Valliyammal And Another v. Special Tahsildar (Land Acquisition) And Another

G.S Singhvi, J.— Delay in filing Special Leave Petitions (Civil) Nos. 33777-82 of 2009, 22831, 23641 and 23643 of 2010 and 1961 of 2011 is condoned. Leave granted. These appeals filed against the judgments/orders passed by different Division Benches of the Madras High Court substantially reducing the amount of compensation determined by the Additional District Judge, Erode and the Principal Subordinate Judge, Erode (hereinafter referred to as “the Reference Court”) are illustrative of the plight of the owners of small parcels of land, who are deprived of the only source of livelihood and who have to spend substantial amount in litigation and wait for years together to get just and reasonable compensation in lieu of the compulsory acquisition of their land by the State.

2. For the sake of convenience, we shall first advert to the factual matrix of the appeals arising out of SLPs (C) Nos. 25581-82 of 2009—Jaganatha Gounder v. Special Tahsildar (LA) because the learned counsel for the parties made submissions keeping in view the factual matrix of those cases.

3. In exercise of the powers vested in it under Section 4(1) of the Land Acquisition Act, 1894 (for short “the Act”), the Government of Tamil Nadu issued Notification dated 17-1-1997 for the acquisition of 55.89 acres land comprised in different survey numbers of Village Erode for construction of houses by the Tamil Nadu Housing Board (for short “the Board”). By an award dated 3-3-2000, the Land Acquisition Officer fixed the market value of the acquired land at the rate of Rs 50,000 per acre. This did not satisfy the appellants who filed applications under Section 18(1) of the Act and claimed compensation at the rate of Rs 50 per square yard by asserting that the acquired land is situated near Erode-Perundurai and Sennimalai Road junction and residential colonies like Anna Nagar, Sri Nagar, Bharthi Nagar, Rail Nagar, Jeeva Nagar, Subramania Nagar, Kalaigner Karunanidhi Nagar, Arts College, Women's College, Kongu Higher Secondary School, St. Joseph Clinic, hospitals, etc. and was having potential for being used for housing and business purposes. Thereupon, the Collector made reference to the court for the determination of the compensation payable to the appellants. The Reference Court considered the pleadings of the parties and evidence produced by them and concluded that the appellants are entitled to compensation at the rate of Rs 28 per square foot.

4. Both, the appellants and the respondents challenged the judgment of the Reference Court by filing appeals under Section 54 of the Act. They also filed applications under Order 41 Rule 27 of the Code of Civil Procedure for permission to adduce additional evidence. The High Court allowed the applications and directed the Reference Court to give opportunity to the parties to adduce additional evidence and make fresh determination of the compensation payable to the appellants and remit its findings along with the documents. In compliance with the direction given by the High Court, the Reference Court considered the additional evidence produced by the parties and opined that the appellants are entitled to compensation at the rate of Rs 19.28 per square foot.

5. After receiving the report of the Reference Court, the High Court considered the evidence produced by the parties and held that valuation of the land, which was made basis by the Land Acquisition Officer for fixing the market value cannot be relied upon because that land was situated far away from the acquired land. The High Court noted that there was a steady increase of property value in the area because of repeated acquisitions made on behalf of the Board, referred to the topo sketch and sale deed, Ext. C-8 dated 8-2-1991 and observed:

“… The said property is in a housing colony by name K.K Nagar and the area is considered to be a developed area. Therefore we are of the opinion that the valuation as found mentioned in Ext. C-8 could be taken as benchmark for the purpose of fixing the market rate. In fact we have taken a document of the year 1989 showing the market rate at Rs 20 per square foot for arriving at the market rate in respect of the property acquired as per the Notification issued in the year 1991.

Even though as per Ext. C-8 dated 8-2-1991 the property was sold at the rate of Rs 30 per square foot, the said transaction relates to a smaller extent. However as per the subject notification larger extent of property was acquired and as such the value as shown in Ext. C-8 cannot be taken in its entirety for arriving at the market rate. The Housing Board has to develop the property for housing purposes. It is in evidence that the acquired property was only an agricultural property and it has no potential as a housing site. No evidence was placed on the side of the claimants to show that they have been getting substantial income from the property or it has got high potential as a house site. Therefore, we are of the view that necessary deduction has to be made towards development charges.”

