Arbitration under Highways Act limited to independent determination of compensation: Allahabad High Court

On 12th January, The Allahabad High Court observed that an arbitrator cannot act outside the scope of his reference under section 3-G (5) of The National Highways Act, 1956. It is limited to determining the fair amount of compensation and is not a procedure to judge the accuracy of the compensation determined by the competent authority.

In the present case, the competent authority had determined the compensation payable to the Respondents for their land. The respondents (NHAI) who were not satisfied invoked arbitration under Section 3-G (1) of the Highways Act to re-determine the amount of compensation.

In the award, the arbitrator ordered the ‘competent authority’ to re-determine the amount of compensation.

Subsequently, the NHAI filed a petition under Section 34 of the Arbitration and Conciliation Act before the concerned District Judge.

However, the objections raised by NHAI were rejected and the NHAI appealed to the High Court.
NHAI argued that the arbitrator acted inconsistent in referring the matter to the competent authority for redetermination.

It was observed that the arbitrator was not empowered to act as an appellate court or to issue a decision to set aside the order of the competent authority.

The respondents asserted that the competent authority had nothing more to do and they had already become entitled to payment at the enhanced rate.

In light of the arguments presented by the parties and the material available, the Court ordered that there could be “no two opinions” about the scope of the proceedings before the arbitrator under of Section 3-G (5) of the Highways Act.

The Court stated that arbitration was not intended to judge the correctness of the order already passed by the competent authority.

The Court clarified that regardless of the fate of the arbitration proceedings, the decision of the competent authority would not be included in the award.

Rather it would persist, although its enforceability may be eclipsed by the arbitral award.

In view of the foregoing, the Court ruled that the direction remitting the matter to the competent authority clearly violated Section 3-G (5) of the Highways Act and violates the public policy of India.

The Court also ruled that the District Judge wrongly dismissed the objections raised by NHAI.

Accordingly, the arbitrator’s entire award was set aside with permission from Respondent to seek a new arbitration.

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