Analysis of Section 28 of the Land Acquisition Act, 1894

Interest on Excess Compensation: A Juridical Analysis of Section 28 of the Land Acquisition Act, 1894

Introduction

The Land Acquisition Act, 1894 (hereinafter "the 1894 Act"), for over a century, provided the statutory framework for the compulsory acquisition of land for public purposes in India. A critical aspect of this framework was ensuring fair compensation to landowners. Section 28 of the 1894 Act played a pivotal role in this scheme by empowering courts to award interest on any sum awarded as compensation by the court which is in excess of the sum awarded by the Collector. This provision aimed to compensate landowners for the deprivation of their rightful dues from the date of taking possession until the enhanced compensation was paid. This article undertakes a comprehensive analysis of Section 28, examining its statutory contours, judicial interpretations, and its interplay with other provisions of the 1894 Act, drawing significantly from landmark judgments and relevant legal principles.

The Statutory Provision: Section 28 of the Land Acquisition Act, 1894

Section 28 of the 1894 Act, prior to amendments and eventual repeal, read as follows (original text, subject to state amendments and the central 1984 amendment):

"If the sum which, in the opinion of the Court, the Collector ought to have awarded as compensation is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of six per centum per annum from the date on which he took possession of the land to the date of payment of such excess into Court."

The Land Acquisition (Amendment) Act, 1984 (Act No. 68 of 1984) brought significant changes. The amended Section 28 stipulated:

"If the sum which, in the opinion of the Court, the Collector ought to have awarded as compensation is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of nine per centum per annum from the date on which he took possession of the land to the date of payment of such excess into Court: Provided that the award of the Court may also direct that where such excess or any part thereof is paid into Court after the date of expiry of a period of one year from the date on which possession is taken, interest at the rate of fifteen per centum per annum shall be payable from the date of expiry of the said period of one year on the amount of such excess or part thereof which has not been paid into Court before the date of such expiry."

This provision empowered the Reference Court, upon finding that the Collector's award was insufficient, to grant interest on the enhanced amount. The key components include the determination of "excess compensation," the discretionary nature of the award of interest ("may direct"), the applicable interest rates, and the period for which such interest is payable. The 1984 amendment introduced a tiered interest rate structure, incentivizing prompt payment by the acquiring authority. The Punjab & Haryana High Court in Matu Ram v. Union Territory Of Chandigarh[18] affirmed the applicability of the amended Section 28 to proceedings pending at the time of the amendment, reflecting the legislative intent to provide enhanced benefits.

Judicial Interpretation of Key Elements of Section 28

Nature of Interest under Section 28

While the phrase "may direct" suggests judicial discretion, the Supreme Court has generally interpreted the provision in a manner that leans towards awarding interest as a norm to ensure fair compensation. In Shree Vijay Cotton & Oil Mills Ltd. v. State Of Gujarat[2], the Supreme Court, while dealing with Sections 28 and 34, emphasized that interest should be automatic and not subjected to procedural obstacles, reinforcing the legislative intent to ensure timely and fair compensation. This indicates that the discretion under Section 28 is to be exercised judicially, keeping in mind the objective of compensating the landowner for the delay in receiving the full market value of the acquired land.

"Sum Which...the Collector Ought to Have Awarded" and "Excess Compensation"

The "excess compensation" is the difference between the market value determined by the Court and the amount awarded by the Collector. The determination of this market value itself is a complex process guided by Section 23 of the 1894 Act. The Supreme Court in Special Land Acquisition Officer v. Karigowda And Others[5] delved into methods of determining fair compensation, emphasizing that compensation should be based on direct agricultural yields and not downstream manufacturing benefits (like sericulture in that case). The accuracy of this determination directly impacts the quantum of "excess compensation" on which Section 28 interest is calculated.

