IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 15..10.2009 PRESENT THE HONOURABLE MR. JUSTICE S.NAGAMUTHU W.P.No.1350 of 2009 and M.P.Nos.1, 2 and 3 of 2009 & W.P.No.1351 of 2009 and M.P.Nos.1,2,3,4,5 & 6 of 2009 PSA SICAL TERMINALS LIMITED, South India House, 36-40, Armenian Street, Chennai 600 001, Rep. by its Whole Time Director, Mr.S.R.Ramakrishnan .... Petitioner in both Writ Petitions Vs. 1.Tariff Authority for Major Ports, Rep. by its Chairman, 2nd Floor, Gate NO.30, Jawaharlal Nehru Stadium, New Delhi 110 003. 2.Tuticorin Port Trust, Rep. by its Chairman, Tuticorin. 3.Union of India, Rep. by its Secretary, Ministry of Shipping, Road Transport and Highways, Department of Shipping, Port Department, Transport Bhawan No.1, Parliament Street, New Delhi 110 001. .. Respondents in both the petitions Prayer in W.P.No.1350 of 2009:- Petition filed under Article 226 of the Constitution of India, for issuance of a Writ of Certiorarified Mandamus, calling for the records of the 1st respondent pertaining to the Tariff Order dated 17.12.2008 made in Case No.TAMP/52/2005-PSA SICAL, notified on 30.12.2008 and quash the same and consequently direct the 1st https://hcservices.ecourts.gov.in/hcservices/ respondent to fix the tariff for the petitioner in accordance with law and in conformity with international accounting practise and in a non discriminatory manner conforming with the policy guidelines governing fixation of tariff and Article 14 of the Constitution of India after giving fresh opportunity to the petitioner to he heard. Prayer in W.P.No.1351 of 2009:- Petition filed under Article 226 of the Constitution of India, for issuance of a Writ of Certiorarified Mandamus, calling for the records pertaining to the policy direction issued by the 3rd respondent under Section 11 of the Major Port Trusts Act, 1963, dated 20.02.2008 having reference No.PR-14019/6/2002-PG (Vol.I) pertaining to the treatment of royalty payment for fixation of tariff for PSA SICAL, the petitioner herein and quash the same and consequently direct the 3rd respondent to issue a fresh direction under Section 111 of the Major Port Trusts Act allowing full Royalty as a pass through for the entire concession period after giving fresh opportunity to the petitioner to be heard. For petitioner in Writ Petition: Mr.L.Nageswara Rao, SC No.1351 of 2009 for Ms.Uma For petitioner in Writ Petition: Mrs.Nalini Chidambaram, No.1350 of 2009 SC for M/s.Uma For 1st respondent in both : Mr.S.Venkateswaran,SC Writ Petitions for Ms.C.J.Shyamala For 2nd respondent in both : Mr.S.Yashwanth Writ Petitions For 3rd respondent in both : Mr.J.Ravindran, Writ Petitions Asst. Solicitor General of India COMMON ORDER This is the third round of litigation relating either to guidelines issued by the Government of India under Section 111 of the Major Port Trusts Act, 1963 for tariff fixation or tariff fixation order issued by the Tariff Authority for Major Ports, the 1st respondent herein in respect of the petitioner. 2. W.P.No.1351 of 2009 has been filed challenging such directions issued by the Government of India in exercise of the powers conferred under Section 111 of the Act in its proceedings No.PR-14019/6/2002-PG (Vol.I), dated 20.02.2008; whereas W.P.No. 1350 of 2009 has been filed challenging the consequential tariff order dated 17.12.2008 in Case No.TAMP/52/2005-PSA SICAL and notified on 30.12.2008. Before going into the issues involved in https://hcservices.ecourts.gov.in/hcservices/ these writ petitions, it would be useful to recapitulate the background of the case. Since common issues are involved, both the writ petitions were heard together and they are disposed of by means of this common order. 3. The 2nd respondent Tuticorin Port Trust (in short "TPT") is a Major Port Trust governed by the Major Port Trusts Act, 1963 (hereinafter referred to as "the Act"). The petitioner is a Joint Venture Company incorporated by the Port of Singapore Authority, South India Corporation (Agencies) Limited and Nur Investment and Trading PTE Limited. For the present, the Joint Venture partners are PSA India Pte. Limited, SICAL Logistics Limited and S.Chandra Das. 4. During the month of March, 1997, the 2nd respondent issued a global tender inviting bids for the development of 7th Berth as a Container Terminal at Tuticorin and its operation and maintenance for 30 years on "Build Operate Transfer" (BOT) basis. The petitioner emerged as the successful bidder and in pursuance of the confirmation of its bid, a license agreement dated 15.07.1998 between the petitioner and 2nd respondent was entered into, according to which, the petitioner agreed for designing, engineering, financing, constructing, equipping, operating, maintaining, replacing of container handling equipments, and repairing, of Container Terminal. The said agreement was