Under the National Highways Act, 1956, must an Arbitrator assign fresh reasons when reconsidering compensation after an earlier award has been set aside and remitted?

This batch of Original Side Appeals arise out of the common order dated 09.08.2024 passed by the learned Single Judge in Arb.O.P.Nos.21, 57, 28, 16, 19, 13, 61, 47, 20 and 18 of 2023. By the said common order, the learned Single Judge dismissed the Arbitration Original Petitions filed by the National Highways Authority of India challenging the arbitral awards dated 21.11.2022 and partly allowed the petitions filed by the respective land owners by directing payment of statutory benefits such as solatium and interest.

Aggrieved by the common order dated 09.08.2024 dismissing its challenge to the arbitral awards and directing payment of statutory benefits, including solatium and interest, to the respective landowners, the National Highways Authority of India has preferred the present Original Side Appeals.

The lands which are the subject matter of these proceedings are situated at Koyambedu Village, Chennai District. The acquisition was made for a public purpose, namely, the construction of a grade separator and improvement of the National Highway infrastructure at Koyambedu Junction. For this purpose, a notification under Section 3-A(1) of the National Highways Act, 1956 was published in the Gazette of India on 12.08.2005. Thereafter, a declaration under Section 3-D(1) of the Act was published on 18.11.2005, upon which the lands vested absolutely in the Central Government free from all encumbrances.

Pursuant to the acquisition proceedings, the Competent Authority for Land Acquisition passed an award on 08.12.2006 fixing compensation at Rs.1,925/- per sq.ft. According to the appellant, the Competent Authority examined more than one thousand sale transactions and, after excluding transactions which were remote or otherwise unsuitable, relied upon certain sale instances situated near the acquired lands. The Competent Authority also took into account the guideline value prevailing in the locality and ultimately fixed the market value at Rs.1,925/- per sq.ft.

The land owners, being dissatisfied with the compensation so determined, invoked Section 3-G(5) of the National Highways Act and sought reference to arbitration before the District Collector, Chennai, who acted as the statutory Arbitrator. Their principal grievance was that the compensation awarded did not reflect the true market value of the acquired lands, which, according to them, were situated in a rapidly developing urban area with substantial commercial potential.

By award dated 27.04.2018, the Arbitrator/District Collector enhanced the compensation from Rs.1,925/- per sq.ft. to Rs.4,103/- per sq.ft. Aggrieved thereby, the landowners filed petitions seeking to set aside the rejection of their claims for additional compensation, solatium and interest and for grant of the said benefits on the basis of the market value determined by the Arbitrator in the impugned award. The National Highways Authority of India also challenged the said award by filing petitions under Section 34 of the Arbitration and Conciliation Act, 1996 seeking to set aside the award. By a common order dated 04.07.2019, the learned Single Judge set aside the arbitral awards and remitted the matters to the Arbitrator/District Collector to determine the market value in accordance with Section 3-G(7) of the National Highways Act, 1956, by taking into consideration the market value prevailing as on the date of the notification and the other relevant factors, and also to decide the claims for solatium and interest.

After remand, the claimants filed amended claim petitions, additional affidavits and further documents in support of their claim for enhanced compensation. They relied upon certain sale transactions said to reflect the prevailing market value of the locality. The National Highways Authority of India and the Competent Authority filed detailed counter affidavits opposing the claim.

Before the Arbitrator, the National Highways Authority contended that the main document relied upon by the claimants, namely Sale Deed bearing Document No.1181 of 2005 dated 28.03.2005, could not be taken as a comparable sale instance. According to the appellant, the property covered under the said sale deed was situated at Thirumangalam, Anna Nagar, which is a fully developed commercial area having a different nature and market potential from the acquired lands. It was further contended that the said property was situated about 1.6 kilometres away from the acquired lands and therefore could not be relied upon for determining the market value. The appellant also contended that the acquired lands and the exemplar lands were not similarly situated and that no evidence had been produced to establish similarity in their nature, potential, location or market conditions.

The appellant further contended that merely because urban development had extended to the area, the acquired lands could not automatically be treated as having the same commercial characteristics as the exemplar property. It was also contended that the claimants had failed to produce any independent valuation material, expert evidence or comparable sale transactions to show that the acquired lands had a market value equivalent to that reflected in the said sale deed.

