Scope of Judicial Scrutiny Under Section 37 Extends Only to Fundamental Policy Violations, Not Valuation Merits

The National Highways Authority of India (NHAI) challenged an arbitral award passed under Section 3G(5) of the National Highways Act, 1956, concerning compensation for land acquisition.

The Arbitrator (District Collector) had redetermined the market value by adopting the highest jantri (government-fixed guideline) rate of the village and adding a 5% annual enhancement.

NHAI filed an application under Section 34 of the Arbitration and Conciliation Act, 1996, before the Commercial Court (6th Additional District Judge, Ahmedabad), alleging that the award was unreasoned, arbitrary, and violated principles of natural justice.

The Commercial Court dismissed the challenge on December 31, 2025.

NHAI subsequently filed this First Appeal under Section 37 of the 1996 Act.

1. Whether the Arbitrator’s reliance on the highest jantri value plus a 5% enhancement constitutes a patent illegality or a violation of the fundamental policy of Indian law under Section 34 of the Arbitration Act.

2. Whether the High Court, in its appellate jurisdiction under Section 37, can re-examine the factual inquiry or re-appreciate evidence used by the Arbitrator to determine market value.

The Court applied Section 3G(7) of the National Highways Act, 1956, and Section 31(3) of the Arbitration and Conciliation Act, 1996, regarding reasoned awards.

It relied on the Supreme Court precedent National Highways Authority of India v. Nagraju [(2022) 15 SCC 1], which mandates that market value determination under the NH Act must align with Section 26 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.

The court also applied the restrictive standards for judicial interference defined under Sections 34 and 37 of the Arbitration Act, 1996, specifically regarding "patent illegality" and "fundamental policy of Indian law".

The Court reasoned that the Arbitrator is legally bound to determine market value following the criteria in Section 26 of the 2013 Act, which includes jantri values as a valid parameter.

Since the Arbitrator's determination was a factual inquiry based on material collected and evidence adduced, it falls within the exclusive domain of the Arbitrator.

The Court held that the scope of judicial scrutiny under Section 34 is intentionally narrow; a court cannot act as an appellate authority to re-appreciate facts or substitute its own view on valuation methodology.

Reliance on government-prescribed jantri rates ensures transparency and does not shock the conscience of the court or constitute "patent illegality".

Furthermore, the Court noted that NHAI participated in the proceedings without prior objection and could not raise procedural grievances as an afterthought.

The Court affirmed the Commercial Court's decision, concluding that the award was neither arbitrary nor contrary to law. The R/First Appeal and connected Civil Applications were dismissed with no order as to costs.