entered into in tune with Section 42 of the Act. 5. Article 7.3 of the License Agreement deals with the tariff, which the petitioner would be entitled to collect,which reads as follows:- 7.3. Tariff 7.3.1. Setting Prices: The Licensee shall be entitled to recover from the owners/consignees or vessel owners/agents, rates and/or charges due and payable by them for use of the Container Terminal services including terminal charges, wharfage on cargo containerised, container box and cargo related charges in respect of cargo and other services provided by the Licensee provided however that the rates and /or charges to be collected by the Licensee shall not exceed the rates fixed by the Licensor in respect of similar services and duly notified by the GoI in official gazette or to be fixed by the Tariff Authority for Major Ports constituted under Article 47A of the Major Port Trusts Act, 1963, as applicable, from time to time. For the purpose of fixing revising existing Tariff, the GoI has set up an independent Tariff Authority for Major Ports constituted under Article 47A of the Major Port Trusts Act, 1963. The tariff to be fixed by such authority would be the maximum rate of tariff and the Licensee would be free to fix the https://hcservices.ecourts.gov.in/hcservices/ tariff at a rate lower than that fixed by such authority. Regarding fixation of tariff and setting prices, the Licensee shall follow the rules and regulations stipulated by TAMP for fixing/review of tariff. These charges shall be collected from cargo interests and the owners or agents of the vessels and shall accrue to and be payable to the Licensee. The rate prevailing at the time of signing of this Agreement are contained in Appendix 15 to this Agreement. Charges on account of Berth Hire, Port Dues and Pilotage shall be raised and recovered directly by the Licensor from the users. The Licensee shall be free to give discounts in tariff. However, such discounts shall be given by the Licensee only in respect to the charges due and payable by the consignees/owners or vessel owners/agents to the License and not in respect of the charges payable by such persons directed to the Licensor. 6. In terms of the above Article of the Agreement , the petitioner agreed to pay royalty to the 2nd respondent as detailed in Appendix 12 to the Agreement. For the initial period of 12 months, the petitioner need not pay any royalty. For the second twelve months, after the date of license, the petitioner guaranteed a Minimum Traffic Guarantee of 148800 Twenty Equivalent Units (TEUS) for which at the rate of Rs.102 per TEU, the petitioner has to pay a total sum of Rs.1,51,77,600/- . Slowly, as per the agreement, Minimum Guaranteed Traffic ( in short, "MGT") is increased to 3,00,000 TEUS and the rate of royalty per TEU is also increased and it varies at various levels. Consequentially, the royalty to be paid to the 2nd respondent for each year also varies. For instance, during the last 12 months , for MTG of 3,00,000 TEUS at the rate of 5178 per TEU , the petitioner has to pay a sum of Rs.155,34,00,000/- to the 2nd respondent. 7. Article 7.3 deals with Tariff, which the petitioner could collect from the owners/consignees or vessel owners/agents, rates and/or charges due and payable by them for use of the Container Terminal services including terminal charges, wharfage on cargo containerised, etc. The proviso to the said article further provides as follows: "provided however that the rates and /or charges to be collected by the Licensee shall not exceed the rates fixed by the Licensor in respect of similar services and duly notified by the GoI in official gazette or to be fixed by the Tariff Authority for Major Ports constituted under https://hcservices.ecourts.gov.in/hcservices/ Article 47A of the Major Port Trusts Act, 1963, as applicable, from time to time. 8. For the purpose of fixing or revising the existing tariff, Government of India has set up 1st respondent as Tariff Authority under Section 47A of the Act. As per Article 7.3 of the License Agreement, tariff to be fixed by the 1st respondent would be the maximum rate of tariff and the petitioner would be free to fix the tariff at a rate lower than that fixed by the 1st respondent. The said Article further states as follows:- "Regarding fixation of tariff and setting prices, the Licensee shall follow the rules and regulations stipulated by TAMP for fixing/review of tariff." 9.The rate of tariff to be collected at the time of entering into the License Agreement were contained in Appendix 15 of the License Agreement . 10.Article 7.3.2 which deals with Regulation and Review of Tariff reads as follows:- " The Licensee may at any time, apply for revision of tariff to be charged and recovered by it to the Tariff Authority for Major Ports constituted under Article 47A of the Major Port Trusts Act, 1963. However, the Licensee shall be bound by any statutory amendments to the existing procedure for fixing the tariff, as applicable to the Licensee." 