# Smt. Savitri Devi v. Union of India & Ors

- **Citation:** (2024) 7 ILRA 717
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2024-07-05
- **Case number:** Conciliation Act 1996 No. 210 of 2023
- **Bench:** Shekhar B. Saraf
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/smt-savitri-devi-v-union-of-india-ors-52275
- **Pages:** 15

## Headnote

A. Arbitration and Conciliation Act, 1996Section 37-challenged to-patent illegalityFair compensation - In the present case,
the appellant's arguments regarding the
valuation
of
land
were

crucial
to
determining
the
appropriate
compensation-the arbitrator ignored the
arguments and awarded compensation
only for building despite recording the
argument-The award suffers from patent
illegality the arbitrator overlooked this
error and deprived the appellant of a fair
and just resolution-Since the award was
granted in the year 2008, the latest Apex
Court judgment in Tarsem Singh cannot
be allowed to claim solatium or interestThe matter is remitted back to recalculate
the compensation for land in accordance
with law.(Para 1 to 30)

B. When an arbitral tribunal fails to
consider the issue raised by the parties
and provides no reason, it erodes the
credibility of arbitral award. The concept
of patent illegality, in the context of
arbitral awards, refers to an evident and
manifest error that goes to the very root
of the matter. It implies a fundament flaw
718 INDIAN LAW REPORTS ALLAHABAD SERIES
that is apparent on the face of the record
and affects the substantive rights of the
parties.(Para 13, 14)

C. The case of Tarsem Singh introduced
specific interpretations and guidelines
that impacted the awarding of solatium
and interest. However, applying these
guidelines retrospectively to arbitrations
that concluded prior to the judgment
would create an untenable situation. The
retroactive application of judicial decision
to arbitral awards would create legal and
procedural chaos. When an arbitrator
passes an award based on the law in
existence at the time of proceedings, the
said findings cannot be held to be patently
illegal on the ground of a subsequent Apex
Court ruling. Holding such a finding to be
patently illegal would in fact be against
the public policy of India.(Para 27,28)

The appeal is disposed of. (E-6)

List of Cases cited:

## Text

_Characters 0–39,759 of 50,021. This is a partial read: ask again with offset=39759 for what follows._

7 All. Smt. Savitri Devi Vs. Union of India & Ors.
717
where the Tribunal proceeds to allow the
appeal ex parte in absence of the defendant.
In this regard, reliance was placed upon a
judgement of a Coordinate Bench of this
Court passed in M/s Ram Sewak Coal Depot,
Deori, Mirzapur Vs. The Commissioner of
Trade Tax, U.P, Lucknow; 2003 NTN
(Vol.22)- 341, wherein interpreting the
provisions of Section 22 of the U.P. Value
Added Tax Act, 2008, which is pari materia
with provision of Section 31 of the U.P.
Value Added Tax Act, 2008, which provides
for rectification, this Court has held that
wherein an appeal is decided ex parte, it shall
be open for moving an application for
rectification of such a situation. Accordingly,
adequate reasons are given for the defendant
for non appearance and judgement is
rendered ex parte, but recall of order, exercise
of rectification has been provided under
Section 31 of the U.P. Value Added Tax Act,
2008.

16. In light of the above, the impugned
order dated 07.09.2017, whereby the Tribunal
has proceeded to decide the appeal preferred
by the revisionist in his absence, is held to be
illegal and arbitrary and accordingly set aside
and the matter is remitted back to the
Tribunal to decide the matter afresh after
affording an opportunity of hearing to the
parties and considering the fact that much
time due to pendency of the aforesaid
proceedings, has elapsed, the Tribunal is
directed to expedite the appeal and decide the
same within three months from the date of
production of a certified copy of this order, in
accordance with law.

17. With the aforesaid observations, the
revision is disposed of.

18. The revisionist undertakes to
cooperate in the proceedings before the
Tribunal.
----------
(2024) 7 ILRA 717
APPELLATE JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 05.07.2024

BEFORE

THE HON'BLE SHEKHAR B. SARAF, J.

Appeal U/S 37 of Arbitration And
Conciliation Act 1996 No. 210 of 2023

Smt. Savitri Devi ...Appellant
Versus
Union of India & Ors. ...Respondents

Counsel for the Appellant:
Sri Rahul Agarwal, Ms. Akashi Agarwal

Counsel for the Respondents:
Sri Vaibhav Tripathi

A. Arbitration and Conciliation Act, 1996Section 37-challenged to-patent illegalityFair compensation - In the present case,
the appellant's arguments regarding the
valuation
of
land
were

crucial
to
determining
the
appropriate
compensation-the arbitrator ignored the
arguments and awarded compensation
only for building despite recording the
argument-The award suffers from patent
illegality the arbitrator overlooked this
error and deprived the appellant of a fair
and just resolution-Since the award was
granted in the year 2008, the latest Apex
Court judgment in Tarsem Singh cannot
be allowed to claim solatium or interestThe matter is remitted back to recalculate
the compensation for land in accordance
with law.(Para 1 to 30)

