# Chandra Kishori v. U.O.I. & Ors

- **Citation:** (2023) 10 ILRA 535
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2023-10-16
- **Bench:** Jaspreet Singh
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/chandra-kishori-v-u-o-i-ors-49476
- **Pages:** 17

## Headnote

Civil Law -Arbitration and Conciliation Act,
1996 - Sections 34 & 37 - National
536 INDIAN LAW REPORTS ALLAHABAD SERIES
Highways Act, 1956 - Sections 3A, 3D &
3G(7) - Right to Fair Compensation and
Transparency in Land Acquisition, Rehabilitation
and Resettlement Act, 2013 - Section 26 - U.P.
Zamindari Abolition and Land Reforms Act, 1950
-
Section
143
-
Land
Acquisition
-
Compensation - Non-Agricultural Land - Patent
Illegality - Public Policy - The appellants,
Chandra Kishori and Om Prakash, challenged
the arbitral award dated 19.09.2019 and the
dismissal of their Section 34 petitions by the
Additional District Judge, Barabanki, dated
26.09.2022, concerning compensation for land
acquired under the National Highways Act, 1956
for the Lucknow-Sultanpur Highway. The land,
declared non-agricultural under Section 143 of
the U.P. Zamindari Abolition and Land Reforms
Act, 1950, was treated as agricultural for
compensation purposes. Held: (1) The appeals
under Section 37 of the Arbitration and
Conciliation Act, 1996 were allowed, setting
aside the arbitral award and the Section 34
order. (2) The Arbitrator erred in treating the
land as agricultural despite its non-agricultural
declaration, ignoring orders dated 15.04.2011
(Chandra Kishori) and 04.11.2011 (Om Prakash)
under Section 143, constituting patent illegality
and a violation of public policy under Section
34(2)(b)(ii). (3) The Additional District Judge
wrongly
held
that
re-calculation
of
compensation was beyond its jurisdiction
under Section 34, failing to apply settled
legal principles from Batliboi Environmental
Engineers Ltd. Vs HPCL (2023 SCC OnLine
SC 1208), ONGC Ltd. Vs Saw Pipes Ltd.
(2003) 5 SCC 705, and Associate Builders
Vs DDA (2015) 3 SCC 49. (4) Compensation
must be determined per Section 3G(7) of
the National Highways Act, 1956 and
Section
26
of
the
Right
to
Fair
Compensation Act, 2013, considering the
market value of non-agricultural land on the
date
of
Section
3A
notification
(28.05.2012). (5) The lapse in updating
revenue
records
to
reflect
the
nonagricultural
status
cannot
penalize
landowners. (6) The matter was remanded to
the
Arbitrator
for
re-determination
of
compensation
within
six
months,
without
allowing fresh evidence. (7) No costs were
awarded.

Case Law Cited:

## Text

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10 All. Chandra Kishori Vs. U.O.I.& Ors.
535
successive matters of this kind the costs will
keep on going up."

CONCLUSION

(44) In view of the authoritative
Judgments of the Apex Court in M/s Borse
Brothers
Engineers
&
Contractors
(supra), it must be held that an appeal
under Section 37 of the Arbitration and
Conciliation Act, 1996 should be filed
within 60 days from the date of the order as
per Section 13(1A) of the Commercial
Courts Act, 2015. However, in those rare
cases where the specified value is for a sum
less than INR 3,00,000.00 then the appeal
under Section 37 would be governed by
Articles 116 and 117 of the Schedule of the
Limitation Act, as the case may be.

(45) Further, Section 5 of the
Limitation Act will apply to the appeals
filed under Section 37 of the Act, 1996 and
in holding the said applicability, the Apex
Court noted with affirmative that Section
13(1A) of the Commercial Courts Act does
not contain any provision akin tosection
34(3)of the Arbitration Act, 1996 and
merely provides for a limitation period of
60 days from the date of the judgment or
order appealed against, without going into
whether delay beyond this period can or
cannot be condoned.

(46) Further, the expression 'sufficient
cause' under Section 5 of the Limitation
Act is not elastic enough to cover long
delays and merely because sufficient cause
has been made out, there is no right to have
such delay condoned. The Apex Court
further held that only short delays, can be
condoned only by way of an exception and
not by the way of rule, and that too only
when the party acted in a bona fide manner
and not negligently.

(47) Since, in the present bunch of
appeals, the impugned order passed by the
Additional District Judge, Barabanki under
Section 34 of the Act, 1996 has been sought
to be challenged by NHAI by filing a
belated appeal under Section 37 of the Act,
1996 beyond the permissible 60 days
without any "sufficient cause", the abovecaptioned appeals are held to be time
barred.

(48) For all the aforesaid reasons,
application for condonation of delay in
filing the above-captioned appeals are
hereby rejected. Consequently, all the
appeals are dismissed on the point of
limitation.

