AERA must follow unstayed TDSAT rulings while fixing airport tariffs, tribunal holds in DIAL case

Delhi International Airport Limited (“DIAL”), operator of Indira Gandhi International Airport, New Delhi, challenged AERA’s Tariff Order No. 20/2024-25 dated 28 March 2025, by which AERA undertook the true-up for the Third Control Period and determined aeronautical tariffs for the Fourth Control Period, covering 1 April 2024 to 31 March 2029, under Sections 13(1)(a) and 18(2) of the Airports Economic Regulatory Authority of India Act, 2008 (“AERA Act”).

DIAL contended that AERA had failed to follow binding decisions of TDSAT, substituted actual and audited expenditure with normative assumptions, imposed artificial ceilings on financing costs, wrongly classified certain receipts as aeronautical revenue, and disallowed or improperly apportioned various operating and capital costs.

AERA defended the order on the grounds of regulatory efficiency, prudence, economic viability and protection of airport users, while the Federation of Indian Airlines supported AERA’s position.

The Tribunal framed fourteen issues concerning implementation of prior judgments, cost of debt, interest during construction, revenue-share assets, CSR expenditure, dividend income, capital expenditure, legal costs, RAB computation, project delays, beautification expenditure and refundable security deposits.

1. Whether AERA could refuse to implement the TDSAT judgment dated 21 July 2023 merely because an appeal was pending before the Supreme Court, in the absence of a stay?

2. Whether AERA was required to consider DIAL’s actual cost of debt of 10.55% for the true-up of the Third Control Period instead of applying a normative ceiling of 10.37%?

3. Whether AERA could cap the cost of debt for the Fourth Control Period at SBI’s one-year MCLR plus 150 basis points, instead of permitting the airport-specific projected cost of debt of 10.24%, subject to true-up?

4. Whether AERA was justified in setting off interest income against interest during construction (“IDC”)?

5. Whether IDC actually payable under a finance-lease arrangement for equipment procured during construction was allowable?

6. Whether AERA had jurisdiction to prescribe ₹21,899.23 crore as minimum revenue from Revenue Share Assets and allow true-up only where actual revenue exceeded that amount?

7. Whether statutory Corporate Social Responsibility (“CSR”) expenditure was allowable as aeronautical Operation and Maintenance expenditure?

8. Whether dividend income received from DIAL’s fuel-farm subsidiary could be classified as aeronautical revenue?

9. Whether DIAL was entitled to recognition of ₹96.80 crore as capital expenditure for civil, electrical and associated works between taxiways L-1 and M-1, including AGL-system upgrades?

10. Whether AERA lawfully departed from asset-based allocation and allocated legal expenses according to the ratio of aeronautical revenue to total revenue?

11. Whether AERA had double-counted the ₹33.61 crore deleted asset while computing the RAB true-up?

12. Whether AERA possessed power to deduct 1% of uncapitalised project cost from target revenue for delayed or incomplete capitalisation?

13. Whether expenditure on beautification and landscaping of airport gateways and other areas was allowable as aeronautical O&M expenditure?

14. Whether refundable security deposits deployed for airport project costs were to be treated at the cost of equity rather than the cost of debt for WACC purposes?

The Tribunal applied Section 13(1)(a) of the AERA Act, particularly the statutory requirements to consider capital expenditure incurred, efficiency costs, economic and viable airport operation, and revenue received from non-aeronautical services.

Sections 13(1)(e), 13(4), 17, 18, 31 and 32 were applied to recognise AERA’s regulatory powers, TDSAT’s appellate jurisdiction, the limited Supreme Court appeal, and the enforceability of TDSAT orders.

The Tribunal also applied the OMDA and SSA, including the principles of tariff consistency, efficient expenditure, reasonable return commensurate with risk, and the contractual definitions of Aeronautical Services, Revenue Share Assets and the “S” factor.

It held that a pending appeal does not suspend a judgment absent an express stay, relying on Collector of Customs v. Krishna Sales (P) Ltd., 1994 Supp (3) SCC 73, Kunhayammed v. State of Kerala, (2000) 6 SCC 359, and Madan Kumar Singh v. District Magistrate, Sultanpur, (2009) 9 SCC 79.