B. When an arbitral tribunal fails to
consider the issue raised by the parties
and provides no reason, it erodes the
credibility of arbitral award. The concept
of patent illegality, in the context of
arbitral awards, refers to an evident and
manifest error that goes to the very root
of the matter. It implies a fundament flaw
718 INDIAN LAW REPORTS ALLAHABAD SERIES
that is apparent on the face of the record
and affects the substantive rights of the
parties.(Para 13, 14)

C. The case of Tarsem Singh introduced
specific interpretations and guidelines
that impacted the awarding of solatium
and interest. However, applying these
guidelines retrospectively to arbitrations
that concluded prior to the judgment
would create an untenable situation. The
retroactive application of judicial decision
to arbitral awards would create legal and
procedural chaos. When an arbitrator
passes an award based on the law in
existence at the time of proceedings, the
said findings cannot be held to be patently
illegal on the ground of a subsequent Apex
Court ruling. Holding such a finding to be
patently illegal would in fact be against
the public policy of India.(Para 27,28)

The appeal is disposed of. (E-6)

List of Cases cited:

1. Ssanyong Engg. & Cons. Co. Ltd. Vs NHAI
(2019) 15 SCC 131

2. U.O.I. Vs Tarsem Singh & ors.(2019) 9 SCC
304

3. NHAI Vs Nagaraju @ Cheluvaiah & Anr.(2022)
15 SCC 1

4. Sunita Mehra Vs U.O.I. (2019) 17 SCC 672

5. Golden Iron & Steel Forging Vs U.O.I. (2008)
Mar. 28

6. Kusum Ingots & Alloys Ltd. Vs U.O.I. &
ors.(2004) 6 SCC 254

7. ONGC Ltd. Vs Saw Pipes Ltd. (2003) 5 SCC
705

8. Asso. Builders Vs DDA (2015) 3 SCC 49

9. P.V. George Vs St. of Ker. (2007) 3 SCC 557

10. Manoj Parihar Vs St. of J. & K. (2022) 14
SCC 72

11. CBI Vs R.R. Kishore (2023) SCC OnLine SC
1146

(Delivered by Hon'ble Shekhar B. Saraf, J.)

1. The instant application under
Section
37
of
the
Arbitration
&
Conciliation Act, 1996 (hereinafter referred
to as the 'Act') has been preferred by Smt.
Savitri Devi (hereinafter referred to as the
'Appellant')
against
the
order
dated
October 21, 2022 passed by the Additional
District Judge, Basti under Section 34 of
the Act.

FACTS

2. I have laid down the factual matrix
of the instant case below:

a. Appellant was the owner of
plot number 294 (later re-numbered as plot
number 323) having an area of 0.038 ha,
located in Mauja Madwanagar, District
Basti. The aforesaid plot, along with the
residential building standing thereon, was
acquired for construction of National
Highway No. 28 under the National
Highways Act, 1956 (hereinafter referred
to as the 'NH Act, 1956').
 b. The total value of the plot and
building
was
computed
at
Rs.
14,87,493.70/-, out of which the value of
the building/house was determined at Rs.
8,44,440/-, the value of trees, hand-pipe
etc. was determine at Rs. 27,203/- while the
value of the land was determined at Rs.
4,80,624/- by treating it to be agricultural
land. Additional compensation of 10% of
the
value
was
payable
on
these
components.

c.
The
amount
of
Rs.
14,87,493.70/- was paid on December 2,
2008 to the Appellant. Aggrieved by the
said valuation, the Appellant submitted an
7 All. Smt. Savitri Devi Vs. Union of India & Ors.
719
application before the District Magistrate
on February 15, 2008. After receiving the
said application, the District Magistrate
directed the Special Land Acquisition
Officer (hereinafter referred to as the
'SLAO') to examine the matter and take
necessary action.

d. The SLAO on February 23,
2008, directed the Provincial Block PWD,
Basti to inspect the site and send a fresh
valuation report. The Executive Engineer,
PWD, after examining the valuation report,
calculated the total cost of the building as
Rs. 19,27,003/- as per the PWD schedule
rate dated January 1, 2006.

e. The SLAO, on August 14,
2008, wrote a letter to the Executive
Engineer, PWD to submit the valuation
report to the building standing on the land
of the Appellant in the year 2008, to which
the Executive Engineer of PWD estimated
the value of the building to be Rs.
23,37,500/- in terms of the PWD Schedule
Rate dated June 15, 2008.

