Himachal Pradesh HC Reaffirms Narrow Scope of S.37 Arbitration Act: No Interference with Arbitral Award Enhancing Land Compensation for NHAI Acquisition Unless Patently Illegal - 2025-05-30

Himachal Pradesh High Court Upholds Arbitral Award, Dismisses NHAI's Appeal on Land Compensation

Shimla, HP – May 26, 2025 – The High Court of Himachal Pradesh, in a significant ruling, has dismissed an appeal filed by the National Highway Authority of India (NHAI) under Section 37 of the Arbitration & Conciliation Act, 1996. The judgment, delivered by Hon'ble Ms. Justice Jyotsna Rewal Dua , reaffirmed the limited scope of judicial interference in arbitral awards, particularly when an award has already been upheld under Section 34 of the Act.

The Court found no grounds to overturn the District Judge, Mandi 's decision, which had earlier dismissed NHAI's challenge to an arbitral award enhancing compensation for land acquired for the four-laning of NH-21.

Case Background: From Acquisition to Arbitration

The dispute originated from the acquisition of land in Mohal Jarol , Tehsil Sundernagar, District Mandi , for the Bilaspur-Ner Chowk section of National Highway-21.

* Initial Award: The Competent Authority Land Acquisition (CALA) announced Award No.42/2013-14 on October 19, 2013, assessing the market value at Rs.41,00,000/- per bigha.

* Arbitration: Landowners, dissatisfied with the CALA's assessment, sought enhancement before the notified Arbitrator under Section 3G(5) of the National Highways Act, 1956. On December 22, 2017, the Arbitrator enhanced the market value to Rs.47,00,000/- per bigha.

* Challenge Under Section 34: NHAI challenged this enhancement before the District Judge, Mandi , under Section 34 of the Arbitration Act. This application was dismissed on November 18, 2021.

* Appeal Under Section 37: Aggrieved by the District Judge's decision, NHAI approached the High Court under Section 37 of the Arbitration Act. The respondent, Hem Raj, remained ex-parte in the High Court proceedings.

NHAI's Key Contentions

The NHAI raised several grounds for assailing the arbitral award and the District Judge's subsequent affirmation:

1. Arbitrator Functus Officio: The award was passed on December 22, 2017, allegedly beyond the 12-month period stipulated by Section 29A of the Arbitration Act (which came into force on October 23, 2015), as proceedings commenced on September 10, 2015.

2. Improper Valuation: Reliance on a sale deed for a very small land parcel compared to the large acquired area, and failure to apply adequate deductions (50-60% sought).

3. Erroneous Reliance on Inspection Report: The Arbitrator wrongly considered an inspection report by a retired State Administrative Service officer, as the Civil Procedure Code (CPC) doesn't apply to arbitration.

4. Non-Compliance with NH Act: The Arbitrator allegedly did not follow the parameters of Section 3G(7) of the National Highways Act.

5. Patent Illegality: The award suffered from patent illegality.

High Court's Rulings and Reasoning

The High Court meticulously examined each contention, relying on established legal principles and Supreme Court precedents.

1. On Arbitrator's Mandate (Functus Officio): The Court rejected this argument, citing P.K.Construction Company & Anr. vs. Shimla Municipal Corporation & Ors. (AIR 2017 HP 103), which held that Section 29A of the Act is not applicable to arbitration proceedings initiated before the 2015 amendment came into force. Since the arbitration commenced on September 10, 2015, before Section 29A's effective date of October 23, 2015, the award was not non-est.

2. On Valuation: Small Land Parcel and Deductions: The Court upheld the Arbitrator's reliance on Sale Deed No. 568 of Mohal Jarol , as it was the only available evidence of land purchase rates. An increase of 7% to account for the two-year gap between the sale deed (2010) and the acquisition notifications (2012) was deemed not excessive.

The Court cited Spl. Land Acquisition Officer & Anr. vs. M.K. Rafiq Saheb ((2011) 7 SCC 714), where the Supreme Court held: > "It is not an absolute rule that when the acquired land is a large tract of land, sale instances relating to smaller pieces of land cannot be considered... Normally, the sale instances would relate to small pieces of land. This limitation of sale transaction cannot operate to the disadvantage of the claimants."

Regarding deductions, the Court referred to Lal Chand vs. Union of India & Anr. ((2009) 15 SCC 769) and C.R.Nagaraja Shetty (2) vs. Spl. Land Acquisition Officer ((2009) 11 SCC 75), where it was held that development of land is not necessary for widening a National Highway, thus negating the need for substantial deductions for development charges in such cases. The Court observed: > "In the present case. All that the acquiring body has to achieve is to widen the National Highway. There is no further question of any development."

3. On Admissibility of Local Commissioner's Report: The Court found this contention untenable, referring to Section 26 of the Arbitration Act, which explicitly allows an arbitral tribunal to appoint experts unless otherwise agreed by the parties. > "Section 26 of the Act provides that unless otherwise agreed by the parties, the Arbitral Tribunal may appoint one or more experts to report to it on a specific issue... Admittedly, no such agreement was placed on record by the parties." The Court also noted that landowners under Section 3G(5) of the NH Act have the right to produce relevant material before the Arbitrator to prove their claim for enhanced compensation.

4. On Compliance with Section 3G(7) of the NH Act: The Court found that the Arbitrator had duly considered the market value as of the Section 3A notification date, the potentiality of the land, and its proximity to developed areas. The 7% increase was deemed justifiable.

5. On Patent Illegality and Scope of Interference under Section 37: The High Court strongly reiterated the narrow scope of judicial review under Sections 34 and 37 of the Arbitration Act. It cited several Supreme Court judgments, including:

* Larsen Air Conditioning and Refrigeration Company vs. Union of India (2023 SCC OnLine SC 982): "Section 37 of the Act grants narrower scope to the appellate court to review the findings in an award, if it has been upheld, or substantially upheld under Section 34."

* Konkan Railway Corporation Ltd. Vs. Chenab Bridge Project Undertaking (2023(9) SCC 85): "The mere possibility of an alternative view on facts or interpretation of the contract does not entitle courts to reverse the findings of the Arbitral Tribunal."

* Reliance Infrastructure Ltd. vs. State of Goa (2024) 1 SCC 479): A patent illegality "ought to be apparent on the face of the award and not the one which is culled out by way of a long-drawn analysis of the pleadings and evidence."

* S.V. Samudram vs. State of Karnataka ((2024) 3 SCC 623): "when it comes to jurisdiction under Section 37 it is all the more circumscribed."

The Court concluded: > "In the backdrop of above legal position, the award passed by the learned Arbitrator cannot be said to be suffering from any patent illegality, necessitating interference by the Court... Having considered the impugned judgment, the award and the contentions now urged, I do not find it a case to interfere in essence of limited jurisdiction under Section 37 of the Act."

Final Decision and Implications

The High Court dismissed NHAI's appeal, affirming the District Judge's order and, consequently, the Arbitrator's award enhancing the compensation. This judgment reinforces the legislative intent behind the Arbitration & Conciliation Act, 1996, which is to promote arbitration as an efficient dispute resolution mechanism with minimal judicial intervention. It underscores that courts exercising jurisdiction under Sections 34 and 37 must respect the finality of arbitral awards and should not interfere unless there are compelling grounds, such as patent illegality apparent on the face of the award.