years, the tariff so determined.

(3) While discharging its functions under sub- section (1) the Authority shall not act against the interest of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality.

(4) The Authority shall ensure transparency while exercising its powers and discharging its functions, inter alia,—

(a) by holding due consultations with all stake- holders with the airport; (b) by allowing all stake-holders to make their submissions to the authority; and

(c) by making all decisions of the authority fully documented and explained. xxx

14. Powers of Authority to call for information, conduct investigations, etc.—

(1) Where the Authority considers it expedient so to do, it may by order in writing—

(a) call upon any service provider at any time to furnish in writing such information or explanation relating to its functions as the

Authority may require to access the performance of the service provider; or

(b) appoint one or more persons to make an inquiry in relation to the affairs of any service provider; and

(c) direct any of its officers or employees to inspect the books of account or other documents of any service provider.

(2) Where any inquiry in relation to the affairs of a service provider has been undertaken under sub- section (1)—

(a) every office of the Government department, if such service provider is a department of the Government; or (b) every director, manager, secretary or other officer, if such service provider is a company; or

(c) every partner, manager, secretary or other officer, if such service provider is a firm; or (d) every other person or body of persons who has had dealings in the course of business with any of the persons mentioned in clauses (b) or (c), shall be bound to produce before the Authority making the inquiry, all such books of account or other documents in his custody or power relating to, or having a bearing on the subject-matter of such inquiry and also to furnish to the Authority with any such statement or information relating thereto, as the case may be, required of him, within such time as may be specified.

(3) Every service provider shall maintain such books of account or other documents as may be prescribed.

(4) The Authority shall have the power to issue such directions to monitor the performance of the service providers as it may consider necessary for proper functioning by service providers. xxx

15. Power of Authority to issue certain directions.—

The Authority may, for the purpose of discharge of its functions under this Act, issue, from time to time to the service providers, such directions, as it may consider necessary. xxx

701. Upon careful examination of the aforesaid sections, it appears to us that none of these provisions, however, expressly confers upon AERA the power to create and impose a monetary penalty calculated as a percentage of project cost for delayed completion of a capital project. The power to monitor is not synonymous with the power to punish. The power to issue directions does not, without a substantive charging provision, carry within it an unenumerated power to impose pecuniary sanctions.

702. Another important aspect is apparent to us from the scheme of AERA Act, 2008, when the same is carefully examined as a whole. Parliament has enacted a separate Chapter VI titled “Offences and Penalties”, wherein, Sections 37, 38 and 39 specify the defaults for which punishment by way of fine may follow and prescribe the permissible monetary consequences and Section 47 further provides that no court shall take cognizance of an offence punishable under the Act except upon a written complaint made by AERA or by an authorised officer. For ready reference the same reads as under: Chapter VI OFFENCES AND PENALTIES

37. Penalty for wilful failure to comply with orders of Appellate Tribunal.—

If any person wilfully fails to comply with the order of the Appellate Tribunal, he shall be punishable with fine which may extend to one lakh rupees and in case of a second or subsequent offence with fine which may extend to two lakh rupees and in the case of continuing contravention with additional fine which may extend to two lakh rupees for every day during which such default continues.

38. Punishment for non-compliance of orders and directions under this Act.—

Whoever fails to comply with any order or direction given under this Act, or contravenes, or attempts to

contravene or abets the contravention of the provisions of this Act or of any rules or regulations made thereunder shall be punishable with fine which may extend to one lakh rupees and in case of a second or subsequent offence with fine which may extend to two lakh rupees and in case of a continuing contravention with an additional fine which may extend to four thousand rupees for every day during which the default continues.

39. Punishment for non-compliance with order of Authority or Appellate Tribunal.—

If any person wilfully fails to comply with an order of the Authority or of the Appellate Tribunal, passed under Chapter IV, he shall be punishable with fine which may extend to one lakh rupees and, in the case of a second or subsequent offence, with fine which may extend to two lakh rupees and in the case of a continuing failure, with an additional fine which may extend to four thousand rupees for every day during which such failure continues.

40. Offences by companies.—

(1) Where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of, the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company, and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

Explanation.—For the purposes of this section—

(a) “company” means any body corporate and includes a firm or other association of individuals; and (b) “director” means a whole-time director in the company and in relation to a firm, means a partner in the firm.

41. Offences by Government Departments.—

(1) Where an offence under this Act has been committed by any Department of Government or any of its undertakings, the Head of the Department or its undertakings shall be deemed to be guilty of an offence and shall be liable to be proceeded against and punished accordingly unless he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by any Department of Government or its undertakings and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of any officer, other than the Head of the Department, or its undertakings, such officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

47. Cognizance of offences.—

No court shall take cognizance of an offence punishable under this Act, except upon a complaint in writing made by the Authority or by any officer of the Authority duly authorised by the Authority for this purpose. xxx

703. From the perusal of the above, we are of the opinion that the existence of this specific penal architecture is inconsistent with the proposition that a further and undefined power to impose monetary punishment may be implied from the general tariff- determination or monitoring provisions of Sections 13, 14 and 15. Where Parliament has itself prescribed the circumstances, quantum and process through which penal consequences may arise, an additional penal liability cannot be created administratively under the guise of tariff rationalisation.

704. We ought to remind AERA that the Constitution Bench of the Hon’ble Supreme Court in Khemka & Co. (Agencies) Pvt. Ltd. v. State of Maharashtra, (1975) 2 SCC 22, explained that imposition of a penalty creates a substantive liability and cannot be treated merely as machinery or procedure. A pecuniary liability in the nature of a penalty must have a substantive statutory source. For ready reference the same reads as under:

24. The Income Tax Act, 1961 imposes penalty under Sections 270 and 271. These sections in the Income Tax Act provide for imposition of penalty on contumacious or fraudulent assessees. Penalty is in addition to income tax, if any, determined as payable by the assessee. Tax and penalty like tax and interest are distinct and different concepts under the Indian Income Tax Act. The word “assessment” could cover penalty proceedings if it is used to denote the whole procedure for imposing liability on the taxpayer as happened in Abraham case [AIR 1961 SC 609 : (1961) 2 SCR 765 : (1961) 41 ITR 425] . Penalty is within assessment proceedings just as tax is within assessment proceedings when the relevant Act by substantive charging provision levies tax as well as penalty.

25. Penalty is not merely sanction. It is not merely adjunct to assessment. It is not merely consequential to assessment. It is not merely machinery. Penalty is in addition to tax and is a liability under the Act. Reference may be made to Section 28 of the Indian Income Tax Act, 1922 where penalty is provided for concealment of income. Penalty is in addition to the amount of income tax. This Court in Jain Brothers v. Union of India [(1969) 3 SCC 311 : (1970) 77 ITR 107] said that penalty is not a continuation of assessment proceedings and that penalty partakes of the character of additional tax.

39. On a consideration of the provisions mentioned above, it seems to me to be clear that whatever may be the objects of levying a penalty, its imposition gives rise to a substantive liability which can be viewed either as an additional tax or as a fine for the infringement of the law. The machinery or procedure for its realization comes into operation after its imposition. In any case, it is an imposition of a pecuniary liability which is comparable to a punishment for the commission of an offence. It is a well settled canon of construction of statutes that neither a pecuniary liability can be imposed nor an offence created by mere implication. It may be debatable whether a particular procedural provision creates a substantive right or liability. But, I do not think that the imposition of a pecuniary liability, which takes the form of a penalty or fine for a breach of a legal obligation, can be relegated to the region of mere procedure and machinery for the realization of tax. It is more than that. Such liabilities must be created by clear, unambiguous, and express enactment. The language used should leave no serious doubts about its effect so that the persons who are to be subjected to such a liability for the infringement of law are not left in a state of uncertainty as to what their duties or liabilities are. This is an essential requirement of a good Government of laws. It is implied in the constitutional mandate found in Article 265 of our Constitution: “No tax shall be levied or collected except by authority of law.”

46. After considering the provisions of the Central Act as well as the State Acts relating to penalties, one is irresistibly driven to the conclusion that provisions relating to penalties are special and specific provisions in each Act. They are not part of “the general Sales Tax law” of either the State or of the Union. If the provisions relating to penalties, such as those found in the Central Act and the State Acts, are really special provisions which can be invoked in the special circumstances given in each statute, we must interpret the reference to penalties in the concluding portion of Section 9(2), preceding the proviso, to relate only to the special provisions relating to penalties provided for specifically in the Central Act.

47. I think that the maxim of interpretation to apply here is: “Expressio unius exclusio alterius”. This is explained as follows in Maxwell on the Interpretation of Statutes (12th Edn. p. 298): “By the Rule usually known in the form of this Latin Maxim, mention of one or more things of a particular class may be regarded as silently excluding all other members of the class; expressum facit cessare tacitum.”

705. The same principle of statutory restraint was reiterated in Ahmedabad Urban Development Authority Vs. Sharadkumar Jayantikumar Pasawalla, (1992) 3 SCC 285, where the Hon’ble Supreme Court held that a statutory authority cannot impose a monetary levy merely by implication where the parent statute does not confer the requisite power. The fact that a levy may further the purposes of the statute cannot substitute for the absence of legislative authority. For ready reference the same reads as under:

“7. After giving our anxious consideration to the contentions raised by Mr Goswami, it appears to us that in a fiscal matter it will not be proper to hold that even in the absence of express provision, a delegated authority can impose tax or fee. In our view, such power of imposition of tax and/or fee by delegated authority must be very specific and there is no scope of implied authority for imposition of such tax or fee. It appears to us that the delegated authority must act strictly within the parameters of the authority delegated to it under the Act and it will not be proper to bring the theory of implied intent or the concept of incidental and ancillary power in the matter of exercise of fiscal power…”

8. The High Court has referred to the decisions of this Court in Hingir case [AIR 1961 SC 459 : (1961) 2 SCR 537] and Jagannath Ramanuj case [AIR 1954 SC 400 : 1954 SCR 1046] and Delhi Municipal Corporation case [(1983) 3 SCC 229 : 1983 SCC (Tax) 154 : AIR 1983 SC 617] . It has been consistently held by this Court that whenever there is compulsory exaction of any money, there should be specific provision for the same and there is no room for intendment. Nothing is to be read and nothing is to be implied and one should look fairly to the language used. We are, therefore, unable to accept the contention of Mr Goswami. Accordingly, there is no occasion to interfere with the impugned decision of the High Court. The appeal, therefore, fails and is dismissed with no order as to costs.”

706. At this stage, we notice the judgment of the Hon’ble Supreme Court in the case of ‘Carona Ltd. v. Parvathy Swaminathan

& Sons’, (2007) 8 SCC 558, on the vital issue of Jurisdictional Fact, under paragraphs No. 27-29 has held as follows: “27. Stated simply, the fact or facts upon which the jurisdiction of a court, a tribunal or an authority depends can be said to be a “jurisdictional fact”. If the jurisdictional fact exists, a court, tribunal or authority has jurisdiction to decide other issues. If such fact does not exist, a court, tribunal or authority cannot act. It is also well settled that a court or a tribunal cannot wrongly assume existence of jurisdictional fact and proceed to decide a matter. The underlying principle is that by erroneously assuming existence of a jurisdictional fact, a subordinate court or an inferior tribunal cannot confer upon itself jurisdiction which it otherwise does not posses.

28. In Halsbury's Laws of England (4th Edn.), Vol. 1, Para 55, p. 61; Reissue, Vol. 1(1), Para 68, pp. 114-15, it has been stated: “Where the jurisdiction of a tribunal is dependent on the existence of a particular state of affairs, that state of affairs may be described as preliminary to, or collateral to the merits of, the issue. If, at the inception of an inquiry by an inferior tribunal, a challenge is made to its jurisdiction, the tribunal has to make up its mind whether to act or not and can give a ruling on the preliminary or collateral issue; but that ruling is not conclusive.” The existence of a jurisdictional fact is thus a sine qua non or condition precedent to the assumption of jurisdiction by a court or tribunal.

29. But there is distinction between “jurisdictional fact” and “adjudicatory fact” which cannot be ignored. An “adjudicatory fact” is a “fact in issue” and can be determined by a court, tribunal or authority on “merits”, on the basis of evidence adduced by the parties. It is no doubt true that it is very difficult to distinguish “jurisdictional fact” and “fact in issue” or “adjudicatory fact”. Nonetheless the difference between the two cannot be overlooked.”

707. Furthermore, the Hon’ble Supreme Court in the case of ‘Shrisht Dhawan (SMT) v. M/s Shaw Brothers’, (1992) 1 SCC 534, under paragraph No. 19, has has observed as under: “19. …What, then, is an error in respect of jurisdictional fact? A jurisdictional fact is one on existence or non-existence of which depends assumption or refusal to assume jurisdiction by a court, tribunal or an authority. In Black's Legal Dictionary it is explained as a fact which must exist before a court can properly assume jurisdiction of a particular case. Mistake of fact in relation to jurisdiction is an error of jurisdictional fact. No statutory authority or tribunal can assume jurisdiction in respect of subject matter which the statute does not confer on it and if by deciding erroneously the fact on which jurisdiction depends the court or tribunal exercises the jurisdiction then the order is vitiated. Error of jurisdictional fact renders the order ultra vires and bad. [ Wade, Administrative Law] In Raza Textiles [Raza Textiles Ltd. v. ITO, (1973) 1 SCC 633 : 1973 SCC (Tax) 327 : AIR 1973 SC 1362] it was held that a court or tribunal cannot confer jurisdiction on itself by deciding a jurisdictional fact wrongly. What are those facts which can be said to be jurisdictional fact under Section 21? Although the section visualises four conditions, namely, that the landlord does not require the whole or part of premises for a particular period, the landlord must obtain the permission of the Controller in the prescribed manner, letting of the whole or part of the premises must be for residence and such letting must be for such period as may be agreed between the landlord and the tenant in writing. But the jurisdictional fact can be said to be two, availability of vacant premises which are not required by the landlord for the particular period and its letting out for residential purpose. For instance a permission obtained under Section 21 may be vitiated if the premises were not vacant on the date of application. Similarly if the permission is obtained in respect of non- residential premises. What is significant is that the declaration by the landlord that the premises were available for letting out for short period is not required to be backed by any reason. And an application filed under Section 21 with or without reasons is neither bad nor contrary to law. It may be accompanied by statement of reasons or the application may merely state that the landlord does not require the premises for the period mentioned therein. In either case the application shall be in accordance with law. And if the Controller is satisfied that what was stated was correct he is obliged to grant permission. This satisfaction may be arrived at by believing the statement or requiring a landlord to give reasons or furnish such information as the Controller may consider necessary to satisfy himself that the statement made by landlord was correct. But once satisfaction is arrived at and the order is passed it becomes operative and final. It cannot be reopened because of mere mistake or error or in the circumstances a more reasonable approach should have been to reject the application or allow it after obtaining better details. Error in assumption of jurisdiction should not be confused with mistake, legal or factual in exercise of jurisdiction. In the former the order is void whereas in the latter it is final unless set aside by higher or competent court or authority. An order which is void can be challenged at any time in any proceeding…”

708. Thus, from analysis of above two decisions it is evident that in those cases while examining the limits of jurisdiction of a statutory adjudicatory authority, the Hon’ble Supreme Court reiterated the fundamental principle that a statutory authority cannot assume jurisdiction over a subject matter which the statute does not confer upon it, nor can it confer such jurisdiction upon itself by its own determination. The Court also drew a clear distinction between an error committed in the assumption of jurisdiction and an error committed in the exercise of an admitted jurisdiction. The former goes to the very authority of the statutory body to act; the latter concerns only the manner in which an existing jurisdiction is exercised.

