CIAL subsidiary challenges Rs13.4 cr order

KOCHI: A long-drawn-out dispute between a wholly owned subsidiary of Cochin International Airport Ltd (CIAL) and a private aviation institute landed the CIAL subsidiary in an arbitration award requiring it to pay Rs13.4 crore to the institute.

However, the CIAL subsidiary – Cochin International Aviation Services Ltd (CIASL), did not concede the fight and has appealed the order in the appellate court.

The genesis of the dispute dates back to 2008-09 when CIASL and Kairali Aviation Aeronautical Engineering Private Ltd, (KAAEPL) entered into an agreement for the operation and management of aircraft maintenance and engineering (AME) institute. According to KAAEPL, there was a revenue sharing arrangement between the two as the facilities were organized by the CIAL group and the investments made by KAAEPL.

The CIAL subsidiary said that though KAAEPL started the course in August 2010 they could not continue running the institute as KAAEPL failed to obtain the necessary approval from Director General of Civil Aviation (DGCA).

Consequent to this, during 2011-12, CIASL invoked a bank guarantee for Rs1 crore submitted by KAAEPL for non performance as provided in the terms of the contract, as well as to recover expenses incurred on their behalf and other receivables due from KAAEPL.

KAAEPL officials told that the institute couldn’t start operations for no fault of theirs and the bank guarantee was invoked by CIAL subsidiary without a warning or even intimation either from CIAL or the bank.

The CIAL document explains that the amount received from the bank on invocation of the bank guarantee and the amount ‘determined as receivable’ from KAAEPL was netted off and the balance receivable has been shown under non-current receivables in the financials of CIASL.

KAAEPL disputed the claim in the arbitration court and argued that the company had invested about Rs6 crore with the hope that the institute would be a long term project.

“In fact, the arrangement between CIASL and us was to share the revenue and in the absence of the generation of revenue; how can the CIAL subsidiary demand a share?”  KAAEPL asked.

On completion of the arbitration proceedings the award was passed on March 21, 2016 in favour of KAAEPL. As per the award, KAAEPL had been allowed to recover from CIASL an amount of Rs13.39 crore with future interest at the rate of 9 per cent per annum from the date of award till realization if paid within three months from the date of the award.

The award also noted that should the awarded amount was not paid within three months from the date of award, interest shall be paid on the said amount at the rate of 14 per cent per annum till the realisaion of the full amount.

However, the CIAL subsidiary has challenged the award before the appellate authority.


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