Inclusion of Solatium for Interest Calculation

A significant point of judicial deliberation was whether solatium, awarded under Section 23(2) of the 1894 Act for the compulsory nature of acquisition, forms part of the "compensation" on which interest under Section 28 is payable. The Supreme Court in Sunder v. Union Of India[4] definitively settled this issue. The Court held that solatium is an integral part of the total compensation and, consequently, interest is payable on the aggregate compensation amount, which includes solatium, under both Sections 28 and 34 of the Act. This landmark judgment overruled earlier contrary views, such as the one reflected in Yadavrao P. Pathade v. State of Maharashtra (1996) 2 SCC 570, which was followed by the Kerala High Court in State Of Kerala v. E.P Ramachandran Nair & Others[22] (holding no interest on solatium). The Sunder[4] decision ensures a more comprehensive and equitable compensation to landowners.

Rate and Period of Interest

The 1894 Act, as amended in 1984, specifies the rates of interest (9% per annum for the first year from taking possession, and 15% per annum thereafter on unpaid excess compensation). The period for which interest is payable under Section 28 commences from the date on which the Collector took possession of the land until the date of payment of such excess into Court. The Rajasthan High Court in Prahladi Devi & Ors. v. State Of Raj.[19] noted the difference in interest rates under the Rajasthan Land Acquisition Act, 1953 (4%) and the higher rates under the amended central 1894 Act, highlighting the evolution towards better compensation. The Supreme Court in Union Of India v. Smt. Sulochana Devi And Another (Rajasthan High Court judgment cited, but likely referring to a Supreme Court principle)[24] also affirmed entitlement to benefits under the amended Section 28.

Distinction from Section 34 Interest

Section 28 interest is often discussed alongside Section 34 interest. Section 34 mandates payment of interest by the Collector when the amount of compensation awarded by the Collector is not paid or deposited on or before taking possession of the land. Section 28, on the other hand, deals with interest on the *excess* amount awarded by the Court over and above the Collector's award. The Supreme Court in R.L Jain (D) By Lrs. v. DDA And Others[1] clarified that interest under Section 34 is not payable for periods preceding a valid Section 4(1) notification if possession was taken illegally before such notification. The Bombay High Court in Apartment v. The State Of Maharashtra[20], referencing Supreme Court dicta, reiterated that interest under Sections 28 or 34 normally runs from the date compensation is payable (typically the date of the award), and not if possession is taken prior to acquisition proceedings in a manner dehors the Act.

Appropriation of Payments (Interaction with Section 28)

The Supreme Court in Gurpreet Singh v. Union Of India[6] provided crucial clarifications on the appropriation of payments made by the judgment-debtor (acquiring authority) in land acquisition cases. The Court held that amounts deposited must first be adjusted towards interest and costs, and then towards the principal amount due. Specifically, this includes interest accrued under Section 28 on the excess compensation and any additional amount under Section 23(1A), and solatium under Section 23(2). This ensures that the landowner is compensated for the delay in payment of each component of the award. The judgment refined the principles laid down in Prem Nath Kapur v. National Fertilizers Corpn. of India Ltd. (1996) and affirmed the expanded definition of "compensation" from Sunder[4] for appropriation purposes.

Section 28 and Other Provisions/Contexts

Section 28 vis-à-vis Section 28A

It is important to distinguish Section 28 from Section 28A of the 1894 Act. Section 28A was introduced by the 1984 amendment to provide a remedy for landowners who did not seek a reference under Section 18 but whose lands were covered by the same Section 4 notification as those who did obtain an enhanced award from the Court. Such landowners could apply to the Collector for redetermination of their compensation on the basis of the Court's award. This provision, as discussed in NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY v. HARNAND SINGH (DECEASED) THR. LRS.[10], aimed to address inequalities. Several other provided materials, including Maimune Banu Hamidali Khan & Others v. State & Others[11], Smt. Kanta v. State Of Haryana And Another[12], Bharatsing v. State Of Maharashtra[13], Vadakkeveettil Ahammed Rasheed And Ors. v. District Collector And Ors.[14], Sayeed Alam And Others v. State Of U.P And Others[15], Signareni Collieries Company Limited, Karimnagar v. Special Deputy Collector[16], and Guthula Seshagiri Rao v. Collector[17], all pertain to the interpretation and application of Section 28A, which is distinct from the interest payable on excess compensation under Section 28.