709. The aforesaid distinction assumes significance in the present controversy as the question before us is not merely whether one per cent was an excessive or inadequate percentage, nor whether AERA could have devised a more proportionate regulatory consequence. The anterior question is whether the AERA Act confers upon AERA the substantive power to impose a pecuniary sanction of this nature at all. Unless such jurisdiction exists, considerations relating to regulatory efficiency, passenger interest, timely capitalisation or the desirability of deterring delay cannot themselves supply the missing source of power.

710. We are of the view that the jurisdictional enquiry cannot be answered by describing the impugned exaction as a “re- adjustment” rather than a “penalty”. A statutory authority cannot enlarge its jurisdiction by the terminology through which it characterises the measure adopted by it. If the substance of the measure is a compulsory pecuniary detriment imposed upon occurrence of a specified default, its legality must be tested by reference to the statutory authority to impose that consequence and not by the label chosen by the regulator.

711. Our attention is drawn to the judgment of this Tribunal in AERA Appeal No. 8 of 2018 dated 16.12.2020. We have perused the same. The said decision is by a learned Single Judge. The circumstances of the COVID-19 pandemic, which is a major reason for causing delay in the completion of Phase I of the Terminal 2 project, were not properly appreciated in that judgment.

712. In the aforesaid judgement especially under paragraph 53 of that judgment, AERA’s case was recorded to the effect that the 1% deduction was a balancing mechanism consequent upon its acceptance of BIAL’s assurance regarding capitalisation of Terminal 2 Phase-I and that the expression “penalty” had been employed in a special regulatory sense. Paragraph 54 accepted that position and held that Sections 13(1)(f), 14(4) and 15 read with Clause 9.2.9 of the Concession Agreement supplied sufficient authority for the measure.

713. Upon reconsideration, we are unable to agree with the aforesaid proposition as Section 13(1)(f) empowers AERA to perform such other functions relating to tariff as may be entrusted by the Central Government or may be necessary to carry out the provisions of the Act. It is a facilitative provision. It cannot constitute a substantive source for creation of a pecuniary penalty which the Act has not prescribed.

714. For the same reason, Section 14(4) cannot be enlarged beyond its text. It authorises AERA to issue directions necessary to monitor the performance of service providers. It does not state that AERA may prescribe monetary punishment for breach of such directions. Section 15 suffers from the same limitation. The power to direct compliance and the power to impose a monetary sanction for non-compliance are legally distinct.

715. AERA’s reliance on Clause 9.2.9 of the BIAL Concession Agreement cannot cure the absence of statutory power. The clause proceeds upon the contingency that, from the date the Independent Regulatory Authority “has power” to review, monitor, set standards and penalties and regulate the relevant activities, BIAL shall comply with regulations framed by such Authority. The words “has power” are of significance as the clause recognises and obliges compliance with a power otherwise lawfully vested in the regulator; it does not itself legislate such power into existence.

716. This precise aspect has subsequently been considered by the Division Bench of this Tribunal in the HIAL. It was held that Clause 9.2.9 relates to performance standards concerning provision of services and could not be invoked to assume jurisdiction to penalise delayed construction of capital projects.

717. The premise of the learned Single Member judgment that the word “penalty” was being used merely in a different sense also cannot survive closer scrutiny, because the relevant question is not what AERA calls the measure, but what the measure does. If the measure is imposed because of non-completion within a stipulated date; it reduces the Airport Operator’s revenue by a predetermined percentage; and AERA itself justifies it on the ground that there must be “some implication” for delay, then to us it appears that its object is deterrent and its consequence are pecuniary. It is therefore it is penal in character and substance.

718. To the extent, therefore, that paragraphs 53 and 54 of the judgment dated 16.12.2020 in the matter of Bangalore International Airport Ltd. Vs. AERA, wherein it was held that Sections 13(1)(f), 14(4) and 15 of the AERA Act read with Clause 9.2.9 of the Concession Agreement empower AERA to impose a 1% punitive deduction from ARR for delayed completion of a capital project, the said view does not lay down the correct law and is hereby overruled by this division bench of this Tribunal.

719. This Tribunal, in the case of Mumbai International Airport Limited Vs. AERA, being AERA Appeal No. 2 of 2021 under judgment dated 06.10.2023, under paragraph 308, has held as under: “308. Moreover, in the absence of any provision for penalty under OMDA or SSA or AERA Act, 2008, no such penalty can be imposed, otherwise highly discriminatory position will prevail because today 1% of project cost penalty is imposed and subsequently it may be increased to 1.5%. If 1% penalty is allowed then 1.5% penalty would also have to be allowed then in forth coming years, as there are unguided powers, the penalty might be 3% also and, thereafter it can be 5% or more also. There will be no end to penalty in absence of any provision under OMDA, SSA and AERA Act, 2008. It ought to be kept in mind that unguided and uncontrolled power always leads to discrimination. In case of one airport operator penalty imposed will be 1% and in case of another airport operator it can be 2% because there is no law, there is no contract, there is no provision and there are no guidelines. The balance has already been created under OMDA and SSA in the methodology of true up in next control period and as stated hereinabove, as per the said methodology, excess amount recovered shall be trued up with carrying cost in next control period. Therefore, in the aforesaid example, if Rs.83 Crores has been recovered, the true up amount in the next control period, if the project is not commenced or completed within the time bound schedule, would be at Rs.121 Crores which is in fact more than sufficient revenue clawed back from the airport operator and perhaps for this very reason no powers have been given to AERA for imposing penalty. Hence, we hereby quash and set aside the decision of AERA of carrying out 1% of readjustment to project cost and applicable carrying cost in the target revenue at the time of determination of tariff for next control period.”

720. Subsequently this Tribunal, in the case of Hyderabad International Airport Limited Vs. AERA, being AERA Appeal No. 4 of 2021, under judgment dated 14.02.2024, under paragraphs 511, 512, 517 and 519, has held as under: “511. Moreover, it ought to be kept in mind that during Covid Pandemic situation prevailing in this country, the construction work has suffered a lot, airport projects are no exception to it. The delay in completion of the project at the airport was thus beyond the control of this appellant. This aspect of the matter has not been properly appreciated by AERA.

512. Imposition of the penalty by 1% is absolutely arbitrary in nature because today AERA has imposed 1% and tomorrow it could be 1.5% and thereafter it can be 2%, so on and so forth. The penalty has to be prescribed under law. Penalty cannot be imposed at the whims and caprice of the authority.

517. Respondent No. 1- AERA and Respondent No. 2-FIA have relied upon judgment in case of BIAL for the present issue. Looking to the facts of the present case, the contentions of Respondent no. 1 and Respondent no. 2 of reliance upon BIAL's judgment is of no help in the present case especially, of Clause 9.2.9 of

Concession Agreement to assume the jurisdiction to levy the penalty is wrong. On the contrary, looking to Clause 9.2.9 of the Concession Agreement it relates to performance standards for the provisions of services, as mentioned in Schedule 9 Part 2 of the Concession Agreement and not for issues related to construction.

519. Therefore, by trueing up the cost of incomplete project, much higher amount is going to be deducted, therefore, again second time penalty cannot be imposed by 1%. Hence, we hereby quash and set aside of carrying out 1% of readjustment to project cost and applicable carrying cost in ARR.”

721. Furthermore, this Tribunal in the case of Mangaluru International Airport Limited Vs. AERA, being AERA Appeal No. 1 of 2023, judgment dated 11.09.2025, has held as under: “285. The decision of AERA to de-incentivise the appellant by reducing 1% of project cost in case of delay in implementation of the project is incorrect and against the principles of tariff fixation. There are variety of reasons for delay, when such delay is beyond the control of appellant, keeping in mind the dynamic environment post COVID-19 period. If 1% penalty is imposed, the Airport Operator will have to suffer from double jeopardy because due to delay in completion of project, the return on asset will be denied and 1% penalty would be imposed and both cannot go together. The power to impose penalty must come from the AERA Act, 2008. In absence of such power in AERA Act, 2008, penalty cannot be imposed by AERA. This de-incentivise by 1% is in the nature of a penalty. A thing which cannot be done directly, can never be done indirectly. There is no provision under the AERA Act, 2008, AERA Guidelines, 2011 and Concession Agreement which empowers AERA to penalise the appellant hence, the order passed by AERA of re-adjustment in the ARR is beyond the power, jurisdiction and authority of AERA hence, the same is hereby quashed and set aside.”

722. Thus, the absence of any legal standard is apparent from the penalty itself. Nothing in the Act, the Guidelines or the Concession Agreement fixes one per cent, rather than a half or two per cent, as the measure of the deduction. As this Tribunal held at paragraph 512 of the Hyderabad judgment, a penalty that is fixed at the discretion of the authority, without any governing standard, may be one per cent today and more tomorrow, and may differ between one airport and another. A power to exact money that is guided by no standard is the very definition of arbitrariness, and it is for this reason that the law insists that a penalty be prescribed by law and not by the authority that imposes it.

723. For the reasons recorded above, we hold that AERA has no power, jurisdiction or authority under the AERA Act, the Airport Tariff Guidelines of 2011 or the Concession Agreement to impose a penalty, or a readjustment in the nature of a penalty, upon the Appellant by reducing one per cent of the project cost from the Aggregate Revenue Requirement for delay in capitalisation. We quash and set aside the decision of AERA at paragraph 5.5.6 & 5.5.7 of the impugned order, together with the decision recorded in the impugned order to reduce one per cent of the project cost from the Aggregate Revenue Requirement in case any project, including Terminal 2, Phase 1, is not capitalised as approved in the tariff order. We direct AERA not to make any such reduction in the true up for the Third Control Period in the determination of tariff for the Fourth Control Period, without prejudice to the true up of the actual cost and of the recoveries made upon projects not capitalised as projected, in accordance with the Guidelines. Issue No. XXIV is accordingly answered in favour of the Appellant. ISSUE XXV: Consideration of Income Tax. (A) Deduction of One Time Depreciation before computing aeronautical taxes.

724. The first limb of the present issue concerns the methodology adopted by AERA in paragraph 3.8.19 of the impugned Tariff Order for determining the aeronautical tax attributable to FY 2018-19 while undertaking true-up of the Second Control Period. For ready reference paragraph 3.8.19 reads as under: “3.8.19. The Authority has carefully examined BIAL's comment on the adjustment of one-time depreciation in FY19 from aeronautical profits. The Authority noted that BIAL has not considered the one-time depreciation in the P&L as per the Order No.35/2017-18 of the Authority and the Income Tax Act. Therefore, the MAT computation of FY19 did not consider this one-time depreciation.

The Authority notes from BIAL's comment that it does not agree with the Authority's reduction of the one-time depreciation from the aeronautical profit before tax as such deduction is not allowed under Income Tax Act. The Authority noted that BIAL had not included the one time depreciation charge in the audited P&L of the airport however for tariff filing purposes it has included the one-time depreciation charges in the total depreciation. Since the Authority is allowing BIAL to claim the aeronautical one-time depreciation charges from the aeronautical tariffs, the Authority considers it reasonable to account the aeronautical one-time depreciation charge for computing the aeronautical profit before tax.

Further, the Authority noted that it has applied the ratio of aeronautical PRT to total PRT on the actual tax paid by BIAL to compute the aeronautical taxation. The

Authority noted that it has considered the actual tax paid by the airport operator in computing the aeronautical taxation irrespective of the fact that the actual tax paid could have been lower if Income Tax Act and AERA's Order No.35/2017-18 would have allowed consideration of the one-time depreciation charge as a P&L entry. BIAL submitted that the Authority has not considered the deduction of the one-time depreciation charge from the total profits of the airport, to compute the aeronautical PBT to total PBT ratio. The Authority considers it fair to deduct the one-time depreciation from both aeronautical PBT and the total PBT to compute its ratio for determination of the aeronautical tax. Accordingly, the Authority has revised the true-up of the taxation for the Second Control Period.”

725. In view of the above, under impugned tariff order, AERA has deducted one-time depreciation from both aeronautical profit before taxes (PBT), and total PBT to compute the aeronautical taxes by BIAL for the financial year 2019, whereas the submission by the present appellant that AERA should consider the actual taxes paid by BIAL for the financial year 2019.

726. Under Section 115JB of the Income Tax Act, 1961, where the income-tax payable by a company under the normal provisions is less than 18.5% of its book profit, the book profit is deemed to be its total income and MAT is payable thereon at the prescribed rate. Thus, once BIAL became liable to MAT for FY 2018-19, payment thereof was a statutory tax liability. We find force in the Appellant’s submission that the regulatory computation of aeronautical tax ought therefore to reflect the tax actually paid, without notionally reducing the relevant PBT by the one-time depreciation which was not charged to the P&L for MAT purposes. It is statutory obligation of BIAL to pay MAT at the end of financial year, akin to regular income tax payable by an assesse. AERA has declined to reimburse the actual tax paid by BIAL as per paragraph 3.8.11 of the impugned tariff order. For ready reference paragraph 3.8.11 reads as under: “3.8.11. The Authority has noted that BIAL has not considered the one-time depreciation charge in the P&L while computing aeronautical taxation, BIAL, in its response to queries, has submitted that the onetime depreciation charge would have been charged to P&L account and since there is a regulatory override in Note no. 2 of Order no. 35, the same is adjusted in retained earnings. Since. one-time depreciation is allowed in the computation of the ARR, the Authority proposes to consider the onetime depreciation charge while computing the aeronautical Profit Before Tax (PBT).”