11.The petitioner, as per Article 7.3.5.1 shall pay to the 2nd respondent initial amount of Rs.45 million (Rupees Forty Five Millions only) simultaneously on the date of Award of License. Under Article 7.3.5.2 , the petitioner shall pay to the 2nd respondent royalty calculated on the basis of minimum guaranteed traffic royalty rates as set out in Appendix 12 of the Agreement irrespective of discounts in tariff, if any, that may be granted by the petitioner . The royalty shall be paid every month. The said Article further proceeds to say as follows:- "Royalty shall be paid every month on the basis of annual minimum guaranteed traffic as set out n Appendix 12. Monthly royalty shall be initially calculated proportionately to the yearly royalty based on the annual minimum guaranteed traffic as per the Appendix 12 and shall be paid latest by the 7th day of the subsequent month. At the end of each 3 Month period the total royalty payable shall be computed and the difference, if any, between the amount of royalty actually payable, calculated on https://hcservices.ecourts.gov.in/hcservices/ the basis of actual TEUs handled and the corresponding amount as set out in the Appendix 12, and the amount of royalty already remitted, shall be paid by the Licensee to the Licensor within fifteen days of expiry of the relevant 3 Months period. In case the actual traffic falls below the annual minimum guaranteed traffic as guaranteed by the Licensee and as set out in the Appendix 12, then the Licensee shall pay the amount of royalty as per its annual minimum guaranteed traffic." 12.In the above back ground , for the first time, the Tariff Order was passed by the 1st respondent on 08.12.1999 valid for a period of 3 years and the same was notified on 28.12.1999. Regarding this tariff order, there is no dispute between the parties. 13. For the years 2003, 2004 and 2005, on the proposal submitted by the petitioner seeking revision of tariff, on 20.09.2002 a revised tariff order was passed by the 1st respondent in Case No.TAMP/21/2002-TPT. In the said Order, the 1st respondent rejected the proposal of the petitioner for an increase in the tariffs and instead, reduced existing rates by 15%. As per the order , the said tariff rate was to take effect after 30 days from the date of notification of the order in the Gazette of India. It was accordingly notified in the Gazette of India on 04.10.2002. Here started the first round of litigation. FIRST ROUND OF LITIGATION 14. Aggrieved over the said tariff order dated 20.09.2002 made in Case No.TAMP/21/2002-TPT (hereinafter referred to as "the tariff order 2002"), the petitioner filed W.P.No.40638 of 2002 on several grounds. Mainly it was contended that the royalty was not calculated as a pass through in the cost of the petitioner. While admitting the writ petition on 08.11.2002, this Court in W.P.M.P.No.60249 of 2002 granted stay of operation of the tariff order 2002. This Court further directed that the petitioner would continue to collect tariff as per the tariff order of the year 1999. From the records, it could be seen that the said interim order was made absolute by a learned single Judge on 17.06.2005. As a result, the petitioner continued to collect the tariff from the users of the terminal at the very tariff rate of the year 1999. 15. During the pendency of the said writ petition, the Government of India, the 3rd respondent herein, in exercise of its power under Section 111 of the Act, on 29.07.2003 issued its policy decision that the royalty payment shall not be factored into/taken into account as cost for fixation /revision of tariff by TAMP for the following reasons:- https://hcservices.ecourts.gov.in/hcservices/ (i) The benefit of higher efficiency on account of private participation in ports should also be passed on to shippers or the users which will not be so if royalty is allowed to be factored in the cost of private operators. (ii) If royalty is allowed as cost, the private bidder can offer high percentage which he will recover from the shippers/users in the shape of royalty cost factored in fixing higher rates." 16. In the said policy decision it was further directed that it may be clearly indicated in the bid documents while inviting the bids for private sector participation at Major Ports. It appears that subsequent to the issuance of the said policy decision, a meeting was held under the chairmanship of the Hon'ble Minister for Shipping,Government of India to resolve the issues relating to tariff fixation and in the said meeting it was decided that in the case of Chennai Terminal, the offer of the second highest bidder should be accepted as costs of Chennai Container Terminal (hereinafter referred to as "CCT") for the purpose of arriving at tariff. Subsequently, the 1st respondent based on the policy decision issued by the Government of India as narrated above under Section 111 of the Act notified the revised guidelines for tariff fixation. The said guidelines issued by the 1st respondent has not been challenged and the same has become final. 