f. The SLAO vide order dated
September 23, 2008 held that both the
reports
sent
by
the
PWD
were
contradictory to each other. The SLAO
eventually
held
that
because
the
construction of the National Highway was
being conducted by the NHAI, therefore
the valuation of the Project Director, NHAI
would be considered to be appropriate one.

g. Aggrieved by the order dated
September
23,
2008,
the
Appellant
approached the District Magistrate, Basti
and filed an application for arbitration
under Section 3G(5) of the NH Act, 1956.
 h. The Arbitrator vide order dated
December 11, 2008, re-determined the
valuation of the building only, and awarded
Rs. 18,67,881/- to the Appellant towards
the value of the building.
 i. NHAI, being aggrieved by the
award of enhanced compensation of Rs.
18,67,881/- moved an application under
Section 34 of the Act before the Court of
Additional District Judge under Section 34
of the Act challenging the order dated
December 11, 2008. The Appellant also
challenged the order dated December 11,
2008 under Section 34 of the Act.
 j.
The
Court
of Additional
District Judge, dismissed the application
preferred by the NHAI and the Appellant
vide order dated October 21, 2022.
 k. Aggrieved by the order of the
Additional District Judge dated October 21,
2022, the Appellant has preferred the
instant application under Section 37 of the
Act before this Court.

CONTENTIONS
BY
THE
APPELLANT

3. The learned counsel appearing
on behalf of the Appellant has made the
following submissions before this Court:

a. The impugned order suffers
from patent illegality. Hon'ble Supreme
Court in Ssanyong Engineering and
Construction Co. Ltd. -v- NHAI reported
in (2019) 15 SCC 131 held that 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.

b. The Hon'ble Supreme Court in
National Highways Authority of India -
v- Nagaraju alias Cheluvaiah and Anr.
reported in (2022) 15 SCC 1 has held that
in such cases while examining the award in
the limited scope under Section 34 of the
Act, the Court is required to take note as to
whether the evidence available on record
has been adverted to and has been taken
note by the Arbitrator in determining the
just compensation failing which it will fall
720 INDIAN LAW REPORTS ALLAHABAD SERIES
foul of Section 31(3) of the Act and amount
to patent illegality.

c. In the instant case, the
Arbitrator
even
after
recording
the
arguments advanced by the Appellant
regarding the valuation of the land, only
awarded the compensation for the building.

d. The Learned Lower Court
overlooked the fact that though the scope of
Section 34 is limited, yet the Court has to
take note as to whether the evidence
available on record has been adverted to by
the arbitrator, whether all submissions of
the parties have been dealt with on merits
by the arbitrator and findings returned
thereon. As such it is submitted that both
the award passed by the Arbitrator as also
the order impugned passed by the Learned
Lower Court suffer from patent illegality,
attracting the applicability of Section 37 of
the Act.

e. In 2011, the land in question
was valued at Rs. 4,04,920/- by treating it
to be a residential property. This value was
computed as per the prevailing circle rate
of Rs. 2,000/- per square meter for
residential land. However, after 6 years, the
land was valued at Rs. 1,26,48,000/- per
hectare considering it to be an agricultural
land. Since 1 hectare has 10,000 sq. mtrs.,
the value comes to Rs. 1,264.80 per sq. mtr.
of land.

f. The value of land barring an
exceptional situation (not shown to exist in
the instant case), only appreciates and does
not come down. The very fact that the land
of the appellant had a building standing
thereon demonstrates that it was not being
put to agricultural use, but was used for
residential purposes by the Appellant. It
was not a large tract of land with the
building standing on one corner and the rest
of the land being utilized for the
agricultural purposes. Being a small parcel
of land, it was not possible to carry out any
agricultural activity over the land which
abutted the building, particularly when, it
stood at the intersection of two roads.
 g. As submitted earlier, neither
the District Magistrate in the award, nor the
Learned Lower Court below, has returned
any finding that the land of the Appellant
was not situated at the intersection of two
roads as contended or the exemplar of
adjoining land was for any reason not
acceptable and could not apply to value the
land of the Appellant.
 h. The Hon'ble Supreme Court in
Union of India -v- Tarsem Singh and
Ors. reported in (2019) 9 SCC 304 held
that solatium and interest would be granted
for cases between 1997 and 2015 even
though plea regarding the payment of
solatium and interest may not have been
taken in Section 34 petitions filed under the
Act by the landowners and such arbitration
awards not providing for solatium and
interest.

i. The declaration in Tarsem
Singh (supra) by the Hon'ble Supreme
Court is of general application. If the
principle of law laid down in Tarsem
Singh (supra) was to be confined to the
cases before the Hon'ble Supreme Court
and decided alongside Tarsem Singh
(supra), or applied prospectively, it would
render the decision to be of merely
academic importance and confined to
decision inter-partes.

