The State’s Umpire

**Shantanu Singh

In this article, the author shows how the National Highways Act, 1956, with its statute-mandated arbitration is unjust through the compensation award and unilateral appointment of arbitrators collectively violating the Right to Equality which can be rectified (to a degree) by taking inspiration from other statutes that mandate arbitration and overruled decisions. 

Introduction

National Highways Act of 1956 (“NH Act”) is one of different special laws, such as Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”), Railway Act and Electricity Act, that mandates arbitration when a certain dispute arises. Arbitration has ended up delaying justice and being unjust in the very procedure of setting up the tribunal despite its otherwise expeditious and equity motive, when a dispute over compensation of land acquired by NHAI (National Highways Authority of India) arises.

Disputes over the compensation awarded to landowners are settled under Section 3G of the NH Act, in effect since 1997, which mandates that if either of the party has any disagreement over the compensation awarded by the competent authority, as stated in Section 3G(1), then the arbitrator unilaterally appointed by the Central Government under Section 3G(5) would be the deciding authority. The said section coupled with Section 3J have caused arbitration to become a roadblock to justice than an end as envisaged.

In the first segment, I shall analyse the Punjab & Haryana High Court’s decision in Sohan Lal v. Union of India (“Sohan Lal”) which struck down Section 3G of the NH Act for lack of recourse for the land-losing party against unilateral appointment by the Central Government which nonetheless does not fully engage with the deeper neutrality concerns that make such a provision constitutionally invalid. The second segment briefly discusses the ratio of Union of India v. Tarsem Singh (“Tarsem Singh”) judgement, which solved the question over unjust compensation awarded under National Highways Act vis-à-vis land acquisition laws. Conjoint reading of which shall explain why the NH Act is procedurally and substantially in favour of the government and hence, unfair under Article 14 of the Constitution.

Unilateral Appointment Through Administration Vis-à-vis Independent Contract

Unilateral Appointment of arbitrators was much in vogue and an accepted norm in India, until the 1996 Arbitration & Conciliation Act (“the 1996 Act”) repealed its 1940 predecessor, during which the benches decided only whether a common observer could expect the one in judicial authority to be biased than whether or not party suspects so unless such suspicion is very likely due to his possible interest or background. The 1996 Act has critically addressed this through  2015 amendments to Section 12 by crystalising those grounds through Schedule V and Schedule VII, considering the apprehensions that could arise in the minds of the party signatory to mutual agreements to unilateral appointment of arbitrators. Although unilateral appointments are discouraged, it could be construed through the judges’ orbita dicta in Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) (“CORE”) why unilateral appointments could be evaluated separately based on the appointing rights of the parties.

Justice Hrishikesh Roy’s and Justice P.S. Narasimha’s dissenting opinions in CORE are quite complete if we are to deal with arbitration cases of Public-Private Agreements and matters between an administrative body (here, NHAI) and a private entity (land-losers) distinctly – as the judges opined that public law must be refrained from application in cases of appointment of arbitrators. The opinion relies heavily on the doctrine of party-autonomy through Section 12(5) of the 1996 Act coupled with Schedule V and VII which render the appointment of a possibly biased arbitrator impugnable, which could be waived-off by parties as the proviso allows. Nonetheless, the opinion cannot be considered universal as there are cases of arbitration where parties are referred to arbitration not by choice, and it must be expected that at these instances, constitutional and public law must be brought in where the parties waived-off their right to appoint, by mandate, to the government – in such a situation, the proviso is otiose.

There lies a violation of Article 14 as there is no intelligible differentia that justifies the state’s stronger position over the appointment because both parties are similarly situated for the purposes of determination of compensation. Further, no rational nexus could be found in such a procedure where the forum is made and controlled by one party that could promise fair and just compensation. It is further contended that though justice must not be delayed, such an appointment in the garb of expediting arbitration should not be an excuse of bypassing party-autonomy. It has been well settled by Perkins that what “cannot be directly must not be done indirectly”.

The other concern that the Punjab & Haryana High Court noted is that the Section 11 of the 1996 Act could not be attracted either because the procedure for appointment is henceforth completely vested in the hands of the government. Here, the rule of special law, NH Act, superseding general law, the 1996 Act, hampers party-autonomy to appointment and thereby goes against the tenets of equality and justice enshrined not only in the Indian Constitution through Article 14, which includes the right to be adjudicated impartially and independently by a forum that exercises judicial power but also what is ensured by the 1996 Act through its objectives and purposes. The Kelsen’s Pure Theory sets a hierarchy of norms or laws which can be interpreted that if a provision of special law overrides that of general law, it will continue to come under the scrutiny of the grundnorm from which other laws derive their essence, the constitutional law, here, Article 14.

In arguendo, the concept of providing a panel to choose the arbitrators with past relation to the party that was done by DMRC, a state agency, to Voestalpine may not be rejected outright as it was done so in CORE and should rather be included in arbitration governed under the NH Act since this ‘opportunity’ of providing a list of arbitrators to the landowners can be a just idea considering their probable lack of legal awareness regarding arbitration. 