727. AERA has proceeded upon the basis that, since one-time depreciation arising from Order No. 35/2017-18 dated 12.01.2018, had been allowed in the regulatory computation of ARR, the corresponding amount should also be deducted while arriving at aeronautical Profit Before Tax and total Profit Before

Tax for purposes of allocating the actual tax paid by BIAL between its aeronautical and non-aeronautical activities.

728. As per AERA Order No.35/2017-18, 12th January, 2018, Annexure R-40 and due to change in depreciation assets there was a one- time impact, useful life of certain assets was reduced forthwith. Therefore, capital expenditure, capital expense of such assets was also reduced in the balance sheet. One-time impact of depreciation of assets which was to be charged as “Reserves and Surplus” as per note IV of AERA’s Order No.35/2017-18, Annexure R-40 and was to be added as expense in the P&L account.

729. The minimum alternate tax of Rs. 131.04 crores in the financial statement for the financial year 2019 was based on a profit before tax of Rs. 675.28 crores. This profit before tax of Rs. 675.28 crores was arrived at without considering the one-time depreciation of approximately Rs. 125.92 crores, as the same was charged to reserves and surplus as per Note 2 of Order No. 35/2017-18 dated 12th January 2018 (Annexure R-41).

730. Looking to the impugned tariff orders, AERA has calculated the aeronautical taxes reimbursement to BIAL by adding the one- time depreciation to the aeronautical P&L. This is not permissible.

This will reduce reimbursement to BIAL because BIAL has paid MAT based on the P&L account which did not include one-time depreciation. This amount of one-time depreciation was charged to the reserves of BIAL in the balance sheet as per note IV of AERA's Order No.35/2017-18, Annexure R41.

731. This aspect of the matter has not been properly appreciated by AERA. For the purpose of tariff determination, AERA had added one-time depreciation as expenditure to the aeronautical P&L, which has resulted into reduction of BIAL's profitability and consequently resulted reduction in BIAL's tax liability.

732. Considering the one-time depreciation of Rs.125.92 Crores in financial year 2019 and 88.96% being considered aeronautical as per AERA, (table number 31 of the impugned order), the depreciation additionally considered by AERA to compute aeronautical P&L amounts to Rs.112.02 Crores (88.96% of 125.92). For the ready reference, note 2 of AERA's Order No.35/2017-18, Annexure R41 reads as under: “Note 2:

1. The above rates shall be effective from accounting periods commencing on or after 1 April 2018.

2. From the date this Schedule comes into effect, the book value of the asset as on that date (a) shall be depreciated over the remaining useful life of the asset as per this Schedule; (b) after retaining the residual value, shall be recognised in the opening balance of retained earnings where the remaining useful life of an asset is nil.

3. Useful life specified is for whole of the asset. Where cost of a part of the asset is significant to total cost of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part shall be determined separately.”

733. Learned Senior Counsel Mr. Sajan Poovayya, appearing for the Appellant, has submitted that the methodology adopted by AERA creates a notional tax computation divorced from the tax actually incurred by BIAL. The one-time depreciation was not charged through BIAL’s Profit and Loss Account for purposes of computation of MAT. It was dealt with through opening retained earnings in accordance with the transitional provision contained in Order No. 35/2017-18. Consequently, according to BIAL, AERA could not notionally introduce that depreciation into the P&L for purposes of reducing the aeronautical tax recoverable through tariff.

734. There is considerable force in the distinction sought to be drawn. Depreciation recognised as a regulatory building block for determining ARR and depreciation recognised in determining the statutory tax base need not necessarily be identical. The former concerns regulatory recovery of capital cost; the latter concerns taxable or book profit determined in accordance with fiscal and accounting law.

735. Order No. 35/2017-18 itself recognises this distinction in its transitional treatment. Note 2 provides that where, upon implementation of the revised useful-life schedule, the remaining useful life of an asset is nil, the relevant carrying amount, after retaining residual value, is to be recognised in the opening balance of retained earnings. It is not directed to be routed retrospectively through the current year Profit and Loss Account.

736. Depreciation and taxation are independently recognised components of ARR. The fact that a depreciation amount is admissible as regulatory depreciation does not mean that a corresponding deduction must be notionally introduced into the tax computation, when the Income Tax Act and the audited accounts did not recognise that amount as a charge against book profit for the relevant year.

737. Put differently, regulatory symmetry cannot justify the creation of a hypothetical tax base. If BIAL was legally required to discharge MAT upon a book profit which did not contain the one- time depreciation deduction, its actual tax incidence cannot be artificially reduced for tariff purposes by assuming that the deduction had been available.

738. In view of the aforesaid note 2, Order No.35/2017-18, annexure R41, whenever the useful life is zero but some value of that asset remains, this remaining value of the asset after useful life is over will be recognized in the pending balance retained earnings, meaning thereby to residual value of the asset of which useful life is nil will be shown in the reserves and surplus account in the balance sheet. Retained earnings sit on balance sheet under “Reserves and Surplus”. Moreover, BIAL commenced operations on and from 24th May 2008. AERA's Order No.35/2017-18 was issued on 12th January 2018 that is almost ten years later.

739. For the financial statements for the year ending 31st March 2018, many assets had completed 10 to 7.5 years. Therefore, the remaining value of all those assets whose useful life is nil and residual value is retained, it will be reflected in reserves and surplus account. This aspect of the matter has not been properly appreciated by AERA.

740. There is one more error apparent on the face of record committed by AERA, because if company, suffers a loss, as per AERA's impugned tariff order, the tax value has to be in negative. This is incorrect approach of AERA. It ought to be kept in mind by AERA that if company suffers a loss, tax will be zero. Tax component will never be negative in percentage, because that would mean that the government/tax authority, the paying money to the company. There can be useful life zero, yet the residual value remains with the asset.

741. We have also considered the judgment of the Hon’ble Supreme Court in Delhi International Airport Ltd. v. AERA, 2022 SCC OnLine SC 850. In paragraph 111, the Supreme Court recognised the general taxation principle that it is actual tax paid which is ordinarily taken into account.For ready reference the same reads as under: “111. AERA and FIA had common ground while endorsing the impugned order. The actual tax paid was the substratum of their argument. The airport operators, it was pleaded, could not be permitted to unjustly enrich themselves and create an additional burden for other stakeholders if their actual taxes paid were lesser than forecast taxes. The established regulatory practice was stated to consider corporate tax paid on actuals and not on a notional basis.

115. No doubt, it is a principle of taxation that it is the actual tax which is paid and which has to be taken into account. This is what AERA and TDSAT have done ostensibly on the premise that there should not be any undue enrichment of the airport operators. However, to our mind, the more important factor is to look at what the contract says and whether some other construction would be required to be given to the contract.”

742. In view of this fact and note 2 of AERA's Order No.35/2017-18, We, therefore, quash and set aside paragraph 3.8.19 of the impugned Tariff Order to the extent AERA has notionally deducted the one-time depreciation recognised through opening retained earnings from aeronautical PBT and total PBT for allocating the tax actually paid in FY 2018-19.

743. AERA shall recompute the aeronautical tax attributable to FY 2018-19 by taking the actual tax payment made by BIAL under the Income Tax Act and allocating the same to the aeronautical segment upon a transparent and tax-consistent methodology, without introducing into the tax base a depreciation deduction which was not recognised in computing BIAL’s statutory MAT liability. Hence, consequential reimbursement, including the amount, if any, found payable, shall be determined upon reconciliation of the audited financial statements, tax records and regulatory accounts. B. MAT rates for financial year 2020 and financial year 2021 to calculate tax paid by BIAL in third control period.

744. The second limb concerns paragraph 3.8.10 read with Table 44 of the impugned Tariff Order, which determines taxation while undertaking true-up of the Second Control Period.

745. It is submitted by learned senior counsel Mr. Sajan Poovayya appearing for the appellant that AERA has considered incorrect MAT rates for third control period to calculate tax paid by BIAL, which is being reflected in paragraph 3.8.10 to be read with Table 44 of the impugned order. For the ready reference, paragraph 3.8.10 and Table No. 44, read as under: “3.8.10 As per the Second Control Period order, the Authority proposes to allow actual aeronautical MAT as pass through for true-up of the Second Control Period. The Authority noted that BIAL has paid MAT at effective tax rate of 19.10%, 19.19%, 19.40% and 16.94% from FYI7, FYI8, FYl9 and FY20 respectively by dividing MAT payment by the Profit before Tax (PST) for the respective years. Tax forecasted for FY21 is nil due to negative PBT.”

746. It is vehemently submitted by learned senior counsel appearing for the appellant that the basis for the aeronautical taxes percentage for the financial year 2020, as calculated by the Authority in Table 44, was not shared with the appellant despite the appellant's explicit request in response to the consultation paper, and therefore the aeronautical tax line item in Table 44 should be reconsidered afresh after providing an opportunity of being heard to the appellant on this issue.

747. Moreover, looking to the impugned order, it has erroneously given the figure of tax paid by BIAL for the financial year 2021 as (minus) – Rupees 2.59 Crores. Tax liability can never be in

negative; it can either be zero or positive. Even as the audited balance sheet supplied by AERA for the financial year 2021 confirms that the tax payment was zero and, therefore, AERA's computation of aeronautical tax for the financial year 2021 is prima facie erroneous and incorrect. This computation of AERA is against the financial statement as given by BIAL and without any basis.

748. Looking to paragraph 3.8.10 of the impugned tariff order, it is apparent that respondent had considered MAT for financial year at 16.94%. However, the MAT for the financial year 2020 was 17.47%, including applicable surcharge/cess.

749. BIAL’s grievance is procedural as it has submitted that the basis upon which AERA arrived at the effective tax percentage for FY 2019-20 was not disclosed despite an express request during consultation. AERA, in its reply before this Tribunal, has now stated that the rate was derived by dividing actual MAT paid by actual Profit Before Tax, subject to adjustments affecting MAT computation.

750. The statutory MAT rate and an “effective tax rate” generated by dividing actual tax payment by accounting PBT are not necessarily the same quantity. MAT book profit may itself contain statutory adjustments which cause the effective percentage of accounting PBT to differ from the rate prescribed under Section 115JB.

751. For the previous year relevant to AY 2020-21, Section 115JB stood amended so that the base MAT rate became 15%; surcharge and cess could result in a higher effective statutory incidence depending upon the applicable facts.

752. In our view the proper enquiry is therefore not whether 17.01% numerically equals the statutory MAT rate. The enquiry is whether the figure used by AERA faithfully allocates the actual MAT payment of ₹71.75 crore attributable to FY 2019-20, after giving effect to the lawful tax adjustments and the correct aeronautical/non-aeronautical allocation.

753. AERA ought to have disclose that working as Section 13(4) requires tariff decisions to be transparent, documented and explained. We make it clear that merely a figure generated from an undisclosed sequence of adjustments cannot be insulated from judicial appellate scrutiny by describing it as an “effective rate”.

754. To us the facts and figures related to FY 2020-21 requires a separate factual determination. BIAL has asserted that on the basis of its audited financial statement, that no tax was payable and that the correct tax payment was nil. AERA, however, describes ₹2.59 crore as a refund and consequently records the tax component as negative.

755. We are of the opinion that tax liability may be nil but cannot ordinarily become a negative liability requiring the Revenue to pay tax to an assessee. A tax cash flow, however, may be negative in a particular year if tax earlier paid is refunded. Therefore, if ₹2.59 crore represents an actual refund properly attributable to taxation earlier recognised in the regulatory accounts, it may legitimately require corresponding adjustment. If no such refund was received or if it relates to a different period or tax component, its deduction cannot be sustained.

756. The relevant facts are readily verifiable from the tax return, assessment/refund record, audited financial statements and bank/tax-payment records. AERA ought therefore to reconcile those documents rather than proceed upon an unexplained negative figure.

757. In view of the aforesaid facts and reasons, we hereby quash and set aside the decision of AERA in paragraph 3.8.10 to be read with Table 44 of the impugned order, as

AERA has considered incorrect MAT for third control period to calculate tax paid by BIAL. We hereby direct AERA to compute the tariff based on MAT rates as actuals prevailing in the financial year with carrying cost after providing opportunity of being heard to the appellant. Issue No. XXV is accordingly answered in favour of the Appellant. ISSUE XXVI: Consideration of Asset Allocation (A) Asset allocation for opening RAB.

758. As per the impugned order dated 28.08.2021, Annexure A1, AERA has refused to accept the allocation of the opening Regulatory Asset Base in the ratio of 90.70%:9.30%. AERA, in the impugned tariff order for the Third Control Period, has adopted the closing Regulatory Asset Base of the First Control Period as the opening Regulatory Asset Base of the Second Control Period as on 1st April 2016.

759. It is submitted by learned Senior Counsel Mr. Sajan Poovayya, appearing on behalf of the Appellant, that in the tariff order for the First Control Period, Order No. 08 of 2014 to 2015 dated 10th June 2014, Annexure R42, AERA had, at paragraph 8.26, considered the allocation ratio of 87.70%:12.30% for the Terminal 1A expansion between aeronautical and non- aeronautical areas, with a commitment to true up this allocation upon audited space allocation details in the next control period.

760. AERA had also considered the allocation ratio of the opening Regulatory Asset Base as 88.52%:11.48%. Moreover, Decision No. 4 of the tariff order for the First Control Period explicitly stated that an independent study would be commissioned to assess the reasonableness of the asset allocation in the opening Regulatory Asset Base and the Terminal 1 expansion. Paragraphs 8.24, 8.25 and 8.26 of the tariff order for the First Control Period, 1st April 2011 to 31st March 2016, at pages 4802 and 4803 of Annexure R42, read as under. “8.24 Accordingly, based on the above details, the ratio of Opening RAB between Aeronautical Assets and Non- aeronautical assets was computed as detailed below. Recomputed allocation of Opening RAB between Aeronautical and Non-Aeronautical Assets (Rs. crore). Asset Category Description Total opening RAB Aero Non- Aero Operational Assets Runway, Taxiway, Apron etc 495.59 495.59 -

Fuel Farm Assets Assets created for Fuel Farm 3.41 3.41 - Cargo Village Assets Assets of the Cargo Warehouse facility created 10.87 - 10.87 ICT Assets in Terminal Building Information, Communication, Technology assets in Terminal Building 99.07 99.07 - Other Assets Assets in Passenger Terminal Building, Other Assets in Landside, Roads, Substation 986.76 814.50 172.26 TOTAL

1,595.6

1,412.

