Introduction

  1. The Supreme Court of India has passed a judgment in a batch of over 50 appeals on the question as to whether the Courts are empowered to modify an arbitral award under Section 34 of the Arbitration & Conciliation Act, 1996 (“Arbitration Act”) when they are adjudicating an application for setting aside an award under Section 34[1].

  1. While passing the judgment, the Supreme Court has extensively analysed the passed judicial precedents on the scope of “Setting Aside” of an arbitral award under Section 34, examined the provisions of the National Highways Act, 1956 vis-à-vis the provisions of The Land Acquisition Act, 1984, as also the scope of powers of the Supreme Court under Article 136 and Article 142 of the Constitution of India.
  2. While the Supreme Court clarified the position that the power under Section 34 of the Arbitration Act does not include the power to modify an award, it was pleased to dismiss the appeals filed by the National Highways Authority of India (“NHAI”) wherein challenges were raised to the modification of awards in the underlying Section 34 and Section 37 proceedings. This was done by the Supreme Court on the peculiar facts of the cases before it.
  3. In a nutshell, the Supreme Court declined to interfere with payment of higher compensation to landowners by way of modification of the award in the Section 34 and Section 37 proceedings, after extremely low amounts of compensation were granted to various landowners pursuant to acquisition of their respect land parcels by NHAI under the provisions of the National Highways Act.

Background Facts

  1. The competent authority under the National Highways Act issued various notifications from 2009 onwards for acquisition of certain land parcels of the Respondents in these appeals. Awards for compensation against such acquisition of land parcels were made on the basis of “guideline value” of the lands in question and not on the basis of sale deeds of similar lands. Resultantly, the compensation that was awarded by the competent authority was much lower than the market value of the said lands.
  2. The determination of such amounts by competent authority can be contested before an Arbitrator under Section 3G(5) of The National Highways Act. This provision also postulates that the arbitrator is to be appointed by the Central Government. Section 3G(6) further provides that subject to the provisions of the National Highways Act, the provisions of the Arbitration Act shall apply to every arbitration under the National Highways Act. Further, Section 3G(7)(a) mandates the competent authority or the Arbitrator take into account the market value of the land on the date of publication of the notification (Notification U/s 3A for Acquisition of land for a public purpose).
  3. Since the Respondents were not satisfied with the determination of the competent authority, the matter was referred to arbitration before the District Collector, who was appointed by the Central Government in the terms of Section 3G(5) of the National Highways Act. The District Collector found no infirmity in the amounts awarded by the competent authority for the land acquisitions.
  4. The Respondents, therefore, filed section 34 petitions before the District & Sessions Judge, wherein the amount of compensation was significantly enhanced in favour of the Respondents and award of the District Collector was modified by the District Court under Section 34 of the Arbitration Act. In the appeals which were filed under section 37 by NHAI, the modification of the awarded amounts was upheld by the High Court.
  5. It was this modification of the awarded amounts under section 34 and is subsequent upholding of the same in section 37 by the High Court, that was assailed before Supreme Court.

Submissions on behalf of NHAI

  1. Briefly, the submissions raised on behalf of NHAI were as follows:
    1. National Highways Act was amended in 1997 by the National Highway Laws (Amendment) 1997. The amendments included introduction of section 3 to 3J for speeding up the land acquisition process for important public purposes such as construction of national highways.
    2. Before the land vests with the Government under Section 3E of the amended National Highways Act, compensation is determined under Section 3G of the Act, which is an amount determined by the competent authority.
    3. While the Land Acquisition Act prescribes a detailed appellate process to determination of compensation, the applicability of the said Act is expressly excluded under Section 3J of the amended National Highways Act. Instead, the process of arbitration under a Central Government appointed Arbitrator is prescribed to be followed under Section 3G.
    4. Since the object of National Highways Act, inter alia, is to expedite the land acquisition procedure, the speedy procedure of challenging any compensation amounts awarded postulates firstly arbitration under a Central Government appointed Arbitrator followed by a petition under Section 34 of the Arbitration Act (if so required). It is settled law that a challenge to the award under Section 34 of the Act is not a challenge on the merits of the award and is not akin to the power of an Appellate Court under the Land Acquisition Act.
    5. The power under Section 34(4) is only limited to either setting aside the award or remitting the award back to the Arbitrator so as to eliminate any ground of challenge under Section 34. This is in line with the UNCITRAL Model Law.
    6. This power under Section 34 is far more limited in contrast to the provisions of 1940 Act wherein the Court was expressly empowered to modify or correct an award.
    7. Since the Central Government appoints the Arbitrator under the National Highways Act at the request of either of the parties, the arbitration is not consensual in nature, and it would make no difference to the interpretation of Section 34 of the Arbitration Act in its application to the National Highways Act.
    8. The judgment of Madras High Court in Balaswamy Vs. ISG Novasoft Technologies Limited (2014 SCC OnLine Mad. 6568) has been wrongly relied upon in the impugned judgment since the single Judge could not have deferred from the view taken by Supreme Court that no modification of an award is possible under Section 34 of the Arbitration Act.

