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Parliament intended that no power of modification of an award exists in S.34 of Arbitration Act,1996

Quite obviously if one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha and doing what, according to the justice of a case, ought to be done. In interpreting a statutory provision, a Judge must put himself in the shoes of Parliament and then ask whether Parliament intended this result. Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996. It is only for Parliament to amend the aforesaid provision in the light of the experience of the courts in the working of the Arbitration Act, 1996, and bring it in line with other legislations the world over (Para 46)


Civil Appeal 2021 [Arising Out of SLP (Civil) No.13020 Of 2020]

Decided on July 20, 2021

The Divisional Bench of Supreme Court consisting of Justice R. F. Nariman and Justice B.R. Gavai declined to exercise the jurisdiction under Article 136 in favour of the appellants as in several similar cases, the NHAI has allowed similarly situated persons to receive compensation at a much rate than awarded.

The appeals in the present case raise an interesting question of law – as to whether the power of a court under Section 34 of the Arbitration and Conciliation Act, 1996 to “set aside” an award of an arbitrator would include the power to modify such an award. A Division Bench of the Madras High Court has disposed of a large number of appeals filed under Section 37 of the said Act laying down as a matter of law that, at least insofar as arbitral awards made under the National Highways Act, 1956 [“National Highways Act”], Section 34 of the Arbitration Act must be so read as to permit modification of an arbitral award made under the National Highways Act so as to enhance compensation awarded by a learned Arbitrator.

The facts in all these appeals concern notifications issued under the provisions of the National Highways Act and awards passed thereunder. These notifications are all of the years 2009 onwards and consist of awards that have been made by the competent authority under the Act, who is a Special District Revenue Officer. In all these cases, awards were made based on the ‘guideline value’ of the lands in question and not on the basis of sale deeds of similar lands. The result is, in all these cases, that abysmally low amounts were granted by the competent authority. In Section 34 petitions that were filed before the District and Sessions Judge, these amounts were enhanced, and the award of the Collector was therefore modified by the District Court in exercise of jurisdiction under Section 34 Arbitration Act to reflect these figures. In the appeal filed to the Division Bench, the aforesaid modification was upheld, with there being a remand order to fix compensation for certain trees and crops.

Shri Tushar Mehta, learned Solicitor General of India, has mentioned the scheme of the National Highways Act, and has argued that

i. it was necessary to speed up the acquisition process for a very important public purpose, that is construction of national highways, the National Highways Act was amended in 1997 by the National Highway Laws (Amendment) Act, 1997, to include Sections 3 to 3J under which, notifications were issued under Sections 3A to 3D. Before vesting takes place of the land acquired under Section 3E, compensation is determined under Section 3G of the Act, which is an amount determined by the competent authority who is set up under Section 3(a) of the Act. Unlike the Land Acquisition Act, 1984, if the amount determined by the competent authority is not acceptable to either the National Highways Authority of India (NHAI) or the land-owner, on application by either of the parties, the amount of compensation will be determined by an arbitrator who is appointed only by the Central Government. Then, subject to the provisions of the National Highways Act, the provisions of the Arbitration Act apply. The competent authority and the arbitrator, while determining the amount of compensation, must take into account, under Section 3G(7), the market value of the land on the date of publication of the notification under Section 3A, damage sustained, and various other factors mentioned in the sub-section. Importantly, under Section 3J, the Land Acquisition Act does not apply to such acquisitions.

ii. the object sought to be achieved by the Act, a speedy procedure was provided by which a challenge to the arbitrator’s award is then made only under Section 34 of the Arbitration Act, which, as has been held by a catena of judgments, is not a challenge on the merits of the award. The court’s limited power under the said Section is wholly unlike the power of an appellate court under the Land Acquisition Act, and hence such power is only limited to either setting aside the award or remitting the award to the arbitrator under Section 34(4) so as to eliminate any ground of challenge under Section 34.

iii. this was in contrast to the Arbitration Act, 1940 which contained a specific provision to remit an award under Section 15.

iv. the Arbitration Act, 1996, being based on the UNCITRAL Model Law on International Commercial Arbitration, 1985, has specifically restricted the grounds of challenge and the consequent remedy, which is only to set aside or remit in limited circumstances.

v. based on a reading of Section 34 itself as well as a number of judgments of this Court and High Courts that this well settled position cannot possibly be given a go-by when it comes to arbitration under the National Highways Act, in which either party can ask for the appointment of an arbitrator who is then appointed not by the parties, but by the Central Government.

