National Highway Land Arbitration Revisited: Supreme Court’s Section 26 Roadmap for Fair Compensation

1. Introduction: Why This Judgment Matters

The Supreme Court’s decision in Project Director, NHAI v. Alfa Remidis Ltd. (2026 INSC 480) is a must-read for anyone handling land acquisition compensation under the National Highways Act, 1956 — whether as Arbitrator under Section 3G(5), as District Judge under Section 34, or as appellate court under Section 37. The ruling transforms what often becomes a battle of sale exemplars into a disciplined, statute-driven exercise anchored in Sections 26–28 of the 2013 Land Acquisition Act.

At a practical level, the judgment answers questions that frequently arise in NH acquisitions:

• Can a residential sale deed be used to value industrial land?

• Is a single sale deed enough for Section 26(1)(b)?

• When does the Ready Reckoner rate take the lead?

• When does a flawed valuation become “patent illegality” under Section 34?

2. Facts in Brief: How Valuation Went Astray

Print Page

Whether the court can partially set aside an arbitration award if it is in violation of provisions of The Indian Contract Act?

 Thus, to summarize where a debtor, owing several distinct debts to one person, makes a payment indicating that the payment is to be applied to the discharge of some particular debt, the payment must be applied accordingly in terms of S. 59 of the Contract Act. However, where the debtor omits to so intimate, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits, according to S. 60.Where neither party makes any appropriation, the payment shall be applied in discharge of the debts in order of time, whether they are or are not barred by limitation in terms of Section 61 of the Contract Act. {Para 51}

52. In the present case, there is neither any averment nor any evidence that the respondent while making payments to the appellant in terms of the Contract ever indicated the manner of apportionment. When neither party specifies the manner of apportionment, then the amount has to be first adjusted towards earlier debts irrespective of limitation as indicated by Section 61 Contract Act. Thus, the money which was continuously being received from the respondent was to be apportioned to the previous amounts that were due in the earlier Agreements as has been reflected in the ledger accounts. The amount as due in 2018 was the claimed amount of Rs. 2,64,99,671/-.

53. The learned Arbitrator while was correct in observing that the arbitration had been invoked pursuant to the Contract of 12.11.2012 renewed in 2015, but he overlooked the statutory provisions under Contract Act for apportionment of money received from the Respondent from time to time. Rather the documents of Respondent especially the confirmation letters and also the Reply to the Legal Notice, not only reflect his own admissions of the outstanding liability but also that the apportionment of money was done in accordance with Section 61 of the Contract Act.

III. Award suffers from patent illegality as is based on no evidence and in contravention of substantive Law:

54. Section 28(1)(a) of the A&C Act, 1996 mandates the arbitral Tribunal to decide the dispute in accordance with the substantive law for the time being in force in India.

55. Section 28(1)(a) and (3) of the AC Act, 1996, which reads as follows-

“28. Rules applicable to substance of dispute.—(1) Where the place of arbitration is situate in India,—

(a) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;

.—(3) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.”

56. Hence, if the award is passed in violation of the provisions of the Transfer of Property Act or in violation of the Indian Contract Act, it necessarily suffers from patent illegality and has to be set aside.

57. The Ld. Arbitrator, in the present case has not only based his findings overlooking the admissions of the respondent coupled with no evidence being led by the respondent but has completely overlooked the statutory provisions of the Contracts Act, 1996 which is a substantive law applicable in the present proceedings. It is also evident that the admission/acknowledgement of the outstanding dues was in reference to the two Agreements dated 12.11.2012 and 31.03.2015. Therefore, the conclusions arrived at by the learned Arbitrator that the claim did not pertain to the two Agreements under which the arbitration had been invoked is based on non-appreciation of the evidence and ignoring the admissions which were on record and also in contravention of the statutory provisions of law.

 In the High Court of Delhi at New Delhi

(Before Neena Bansal Krishna, J.)

Amazing Research Laboratories Ltd. Vs  Krishna Pharma 

O.M.P. (COMM) 376/2020

Decided on March 13, 2023

Citation: 2023 SCC OnLine Del 1498

Print Page

Can the court remit an award to the arbitrator in the absence of findings on contentious issues?

When it is the specific case of the Respondent that there is no finding at all, on point No. 1 viz. "whether the contract was illegally and abruptly terminated by the Respondent?", remission Under Section 34(4) of the Act, is not permissible. In our view, Section 34(4) of the Act, can be resorted to record reasons on the finding already given in the award or to fill up the gaps in the reasoning of the award. There is a difference between 'finding' and 'reasons' as pointed out by the learned Senior Counsel appearing for the Respondent in the judgment in the case of Income Tax Officer, A Ward, Sitapur v. Murlidhar Bhagwan Das MANU/SC/0097/1964 : AIR 1965 SC 342. It is clear from the aforesaid judgment that 'finding is a decision on an issue'. Further, in the judgment in the case of J. Ashoka v. University of Agricultural Sciences and Ors. MANU/SC/1613/2016 : (2017) 2 SCC 609, this Court has held that 'reasons are the links between the materials on which certain conclusions are based and the actual conclusions'. In absence of any finding on point No. 1, as pleaded by the Respondent and further, it is their case that relevant material produced before the Arbitrator to prove 'accord and satisfaction' between the parties, is not considered, and the same amounts to patent illegality, such aspects are to be considered by the Court itself. It cannot be said that it is a case where additional reasons are to be given or gaps in the reasoning, in absence of a finding on point No. 1 viz. "whether the contract was illegally and abruptly terminated by the Respondent?"