Submission on behalf of Respondents

  1. Briefly, the submissions raised on behalf of Respondents were as follows:
    1. In at least three cases arising out of the same notification for the same village and the same purpose as in one of the petitions of the batch, the NHAI had deposited the compensation before the learned court and the same was received by the claimants. The judgment of the learned District Judge was thus complied with.
    2. In two other cases also, 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. NHAI being ‘State’ under Article 12 of the Constitution of India, could not have selectively filed appeals against some District Judge judgments and not against others.
    3. On the facts of the case, 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.
    4. Even if the Single Judge in Gayatri Balaswamy case had not laid down the law correctly so far as matters arising under the Arbitration Act are concerned, yet the impugned judgment correctly distinguished 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.
    5. If Section 34 is construed narrowly, then landowners having been awarded very low compensations would not have any effective remedy since all that the District Judge could then do to set aside the award, resulting in a fresh arbitration before either the self-same bureaucrat or another bureaucrat appointed by the Central Government.

Analysis by the Court

  1. The Court firstly analysed provisions of the National Highways Act including its statement of object and reasons, and Sections 3 to 3J of the Act and then observed as follows:
    1. Competent authority as authorized by the Central Government determines the amount of compensation payable;
    2. On application by either of the parties, the amount determined is sent to an Arbitrator;
    3. The aforesaid process is not consensual in fact, the landowner has no say at all in the appointment of the Arbitrator, who is appointed only by the acquiring authority i.e. the Central Government;
  2. The Court then examined the scope of judicial interference under Section 34 and observed as follows:
    1. Section 34 is not in the nature of an appellate provision and only provides for setting aside awards on very limited grounds;
    2. Considering the marginal note of Section 34 i.e. “Recourse”, which means enforcement or method of enforcing a right; the enforcement of a truncated right (setting aside under Section 34 on limited grounds) can also be only limited in nature;
    3. Section 34 is based on Article 34 of UNCITRAL Model Law under which, the Court which is hearing a challenge to an award has no power to modify an award;
    4. On the contrary, under Sections 15 and 16 of the Arbitration Act, 1940, the Court had the power to modify or correct an arbitral award under certain circumstances or remit the award. Under the scheme of the old Act, an award could be remitted, modified or set aside on the grounds contained in Section 30 of the Old Act, which were broader, and the grounds contained in Section 34 of the Arbitration Act;
    5. Following judgments were referred to emphasising the position that Section 34 proceeding do not envisage any challenge to arbitral award on merits:
      1. MMTC Ltd. v. Vedanta Ltd.[2];
      2. Ssangyong Engg. & Construction Co. Ltd. v. NHAI[3];
      3. Renusagar Power Co. Ltd. v. General Electric Co.[4];
      4. Maharashtra State Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd.[5];
      5. McDermott International Inc. v. Burn Standard Co. Ltd.[6];
      6. Kinnari Mullick v. Ghanshyam Das Damani[7];
      7. Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.[8]; and
      8. Puri Construction P. Ltd. v. Larsen and Toubro Ltd.[9] (*this judgment inter alia, examined various legal authorities holding diametrically opposite positions on the power of Court to modify, vary or remit the arbitral award under Section 34 and the lack thereof)
  3. After conclusively observing that Section 34 of the Arbitration Act cannot be held to include within it, a power to modify an award, the Supreme Court then went on to examine Gayatri Balaswamy judgment more particularly in light of powers of the Supreme Court under Article 142 of the Constitution of India. Court observed that power to modify an award under Article 142 of the Constitution was vested only in the Supreme Court, it being a final court of last resort. The Supreme Court also referred to various judgments, where an award was affirmatively modified in certain aspects in exercise of its powers under Article 142 of the which were as follows:
    1. Tata Hydro-Electric Power Supply Co. Ltd. v. Union of India[10]; and
    2. Krishna Bhagya Jala Nigam Ltd. v. G. Harischandra Reddy[11].
  4. The Court then observed that the Gayatri Balaswamy judgement and a subsequent division bench judgement in ISG Novasoft Technologies Limited v. Gayatri Balasamy[12], suffered from infirmities since they did not take into account another division bench judgment of the Madras High Court i.e. Central Warehousing Corpn. v. A.S.A. Transport[13], which relied on McDermott’s case to hold that power of modification of an award is not available under Section 34 of the Arbitration Act.
  5. While concluding on the issue of Section 34, Supreme Court made the following key observations:
    1. Section 34 envisages limited judicial interference on extremely limited grounds not dealing with the merits of an award. As such, the limited remedy under Section 34 is co-terminus with a limited right i.e. either setting aside of the award or remand the matter to the Arbitrator under circumstances mentioned in Section 34.
    2. Under the Arbitration regimes of England, United States, Canada, Australia and Singapore there are express provisions permitting variation of an award unlike Section 34 of the Indian Arbitration Act.
    3. Section 34 of the Arbitration Act is not on the same pedestal as Section 115 of the Code of Civil Procedure since Section 34 does not grant the Court the power to make “such order as it thinks fit”; this phrase is missing in Section 34 which only highlights the legislative intent behind limited scope of judicial interference under Section 34.
    4. There is a distinction between constitutional interpretation and statutory interpretation. Purposive construction of statutes and any creative interpretation of statutes has its limits insofar as the Court can iron out the creases in a statute but not alter the very fabric of the statute itself.
    5. The difference between “is” and “ought” has to be seen and the Judge has to put himself in the place of a legislator and ask himself whether ‘a legislator intended a certain result’ as against ‘this must have been the intent of the legislator’ (relying upon the judgement in Eera v. State (NCT of Delhi))[14].
    6. If one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha.
    7. 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.

