National Highways Authority of India vs Madanganj Hotels

Alok Sharma, J.—This misc. appeal under section 37 of the Arbitration & Conciliation Act, 1996 (hereinafter ''the Act of 1996'') impugns the order dated 20.2.2009 passed by the Addl. District Judge No. 1, Ajmer (hereinafter ''the lower court''). Thereunder exercising its power under section 34 of the Act of 1996, the lower court has set aside the award dated 11.1.2008 and remanded the matter to the Arbitrator to decide the applicants respondents (Hereinafter ''the applicants'') claim for enhancement of compensation for their land acquired under the National Highways Act, 1956 (hereinafter ''the Act of 1956'').

The facts of the case are that a notification came to be issued on 26.3.2001 under section 3A of the Act of 1956 for acquisition of certain lands belonging to respondents No. 1, 2 and 3 to an extent of 5665 sq. meters falling in Khasra Nos. 256, 7689 sq. meters of khasra No. 257/1 and 3399 sq. meters of khasra No. 257/2 aggregating to 16,753 sq. meters. An award came to be passed on 15.12.2002 for a sum of Rs. 16,89,347.76/- as compensation for the land and Rs. 16,27,343/- as compensation for construction aggregating to Rs. 33,16,690.76/- in favour of the applicants. Dissatisfied with the quantum of compensation, the applicants filed an application No. 32/2003 on 1.10.2003 before the Collector/Arbitrator, Ajmer under the provisions of Section 3G (5) the Act of 1956 seeking enhancement of compensation. A reply of denial was filed by the appellant National Highways Authority of India (hereinafter ''the NHAI'') on 22.11.2003. In the first instance the Arbitrator exercising his powers under section 3G (7) of the Act of 1956 enhanced the amount of compensation to a sum of Rs. 1,42,15,365/- under his order dated 24.1.2004. The said award was challenged in a Public Interest Litigation by an organisation in the name and style of the Youth Welfare Society in SB Civil Writ petition No. 2884/2004. NHAI as defendants therein supported the case set up by the Youth Welfare Society and stated that the enhancement of the compensation under the Collector''s order dated 24.1.2004 be set aside. In-fact NHAI itself had challenged the order of enhancement dated 24.1.2004 in a separate writ petition which was registered as SBCW P. No. 3701/2004. In the course of proceedings in SB Civil Writ Petition No. 2884/2004 in view of the similarity of challenge in SBCW P. No. 3701/2004, the PIL was transferred to the learned Single Judge and tagged with NHAI''s writ petition. The learned Single Judge vide his judgment dated 13.6.2006 quashed the award dated 24.1.2004 and remanded the matter to the Collector/Arbitrator to decide afresh- with some scathing observations about the misuse of power. The operative portion of the order is reproduced as under:

"Having heard learned counsel for the parties, without giving observations on the merits of the case, having considered all aspects and material available on the record, admittedly, the Collector, Ajmer has not justified his action to enhance the amount of award from Rs. 16,89,246/- to Rs. 1,42,15,365/- on the basis of one registered document of small piece of land and not cared to consider the DLC rates. This is nothing but misuse of power."

"Further, I am also of the view that enquiry conducted by one man committee also not cared to examine the prevailing market rate as fixed by the District Level Committee regarding the area in question. I do not want to express my opinion on the merit and without expressing any opinion on the merit, I deem it proper to quash and set aside the enhancement order dated 24.1.2004 passed by the Collector (Arbitrator), Ajmer and remand the matter back to the Collector (Arbitrator) to decide the matter of compensation afresh considering the DLC rates on the prevailing date of passing of the award and shall pass fresh order of compensation because huge public amount is involved in this matter."

The order dated 13.6.2006 was challenged by way of DB Civil Special Appeal (Writ). The appeal was however withdrawn. But all the same directions were issued by the Hon''ble Division Bench as under:

"(i) The appellants shall be permitted by the Collector (Arbitrator) under Section 3G of National Highways Act, 1956 to produce additional evidence in support of their claim for enhanced compensation.

(ii) We record and accept the statement of the counsel that the appellants shall conclude their additional evidence within one month from the date of appearance (as may be fixed by us in the order).

(iii) The respondent No. 1 shall also be given an opportunity to rebut the additional evidence of the appellants by the Collector, Ajmer (Arbitrator). The respondent No. 1 shall complete their evidence in rebuttal within two months from the completion of the evidence of the appellants.

(iv) The appellants and the respondent No. 1 are directed to appear before the Collector, Ajmer (Arbitrator) on 10th September 2007.

