No Liability Without Privity | Bombay High Court Rules AAI Maliciously Sued Aircraft Lessor | Exemplary Costs Stayed | Bank Guarantee Cancellation Enforced
Isabella Mariam
The Division Bench of the High Court of Judicature at Bombay comprising Chief Justice Alok Aradhe and Justice M. S. Karnik addressed an interim application moved by the Airport Authority of India (AAI) in connection with its appeal from a judgment in a commercial dispute. The court stayed parts of the decree concerning monetary penalties against AAI but refused to halt the cancellation of a longstanding bank guarantee issued in 1996. The court's intervention follows a 27-year legal contest involving AAI and Aer Lingus Ltd., among others.
The interim application arose in the context of an appeal filed by AAI against the judgment and decree dated 03 January 2025 in Commercial Suit No.1143 of 2024. The suit had been instituted by AAI seeking recovery of dues and the enforcement of a lien over aircraft belonging to Aer Lingus Ltd., the first defendant. The trial court had partly decreed the suit, holding defendant nos. 2 and 3 jointly and severally liable to pay Rs.2,71,51,058/- with interest at 9% per annum. Additionally, the court directed AAI to pay Aer Lingus Ltd. an amount of Rs.96,25,000/- towards bank guarantee charges and imposed exemplary costs of Rs.1 crore along with litigation costs of Rs.50 lakhs.
The plaintiff, AAI, had sought several reliefs including:
- A declaration of entitlement to detain the aircraft of defendant nos. 4 and 5 until all dues were cleared.
- A joint and several monetary decree for Rs.2,71,51,058/- against defendant nos. 4 and 5.
- Ongoing parking charges until clearance.
- A declaration of lien over aircraft till all dues were satisfied.
The trial court found that Aer Lingus Ltd., as the lessor of the aircrafts leased to East West Airlines (defendant nos. 2 and 3), could not be held liable for the charges in the absence of privity of contract with AAI. It recorded, *"whatever charges are to be recovered for the use of the airport by aircrafts, needs to be recovered from defendant No.2 and 3, if any, being in its possession as lessee at the relevant time."
Aer Lingus Ltd. contended that the aircrafts were leased to East West Airlines under a five-year agreement in 1992, and that due to non-payment of lease rent and operation without insurance, the lease was terminated. They asserted that charges raised by AAI were against East West Airlines, yet the lessor was maliciously joined as a defendant. The court was informed that a 1996 writ petition had already held that Aer Lingus was not liable for such dues, and that the bank guarantee was furnished solely under court directions.
Aer Lingus relied on the findings of the Trial Court that AAI had deliberately included them in the suit because East West Airlines was under liquidation, as evidenced by the admission: "we were aware that the defendant No.2 has gone into liquidation before filing the suit. We were aware that we cannot recover any amount from the defendant No.2 and therefore, we joined defendant No.1, 4 and 5 as parties."
The Trial Court had imposed costs based on findings of collusion between AAI officials and East West Airlines, citing the CAG report admitted in cross-examination which showed only Rs.1.75 lakhs was taken as security deposit in place of Rs.17.5 crore. The judgment recorded: "The said expenses were saddled upon the defendant Nos.1, 4 and 5 only due to false and malicious suit filed against them by the plaintiff."
The Division Bench reviewed the judgment dated 03 January 2025 and the earlier order dated 27 June 2024, noting that the Trial Court had concluded no contractual liability could be imposed on Aer Lingus Ltd. The court acknowledged the long-standing litigation and scrutinised the findings under Paragraph 48 of the impugned judgment, where the Trial Court observed that AAI's conduct amounted to malicious prosecution.
In relation to the exemplary costs, the Division Bench stated: "prima facie, in our opinion, imposing exemplary costs and litigation costs on the appellant appears to be unjustified... merely because defendant No.1 is made a party to the suit and a claim is made against them is not sufficient to impose exemplary costs."
On the aspect of the CAG report and other alleged collusion, the court stated: "The finding of collusion between officials of AAI and Respondent Nos.2 and 3, prima facie, is misconceived." It also remarked that there were no clear metrics to determine the Rs.50 lakh figure awarded as litigation cost.
The court observed that the conduct of joining Aer Lingus Ltd. might have stemmed from a desire to protect AAI’s interests. It noted, "It may be the officials of the AAI have been over cautious in protecting the interest of the AAI and hence impleaded defendant No.1 which is admittedly the owner of the aircrafts."
The Bombay High Court directed that Clause 3 of the impugned judgment and decree dated 03.01.2025 shall be stayed, subject to the Airport Authority of India (AAI) depositing the amounts ordered therein before the Court within eight weeks. The respondent No.1 shall be at liberty to seek withdrawal of the deposited amount once it is secured in Court. This stay was granted considering the nature of the amount involved, which pertained to Bank Guarantee charges and was conditional on the deposit being made.
The Court further ruled that Clause 4 of the impugned judgment and decree shall also remain stayed. The Court found, prima facie, that imposing exemplary costs of Rs. 1 crore and litigation expenses of Rs. 50 lakhs on AAI appeared unjustified at this stage. Given that respondent No.1 had leased the aircrafts to respondents No.2 and No.3 and the disputes arose due to defaults by them, the Court observed that merely joining respondent No.1 as a party to the suit did not warrant such heavy penalties. Moreover, the finding of collusion was deemed prima facie misconceived, and no sound basis existed for the quantification of litigation expenses. Accordingly, the operation and effect of this part of the decree were stayed.
In contrast, the Court refused to stay Clause 5 of the impugned judgment and decree dated 03.01.2025. It held that the request by AAI to halt this direction was devoid of merit. As a result, the Prothonotary and Senior Master of the Court was instructed to proceed expeditiously and ensure cancellation of the Bank Guarantee in accordance with Clause 5. This directive, thus, remained operative and enforceable without delay.
Finally, with these findings and directions, the Interim Application was disposed of.
Advocates Representing the Parties
For the Applicant: Mr. Aseem Naphade, with Ms. Radha H. Bhandari and Mr. S. D. Shetty, instructed by M. V. Kini & Co.
For the Respondents: Ms. Archana Deshmukh, with Mr. Krishan Singhania, Ms. Srishti Singhania, Ms. Anjana Devi, and Mr. Aayush Shah, instructed by Singhania & Co.
Case Title: Airport Authority of India v. Aer Lingus Ltd. & Ors.
Neutral Citation: 2025: BHC-AS:19509-DB
Case Number: Interim Application No. 3109 of 2025 in Commercial First Appeal No. 13 of 2025 in Commercial Suit No. 1143 of 2025
Bench: Chief Justice Alok Aradhe and Justice M. S. Karnik
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