(49) In the facts of the present case,
there shall be no order as to costs.
----------
(2023) 10 ILRA 535
APPELLATE JURISDICTION
CIVIL SIDE
DATED: LUCKNOW 16.10.2023

BEFORE

THE HON'BLE JASPREET SINGH, J.

Appeal U/S 37 of Arbitration & Conciliation Act
1996 No. 55 of 2022
with
Appeal U/S 37 of Arbitration & Conciliation Act
1996 No. 56 of 2022

Chandra Kishori ...Appellant
Versus
U.O.I. & Ors. ...Respondents

Counsel for the Appellant:
Abhay Raj Singh

Counsel for the Respondent:
Sarvesh Kumar Dubey, C.S.C., Gantavya

Civil Law -Arbitration and Conciliation Act,
1996 - Sections 34 & 37 - National
536 INDIAN LAW REPORTS ALLAHABAD SERIES
Highways Act, 1956 - Sections 3A, 3D &
3G(7) - Right to Fair Compensation and
Transparency in Land Acquisition, Rehabilitation
and Resettlement Act, 2013 - Section 26 - U.P.
Zamindari Abolition and Land Reforms Act, 1950
-
Section
143
-
Land
Acquisition
-
Compensation - Non-Agricultural Land - Patent
Illegality - Public Policy - The appellants,
Chandra Kishori and Om Prakash, challenged
the arbitral award dated 19.09.2019 and the
dismissal of their Section 34 petitions by the
Additional District Judge, Barabanki, dated
26.09.2022, concerning compensation for land
acquired under the National Highways Act, 1956
for the Lucknow-Sultanpur Highway. The land,
declared non-agricultural under Section 143 of
the U.P. Zamindari Abolition and Land Reforms
Act, 1950, was treated as agricultural for
compensation purposes. Held: (1) The appeals
under Section 37 of the Arbitration and
Conciliation Act, 1996 were allowed, setting
aside the arbitral award and the Section 34
order. (2) The Arbitrator erred in treating the
land as agricultural despite its non-agricultural
declaration, ignoring orders dated 15.04.2011
(Chandra Kishori) and 04.11.2011 (Om Prakash)
under Section 143, constituting patent illegality
and a violation of public policy under Section
34(2)(b)(ii). (3) The Additional District Judge
wrongly
held
that
re-calculation
of
compensation was beyond its jurisdiction
under Section 34, failing to apply settled
legal principles from Batliboi Environmental
Engineers Ltd. Vs HPCL (2023 SCC OnLine
SC 1208), ONGC Ltd. Vs Saw Pipes Ltd.
(2003) 5 SCC 705, and Associate Builders
Vs DDA (2015) 3 SCC 49. (4) Compensation
must be determined per Section 3G(7) of
the National Highways Act, 1956 and
Section
26
of
the
Right
to
Fair
Compensation Act, 2013, considering the
market value of non-agricultural land on the
date
of
Section
3A
notification
(28.05.2012). (5) The lapse in updating
revenue
records
to
reflect
the
nonagricultural
status
cannot
penalize
landowners. (6) The matter was remanded to
the
Arbitrator
for
re-determination
of
compensation
within
six
months,
without
allowing fresh evidence. (7) No costs were
awarded.

Case Law Cited:
1. Batliboi Environmental Engineers Ltd. Vs
HPCL, 2023 SCC OnLine SC 1208;

2. ONGC Ltd. Vs Saw Pipes Ltd., (2003) 5 SCC
705;

3. Associate Builders Vs DDA, (2015) 3 SCC 49;
MMTC Ltd. Vs Vedanta Ltd., (2019) 4 SCC 163;

4. Hindustan Zinc Ltd. Vs Friends Coal
Carbonisation, (2006) 4 SCC 445;

5. McDermott International Inc. Vs Burn
Standard Co. Ltd., (2006) 11 SCC 181;

6. ONGC Ltd. Vs Western Geco International
Ltd., (2014) 9 SCC 263;

7. Ssangyong Engg. & Construction Co. Ltd. Vs
National Highways Authority of India, (2019) 15
SCC 131.

(Delivered by Hon'ble Jaspreet Singh, J.)

1. Heard Shri Abhay Raj Singh,
learned counsel for appellant and Ms.
Suchiti Chandra, learned counsel for
National Highway Authority of India, who
has joined the proceedings through video
conferencing.

2. Since both the appeals involve a
common question of law and fact, hence
both the appeals have been heard together
and are being decided by this common
judgment. For the sake of convenience, the
Court shall be referring to the facts as they
emerge from Appeal No. 55 of 2022,
however, the relevant facts relating to the
other appeal shall also be considered at the
appropriate place.