21. Further, Section 34(4) of the Act itself makes it clear that it is the discretion vested with the Court for remitting the matter to Arbitral Tribunal to give an opportunity to resume the proceedings or not. The words "where it is appropriate" itself indicate that it is the discretion to be exercised by the Court, to remit the matter when requested by a party. When application is filed Under Section 34(4) of the Act, the same is to be considered keeping in mind the grounds raised in the application Under Section 34(1) of the Act by the party, who has questioned the award of the Arbitral Tribunal and the grounds raised in the application filed Under Section 34(4) of the Act and the reply thereto. Merely because an application is filed Under Section 34(4) of the Act by a party, it is not always obligatory on the part of the Court to remit the matter to Arbitral Tribunal. The discretionary power conferred Under Section 34(4) of the Act, is to be exercised where there is inadequate reasoning or to fill up the gaps in the reasoning, in support of the findings which are already recorded in the award. Under guise of additional reasons and filling up the gaps in the reasoning, no award can be remitted to the Arbitrator, where there are no findings on the contentious issues in the award. If there are no findings on the contentious issues in the award or if any findings are recorded ignoring the material evidence on record, the same are acceptable grounds for setting aside the award itself. Under guise of either additional reasons or filling up the gaps in the reasoning, the power conferred on the Court cannot be relegated to the Arbitrator. In absence of any finding on contentious issue, no amount of reasons can cure the defect in the award. A harmonious reading of Section 31, 34(1), 34(2A) and 34(4) of the Arbitration and Conciliation Act, 1996, make it clear that in appropriate cases, on the request made by a party, Court can give an opportunity to the arbitrator to resume the arbitral proceedings for giving reasons or to fill up the gaps in the reasoning in support of a finding, which is already rendered in the award. But at the same time, when it prima facie appears that there is a patent illegality in the award itself, by not recording a finding on a contentious issue, in such cases, Court may not accede to the request of a party for giving an opportunity to the Arbitral Tribunal to resume the arbitral proceedings. Further, as rightly contended by the learned Counsel appearing for the Respondent, that on the plea of 'accord and satisfaction' on further consideration of evidence, which is ignored earlier, even if the arbitral tribunal wants to consciously hold that there was 'accord and satisfaction' between the parties, it cannot do so by altering the award itself, which he has already passed.

 IN THE SUPREME COURT OF INDIA

Civil Appeal No. 7 of 2022 

Decided On: 03.01.2022

I-Pay Clearing Services Private Limited Vs.  ICICI Bank Limited

Hon'ble Judges/Coram:

R. Subhash Reddy and Hrishikesh Roy, JJ.

Author: R. Subhash Reddy, J.

Citation: MANU/SC/0005/2022

Print Page

Whether court should set aside an arbitration award on the ground of patent illegality if the arbitrator fails to consider the term of the contract?

 To sum up, existence of Clause 6(b) in the Agreement governing the parties, has not been disputed, nor has the application of Circular dated 27th July, 1987 issued by the Government of Madhya Pradesh regarding imposition of 10% supervision charges and adding the same to cost of the Sal seeds, after deducting the actual expenditure been questioned by the respondent- Company. We are, therefore, of the view that failure on the part of the learned Sole Arbitrator to decide in accordance with the terms of the contract governing the parties, would certainly attract the “patent illegality ground”, as the said oversight amounts to gross contravention of Section 28(3) of the 1996 Act, that enjoins the Arbitral Tribunal to take into account the terms of the contract while making an Award. The said ‘patent illegality’ is not only apparent on the face of the Award, it goes to the very root of the matter and deserves interference. Accordingly, the present appeal is partly allowed and the impugned Award, insofar as it has permitted deduction of ‘supervision charges’ recovered from the respondent-Company by the appellant-State as a part of the expenditure incurred by it while calculating the price of the Sal seeds, is quashed and set aside, being in direct conflict with the terms of the contract governing the parties and the relevant Circular. The impugned judgment dated 21st October, 2009 is modified to the aforesaid extent.{Para 25}

Supreme Court

CHIEF JUSTICE OF INDIA N. V. RAMANA JUSTICE SURYA KANT JUSTICE HIMA KOHLI

STATE OF CHHATTISGARH & ANR. Vs. M/S SAL UDYOG PRIVATE LIMITED

CIVIL APPEAL NO. 4353 OF 2010

8th November 2021

Author: HIMA KOHLI, J.