Section 28 in Different Statutory Contexts (A Clarification)

Some of the provided reference materials refer to "Section 28" of other statutes, not the Land Acquisition Act, 1894. For instance:

This article's focus remains strictly on Section 28 of the Land Acquisition Act, 1894. The reference in Prahladi Devi & Ors. v. State Of Raj.[19] to Section 28 of the Rajasthan Land Acquisition Act, 1953, which also deals with interest on excess compensation (albeit at a different rate), illustrates how states had their own provisions, often mirrored or later aligned with the central Act.

Taxability of Interest under Section 28

A practical consequence of receiving interest under Section 28 is its tax implication. The Income Tax Appellate Tribunal in Income-tax Officer v. Pramod Wamanrao Honerao[25] held that interest received under Section 28 of the Land Acquisition Act is to be treated as part of compensation and is not to be charged as income from other sources, referencing CIT v. Ghanshyam (HUF). This view suggests it takes on the character of capital receipt, being part of the enhanced value of the land. A similar issue was before the ITAT in Azizuddin Latiphoddin Kazi L/H of Deceased Latiphoddin Ajimoddin Kazi, Latur v. The Income Tax Officer, Ward-4, Latur[23] concerning the taxability of such interest.

Interest under Section 28 and Court Fees

The Madras High Court in J. Pattammal v. The Collector Of Madras And Another.[21] considered whether interest payable under Section 28 forms part of "compensation" for the purpose of calculating court fees on an appeal under Section 51 of the Court Fees Act. The Court concluded that for that specific purpose, interest under Section 28 is not "compensation" on which ad valorem court fee is payable on the difference claimed, as it is an ancillary relief dependent on the court enhancing the principal compensation amount. This is a nuanced interpretation specific to fiscal statutes.

The case of Ashok Kumar Yadav And Others v. State Of Haryana And Others[3], dealing with the selection process by the Haryana Public Service Commission and the weightage of viva voce marks, falls within the domain of administrative law concerning public employment and is not directly pertinent to the interpretation or application of Section 28 of the Land Acquisition Act, 1894.

Challenges and Considerations

The primary purpose of Section 28 was to mitigate the hardship caused to landowners due to delay in the payment of the full market value of their acquired property. The deprivation of property, followed by protracted litigation for fair compensation, necessitated such a provision. The tiered interest rates introduced in 1984 were a legislative recognition of the increasing cost of money and the need to disincentivize delays by acquiring authorities. However, the efficacy of this provision often depended on the timely disposal of reference cases and subsequent appeals, and the prompt deposit of enhanced compensation by the state. The judicial discretion, though generally exercised in favor of the landowner, required careful consideration of the facts of each case.

Conclusion

Section 28 of the Land Acquisition Act, 1894, served as a crucial statutory tool for ensuring that landowners were not unduly prejudiced by delays in receiving the full and fair compensation for their compulsorily acquired lands. Judicial pronouncements, particularly by the Supreme Court in cases like Sunder v. Union Of India[4] and Gurpreet Singh v. Union Of India[6], have significantly shaped its interpretation, ensuring that interest is awarded on the total enhanced compensation including solatium, and that payments are appropriated in a manner beneficial to the landowner. While the 1894 Act has been replaced by The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (which contains analogous provisions for interest, e.g., Sections 72 and 80), the principles evolved under Section 28 of the erstwhile Act continue to inform the broader jurisprudence on compensatory justice in land acquisition matters. The provision underscored the State's obligation to not only pay fair compensation but also to account for the time value of money when such payment is deferred post-possession due to judicial enhancement.

References