Court’s finding on the Issue of Compensation

  1. Although, the Supreme Court categorically held and reiterated its previous position that Section 34 of the Arbitration Act does not empower a court to modify an arbitral award, it noted that NHAI had filed the appeals selectively and did not file appeal in several cases in similar matters, whereby, many landowners received enhanced compensation given to them by the District Court.
  2. The Court made the following observations while dealing with the issue of compensation:
    1. The competent authority awarded compensation by taking into account ‘guideline value’ which is only relevant for stamp duty purposes, rather than taking into account sale deeds which would have reflected the proper market value of the lands. (*It is pertinent to note that Section 3G(7)(a) of the National Highways Act postulates taking into account market value of the lands and not guideline value).
    2. If the Court was to interfere on facts, set aside the awards and remand the matter back to the very same person who considered depressed land values which were only relevant for stamp duty purpose, grave injustice would be done.
    3. The case of Union of India vs. Tarsem Singh[15] has declared that Section 3J of the National Highways Act is violative of Article 14 of the Constitution insofar as it does not grant solatium and interest in the manner envisaged under Sections 23(1A) and (2) and Section 28 of the Land Acquisition Act.
    4. The process of land acquisition under the National Highways Act has been made faster by cutting down the time periods of various milestones in this process. Introduction of Section 20A to the Specific Relief Act from 1st October 2018 onwards has also placed an embargo on seeking injunction against highway projects.
    5. The wholesome regime of appeals available under Land Acquisition Act is taken away and in its place, limited challenge to an arbitrator’s award is provided in terms of Section 3G of the National Highways Act read with Section 34 of the Arbitration Act. In such a scenario, there would be discrimination between the processes of award of compensation under the above two regimes even if there was a single landowner owning two different parcels of land which are acquired by two separate mechanisms envisaged above.
    6. As held in the case of Nagpur Improvement Trust v. Vithal Rao[16], different principles of compensation cannot be formulated for acquiring lands on the basis of unreasonable classification.

Court’s decision and its exercise of plenary powers under Article 142 of the Constitution

