Mere Erroneous Application Of Law; Award Need Not Be Set Aside: Bombay High Court

The Single Bench of Justice Manish Pitale ruled that though the arbitral award granting interest to land owners on enhanced compensation from the date of the notification for acquisition, and not from the date of taking possession, is contrary to the mandate of Section 3H (5) of the National Highways Act, 1956 (NHA); however, it constituted a mere erroneous application of the law and hence, the award cannot be said aside on the said ground.

The National Highways Authority of India (NHAI) undertook the process of acquisition of lands of the respondent land owners under the National Highways Act, 1956 (NHA). The Land Acquisition Collector passed an order awarding compensation to the respondents. Against the compensation awarded to them, the respondent land owners/ claimants initiated arbitration proceedings by invoking Section 3G (5) of NHA and sought enhancement of compensation. The Arbitrator partly allowed the application of the land owners/claimants. The NHAI filed an application challenging the arbitral award under Section 34 of the A&C Act before the District Court. The District Court only partly set aside the award of the Arbitrator. Against this, the NHAI filed an appeal before the Bombay High Court under Section 37 of the A&C Act.

NHAI submitted before the High Court that the District Court could not have partly set aside the award since that would amount to modifying the award of the Arbitrator and thus, the award in its entirety ought to have been set aside.

The NHAI added that the lower court directed the NHAI to pay interest of 9% p.a. on the enhanced compensation w.e.f. the date of notification under Section 3D of the NHA till the date of payment of the enhanced compensation. The NHAI averred that the said direction to pay interest on the enhanced compensation was granted from the incorrect date, since the interest must be paid from the date of taking over possession and not from the date of the notification.

Hence, NHAI submitted that the entire award was vitiated and must be set aside under Section 34 of the A&C Act.

The respondents/land owners, including Nareshchandra Agrawal, disputed the contention of the NHAI that the order passed by the lower court amounted to modification of the arbitral award.

The High Court noted that the Supreme Court in NHAI versus M. Hakeemand (2021) had ruled that the court exercising power under Section 34 of the A&C Act does not have the power to modify an arbitral award and that the court only performs a supervisory role, wherein it cannot correct the errors of the Arbitrators.

Further, the Court observed that the Bombay High Court in R.S. Jiwani versus Ircon International Ltd. (2009) had held that the judicial discretion vested in the court under Section 34 of the A&C Act takes within its ambit the power to set aside an award partly or wholly depending on the facts and circumstances of the case. The High Court had added that the view that it is mandatory for the court without exception to set aside an award as a whole and to restart the arbitral proceeding all over again would be unjust, unfair, inequitable and would not in any way meet the ends of justice.

Hence, the High Court ruled that when the court is convinced that the Arbitrator has erred only on specific issues and that the arbitral award is otherwise sustainable, the court is not mandatorily required to set aside the entire award. Holding that the court, while exercising power under Section 34 of the A&C Act, can set aside an award partly, depending upon the facts and circumstances of the case, the Bench ruled that the court can segregate the award with respect to the items that do not suffer from any infirmity and uphold the award to that extent.

"If such a recourse to go for arbitration afresh is to be adopted on every occasion that the arbitral award is found liable to be set aside on some issues, it would lead to multiple rounds of litigation, going against the very purpose of alternative dispute redressal mechanisms like arbitration. The claimants would be forced to pursue numerous rounds of proceedings before the arbitrator and Courts, which cannot be countenanced, thereby indicating that the contention raised in this regard on behalf of the appellants is unsustainable."

Observing that the lower court had refused to interfere with the calculations undertaken by the Arbitrator to ascertain the quantum of enhanced compensation payable to the land owners, the Court ruled that under Section 34 of the A&C Act, the court has a limited jurisdiction and that it does not exercise appellate jurisdiction.

The Court noted that under Section 3H (5) of the NHA, interest at 9% p.a. can be granted by the Arbitrator on the excess amount from the date of taking possession under Section 3D of the NHA. Further, the proviso to Section 34 (2A) of the A&C Act provides that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

While holding that the direction given in the arbitral award for payment of interest on enhanced compensation from the date of the notification under Section 3D of the NHA could be said to be illegal in view of Section 3H (5) of the NHA; however, the Court ruled that the said direction was an erroneous application of the law, and thus it was covered under the proviso to Section 34 (2A) of the A&C Act.

The Court, thus refused to interfere with the order passed by the lower court and dismissed the appeal filed by the appellant.

Case Title: National Highways Authority of India versus The Additional Commissioner, Nagpur and Ors.

Dated: 20.08.2022 (Bombay High Court)

Counsel for the Appellant: Mr. A. A. Kathane

Counsel for the Respondents: Ms. T.H. Khan, AGP; Mr. C. S. Kaptan, Senior Advocate assisted by Mr. A. V. Khare, Advocate

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