3. The appellant, of the two appeals,
are the land owners, whose land was
acquired under the National Highway
Authority of India Act, 1956 (hereinafter
referred as NHAI Act, 1956) under
Sections 3 A & 3 D of the NHAI Act, 1956.
10 All. Chandra Kishori Vs. U.O.I.& Ors.
537
4. Chandra Kishori, the appellant of
Appeal No. 56 of 2022 was the recorded
owner of Plot No. 546 situated in Village
Bhikhra,
Pargana
Subeha,
Tehsil
Haidargarh, District Barabanki measuring
0.590 hectares. Similarly Om Prakash the
appellant of Appeal No. 56 of 2022 was the
recorded owner of Plot No. 254 measuring
0.0514
hectares
situated
in
Village
Gosupur,
Pargana
Subeha,
Tehsil
Haidargarh, District Barabanki.

5. The land of appellants of both the
appeals were made the subject matter of
notification issued under Section 3-A of the
NHAI Act, 1956 dated 28.05.2012 and
notification under Section 3-D was made
on 15.3.2013 for widening of LucknowSultanpur Highway from km. 35.670 to
64.100. The competent authority passed its
award in terms of Section 3-G of the NHAI
Act, 1956 and awarded a sum of Rs.
6,98,923 to Chandra Kishori vide award
dated 11.7.2016 and a sum of Rs.
6,18,051/- to Om Prakash vide award dated
31.07.2015.

6. Being aggrieved both Chandra
Kishori and Om Prakash escalated the
matter by invoking the provisions of
Section 3-G (5) and (6) and referred the
matter for arbitration. The Arbitrator in
terms of his award dated 19.9.2019 passed
in Case No. 1689 of 2017 relating to
Chandra Kishori and in Case No. 1690 of
2017 relating to Om Prakash did not find
favour
with
the
contentions
of
the
appellant,
of
the
two
appeals,
for
enhancement
of
compensation
and
consequently, rejected their claim.

7. This award passed by Prescribed
Authority dated 19.9.2019 both in case of
Chandra Kishori and Om Prakash was
further challenged by filing a petition under
Section
34
of
the
Arbitration
&
Conciliation Act, 1996 before the District
Judge, Barabanki.

8. The petition under Section 34 of
the Act of 1996 preferred by Chandra
Kishori was registered as Arbitration Act
No. 33 of 2020 whereas the petition under
Section 34 of the Act of 1996 filed by Om
Prakash was registered as Arbitration Case
No. 34 of 2020.

9. Both the petitions under Section 34
of the Act of 1996 relating to both the
appellant in the respective appeals, was
rejected by the Additional District Judge,
Court No. 45, Barabanki by means of order
dated 26.9.2022. It is being aggrieved
against both the orders i.e., rejection of
claim by the Arbitrator vide its award dated
19.9.2019 and the rejection of the petition
under Section 34 by means of judgment
dated 26.09.2022 that the appellant of two
appeals have assailed it before this Court
by means of instant two appeals preferred
under Section 37 of the Act of 1996.

10. Shri Abhay Raj Singh, learned
counsel for appellants in the two appeals
has primarily raised two points for
consideration. It is submitted that in the
case of both the appellants the land in
question had already been declared as nonagricultural in terms of Section 143 of the
U.P.
Zamindari
Abolition
and
Land
Reforms
Act,
1950,
however,
the
competent
authority
had
given
the
compensation treating it to be agricultural
land. It is the case of the appellants that
since the land was declared as nonagricultural, hence the rate for determining
the compensation which ought to have been
adopted was one for non-agricultural but by
adopting
the
rate
as
applicable
to
agricultural land, the competent authority
538 INDIAN LAW REPORTS ALLAHABAD SERIES
had erred. This issue was raised before the
Arbitrator, who also affirmed the same.
While assailing the aforesaid order passed
by the Arbitrator in a petition under Section
34 of the Arbitration & Conciliation Act,
1996, however, it did not find favour with
the Court and it dismissed the same.

11. It is urged that once the land was
declared as a non-agricultural, the appellants
were entitled to get compensation on the rates
as applicable to non-agricultural land. The
second limb of contention of learned counsel
for appellant is that the learned District Judge
while considering the petition under Section 34
of the Arbitration & Conciliation Act, 1996, has
failed to exercise jurisdiction as vested in law,
inasmuch as the petition of the appellant was
dismissed on the ground that the issue regarding
re-valuation is not within the domain of a
dispute nor it is covered under any ground to be
adjudicated in terms of Section 34 of the
Arbitration & Conciliation Act, 1996 and as
such, this exercise of jurisdiction by the District
Judge in exercise of powers under Section 34 of
the Arbitration & Conciliation Act, 1996 is an
erroneous exercise of jurisdiction resulting in
sheer miscarriage of justice.

12. It is also urged that the appellants
being aggrieved invoked the jurisdiction of this
Court in terms of Section 37 of the Arbitration
& Conciliation Act, 1996 and it has been
stressed that the award passed by the Arbitrator
and the failure of District Judge to look into the
matter is apparently an error apparent on the
fact of the record as the award suffered from
patent illegality and was against the public
policy and in these circumstances, the appeal
deserves to be allowed.

