On Patent Illegality Committed By Arbitrator, Court Can Only Set Aside Award And Allow Arbitrator To Reconsider Matter - SC

The Court noted that the only course open is to set aside the award and allow the learned Arbitrator to reconsider the matter on that aspect.

The Court observed as follows:

"That being the fact situation and also the position of law being clear that it would not be open for the court in the proceedings under Section 34 or in the appeal under Section 37 to modify the award, the appropriate course to be adopted in such event is to set aside the award and remit the matter to the learned Arbitrator in terms of Section 34(4) to keep in view these aspects of the matter and even if the notification dated 28.03.2016 relied upon is justified since we have indicated that the same could be relied upon, the further aspects with regard to the appropriate market value fixed under the said notification for the lands which is the subject matter of the acquisition or comparable lands is to be made based on appropriate evidence available before it and on assigning reasons for the conclusion to be reached by the learned Arbitrator."

The appeals before the Court were filed by NHAI against the judgment of the Karnataka High Court. The High Court had upheld the judgment of the District Court in Section 34 petitions under the Arbitration and Conciliation Act, 1996.

Madhavi Divan, ASG appeared for NHAI and Mr. S. Nagamuthu Senior counsel, Naresh Kaushik and K. Parameshwar appeared for respective claimants.

The Court noted at the very outset that under the scheme of the Act 1996 it would not be permissible to modify the award passed by the Arbitrator to enhance or reduce the compensation based on the material available on record in proceeding emanating from Section 34 of Act, 1996 and the option would be to set aside the award and remand the matter.

The Court then examined the contention concerning patent illegality raised by the appellant.

On this behalf, Court made the following crucial observations:

"Be that as it may, in our opinion the mere provision as contemplated under Section 3G(5) of NH Act providing for either of the parties to assail the determination made by the SLAO by itself does not provide a better status to the award passed by the SLAO. Even the award passed by the SLAO under the provisions of NH Act would still continue to remain as an offer of compensation by the Acquiring Authority to the land loser and the materials relied on by the SLAO even if discussed in detail does not provide the status of a judicially considered order so as to interfere with the same only if error is pointed out."

The Court noted that provisions of S 26(1)(1) of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 indicate that the statutory provision itself provides for market value specified in the Indian Stamp Act, 1899 for registration of sale deeds or agreement to sell in area where the land is situated to be adopted by the Collector for assessing and determining the market value of the acquired land.

The Court held that it was open for SLAO as also Arbitrator to rely upon the guideline and if value provided therein is higher than the value of property it would be open to place reliance on guideline issued for registration purposes under the Stamp Act.

The Court culled out the question for consideration as follows:

"In that view, the question that would arise for consideration in the case on hand is as to whether the award passed by the learned Arbitrator would stand vitiated merely because the guideline dated 28.03.2016 which is marginally subsequent in point of time is reckoned, when the acquisition notification under Section 3A of NH Act was prior to the same i.e. on 01.02.2016. As already noted, Section 3G(7)(a) of NH Act provides for determination of the market value on the date of publication of the acquisition notification under Section 3A."

The Court noted that the 2014 notification was prior to the 2016 acquisition notification. 

Insofar as Civil Appeal No. 4681/2022 was concerned, the Court noted that "the issue that arises for consideration herein is only as to whether the course adopted by the learned Arbitrator to apply the subsequent notification dated 05.12.2018 issued by the Department of Stamps and Registration to reckon the special instructions contained in that notification so as to enhance the market value by 50% of the guidance value which is provided in the notification dated 27.10.2014 and thus arrive at the market value of Rs.25,800/- per sq. mtr. with the aid of two different guideline value notifications is justified."

The Court, after a detailed analysis of the issues involved, noted that the aspects involved have left only one course open that is, to set aside the award and allow reconsideration of the matter by the Arbitrator. The Court noted that the awards were warranted to be set aside and matters to be remanded to the Arbitrator.

The Court accordingly kept all contentions open to be raised before the Arbitrator.

Accordingly, the Court allowed the appeals in part, however, there was no order as to costs.