The TK Vishwanathan Report of 2024 (¶3.9.5), taking inspiration from the overruled judgement of Voestalpine, suggested that if the party is to appoint its ex-employees as arbitrators, they must be retired for no less than 2 years. While this suggestion never saw light even in the Draft Amendment Bill, NHAI naturally does not strictly adhere to this suggestion as it has not been in favour of such a suggestion in past or present and usually appoints Divisional Commissioners or DMs as arbitrators on recommendation of State Government. It would be far more favourable if the judges, including retired ones, are appointed alongside which can help balance district’s fiscal knowledge of the DMs and Commissioners with legal expertise of the judges.

In furtherance to previous paragraphs, the exclusion of retired government officials from arbitrator panels should not be justified merely on grounds of neutrality but also party-autonomy. Both the 1996 Act and the TK Vishwanathan Report make it clear that unilateral appointments are legitimate only when the other party consciously waives its right to object. Such waiver presupposes party’s independence, something the NH Act currently denies land-losers.

A panel-based system in which the land-owner selects one member, or a multi-member tribunal that prevents the acquiring authority from dominating the process, would therefore align far more closely with the nemo judex principle of not being one’s own judge than the present model of a State-appointed sole arbitrator. The interpretation of such a procedure could be interpreted that Section 3G (5) allows NHAI, that is ‘state’, to circumvent and appoint an agent of the state, whom it is otherwise ineligible to. 

Statute-mandated arbitrations is detrimental to having faith in arbitration and against public interest since the affected landowners cannot apply for impartial appointment under Section 11 of the 1996 Act as held in Sayedabad Tea Company. Therefore, they are only left with the modification or setting aside of the award under Section 34 which is an extremely narrow-road as the grounds for an award to be modified or set-aside. One could argue that the discussed procedural defect is violative of public policy, which is for public good and interest, and patent illegality.

NHA Act should ensure parity as the law of Land Acquisition

While Sohan Lal addresses the flaw in arbitration in the NH Act, Tarsem Singh evaluates the calculating of compensation with respect to Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (“RFCTLARR Act”) which was excluded in the said act. Although the first, second and third schedules that discussed the calculation were included in calculation, the exclusion of section 23 and 28 did not really bring them into effect – implying the denial of interest (on difference of compensation awarded) and solatium, which is an additional amount paid to compensate for owner’s emotional pain for involuntary loss of land which is being considerate to ‘owner’s loss’ than the ‘takers’ gain’. They are yet to be operationalised formally by NHAI.

The NH Act’s exclusion of solatium and interest bore no intelligible differentia when classifying the landowners whose lands were acquired under the NH Act (for highways) and the RFCTLARR Act (for hospital or housing project) did not provide a rational nexus to fair compensation which brought inconsistency when both acts are for public purpose, i.e. the building of highways and fair compensation respectively. 

Way Forward

The proposed amendments to NH Act could be welcomed since they expedite the arbitration proceedings while addressing the misalignment with RFCTLARR Act’s formula of calculation of compensation, it lacks in ensuring a fair arbitral tribunal. It is suggested that the government should not overlook procedural inequalities and should find a viable expeditious framework which allows the land-losers to have a fair say – which is the rationale behind choosing arbitration. Taking inspiration from Section 10A of the Industrial Disputes Act, 1947, which considers that there shall be three-arbitrators, and Section 18 of the MSMED Act, 2006, the matter of compensation of land acquired should first be referred to mediation and if it fails, the dispute should be open to be challenged through litigation or by voluntary arbitration. The guidelines issued by Finance Ministry for Government Agencies in public-private contracts have rather preferred mediation as the first stage for dispute resolution than giving primacy to arbitration which is not only expensive but also time-consuming due to the possibility of the courts to decide against the award. 

Institutional Arbitration is not feasible 

I shall also make a case against institutional arbitration due to its impracticality in such disputes. It may be argued that institutional arbitration is advantageous as it is cheaper and follows a set of guidelines. Nevertheless, it is impractical because hearings are held in distant cities which only becomes a burden as it becomes. The fees considered here is not just the administration fees but also, the logistical and legal costs. After all, it is incoherent to consider it an alternative at the first place as it is suggested for private dispute resolution. Problems still remain  regarding institutional structures, appointment or fees which proves that it is not a viable alternative.

Conclusion

The interpretation from the two judgements demonstrates that the NH Act was suffering not only from substantive but also procedural flaws that made it apparent that the Act was designed to favour the government. This evidently raises eyebrows on the principle of equitability, plainly violating Article 14 by concentrating procedural control in the acquiring authority and further, following its own formula for compensation by excluding the application of land acquisition laws which bore no rational nexus or intelligible differentia. 

While the question of fair compensation is well-settled with the applicability of the RFCTLARR Act, the statute-mandated arbitration of the NH Act and unilateral appointment should be reframed towards constitutional idea of equality which is found well in the 1996 Act. Thereby, the procedure of the appointment should be fair and impartial giving both the parties a say and be considerate to the landowners who are not at a position to bear all the logistical costs and legal fees for a stretched-out period of arbitration proceedings. It is also argued that: Firstly, the choosing of the arbitrator from an exhaustive list could be considered valid if the persons included are retired or belong to other departments or government agencies and secondly, that arbitration should be considered a last stage for dispute redressal, if it is to be mandated, with mediation being the preceding stage and litigation should be an open alternative to arbitration.

**Shantanu Singh is a second-year law student pursuing BA LLB(Hons.) at Rajiv Gandhi National University of Law.

Disclaimer: The views expressed in this blog do not necessarily align with the views of the Vidhi Centre for Legal Policy.