He attacked the Division Bench judgment, arguing the impugned judgment was wrong on law and equally wrong in following an earlier Single Judge judgment of the Madras High Court in which it was held, in a situation not under the National Highways Act but under the Arbitration Act itself (arising from a consensual arbitration), that the court, under Section 34, can modify the arbitral award.

He attacked the learned Single Judge’s judgment in Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., arguing that once the Supreme Court had laid down as a matter of law that no modification of an award is possible, it was not open to a single judge to differ from such view. He also argued that under post setting aside of an award, a fresh arbitration could ensue as a matter of law, and it was not open to his client or anybody to thwart a fresh arbitration in case an award is set aside under Section 34.

Col. R. Balasubramanian, learned senior advocate appearing on behalf of the respondent in SLP (Civil) No. 12987 of 2020, raised by way of a preliminary point, that in at least three cases arising out of the same notification for the same village and the same purpose as in his case, the NHAI had deposited the compensation before the learned court concerned and the same was received by the claimants. The judgment of the learned District Judge was thus complied with. He also pointed out that in two other cases being, AROP No. 9,10,11 of 2014 and CMA No.650 to 680 of 2013, the NHAI had deposited the entire award amount with the accrued interest before the District Judge in accordance with the District Judge’s judgment, no appeal being filed therefrom.

He therefore argued that the NHAI being ‘State’ under Article 12 of the Constitution of India, cannot pick and choose as to when it will file appeals against certain District Judge judgments and not against others. On this ground alone, according to the learned senior advocate, all these appeals ought to be dismissed.

On merits, he pointed out the facts of his case and the fact that an abysmally low sum had been given as compensation which was then raised by the District Judge, having regard to the relevant sale deeds in the vicinity. He also supported the impugned judgment to argue that even if the learned Single Judge in Gayatri Balaswamy had not laid down the law correctly so far as matters arising under the Arbitration Act are concerned, yet the impugned judgment correctly makes the distinction between consensual arbitration and an arbitrator appointed by the Central Government, who is none other than some government servant who merely rubber stamps awards that are passed by yet another government servant.

He argued that if Section 34 were to be construed in the manner suggested by the learned Solicitor General, then for a very grievous wrong there would be no remedy as all that the District Judge could then do in the Section 34 jurisdiction is to set aside the award, resulting in a fresh arbitration before either the self-same bureaucrat or another bureaucrat appointed by the Central Government. This being the case, these appeals even on merits ought to be dismissed.

Having heard learned counsel appearing on both sides, taking into consideration all the relevant sections of the National Highways Act and case laws, given its views that the speeding up of acquisition of land needed for national highways has been achieved. The challenge process to an award passed will, of necessity, take its own time, both under Section 3G of this Act as well as under the provisions of the Land Acquisition Act. This being the case, it is a little difficult to appreciate as to why the wholesome regime of appeals under the Land Acquisition Act has been replaced by a regime in which an award passed by an Arbitrator, who is not consensually appointed but appointed by the Central Government, can only be challenged not on merits, but on the limited grounds contained in Section 34 of the Arbitration Act, 1996. (Para 53)

Given the fact that the NH Amendment Act, 1997 has not been challenged hence it is enough to say that, as has been held in Taherakhatoon v. Salambin Mohammad, even after the court declare the law and set aside the High Court judgment on law, the court need not interfere with the judgment on facts, if the justice of the case does not require interference under Article 136 of the Constitution of India.

Therefore, fact that in several similar cases, the NHAI has allowed similarly situated persons to receive compensation at a much higher rate than awarded, and given the law laid down in Nagpur Improvement Trust (supra), we decline to exercise our jurisdiction under Article 136 in favour of the appellants on the facts of these cases. Also, given the fact that most of the awards in these cases were made 7-10 years ago, it would not, at this distance in time, be fair to send back these cases for a de novo start before the very arbitrator or some other arbitrator not consensually appointed, but appointed by the Central Government. (Para 58)

Subsequently, the appeals are dismissed on facts with no order as to costs.

Swadheen Singh



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