j. It is a settled law that unless the
Hon'ble Supreme Court so expressly
declares, its decisions are not applicable
prospectively, but cover the whole sphere
of cases that are pending as on the date of
the declaration of law by the Hon'ble
Supreme Court. It may also be noted that
the Land Acquisition Act, 1894 was
repealed and replaced by the Right to Fair
Compensation and Transparency in Land
Acquisition,
Rehabilitation
and
7 All. Smt. Savitri Devi Vs. Union of India & Ors.
721
Resettlement Act, 2013 and as such, w.e.f.
January 1, 2015 the provisions of the new
Act of 2013 were made applicable to all
acquisitions carried out under the NH Act,
1956. If the decision in Tarsem Singh
(supra) were not to apply to pending
proceedings, it would mean that the
judgment is applicable only inter-partes as
there would be no other case arising
subsequent to 2019 where the benefit of
Land Acquisition Act, 1894 on account of
the inconsistencies of the Land Acquisition
Act, 1894 can be claimed.
 k. The Hon'ble Supreme Court in
Sunita Mehra -v- Union of India reported
in (2019) 17 SCC 672 held that the award
of solatium and interest on solatium should
be made effective only to proceedings
pending on the date of the High Court order
in Golden Iron & Steel Forging -v- Union
of India that is March 28, 2008. Concluded
cases should not be opened as propounded
by the Hon'ble Supreme Court. As for
future proceedings, the position would be
covered by the provisions of the Right to
Fair Compensation and Transparency in
Land
Acquisition,
Rehabilitation
and
Resettlement Act, 2013.
 l. It may be noted that the
judgment of the Punjab & Haryana High
Court in Golden Iron and Steel Forging
(supra) had struck down Section 3G and 3J
of the NH Act, 1956 as arbitrary and
irrational and violative of Article 14 of the
Constitution of India, as they denied
payment of solatium and interest. The
judgment further held that land owners
compulsorily divested of the property under
the NH Act, 1956 would henceforth be
entitled to solatium and interest, as
envisaged under Section 23 and Section 28
of the NH Act, 1956.
 m. The Hon'ble Supreme Court
in Kusum Ingots and Alloys Ltd. -v-
Union of India and Ors. reported in
(2004) 6 SCC 254 has observed that any
order passed in a writ petition filed in any
High
Court
questioning
the
constitutionality of a Parliamentary Act
will have effect throughout the territory of
India. The NH Act, 1956 being a
parliamentary enactment, the declaration of
law in Golden Iron and Steel Forging
(supra) by the Punjab and Haryana High
Court on March 28, 2008 would apply to
the instant proceedings as well.

n. Applying the dicta of the
Hon'ble Supreme Court in Sunita Mehra
(supra) is yet another reason as to why the
declaration of law made in Tarsem Singh
(supra) would benefit the Appellant in the
instant case. Accordingly, apart from the
claims made by the Appellant, the
Appellant would be entitled to the benefit
of Section 23(1A), Section 23(2) and
Section 28 of the Land Acquisition Act,
1894.

o. Under Section 23(1A) of the
Act, the Appellant would be entitled for
interest @12% per annum from the date of
publication
of
initial
acquisition
notification till the date of the award or of
taking possession (whichever is earlier).
Under
Section
23(2)
of
the
Land
Acquisition Act, 1894, the Appellant would
be entitled to solatium @30% of the award
amount as opposed to 10% under the
provisions of the NH Act, 1956. Under
Section 28 of the Land Acquisition Act,
1894, the Appellant would be entitled to
receive interest @9% per annum for the
first year from the date on which
possession was taken and @15% per
annum from the 2nd year from which the
possession of the land was taken.
 p. Based on the aforesaid, it is
prayed that this Court may be allow the
instant appeal with costs and direct the
Arbitrator
to
re-determine
the
compensation payable to the Appellant.
722 INDIAN LAW REPORTS ALLAHABAD SERIES

CONTENTIONS
BY
THE
RESPONDENT NO. 3

4. Learned counsel appearing for
the Respondent No. 3 has made the
following submissions before this Court:

a. It is necessary to bring on
record that Golden Iron (supra) has been
clarified by the Hon'ble Supreme Court in
Sunita Mehra -v- Union of India reported
in 2016 SCC OnLine SC 1128. The
Hon'ble Supreme Court held that the award
of solatium and interest would be made
effective only to the proceedings pending
on the date of Golden Iron (supra) and
concluded cases cannot be reopened. It is
noteworthy to mention here that Sunita
Mehra (supra) has also been relied upon
and referred in Tarsem Singh (supra).
However, despite reference to the cut-off
date/reopening
of
pending
cases,
no
specific finding has been given in Tarsem
Singh (supra) with regard to the fate of the
cases where the compensation already
stands deposited by the NHAI. Such a
judgment cannot give any fresh cause of
action to the landowners who have never
challenged the compensation awarded on
the ground of non-grant of solatium and
interest.

