Sections 3J and 3G of NHAI Act Struck Down as Unconstitutional

The Hon’ble Punjab and Haryana High Court, in the case of Sohan Lal and Others v. Union of India and Others, (2025:PHHC:040091-DB), dated March 20, 2025, has declared Sections 3J and 3G of the National Highways Act, 1956 (“NHAI Act“) unconstitutional. The court held that the exclusion of solatium and interest in land acquisition cases violates Article 14 of the Indian Constitution, 1950, and that the arbitration mechanism under Section 3G is legally deficient and unconstitutional for depriving landowners of judicial recourse and imposing a unilateral dispute resolution process.

The petitioner, Sohan Lal’s land was acquired under the NHAI Act for the expansion of National Highway No. 10, with possession taken on April 30, 2012. The competent authority determined compensation at ₹25 lakh per acre but denied solatium at 30% and additional interest at 9% and 15%, benefits that are statutorily available under the Land Acquisition Act, 1894. Aggrieved by this discriminatory exclusion, the petitioners challenged the constitutional validity of Sections 3G and 3J of the NHAI Act, arguing that they deprived landowners of equal compensation and imposed a flawed arbitration mechanism for dispute resolution. They contended that landowners whose properties are acquired under different statutes should not be subjected to arbitrary distinctions in compensation.

The court held that Section 3J, by expressly excluding solatium and interest, creates an artificial distinction between landowners whose properties are acquired under different enactments. Solatium serves as compensation for the compulsory nature of acquisition, while interest accounts for delayed payments, both of which are integral components of just compensation. Their absence in acquisitions under the NHAI Act places landowners in an unjustly disadvantageous position, rendering Section 3J arbitrary and unconstitutional. The ruling relied on Union of India v. Tarsem Singh, [2019 (4) RCR (Civil) 431], dated February 4, 2025, wherein the Hon’ble Supreme Court had similarly struck down Section 3J and extended the benefits of solatium and interest to landowners affected by highway acquisitions.

The court further stated that the arbitration mechanism under Section 3G is deficient, as it prescribes a unilateral arbitration process without the mutual consent of landowners. Unlike the Land Acquisition Act, which allows landowners to seek judicial review before a reference court, the NHAI Act restricts them to a mandatory arbitration process, depriving them of a fair and independent adjudicatory mechanism. Arbitration in compulsory land acquisition matters, the court observed, must adhere to principles of natural justice, ensuring that landowners have access to a neutral and impartial dispute resolution forum, rather than one controlled by the acquiring authority.

A further inconsistency was noted in the methodologies for compensation determination across different statutes. The Land Acquisition Act, 1894, and the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation, and Resettlement Act, 2013 (the “LARR Act”) both incorporate market-based valuation, solatium, and interest, while the NHAI Act arbitrarily omits these benefits. The court emphasized that such disparate treatment of landowners based on the statute governing their acquisition is indefensible. The LARR Act, which applies to highway acquisitions post-2015, recognizes the necessity of solatium and enhanced compensation, further strengthening the argument for parity in pre-2015 acquisitions.

The judgment also criticized the legislative failure to harmonize compensation laws, highlighting that parliament, in enacting the NHAI Act, did not integrate safeguards akin to those under the Land Acquisition Act, 1894, and the LARR Act, 2013, thereby compromising landowners’ rights. The court underscored that the compulsory acquisition of property according to Article 300A of the Indian Constitution must conform to just, fair, and equitable compensation principles and that the quantum of compensation cannot be arbitrarily diminished based on legislative classifications. In consideration that land acquisition involves deprivation of property, affected landowners must be granted compensation consistent with constitutional guarantees and judicial precedent.

Accordingly, the court declared Section 3J and 3G of the NHAI Act unconstitutional. It directed that compensation awarded under the NHAI Act must incorporate statutory benefits under Sections 23(2) and 28 of the Land Acquisition Act, 1894. Further, as the arbitration mechanism under Section 3G was deemed legally deficient, the respondents were directed to reassess the compensation awarded to the petitioners, ensuring that solatium and interest are duly granted in accordance with settled legal principles.

This ruling sets an important precedent, ensuring that landowners affected by compulsory acquisitions for highway projects are not subjected to arbitrary and discriminatory compensation structures. By striking down the unconstitutional exclusion of solatium and interest, the judgment reinforces equitable compensation principles in land acquisition matters, aligning statutory frameworks with constitutional mandates and judicial pronouncements.