(vi) The Collector, Ajmer (Arbitrator) shall hear and decide the dispute concerning enhancement of compensation as early as possible and in no case later than four from the date of appearance of the parties."

A reading of the order dated 23.8.2007 passed by the Hon''ble Division Bench clearly indicates that the applicants were allowed to produce additional evidence in support of their claim for enhancement of compensation and the NHAI had a right of rebuttal thereto. A time frame for decision by the Arbitrator on the application for enhancement subsequent to the remand by the learned Single Judge under the order dated 13.6.2006 was also fixed.

The Arbitrator, Ajmer then heard the parties again on the application for enhancement of compensation after the parties had submitted their respective evidences. Vide order dated 11.1.2008, the application under section 3G(5) of the Act of 1956 was dismissed. Thereupon the applicants filed objections there-against under section 34 of the Act of 1996. Vide impugned order dated 20.2.2009 the learned lower court held that in terms of section 3G(7) of the Act of 1956 the Arbitrator failed to take into consideration the market value of the acquired land on the date of the publication of the notification under section 3A of the Act of 1956 and had not expressed any opinion in the impugned order dated 11.1.2008 on the issue of market value claimed for the property acquired. It was further held that prior to determination of amount of compensation the issue of the land being agricultural or residential or commercial ought to have been determined, which was not done. Consequently the court below allowed the objections of the applicants under section 34 of the Act of 1996, the order dated 11.1.2008 was set aside and the matter remanded to the Arbitrator to decide the application for compensation afresh due regard specifically being had inter-alia to two issues; one pertaining to the nature of land acquired i.e. as to whether it was agricultural or residential or commercial; and the other, what was the market value of the land acquired on the date of the notification under section 3A of the Act of 1956. This aggrieved the appellant NHAI. Hence this misc. appeal.

Mr. M.D. Agarwal, counsel appearing for the NHAI submitted that the Hon''ble Supreme Court in the case of McDermott International Inc. Vs. Burn Standard Co. Ltd. and Others, has held that even if an award is erroneous the courts cannot interfere therewith on that count. He submitted that at the best the award dated 11.1.2008 passed by the Arbitrator could be said to be erroneous and consequently there was no scope for the learned lower court to exercise its powers under section 34 of the Act of 1996. He submitted that aside of the unwarranted interference the learned lower court acted wholly beyond its jurisdiction in framing two issues with reference to which the application for enhancement of compensation filed by the applicants was to be addressed by the Arbitrator. He submitted that the lower court did not take into consideration the observations of the learned Single Judge in SBCW P.Nos. 2884/2004 and 3701/2004 decided on 13.6.2006 particularly with regard to the relevance of the DLC rates and the need to take them into consideration. He submitted that the jurisdiction of the lower court under section 34 of the Act of 1996 is a very limited jurisdiction and unless any of the grounds detailed in section 34 of the Act of 1996 were found no interference with the award dated 11.1.2008 passed by the Arbitrator on the application for enhancement could have been made. He submitted that the DLC rates are binding and therefore there can be no variation in regard thereto while determining the "market value" of the land acquired under the provisions of section 3G(7) of the Act of 1956. According to learned counsel the DLC rates formulated under the Rajasthan Stamps Rules, 2004 (hereinafter ''the Rules of 2004'') are themselves based on market rates and even if there is evidence to the contrary based on real transactions relevant to the market value of property acquired, the Competent Authority/Arbitrator is under an obligation to consider the DLC rates while determining the compensation claimed. Reliance has been placed on the Judgment of the Hon''ble Division Bench of this Court in the case of ITC Ltd. Vs. State of Rajasthan and Others, where it has been held as under:

"21. Coming to the submission that DLC rates have no statutory force and are based on assumption that it is the rate as provided under the Rules of 2004, the argument is wholly unworthy of acceptance. It is not the case that DLC rates are provided in any other enactment or the notification than Stamp Rules, 2004. Since the District Level Committee has been recognized statutorily and has been formed under the provisions of Rules of 2004, the submission that the DLC rates have no statutory force, cannot be accepted. It is determined by statutory committee constituted under Rules of 2004. As provided in Rule 2(b) of the Rules of 2004, the State Government is competent to form a District Level Committee, which has the statutory force and the Committee has been formed under the Rules of 2004."

It has been further submitted that the learned lower court ought not to have confined the Arbitrator to the two questions as framed by it in the remand order dated 20.2.2009 but should have left the Arbitrator full play within the ambit of section 3G (7) of the Act of 1956 in determining the compensation.