b. It is trite law that the law only
helps the vigilant. Any person, having slept
over their rights due to which valuable
rights have accrued to the other side,
cannot later seek to raise claims. It is a well
settled principle of law embodied in the
maxim 'interest reipublicaeut sit finis
litium' which means the interest of the
State lies in that there should be a
limitation to law suits. It is further a
cardinal principle of law that 'Vigilantibus
non dormeintubus jura subveniunt'. This
principle has been followed by Courts in a
catena of judgments that law helps the
vigilant and not those who have slept over
their rights.

c. Appellant is trying to mislead
this Court by praying for solatium and
interest thereof. It is pertinent to mention
here that the proceeding of the land
acquisition was completed in the year 2009
and the Appellant have received the
amount of compensation, Therefore, there
is no occasion for granting of solatium and
other benefit.
 d. The valuation report dated
November 27, 2008 was never served upon
the
answering
respondent
and
the
appointment of the Independent Valuer was
objected to by the answering respondent at
each stage of the proceeding as the report
was prepared in a mechanical manner by a
private valuer which was prepared for the
sole benefit of the Appellant and the PWD
had only certified the said report on per
item basis. The answering respondent had
objected to the same before the Arbitrator,
but it was not considered. The Arbitrator,
and the Learned Lower Court, have
overlooked facts, available documents and
submissions of the answering respondents
and have erroneously decided the matter.

ANALYSIS

5. I have heard the learned counsel
appearing for the parties and perused the
materials on record.

6. For better adjudication of the
issue at hand, I have divided the instant
judgment into two issues:

ISSUE NO. 1

Whether
there
is
any
patent
illegality or perversity in the Arbitral
Award dated December 11, 2008 or the
order of the Learned Lower Court under
7 All. Smt. Savitri Devi Vs. Union of India & Ors.
723
Section 34 of the Act dated November 21,
2022 which would warrant the exercise of
this Court's power under Section 37 of the
Act?

ISSUE NO. 2

Whether the benefit of Hon'ble
Supreme Court's judgment in Tarsem
Singh (supra) can be claimed by the
Appellant?

ISSUE NO. 1

7. Since the Arbitral Award in the
instant case dates back to December 11,
2008, the law as applicable then will have
to be applied that is the Act without any of
its amendment. Section 34 of the Act
originally allowed for an award to be set
aside if it was found to be against the
public policy of India.

8. Hon'ble Supreme Court in its
judgment
in
Oil
&
Natural
Gas
Corporation Ltd. v. Saw Pipes Ltd.,
reported in, (2003) 5 SCC 705 espoused
that the phrase "public policy of India"
must be accorded a wider and not a
narrower
meaning.
Furthermore,
the
Supreme Court also outlined the grounds
on which a court can set aside an arbitral
award under Section 34 of the Act.
Relevant paragraphs have been extracted
below:

 "28. From
this
discussion
it
would be clear that the phrase "public
policy of India" is not required to be given
a narrower meaning. As stated earlier, the
said term is susceptible of narrower or
wider meaning depending upon the object
and purpose of the legislation. Hence, the
award which is passed in contravention of
Sections 24, 28 or 31 could be set aside. In
addition to Section 34, Section 13(5) of the
Act also provides that constitution of the
Arbitral Tribunal could also be challenged
by a party. Similarly, Section 16 provides
that a party aggrieved by the decision of
the Arbitral Tribunal with regard to its
jurisdiction could challenge such arbitral
award under Section 34. In any case, it is
for Parliament to provide for limited or
wider jurisdiction to the court in case
where award is challenged. But in such
cases, there is no reason to give narrower
meaning to the term "public policy of
India" as contended by learned Senior
Counsel Mr Dave. In our view, wider
meaning is required to be given so as to
prevent frustration of legislation and
justice. This Court in Rattan Chand Hira
Chand v. Askar Nawaz Jung [(1991) 3 SCC
67] observed thus: (SCC pp. 76-77, para
17)

"17. ... It cannot be disputed that
a contract which has a tendency to injure
public interests or public welfare is one
against public policy. What constitutes an
injury to public interests or welfare would
depend upon the times and climes. ... The
legislature often fails to keep pace with the
changing needs and values nor is it
realistic to expect that it will have provided
for all contingencies and eventualities. It is,
therefore, not only necessary but obligatory
on the courts to step in to fill the lacuna.
When
courts
perform
this
function
undoubtedly they legislate judicially. But
that is a kind of legislation which stands
implicitly delegated to them to further the
object of the legislation and to promote the
goals of the society. Or to put it negatively,
to prevent the frustration of the legislation
or perversion of the goals and values of the
society." (emphasis supplied)