13. Per contra, Ms. Chandra, learned
counsel appearing for National Highway
Authority of India through video conferencing,
has submitted that mere change in the land use
from agricultural to non-agricultural is not
going to confer any benefit to the appellants
inasmuch as on the date of acquisition the
nature of the land as it stood on the revenue
records, has to be seen. It is further submitted
that even though the appellants may have got
the land declared for non-agricultural purposes
yet there was no material on record to suggest
that any non-agricultural activities were being
done. It is also stated by learned counsel for
respondents that the land in question remained
agricultural in the relevant revenue record
and in sofar as the calculation of
compensation is concerned, it has been
done in accordance with Section 3-G (7) of
the NHAI Act, 1956 read with Section 26
of the Right to Fair Compensation and
Transparency
in
Land
Acquisition,
Rehabilitation and Resettlement Act, 2013,
which is applicable and as such, this aspect
has been carefully taken note by the
Arbitrator so also by the court dealing with
the petition under Section 34 of the
Arbitration & Conciliation Act, 1996 and in
view thereof there is no error apparent on
the fact of the record for this Court to
intervene and accordingly, the appeals
deserve to be dismissed.

14. The Court has heard learned
counsel for parties and also perused the
material on record.

15. At the very outset, it would be
relevant to notice the scope of a petition
filed under Section 34 of the Arbitration &
Conciliation Act, 1996 which delineate the
circumstance and the grounds upon which
the award may be set aside.

16. Section 34 of the Arbitration &
Conciliation Act, 1996 reads as under:-

Application for setting aside arbitral
awards.
10 All. Chandra Kishori Vs. U.O.I.& Ors.
539

(1) Recourse to a Court against an
arbitral award may be made only by an
application for setting aside such award in
accordance with sub-section (2) and subsection (3).

(2) An arbitral award may be set aside
by the Court only if--

(a) the party making the application
1[establishes on the basis of the record of
the arbitral tribunal that]--

(i) a party was under some incapacity,
or

(ii) the arbitration agreement is not
valid under the law to which the parties
have subjected it or, failing any indication
thereon, under the law for the time being in
force; or

(iii) the party making the application
was not given proper notice of the
appointment of an arbitrator or of the
arbitral proceedings or was otherwise
unable to present his case; or

(iv) the arbitral award deals with a
dispute not contemplated by or not falling
within the terms of the submission to
arbitration, or it contains decisions on
matters beyond the scope of the submission
to arbitration:

Provided that, if the decisions on
matters submitted to arbitration can be
separated from those not so submitted, only
that part of the arbitral award which
contains decisions on matters not submitted
to arbitration may be set aside; or

(v) the composition of the arbitral
tribunal or the arbitral procedure was not in
accordance with the agreement of the
parties, unless such agreement was in
conflict with a provision of this Part from
which the parties cannot derogate, or,
failing such agreement, was not in
accordance with this Part; or

(b) the Court finds that-- (i) the
subject-matter of the dispute is not capable
of settlement by arbitration under the law
for the time being in force, or

(ii) the arbitral award is in conflict
with the public policy of India.

[Explanation 1.--For the avoidance of
any doubt, it is clarified that an award is in
conflict with the public policy of India,
only if,--

(i) the making of the award was
induced or affected by fraud or corruption
or was in violation of section 75 or section
81; or

(ii) it is in contravention with the
fundamental policy of Indian law; or

(iii) it is in conflict with the most basic
notions of morality or justice.

Explanation 2.--For the avoidance of
doubt, the test as to whether there is a
contravention with the fundamental policy
of Indian law shall not entail a review on
the merits of the dispute.]

[(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.]

(3) An application for setting aside
may not be made after three months have
elapsed from the date on which the party
making that application had received the
arbitral award or, if a request had been
made under section 33, from the date on
which that request had been disposed of by
the arbitral tribunal:

Provided that if the Court is satisfied
that the applicant was prevented by
sufficient
cause
from
making
the
application within the said period of three
months it may entertain the application
540 INDIAN LAW REPORTS ALLAHABAD SERIES
within a further period of thirty days, but
not thereafter.

(4) On receipt of an application under
sub-section (1), the Court may, where it is
appropriate and it is so requested by a
party, adjourn the proceedings for a period
of time determined by it in order to give the
arbitral tribunal an opportunity to resume
the arbitral proceedings or to take such other
action as in the opinion of arbitral tribunal will
eliminate the grounds for setting aside the
arbitral award.

3[(5) An application under this section
shall be filed by a party only after issuing a
prior notice to the other party and such
application shall be accompanied by an
affidavit by the applicant endorsing compliance
with the said requirement.

(6) An application under this section shall
be disposed of expeditiously, and in any event,
within a period of one year from the date on
which the notice referred to in sub-section (5) is
served upon the other party.]

