Law firm caught in GMR, govt face-off

Law firm caught in GMR, govt face-off

The civil aviation ministry has taken strong exception to Amarchand Mangaldas & Suresh A. Shroff & Co., one of the India’s leading corporate law firms, offering legal advice to GMR Infrastructure Ltd and GVK Power & Infrastructure Ltd, companies that lead the consortia modernizing airports at New Delhi and Mumbai, respectively.

As part of that contract, said two senior government officials familiar with the process and did not want to be identified, Amarchand Mangaldas cannot provide legal services to any bidder in the airports privatization until May.

In what is the latest development in the spat between the government and the GMR-led Delhi International Airport Ltd or DIAL over restructuring of business at the Capital’s airport, the ministry now plans to complain to the Bar Council of India over what it calls a breach of contract and professional misconduct on part of Amarchand Mangaldas.

A civil aviation ministry official said it has been advised by the law ministry that it was “ethical misconduct" on part of the Amarchand Mangaldas to represent “both parties to a contract at different stages."

A phone call and email with questions, sent on Tuesday for comment to Amarchand Mangaldas managing partner Cyril Shroff, whose Mumbai office staff said he was in London, were not returned.

Emails to two other partners—Pallavi Shroff and Shardul Shroff—on Wednesday, too, didn’t elicit a response.

Meanwhile, it is likely the law firm issue will also spread to the Mumbai airport.

Amarchand Mangaldas has also been hired by Mumbai International Airport Ltd, or MIAL, led by GVK Power & Infrastructure that, with Airports CompanySouth Africa and Johannesburg-based Bidvest Group Ltd holds 74%. The law firm is advising MIAL on “litigations leftover by the legacy disputes over various contracts at the airport" as also “developing commercial contracts", said a senior GVK official, who requested anonymity.

The role of the legal firm surfaced some weeks ago as differences between the ministry and the DIAL management have started snowballing on the airport operator’s plans to spin off real estate and cargo businesses into two units—Delhi Aerotropolis Pvt. Ltd and Delhi Cargo Pvt. Ltd—and plans to seek approval for a third unit to run duty-free shops.

Through Delhi Aerotropolis, DIAL wants to part-fund the Rs8,900-crore airport development, which has a 2010 deadline, by securing at least Rs2,835 crore in deposits, refundable after 28 years, and an annual licence fee from a realty developer who will develop about 45 acres of airport land into a hospitality district.

According to aviation ministry officials, the government will lose revenues—New Delhi is to receive some 46% of the airport revenues as part of the privatization deal—if such a recast is permitted.

Both the subsidiaries do not conform with the Operations Management Development Agreement, an agreement central to the 30-year privatization contract, according to advice given by New Delhi law firm Swarup & Co. to the Airports Authority of India or AAI. The state-owed regulator says the agreement does not allow DIAL “to assign or transfer its obligations to third parties" as is being proposed.

GMR confirmed it had taken advice from Amarchand Mangaldas as also from several other firms but said it was unaware of the law firm’s contractual terms with the government. But, “there should not be any reason for conflict," insisted GMR’s chief finance officer Madhu Terdal.

Hyderabad-based GMR Group holds 50.1% of DIAL’s equity with Frankfurt airport operator Fraport AG and a unit of Malaysian Airports Holding Bhd. each owning 10%. Private equity player India Development Fund has a 3.9% stake apart from a 26% stake by AAI.

“We have taken their (Amarchand Mangaldas) advice for the limited purpose of preparing the bid document (for the hospitality district). They are the best people to advise as they understand (the agreement).

“We do not think it is (unethical)," said another senior GMR Group executive, who did not want his name used.

Said S. Gopakumaran Nair, chairman of the Bar Council of India, a regulatory body that lays down the standard in professional conduct among lawyers: “The Bar Council Rules state that a lawyer who has consulted with one party cannot switch over to the other party in the same case when appearing before a court or tribunal as it amounts to professional misconduct."

He was speaking in general and not about Amarchand Mangaldas.

A law firm, “while drafting the concession agreement, would have been given confidential information by the first client. Switching sides to a second client, who is also a party to the contract, can hurt the first client. Therefore, although this service is not before a court or tribunal, it is unethical," Nair said.

Malathi Nayak contributed to this story.