Arbitral Award Overlooking Enabling Statute Contravenes Fundamental Policy of Indian Law: Kerala High Court

The Kerala High Court has held that overlooking the provisions of the enabling statute while passing an arbitral award is an act in contravention of the fundamental policy of Indian law.

It said such a glaring contravention justifies interference under Section 34 of the Arbitration and Conciliation Act, while upholding the setting aside of an arbitral award that had enhanced compensation for land acquired for the NH-47 bypass.

Justice S. Manu observed, "Above all, the arbitrator has not properly applied his mind in the matter of fixing of market value with reference to the various factors enumerated under Section 3G(7) of the National Highways Act. Failure in this regard is a patent illegality. Exercising the authority to pass an award, overlooking the provisions of the enabling statute, is definitely an act in contravention of the fundamental policy of Indian law. The said glaring contravention justifies interference in a proceeding under Section 34 of the Arbitration and Conciliation Act."

The dispute arose after 11.11 ares of land belonging to Sreekala K.V. in Chenkal Village, Thiruvananthapuram, was acquired for the construction of the NH-47 bypass.

The Competent Authority fixed the land value at ₹61,750 and awarded total compensation of ₹7,54,647.

Dissatisfied with the compensation, Sreekala sought a reference to arbitration under Section 3G(5) of the National Highways Act.

By an award dated January 30, 2018, the arbitrator enhanced the market value by 50%, granted an additional 10% towards user rights and awarded interest at 9% per annum on the enhanced amount from the date possession was taken until the date of deposit.

NHAI challenged the arbitral award before the District Court, which set it aside on the ground that it suffered from patent illegality.

Sreekala appealed, arguing that the District Court had exceeded the limited scope of interference under Section 34 and had wrongly relied on Udayakumar v. National Highway Authority of India, even though the facts of that case were materially different.

NHAI, in response, maintained that the arbitrator had failed to comply with the requirements of Section 3G(7), had been influenced by the DLPC valuation and had granted a 50% enhancement without assigning reasons.

Examining the appeal, the High Court reiterated that judicial review under Section 34 is limited.

It observed, "The jurisdiction under Section 34 of the Arbitration and Conciliation Act is a constricted one. An original petition filed under Section 34 cannot be considered like an appeal."

The court nevertheless held that interference was warranted in the present case.

It found that the arbitrator's ultimate conclusion was not in tune with the reasoning recorded in the award.

Rejecting Sreekala's reliance on Udayakumar, the court held that the principle requiring an independent assessment of the market value applied to the present case as well.

The court found that the arbitrator had failed to determine the market value by applying the factors prescribed under Section 3G(7) of the National Highways Act and had instead been influenced by the valuation fixed by the District Level Purchase Committee (DLPC).

The Court therefore found the award to be vitiated by patent illegality and held that it was liable to be set aside.

It accordingly upheld the District Court's order setting aside the arbitral award.

At the same time, relying on the Supreme Court's decision in National Highway Authority of India v. P. Nagaraju, the Court modified the order and remitted the matter to the arbitrator for fresh consideration in accordance with law.

The arbitrator has been directed to pass a fresh award within six months.

For Appellant (Sreekala K.V.): Advocates M.V. Thamban, Thara Thamban, Arun Bose, B. Bipin, N. Sunil Joseph and Arjun R.

For Respondent (Project Director, National Highways Authority of India): Senior Advocate Dr. K.P. Satheesan, Advocates P.Mohandas, K. Sudhinkumar, S.K. Adhithyan, Sabu Pullan and Gokul D. Sudhakaran.