On the other hand, the claimants contended that the acquired lands had become part of a developed urban area containing commercial establishments, business outlets and residential buildings. They therefore contended that the exemplar sale deed was an appropriate guide for determining the market value and also sought statutory benefits, including solatium, additional compensation and interest.

After completion of pleadings and upon consideration of the materials placed by both sides, the Arbitrator once again passed a common award dated 21.11.2022, reaffirming the compensation at Rs.4,103/- per sq.ft. However, the Arbitrator declined to grant the statutory benefits, including solatium and interest, on the enhanced compensation.

Aggrieved by the said award, the National Highways Authority of India filed a batch of Arbitration Original Petitions in Arb.O.P.Nos.47, 13, 16, 61 and 57 of 2023 under Section 34 of the Arbitration and Conciliation Act. The principal contention was that, notwithstanding the remand order, the Arbitrator had merely reiterated the earlier award without independently considering the objections raised by the appellant. It was specifically contended that the award did not disclose any reasons for enhancing the compensation from Rs.1,925/- per sq.ft. to Rs.4,103/- per sq.ft. and merely recorded conclusions without indicating the basis for arriving at such conclusions.

The appellant further contended that the Arbitrator had failed to examine the issue of comparability of the sale instance relied upon by the claimants and had not dealt with the objections relating to distance, location, developmental characteristics and commercial potentiality. According to the appellant, the award therefore suffered from patent illegality, perversity and absence of reasons.

The claimants also filed separate Arbitration Original Petitions in Arb.O.P.Nos.19, 20, 28, 21 and 18 of 2023 challenging the award insofar as it denied them statutory benefits available under the Land Acquisition Act, 1894. They contended that, in view of the law laid down by the Hon'ble Supreme Court in Union of India and Another Vs. Tarsem Singh and others [AIR 2019 SC 4689], they were entitled to the statutory benefits of solatium and interest.

The learned Single Judge, after considering the rival submissions, declined to interfere with the determination of market value made by the Arbitrator. The learned Judge held that after remand, adequate opportunity had been granted to all parties and that the Arbitrator had considered the materials placed on record. The learned Judge further observed that the scope of interference under Section 34 of the Arbitration and Conciliation Act is limited and that the Court could not reassess factual findings as if exercising appellate jurisdiction. While upholding the enhancement of compensation, the learned Single Judge accepted the contention of the land owners regarding statutory benefits and consequently directed payment of solatium and interest under the Land Acquisition Act, 1894.

Aggrieved by the dismissal of its challenge to the arbitral awards, the National Highways Authority of India has preferred the present Original Side Appeals questioning the correctness of the common order dated 09.08.2024 passed by the learned Single Judge.

The learned counsel for the appellant would submit that the arbitral award enhancing compensation from Rs.1,925/- to Rs.4,103/- per sq. ft. was passed without assigning any reasons. The Arbitrator merely recorded conclusions without explaining the basis for rejecting the determination made by the Competent Authority, and therefore the award is perverse. The learned counsel would further submit that the Arbitrator relied upon a single sale deed dated 28.03.2005 (Document No.1181 of 2005) relating to a commercial property in Thirumangalam, Anna Nagar. It is urged that this property is situated 1.6 km away from the acquired land in Koyambedu and belongs to a fully developed commercial locality since the 1970s. Hence, it cannot be treated as a comparable sale instance. It is next submitted that no independent evidence was produced by the claimants to establish similarity of the acquired land with the exemplar property. The Arbitrator did not appoint any committee or conduct any analysis to verify comparability. The assumption that the acquired land possessed the same commercial value is based on no evidence.

The learned counsel for the appellant submits that the learned Single Judge committed an error in placing reliance on the statement of the Arbitrator that he had considered all the factors, without examining or pointing out which specific material or factor formed the basis for enhancing the compensation. It is further submitted that the award of solatium and interest by the learned Single Judge, based on the decision in Tarsem Singh (supra), is not applicable to the present case, since the original award of the Competent Authority determining compensation was passed on 08.12.2006, much prior to the said decision. The learned counsel also contends that the impugned order amounts to a modification of the arbitral award, which is impermissible under law. Reliance is placed on the decisions of the Supreme Court in Project Director v. M. Hakeem [2021 (4) CTC 582], Larson Airconditioning v. UOI (2023 INSC 708), and K.V.Samurdram v. State of Karnataka [2024 SCC Online SC 19]. It is further argued that in urban areas, market value can vary even within 50 to 100 metres. Therefore, reliance on a property situated 1.6 kilometres away is legally unsustainable, as held in Lal Chand v. Union of India [2009 (15) SCC 769]. Finally, counsel submits that the learned Single Judge failed to appreciate that the arbitral award lacked reasoning, relied upon an unsuitable sale deed, and granted statutory benefits without legal foundation. On this basis, the impugned order is said to be contrary to law and liable to be set aside.