183.1

Overall ratio computed by the Authority

88.52 % 11.48 % Asset allocation considere d by BIAL

1,595.6

1,447.

148.4

Allocation of Assets and Operation and Maintenance Expenditure between Aeronautical and Non-aeronautical Services. 8.25 The Authority noted that BIAL had considered a ratio of 90.70%:9.30% for allocation of assets. However, the Authority had computed the Aeronautical RAB as detailed above. This had resulted in a reduction of Rs.34.65 Crore from the Opening Aeronautical RAB proposed by BIAL. The Authority proposed to adjust Rs.34.65 Crore excess allocated to Aeronautical Assets by reallocating the value of assets proportionately across the different asset categories of the Opening RAB. 8.26 With respect to Terminal 1 Expansion area (TA), the Authority noted that according to BIAL, the additional Aeronautical Area constructed for Terminal 1 Expansion was 54810 sq. m whereas the additional Non-Aero area constructed was 7684 sq. m and additional common area was 22436 sq. m totalling to additional constructed area of 84,930 sq. m. This resulted in a ratio of 87.70%:12.30% for Terminal 1A Area between Aeronautical and Non- Aeronautical areas. The Authority proposed to consider this ratio in allocation of TA cost between Aeronautical Assets and Non-Aeronautical Assets, for the present, for consideration under additions to RAB. The Authority noted that BIAL shall provide year-wise audited space allocation with the details of allotment for concessionaires and accordingly the asset allocation for Aeronautical RAB is likely to vary. The Authority proposed that this will be trued up at the time of determination of Aeronautical Tariffs for the next control period.”

761. In view of the aforesaid decision of AERA, which is tariff order for the first control period, it was mentioned that true-up of allocation ratio of 87.70 : 12.30 percent shall be given on the basis of allocation based upon audited space allocation details in the next control period, and it mentions opening RAB shall be 88.52% : 11.48%.

762. Looking to Decision No. 4 of the First Control Period Tariff Order, it is explicitly stated that an independent study would be commissioned to assess reasonableness of the asset allocation for the Opening RAB and terminal expansion. For ready reference, Decision No. 4 reads as under:

(i) To consider the allocation of Opening RAB as of 1st April 2011 between Aeronautical and Non-Aeronautical Assets as determined by the Authority and detailed in Table

15.

(ii) To consider the allocation of assets relating to Terminal 1 expansion between Aeronautical Assets and Non Aeronautical Assets as detailed in Para 8.26 above.

(iii) To consider the allocation of assets relating to Terminal 1 expansion between Aeronautical Assets and Non- Aeronautical Assets as detailed in Para 8.26 above.

(iv) To commission an independent study to assess the reasonableness of the asset allocation considered in Para i and Para ii above (Refer Para 8.70.1 above).

763. Learned Senior Counsel for the Appellant has also placed reliance upon the tariff order passed by AERA for the Second Control Period, Annexure A6 to the memo of this appeal, in which, at paragraph 8.6.4 and Decision No. 5(a)(ii), AERA reiterated its commitment to a technical study of asset allocation for true up in the next control period. Paragraph 8.6.4 and Decision No. 5(a)(ii) of that order, at page 971 of Volume V, read as under: “8.6.4 The Authority had also included a proposal to carry out study of allocation of area between Aeronautical and Non-Aeronautical area and consider the same appropriately at the time of true up of ARR for the second control period.” Decision No. 5. Regarding Asset allocation between Aeronautical and Non-Aeronautical services. 5(a). Based on the material before it and its analysis, the Authority decides:

(i) To consider allocation of assets between Aeronautical and Non-Aeronautical services as detailed in 8.2.11 above and 8.6.2 above for determination of tariff for the second control period.

(ii) To carry out a technical study on the area used between Aeronautical and Non- Aeronautical in the existing and new terminal once the operations are commissioned and stabilised and result of the study will be used to true up during next control period.”

764. Despite the aforesaid two tariff orders for first control period as well as for second control period, as stated hereinabove in the impugned tariff order for third control period, AERA proposed adopting of the closing RAB of the first control period as the

opening RAB of the second control period as of 1st April 2016 without conducting any independent evaluation of the asset allocation from the airport’s pending date.

765. Thus, by the virtue of impugned tariff order for third control period, AERA has reversed its earlier decision of the first control period and second control period tariff orders. This is an error apparent on the face of record. AERA has no power, jurisdiction and authority to change its own decision given for earlier tariff periods. AERA had not preferred any appeal before this Tribunal. If this methodology is allowed, then there will be uncertainty in the tariff orders.

766. It ought to be kept in mind that once the tariff order is signed, it cannot be altered, amended or revised unilaterally, with retrospective effect because it has a cascading effect during that very control period of five years and in the subsequent control periods. This aspect of the matter has not been properly appreciated by AERA. We, therefore, quash and set aside the decision of AERA in paragraph 3.3.73 of the impugned order at Annexure A1.

767. It is pointed out by learned senior counsel appearing on behalf of the appellant that it has been held by this Tribunal in paragraphs 69 and 70 in AERA Appeal No. 8 of 2018, judgment dated 16 December 2020, in the matter between Bangalore International Airport Limited versus Airports Economic Regulatory Authority of India, which read as under: “69. On behalf of AERA, learned counsel has stated at the outset that in respect of allocation of assets as well as expenses under the heads 'aeronautical" and 'non- aeronautical a study has been commissioned which has already begun. The Authority is hopeful that the findings of such a study would be available in time for implementation during the Third Control Period which is to begin from 01.04.2021. She pointed out that even as per submissions of BIAL, the Authority could refuse to accept the ratio given by BIAL but only if a study was made and for justifiable reasons for deviation. Since a grievance was raised that no study has been conducted by AERA, hence now the study has been undertaken.

70. At this stage, it would not be proper to interfere with the allocation made by the Authority when admittedly a study has already commenced. AERA has taken the stand that allocation as per the outcome of study will hopefully be implemented in the Third Control Period. Hence, AERA is directed to take suitable and required steps to ensure that the study is completed at the earliest and put to use as indicated.”

768. The difficulty in the impugned determination is that AERA now takes the position that the study undertaken pursuant to the aforesaid direction related only to asset additions of the Second Control Period and that allocation concerning the First Control Period had already attained finality. That position does not satisfactorily answer either its earlier tariff decisions or the representation recorded by this Tribunal in paragraphs 69 and 70 of the judgment dated 16.12.2020.

769. The doctrine of finality cannot be invoked to defeat an exercise which the original determination itself expressly reserved for future true-up. There is an obvious distinction between reopening a finally determined building block merely because a regulated entity wishes to reagitate it and completing a true-up or technical verification which the regulator itself had expressly left outstanding.

770. In other words, BIAL is not entitled to keep a concluded tariff issue alive indefinitely; equally, AERA cannot first declare an allocation provisional and subject to independent verification and thereafter invoke finality to avoid performing that very verification. This distinction also the answer to AERA’s submission that the First Control Period issues cannot remain open “in perpetuity”. The obligation survives not because an Airport Operator may endlessly reopen a tariff order but because AERA

itself reserved the matter for a subsequent study and true-up, and the Tribunal thereafter directed completion and use of that study.

771. We therefore find the reasoning contained in paragraph 3.3.73 of the impugned Tariff Order unsustainable insofar as it treats the allocation issue concerning Opening RAB as closed merely by reason of finality without determining whether the study expressly contemplated under the earlier orders and the judgment dated 16th December, 2020 had in fact covered the Opening RAB.

772. In view of the aforesaid, the Authority's submission was that a study of asset allocation was underway to be implemented in the Third Control Period. The study conducted by the Authority was limited to the Second Control Period. Thus, there was no independent study for evaluation of asset allocation for the First Control Period. Thus, there is a violation of the order passed by the this Appellate Tribunal and Tariff orders for the First Control Period and the Second Control Period.

773. In view of these facts and the earlier tariff orders for the First Control Period and the Second Control Period, it appears that in the impugned tariff order for the Third Control Period, the Authority has committed an error in deciding the Opening RAB.

774. We hereby direct the Authority to conduct an expert study within a period of six months from date of this judgement for asset allocation for the Opening RAB. Meanwhile, till the study is conducted and the report is received, we hereby direct the Authority to apply the asset allocation ratio for the Opening RAB at 90.70 per cent to 9.30 per cent, which will be subject to true up based upon the aforesaid expert report in the next control period. (B) Terminal area ratio for allocating capital expenditure for the FY 2021 and for 3rd Control Period

775. The second limb concerns the methodology employed by AERA for allocating additions to capital expenditure between aeronautical and non-aeronautical assets and, particularly, the use of the Terminal Area Ratio for common assets.

776. Looking through the impugned order at Annexure A1, AERA had applied “gross block ratio” on the entire capex addition, irrespective of it being aeronautical, common or non- aeronautical, and applied the “terminal area ratio” ( 85.73%)

for common assets, revising the bifurcation ratio for financial year 2021 capex from 91% to 85.73%. This decision of AERA is under challenge under the present petition. For the ready reference, paragraph 3.3.42(e) and paragraph 5.2.92 of the impugned order at Annexure A1 reads as under: “3.3.42(e) Gross block ratio is a composite ratio and a weighted average of aero, common and non-aero assets. Hence, the Authority notes that the gross block ratio should be applied on entire capex addition irrespective of it being aero, common or non-acro instead of BIAL's approach of applying it selectively on common assets. Common assets have been segregated by BIAL in its asset register based on terminal area ratio and therefore, the Authority proposes to apply the same ratio (85.73%) for common assets. Based on the above, the Authority proposes to revise bifurcation ratio for FY21 capex of airport offices. IT project and sustaining capex from 91% to terminal area ratio of 85.73%. 5.2.92 BIAL has classified the broader categories of capex addition into acronautical, non-aeronautical. Terminal 2 and common assets. BIAL has bifurcated the common assets based on average of FY19 and FY20 gross block ratio which is also 91% to 9%. The Authority notes that the gross block ratio is a composite ratio and a weighted average of aero, common and non-aero assets. Hence, the Authority notes that the gross block ratio should be applied on entire capex addition irrespective of it being aero, common or non-aero instead of BIAL's approach of applying it selectively on common assets. Common assets have been segregated by BIAL in its asset register based on terminal area ratio and therefore, the Authority proposes to apply the same ratio (85.73% based on Terminal I area for common assets capitalized in FY22. Terminal 2 is proposed to be capitalized in FY22. The Authority proposes to apply weighted average terminal area ratio of 86.85% from FY23 to FY26. Based on the above, the Authority proposes to revise bifurcation ratio for common assets of the Third Control Period.”

777. It is important to note that at any airport there are :-

(i) assets directly identifiable as aeronautical asset.

(ii) certain assets directly identifiable as non-aeronautical assets.

(iii) assets not directly identifiable as aeronautical or as non- aeronautical which are known as common assets.

778. An allocation ratio becomes necessary principally in relation to the third category. An asset which is demonstrably and exclusively aeronautical does not become partly non-aeronautical merely because a terminal or airport-wide ratio is applied to it. Equally, an exclusively non-aeronautical asset cannot acquire an aeronautical component through application of a general ratio.

779. When capital expenditure is submitted to AERA for inclusion in the Regulatory Asset Base, the Appellant submits that the gross block ratio ought to be adopted for the provisional classification of the assets as aeronautical, non aeronautical and common, since it is based upon historical asset addition and classification data and is a closer assessment.

780. The terminal building ratio is used only for segregating common assets, and there are assets which exist outside the terminal building as well. Thus the gross block ratio is to be used for classifying the overall asset mix, whereas the terminal building ratio is to be used only for segregating common assets.

781. This aspect of the matter has not been properly appreciated by AERA. AERA has equated the terminal area ratio with the asset ratio throughout the airport. In our considered opinion this course adopted by AERA is not correct and impermissible, especially considering the fact that there are several aeronautical assets outside the terminal building, such as the air traffic control tower, which is wholly aeronautical. As a rule of thumb, therefore, it is not correct to apply the terminal area ratio as an overall asset allocation ratio.

782. Once the asset have been completed and the true-up of the same has already been done, assets are classified as aeronautical, non-

aeronautical and common assets based on the fixed assets register and terminal building ratio is applied to common assets.

783. If a ratio is to be applied to any category of assets, it can only be the common assets, since the other two categories are by their nature wholly aeronautical or wholly non aeronautical. The “Terminal gross block ratio” can be used only for assets located within the terminal, and cannot be applied generally. AERA not appreciated this aspect of the matter and has incorrectly applied terminal gross block ratio for the common assets.

784. Since a consolidated project value is likely to have aeronautical, non-aeronautical and common components, the Appellant has taken the overall asset ratio derived from its fixed asset register, and applied it to arrive at 91% as the proposed allocation ratio for such projects.

785. At the end of the control period, upon the actual additions in the fixed asset register, the direct aeronautical, non-aeronautical and common items can be clearly identified and trued up. In effect, AERA has assumed that all these projects are common assets, and has applied the terminal building ratio to them. A terminal itself comprises aeronautical, non-aeronautical and common assets, and the terminal building ratio applies only to the common assets.

786. This Tribunal in the case of Mumbai International Airport Ltd. Vs. AERA, being AERA Appeal No. 2 of 2021, judgment dated 06.10.2023, under paragraphs 239 and 246 to 249, has held that directly identifiable aeronautical and non-aeronautical assets must first be segregated and that the relevant asset- allocation ratio is thereafter to be applied to common assets alone and in paragraph 239 records in substance that an allocation ratio is required only for assets serving both aeronautical and non-aeronautical purposes. For ready reference the relevant paragraphs reads as under: “239. At Terminal T-2 at CSMIA, Mumbai, firstly aeronautical assets should have been bifurcated thereafter non- aeronautical assets should have been bifurcated as per provisions of Schedule 5 and Schedule 6 of OMDA and there are few assets which are common assets that are used for aeronautical services as well as for non- aeronautical services and, therefore, there is a need to apply, asset allocation ratio, to the common assets only. AERA has applied the common asset ratio of 85.57%:14.43% to the whole of Terminal T-2 of CSMIA, Mumbai which is an error on the part of AERA.