17. Submission of learned counsel for
appellants that the award was bad as it was
against the public policy of India and that it also
suffered from patent illegality and by ignoring
this, the District Judge while affirming the
award has committed an error. In order to
examine the aforesaid aspect, it would be
relevant to notice that the words 'patent
illegality' and an award while is against 'the
public policy of India', has certain connotations
which have been elucidated by the Apex Court.
It will be relevant to notice the recent decision
of the Apex Court in Batliboi Environmental
Engineers Limited Vs. HPCL and another
[2023 SCC online SC 1208] and the relevant
paragraphs 31, 32, 34 to 38, 41, 42 and 44 read
as under:-

31. ... The foundation of arbitration is
party autonomy. Parties have the freedom to
enter into an agreement to settle their
disputes/claims by an arbitral tribunal, whose
decision is binding on the parties. 23 It is argued
that the purpose of arbitration is fast and quick
one-stop adjudication as an alternative to court
adjudication, and therefore, post award
interference by the courts is unwarranted,
and an anathema that undermines the
fundamental edifice of arbitration, which is
consensual and voluntary departure from
the right of a party to have its claim or
dispute adjudicated by the judiciary. The
process is informal, and need not be
legalistic. Per contra, it is argued that party
autonomy should not be treated as an
absolute defence, as a party despite
agreeing to refer the disputes/claims to a
private tribunal consensually, does not
barter away the constitutional and basic
human right to have a fair and just
resolution of the disputes. The court must
exercise its powers when the award is
unfair, arbitrary, perverse, or otherwise
infirm in law. While arbitration is a private
form of dispute resolution, the conduct of
arbitral proceedings must meet the juristic
requirements
of
due
process
and
procedural fairness and reasonableness,
to achieve a 'judicially' sound and
objective outcome. If these requirements,
which are equally fundamental to all
forms
of
adjudication
including
arbitration,
are
not
sufficiently
accommodated in the arbitral proceedings
and the outcome is marred, then the
award should invite intervention by the
court.

32. To disentangle and balance the
competing principles, the degree and
scope of intervention of courts when an
award is challenged by one or both
parties needs to be stated. Reconciliation
as a statement of law and in particular
application in a particular case has not
been an easy exercise. We begin by first
referring to the views expressed by this
10 All. Chandra Kishori Vs. U.O.I.& Ors.
541
Court in interpreting the width and scope
of the post award interference by the courts
under Section 34 of the A&C Act.

34. Sub-section (1) to Section 34 of
the A&C Act requires that the recourse to a
court against an arbitral award is to be
made by a party filing an application for
setting aside of an award in accordance
with sub-sections (2) and (3) of Section 34.
Sub-section (2) to Section 34 of the A&C
Act stipulates seven grounds on which a
court may set aside an arbitral award. Subsection (2) consists of two clauses, (a) and
(b). Clause (b) consists of two sub-clauses,
namely, sub-clause (i) which states that
when the subject matter of the dispute is
not capable of settlement by arbitration
under the law for the time being in force,
and sub-clause (ii), which states that the
court can set aside an arbitral award when
the award is 'in conflict with public policy
of India'. We shall subsequently examine
the decisions of this Court interpreting 'in
conflict with public policy of India' and the
explanation.

35. Under sub-clause (a) to subsection (2) to Section 34 of the A&C Act, a
court can set aside an award on the grounds
in sub-clauses (i) to (v) namely, when a
party
being
under
some
incapacity;
arbitration agreement is not valid under the
law for the time being in force; when the
party making an application under Section
34 is not given a proper notice of
appointment of the arbitrator or the
arbitration proceedings, or was unable to
present its case; and when the composition
of the arbitral tribunal or the arbitral
procedure was not in accordance with the
agreement between the parties, unless such
agreement was in conflict with the
mandatory and binding non-derogable
provision, or was not in accordance with
Part I of the A&C Act. Sub-clause (iv)
states that the arbitral award can be set
aside when it deals with a dispute not
contemplated by, or not falling within the
terms of submission of arbitration, or it
contains a decision on matters beyond the
scope
of
submission
to
arbitration.
However, the proviso states that the
decision in the matters submitted to
arbitration can be separated from those not
submitted, then that part of the arbitral
award which contains the decision on the
matter not submitted to arbitration can be
set aside. In the present case, we are not
required to examine sub-clauses to clause
(a) to sub-section (2) to Section 34 of the
A&C Act in detail. Hence, this decision
should not be read as making any
observation, even as obiter dicta on the said
clauses.

36. Explanation to sub-clause (ii) to
clause (b) to Section 34(2) of the A&C Act,
as quoted above and before its substitution
by Act No.3 of 2016, had postulated and
declared for avoidance of doubt that an
award is 'in conflict with the public policy
of India', if the making of the award is
induced or affected by fraud or corruption,
or was in violation of Sections 75 or 81 of
the A&C Act. Both Sections 75 and 81 of
the A&C Act fall under Part III of the A&C
Act,
which
deal
with
conciliation
proceedings. Section 75 of the A&C Act
relates to confidentiality of the settlement
proceedings and Section 81 deals with
admissibility of evidence in conciliation
proceedings. Suffice it is to note at this
stage that while 'fraud' and 'corruption' are
two specific grounds under 'public policy',
these are not the sole and only grounds on
which an award can be set aside on the
ground of 'public policy'.