It further relied on Mohinder Singh Gill v. Chief Election Commissioner, (1978) 1 SCC 405, for the rule that an administrative order must stand or fall on the reasons recorded in it and cannot be supplemented by later affidavits.

Prior TDSAT decisions in DIAL v. AERA, MIAL v. AERA, GMR Hyderabad International Airport Ltd. v. AERA, Mangaluru International Airport Ltd. v. AERA and GMR Goa International Airport Ltd. v. AERA were treated as binding in the absence of a stay or material distinction.

The Tribunal held that AERA was bound to implement operative TDSAT judgments unless they had been stayed, modified or set aside by the Supreme Court; mere pendency of an appeal could not operate as a de facto stay.

Applying Section 13(1)(a)(i), it ruled that actual, audited financing and capital expenditure must be the starting point for tariff determination.

Accordingly, AERA could not replace DIAL’s verified 10.55% Third Control Period cost of debt with a mechanical 10.37% ceiling, nor cap the Fourth Control Period cost at SBI MCLR plus 150 basis points without transaction-specific proof of imprudence or an available lower-cost alternative.

The Tribunal further held that interest earned on temporarily unutilised project funds was “other income” and could not be indirectly brought within the tariff computation by deducting it from IDC, particularly where AERA itself accepted that the financing structure and COVID-19-related delays were not attributable to DIAL.

Interest contractually payable under the finance lease was likewise a real financing obligation and not a notional cost.

On revenue and expenditure, the Tribunal found that AERA could not prescribe a minimum threshold for Revenue Share Assets or conduct an asymmetric true-up; actual revenue received had to be considered.

Statutory CSR expenditure was allowable as O&M cost notwithstanding its tax treatment under Section 37(1) of the Income Tax Act.

Dividend received from DAFFPL was a return on DIAL’s shareholding, not consideration for a service rendered by DIAL, and therefore constituted “other income” rather than aeronautical revenue.

The Tribunal accepted the complete ₹96.80 crore capital expenditure supported by the four work orders and GST records, found that AERA had double-deducted the ₹33.61 crore deleted asset, and held that legal expenses could not be apportioned on a revenue-based proxy lacking causal connection with the expenditure.

It further held that AERA had no statutory or contractual authority to impose a fixed 1% deduction for delayed capitalisation absent a penalty provision in the AERA Act, OMDA or SSA.

Airport-gateway landscaping and beautification were treated as operational expenditure because they supported airport upkeep, passenger experience and environmental functions, subject to exclusion of purely corporate or non-aeronautical decorative expenditure.

Finally, RSDs deployed in airport assets bore project risk equivalent to equity and therefore had to be remunerated at the cost of equity for WACC purposes.

The Tribunal modified and partly set aside AERA’s Tariff Order dated 28 March 2025 and directed AERA to implement binding TDSAT judgments in the absence of a Supreme Court stay.

Use DIAL’s actual 10.55% cost of debt for the Third Control Period true-up.

Recognise 10.24% as the projected Fourth Control Period cost of debt, subject to true-up on actuals and without an SBI MCLR-plus-150-basis-points ceiling.

Allow actual IDC without setting off interest income and recognise IDC actually paid under the finance lease.

Base Revenue Share Asset true-up on actual revenue, without the ₹21,899.23 crore minimum threshold.

Include actual CSR expenditure as aeronautical O&M cost.

Exclude the ₹12.77 crore DAFFPL dividend from aeronautical revenue and treat it as other income.

Recognise ₹96.80 crore of apron and AGL-related capital expenditure.

Allow actual legal expenses without the impugned revenue-based apportionment.

Correct the double deduction of the ₹33.61 crore deleted asset.

Delete the proposed 1% deduction for delayed capitalisation.

Recognise eligible airport-gateway beautification and landscaping expenditure as aeronautical O&M cost.

Treat eligible RSDs deployed in the airport project at the cost of equity for WACC purposes.

AERA was directed to give effect to the judgment within three months of receiving a copy of it, with all consequential true-up and tariff adjustments.