248. Nowhere AERA has ever pointed out that the report given by Indian Register of Shipping (IRS) which is annexed as Annexure A-11 to the memo of AERA Appeal

No.9 of 2016 was fraudulently obtained or was erroneous. On the contrary, the ratio fixed by IRS consultant which is 85.57%:14.43% has been accepted by AERA, but, it has been wrongly applied to the whole of new T-2 terminal building at CSMIA, Mumbai. In fact, this ratio has to be applied to the common assets only. Thus, out of the total assets, firstly aeronautical assets should have been bifurcated. Simultaneously, Non-aeronautical assets should have been bifurcated. Consequently, Common Assets (which are both aero and non-aero assets) shall be identified. “Asset Allocation Ratio” _should be applied to Common Assets so as to bifurcate assets and non- aeronautical assets out of Common Assets. We, therefore, direct AERA to follow 85.57%:14.43% ratio for the Common Assets of T-2 only, which will result into overall aeronautical assets ratio of 86.17%.”

787. Subsequently, this Tribunal in the case of Mangaluru International Airport Ltd. Vs. AERA, being AERA Appeal No. 1 of 2023, judgment dated 11.09.2025 under paragraph 282 has held that the terminal-building allocation ratio cannot rest upon a merely notional number and that actual area measurement should form the basis of finalisation. For ready reference the same reads as under: “282. In view of these facts, reasons and judicial pronouncements, the terminal building allocation ratio cannot be a notional number. The terminal building should not be different than actual. We, therefore, quash and set aside the decision of AERA in impugned order dated 12.01.2023 (Annexure A-1) as far as Terminal Building Allocation Ratio and Gross Fixed Allocation Ratio is concerned and we, hereby direct AERA to consider the actual area measurement submitted by appellant and on that basis, the Terminal Building Allocation Ratio shall be finalised.”

788. The same principle was reiterated by this Tribunal in the case of Goa International Airport Ltd. v. AERA, being AERA Appeal No. 1 of 2024, judgment dated 11.09.2025, under paragraphs 108 to 120 has likewise held that, where actual measurements are available, a hypothetical or standardised terminal-building ratio should not displace the actual airport-specific ratio.

789. From the aforesaid decision of this tribunal two proposition are clearly established which are relevant for present adjudication. First, allocation has to be asset-specific before it becomes ratio-specific. Secondly, whenever reliable actual data is available, true-up should proceed upon such data rather than upon a proxy devised for the forecasting stage.

790. We must hammer home the point and AERA must understand the elementary principle that a Terminal Area Ratio performs a legitimate function where a common asset serves both aeronautical and non-aeronautical areas of a terminal and here the area is a rational proxy for use. It does not follow that the same ratio can automatically be applied to every common asset throughout the airport irrespective of its location, function or utilisation.

791. The example of an ATC-related asset illustrates the point. An asset lying outside the passenger-terminal envelope and exclusively serving an aeronautical function cannot rationally be apportioned by reference to the square metres of retail and aeronautical space inside a terminal. Conversely, an asset exclusively serving car parking or another non-aeronautical facility must be classified by its actual function rather than by a general airport ratio.

792. In view of these facts, we, hereby quash and set aside the decision of AERA in paragraph 7.3.42(e) and decision in paragraph 5.2.92, and we hereby direct AERA that for the assets, which can be classified between aeronautical and non-aeronautical, it must be classified immediately. For e.g. utilities must be classified as aeronautical assets and car parking must be classified as non-aeronautical assets, etc. For mixed-use assets or common assets, AERA shall apply 91% instead of 85.73%. AERA shall use overall ratio derived from its asset register and not based on the terminal area ratio. (C) Classification of electrical and power house equipment, chiller plant, and water harvesting assets, as common assets rather than aeronautical assets.

793. The third limb concerns AERA’s classification of electrical and powerhouse equipment, water-harvesting infrastructure and the chiller plant at Terminal 1A as common assets instead of wholly aeronautical assets. Whereas according to the Appellant these are aeronautical assets, or alternatively the utility recoveries from concessionaires ought to be allocated between aeronautical and non-aeronautical in the same ratio as the asset allocation.

794. Looking to the facts of the present case, all electrical and powerhouse equipment is for core airport usage. AERA treats the utility cost recovery received from concessionaires from operating expenses and considers the entire net cost as aeronautical, meaning thereby to AERA treats all utility recovery as aeronautical and accordingly all electrical and powerhouse equipment has to be considered as aeronautical.

795. It must be noted that the electrical and powerhouse equipment are not used for construction, as construction power management is a responsibility of a contractor. This aspect of the matter has not been properly appreciated by AERA.

796. AERA has classified the chiller plant as a common asset upon its prior classification, whereas at other airports similar heating, ventilation and air conditioning assets in terminals are treated as aeronautical.

797. The water harvesting assets, such as rainwater harvesting ponds and pipelines, are part of the core utility infrastructure of the airport and ought to be treated as aeronautical, with cost recoveries adjusted from operating expenditure. AERA itself considers their entire cost as aeronautical, since it adjusts any cost recovery from these assets against the operating expenditure of the airport, and AERA has not responded to this submission in its reply.

798. AERA must maintain uniformity, either by treating all utility related assets as aeronautical, or by separating the utility recoveries between aeronautical and non aeronautical, as was done in the Second Control Period. The present approach, where the revenue is treated as wholly aeronautical but the assets as mixed, is inconsistent.

799. AERA has disputed the stand of BIAL by stating that the Appellant confuses the operations phase with the development phase. In operation, AERA states, that the concessionaires reimburse their utility costs, those recoveries are treated as revenue, and the Appellant bears utility cost only for core airport operations, which is therefore aeronautical, whereas the utility infrastructure, when developed, serves both aeronautical and non-aeronautical users and is therefore common.

800. The difficulty with this reasoning is that the asset and the revenue which it generates are treated upon two different footings. If the infrastructure is common, the share of its cost attributable to non aeronautical users is excluded from the aeronautical Regulatory Asset Base, with the consequence that the aeronautical users bear no return and no depreciation upon that share.

801. Yet the recoveries paid by the non aeronautical concessionaires for the utilities which that very share of the infrastructure supplies are applied wholly to reduce aeronautical operating expenditure, for the benefit of the very same aeronautical users. The aeronautical users thus receive the benefit of a revenue stream generated by an asset whose cost they do not bear.

802. We must state that a tariff computation which permits this result cannot be said to be consistent, and consistency in the treatment of an asset and the income which it produces is not a matter of regulatory preference but a requirement of rational tariff determination.

803. From the above discussion it is evidently clear that the principle is elementary in nature as either the asset is aeronautical, in which case its entire cost enters the Regulatory Asset Base and its recoveries reduce aeronautical operating expenditure, or the asset is common, in which case only that portion of its cost which is attributable to aeronautical users enters the Regulatory Asset Base and its recoveries must be apportioned between aeronautical and non aeronautical in the same ratio.

804. The Authority has adopted neither course. It has treated the asset as mixed and the revenue as wholly aeronautical, thereby conferring upon the aeronautical users a benefit to which the ratio it has itself adopted does not entitle them.

805. The powerhouse and the electrical works feed the airport. The harvesting works are part of the utility system of the airport. The chiller cools the terminal which the Concession requires the

operator to provide and passengers cannot be processed without those systems. Concessionaires who draw power or water reimburse a charge. That reimbursement is taken AERA wholly against aeronautical operating cost. In our opinion the asset must follow the cost.

806. An airport terminal cannot function as an airport terminal without electricity, power distribution, cooling and the utility and environmental infrastructure which enables the terminal and associated airport systems to operate continuously. These are not independent commercial facilities created for the purpose of conducting the businesses of food and beverage operators, retailers, lounges or other concessionaires. They constitute the underlying infrastructure without which the aeronautical facility itself cannot function in the manner contemplated by the Concession Agreement.

807. We do not accept the contention that a shop, restaurant, lounge or other concessionaire situated within the terminal receives electricity, cooling or some incidental benefit from the airport’s utility infrastructure does not alter the essential character of that infrastructure. In our considered opinion the test cannot be one of incidental physical benefit. If such a test were accepted, virtually every core terminal asset from common circulation infrastructure to security-supporting systems could be treated as partly non-aeronautical merely because a commercial establishment located within the terminal indirectly benefits from its existence.

808. So far as electrical and powerhouse equipment is concerned, the Appellant submits that the equipment is used for core airport operations, being the means through which power is supplied to the terminal building and to the operational systems of the airport. The Appellant has further stated that this equipment is not used for construction, as the arrangement for construction power is the responsibility of the contractor executing the works. The Appellant also points out that AERA itself deducts the utility cost recoveries received from concessionaires from operating expenses and treats the entire net utility cost as aeronautical ref. Table No. 141 of the impugned Tariff Order. Having treated the operating cost of power supply as aeronautical, AERA cannot treat the very equipment through which that power is supplied as common.

809. AERA’s own regulatory treatment of recurring utility expenditure is of considerable significance. It ought to be noted that utility recoveries received from concessionaires are adjusted against the operating expenditure, and the resulting net utility expenditure is treated as aeronautical. This treatment recognises that the Airport Operator’s regulatory burden is the cost of maintaining essential airport utilities after excluding amounts recovered from commercial users.

810. Having adopted that treatment on the operating side, AERA cannot, without a cogent and demonstrated distinction, proceed on the capital side upon the contrary premise that the very infrastructure which generates and distributes those utilities is partly non-aeronautical merely because a concessionaire draws electricity from it. The regulatory treatment of the asset and the expenditure generated by that asset must possess a rational degree of symmetry.

811. The same principle applies to water-harvesting ponds, pipelines and associated infrastructure and such infrastructure is not established as a commercial venture. It forms part of the utility and environmental infrastructure necessary for the functioning and sustainability of a major airport.

812. The AERA asset allocation study has treated water harvesting ponds and rain water sumps as serving both aeronautical and non-aeronautical assets. We have considered this. We are of the view that even if the water harvesting infrastructure serves both categories of users, the recoveries from it are treated by the AERA as aeronautical.

813. Consistency therefore requires that the asset also be treated as aeronautical. Alternatively, if the asset is truly common, the recoveries must be apportioned in the same ratio as the asset. In the absence of material showing that any identified part of the water-harvesting infrastructure was specifically created for an independent undertaking, we find no justification for reducing the aeronautical RAB by treating the core airport water-management infrastructure as common.

814. The chiller plant stands on the same footing. Central air- conditioning in a modern passenger terminal is not comparable to a commercial amenity installed at the option of an individual concessionaire. It is a central building service necessary for operation and use of the terminal infrastructure as such.

815. AERA’s reasoning proceeds substantially from the fact that non- aeronautical establishments situated within the terminal also receive conditioned air. That circumstance is insufficient to determine the character of the capital asset as we have already held. The chiller plant does not exist because a restaurant or retail outlet operates within the terminal; those establishments receive the benefit of a central system which exists in order that the passenger terminal may function as an integrated airport facility.

816. The distinction is particularly important because the terminal cannot rationally be fragmented into innumerable utility systems corresponding to the regulatory character of every square metre which they happen to serve. A central chiller plant is necessarily designed and operated as an integrated system. Its regulatory classification must therefore follow its predominant infrastructural purpose rather than the incidental identity of every end-user receiving conditioned air.

817. Applying the aforesaid principles to the material before us, we find that AERA has erred in treating the electrical and powerhouse equipment, the water-harvesting infrastructure and the chiller plant at Terminal 1A as common assets. These assets constitute integral infrastructure necessary for operation of the Airport and the passenger terminal and their predominant and direct regulatory character is aeronautical.

818. In view of the aforesaid facts and reasons, we hereby quash and set aside the decision of AERA in paragraph

3.3.74 and paragraph 3.3.85(e), Annexure A1, and we hereby hold that electrical and powerhouse equipment; water harvesting ponds and chiller plant at Terminal-1A are aeronautical assets. Issue No. XXVI is accordingly answered in favour of the Appellant. ISSUE XXVII: CLASSIFICATION OF COSTS INCURRED TOWARDS CERTAIN COST CENTRES AS COMMON INSTEAD OF AERONAUTICAL

819. As per paragraph 3.7.26 of the impugned tariff order for the Third Control Period, Annexure A1, AERA has treated the costs incurred towards (i) the Chief Operating Officer, (ii) the Corporate Affairs team, (iii) the Terminal Operations team, (iv) Operations Planning, Project Coordination, Customer Engagement and Service Quality Management, (v) the Landside Equipment team, and (vi) the Utilities team as common charges; whereas BIAL contends that the expenditure is wholly attributable to aeronautical operations. For ready reference paragraph 3.7.26

“Allocation of operating expenses for the Second Control Period

3.7.26 The Authority has noted BIAL’s comments on the allocation of the cost centre-wise personnel, O&M, general admin and marketing costs. The Authority has examined it cost centre-wise and given its decision below:

• Corporate affairs: BIAL has submitted that its corporate affairs team manages the affairs of BIAL only and deals with all permissions required at GoI and GoK for the airport. BIAL also submitted that the corporate affairs of non-aero concessionaires are not managed by BIAL and hence this is considered fully aeronautical. The Authority noted that corporate affairs for an airport is responsible for representing BIAL. BIAL, being a business owner of aeronautical and non-aeronautical businesses operational at the airport, the Authority has noted the conclusion of the study to consider BIAL’s corporate affairs cost-centre as common and decides to consider the same.

• Terminal operations: BIAL submitted that the maintenance and upkeep of the terminal is the responsibility of BIAL’s E&M team and operations of terminal are supervised and managed by Terminal Operations team. BIAL further submitted that for any specific areas leased to concessionaires, the upkeep, maintenance activities are managed by the respective concessionaires and also, BIAL is not responsible for managing any other operations of the non-aero concessionaires. BIAL also submitted that this team ensures that passenger and baggage processing & information flows are facilitated in a timely manner and coordinate with regulatory and other service providing agencies to ensure best levels of services at all times and hence, this cost is to be treated as aeronautical. The Authority noted that terminal building being a common asset, the team responsible for terminal operations has to be considered as common and decides to not make any change to the conclusion of the study.