37. Act
No.
3
of
2016
with
retrospective effect from 23.10.2015 has
substituted the explanation referred to
above, by two new explanations that are
differently worded.25 Sub-section (2-A) to
542 INDIAN LAW REPORTS ALLAHABAD SERIES
Section 34 of the A&C Act, which was
instituted by Act No. 3 of 2016 with
retrospective effect from 23.10.2015, states
that the arbitral award arising out of
arbitrations
other
than
international
commercial arbitrations can be set aside
by the court, if it is vitiated by patent
illegality appearing on the face of the
award. The proviso to sub-section (2-A)
to Section 34 of the A&C Act also
states that the award shall not be set
aside merely on the ground of erroneous
application of law or by reappreciation
of evidence. The aforesaid sub-section
need not be examined in the facts of the
present case, as we are not required to
interpret and apply the substituted
explanations to (ii) to sub-clause (b) to
34(2) of the A & C Act in the present
case.

38. The expression 'public policy'
under Section 34 of the A&C Act is
capable of both wide and narrow
interpretation.
Taking
a
broader
interpretation, this Court in ONGC
Limited. v. Saw Pipes Limited., held
that the legislative intent was not to
uphold an award if it is in contravention
of provisions of an enactment, since it
would be contrary to the basic concept
of justice. The concept of 'public
policy'
connotes
a
matter
which
concerns
public
good
and
public
interest. An award which is patently in
violation of statutory provisions cannot
be held to be in public interest. Thus,
expanding on the scope and expanse of
the jurisdiction of the court under
Section 34 of the A&C Act, it was held
that an award can be set aside if it is
contrary to:

(a) fundamental policy of Indian
law; or

(b) the interest of India; or

(c) justice or morality, or

(d) in addition, if it is patently
illegal.

Nevertheless, the decision holds
that mere error of fact or law in
reaching the conclusion on the disputed
question will not give jurisdiction to the
court to interfere. However, this will
depend on three aspects: (a) whether the
reference was made in general terms for
deciding the contractual dispute, in
which case the award can be set aside if
the award is based upon erroneous legal
position; (b) this proposition will also hold
good in case of a reasoned award, which on
the face of it is erroneous on the legal
proposition of law and/or its application;
and (c) where a specific question of law is
submitted to an arbitrator, erroneous
decision on the point of law does not make
the award bad, unless the court is satisfied
that arbitrator had proceeded illegally. In
the said case, the court set aside the award
on the ground that the award had not taken
into consideration the terms of the contract
before arriving at the conclusion as to
whether the party claiming the damages is
entitled to the same. Reference was made
to the provisions of Sections 73 and 74 of
the Contract Act, which relate to liquidated
damages, general damages and penalty
stipulations. This view had held the field
for a long time and was applied in
subsequent judgments of this Court in
Hindustan Zinc Ltd. v. Friends Coal
Carbonisation27 , Centrotrade Minerals
and Metals Inc. v. Hindustan Copper
Limited28 , Delhi Development Authority
v. R.S. Sharma and Co29 ., J.G. Engineers
(P) Ltd. v. Union of India and Another30,
and Union of India v. L.S.N. Murthy.

41. Subsequently, in ONGC Ltd. v.
Western Geco International Ltd., a three
Judge Bench of this Court observed that the
10 All. Chandra Kishori Vs. U.O.I.& Ors.
543
Court, in Saw Pipes Ltd., did not examine
what would constitute 'fundamental policy
of
Indian
law'.
The
expression
'fundamental policy of Indian law' in the
opinion
of
this
Court
includes
all
fundamental principles providing as basis
for
administration
of
justice
and
enforcement of law in this country. There
were three distinct and fundamental juristic
principles which form a part and parcel of
'fundamental policy of Indian law'. The
first and the foremost principle is that in
every determination by a court or an
authority that affects rights of a citizen or
leads to civil consequences, the court or
authority must adopt a judicial approach.
Fidelity to judicial approach entails that
the court or authority should not act in an
arbitrary, capricious or whimsical manner.
The court or authority should act in a bona
fide manner and deal with the subject in a
fair, reasonable and objective manner.
Decision should not be actuated by
extraneous considerations. Secondly, the
principles of natural justice should be
followed.
This
would
include
the
requirement that the arbitral tribunal must
apply its mind to the attending facts and
circumstances while taking the view one
way or the other. Non- application of mind
is a defect that is fatal to any adjudication.
Application of mind is best done by
recording reasons in support of the
decision.
As
noticed
above,
Section
31(3)(a) of the A&C states that the arbitral
award shall state the reasons on which it is
based, unless the parties have agreed that
no reasons are to be given. Sub-clauses (i)
and (iii) to Section 34(2) also refer to
different facets of natural justice. In a given
case sub-clause to Section 34(2) and subclause (ii) to clause (b) to Section 34(2)
may equally apply. Lastly, is the need to
ensure that the decision is not perverse or
irrational that no reasonable person would
have arrived at the same or be sustained in
a court of law. Perversity or irrationality of
a decision is tested on the touchstone of
Wednesbury principle of reasonableness. At
the same time, it was cautioned that this
Court was not attempting an exhaustive
enumeration of what would constitute
'fundamental policy of Indian law', as a
straightjacket definition is not possible. If
on facts proved before them, the arbitrators
fail to draw an inference which ought to
have been drawn or if they have drawn an
inference which on the face of it, is
untenable
resulting
in
injustice,
the
adjudication made by an arbitral tribunal
that enjoys considerable latitude and play
at the joints in making awards, may be
challenged and set aside.