  1. The Supreme Court declared the correct position under Section 34 and set aside the High Court’s judgment on law. However, the Court categorically also observed that justice of the case does not require interference under Article 136 of the Constitution and consequently, did not interfere with the High Court’s judgment on facts.
  2. The Court observed that NHAI had allowed similarly situated persons to receive compensation at much higher rates than those awarded by the competent authority and following the law laid down in Nagpur Improvement Trust judgment, it declined to exercise jurisdiction under Article 136. While doing so, the Court also specifically noted that most of the awards were made 7 to 10 years ago at it would not be fair for such cases to be started de novo before an arbitrator is not consensually appointed.
  3. What appears to have weighed with the Supreme Court is the expression “make such order as is necessary for doing complete justice in any cause or matter pending before it ” as it appears in Article 142, more particularly in light of the fact that NHAI filed selective appeals only, while allowing various other land owners to receive the enhanced compensation pursuant to the Section 34 proceedings, as well as the fact that the determinations for compensation were done 7-10 years ago.
  4. The Supreme Court has in the past recognized and elaborated upon the existence and scope of its plenary powers under Article 142 of the Constitution. It has categorically observed that such powers are complementary to the powers conferred on it but are not limited by specific statutes, and that such powers exists in order to serve complete justice. Prevention of any visible injustice has been observed to be the basis of such plenary powers, and the Court exercises such powers whenever it is just and equitable to do so.[17] On the other hand, the Court has also recognized that the power to do complete justice between the parties must not be inconsistent with the substantive provisions of the statutory laws.[18] Interestingly, the above observations have been made by two different 5 judge benches of the Supreme Court. In the process of passing the judgment, the Supreme Court has made a visible departure the position in exercise of power under Article 142, Supreme Court generally does not pass an order in contravention of or ignoring the statutory provisions, or by directing the statutory authority to act in contravention of law[19]. What seems to have therefore been weighed by the Supreme Court was whether any statutory provisions would be violated in upholding the modification of award by the Court adjudicating the Section 34 application as against the injustice occasioned by the conduct of NHAI in filing selective appeals against the land owners. This was a significant consideration since the legal position firmly stood as the lack of any vesting of power with the Courts to modify an award under Section 34. However, NHAI did not assert this position of Section 34 powers being contravened in the case of each and every land owner who was awarded enhanced compensation. NHAI in fact allowed various land owners to receive the enhanced compensation without seeking any recourse against them. Such selective challenge to the modification of awards would have then led to an injusticiable position against the Respondent M. Hakeem and several other land owners who were arraigned as Respondents in the Supreme Court, but not the others.
  5. The Supreme Court has therefore played a balancing act on the factual circumstances and legal position in this case and thereby delivered a judgment which not only affirms the correct position of law but also exemplifies the exercise of its powers under Articles 136 and 142 in order to do complete justice to the contesting parties.
  6. On the one hand, the Court has set aside the High Court’s judgement on law by affirming that no power to modify arbitral award under Section 34 of the Arbitration Act. On the other hand, the Court was mindful of the conduct of NHAI in not only filing selective appeals against the District Court’s decision in several compensation grant cases, while not contesting high compensations received by other landowners, but also the unlawful approach of the Central Government in determining the value of the land parcels de hors the legislative postulation of Section 3G(7)(a) by ignoring the market value of the land parcels and downgrading the value of the lands on the basis of guideline values.
  7. In this sense, the judgment of the Supreme Court is a unique illustration of exercising its discretion not to entertain a petition under Article 136, and yet exercise jurisdiction under Article 142(1) to do complete justice to the land owners.

Authored by – Kirat Singh Nagra, Partner and Pranav Vyas, Associate Partner – DSK Legal

[1] The Project Director, National Highways No. 45 E and 220 of National Highways Authority of India Versus M. Hakeem & Another- SLP(C) 13020/2021, Judgment dated 20 July 2021- (2021 SCC Online SC 473)

[2] (2019) 4 SCC 163 (para 14)

[3]  (2019) 15 SCC 131 (paras 34 to 38)

[4] 1994 Supp (1) SCC 644

[5] (2018) 3 SCC 133 (para 51)

[6] (2006) 11 SCC 181 (para 52)

[7] (2018) 11 SCC 328 (para 15)

[8] (2019) 20 SCC 1 (paras 36 and 37)

[9] 2015 SCC OnLine Del 9126 (paras 115, 116 and 118)

[10] (2003) 4 SCC 172

[11] (2007) 2 SCC 720

[12] 2019 SCC OnLine Mad 15819

[13] 2007 SCC OnLine Mad 972

[14] (2017) 15 SCC 133 (para 139)

[15] (2019) 9 SCC 304

[16] (1973) 1 SCC 500 (paragraphs 26 to 30)

[17] Supreme Court Bar Association v. Union of India, (1998) 4 SCC 409

[18] Prem Chand Garg v. Excise Commr., AIR 1963 SC 996

[19] Manish Goel v. Rohini Goel (2010) 4 SCC 393; Poonam v. Sumit Tanwar (2010) 4 SCC 460; supra at 3

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