6. The High Court then adverted to the principles laid down by this Court in State of U.P v. Ram Kumari Devi (1996) 8 SCC 577, Viluben Jhalejar Contractor v. State of Gujarat (2005) 4 SCC 789, Atma Singh v. State of Haryana (2008) 2 SCC 568, ONGC Ltd. v. Rameshbhai Jivanbhai Patel (2008) 14 SCC 745, Revenue Divl. Officer-cum-LAO v. Sk. Azam Saheb (2009) 4 SCC 395 and Faridabad Gas Power Project, NTPC Ltd. v. Om Prakash (2009) 4 SCC 719 for determination of market value of the acquired land as also the rule of deduction towards development cost and held:

“The acquired property is a manwari land and even according to the claimants it was not a house site developed by them. The acquisition was only for construction of residential houses and therefore necessarily the Housing Board has to spend considerable amount for development and to make it fit for construction of residential units. On the other hand, the property in Ext. C-8 is a developed site and the same was sold only as a house site. Therefore, considering the advantages, development and potential of the property in Ext. C-8 vis-à-vis the disadvantages, undeveloped state and lack of potential of the acquired property, we are of the view that deduction at the rate of 40% has to be given towards development charges.”

7. The High Court also took cognizance of the fact that the sale instance Ext. C-8 relied upon for fixing the market value was in respect of a small piece of land and held:

“While fixing the market rate, very often, documents of smaller extent would be taken as the basis. The normal rule in fixing compensation for large extent of land with reference to the value shown in the sale document of lesser extent is that there must be suitable deduction. It is common knowledge that larger extent of property invariably fetches less when compared to smaller extent. No prudent buyer would buy large extent of land by quoting the price prevailing in the market for a small piece of land.

The document in Ext. C-8 is in respect of a property having only 1200 sq ft. However as per the present notification, large extent of property was acquired. Therefore, we are of the considered opinion that necessary deduction on account of small size of the property retained for fixing the market value has to be given. On an overall consideration of the matter, we fix the deduction on account of small size of the plot taken as the basic document at 20%.

Taking an overall view of the matter we are of the opinion that 40% deduction should be made towards development costs and 20% on account of small size of the plot taken as the basis to arrive at the market value. Accordingly, while retaining Ext. C-8 dated 8-2-1991 (rate Rs 30 per square foot) as the basic document for arriving at the market rate, we deduct 40% by way of development charges and 20% by way of small size of the plot and arrive at the market rate at Rs 5,22,720 per acre.”

8. The facts of the other appeals have been incorporated in a statement, which is marked as Schedule A and shall be treated as part of this judgment:

Schedule A

Sl. No. SLPs (C) Nos. and name of parties Date of Section 4(1) notification Date of award by the LAO and compensation Date of the Reference Court order and amount fixed Date of the High Court judgment in Appeal Suits Nos. and rate fixed 1. 22086-87 of 2009 — Valliyammal and Another v. Special Tahsildar (Land Acquisition), Erode and Another 19-3-1997 21-6-2000 and Rs 50,000 per acre 4-7-2003 and Rs 28 per square foot 28-4-2009 in ASs Nos. 200 and 201 of 2009 and Rs 12 per square foot 2. 25591 of 2009 — Thangamuthu Gounder v. Special Tahsildar (Land Acquisition), Erode and Another 17-1-1997 3-3-2000 and Rs 50,000 per acre 24-3-2005 and Rs 30 per square foot 2-3-2009 in AS No. 706 of 2006 and Rs 12 per square foot 3. 25587-90 of 2009 — Mohan and Others, etc. v. Special Tahsildar (Land Acquisition), Erode and Another 15-4-1991 10-6-1994 and Rs 37,500 per acre 27-11-2002 and Rs 20 per square foot 2-3-2009 in ASs Nos. 813, 820, 821 and 822 of 2003 and Rs 8 per square foot (Rs 3,48,480 per acre) 4. 25596-97 of 2009 — K.R Palaniappan v. Special Tahsildar (Land Acquisition), Erode and Another 9-10-1990/16-4-1991 28-9-1994, 10-6-1994 and Rs 37,500 per acre 30-3-2001 and Rs 16 per square foot 2-3-2009 in ASs Nos. 170 of 2003 and 871 of 2006 and Rs 8 per square foot 5. 33777-82 of 2009 — Ramayammal and Others v. Special Tahsildar (Land Acquisition), Erode and Another 15-4-1991 10-6-1994 and Rs 37,500 per acre 16-4-1999 and Rs 2,18,500 per acre 2-3-2009 in ASs Nos. 759 to 764 of 1999 and Rs 8 per square foot (Rs 3,48,480 per acre) 6. 33808 of 2009 — Vishwanatha Gounder v. Special Tahsildar (Land Acquisition), Erode 27-5-1991 3-7-1994 and Rs 37,500 per acre 27-11-2006 and Rs 20 per square foot 2-3-2009 in AS No. 721 of 2003 and Rs 8 per square foot (Rs 3,48,480 per acre) 7. 2194-200 of 2010 — Veerasamy and Others v. Special Tahsildar (Land Acquisition), Erode and Another 19-2-1997 31-6-2000 and Rs 50,000 per acre 29-11-2002 and Rs 28 per square foot 2-3-2009 in ASs Nos. 727, 729, 730, 731, 732, 733 and 734 of 2003 and Rs 12 per square foot

