BANGALORE INTERNATIONAL AIRPORT LIMITED vs AIRPORT ECONOMIC REGULATORY AUTHORITY & ANR.

TELECOM DISPUTES SETTLEMENT AND APPELLATE
TRIBUNAL NEW DELHI
Reserved on: 31.07.2026
Pronounced on: 4.11.2026
AERA APPEAL/5/2021
Bangalore International Airport Limited. …Appellant
Versus
1. Airports Economic Regulatory Authority of India;
2. Federation of Indian Airlines …Respondents
BEFORE:
HON’BLE MR. JUSTICE DHIRUBHAI NARANBHAI PATEL
(CHAIRPERSON)
HON’BLE DR. SANJEEV BANZAL (MEMBER)
FOR APPELLANT FOR RESPONDENT(S)
In AERA Appeal No.5/2021
In AERA Appeal No.
For BIAL
5/2021

For AERA (R-1)
Mr Sajan Poovayya, Sr Adv

Mr Manu Kulkarni
Ms Shweta Bharti
Ms Shristi Widge
Ms Yashodhara B. Roy
Ms Sriparna Dutta Choudhury
Ms Prakarti Srivastava

Mr Navin Kapoor


Page 1 of 546

Mr. Palash Maheshwari
For FIA(R-2)
Ms Kopal Tiwary
Mr Buddy Rangandhan, Sr.
Ms. Pratiksha Nagayach
Adv
Mr Prantar Basu Choudhury
Ms Nishtha Kumar
Mr Shrom Sethi

INDEX
S. No CONTENT Page No.s
1. SUMMARIUM 5 to 8
2. ABBREVIATIONS INVOLVED 8 to 12
3. FACTUAL MATRIX 13 to 19
4. ARGUMENTS OF THE APPELLANT 19 to 36
5. ARGUMENTS OF THE RESPONDENTS 36 to 53
6. REASONS & ANALYSIS 53 to 546
7. 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.
60 to 81
8. Issue No. II: Denial of Financing Allowance on
Capital Work-in-Progress pertaining to assets to be
capitalised during the Third Control Period.
82 to 105
9. 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.
105 to 125
Page 2 of 546

10 Issue No. IV: Non-consideration of
losses/expenses to the tune of Rs. 53,30,00,000/-
incurred prior to Airport Opening Date (AoD).
125 to 142
11. Issue No. V: Disallowance of Capital Expenditure
towards Eastern Connectivity Tunnel (ECT).
142 to 159
12. Issue No. VI: Notional lease rentals of Bengaluru
Airport Hotel Ltd. (BAHL) .
159 to 177
13. Issue No. VII: Notional Lease rentals from AAI. 178 to 187
14 Issue No. VIII: Disallowance of additional
transportation costs to the tune of Rs. 8.25 Crore
incurred towards Terminal – 2 Apron.
187 to 195
15. Issue No. IX: Exclusion of KIA west metro station
from RAB of Third Control Period (TCP).
195 to 206
16. Issue No. X: Disallowance of capital expenditure
to be incurred for metro enabling works to be
capitalised as a part of MMTH.
206 to 212
17. Issue No. XI: Notional lease rentals on
Commercial Land Development.
212 to 220
18. Issue No. XII: Cap on cost of debt and fixing the
same at 7.85% throughout TCP.
220 to 228
19. Issue No. XIII: Non-recognition of COVID relief
measures given to airlines for true up in Second
Control Period.
228 to 233
20. Issue No. XIV: Capping for true up for
preoperative expenses for, inter alia, T2-Phase I.
233 to 247
Page 3 of 546

21. Issue No. XV: Capping of Design and PMC Costs
for expansion works and non-grant of true up.
247 to 257
22. Issue No. XVI: Consideration of Depreciation. 257 to 302
23. Issue No. XVII: Carry forward of the Aggregate
Revenue Requirement (ARR).
302 to 315
24. Issue No. XVIII: Consideration of Interest
Income for the purpose of tariff determination.
315 to 324
25. Issue No. XIX: Consideration of 30% non-
aeronautical revenue used to cross subsidise
aeronautical revenue base for computation of
aeronautical taxes.
324 to 335
26. Issue No. XX: Jurisdiction of AERA to consider
revenue from Land Development Activities.
335 to 351
27. Issue No. XXI: Jurisdiction of AERA to determine
tariff for CGF services, cargo handling, ground
handling and fire services.
351 to 395
28. Issue No. XXII: Consideration & estimates of
O&M Expenses.
395 to 408
29. Issue No. XXIII: Consideration of Personnel
Expenses during Third Control Period.
409 to 426
30. Issue No. XXIV: Penalty Imposed by AERA upon
the Appellant.
427 to 456
31. Issue No. XXV: Consideration of Income Tax. 456 to 472
32. Issue No. XXVI: Consideration Allocation of
Asset.
472 to 500
Page 4 of 546