Mr. A.K. Sharma, Sr. Advocate assisted by Mr. Vishnu Sharma, appearing for the applicants submitted that the state of law is that in the exercise of power under section 34 of the Act of 1996 the Court finding misconduct of the Arbitrator or the impugned award being contrary to the public policy, has the power to set it aside the award and remand the matter for reconsideration to the Arbitrator. He submitted that it has been held in the case of Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd., that where an award is contrary to the provisions of law or conditions of contract and is patently illegal it partakes the character of having been passed in breach of the public policy and confers on the supervisory Court the power to set it aside. Counsel has submitted that in terms of section 3G(7) of the Act of 1956 in deciding the application for enhancement of compensation the Arbitrator has inter-alia to take into account the "market value" of the land on the date of publication of the notification issued under section 3A of the Act of 1956. This was not done in the award dated 11.1.2008 where evidences of market value were debunked and only the District Level Committee''s rates as notified under the Rajasthan Stamp Act, 1998 (hereinafter ''the Act of 1998'') quite irrelevant in the face of actual evidence as to the "market value" were taken into consideration. Counsel submitted that the order dated 11.1.2008 passed by the Arbitrator was therefore ex facie patently illegal, in breach of the Act of 1996 and grossly prejudicial to the applicants whose land had been acquired. It was submitted that the District Level Committee''s rates notified under the Rajasthan Stamp Rules, 2004 (hereinafter ''the Rules of 2004'') are only presumptive rates for levy of stamp duty under the Rajasthan Stamp Act, 1998 (hereinafter ''the Act of 1998'') and even for the purposes of levy of stamp duty not conclusive or final. Proof of higher market rate of the property transacted would trump the presumptive DLC rates and entail stamp duty on the higher consideration passing between the vendor and the vendee. He submitted that the DLC rates will not be relevant where the market rate of the acquired land is evidenced by concrete material before the Arbitrator. In the instant case the Arbitrator completely misdirected himself in confining himself to the per-incuriam observations of the learned Single Judge in SBCW P. No. 3701/2004 decided on 13.6.2006 and acted ultra vires the provisions of Section 3G (7(a) of the Act of 1956 in jettisoning the evidence of market value of the acquired land in determining the compensation. It was then submitted that the Hon''ble Supreme Court in the case of Ramesh Chand Bansal and Others Vs. District Magistrate/Collector Ghaziabad and Others, has very succinctly explained the distinction between the circle (DLC) rates and actual market rates holding that circle (DLC) rates are only presumptive/guiding rates and not conclusive and the valuation has to be determined on the evidence on record with regard to the market rates for the purposes of payment of stamp duty leviable on the conveyance of property. Counsel submitted that similar view has been taken by the Hon''ble Supreme Court in the case of State of Punjab and Others Vs. Mohabir Singh etc. etc., . It was further submitted that the powers of the Court under section 34 of the Act of 1996 can also be exercised when the impugned award is perverse. For this purpose reference has been made to the Judgment of the Hon''ble Supreme Court in the case of ONGC Ltd. Vs. Garware Shipping Corpn. Ltd., . Sr. Counsel then submitted that the where an award is liable to be set aside either for misconduct or for violation of public policy, the matter is to be remanded to the Arbitrator in view of the fact that in terms of the agreement between the parties or governing provisions of statute relating to arbitration, inter-se disputes are to be adjudicated by the chosen private forum. In support of the contention, McDERMOTT INTERNATIONAL INC. V. BURN STANDARD CO. LTD. AND OTHERS (supra) has been referred to. Senior Counsel submitted that consequently nothing erroneous or in excess of jurisdiction can be attributed to the impugned order dated 20.2.2009 passed by the learned lower court and in it formulating two issues pertaining to the nature of land acquired i.e. as to what it was agricultural or residential or commercial and as to what was the market value of the land acquired on the date of the notification under section 3A of the Act of 1956. It was submitted that the said issues fall wholly within the ambit of section 3G (7)(a) of the Act of 1956 as it is a mandate of the Act that the market value of the land on the date of publication of notification under section 3A of the Act of 1956 be determined. It was submitted that consequently the impugned order dated 20.2.2009 is wholly legal and valid and brooks no interference in this appeal.

Heard the counsel for the parties and perused the impugned order.