8. 12581 of 2010 — N. Pazhanisamy Gounder v. Special Tahsildar (Land Acquisition), Erode and Another 12-2-1997 3-3-2000 and Rs 50,000 per acre (Rs 1.15 per square foot) 2-3-2006 and Rs 30 per square foot 8-7-2009 in AS No. 854 of 2006 and Rs 12 per square foot (Rs 5,22,720 per acre) 9. 22831 of 2010 — Arumugha Gounder and Another v. Special Tahsildar (Land Acquisition), Erode and Another 15-4-1991 10-6-1994 and Rs 37,500 per acre 25-10-1999 and Rs 17 per square foot 2-3-2009 in AS No. 325 of 2000 and Rs 8 per square foot (Rs 3,48,480 per acre) 10. 23654 of 2010 — Kulanthaiswamy and Another v. Special Tahsildar (Land Acquisition), Erode and Another 8-4-1992 22-5-1995 and Rs 37,500 per acre 26-3-2007 and Rs 20 per square foot 11-12-2009 in AS No. 428 of 2008 and Rs 8 per square foot 11. 23655 of 2010 — K.B Dakhinamoorthy and Others v. Special Tahsildar (Land Acquisition), Erode and Another 8-4-1992 22-5-1995 and Rs 37,500 per acre 26-3-2007 and Rs 20 per square foot 11-12-2009 in AS No. 543 of 2008 and Rs 8 per square foot 12. 23656 of 2010 — P. Chandrasekar and Others v. Special Tahsildar (Land Acquisition), Erode and Another 8-4-1992 22-5-1995 and Rs 37,500 per acre 26-3-2007 and Rs 20 per square foot 11-12-2009 in AS No. 610 of 2008 and Rs 8 per square foot 13. 23657 of 2010 — Pavayammal and Others v. Special Tahsildar (Land Acquisition), Erode and Another 15-4-1991 10-6-1994 and Rs 37,500 per acre 4-1-2006 and Rs 20 per square foot 11-12-2009 in AS No. 1002 of 2007 and Rs 8 per square foot 14. 23658 of 2010 — Lakshmi and Another v. Special Tahsildar (Land Acquisition), Erode and Another 15-3-1995 25-3-1998 and Rs 39,220 per acre 6-2-2006 and Rs 22 per square foot 11-12-2009 in AS No. 356 of 2007 and Rs 8 per square foot 15. 23659 of 2010 — Kannammal and Others v. Special Tahsildar (Land Acquisition), Erode and Another 15-4-1991 10-6-1994 and Rs 37,500 per acre 29-11-2005 and Rs 20 per square foot 11-12-2009 in AS No. 748 of 2008 and Rs 8 per square foot 16. 23666 of 2010 — Kannammal @ Rajeshwari and Another v. Special Tahsildar (Land Acquisition), Erode & Another 15-3-1995 25-3-1998 and Rs 50,000 per acre 29-11-2002 and Rs 28 per square foot 11-12-2009 in AS No. 770 of 2004 and Rs 8 per square foot