• Ops planning and project co-ordination and Customer engagement and service quality management: BIAL has submitted that the ops planning and project co-ordination and customer engagement and service quality management works on the quality management initiatives and ops planning and project co- ordination for only the operations carried out by BIAL and not that of the concessionaires. Hence, BIAL submitted that these are fully aeronautical and these activities are part of the responsibilities of BIAL as per the requirements of the Concession agreement. The Authority has noted that the bifurcation of roles and responsibilities of the concerned cost centres cannot be limited to BIAL and other concessionaires. The Authority noted that the study has concluded that these cost-centres are responsible for the entire airport operations of BIAL which includes the aeronautical activities and the non-aeronautical activities of BIAL. Therefore, the Authority decides to consider ops planning and project co-ordination and customer engagement and service quality management costs as common.

• Landside maintenance special equipment: BIAL submitted that central air-conditioning is the necessary facility to be provided by BIAL as per the terms of the concession agreement and this is also an aeronautical asset and hence to be treated as 100% aeronautical. BIAL also submitted that this team is responsible for asset management in Terminal – special systems like BHS, PBB, VHT, HVAC Electricals, Civil, mechanicals, infra ICT & services from trumpet to terminal and hence considered fully as aeronautical. The Authority noted that as per the asset allocation study the air-conditioning in the common area is considered as common assets and the building – AC plant is considered as common assets. Therefore, the Authority decides to consider the landside maintenance

special equipment as common and make no changes to the conclusion of the study.

• Utility – Water Supply and Utility – Power Systems: BIAL has submitted that utilities are basic facilities to be provided to the users of the airport and hence, these are 100% aeronautical. BIAL also submitted that utility cost recoveries are netted off and 100% considered as aeronautical by the Authority. BIAL submitted that this team ensures that utility services are seamlessly provided for airport functioning and also develops strategic goals for energy, environment and waste management and also, they are the company custodian for all ISO standards, noise and air quality management. The Authority notes that the utility team is responsible for providing services to the airport which includes aeronautical and non-aeronautical services and therefore, decides to consider it a common expense and make no change to the conclusion of the study.

• Chief operations officer: BIAL submitted that as the name implies, these are designations only working on core airport operations management etc. and hence, to be considered as 100% Aeronautical. The Authority notes that Chief Operations Officer is an integral part of the airport management whose role cannot be limited to only the aeronautical activities at the airport. Therefore, the Authority decides to consider it as a common expense and make no change to the conclusion of the study.” xxx

820. It is submitted by learned senior counsel Mr. Sajan Poovayya that the costs incurred under all the aforesaid headings, the persons are designated officers do not monitor or engage with concessionaires at all, and therefore they cannot be classified as “common” for allocation for expenses.

821. Moreover, terminal operation team oversees work such as check- in process, smooth passenger movement and such other services directly benefiting the passengers. Therefore, any maintenance, upkeep or operational issue of non-aeronautical, the concessionaires are not serviced/managed by this team of BIAL. BIAL does not manage non-aeronautical services within the terminal.

822. Without providing cogent reason, AERA has treated costs incurred towards terminal operations team “common”. The aforesaid aspect of the matter has been also highlighted by learned senior counsel in their response to the consultation paper issued by AERA, and without taking into consideration the aforesaid aspect of the matter and without giving any reason, costs incurred towards terminal operations team treated as “common”, which is not permissible in the eye of law.

823. It has been mentioned categorically in the objections raised by the appellant after consultation paper has been published by AERA that BIAL has not incurred any expenses towards operations, maintenance of areas concessioned out in terminal building, including area concessioned out for food and beverages, lounge, etc. Therefore, deriving appellant's expenses as common will deprive appellant from recovery of expenses incurred.

824. Moreover, Chief Operating Officer is designated designation working only on the core airport's management, etc. Appellant has denied that COO is responsible for managing the operations at the airport as a whole. Similarly, operations planning, project coordination and the customer engagement does not involve planning and coordination. BIAL team does not carry out any operations planning and coordination for the concessionaires. Similarly, service quality team is responsible for evaluating and managing airport service quality (ASQ) of the airport which is mandated by the concession agreement. Therefore, this expenditure is fully aeronautical.

825. These facts have also been highlighted in response to the consultation paper. The objections raised by this appellant to this consultation paper and objections raised by this appellant before KPMG should have prepared the report. These objections have never been considered in the impugned order nor in the KPMG report, therefore, this expenditure is fully aeronautical.

These facts have also been highlighted in response to the consultation paper. The objections raised by this appellant to consultation paper and objections raised by this appellant before KPMG who has prepared the report, these objections have never been considered in the impugned order nor in the KPMG report.

826. The main function of Utility team is to ensure the utility services seamlessly provided for airport functioning and also to develop strategic goals for energy, environment and waste management. They are the company custodian for all ISO standards, noise and air quality management.

827. It is submitted by learned senior counsel appearing for the appellant that for the DIAL as well as for MIAL, AERA has considered utility assets as aeronautical and, therefore, the same treatment ought to be given to the present appellant. This aspect of the matter has not been properly appreciated by AERA.

828. Landside equipment related cost has been treated as “common”, whereas it has been emphatically pointed out by learned senior counsel appearing for the appellant that the air conditioning is the basic facility to be provided and, therefore, the cost for the same has to be considered as aeronautical.

829. The central air conditioning facility is a necessary facility to be provided by this appellant as per terms of the concession agreement. This is an aeronautical asset and hence, its cost must be treated as 100% aeronautical cost. The landside maintenance special equipment team is responsible for the asset management inside the terminal for special systems like BHS, PBB, VHT, HVAC, electrical, civil, mechanical, infra-ICT including air conditioning from trumpet to terminal.

830. All these issues which are raised in the objections after consultation paper is published, AERA has not considered this aspect in the impugned order. Moreover, before KPMG also these issues were raised, but it has also not considered the same.

831. Learned senior counsel appearing on behalf of the appellant has placed reliance upon Annexure A40 and has submitted that in tabular format the issues raised have been pointed out and the same have not been considered neither by KPMG nor by AERA while passing the impugned order.

832. We have examined paragraph 3.7.26, cost centre by cost centre, since the Appellant's grievance is that AERA did not engage with what each team actually does. Two features of the paragraph as a whole must be noticed before we turn to the individual heads.

833. The first is that AERA has not applied any single test to the one question before it, namely whether the cost of a team is attributable to aeronautical services, to non aeronautical services, or to both. For Corporate Affairs, AERA looked to the fact that the Appellant owns both kinds of business.

834. For Terminal Operations, AERA looked to the fact that the team works in a building which is itself a common asset.

835. For the Landside Maintenance Special Equipment team, AERA looked to the classification of one of the assets the team maintains.

836. For Operations Planning, Customer Engagement and Service Quality, for the Utilities team and for the Chief Operations Officer, AERA looked to the breadth of the airport to which the function extends.

837. These are four different tests, of ownership, of location, of asset and of scope, applied to one question. A cost may be common under one of them and aeronautical under another. The classification of a regulated cost cannot depend upon which of several tests the regulator happens to select for a particular head.

838. The consistent and correct test is the one the Appellant's submissions invite, namely what the team actually does and for whose services. Upon that test the answer is a question of fact, to be decided upon the material placed before AERA, and it is that exercise which AERA has not undertaken.

839. The second is that in five of the six heads AERA's decision ends with the words that it makes no change to the conclusion of the study, or that it has noted and adopts that conclusion. The Appellant placed specific factual statements before AERA about the work of each team, and AERA has not found any of them to be untrue. An expert study is an aid to the decision, not a substitute for it.

840. As the Hon'ble Supreme Court observed in Gastrade International Vs. Commissioner of Customs, Kandla, 2025 INSC 411, which we have already referred to under Issue No. XV above, an expert opinion does not bind the authority that relies upon it. The statutory function of determining tariff, and of deciding the allocation of costs that goes into it, is AERA's, and Section 13(4)(c) requires AERA's decision, and not the consultant's, to be fully documented and explained. Where objections to the study have been placed before AERA, adopting the study's conclusion without dealing with them is not a decision upon them.

841. AERA cannot delegate its decision-making function to a consultant. The report of a consultant is material on which the Authority may act, but the Authority must apply its own mind to that report. It must consider whether the methodology is sound, whether the comparators are appropriate, and whether the conclusions follow from the premises. A mechanical adoption of a consultant's conclusion is not a decision of the Authority; it is a decision of the consultant.

842. Section 13(4)(c) of the AERA Act requires every decision of AERA to be fully documented and explained, and, as the Hon'ble Supreme Court held in Siemens Engineering and Manufacturing Company of India Limited versus Union of India, (1976) 2 SCC 981, at paragraph 6, the obligation to give reasons is a basic principle of natural justice. Adopting the conclusion of a study is not a reason, where the study itself did not engage with the objections placed before it, and the order records no independent consideration of them.

843. It ought to be noted that the determination of tariff under Section 13(1)(a) of the AERA Act, 2008 is preceded, under the Authority's own Guidelines (the CGF Guidelines, 2011), by the issuance of a consultation paper and the invitation of stakeholder objections. Where the operator places on record specific, cost-centre-wise objections supported by the functions actually discharged by each team the Authority is bound in law to apply its mind to each objection and to disclose its reasons for acceptance or rejection.

844. The classification of a cost centre must depend upon the nature of the functions performed by it, and not upon the location where the functions are performed or the designation of the persons who perform them. A cost centre which performs functions that are integrally connected to aeronautical operations is an aeronautical cost centre, even if some of those functions are performed within a terminal building that also houses non- aeronautical activities. With these principles in mind, we turn to the six cost centres which the Authority has classified as common.

(i) TERMINAL OPERATIONS

845. In respect of the Terminal Operations team, AERA recorded the Appellant's submission that the upkeep and maintenance of areas leased to concessionaires are managed by the concessionaires themselves, and that the team is concerned with passenger and

baggage processing and information flows, and then decided that the terminal building being a common asset, the team responsible for terminal operations has to be considered as common, and that it would make no change to the conclusion of the study.

846. Whether the terminal building is a common asset is a question about the building. Whether the cost of a particular team is common depends upon what that team does, and for whom. A team may work within a common building and yet serve only one class of its users. AERA has not found that the Terminal Operations team performs any function for the non aeronautical concessionaires, and without such a finding the conclusion does not follow.

847. AERA states that terminal operations are considered as aeronautical for the purpose of operation and maintenance expenses, with only certain cost items relating to food and beverages and lounges, other than VIP lounges, being reclassified from aeronautical to non aeronautical.

848. AERA has thus itself found it possible to identify, item by item, the portion of terminal operations expenditure that relates to non aeronautical activity, and to treat the remainder as aeronautical.

No cogent reason has been given in the impugned order why the same function, treated as aeronautical with identified exceptions under one head of expenditure, is treated as wholly common under another.

849. The functions performed by the terminal operations team are the functions by which passengers are processed. They are the functions by which the airport operates as an airport. They are not functions by which retail shops are operated or food is served. The fact that these functions are performed within a building that also houses retail shops does not make them common functions.

(ii) Operations Planning, Project Co-ordination, Customer Engagement and Service Quality Management

850. AERA has clubbed together Operations Planning, Project Co- ordination, Customer Engagement and Service Quality Management and has treated the entire collection of functions as common on the ground that the concerned cost centres are responsible for the “entire airport operations”.

851. Again, the Authority has merely recorded the conclusion of the study without disclosing its reasoning. The Authority does not tell us what the study found about the specific functions performed by these cost centres. It does not tell us what the study understood by "entire airport operations." It does not tell us whether the study distinguished between functions performed for aeronautical activities and functions performed for non- aeronautical activities.

852. BIAL had specifically asserted that its Operations Planning team does not undertake operational planning for concessionaires and that its Service Quality function is concerned with Airport Service Quality obligations arising from the Concession Agreement.

853. AERA has answered the above with assertion that the team works for the “entire airport” and in our considered view this does not answer question raised by appellant. The airport itself is the regulated facility. If “entire airport” were, without further enquiry, synonymous with “common”, then virtually every central operational function would become common merely because the airport also contains commercial activities and permitting such reasoning to stand would would erase the distinction between directly aeronautical operating functions and genuinely shared corporate support.

854. The Concession Agreement imposes obligations upon BIAL in relation to service quality. The Airport Service Quality measurement, which the service quality team maintains, is a measure of the airport's performance as an airport. It is not a measure of the performance of retail shops or restaurants. The functions performed by these cost centres are therefore aeronautical functions. The Authority has not explained why they should be treated as common.

855. The Airport Service Quality programme, which the Appellant states and AERA does not dispute is mandated by the Concession Agreement, measures the quality of the service rendered to passengers, and Section 13(1)(a)(ii) of the AERA Act itself requires AERA to take the service provided and its quality into account in determining aeronautical tariff. AERA cannot treat the quality of service as a factor in fixing the aeronautical tariff, and at the same time treat the cost of securing that quality as only partly aeronautical, without explaining the difference.

(iii) LANDSIDE MAINTENANCE SPECIAL EQUIPMENT TEAM

856. The reasoning concerning the Landside Maintenance Special Equipment team is, in our view, especially vulnerable. AERA has treated the entire cost centre as common essentially because the air-conditioning system and the building AC plant were classified as common assets in the asset-allocation study.

857. The stated functions of the cost centre, however, extend well beyond central air-conditioning. The material placed before AERA identifies systems including Baggage Handling Systems, Passenger Boarding Bridges, VHT, HVAC, electrical systems, civil and mechanical infrastructure and ICT systems. Several of those systems have an immediate and direct relationship with aeronautical operations.

858. It is therefore impermissible to allow the classification of one constituent asset the air-conditioning plant to determine the regulatory character of the entire maintenance department. Even assuming, for argument, that the air-conditioning plant were common, it would only justify allocation of the expenditure demonstrably attributable to maintenance of that asset. It would not convert expenditure incurred in maintaining BHS, passenger boarding bridges or other directly aeronautical systems into common expenditure.

859. There is a further reason why the foundation of AERA’s reasoning cannot now survive unmodified. Under Issue No. XXVI we have separately held that the disputed core electrical and powerhouse equipment and the Terminal 1A chiller infrastructure are aeronautical assets. To the extent paragraph 3.7.26 proceeds upon their classification as common assets, that factual premise no longer survives our determination under the preceding issue.

(iv) Utilities, Water Supply and Power Systems

860. The impugned order itself records the Appellant's submission that the utility cost recoveries from concessionaires are netted off and treated as wholly aeronautical by AERA, and AERA does not deny it. The non aeronautical concessionaires pay for the utilities they consume, and those recoveries reduce the aeronautical cost in full, for the benefit of the users.