17. As per the said guidelines, vide clause 2.8.1 Royalty/Revenue share payable to the landlord port by the private operator will not be allowed as an admissible cost for tariff computation as decided by the Government of India in the Ministry of Shipping vide its Order No.Pr-14019/6/2002-PG, dated 29th July 2003. In those BOT cases where bidding process was finalised before 29th July 2003, the tariff computation will take into account royalty / revenue sharing as cost for tariff fixation in such a manner as to avoid likely loss to the operator on account of the royalty / revenue share not being taken into account, subject to maximum of the amount quoted by the next lowest bidder. This would, however, be allowed for the period up to which such likely loss will occur. This would not be applicable if there is provision in the concession agreement on treatment of Royalty/Revenue share. 18. According to the above policy decision, there are two aspects to be remembered. The first one is that in respect of BOT cases, where bidding process was finalised subsequent to 29.07.2003, private operators will not be allowed to count royalty as cost for tariff computation. Insofar as BOT cases like , the petitioner, whose bidding process was finalised before 29.07.2003, the tariff computation will take into account royalty as cost for tariff fixation subject to the following conditions:- https://hcservices.ecourts.gov.in/hcservices/ (i) This should be to avoid likelihood of loss to the operators on account of royalty not being taken into account; (ii) In such event, the royalty shall be taken into account subject to maximum of the amount quoted by the next lowest bidder; (iii) This should be allowed for the period of up to which such a likelihood loss will arise. 19. Coming back to W.P.No.40638 of 2002, as against interim order the 1st respondent preferred a writ appeal in W.A.No.1287 of 2005. When the matter was taken up for hearing by the First Bench of this Court a memo of compromise (MOC) entered into between the petitioner and the respondents 1 to 3 was filed and the court was requested by the parties to record the said MOC and to dispose of the writ appeal. On accepting the said request, the First Bench of this Court passed the following order: " Learned senior counsel appearing on either side, by filing a compromise memo, submit that parties reached a settlement among themselves and, therefore, the writ appeal and the writ petitions may be dismissed as infructuous. 2. Recording the submission made by the learned senior counsel for the parties, the appeal as well as the writ petitions are dismissed as infructuous. The compromise memo filed in the matter shall form part of record of this appeal." 20. The terms of MOC are very important for deciding the issues involved in these writ petitions. Therefore, it is necessary to extract the relevant paragraphs of the MOC viz., 4, 6,7,8 and 9 hereunder: "4. The petitioner will make a proposal to the Government of India, Ministry of Shipping and Transport in the matter of fixation of quantum of royalty that may be permitted to be allowed as a "pass through' as a revenue expenditure for fixation of the tariff for the period prior to 31st March 2005. It is clarified that for the period thereafter the new guidelines provide the manner and mode in which this has to be done. Respondent NO.3, Central Government, on receipt of the proposal may consider the same and pass appropriate orders consistent with the policy decision of the Government of India in the matter of Chennai Container Terminal Limited dated 5th August 2003 and accordingly issue a https://hcservices.ecourts.gov.in/hcservices/ directive under Section 111 of the Major Port Trusts Act. 5. ...... 6. The petitioners will continue to charge the 1999 tariff till a new tariff is gazetted as stated above. 7. Advantage or gains,if any, that the petitioner has enjoyed by virtue of not implementing the 2002 tariff in view of the stay, will be quantified by the First Respondent and such advantage/gains will be adjusted/set off in the proposed new tariff andsuch set off will be spread over a period of three years. 8. In arriving at the quantum of gains, TAMP will bear in mind that the 2002 tariff did not permit pass through of royalty and adjustment from the same will be made as per the directive of the Government of India as stated above. To the extent that the 2002 tariff has been arrived at on the basis of estimates, appropriate adjustments in the quantum of gains will be made if the actual figures, which are now available for the relevant period are different." 