29. Learned Senior Counsel Mr
Dave submitted that the purpose of giving
limited jurisdiction to the court is obvious
724 INDIAN LAW REPORTS ALLAHABAD SERIES
and is to see that the disputes are resolved
at the earliest by giving finality to the
award passed by the forum chosen by the
parties. As against this, learned Senior
Counsel Mr Desai submitted that in the
present
system
even
the
arbitral
proceedings are delayed on one or the
other ground including the ground that the
arbitrator is not free and the matters are
not disposed of for months together. He
submitted that the legislature has not
provided any time-limit for passing of the
award
and
this
indicates
that
the
contention raised by the learned counsel
for the respondent has no bearing in
interpreting Section 34.
***
 31. Therefore, in our view, the
phrase "public policy of India" used in
Section 34 in context is required to be
given a wider meaning. It can be stated that
the concept of public policy connotes some
matter which concerns public good and the
public interest. What is for public good or
in public interest or what would be
injurious or harmful to the public good or
public interest has varied from time to time.
However, the award which is, on the face
of it, patently in violation of statutory
provisions cannot be said to be in public
interest. Such award/judgment/decision is
likely to adversely affect the administration
of justice. Hence, in our view in addition to
narrower meaning given to the term
"public policy" in Renusagar case [1994
Supp (1) SCC 644] it is required to be held
that the award could be set aside if it is
patently illegal. The result would be -
award could 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.

Illegality must go to the root of
the matter and if the illegality is of trivial
nature it cannot be held that award is
against the public policy. Award could also
be set aside if it is so unfair and
unreasonable that it shocks the conscience
of the court. Such award is opposed to
public policy and is required to be
adjudged void." (Emphasis Added)

9. In Associate Builders -v- DDA
reported in (2015) 3 SCC 49, the Supreme
Court propounded on the meaning of patent
illegality and regarded it as the fourth head
of public policy. Relevant paragraphs are
extracted below:

 "Patent Illegality
 40. We now come to the fourth
head of public policy, namely, patent
illegality. It must be remembered that
under the Explanation to Section 34(2)(b),
an award is said to be in conflict with the
public policy of India if the making of the
award was induced or affected by fraud or
corruption. This ground is perhaps the
earliest ground on which courts in England
set aside awards under English law. Added
to this ground (in 1802) is the ground that
an arbitral award would be set aside if
there were an error of law by the
arbitrator. This is explained by Denning,
L.J. in R. v. Northumberland Compensation
Appeal Tribunal, ex p Shaw [(1952) 1 All
ER 122 : (1952) 1 KB 338 (CA)] : (All ER
p. 130 D-E : KB p. 351)

"Leaving
now
the
statutory
tribunals, I turn to the awards of the
arbitrators. The Court of King's Bench
never interfered by certiorari with the
award of an arbitrator, because it was a
private tribunal and not subject to the
prerogative writs. If the award was not
made a rule of court, the only course
available to an aggrieved party was to
7 All. Smt. Savitri Devi Vs. Union of India & Ors.
725
resist an action on the award or to file a
bill in equity. If the award was made a rule
of court, a motion could be made to the
court to set it aside for misconduct of the
arbitrator on the ground that it was
procured by corruption or other undue
means (see Statutes 9 and 10 Will. III, C.
15). At one time an award could not be
upset on the ground of error of law by the
arbitrator because that could not be said to
be misconduct or undue means, but
ultimately
it
was
held
in Kent v. Elstob [(1802) 3 East 18 : 102
ER 502] , that an award could be set aside
for error of law on the face of it. This was
regretted
by
Williams,
J.,
in Hodgkinson v. Fernie [(1857) 3 CB (NS)
189 : 140 ER 712] , but is now well
established."

41. This, in turn, led to the
famous principle laid down in Champsey
Bhara Co. v. Jivraj Balloo Spg. and Wvg.
Co. Ltd. [AIR 1923 PC 66 : (1922-23) 50
IA 324 : 1923 AC 480 : 1923 All ER Rep
235 (PC)] , where the Privy Council
referred to Hodgkinson [(1857) 3 CB (NS)
189 : 140 ER 712] and then laid down:
 "The law on the subject has never
been more clearly stated than by Williams,
J. in Hodgkinson v. Fernie [(1857) 3 CB
(NS) 189 : 140 ER 712] : [CB(NS) p. 202 :
ER p. 717]
 'The law has for many years been
settled, and remains so at this day, that,
where a cause or matters in difference are
referred to an arbitrator, whether a lawyer
or a layman, he is constituted the sole and
final Judge of all questions both of law and
of fact. ... The only exceptions to that rule
are cases where the award is the result of
corruption or fraud, and one other, which,
though it is to be regretted, is now, I think
firmly established viz. where the question of
law necessarily arises on the face of the
award or upon some paper accompanying
and forming part of the award. Though the
propriety of this latter may very well be
doubted, I think it may be considered as
established.'
***

