Supreme Court Critiques NHAI Act Compensation Process

Why in the News ?

The Supreme Court criticized Sections 3G and 3J of the NHAI Act for giving unilateral power to bureaucrats in compensation disputes, lacking judicial oversight. It asked the Union government to review the law to ensure fair land acquisition practices, potentially leading to an overhaul of the existing system, similar to how the GST appellate tribunal aims to address tax disputes.

Supreme Court’s Strong Observations:

• The Supreme Court (SC) termed provisions of the National Highways Act, 1956 (NHAI Act) as “bad”, due to absence of judicial recourse for landowners, highlighting the need for reforms similar to those seen in GST structure, including the establishment of a GST appellate tribunal for dispute resolution.
• It highlighted that compulsory land acquisition deprives citizens of property under Article 300A of the Constitution and demands just, fair, and equitable compensation, emphasizing the highest standards of fairness, akin to the principles of revenue neutrality in GST.
• The court criticized the act for empowering executive officers (collectors, deputy commissioners) to determine compensation instead of independent judicial officers, suggesting a potential overhaul of the process, reminiscent of how GST reformed tax administration.
• The SC referenced the Punjab and Haryana High Court judgment (March 2025), which declared Sections 3G and 3J unconstitutional for violating Article 14 (Right to Equality), indicating the need for reforms similar to GST reforms that aimed to ensure equality in taxation.
• It stressed the importance of judicial oversight in adjudicating compensation, solatium, and interest, unlike smaller state acquisitions where district judges intervene, potentially impacting the valuation of construction materials and other assets, which could affect their GST slab classification.

Issues with NHAI Act’s Arbitration Framework:

• The arbitration framework under Section 3G of the NHAI Act was termed legally deficient by the SC, suggesting the need for an overhaul similar to GST reforms that introduced the concept of input tax credit to ensure fairness.
• The process was seen as compulsory, one-sided, and controlled by acquiring authorities, lacking independent judicial review, which could impact the valuation of construction materials and other assets, potentially affecting their GST plus additional charges.
• The SC referred to last year’s Constitution Bench ruling in Central Organisation for Railway Electrification (2024), which invalidated unilateral arbitrator appointments for violating Article 14, emphasizing the need for fair practices, similar to the anti-profiteering authority under GST.
• The court questioned why executive officers determine compensation for large land acquisitions by NHAI, while a district judge adjudicates even small state land acquisitions, suggesting a potential overhaul of the system to ensure fairness, much like how GST aimed to create a level playing field for businesses.
• The SC asked Solicitor General Tushar Mehta to harmonize provisions by assigning the adjudication to a judicial officer, potentially leading to reforms similar to those seen in GST structure, which could impact the compensation cess collected for various purposes.