33. Issue No. XXVII: Classification of Costs Incurred
towards certain Cost Centres as Common Instead
of Aeronautical.
500 to 521
34. Judgements delivered by this Tribunal ought to
have been implemented by AERA unless they are
stayed or modified.
521 to 546
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,
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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
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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
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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
Airports Economic Regulatory Authority of India Act,
AERA Act
2008
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
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BIAL Bangalore International Airport Limited
Judgment dated 16.12.2020 in Bangalore International
BIAL Judgment
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
Judgment dated 21.07.2023 in Delhi International
DIAL Judgment
Airport Limited v. AERA, AERA Appeal No. 1 of 2021.
Judgment dated 11.07.2022 in Delhi International
Airport Limited v. AERA, Civil Appeal No. 8378 of 2018,
reported as (2024) 1 SCC 716.
DIAL SC
Judgment
ECT Eastern Connectivity Tunnel
EPC Engineering, Procurement, and Construction
FAR Fixed Asset Register
Page 9 of 546

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
Judgment dated 14.02.2024 in Hyderabad
International Airport Limited v. AERA, AERA Appeal No.
4 of 2021
HIAL Judgment
HVAC Heating, Ventilation and Air Conditioning
ICAO International Civil Aviation Organization
ICT Information and Communication Technology
IDC Interest During Construction
Independent Regulatory Authority, as referred to in
IRA
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
Page 10 of 546

Judgment dated 06.10.2023 in Mumbai International
MIAL Judgment
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
AERA’s Order No. 35/2017-18 dated 12.01.2018 in the
Order No. 35
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)
Page 11 of 546

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
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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.
Page 13 of 546

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,
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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
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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 .
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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 .
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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.
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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
Control Period.
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.
Page 19 of 546

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
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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
Page 21 of 546

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.
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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.
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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
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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
Page 25 of 546

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
Page 26 of 546

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
Page 27 of 546

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
Page 28 of 546

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
Page 29 of 546

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.
Page 30 of 546

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
Page 31 of 546

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
Page 32 of 546

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.
Page 33 of 546

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.
Page 34 of 546

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
Page 35 of 546

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
Control Period.
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
Page 36 of 546

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
Page 37 of 546

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.
Page 38 of 546

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
Page 39 of 546

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
Page 40 of 546

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
Page 41 of 546

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
Page 42 of 546

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
Page 43 of 546

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
Page 44 of 546

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
Page 45 of 546

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.
Page 46 of 546

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
Page 47 of 546

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
Page 48 of 546

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
Page 49 of 546

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
Page 50 of 546

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
Page 51 of 546

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, non-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
Page 52 of 546

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
Page 53 of 546

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
Page 54 of 546

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?

Page 55 of 546

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?
Page 56 of 546

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;
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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?
Page 58 of 546

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:
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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.
Page 60 of 546

th
90. By virtue of the impugned order dated 28 August 2021,
st
pertaining to the Third Control Period, i.e., from 1 April 2021
st
to 31 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
st
incurred by the Airport Operator-Appellant after 31 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
st
Terminal-2 Building was up to 31 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.
Page 61 of 546

th
93. The announcement of lockdown was made on 24 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.
Page 62 of 546

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
th
communication and advisory dated 20 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:
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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
rd
communications were dated 23 February 2021 and
th
28 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
Page 64 of 546

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:
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“ 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
st
consider any IDC and PMC charges beyond 31
March, 2021 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
rd
determination of tariff for the 3 control period in
respect of IDC and PMC. However, there will be no
waiver of penalty in case phase 1 of Terminal 2
st
project is delayed beyond 31 March, 2021 under
any circumstances. ”
Page 66 of 546

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.
th
101. Further, in view of the aforesaid communication dated 13
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: -
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(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.
Page 68 of 546

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
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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
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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 .
Page 71 of 546

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 2
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, th en BIAL should have
incurred only the staff cost of the PMC
consultant which is required for the limited
Page 72 of 546

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 expenditu re 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, th e increase in PMC
cost for Terminal 2 is considered by the
Authority as inefficient. Accordingly, the
Authority d ecides 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
Page 73 of 546

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
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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
th
20 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
Page 75 of 546

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
Page 76 of 546

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
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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
Page 78 of 546

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.
Page 79 of 546

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
Page 80 of 546

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
th
additional PMC cost during 4 Control Period. Hence,
Issue No. I is accordingly answered in favour of the
Appellant.