Citation: 2021 ALL SCR (ONLINE) 631

Print Page

Supreme Court reiterated that the courts should set aside arbitration awards only in exceptional circumstances

 Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204], or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .

37. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within “the fundamental policy of Indian law”, namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
39. To elucidate, para 42.1 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).
41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse.”

24. This Court has in several other judgments interpreted Section 34 of the 1996 Act to stress on the restraint to be shown by courts while examining the validity of the arbitral awards. The limited grounds available to courts for annulment of arbitral awards are well known to legally trained minds. However, the difficulty arises in applying the well-established principles for interference to the facts of each case that come up before the courts. There is a disturbing tendency of courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention and thereafter, dubbing the award to be vitiated by either perversity or patent illegality, apart from the other grounds available for annulment of the award. This approach would lead to corrosion of the object of the 1996 Act and the endeavours made to preserve this object, which is minimal judicial interference with arbitral awards. That apart, several judicial pronouncements of this Court would become a dead letter if arbitral awards are set aside by categorising them as perverse or patently illegal without appreciating the contours of the said expressions.

25. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression ‘patent illegality’. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression ‘patent illegality’. What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression ‘patent illegality’.

Supreme Court

JUSTICE L. NAGESWARA RAO JUSTICE S. RAVINDRA BHAT

Delhi Airport Metro Express Pvt. Ltd. Vs. Delhi Metro Rail Corporation Ltd.

Civil Appeal No. 5627 of 2021

9th September 2021

Citation: 2021 ALL SCR (ONLINE) 428

Print Page

Supreme Court: Award passed in domestic Arbitration after 2015 Amendment can be set aside on ground of patent illegality

Pursuant to the recommendations of the Law Commission, the 1996 Act was amended by Act 3 of 2016, which came into force w.e.f. 23.10.2015. The ground of "patent illegality" for setting aside a domestic award has been given statutory force in Section 34(2A) of the 1996 Act. The ground of "patent illegality" cannot be invoked in international commercial arbitrations seated in India. Even in the case of a foreign award under the New York Convention, the ground of "patent illegality" cannot be raised as a ground to resist enforcement, since this ground is absent in Section 48 of the 1996 Act. The newly inserted Sub-section (2A) in Section 34, reads as follows:

(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

20. In Ssangyong Engineering and Construction Company Limited19, this Court was considering a challenge to an award passed in an international commercial arbitration, between the Appellant - company a foreign entity registered under the laws of Korea, and the Respondent, a Government of India undertaking. In paragraph (19) of the judgment, this Court noted that the expansive interpretation given to "public policy of India" in the Saw Pipes (supra) and Western Geco International Limited20 cases, which had been done away with, and a new ground of "patent illegality" was introduced which would apply to applications Under Section 34 made on or after 23.10.2015. In paragraphs (36) and (37) of the judgment, this Court held that insofar as domestic awards are concerned, the additional ground of patent illegality was now available Under Sub-section (2A) to Section 34. However, re- appreciation of evidence was not permitted under the ground of "patent illegality" appearing on the face of the award.

21. In paragraphs (39) and (40) of Ssangyong Engineering (supra), the Court reiterated paragraphs (42.2) and (42.3) of Associate Builders (supra) wherein, it was held that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes a contract in a manner which no fair minded or reasonable person would take i.e. if the view taken by the arbitrator is not even a possible view to take. In paragraphs (39) and (40), the Supreme Court held as under:

39. To elucidate, para 42.1 of Associate Builders v. Delhi Development Authority MANU/SC/1076/2014 : (2015) 3 SCC 49, namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders v. Delhi Development Authority MANU/SC/1076/2014 : (2015) 3 SCC 49, however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.

40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders v. Delhi Development Authority MANU/SC/1076/2014 : (2015) 3 SCC 49, namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added Under Section 34(2-A).

(emphasis supplied)

22. The present case arises out of a domestic award between two Indian entities. The ground of patent illegality is a ground available under the statute for setting aside a domestic award, if the decision of the arbitrator is found to be perverse, or, so irrational that no reasonable person would have arrived at the same; or, the construction of the contract is such that no fair or reasonable person would take; or, that the view of the arbitrator is not even a possible view.

23. In the present case, the High Court has referred to the judgment in Associated Builders (supra) at length in paragraph (42) of its judgment dated 26.02.2019 and arrived at the correct conclusion that an arbitral award can be set aside Under Section 34 if it is patently illegal or perverse. This finding of the High Court is in conformity with paragraph (40) of the judgment of this Court in Ssangyong Engineering (supra).

IN THE SUPREME COURT OF INDIA

Special Leave Petition (C) Nos. 3584-85 of 2020

Decided On: 22.05.2020

Patel Engineering Ltd. Vs.  North Eastern Electric Power Corporation Ltd.

Hon'ble Judges/Coram:

R. Banumathi, Indu Malhotra and Aniruddha Bose, JJ.

Print Page