861. If the cost of the team that supplies those utilities is then treated as common, the non aeronautical share of that team's cost is removed from the aeronautical cost base, while the revenue which non aeronautical users pay for the same service has already been credited wholly to the aeronautical side. AERA must treat the cost of supplying a service and the recovery for that service on the same footing.

862. The appellant submitted that utility services are a fundamental necessity for airport operations, and that the utility team ensures that utility services are seamlessly provided for airport functioning and also develops strategic goals for energy, environment and waste management, and is the company custodian for all ISO standards, noise and air quality management.

863. These are functions that are integrally connected to the operation of the airport. They are not functions that are performed for the benefit of retail shops or restaurants. They are functions that are performed for the benefit of the airport as an airport. The Authority has not cogently explained why these functions should be treated as common.

(v) Chief Operations Officer

864. AERA has treated the Chief Operating Officer as common because the COO is “an integral part of the airport management whose role cannot be limited to only the aeronautical activities at the airport.”

865. In our considered opinion this reasoning is the same as the reasoning in respect of the other cost centres. The expression “cannot be limited” is a conclusion rather than a demonstrated factual finding. No job description, reporting structure, allocation of responsibility or identified non-aeronautical function is referred to in paragraph 3.7.26 as the basis for that conclusion and as such AERA has arrived at a conclusion without disclosing its premises. AERA has not provided us with cogent reason as what is the job profile of Chief Operations Officer. AERA also does not identify any non-aeronautical function performed by him.

866. The appellant submitted that the Chief Operations Officer is a designation working only on core airport operations management. AERA has not controverted this submission. AERA has not identified any function performed by the Chief Operations Officer for the benefit of non-aeronautical concessionaires.

867. We are of the opinion that the Chief Operations Officer of an airport is the officer responsible for the operations of the airport. His functions are the functions by which the airport operates as an airport. They are not the functions by which retail shops are operated or restaurants are managed. AERA has not explained why his cost should be treated as common.

(vi) Corporate Affairs

868. AERA’S reasoning is that "corporate affairs for an airport is responsible for representing BIAL. BIAL, being a business owner of aeronautical and non-aeronautical businesses operational at the airport, the Authority has noted the conclusion of the study to consider BIAL's corporate affairs cost-centre as common."In our considered view this reasoning suffers from three infirmities. Which are as follows:

869. First, AERA has merely recorded the conclusion of the study without disclosing the reasoning of the study. The impugned order does not tell us what the corporate affairs team does, what functions it performs, or how those functions relate to non- aeronautical activities. AERA has not identified a single non- aeronautical function performed by the corporate affairs team. The conclusion is therefore a conclusion without premise

870. Second, AERA’s reasoning proceeds upon an assumption that BIAL is a business owner of both aeronautical and non- aeronautical businesses. But BIAL is not a business owner in the ordinary sense. BIAL is an airport operator. Its corporate affairs team deals with permissions required from the Government of India and the Government of Karnataka for the airport. These are permissions that are required for the airport to function as an airport. They are not permissions required for the operation of a retail shop or a food court. Hence such exercise are aeronautical in character.

871. Third, AERA has not dealt with the appellant's specific submission that the corporate affairs of non-aeronautical concessionaires are not managed by BIAL. The appellant submitted that its corporate affairs team manages the affairs of BIAL only. AERA has not controverted this submission.

872. It has not identified any function performed by the corporate affairs team for the benefit of non-aeronautical concessionaires. In the absence of such identification, the classification of the cost centre as “common” is arbitrary.

873. We, therefore, quash and set aside the decision of AERA in paragraph 3.7.26 of the impugned order and direct the AERA to consider the issues raised by the appellant during objections raised in reply to the consultation paper and to pass a fresh order on this issue in which AERA shall deal with the issues which are already raised by the appellant. Issue No. XXVII is accordingly

Judgements delivered by this Tribunal ought to have been implemented by AERA unless they are stayed or modified.

874. During the course of examination of the several issues arising in the present appeal, another aspect of considerable institutional importance has emerged from the record, which it would be a failure of duty on our part to pass over in silence. We have noticed that, while dealing with decisions rendered by this Tribunal in earlier tariff proceedings, AERA appears to have adopted materially different standards depending upon whether the decision in question supported or operated against the regulatory position taken by it.

875. Looking to the facts of the case, it ought to be kept in mind that AERA, being a statutory authority entrusted with the economic regulation of airports, is required, as per its own stated position, to balance the interests of all the stakeholders. A direction to implement the concession agreement gives effect to the intent of the legislature, the policy of the GoI and the stature. The interest of the AO is also one such interest, which cannot be ignored by a statutory authority that is itself a creature of the legislative intent. Such interest flows from the concession agreements which as admitted by the GoI itself, carry the philosophy for economic regulation of aeronautical tariffs at the respective airports and have been approved at the highest level in the Government. Massive infrastructure projects such as airport development require regulatory consistency, more so when the concession agreement itself incorporates the policy of the GoI. It is noteworthy that the concession agreement of the Appellant is among the first entered into by the GoI for a greenfield airport under the PPP model. This pioneering initiative deserves due recognition, and the concession agreement deserves to be respected and honored. Delay in implementation, therefore, affects not only the legitimate expectation of the AO but also the airport users. Each decision of AERA involves a substantial amount, and any further delay would only add to the carrying cost, which is ultimately become by the airport users at some point in time.

876. The Hon’ble Supreme Court, in several judicial pronouncements, has consistently held that a party in whose favour an order has been passed should not be deprived of the fruits thereof merely because an appeal has been preferred, especially when no stay has been granted and the monetary benefits are capable of restitution, in case the appeal proceedings ultimately attain finality in favour of the party. The interest of the other stakeholders can also adequately be protected, as AERA ultimately succeeds in the appeal proceedings before the Hon’ble Supreme Court. The orders passed by this Tribunal, being the appellate forum constituted under the statute, are binding upon AERA.

877. In view of the aforesaid facts, reasons and judicial pronouncements, and in keeping with the rule of law, we are of the considered opinion that AERA ought to implement the directions given by this Tribunal, with such modifications as may be appropriate, while duly balancing the interests of all the stakeholders, including that of the AO. This would be consistent with the Statement of Objects and Reasons of the AERA Act, 2008, which, inter alia, recognizes the need to encourage investment in airport facilities and would thereby offer safety and security to private investors through regulatory consistency.

878. Upon perusal of the record before us, where a decision of this Tribunal has upheld the position taken by AERA, AERA has applied it promptly in the succeeding Control Period, notwithstanding that the operator has appealed against it. Where a decision of this Tribunal has gone against AERA, AERA has declined to give effect to it, upon the ground that an appeal is pending, that the decision has therefore not attained finality, and that it need not be implemented until the Hon'ble Supreme Court decides the appeal, although no order of stay has been passed.

We propose to examine whether this course is consistent with law.

879. In the tariff exercise for the Third Control Period of BIAL, AERA expressly relied upon the judgment rendered by the single judge of this Tribunal dated 16th December, 2020 in BIAL’s earlier appeals while dealing with real-estate revenue, notwithstanding the fact that the said judgment had already been carried in appeal before the Hon’ble Supreme Court.

880. The first limb of this observation is established by the impugned order itself. The Appellant's memorandum of appeal records, and AERA does not dispute, that the judgment of this Tribunal dated 16.12.2020 in AERA Appeal No. 8 of 2018 was carried by the Appellant to the Hon'ble Supreme Court in Civil Appeal Nos. 1798 and 1799 of 2021 before the impugned order came to be passed. The impugned order, and the consultation paper preceding it, nonetheless invoke that very judgment, in terms, as having upheld or agreed with the stand of the Authority, in support of issues concerning AERA's treatment of revenue from Cargo, Ground Handling and Fuel services as aeronautical, of revenue from real estate as non-aeronautical, of interest income as non- aeronautical, of waivers and bad debts, of the adjustment to the opening Regulatory Asset Base upon the report of Engineers India Limited, of utility recoveries, of rentals from aeronautical service providers, of the penalty upon delayed capital projects, and of quality of service. In none of these places does AERA suggest that the pendency of the Appellant's appeal made the judgment of 16.12.2020, any less operative, or any less fit to be applied.

881. The same approach is carried into AERA's pleadings in this appeal. Under the issue concerning Cargo, Ground Handling and Fuel services, AERA relies upon paragraphs 26 to 29 of the judgment dated 16.12.2020 as the foundation of its jurisdiction. Under the issue concerning commercial land development, AERA goes further, and pleads that because the question is pending before the Hon'ble Supreme Court in Civil Appeal Nos. 1798 and 1799 of 2021, AERA is empowered to use the method of computation it had used during the Second Control Period.

882. Under the issues concerning the Eastern Connectivity Tunnel and the notional lease rentals from Bengaluru Airport Hotel Limited, AERA pleads that the Appellant is barred from raising questions which are the subject of those very appeals, invoking in the latter case the principle embodied in Section 10 of the Code of Civil

Procedure, 1908. The pendency of the Appellant's appeal against a judgment favourable to AERA is thus put forward, not as a reason for caution in applying that judgment, but as a reason for applying it and for shutting out any challenge to it.

883. The second limb is also disclosed by AERA's reply. Where a decision of this Tribunal has gone against AERA, the pendency of AERA's own appeal is put forward as a reason for not applying it. Under the issue concerning the inclusion of thirty per cent of non- aeronautical revenue in the base for aeronautical tax, AERA urges that the question is sub judice before the Hon'ble Supreme Court in AERA's appeal against the judgment of this Tribunal dated 21st July 2023 in AERA Appeal No. 1 of 2021, Delhi International Airport Limited versus AERA, and on that footing declines to apply it.

884. The same fact, i.e. the pendency of an appeal before the Hon'ble Supreme Court, is thus treated by AERA as no obstacle to applying a judgment that favours it, and as a sufficient reason for not applying a judgment that does not. To us, this is not an isolated instance as it appears from the judgment of this Tribunal in the case of BIAL, considered below, where this tribunal found it necessary to deprecate what we can only described as an emerging practice of deferring obedience on the footing of a pending but unstayed appeal.

885. We are unable to accept that the legal effect of an appeal can vary according to which party the judgment under appeal happens to favour. Either the pendency of an appeal suspends the operation of the judgment appealed against, or it does not. The answer is supplied by settled law, and it is the same answer whichever litigant asks the question.

886. It is necessary, in this connection, to keep apart two distinct senses of the word finality. A judgment may be open to further appeal, and in that sense not yet final, and yet be fully operative and binding upon the parties and upon the authority whose order it has corrected. Finality in the first sense is a matter of whether all avenues of appeal have been exhausted. Operative force is a matter of whether the competent appellate court has stayed, varied or set aside the judgment. The first does not determine the second.

887. This legal position is settled beyond cavil. A judgment of a court or tribunal continues to be binding and effective between the parties unless and until it is stayed or set aside by a superior court. The mere filing of an appeal does not operate as an automatic stay and neither does the pendency of a Civil Appeal before the Honourable Supreme Court suspend the operation of the judgment under appeal. This principle has been reiterated in a long line of authorities.

888. The Hon'ble Supreme Court laid down the governing principle more than six decades ago in Bhopal Sugar Industries Limited Vs. Income Tax Officer, Bhopal, AIR 1961 SC 182, holding that a refusal by a subordinate authority to carry out the directions of a superior appellate tribunal amounts in effect to a denial of justice, and is destructive of the basic principles of the administration of justice under a hierarchical system, since if subordinate authorities were free to disregard appellate directions there would be chaos in the administration of justice. For ready reference the relevant paragraphs reads as under: “8. We think that the learned Judicial Commissioner was clearly in error in holding that no manifest injustice resulted from the order of the respondent conveyed in his letter dated March 24, 1955. By that order the respondent virtually refused to carry out the directions which a superior tribunal had given to him in exercise of its appellate powers in respect of an order of assessment made by him. Such refusal is in effect a denial of justice, and is furthermore destructive of one of the basic principles in the administration of justice based

as it is in this country on a hierarchy of courts. If a subordinate tribunal refuses to carry out directions given to it by a superior tribunal in the exercise of its appellate powers, the result will be chaos in the administration of justice and we have indeed found it very difficult to appreciate the process of reasoning by which the learned Judicial Commissioner while roundly condemning the respondent for refusing to carry out the directions of the superior tribunal, yet held that no manifest injustice resulted from such refusal.

9. It must be remembered that the order of the Tribunal dated April 22, 1954, was not under challenge before the Judicial Commissioner. That order had become final and binding on the parties, and the respondent could not question it in any way. As a matter of fact the Commissioner of Income Tax had made an application for a reference, which application was subsequently withdrawn. The Judicial Commissioner was not sitting in appeal over the Tribunal and we do not think that in the circumstances of this case it was open to him to say that the order of the Tribunal was wrong and, therefore, there was no injustice in disregarding that order. As we have said earlier, such a view is destructive of one of the basic principles of the administration of justice.

10. In fairness to him it must be stated that learned counsel for the respondent did not attempt to support the judgment of the Judicial Commissioner on the ground that no manifest injustice resulted from the refusal of the respondent to carry out the directions of a superior tribunal. He conceded that even if the order of the Tribunal was wrong, a subordinate and inferior tribunal could not disregard it; he readily recognised the sanctity and importance of the basic principle that a subordinate tribunal must carry out the directions of a superior tribunal. He argued, however, that the order of the Tribunal was unintelligible and the respondent did his best to understand it according to his light. This argument advanced on behalf of the respondent appears to us to be somewhat disingenuous. We find no difficulty in understanding the order of the Tribunal; it directed the respondent “to ascertain the average transport charges per maund from the centres to the factory and add to it the rate of Rs 1-4-6 per maund of sugarcane”. The direction is clear and unambiguous. The respondent instead of ascertaining the average transport charges per maund from the centres to the factory, referred to the transport charges from the farms to the factory and on that footing disregarded the directions of the Tribunal; for the respondent to say thereafter that the order of the Tribunal was not intelligible betrays a regrettable lack of candour. We must, therefore, reject the argument of learned counsel for the respondent.