Page 81 of 546

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
rd
AERA while passing the impugned order dated 28.08.2021 for 3
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.
Page 82 of 546

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
rd
completed by 31.12.2022 in 3 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
rd
3 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
rd
which were in construction during 3 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
Page 83 of 546

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
Page 84 of 546

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
rd
capitalized from 3 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
Page 85 of 546

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;
Page 86 of 546

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
rd
completed in 3 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:
Page 87 of 546

(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
Page 88 of 546

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
Page 89 of 546

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
Page 90 of 546

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: [email protected]
"Alternate Email: [email protected] ”

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
nd
letter dated 22 October 2012.
Page 91 of 546

144. The said letter was issued in response to a communication from
th
the Appellant dated 27 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
rd
expected to be completed by 31.12.2022 in 3 Control Period
have in fact was completed by FY2023.
Page 92 of 546

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
rd
financing allowance on the assets which are capitalized from 3
Control Period onwards as stated in paragraph 5.5.21 of the
impugned order. The reasoning given by AERA in 5.5.21
Page 93 of 546

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
Page 94 of 546

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
rd
without any justifiable reason in 3 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
Page 95 of 546

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
Page 96 of 546

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. ”
Page 97 of 546

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
th
dated 28 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

Page 98 of 546

(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.
Page 99 of 546

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
Page 100 of 546

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.
Page 101 of 546

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
Page 102 of 546

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
Page 103 of 546

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
Page 104 of 546

financing allowance for BIAL on the assets which are capitalized
rd
in 3 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
rd
are capitalized in 3 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
Page 105 of 546

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
reads as under:
“ 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
Page 106 of 546

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
Page 107 of 546

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
Page 108 of 546

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
Page 109 of 546

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
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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
Page 111 of 546

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
Page 112 of 546

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:-
Page 113 of 546

“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
Page 114 of 546

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
Page 115 of 546

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
Page 116 of 546

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
Page 117 of 546

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
Page 118 of 546

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
st
time of its formation i.e. 1
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
Page 119 of 546

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
Consider shortfall
incurred from
inception of BIAL to
the start of the First
Control Period.
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
period
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.
Equity
Page 120 of 546

Opening
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.
P&L
Shortfall
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
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
Bad Debts
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
to RAB as
per EIL
Report
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
Control Period.
Utility
Recoveries
of Assets
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.
from Non-
Aeronautica
l
Concessiona
ires
Real Estate
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.
Revenue
Page 121 of 546

Rental
Income on
No separate claim
recorded in Table 4.
Consider rental income in respect of
land leased to the airport hotel.
Land
Interest
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
Income
No separate claim
recorded in Table 4.
Treat rent and land lease income
received from aeronautical
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
Page 122 of 546

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.
Page 123 of 546

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
Page 124 of 546

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).
rd
193. AERA by the impugned order for 3 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
Page 125 of 546

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
Page 126 of 546

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
th
same. Since, BIAL started its operations on 24 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.

Page 127 of 546

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
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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
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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
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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
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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
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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
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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
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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.
Page 135 of 546

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
reads as under:

“ 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
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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
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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.
Page 138 of 546

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
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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.
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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
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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
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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:
Page 143 of 546

(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
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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
th
9137 5 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);
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(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:
Page 146 of 546

“ 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
reads as under:
“9.2.12 The Authority had noted submissions made by BIAL
with respect to the additional project viz. Eastern
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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
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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 . ”

Page 149 of 546

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
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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
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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
Page 152 of 546

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
expectatio n [ 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
Page 153 of 546

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:
Page 154 of 546

“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 1987 advertisement under which, the
Page 155 of 546

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
Page 156 of 546

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
Page 157 of 546

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
rd
appreciated by AERA while passing the tariff order for 3
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
Page 158 of 546

(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.
Page 159 of 546

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
rd
impugned order). This very reasoning is also applied for 3
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
Page 160 of 546

“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
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:—

Page 161 of 546

(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.
Page 162 of 546

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
Page 163 of 546

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)
Page 164 of 546

“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
Page 165 of 546

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 non-aeronautical
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:
Page 166 of 546

“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 aeronautical 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
Page 167 of 546

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
Page 168 of 546

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.
Page 169 of 546

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
Page 170 of 546

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
Page 171 of 546

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
Page 172 of 546

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
Page 173 of 546

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.
Page 174 of 546

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
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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 .
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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.


Page 177 of 546

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
rd
Second Control Period and Rs.80.13 Crores in 3 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
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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
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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:
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“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
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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
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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.
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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.
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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
Page 185 of 546

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
Page 186 of 546

cannot consider a notional lease from AAI to the extent
of Rs.39.09 Crores in Second Control Period and Rs.80.13
rd
Crores in 3 Control Period. We, therefore, quash and set
aside this decision of AERA in the impugned order. We,
rd
hereby direct AERA to carry out necessary true-up for 3
th
Control Period in 4 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
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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
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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:
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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
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