The learned counsel appearing for the land owners submitted that the compensation initially awarded by the Competent Authority was grossly inadequate and did not reflect the true market value of the acquired lands. Aggrieved thereby, the land owners sought enhancement of compensation before the Arbitrator, who enhanced the compensation. Thereafter, both the land owners and the National Highways Authority of India challenged the arbitral award, pursuant to which the matter was remanded for fresh consideration. Upon remand, the Arbitrator reaffirmed the enhanced compensation but declined to grant the statutory benefits of solatium and interest claimed by the land owners. The learned Single Judge, while confirming the enhanced compensation, also directed payment of solatium and interest. It was submitted that the land owners have been constrained to pursue prolonged litigation before various forums to secure the compensation and statutory benefits to which they are legally entitled. Therefore, the learned Single Judge having rightly granted the said benefits, the impugned order warrants no interference.

The learned Government Counsel appearing for the Land Acquisition Officer submitted that the compensation determined by the original Competent Authority, by order dated 08.12.2006, was fair and reasonable, having been fixed after due consideration of all the relevant materials. It was, therefore, contended that the impugned order warrants interference by this Court.

We have heard the learned counsel appearing on either side and perused the materials available on record.

It is not in dispute that the lands belonging to the private respondents were acquired for the purpose of construction of a Grade Separator at Koyambedu Junction. By award dated 08.12.2006, the Competent Authority determined the market value at Rs.1,925/- per sq.ft. Aggrieved by the compensation so awarded, the land owners invoked Section 3G(5) of the National Highways Act and sought reference before the Arbitrator.

The Arbitrator, by award dated 27.04.2018, enhanced the market value from Rs.1,925/- to Rs.4,103/- per sq.ft, mainly relying upon Sale Deed No.1181 of 2005 dated 28.03.2005. The said award was challenged by both the National Highways Authority of India and the land owners before this Court under Section 34 of the Arbitration and Conciliation Act. By a common order dated 04.07.2019, the learned Single Judge set aside the arbitral award and remitted the matter to the Arbitrator for fresh consideration in accordance with law, including the claim relating to statutory benefits.

Pursuant to the said remand, the claimants filed amended claim petitions and additional documents. The National Highways Authority of India also filed detailed objections and counter affidavits disputing the market value claimed by the land owners and the reliance placed upon Sale Deed No.1181 of 2005. Replies were also filed by the claimants. Thus, after remand, all the pleadings, documents and objections of both parties were once again placed before the Arbitrator for fresh consideration.

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.

However, on a careful reading of the impugned award dated 21.11.2022, we find that the very purpose for which the matter had been remitted has not been achieved. Though the award refers to the pleadings, documents and submissions made by the parties, it substantially reiterates the earlier conclusion by once again fixing the market value at Rs.4,103/- per sq.ft. Except referring to the rival submissions, the award does not disclose any discussion or reasoning as to why the objections raised by the appellant were rejected.

The principal objection raised by the appellant throughout the proceedings was that Sale Deed No.1181 of 2005 could not be relied upon for determining the market value of the acquired lands. According to the appellant, the property covered under the said sale deed was situated nearly 1.6 kilometres away from the acquired lands, was located in a commercially developed locality and therefore could not be treated as a comparable sale transaction. The appellant also disputed the similarity in location, nature and potential of the two properties. These objections were specifically reiterated after the earlier remand.

If the Arbitrator intended to rely upon the said sale transaction even after remand, it was necessary for the Arbitrator to examine the objections raised by the appellant and assign reasons as to why the said sale transaction could still be accepted for determining the market value of the acquired lands. However, the award does not disclose any discussion regarding the location of the property, its nature, surrounding developments, commercial potential or any other relevant circumstance which persuaded the Arbitrator to accept the said sale transaction.