Now the regret expressed by
Williams,
J.
in Hodgkinson v. Fernie [(1857) 3 CB (NS)
189 : 140 ER 712] has been repeated by
more than one learned Judge, and it is
certainly not to be desired that the
exception should be in any way extended.
An error in law on the face of the award
means, in Their Lordships' view, that you
can find in the award or a document
actually incorporated thereto, as for
instance, a note appended by the arbitrator
stating the reasons for his judgment, some
legal proposition which is the basis of the
award and which you can then say is
erroneous. It does not mean that if in a
narrative a reference is made to a
contention of one party that opens the door
to seeing first what that contention is, and
then going to the contract on which the
parties' rights depend to see if that
contention is sound. Here it is impossible to
say, from what is shown on the face of the
award, what mistake the arbitrators made.
The only way that the learned Judges have
arrived at finding what the mistake was is
by saying: 'Inasmuch as the arbitrators
awarded so and so, and inasmuch as the
letter shows that the buyer rejected the
cotton, the arbitrators can only have
arrived
at
that
result
by
totally
misinterpreting Rule 52.' But they were
entitled to give their own interpretation to
Rule 52 or any other article, and the award
will stand unless, on the face of it they have
tied themselves down to some special legal
proposition which then, when examined,
appears to be unsound. Upon this point,
therefore, Their Lordships think that the
judgment of Pratt, J. was right and the
726 INDIAN LAW REPORTS ALLAHABAD SERIES
conclusion of the learned Judges of the
Court of Appeal [Jivraj Baloo Spg. and
Wvg. Co. Ltd. v. Champsey Bhara and Co.,
ILR (1920) 44 Bom 780. The judgment of
Pratt, J. may be referred to at ILR p. 787.]
erroneous."

This
judgment
has
been
consistently followed in India to test
awards under Section 30 of the Arbitration
Act, 1940.
 42. In the 1996 Act, this principle
is substituted by the "patent illegality"
principle which, in turn, contains three
subheads:

42.1. (a) A contravention of the
substantive law of India would result in the
death knell of an arbitral award. This must
be understood in the sense that such
illegality must go to the root of the matter
and cannot be of a trivial nature. This
again is really a contravention of Section
28(1)(a) of the Act, which reads as under:
 "28.Rules
applicable
to
substance of dispute.-(1) Where the place
of arbitration is situated 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;"

42.2. (b) A contravention of the
Arbitration Act itself would be regarded as
a patent illegality - for example if an
arbitrator gives no reasons for an award in
contravention of Section 31(3) of the Act,
such award will be liable to be set aside.

42.3. (c)
Equally,
the
third
subhead of patent illegality is really a
contravention of Section 28(3) of the
Arbitration Act, which reads as under:

"28.Rules
applicable
to
substance of dispute.-
 (1) ...
 (2) ...

(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."
 This last contravention must be
understood with a caveat. An Arbitral
Tribunal must decide in accordance with
the terms of the contract, but if an
arbitrator construes a term of the contract
in a reasonable manner, it will not mean
that the award can be set aside on this
ground. Construction of the terms of a
contract is primarily for an arbitrator to
decide unless the arbitrator construes the
contract in such a way that it could be said
to be something that no fair-minded or
reasonable person could do."

10. What emerges from above is
that public policy can encompass a wide
range of principles, including justice,
equity,
and
morality.
In
arbitration,
invoking public policy aims to prevent
arbitral
awards
from
violating
these
fundamental
principles,
thereby
maintaining the integrity of the legal
system. However, applying public policy in
arbitration is inherently complex and
subjective, as its definition can vary based
on the context of each case. Therefore,
courts must carefully balance upholding
public
policy
with
respecting
party
autonomy and the finality of arbitration
when using this ground to set aside awards.

11. Challenging arbitral awards on the
basis of public policy is difficult due to its
inherent complexity and subjectivity. While
this flexibility can be advantageous in
addressing severe cases where awards
violate fundamental principles of justice or
morality, it also allows for judicial
intervention based on unclear or poorly
defined notions of public policy.
7 All. Smt. Savitri Devi Vs. Union of India & Ors.
727
12. Despite these challenges,
public
policy
remains
essential
in
protecting the integrity and legitimacy of
the arbitration process. It acts as a
safeguard against arbitral awards that are
fundamentally unjust or that violate core
principles of justice. To mitigate the risks
associated with its application, courts must
adopt a careful and principled approach
when determining if an arbitral award
conflicts with public policy.

