Highway Landowners May Seek Fresh Compensation Determination As Karnataka HC Sets Aside Arbitrator’s Award Over 10-Fold Gap Between Adjacent Villages

The appellants’ lands in Ramashettihalli Village were acquired for widening NH-206. The Special Land Acquisition Officer (SLAO) fixed compensation at Rs.1,58,220 per acre, relying on sale transactions; the appellants sought re-determination under Section 3G(5) of the National Highways Act, 1956, relying on a later award fixing compensation for lands in neighbouring Edenahalli Village at Rs.17,33,166 per acre.

The Arbitrator, noting the locations of the acquired lands on opposite sides of the same highway and the substantial difference in compensation, fixed the rate at Rs.43,329 per gunta.

On the NHAI’s Section 34 petition, the District Court set aside the arbitral award. The landowners appealed under Section 37.

1. Whether the Arbitrator was justified in re-determining compensation by relying on the award concerning Edenahalli Village.

2. Whether the District Court was justified in setting aside the arbitral award.

Under Section 3G(5) of the National Highways Act, compensation disputes may be referred to arbitration; the Arbitrator may consider relevant additional material to determine just and fair compensation, applying the parameters in Sections 26 and 28 of the RFCTLARR Act, 2013 (National Highways Authority of India v. P. Nagaraju, (2022) 15 SCC 1).

Lands in adjacent villages with similar location, potential and advantages should be compensated equitably unless material distinctions justify different rates (Krishna Kumar v. State of Haryana, 2025 SCC OnLine SC 1043).

However, Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 do not permit the court to substitute its own valuation or modify the award; the court’s review is confined to the statutory grounds for setting aside, as explained in NHAI v. M. Hakeem, (2021) 9 SCC 1, and Gayatri Balasamy v. ISG Novasoft Technologies Ltd., (2025) 7 SCC 1.

The Arbitrator identified a substantial disparity between compensation for the two villages and considered the acquired lands’ proximity to the same highway. The District Court’s reliance on the villages’ differing distances from Tiptur’s municipal limits did not address the relevant comparison—the location and potential of the acquired lands themselves.

Nevertheless, compensation had to be determined on relevant material, with adequate reasons and a fair opportunity for the parties to address that material. The Court concluded that the disparity warranted reconsideration, but it could not itself determine a replacement rate under Sections 34 or 37.

The High Court set aside both the Arbitrator’s award and the District Court’s order under Section 34, and held that the landowners could pursue such remedy as may be available under Section 3G(5) of the National Highways Act read with Section 43(4) of the Arbitration and Conciliation Act.