Non-Compliance With Principles Of Natural Justice A Valid Ground For Setting Aside Arbitral Award, May Be Urged At Any Stage: Kerala High Court

The Kerala High Court has ruled that non-compliance with principles of natural justice is a good ground to set aside an arbitral award.

A Division Bench of Justice P.B. Suresh Kumar and Justice C.S. Sudha, while allowing an appeal, set aside the order of the Additional District Court and the impugned award observing:

"Arbitration, albeit lacking state sponsorship, is an adjudicatory system which has a direct bearing on the rights and liabilities of the parties involved. Therefore, it is essential that it shall be concluded in accordance with the principles of natural justice and fairness. Neutrality, impartiality and independence of the adjudicator form the very basis of any adjudicatory system and the same is a requirement of principles of natural justice."

The Court was adjudicating upon an appeal moved by individuals who held lands abutting National Highway-47.  347 square meters of land held by the appellants was acquired by the Deputy Collector for widening the National Highway. The appellants claimed a sum of Rs.8 lakhs per cent.

However, the land value fixed for the purpose of granting compensation to the appellants was only at Rs.5,88,100/- per Acre. Similarly, the value of the structures on the acquired land was fixed for the purpose of granting compensation at Rs.5,83,761/-.

Since the appellants objected to the same, the matter was referred for arbitration. The Arbitrator called for a report as to the value of the acquired land and the structures therein from the District Level Arbitration Committee constituted by the Government.

The Committee recommended that the value of the land needs to be enhanced by 30%. The Arbitrator accepted the report of the Committee and passed an award enhancing the land value as recommended.

Although this was challenged by the appellants before the lower court, the same was dismissed finding no reason for its interference. 

One of the grievances of the appellants was that the District Collector was the Arbitrator appointed in terms of the Highways Act and the Collector himself was the Chairman of the Committee from whom the report was called for.

The appellants through Advocates S. Easwaran, M.A. Augustine, P. Muralidheeran Irimpanam, P. Sreekumar Thottakkattukara argued that hence the award was liable to be treated as one in conflict with the public policy of India and be set aside.

Senior Government Pleader T.K. Vipindas and Standing Counsel Thomas Antony appeared for the respondents and argued that merely on account of the said reason, it cannot be said that the award passed by the Arbitrator is bad in law. 

However, the Court found merits in the argument of the appellants and noted that the Arbitrator was examining the acceptability or otherwise of his own report, and the award is one passed by the Arbitrator accepting his own report:

"The provisions of the Act, especially after Act 3 of 2016, in terms of which the Act has been amended substantially, would show that the scheme of the Act is also that an Arbitrator adjudicating a dispute in terms of the provisions of the Act shall be neutral, impartial and independent. It is trite that only an unbiased adjudicator can be said to be a neutral adjudicator."

The Court also added that only an adjudicator not favouring one party more than another, unprejudiced, disinterested, equitable and just, can be said to be an impartial adjudicator. The Bench added that the principle that a dispute shall be adjudicated only by a neutral and impartial adjudicator is a principle of natural justice that is deeply embedded in our jurisprudence and it is, therefore, a fundamental policy of Indian law.

"No doubt, the Collector may not be interested personally in the outcome of the arbitration proceedings, but he cannot, according to us, be said to be a neutral and impartial adjudicator in a proceedings in which the correctness of a report drawn by him and others is arising for consideration."

If that be so, it was found that the award in the instant case was liable to be set aside under Section 34(2)(b)(ii) of the Act, as one in conflict with the public policy of India.

The Court also observed that the contention that the appellants have not raised this objection before the court below is also without any substance, for if an award is found to be vitiated for non-compliance of the principles of natural justice and consequently in conflict with the public policy of India, it is irrelevant whether the parties raised such a contention in the proceedings, for violation of the principles of natural justice is a point that could be urged at any stage of the proceedings.

As such, the appeal was allowed and the award set aside.

Case Title: V. G. Thankamani & Ors & National Highway Authority of India & Ors

Citation: 2022 LiveLaw (Ker) 8

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