13. In the instant case, it has been
contended by the Appellant that despite
recording the arguments advanced by the
Appellant regarding the valuation of land,
the Arbitrator awarded compensation for
building only. The concept of patent
illegality, in the context of arbitral awards,
refers to an evident and manifest error that
goes to the very root of the matter. It
implies a fundamental flaw that is apparent
on the face of the record and affects the
substantive rights of the parties. The failure
of an arbitral tribunal to consider an issue
raised by the parties, without providing
reasons, constitutes such a flaw.

14. When an arbitral tribunal fails to
consider an issue raised by the parties and
provides no reason for such omission, it
creates a situation where the affected party
is left without a clear understanding of why
their argument was disregarded. This lack
of reasoning can lead to a perception of
arbitrariness and bias, further eroding the
credibility of the arbitral award. In such
cases, the affected party is left with no
option but to challenge the award on the
grounds of patent illegality.

15. In the context of the present case,
the Appellant's arguments regarding the
valuation
of
land
were
crucial
to
determining the appropriate compensation.
By ignoring these arguments and awarding
compensation only for the building, the
Arbitrator not only failed to address a
critical issue but also potentially deprived
the Appellant of a fair and just resolution.

16. The failure to provide reasons for
not considering an issue raised by the
parties also raises concerns about the
potential for arbitrariness in the arbitral
process. Arbitral tribunals are expected to
exercise their discretion judiciously and in
accordance with the principles of natural
justice. When a tribunal disregards an issue
without providing reasons, it creates an
impression of partiality or neglect, which
can seriously damage the credibility of the
arbitration
process.
The
parties
to
arbitration expect a fair hearing, where
their arguments are duly considered and
reasoned
decisions
are
made.
Any
deviation from this expectation erodes the
trust that parties place in the arbitral
process and undermines the efficacy of
arbitration
as
a
dispute
resolution
mechanism.

17. In light of the aforesaid Issue
No.1 is answered as follows:

 "The
Arbitral
Award
dated
December 11, 2008 suffers from patent
illegality to the limited aspect of nonconsideration of compensation for land as
raised by the Appellant. Section 34 Court
having overlooked this error, warrants
interference by this Court under Section 37
of the Act."

ISSUE NO. 2

18. It has been argued by the
Appellant that the judgment in Tarsem
Singh (supra) will apply to all pending
cases. Furthermore, it has been argued that
728 INDIAN LAW REPORTS ALLAHABAD SERIES
unless expressly specified, the judgments
of the Hon'ble Supreme Court cover the
whole sphere of cases that are pending as
on the date of the declaration of the
judgment.

19. In many legal systems, including
India, the default position is that the
judgments of the Hon'ble Supreme Court
apply to all cases pending as on the date of
declaration
unless
expressly
stated
otherwise. This principle is rooted in the
notion that the Court's role is to interpret
the law as it has always been, rather than
create new law. Therefore, when the
Hon'ble
Supreme
Court
declares
a
particular interpretation of a statute or a
constitutional provision, it is considered to
have always been the correct interpretation.
However, the Hon'ble Supreme Court has
also developed the doctrine of prospective
overruling, which allows it to limit the
application of a new judgment to future
cases only.

20. When the Hon'ble Supreme Court
interprets
a
statute
or
constitutional
provision, it clarifies the meaning and
scope of the law as it should always have
been understood. Therefore, applying this
interpretation to all pending cases aligns
with
the
notion
that
the
Court's
interpretation was always the correct one,
even if it had not been previously
articulated.
The
principle
that
the
judgments of the Hon'ble Supreme Court
apply to all pending cases also promotes
fairness to litigants. Individuals and entities
involved in legal disputes have a legitimate
expectation that the law, as interpreted by
the Hon'ble Supreme Court, will be applied
to their cases. Denying them the benefit of
a new judgment could result in unjust
outcomes, particularly if the previous
interpretation was found to be erroneous.

21. Coming to the judgment in
Tarsem Singh (supra), it was espoused
by the Hon'ble Supreme Court that the
provisions of the Land Acquisition Act
as far as solatium and interest are
concerned will apply to acquisitions
under the National Highways Act. The
Hon'ble Supreme Court also noted the
submission of the Government that
solatium and interest should be granted
even in cases that arise between 1997
and
2015.
Relevant
paragraph
is
extracted below:

 "52. There is no doubt that the
learned Solicitor General, in the aforesaid
two orders, has conceded the issue raised
in these cases. This assumes importance in
view of the plea of Shri Divan that the
impugned judgments should be set aside on
the ground that when the arbitral awards
did not provide for solatium or interest, no
Section 34 petition having been filed by the
landowners on this score, the Division
Bench judgments that are impugned before
us ought not to have allowed solatium
and/or interest. Ordinarily, we would have
acceded to this plea, but given the fact that
the Government itself is of the view that
solatium and interest should be granted
even in cases that arise between 1997 and
2015, in the interest of justice we decline to
interfere with such orders, given our
discretionary jurisdiction under Article 136
of the Constitution of India.