11. The learned Judicial Commissioner referred to three decisions in support of the proposition that a direction or order in the nature of a writ of mandamus cannot be claimed as of right, nor need such a writ issue for every omission or irregularity; Bimal Chand v. Chairman, Jiagunj Azimgunj Municipality [AIR 1954 Cal 285] ; Gram Panchayat, Vidul of Vidul v. Multi Purpose Co- operative Society of Vidul [AIR 1954 Nag 82] and Senairam Doongarmall v. CIT [AIR 1955 Assam 201] . In the view which we have expressed, namely, that by the impugned order the respondent failed to carry out a legal duty imposed on him and such failure was destructive of a basic principle of justice, a writ of mandamus should issue ex debito justiciae to compel the respondent to carry out the directions given to him by the Income Tax Appellate Tribunal, Bombay, and it is unnecessary to consider the decisions referred to above except merely to state that in none of them arose any question of condoning a refusal by an inferior tribunal to carry out the directions given to that tribunal by a superior tribunal in the undoubted exercise of its appellate powers, on the ground that the order of the superior tribunal was wrong.

889. The Hon’ble Supreme Court settled the matter beyond doubt in Union of India Vs. Kamlakshi Finance Corporation Ltd., 1992 Supp (1) SCC 443. The Court held that judicial discipline requires subordinate authorities to follow decisions of higher appellate authorities unreservedly and that the mere fact that such decision is unacceptable to the Department and has been appealed against is no ground for disregarding it unless its operation has been suspended by a competent court. For ready reference the relevant paragraph reads as under: “6. Sri Reddy is perhaps right in saying that the officers were not actuated by any mala fides in passing the impugned orders. They perhaps genuinely felt that the claim of the assessee was not tenable and that, if it was accepted, the Revenue would suffer. But what Sri Reddy overlooks is that we are not concerned here with the correctness or otherwise of their conclusion or of any factual mala fides but with the fact that the officers, in reaching their conclusion, by-passed two appellate orders in regard to the same issue which were placed before them, one of the Collector (Appeals) and the other of the Tribunal. The High Court has, in our view, rightly criticised this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi- judicial issues before them, revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not “acceptable” to the department — in itself an objectionable phrase — and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.

890. The matter was again put beyond controversy in Collector of Customs Vs. Krishna Sales (P) Ltd., 1994 Supp (3) SCC

73. There, notwithstanding pendency of an appeal against the Tribunal’s order, the Supreme Court held that the authority could not refuse to implement the order under appeal without obtaining a stay or other appropriate direction. The Court stated in clear terms that the mere filing of an appeal does not operate as a stay or suspension of the order appealed against. For ready reference the relevant paragraph reads as under: “6. According to the said para 4, the goods will not be released even where the party succeeds in cases where the Customs authorities decide to go in appeal before the Tribunal or the Supreme Court. They will consider the issuance of such certificate only after the decision of the Tribunal or the Supreme Court, as the case may be. The learned counsel for the respondent characterises the said direction as arbitrary and contrary to law. We see the force in his submission. If the authorities are of the opinion that the goods ought not to be released pending the appeal, the straightforward course for them is to obtain an order of stay or other appropriate direction from the Tribunal or the Supreme Court, as the case may be. Without obtaining such an order they cannot refuse to implement the order under appeal. As is well-known, mere filing of an appeal does not operate as a stay or suspension of the order appealed against. Moreover, such detention is likely to create several complications relating to the demurrage charges besides the possible deterioration of the machinery and goods. We hope and trust that the Collector of Customs, Bombay shall appropriately revise the said public notice in the light of the observations made herein. If he does not do so, there is a likelihood of the Customs authorities being themselves made liable for demurrage charges in appropriate cases.”

891. The same principle is reflected in Order XLI Rule 5(1) of the Code of Civil Procedure, 1908, which expressly provides that an appeal shall not operate as a stay merely by reason of its having been preferred. Although proceedings before this Tribunal are not governed in every respect by the Code, the provision embodies a fundamental principle of appellate jurisprudence, that an appellant cannot, merely by instituting an appeal, confer upon itself the interim relief which only the appellate court is competent to grant.

892. In Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association, (1992) 3 SCC 1, the Hon’ble Supreme Court explained that even an express order staying operation of a judgment does not obliterate the judgment from existence; it merely renders it inoperative during the currency of the stay. A fortiori, where no stay at all has been granted, there can be no legal basis for treating the judgment as though it stood suspended. For ready reference the relevant paragraph reads as under: “10. In the instant case, the proceedings before the Board under Sections 15 and 16 of the Act had been terminated by order of the Board dated April 26, 1990 whereby the Board, upon consideration of the facts and material before it, found that the appellant-company had become economically and commercially non-viable due to its huge accumulated losses and liabilities and should be wound up. The appeal filed by the appellant- company under Section 25 of the Act against said order of the Board was dismissed by the Appellate Authority by order dated January 7, 1991. As a result of these orders, no proceedings under the Act were pending either before the Board or before the Appellate Authority on February 21, 1991 when the Delhi High Court passed the interim order staying the operation of the order of the Appellate Authority dated January 7, 1991. The said stay order of the High Court cannot have the effect of reviving the proceedings which had been disposed of by the Appellate Authority by its order dated January 7, 1991. While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order. Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out

from existence. This means that if an order passed by the Appellate Authority is quashed and the matter is remanded, the result would be that the appeal which had been disposed of by the said order of the Appellate Authority would be restored and it can be said to be pending before the Appellate Authority after the quashing of the order of the Appellate Authority. The same cannot be said with regard to an order staying the operation of the order of the Appellate Authority because in spite of the said order, the order of the Appellate Authority continues to exist in law and so long as it exists, it cannot be said that the appeal which has been disposed of by the said order has not been disposed of and is still pending…”

893. The scheme of the AERA Act leads to the same conclusion. Section 31 confers a right of appeal to the Hon'ble Supreme Court against orders of this Tribunal. Parliament has nowhere provided that the filing of such an appeal shall suspend the order appealed against. On the contrary, Section 32 provides that every order made by this Tribunal shall be executable by it as a decree of a civil court, and that for this purpose the Tribunal shall have all the powers of a civil court. Section 37 provides for a penalty for wilful failure to comply with the orders of this Tribunal, and Section 39 for punishment for non-compliance with orders of the Authority or of this Tribunal.

894. Parliament thus preserved the right of appeal under Section 31, while making the orders of this Tribunal presently executable and attaching consequences to their non-compliance. To hold that the filing of an appeal under Section 31, without more, entitles AERA to postpone compliance until the appeal is decided would be to read into Section 31 an automatic stay which Parliament did not enact, and to deprive Sections 32, 37 and 39 of much of their content.

895. This Tribunal has itself recently reiterated the position in GMR Goa International Airport Ltd. Vs. AERA, AERA Appeal No. 1 of 2024, judgment dated 11.09.2025 has held that decisions of this Tribunal bind AERA unless stayed or set aside; that non-adherence to binding precedent amounts to a breach of judicial discipline; and that AERA cannot defer compliance merely because an appeal is pending. For ready reference the relevant paragraph reads as under: “186. It is trite to state that it is elementary principle of law that the determinations of this Tribunal binds AERA unless and until stayed or set aside by the Hon'ble Supreme Court. The mere pendency of an appeal does not dilute the ratio decidendi. Where no interim stay is in force, the Tribunal's pronouncement operates proprio vigore and must be implemented inter partes in the very matter decided and, on parity, in cognate cases presenting the same point.

187. That non-adherence to a binding precedent constitutes a jurisdictional error and a breach of judicial discipline in the statutory hierarchy. The emerging practice of deferring obedience on the footing of a pending but unstayed appeal is deprecated. If the Authority considers a prior ratio inapplicable, it must identify the material distinctions, record reasons, and, where necessary, seek clarification; it may not simply ignore the ruling.

188. The AERA tariff framework already contains a safety- valve in the form of true-up. Should the Hon'ble Supreme Court subsequently vary the governing law, symmetrical adjustments can be effected at the next determination without unsettling settled accounts. The availability of true-up removes any rationale for holding back compliance with binding Tribunal law in the interim..”

896. We respectfully reiterate that principle. AERA is undoubtedly entitled to disagree with a judgment of this Tribunal and to avail itself of the statutory remedy under Section 31. Indeed, the Hon’ble Supreme Court in Airports Economic Regulatory Authority of India Vs. Delhi International Airport Ltd., 2024 INSC 791, has recognised AERA’s entitlement to maintain an appeal where it is aggrieved by a determination of this Tribunal. That right of appeal is not in issue. What does not follow from the existence of that right is a right in AERA to suspend the judgment for itself pending appellate scrutiny.

897. The distinction is elementary but important. The right to challenge an order is not the right to disobey it. An appellate remedy permits the aggrieved party to seek reversal, modification and, where necessary, interim protection from the superior court. Until such protection is granted, the order continues to govern the parties and the authority whose decision was subjected to appellate correction.

898. We are particularly concerned by the appearance, disclosed across the tariff proceedings placed before us, of a selective invocation of the concept of “finality”. AERA cannot treat the pendency of an appeal as legally irrelevant when the judgment of this Tribunal supports the position which AERA wishes to adopt, but treat the same pendency as dispositive when the judgment requires AERA to alter its methodology and countenancing such an approach would amount to permitting a statutory regulator to approbate and reprobate upon the binding effect of the appellate process itself.

899. Judicial discipline cannot be made dependent upon the identity of the successful party. The doctrine exists not for the benefit of an airport operator, an airline, AERA or any other individual litigant, but to preserve the integrity of the institutional hierarchy created by Parliament. Where AERA declines to implement a judgment of this Tribunal that has set aside AERA's own order, the authority whose decision has been corrected on appeal is deciding for itself, pending its own challenge, whether and when that correction will take effect.

900. It thereby exercises, in its own favour, the very power to grant interim relief which the law vests only in the Hon'ble Supreme Court. That is an inversion of the appellate hierarchy Parliament created by Sections 18 and 31 of the AERA Act. The appellate mechanism would be of little practical value if the authority whose order had been reversed could itself determine whether the reversal would be obeyed.

901. We are of firm opinion that such a practice has consequences extending beyond the immediate parties. Economic regulation necessarily depends upon stability, predictability and legitimate institutional confidence. Airport operators, airlines, lenders, investors and passengers arrange their affairs on the basis of regulatory determinations and the law declared by the statutory appellate forum. If an unstayed appellate judgment may be implemented when favourable to the regulator and ignored when adverse, the regulatory framework ceases to operate by ascertainable legal rules and begins to depend upon the unilateral preference of the regulator.

902. That consequence of such a probate and reprobate actions on part of AERA is antithetical to the rule of law. A statutory regulator exercises substantial public power, but remains subject to the statutory appellate structure by which Parliament has chosen to control that power. Expertise does not place the regulator above appellate correction; if anything, the breadth of regulatory discretion makes adherence to institutional discipline all the more important.

903. This state of affairs is unacceptable in a regime governed by the rule of law. It undermines the authority of this Tribunal. It undermines the confidence of the public and of the regulated entities in the judicial system. It creates a situation where the regulator is effectively above the law.

904. We would also caution against treating “public interest” as an answer to this requirement. AERA may legitimately consider the interests of passengers and other stakeholders within the statutory framework. It cannot, however, on its own assessment of public interest, place an unstayed appellate judgment in abeyance. Courts and tribunals routinely balance public consequences while considering applications for interim relief. If AERA apprehends serious prejudice from immediate implementation, the lawful course is to seek a stay or appropriate protective order from the Hon’ble Supreme Court. The regulator cannot assume unto itself the jurisdiction to grant the very stay which it has sought or may seek from the appellate court.

905. The possibility of later reversal does not justify present non- compliance. The tariff framework itself contains mechanisms of true-up and consequential adjustment. Where a monetary determination is subsequently modified by the Hon’ble Supreme Court, the resulting difference can ordinarily be addressed in the succeeding regulatory exercise. As held in GMR Goa, the availability of such a corrective mechanism materially weakens any suggestion that obedience to an unstayed judgment would produce irreversible regulatory consequences.

906. We therefore record in clear terms that a judgment or order of this Tribunal remains binding upon AERA and must be given effect to unless and until its operation has been stayed, modified or set aside by the Hon’ble Supreme Court. Mere institution or pendency of an appeal under Section 31 does not furnish a lawful ground for withholding implementation.

907. If AERA considers that a previous decision is distinguishable in a later tariff determination, it is entitled to demonstrate the distinction by reference to the governing concession, statutory provision, factual matrix or tariff methodology and to record reasons accordingly. AERA cannot avoid applying the ratio of a binding judgment by merely stating that an appeal against it is pending.

908. Equally, if AERA chooses to rely upon a judgment of this Tribunal while that judgment is itself under appeal, that conduct necessarily recognises the elementary proposition that pendency of an appeal does not by itself destroy the present legal force of the judgment. The Authority cannot adopt the opposite proposition when confronted with another judgment which operates against it.

909. The AERA’s conduct in implementing favourable decisions promptly while delaying or refusing to implement unfavourable decisions are uncondonable. It creates uncertainty for the regulated entity. It undermines the confidence of the regulated entity in the appellate mechanism. It leads to a situation where the regulated entity is left with no remedy except to seek the mercy of the regulator, which is itself a party to the dispute. This is a conflict of interest of the gravest kind.

910. We consequently deprecate any practice of selective compliance with, or selective reliance upon, decisions of this Tribunal according to whether the particular determination favours the regulatory position of AERA. Such a practice, if permitted to continue, would invert the statutory appellate hierarchy, impair regulatory certainty and diminish confidence in the appellate process established by Parliament.

911. AERA shall, therefore, while giving effect to the present judgment and while undertaking tariff determination and true-up exercises in succeeding Control Periods, apply the law declared by this Tribunal on issues already adjudicated, subject only to any specific order of stay, modification or reversal passed by the Hon’ble Supreme Court.

912. In view of these facts, reasons and judicial pronouncements, we hereby quash and set aside the impugned order to the aforesaid extent and directions given at the end of each issue shall be carried out by AERA within a period of three months from date of receipt of this Judgement. Thereby, this appeal is allowed to the aforesaid extent.

913. Consequently, AERA Order No. 11/2021-22 dated 28.08.2021 (Annexure A-1 to the memo of this Appeal) passed by Respondent No. 1 – AERA stands modified to the extent of the issues allowed in the present Appeal. All pending miscellaneous applications connected with this Appeal are also disposed of. _____________________ (JUSTICE D.N. PATEL) CHAIRPERSON

/NS/ ___________________ (DR. SANJEEV BANZAL) MEMBER