21. A reading of Para 4 of the MOC would show that it deals with two different periods viz., period prior to 31.03.2005 and subsequent period. Insofar as the period prior to 31.03.2005 (i.e., between November 2002 to March 2005), on considering the proposal to be submitted by the petitioner, the Government of India , Ministry of Shipping and Transport shall consider the fixation of quantum of royalty that may be permitted to be allowed as a pass through as revenue expenditure for fixation of tariff. This would make it crystal clear that for the period from November 2002 to March 2005, it was agreed upon between the parties that some amount of royalty shall be permitted as a pass through as revenue expenditure in the matter of fixation of tariff. What was left open to be decided by the Government of India was only the quantum. In respect of the period on or after 31.03.2005, a new guideline dated 28.03.2005 shall be followed which states as extracted above, that tariff computation will take into account royalty as cost for tariff fixation, if only there is likelihood of loss to the operator on account of royalty not being taken into account that too subject to maximum of the amount quoted by the next lowest bidder. As per clause 6 of the said MOC, the petitioner continued to charge at the tariff rate of the year 1999 beyond August 2005. 22. In terms of the said MOC, the petitioner submitted a proposal to the 3rd respondent on 06.09.2005 for fixation of quantum of royalty that may be permitted to pass through as revenue expenditure for the period from November 2002 to March 2005. 23. In the said proposal, the petitioner, inter alia, took the https://hcservices.ecourts.gov.in/hcservices/ stand that the petitioner is not similarly situated to CCTL and as a matter of fact, it is similarly situate to Nava Sheva International Container Terminals (NSICT) for Jawaharlal Nehru Port, Bombay. The petitioner pointed out that insofar as NSICTL is concerned 100% royalty had been permitted as pass through and therefore, the petitioner claimed that for the period from November 2002 to March 2005, the petitioner may also be given the same benefit of exemption of 100% royalty as pass through as revenue expenditure for the purpose of fixation of tariff rate. 24. When the said proposal of the petitioner was under the consideration of the 1st respondent, on a clarification sought for by the 1st respondent, the Government of India (3rd respondent herein) issued a fresh direction dated 17.04.2006 to the 1st respondent in the following terms:- "After considering the proposal of PSA SICAL and the submissions made at the meeting held on 27.10.2005 as also further submissions made in their letter dated 10.11.2005 and the comments furnished by furnished by the TPT, it clearly emerges that the pre-condition of incurring loss for claiming at least part of royalty as pass through has not been satisfied in this case. Further, the decision taken in the CCTL case has been given prospective effect. No extraordinary circumstance has been brought out in this case warranting an exceptional treatment. Therefore, it emerges that the request made by PSA SICAL for allowing royalty as pass through for the period up to 31st March , 2005 is devoid of merit and cannot be accepted. TAMP is directed under Section 111 of MPT Act, 1963 to consider the tariff fixation case of PSA SICAL accordingly. The TAMP will be guided by the provisions of the revised tariff guidelines in the matter." 25. The petitioner is aggrieved by the said direction. According to the petitioner, the proposal submitted by him in pursuance of the MOC was not duly considered and further there was no sufficient opportunity given to him. It was further contended that the said direction was not issued in tune with Section 111 of the Act. Here started the second round of litigation. SECOND ROUND OF LITIGATION:- 26. Challenging the said direction of the 3rd respondent, dated 17.04.2006, the petitioner filed W.P.No. 388446 of 2006. Following the above directives dated 17.04.2006 and based on the proposal of the petitioner dated 08.08.2005, the 1st respondent issued a revised tariff order dated 23.08.2006 for the period 2006, 2007 and 2008. Challenging the same the petitioner filed W.P.No.38845 of https://hcservices.ecourts.gov.in/hcservices/ 2006. 27. In both the above writ petitions, inter alia, it was contended that hearing was not done by the TAMP and instead it was held only by the Chairman before passing the tariff order and that no opportunity was afforded as agreed in the MOC dated 17.08.2005 to the petitioner before passing the directive by Central Government of India dated 17.04.2006. It