AERA Can't Impose Ceiling on Airport Capital Expenditure: TDSAT - 2025-05-20

Laws, Courts & Judgments.

TDSAT Quashes AERA Order on Airport Capital Expenditure Ceilings

New Delhi – The Telecom Disputes Settlement & Appellate Tribunal (TDSAT) has delivered a significant blow to the Airports Economic Regulatory Authority of India (AERA), setting aside its order that imposed ceiling costs on capital expenditure for major airport operators. The judgment, pronounced on April 16, 2025, by a bench comprising Hon’ble Mr. Justice Dhirubhai Naranbhai Patel (Chairperson) and Hon’ble Mr. Subodh Kumar Gupta (Member), came in response to appeals filed by Delhi International Airport Ltd. (DIAL), GMR Hyderabad International Airport Ltd. (HIAL), Mumbai International Airport Ltd. (MIAL), and Bangalore International Airport Ltd. (BIAL).

Case Background: Airports Challenge AERA's Benchmark Costs

The appeals challenged AERA's order dated June 6, 2016, which fixed benchmark capital costs of Rs. 65,000 per sq. mtr. for terminal buildings and Rs. 4,700 per sq. mtr. for runway/taxiway/apron, using Cochin Airport's project cost as a benchmark. AERA claimed this was necessary to evaluate capital costs for tariff determination. The airport operators contested this order, arguing AERA overstepped its jurisdiction.

Appellant Arguments: AERA Lacks Authority to Cap Expenditure

Representing DIAL, Senior Counsel Mr. Ramji Srinivasan argued that AERA's order was based on inapplicable Inter-Ministerial Group (IMG) Norms meant for Airports Authority of India (AAI), not Public-Private Partnership (PPP) airports like theirs. He emphasized that AERA's mandate under Section 13(1)(a) of the AERA Act, 2008, is to determine tariffs based on "Capital Expenditure Incurred," not to pre-emptively set ceilings or dictate specifications. Mr. Srinivasan highlighted that the "One-Size-Fits-All" approach violated the proviso in Section 13(1)(a) allowing for different tariffs for different airports and ignored the specific Concession Agreements (OMDA) and State Support Agreements (SSA) governing PPP airports.

Senior Counsel Mr. Sajan Poovayya, arguing for MIAL, echoed these concerns, asserting AERA lacked the power to cap capital costs and that the order violated natural justice by ignoring stakeholder representations. He pointed out the inconsistency in AERA's approach, citing instances where higher capital costs were approved for other airports, even post IMG Norms.

Learned Counsel Mr. Milanka Choudhary, for HIAL, aligned with the arguments of DIAL and MIAL, stressing that AERA should verify and consider the "actual cost incurred," supported by Chartered Accountants' certificates and audited accounts, rather than imposing arbitrary caps.

Respondent (AERA) Arguments: Benchmarking for Efficiency and Transparency

Conversely, Senior Counsel Mr. Prashanto Chandra Sen, representing AERA, defended the order, citing Sections 13 and 15 of the AERA Act, 2008, as empowering AERA to regulate tariffs and issue necessary directions. He argued that benchmarking was a regulatory function to prevent cost escalation or "gold plating," ensuring "efficient capital cost" consideration for tariff determination and promoting transparency. AERA contended the benchmarks were tentative and did not prohibit higher costs if justified.

TDSAT Analysis: "Capital Expenditure Incurred" is the Mandate

The TDSAT firmly sided with the airport operators. The Tribunal underscored that Section 13(1)(a)(i) of the AERA Act mandates AERA to determine tariffs based on "the capital expenditure incurred," which implies verifying actual expenses rather than prescribing preemptive limits.

The judgment stated unequivocally: "AERA has no power, jurisdiction and authority to review the ‘capital expenditure to be incurred’. AERA has no power to suggest its own cost of capital expenditure. Similarly, AERA is not empowered to determine the specifications of materials which have to be used while undertaking the capital work. AERA cannot review the capital expenditure to be incurred."

Referring to past judgments, including DIAL Vs. AERA ((2022) SCC ONLINE SC 850), the TDSAT reiterated that AERA's role is to examine "capital expenditure incurred" from a "narrow hole," verifying costs based on audited accounts and Chartered Accountants' certificates, not to impose "efficient costs" benchmarks.

The Tribunal highlighted the inapplicability of IMG Norms to PPP airports as per the norms' own recommendations and criticized AERA for inconsistently applying these norms. Crucially, the TDSAT emphasized that AERA had overlooked the Concession Agreements (OMDA) and State Support Agreements (SSA), which are "concessions offered by the Central Government" under Section 13(1)(a)(vi) and binding on AERA.

The judgment noted: "AERA cannot ignore OMDA and SSA. The OMDA executed by DIAL clearly stipulates that DIAL would be governed by the provisions of SSA and other Project Agreements for the development of the IGI Airport facility... SSA inter-alia provides the principles and methodology for the determination of tariff for the aeronautical services at IGI Airport."

Decision and Implications: Order Quashed, AERA's Authority Reined In

Ultimately, the TDSAT quashed AERA's order dated June 6, 2016, allowing all appeals. The Tribunal concluded that AERA lacked the jurisdiction to set preemptory ceilings on capital expenditure, emphasizing the legislative mandate to consider "capital expenditure incurred," and the binding nature of the OMDA and SSA agreements.

This judgment provides significant relief to major airport operators and clarifies the scope of AERA's regulatory authority. It reinforces that tariff determination must be based on actual capital expenditure incurred, within the framework of existing concession agreements, rather than arbitrary benchmark costs imposed by the regulator. The decision underscores the importance of contractual obligations and limits the extent to which regulatory bodies can intervene in capital expenditure decisions of PPP airport operators.