AERA Lacks Power To Penalise Airport Project Delays, TDSAT Says, Striking Down Proposed 1% Revenue Cut For Bengaluru Airport

01Facts

Bangalore International Airport Limited (BIAL), operator of Kempegowda International Airport, Bengaluru (KIAB), appealed under Section 18(2) of the Airports Economic Regulatory Authority of India Act, 2008 (AERA Act) against AERA’s tariff order dated 28 August 2021 for the Third Control Period, 1 April 2021 to 31 March 2026.

¶ 1–2

The appeal challenged AERA’s treatment of, among other matters, COVID-related project costs, capital expenditure, revenue and expense allocation, depreciation, taxation, and AERA’s jurisdiction over particular airport activities.

¶ 3–42

BIAL later withdrew Issues XXVIII and XXIX; the Tribunal therefore adjudicated the 27 remaining issues.

¶ 39–41, 86–89

02Issues

i.1. Whether additional PMC costs incurred because COVID-19 restrictions delayed Terminal 2 were recoverable.

¶ 89, 90–132

ii.2. Whether financing allowance was payable on work-in-progress assets capitalised during the Third Control Period.

¶ 89, 133–165

iii.3. Whether the AERA Act’s tariff methodology could govern the period 24 May 2008 to 31 August 2009, and whether pre-control-period expenditure should be recognised.

¶ 89, 166–216

iv.4. Whether capital and related costs for the Eastern Connectivity Tunnel, Terminal 2 apron transportation, KIA West Metro Station and metro-enabling works were admissible in the RAB.

¶ 89, 217–347

v.5. Whether AERA could impute notional lease rentals from BAHL or AAI, or notional income from commercial land development.

¶ 89, 242–296, 348–367

vi.6. Whether AERA could cap the cost of debt, refuse recognition of COVID-19 airline discounts, or cap pre-operative and design/PMC costs.

¶ 89, 368–426

vii.7. Whether AERA’s depreciation determinations—including useful lives and asset-level allocation—were lawful.

¶ 89, 427–505

viii.8. Whether AERA could defer ₹940.63 crore of ARR, include interest income in tariff calculations, or exclude the 30% non-aeronautical revenue used for cross-subsidy from the tax base.

¶ 89, 506–559

9.9. Whether AERA had jurisdiction over land-development revenue and CGF-related services and revenues.

¶ 89, 560–638

10.10. Whether AERA’s estimates of O&M and personnel expenses, penalty/readjustment, tax treatment, asset allocation and classification of specified cost centres were lawful; and whether AERA had to implement unstayed Tribunal judgments.

¶ 89, 639–911

03Law Applied

Section 13(1)(a) of the AERA Act requires AERA to consider, among other matters, capital expenditure, service quality, efficiency, viable airport operations, revenue received from non-aeronautical services and concessions granted by the Central Government; Section 13(4) requires consultation, transparency and reasoned decisions.

¶ 101, 126, 234, 599, 700

The 2011 Airport Tariff Guidelines govern the treatment of work-in-progress, commissioned assets, cost of debt and depreciation, subject to lawful amendment.

¶ 142–164, 234–238, 341–343

The Tribunal applied the presumption against retrospectivity in *CIT v. Vatika Township Pvt. Ltd.* and *Keshavan Madhava Menon v. State of Bombay*.

¶ 171–175

The distinction between actual revenue and hypothetical earning capacity under Section 13(1)(a)(v).

¶ 248–257, 269–274

The Tribunal also relied on regulatory consistency and reasoned decision-making, and held that an appeal does not stay an order unless a competent court grants a stay, applying *Bhopal Sugar Industries Ltd. v. ITO*, *Union of India v. Kamlakshi Finance Corp.* and *Collector of Customs v. Krishna Sales (P) Ltd.*

¶ 887–895

Provisions in the judgment · 20 · Linked ones open on LawLens

Airports Economic Regulatory Authority of India Act, 2008 14 provisions

Section 2 Section 3 Section 13 Section 14 Section 15 Section 18 Section 31 Section 32 Section 37 Section 38 Section 39 Section 41 Section 42 Section 47

Code of Civil Procedure, 1908 Section 10 Section 11

Companies Act, 2013 Section 129

Airports Authority of India Act, 1994 Section 22

Motor Vehicles Act, 1988 Section 58 Section 68

04Reasoning

The Tribunal found that AERA accepted COVID-19-related delay but rejected the resulting PMC costs without identifying unnecessary or imprudent expenditure, contrary to its earlier assurance that justified overruns would be considered at true-up.

¶ 113–130

It held that AERA could not apply the later statutory tariff methodology retrospectively to 24 May 2008–31 August 2009, although the remitted historical claim had to be examined under the Concession Agreement and other project agreements; it separately directed consideration of qualifying pre-control-period expenses.

¶ 187–216

For the infrastructure claims, the Tribunal relied on actual use, approved project treatment, regulatory consistency and the evidence of costs and operational need; it directed recognition or true-up of the qualifying expenditure, subject to the stated verification requirements.

¶ 225–241, 297–347

It rejected notional revenues unsupported by actual receipts or contractual accrual, and held that AERA could not bring non-airport land-development activity within its jurisdiction merely because it occurred on the leased Site.

¶ 264–274, 287–296, 568–584

It found that AERA’s caps and forecasts for financing, pre-operative, design/PMC, O&M and personnel costs were not adequately reasoned or supported by an appropriate prudence review; it directed actual-cost true-up where specified, while preserving verification against audited records and admissibility.

¶ 375–380, 402–409, 412–426, 663–693

It also revised the depreciation and allocation approach, rejected the ARR carry-forward and penalty, and required tax and revenue calculations to follow the statutory and regulatory framework.

¶ 488–505, 519–525, 539–559, 699–723, 742–757, 758–818

On cost-centre allocation, it set aside AERA’s classification because the order did not adequately examine the functions actually performed, and required a fresh reasoned decision.

¶ 832–873

05Holding

The appeal was allowed to the extent of the 27 issues adjudicated.

¶ 774, 912–913

The Tribunal set aside or modified the challenged determinations and directed AERA to carry out the issue-specific true-ups, recalculations, study and fresh decision described in the judgment—including giving effect to qualifying adjustments in the Fourth Control Period.

¶ 774, 912–913

It further directed AERA to implement Tribunal judgments unless stayed, modified or reversed by the Supreme Court.

¶ 912–913

AERA was directed to carry out the directions within three months of receiving the judgment; pending miscellaneous applications were disposed of.

¶ 911–913

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