Madras High Court Sets Aside Land Compensation Award, Says Arbitrator Must Give Reasons After Remand

The Madras High Court on 22 July held that an arbitrator reconsidering a matter after remand must independently apply his mind and provide reasons for accepting or rejecting the parties' objections, as merely reproducing pleadings and submissions does not constitute a reasoned arbitral award.

A Division Bench of Justices P. Velmurugan and K. Govindarajan Thilakavadi allowed appeals filed by the National Highways Authority of India (NHAI), set aside the arbitral award enhancing compensation from Rs. 1,925 per sq. ft. to Rs. 4,103 per sq. ft. for land acquired for construction of a grade separator at Koyambedu Junction on National Highway NH-716B, and remanded the matter for fresh consideration. It observed:

“A careful reading of the impugned award shows that the Arbitrator has substantially reproduced the pleadings and submissions made by the parties. However, what is absent is the discussion which ought to have followed. The award does not disclose why the objections raised by the appellant were rejected, why Sale Deed No.1181 of 2005 was accepted for determining the market value or how the market value was ultimately fixed at Rs.4,103/- per sq.ft. The reasoning process leading to the conclusion is completely absent.”

The dispute arose from the acquisition of lands at Koyambedu, Chennai, for construction of a grade separator and improvement of National Highway infrastructure.

A notification under Section 3A(1) of the National Highways Act, 1956, which permits the government to declare its intention to acquire land for national highways, was published in the Gazette of India on 12 August 2005. A declaration under Section 3D(1) was issued on 18 November 2005, after which the lands vested in the Central Government.

On 8 December 2006, the Competent Authority for Land Acquisition fixed compensation at Rs. 1,925 per sq. ft. The landowners, dissatisfied with the determination, invoked arbitration under Section 3G(5) of the Act, which provides for arbitration in disputes relating to compensation.

On 27 April 2018, the arbitrator enhanced the compensation to Rs. 4,103 per sq. ft., primarily relying on Sale Deed No.1181 of 2005. Both NHAI and the landowners challenged the award. On 4 July 2019, the High Court set aside the award and remanded the matter for fresh consideration. After remand, the arbitrator passed an award dated 21 November 2022, again fixing the market value at Rs. 4,103 per sq. ft., while declining to grant solatium and interest.

A Single Judge, by a common order dated 9 August 2024, dismissed NHAI's petitions under Section 34 of the Arbitration and Conciliation Act, 1996, upheld the compensation and directed payment of statutory benefits to the landowners. NHAI challenged the order before the Division Bench under Section 37 of the Act.

NHAI argued that the Arbitrator failed to consider its objection that Sale Deed No.1181 of 2005 related to a commercially developed property situated about 1.6 kilometres away from the acquired lands and could not be treated as a comparable sale instance. The landowners defended the enhanced compensation and sought statutory benefits.

Allowing the appeals, the Division Bench held that the earlier award having been set aside, the arbitrator was required to undertake a fresh examination of the materials placed before him and record reasons for accepting or rejecting the parties' objections. It observed:

“The earlier award having already been set aside, the very purpose of the remand was to enable the Arbitrator to consider afresh the rival pleadings, documents and objections placed by the parties before arriving at an independent conclusion. Once the matter was remitted for fresh consideration, the Arbitrator was expected to examine the objections raised by the parties and record reasons as to why those objections deserved to be accepted or rejected. A fresh consideration necessarily required an independent application of mind to the materials placed before him after remand.”

Holding that the absence of reasons rendered the award patently illegal, the Bench set aside the arbitral award dated 21 November 2022 and the Single Judge's order dated 9 August 2024, including the direction granting solatium and interest.

Accordingly, the High Court remanded the matter to the Arbitrator to determine the market value and statutory benefits afresh by passing a reasoned award after independently considering the pleadings, evidence and objections raised by both sides.

Appearances for appellant (National Highways Authority of India): Advocate Su. Srinivasan.

Appearances for respondents (B. Rajyalakshmi & connected landowners): Advocates V. Suresh, Shivakumar and Suresh for the private respondents; Government Counsel M. Hemanth Kumar for the Arbitrator, the Competent Authority and other official respondents.