Supreme Court Criticizes NHAI Act, Calls for Judicial Oversight in Compensation

Background of the Case

The Supreme Court of India on Monday raised serious concerns regarding provisions of the National Highways Act, 1956 (NHAI Act) that govern compensation for land acquisition. The Court described the provisions as “bad,” particularly because they deny landowners judicial recourse and instead place adjudicatory powers in the hands of bureaucrats rather than judicial officers.

Bench Observations

A bench led by Justice Surya Kant, also comprising Justice Joymalya Bagchi, questioned the discriminatory treatment of landowners under the NHAI Act as compared to other acquisition statutes. The Court emphasized that for smaller state acquisitions, compensation disputes are adjudicated by a district judge, while for vast tracts acquired by the National Highways Authority of India (NHAI), the decision rests with executive officers.

The bench asked:
“Why do officers and bureaucrats have to decide and adjudicate? For a large chunk of land acquired by NHAI, officers decide. And for a 500 square metre land acquired by the state, it has to be approved by a district judge. Why this discrimination?”

Issue of Judicial vs Executive Authority

Under the current framework of the NHAI Act, compensation is determined by a “competent authority” (typically a collector), with appeals escalating to higher bureaucrats such as deputy commissioners or commissioners. The Court noted that this excludes independent judicial review and undermines fairness.

The Supreme Court underlined that land acquisition involves the compulsory deprivation of property under Article 300A of the Constitution, and therefore, compensation must be “just, fair and equitable.” Unilateral determination by the acquiring authority cannot meet constitutional standards.

High Court Precedent: Punjab and Haryana HC Judgment (March 2025)

The Supreme Court’s observations came while hearing an appeal against the Punjab and Haryana High Court’s March 2025 ruling, which had struck down Sections 3J and 3G of the NHAI Act.

Key findings of the High Court included:

• Excluding solatium (30%) and interest (9% and 15%), as provided under the Land Acquisition Act, 1894, was unconstitutional.

• Section 3G’s arbitration mechanism was one-sided, compulsory, and controlled by the acquiring authority, violating Article 14 (Right to Equality).

• The framework was inconsistent with principles of natural justice and deprived landowners of equal treatment.

The High Court directed that compensation under the NHAI Act must include all statutory benefits available under the Land Acquisition Act.

Supreme Court’s Stand on Arbitration Framework

The Supreme Court echoed the High Court’s concerns, pointing out that unilateral arbitration mechanisms had already been invalidated in previous rulings for violating Article 14 of the Constitution. It noted that allowing NHAI officers to act as adjudicators of disputes compromised the neutrality of the process.

The bench further suggested that adjudicatory power should be vested in members of the higher judicial service or district judges instead of executive officers, ensuring independence and fairness in the process.

Directions and Next Steps

While the Supreme Court refrained from issuing a final ruling on the validity of the provisions during Monday’s hearing, it formally recorded its expectation that the Union Government examine and revisit the NHAI Act.

The Court requested Solicitor General Tushar Mehta to intervene and ensure that the law is aligned with constitutional principles and established jurisprudence.

Key Takeaways

1. Judicial Recourse: Landowners must be provided with an independent judicial mechanism for compensation disputes.

2. Fair Compensation: Compensation, solatium, and interest must be adjudicated fairly, not unilaterally by the acquiring authority.

3. Legislative Reforms Needed: The Union Government is expected to revisit the NHAI Act to bring it in line with the Land Acquisition Act, 1894 and constitutional protections.

4. Precedent: This case strengthens the judicial pushback against executive-controlled arbitration frameworks in land acquisition laws.

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