42. The decision of this Court in
Associate Builders elaborately examined
the question of public policy in the context
of Section 34 of the A&C Act, specifically
under the head 'fundamental policy of
Indian law'. It was firstly held that the
principle of judicial approach demands a
decision to be fair, reasonable and
objective. On the obverse side, anything
arbitrary and whimsical would not satisfy
the said requirement.

44. As observed previously, we need
not examine the amendment made to the
A&C Act vide Act No. 3 of 2016 with
retrospective effect from 23.10.2015 and
the judgments that deal with the amended
Section 34 of the A&C Act. Pertinently, the
amendment to Section 34 of the A&C Act
was effected, pursuant to the observations
of the Supplementary Report to Report No.
246 on Amendments to Arbitration and
Conciliation Act, 1996 by the Law
Commission of India, titled 'Public Policy
- Developments post-Report No. 246'
published
in
February
2015.
This
Supplementary Report observed that the
544 INDIAN LAW REPORTS ALLAHABAD SERIES
power to review an arbitral award on
merits under Section 34 of the A&C Act, as
elucidated in the case of Western Geco,
subsequently
followed
in
Associate
Builders, is contrary to the object of the
A&C Act and international practice on
minimization of judicial intervention. A
reference can also be conveniently made to
MMTC Ltd. v. Vedanta Ltd., and Ssangyong
Engg. & Construction Co. Ltd. v. National
Highways
Authority
of
India
which
examine the scope of intervention of courts
under Section 34 of the A&C Act as
amended by Act No. 3 of 2016. MMTC Ltd.
and Ssangyong Engg., and other judgments
which deal with the amended Section 34 of
the A&C Act that are not applicable in the
present case.

18. The Apex Court in Batliboi
(supra) has also noticed and followed the
earlier decisions of the Apex Court in Oil &
Natural Gas Corporation Ltd vs Saw Pipes
Ltd (2003) 5 SCC 705 and Associate
Builders vs Delhi Development Authority
(2015) 3 SCC 49.

19. From the perusal of the aforesaid
dictum and applying the principles to the
instant case, this Court finds that where the
land is acquired by the State, which is in
the nature of compulsory acquisition, in
exercise of its powers of eminent domain
and the compensation which is payable as
per the guiding factors enumerated in
Section 3-G (7) of the NHAI Act, 1956
read with Section 26 of the Right to Fair
Compensation and Transparency in Land
Acquisition,
Rehabilitation
and
Resettlement Act, 2013, apparently is an
issue, which is absolutely core of the
controversy, which requires consideration.
Since the award passed by the Arbitrator in
violation of the said provisions would
definitely be a ground to invoke the
jurisdiction of the Court under Section 34
of the Act 1996 on the ground of 'the
Public Policy of India'. More so, where the
land of a person, over which he has a
constitutional right in terms of Article 300A of the Constitution of India, is taken
away
by
the
State
by
compulsory
acquisition and the requisite provisions for
grant of compensation is not adhered then it
would definitely incur the scrutiny of the
Court in terms of Section 34 of the
Arbitration & Conciliation Act, 1996.

20. At this stage, it will also be
relevant to notice the scope of appeal under
Section
37
of
the
Arbitration
&
Conciliation Act, 1996 and in this regard
the decision of the Apex Court in MMTC
Vs. Ltd. Vs. Vedanta Ltd. 2019 (4) SCC
163 will be helpful and wherein the Apex
Court has held as under:

"10. Before proceeding further, we
find it necessary to briefly revisit the
existing position of law with respect to the
scope of interference with an arbitral award
in India, though we do not wish to burden
this judgment by discussing the principles
regarding the same in detail. Such
interference may be undertaken in terms of
Section 34 or Section 37 of the Arbitration
and Conciliation Act, 1996 (for short ?the
1996 Act?). While the former deals with
challenges to an arbitral award itself, the
latter, inter alia, deals with appeals against
an order made under Section 34 setting
aside or refusing to set aside an arbitral
award.

