NH Act landowners get only 9% interest on enhanced compensation, not 15% under RFCTLARR Act: Karnataka HC

The National Highways Authority of India acquired lands situated at Bommapur Village, Hubballi Taluka, for the four-laning of NH-63 on the Hubballi–Hospet Section.

The Competent Authority initially determined compensation under Sections 3G(1) and 3G(2) of the National Highways Act, 1956 (“N.H. Act”).

The landowners, dissatisfied with the compensation, invoked Section 3G(5), pursuant to which the Arbitrator enhanced the compensation in respect of the acquired lands.

The Arbitrator further directed payment of “all statutory/consequential benefits and interest” under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (“RFCTLARR Act”), including interest at 9% per annum for the initial period and 15% per annum thereafter under Section 72 of that Act.

NHAI challenged the awards under Section 34 of the Arbitration and Conciliation Act, 1996, read with Section 3G(6) of the N.H. Act.

The District and Sessions Court dismissed the challenges, principally holding that the enhanced compensation and the consequential interest were not liable to be interfered with.

In the appeals under Section 37 of the Arbitration Act, NHAI confined its principal challenge to the grant of interest under Section 72 of the RFCTLARR Act instead of Section 3H(5) of the N.H. Act.

1. Whether interest at 15% per annum after the expiry of one year, as contemplated by the proviso to Section 72 of the RFCTLARR Act, could be awarded on compensation enhanced by the Arbitrator under Section 3G(5) of the N.H. Act?

2. Whether the award of interest under Section 72 of the RFCTLARR Act, rather than under Section 3H(5) of the N.H. Act, rendered the arbitral awards contrary to public policy and liable to be set aside or modified under Sections 34 and 37 of the Arbitration Act?

3. Whether the High Court could modify the awards by substituting the legally applicable interest under Section 3H(5) of the N.H. Act without remanding the matters to the Arbitrator?

The Court applied Sections 3G(5) and 3G(6) of the N.H. Act, under which an aggrieved party may seek arbitral determination of compensation and the Arbitration Act applies to such proceedings.

Section 3H(5) of the N.H. Act specifically authorises the Arbitrator to award interest at 9% per annum on the excess amount determined over the compensation fixed by the Competent Authority, from the date of taking possession until actual deposit.

Section 105(3) of the RFCTLARR Act and the Removal of Difficulties Order dated 28 August 2015 extended only specified provisions relating to compensation under the First Schedule and rehabilitation, resettlement and infrastructure under the Second and Third Schedules to acquisitions under the Fourth Schedule enactments, including the N.H. Act; Section 72 was not included.

Although Section 72 of the RFCTLARR Act provides for 9% interest and, after one year, 15% interest on excess compensation determined by the statutory Authority, that provision operates within the reference mechanism under Section 64 of the RFCTLARR Act and cannot displace the specific interest provision in Section 3H(5) of the N.H. Act.

The Court distinguished Union of India v. Tarsem Singh and its subsequent orders, holding that those decisions concerned solatium and interest forming part of the determination of compensation under Section 3G, not interest payable on compensation enhanced in arbitral proceedings under Section 3G(5).

An award severable as to interest may be partially set aside or modified, and Gayatri Balasamy v. ISG Novasoft Technologies Ltd. was relied upon for the limited power of modification where remand would serve no useful purpose.

The Court treated the N.H. Act as containing a specific statutory scheme: Section 3G governs determination and enhancement of compensation, while Section 3H(5) specifically governs interest on the excess amount awarded by the Arbitrator.

Since the Central Government’s 2015 Order extended only specified compensation-related provisions of the RFCTLARR Act and did not extend Section 72, the Court held that Section 72 could not be invoked to award 15% interest after the first year.

The Court distinguished Tarsem Singh, observing that it removed the discriminatory exclusion of solatium and interest applicable to the determination of compensation under the N.H. Act, but did not authorise an Arbitrator to override the express 9% ceiling and mechanism under Section 3H(5).

The direction to grant interest under the RFCTLARR Act was therefore contrary to the governing statutory scheme and constituted a violation of public policy for purposes of Section 34(2)(b)(ii) of the Arbitration Act.

As the dispute concerned only the interest component, that portion of the awards was severable.

The Court considered remand unnecessary because calculation of interest under Section 3H(5) was a ministerial exercise requiring no reconsideration of the enhanced compensation.

The portions of the arbitral awards granting interest under the RFCTLARR Act were set aside and substituted with a direction to grant interest on the enhanced compensation strictly under Section 3H(5) of the N.H. Act, namely, at 9% per annum from the date of taking possession under Section 3D until actual deposit.

The remaining portions of the awards, including the enhanced compensation, were left undisturbed.

The appeals were accordingly disposed of.