Award Cannot Be Set Aside On Grounds Of Mere Illegality Unless Patent Illegality Is Established U/S 34 Of Arbitration Act: Himachal Pradesh HC

Brief Facts

The National Highway Authority of India (for short 'NHAI') feeling aggrieved against the dismissal of its applications on 04.12.2021 under Section 34 of the Arbitration & Conciliation Act, 1996 (for short 'the Act') by the learned District Judge, Mandi (H.P.) has taken recourse to institution of these arbitration appeals under Section 37 of the Act.

All these appeals arise out of the acquisition of land by the appellant in Mohal Chamukha, Tehsil Sundernagar, District Mandi (H.P.).

For the land covered by the above notifications, the Competent Authority Land Acquisition ('CALA') announced award No.45/2013-14 on 31.10.2013. In terms of the award, market value of the land was assessed at Rs.50,00,000/- per bigha.

Seeking enhancement in the market value of the acquired land, the landowners filed their claim petitions under Section 3G(5) of the NH Act before the notified Arbitrator. Learned Arbitrator passed the award on 28.11.2017 under Section 3G(5) of the NH Act. The claim petitions filed by the landowners were allowed. The market value of the acquired land was enhanced to Rs.68,16,513/- per bigha.

The NHAI feeling aggrieved against the enhancement in the market value determined by the Arbitrator took recourse to Section 34 of the Act and filed applications assailing the awards passed in favour of the landowners before the learned District Judge, Mandi. All these applications moved under Section 34 of the Act by NHAI were clubbed and vide common judgment passed on 04.12.2021, the same were dismissed.

Contentions

The appellant submitted that the proceedings had commenced before the learned Arbitrator on 06.02.2015, whereas the award was passed on 28.11.2017. in view of Section 29A of the Act, which came into force w.e.f. 23.10.2015, the award was required to be passed within 12 months from the date of entering upon reference. The award passed by the learned Arbitrator on 28.11.2017 was non est as the Arbitrator had become functus officio on that date.

• That Sale deed relied upon by learned Arbitrator pertaining to Mohal Thala was for a very small area compared to large tracts of land acquired under the questioned land acquisition process. It could not have been relied upon for assessing the market value of large tracts of land.
• That while enhancing the market value, the Arbitrator had wrongly taken into consideration the inspection report prepared by a retired Officer of the State Administrative Service. Provisions of Civil Procedure Code do not apply to the arbitration proceedings. Therefore, the aforesaid report could not be looked into.

Per contra, Learned counsel for the respondents defended the award passed by learned Arbitrator as also the judgment passed by learned District Judge.

Court's Analysis

The court, at the outset, referred to its own judgment in P.K. Construction Company & Anr. vs. Shimla Municipal Corporation & Ors.,2018 , wherein it was held that provisions of Section 29A of the Act will not be applicable to the arbitration proceedings that had started before the Arbitration & Conciliation (Amendment) Act, 2015 (3 of 2016) came into force.

Based on the above, the court noted that “In the instant case, the proceedings commenced before the learned Arbitrator on 06.02.2015, whereas Section 29A of the Act came into force from 23.10.2015, therefore, learned District Judge did not err in holding that the award passed in the present case cannot be held to be non est.”

The court moved to analyze the second contention that sale deed with respect to a small tract of land could not be used for determining the market value for a large area of land and referred to supreme court judgment in Spl. Land Acquisition Officer & Anr. vs. M.K. Rafiq Saheb, 2011 wherein it was held that “there is no absolute rule that sale instances of smaller chunks of land cannot be considered when a large tract of land is acquired. In certain scenarios, such sale deeds pertaining to smaller pieces of land can be put to use for determining the value of acquired land which is comparatively large in area.”

The court further noted that On deductions the Apex Court in Lal Chand vs. Union of India & Anr., 2011 has held, inter alia, that development of road is not necessary for widening the National Highway.

The court further noted that in V.Hanumantha Reddy (dead) by LRs vs. The Land Acquisition Officer & Mandal R. Officer, 2003, the Apex Court has held that the land might be having high potentialities or proximity to developed area, but that by itself would not be a reason for not deducting developmental charges.

Based on the above law, the court observed that “neither the reliance placed upon sale deed, Exhibit-PB, nor increase in value by 10% nor the deduction by 33%, while determining the market value of the acquired land can be faulted.”

The court referred to section 26 of the Arbitration Act which 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 to be determined by the Tribunal. The Arbitral Tribunal has jurisdiction to appoint an expert. The only prohibition being, the parties should not have stipulated that no expert should be appointed before the learned Arbitral Tribunal.

The court while rejecting the contention that report of the local commissioner could not be taken into consideration observed that “no such agreement was placed on record by the parties. In view of above facts, learned District Judge has correctly held that the plea that the Arbitrator could not appoint the expert or could not consider the report of the expert was not tenable.”

The Arbitrator had considered the potentiality of the land & increased the value keeping in view the proximity from the road and other developed areas. This was justifiable. The increase in value by 10% cannot be said to be excessive. Learned Arbitrator had also allowed deduction of 33% on account of developmental charges. The stipulated parameters were duly considered by the Arbitrator, the court observed while rejecting the contention that parameters laid down under section 3(G)(7) of the NH Act were not followed.

In Konkan Railway Corporation Ltd. Vs. Chenab Bridge Project Undertaking 2023 , the Apex Court has held that jurisdiction of the Court under Section 37 of the Act is akin to that under Section 34 of the Act. The Courts ought not to interfere with arbitral award in a casual and cavalier manner. Mere possibility of an alternative view on facts or interpretation of contract does not entitle Courts to reverse findings of the Arbitral Tribunal, the court noted.

In Reliance Infrastructure Ltd. vs. State of Goa, 2024, the Hon'le Apex Court has held that 'patent illegality' in the award calls for interference but a mere illegality is not patent illegality. It 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 pleadings and evidence, noted by the court.

The court concluded that in view of above discussion, no case is made out to interfere with the impugned judgment dated 04.12.2021, whereby applications moved by the appellant under Section 34 of the Act were dismissed and the award passed by the learned Arbitrator was affirmed.

Accordingly, the present appeals were dismissed.

Case Title: National Highway Authority of India Versus Rajesh Kaptyaksh and Ors.

Case Reference: Arbitration Appeal No.9 of 2024 along with Arbitration Appeal Nos.86 & 88 of 202

Judgment Date: 12/11/2024

For the appellant : Ms. Shreya Chauhan, Advocate,in all the matters.

For the respondent(s) : Mr. Varun Rana and Mr. Suneet Verma, Advocates.