11. As far as Section 34 is concerned,
the position is well-settled by now that the
Court does not sit in appeal over the
arbitral award and may interfere on merits
on the limited ground provided under
Section 34(2)(b)(ii) i.e. if the award is
against the public policy of India. As per
the
legal
position
clarified
through
10 All. Chandra Kishori Vs. U.O.I.& Ors.
545
decisions of this Court prior to the
amendments to the 1996 Act in 2015, a
violation of Indian public policy, in turn,
includes a violation of the fundamental
policy of Indian law, a violation of the
interest of India, conflict with justice or
morality, and the existence of patent
illegality in the arbitral award. Additionally,
the concept of the ?fundamental policy of
Indian law? would cover compliance with
statutes and judicial precedents, adopting a
judicial approach, compliance with the
principles
of
natural
justice,
and
Wednesbury [Associated Provincial Picture
Houses v. Wednesbury Corpn., (1948) 1
KB
223
(CA)]
reasonableness.
Furthermore, ?patent illegality? itself has
been held to mean contravention of the
substantive law of India, contravention of
the 1996 Act, and contravention of the
terms of the contract.

12. It is only if one of these
conditions is met that the Court may
interfere with an arbitral award in terms
of
Section
34(2)(b)(ii),
but
such
interference does not entail a review of
the merits of the dispute, and is limited
to situations where the findings of the
arbitrator are arbitrary, capricious or
perverse, or when the conscience of the
Court is shocked, or when the illegality
is not trivial but goes to the root of the
matter. An arbitral award may not be
interfered with if the view taken by the
arbitrator is a possible view based on
facts. (See Associate Builders v. DDA
[Associate Builders v. DDA, (2015) 3
SCC 49 : (2015) 2 SCC (Civ) 204] .
Also see ONGC Ltd. v. Saw Pipes Ltd.
[ONGC Ltd. v. Saw Pipes Ltd., (2003) 5
SCC 705] ; Hindustan Zinc Ltd. v.
Friends Coal Carbonisation [Hindustan
Zinc
Ltd.
v.
Friends
Coal
Carbonisation, (2006) 4 SCC 445] ; and
McDermott International Inc. v. Burn
Standard
Co.
Ltd.
[McDermott
International Inc. v. Burn Standard Co.
Ltd., (2006) 11 SCC 181] )

13. It is relevant to note that after
the 2015 Amendment to Section 34, the
above
position
stands
somewhat
modified. Pursuant to the insertion of
Explanation 1 to Section 34(2), the
scope of contravention of Indian public
policy has been modified to the extent
that it now means fraud or corruption in
the making of the award, violation of
Section 75 or Section 81 of the Act,
contravention of the fundamental policy
of Indian law, and conflict with the
most
basic
notions
of
justice
or
morality. Additionally, sub-section (2A) has been inserted in Section 34,
which provides that in case of domestic
arbitrations, violation of Indian public
policy also includes patent illegality
appearing on the face of the award. The
proviso to the same states that an award
shall not be set aside merely on the
ground of an erroneous application of
the law or by re appreciation of
evidence.

14. As far as interference with an
order made under Section 34, as per
Section 37, is concerned, it cannot be
disputed that such interference under
Section 37 cannot travel beyond the
restrictions laid down under Section 34.
In other words, the court cannot
undertake an independent assessment of
the merits of the award, and must only
ascertain that the exercise of power by
the court under Section 34 has not
exceeded the scope of the provision.
Thus, it is evident that in case an
arbitral award has been confirmed by
the court under Section 34 and by the
court in an appeal under Section 37, this
Court must be extremely cautious and
546 INDIAN LAW REPORTS ALLAHABAD SERIES
slow
to
disturb
such
concurrent
findings."

21. Having noticed the contours of
jurisdiction exercised by the Court in terms
of Section 34 of the Arbitration &
Conciliation Act, 1996 as well as powers of
this Court in terms of Section 37 of the
Arbitration & Conciliation Act, 1996, it
will now be appropriate to consider the
contention of the respective parties on
merits.

22. In sofar as the facts are concerned,
there is not much dispute between the
parties, inasmuch as both the appellant in
the respective appeals were the recorded
tenure holders and in both the cases, their
land has been acquired in exercise of
powers contained under Section 3-A and
Section 3-D of the NHAI Act, 1956. The
possession has also been taken by the
National Highway Authority of India in
terms of Section 3-D and once the
acquisition is made then as a necessary
corollary the determination of the amount
payable as compensation to the appellants
assumes great significance. In this regard,
Section 3-G (7) of the NHAI Act, 1956
shall be important and is being reproduced
hereafter for easy reference:-

Section 3 G (7) in The National
Highways Act, 1956

[3G. Determination of amount payable
as compensation.-

(1) xxx

(2) xxx

(3) xxx

(4) xxx

(5) xxx

(6) xxx

(7) The competent authority or the
arbitrator while determining the amount
under sub-section (1) or sub-section (5), as
the
case
may
be,
shall
take
into
consideration-

(a) the market value of the land on the
date of publication of the notification under
section 3A;

(b) the damage, if any, sustained by
the person interested at the time of taking
possession of the land, by reason of the
severing of such land from other land;