Similarly, the award does not disclose why the valuation determined by the Competent Authority at Rs.1,925/- per sq.ft deserved to be discarded. Though the Competent Authority had determined the market value on the basis of the materials available before it, the Arbitrator has not assigned any reason for disagreeing with the said determination. The award merely records the ultimate conclusion without explaining the basis on which such conclusion has been reached.

The learned Single Judge proceeded on the footing that after remand sufficient opportunity had been afforded to the parties and that the Arbitrator had considered the pleadings and documents. In our considered opinion, the issue is not whether opportunity had been granted to the parties. The real issue is whether the Arbitrator complied with the purpose of the earlier remand by independently considering the objections raised by the parties and assigning reasons for the conclusions ultimately reached.

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 requirement of assigning reasons becomes all the more important in the present case because this was the second occasion on which the Arbitrator considered the matter after the earlier award had already been set aside by this Court. In our considered opinion, the impugned award does not satisfy the very purpose for which the matter had earlier been remitted. Consequently, the learned Single Judge was not justified in affirming the award merely on the ground that sufficient opportunity had been afforded to the parties after remand.

We are conscious that the scope of interference under Sections 34 and 37 of the Arbitration and Conciliation Act is limited and that this Court cannot re-appreciate the evidence as an appellate Court. However, the present case does not require a re-appreciation of the evidence. The issue before us is whether the Arbitrator has independently considered the materials placed before him after remand and assigned reasons for the conclusions reached. In our considered view, the answer must be in the negative. The absence of reasons and the failure to consider the material objections raised by the appellant render the award patently illegal and unsustainable, thereby warranting interference under Sections 34 and 37 of the Arbitration and Conciliation Act.

For all the aforesaid reasons, we are unable to sustain the arbitral award dated 21.11.2022 as well as the common order dated 09.08.2024 passed by the learned Single Judge. Accordingly, the arbitral award dated 21.11.2022 and the common order dated 09.08.2024 are liable to be set aside.

In the result, all the Original Side Appeals are allowed. The common order dated 09.08.2024 passed by the learned Single Judge and the arbitral award dated 21.11.2022 are set aside. Consequently, the direction issued by the learned Single Judge granting statutory benefits, including solatium and interest, is also set aside, and the entitlement of the claimants to such statutory benefits shall be decided afresh by the Arbitrator in accordance with law. The matters are remanded to the Arbitrator for fresh consideration. The Arbitrator shall independently consider the pleadings, documents, evidence and the objections raised by the parties, determine all the issues arising for consideration, including the market value of the acquired land and the entitlement of the claimants to statutory benefits such as solatium and interest, assign clear, cogent and adequate reasons on every material issue, and pass a reasoned award in accordance with law, without being influenced by the findings recorded in the earlier arbitral award dated 27.04.2018 or the common order of the learned Single Judge dated 09.08.2024. Consequently, the connected miscellaneous petitions are closed. There shall be no order as to costs. [P.V.J.,] [K.G.T.J.,] 22 / 07 / 2026 Index:Yes Speaking order Internet:Yes Neutral Citation:Yes rns To 1. The Deputy General Manager (T) & Project Director, National Highways Authority of India, "Sri Tower", 3rd Floor, DP-34 (SP) Industrial Estate, Guindy, Chennai - 600 032. 2. The Arbitrator & District Collector, Collectorate, Chennai. 3. The Competent Authority and Special District Revenue Officer (LA), National Highways, NH-716B, 4 & 5, No.3/4, Lal Bagadhur Sastri Street, Periyakuppam (Near Thulasi Theatre), Tiruvallur - 602 001. 4. The Competent Authority and Special District Revenue Officer (LA), National Highways, Kancheepuram & Tiruvallur Districts Collectorate Campus, Kancheepuram - 631 501. Presently The Competent Authority and the Special District Revenue Officer (Land Acquisition), National Highways, Tiruvallur, No.3/4, Lal Bagadhur Sastri Street, Periyakuppam, Tiruvallur 602 001. 5. The Sub Assistant Registrar, (Original Side), Madras High Court, Chennai. P.VELMURUGAN. J. and K.GOVINDARAJAN THILAKAVADI, J. rns Pre-Delivery Judgement in O.SA.Nos.109, 110, 112, 113, 151, 161, 162, 182, 190 & 209 of 2025 22 / 07 / 2026