Under the Rules of 2004, DLC rates or circle rates are only presumptive rates for the guidance of the registering authorities. They are only indicative and not final and yield to contra-evidence. DLC rates cannot supplant evidence on record on the market value of the land transacted even for the purpose of the Rajasthan Stamp Act 1998. It is trite that rebuttable presumptions can only be operative in a vacuum in the absence of evidence. The Hon''ble Division Bench of this Court in DB Civil Special Appeal (Writ) No. 887/2006 had allowed the applicants to produce additional evidence in support of their claim before the Arbitrator. It is inconceivable that if the DLC rates were to be taken to be determinative and final, the Hon''ble Division Bench would have allowed additional evidence to be produced by the applicants before the Arbitrator. The provisions of section 3G (7) of the Act of 1956 are quite clear and speak of determination of market value. Market value is a matter of evidence. If the intention of the Act of 1956 was to determine the compensation on the basis of DLC/Circle rates it would have been so provided in clear terms. In Thakur Kuldeep Singh (D) thr. L.R. and Others Vs. Union of India (UOI) and Others, , the Hon''ble Supreme Court has held that market value for acquired lands cannot be fixed merely on the basis of circle rates and the locality and prevailing circumstances are relevant for determining the real value of the land. In McDERMOTT INTERNATIONAL INC. V. BURN STANDARD CO. LTD. AND OTHERS (supra) the Hon''ble Apex Court has held that interference with the awards by the Arbitrators can be made on the ground of patent illegality where such illegality goes to the root of the matter. Public policy as provided for in section 34(2)(b)(ii) of the Act of 1996 has been held to include situations of injustice and immorality as also situations of patently illegality. In the case of Hindustan Zinc Ltd. Vs. Friends Coal Carbonisation, it has been held that an award contrary to the provision of law or the Arbitration & Conciliation Act, 1996 or even the terms of the contract would be patently illegal and opposed to the public policy of India and if it affects the rights of the parties would be open to interference by the Court under section 34 of the Act of 1996. In the case of McDERMOTT INTERNATIONAL INC. V. BURN STANDARD CO. LTD. AND OTHERS (supra) the Hon''ble Supreme Court has held that unless the patent illegality goes to the root of the matter and the award is so unfair and unreasonable as to shock the consequence of the Court it would constitute a public policy violation. In the case of Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (supra) the Hon''ble Apex Court has held that public policy as set out in section 34(2)(b)(ii) of the Act of 1996 should be allowed a wider meaning to facilitate setting aside of patently illegal awards. In the case of Venture Global Engineering Vs. Satyam Computer Services Ltd. and Another, the Hon''ble Supreme Court has held that violation of due process would also be hit by public policy contravention within the meaning of section 34(2)(b)(ii) of the Act of 1996.

The upshot of the foregoing discussion is that the learned lower court acted within its jurisdiction in setting aside the award dated 11.1.2008 remanding the matter to the Collector holding that the award dated 11.1.2008 was vitiated by patent illegality and hence breach of public policy on multiple counts:

"(i) confining itself to the consideration of the DLC rates to the exclusion of specific evidences before it with regard to the market value (real value) of the acquired land in-spite of such a mandate by section 3G (7)(a) of the Act of 1956;

(ii) Overlooking and side stepping the question as to the nature of the acquired land i.e. residential/agricultural or commercial central to the determination of market value and thus acting ultra vires section 3G (7)(a) of the Act of 1956."

In my considered opinion in framing the two issues to be considered by the Arbitrator the lower appellate court in exercise of its supervisory powers has not acted without jurisdiction and only focused by way of guidance the attention of the Arbitrator on section 3G(7)(a) of the Act of 1956 which the Arbitrator in any event is duty bound to address while passing a valid award. There appears to have been no matter of intent of the lower appellate court to limit the jurisdiction of the Arbitrator. It is also accordingly so clarified.

Counsel of NHAI at this stage states that the Court observed that the application for enhancement should be disposed by the Arbitrator purely on its own merits without being affected in any manner by the observations of this Court in this civil misc. appeal. This goes without saying. The Arbitrator under section 3G(5) and (7) of the Act of 1996 has complete jurisdiction to pass an order in his discretion no doubt judicially exercised within the parameters of obtaining law. Needless to say except on the enunciation of law in this judgment, nothing shall crib or confine the jurisdiction of the Arbitrator to pass an order on the pending application before it consequent to the remand by the lower court.

Taking note of the fact that the underlying acquisition proceedings to which this misc. appeal relates commenced in the year 2001, it is directed that the proceedings now pending before the Arbitrator i.e. the application for enhancement of compensation, be disposed of within three months from the date of the presentation of a certified copy of this order.

The civil misc. appeal is dismissed accordingly.