17. 23669 of 2010 — Kannammal and Others v. Special Tahsildar (Land Acquisition), Erode and Another 27-5-1991 10-6-1994 and Rs 37,500 per acre 29-11-2005 and Rs 20 per square foot 11-12-2009 in AS No. 760 of 2008 and Rs 8 per square foot 18. 23641 of 2010 — Chinnasamy and Others v. Special Tahsildar (Land Acquisition), Erode and Another 27-5-1991 3-7-1994 and Rs 37,500 per acre 23-3-2001 and Rs 17 per square foot 2-3-2009 in AS No. 618 of 2003 and Rs 8 per square foot 19. 23643 of 2010 — K.N Arumugham v. Special Tahsildar (Land Acquisition), Erode and Another 9-10-1990 28-9-1994 and Rs 37,500 per acre 17-1-2005 and Rs 75,000 per acre 2-3-2009 in AS No. 756 of 2008 and Rs 8 per square foot (Rs 3,48,480 per acre) 20. 26825 of 2010 — Thambusamy (Dead by LRs.) v. Special Tahsildar (Land Acquisition), Erode and Another 27-5-1991 3-8-1994 and Rs 37,500 per acre 27-3-2008 and Rs 9 per square foot 19-12-2009 in AS No. 835 of 2008 and Rs 8 per square foot 21. 1961 of 2011 — Nachimuthu v. Special Tahsildar (Land Acquisition), Erode and Another 19-2-1997 31-6-2000 and Rs 50,000 per acre 31-3-2004 and Rs 28 per square foot 2-3-2009 in AS No. 544 of 2005 and Rs 12 per square foot (Rs 5,22,720 per acre) 22. 2187 of 2011 — Kannaki and Another v. Special Tahsildar (Land Acquisition), Erode and Another 19-3-1997 21-6-2000 and Rs 50,000 per acre 29-2-2005 and Rs 30 per square foot 8-7-2009 in AS No. 141 of 2006 and Rs 12 per square foot (Rs 5,22,720 per acre) 23. 1147 of 2011 — Jayalakshmi and Others v. Special Tahsildar (Land Acquisition), Erode and Another 19-3-1997 21-6-2000 and Rs 50,000 per acre 4-4-2006 and Rs 25 per square foot 8-7-2009 in AS No. 181 of 2007 and Rs 12 per square foot (Rs 5,22,720 per acre) 24. 3520 of 2011 — P. Subbarayan and Others v. Special Tahsildar (Land Acquisition), Erode and Another 22-5-1991 10-8-1994 and Rs 37,500 per acre (Rs 0.86 per square foot) 21-11-2005 and Rs 17 per square foot 8-7-2009 in AS No. 392 of 2007 and Rs 8 per square foot (Rs 3,48,480 per acre)

9. A perusal of the statement shows that various parcels of land were acquired by the State Government vide Notifications dated 9-10-1990, 15-4-1991, 16-4-1991, 22-5-1991, 27-5-1991, 8-4-1992, 15-3-1995, 17-1-1997, 12-2-1997 and 19-3-1997 and the High Court reduced the market value fixed by the Reference Court from Rs 19.28 to Rs 12 and from Rs 20 to Rs 8 per square foot.

10. Shri V. Giri, learned Senior Counsel appearing for the appellants in some of the cases criticised the impugned judgments/orders primarily on the ground that while reducing the market value fixed by the Reference Court, the High Court completely ignored the settled rule that the landowner is entitled to the benefit of escalation in land prices. The learned Senior Counsel then argued that the High Court was not at all justified in making 40% deduction towards the cost of development and 20% further deduction on account of smallness of the size of plot, which was taken as the basis for arriving at the market value ignoring that the appellants had suffered huge monetary loss on account of non-payment of compensation for years together. The other learned counsel appearing for the appellants adopted the arguments of Shri Giri.

11. Shri Guru Krishna Kumar, Additional Advocate General, Tamil Nadu fairly stated that the appellants are entitled to the benefit of escalation in land prices but argued that the deduction of 40% towards development cost and 20% due to smallness of the size of the plots sold vide Ext. C-8 cannot be termed as excessive.

12. We have considered the respective arguments and carefully perused the record. At the threshold, it will be useful to notice some of the judgments in which the Court has laid down guiding principles for determination of market value of the acquired land.

13. In Shaji Kuriakose v. Indian Oil Corpn. Ltd. (2001) 7 SCC 650 this Court held:

“3. It is no doubt true that courts adopt comparable sales method of valuation of land while fixing the market value of the acquired land. While fixing the market value of the acquired land, comparable sales method of valuation is preferred than other methods of valuation of land such as capitalisation of net income method or expert opinion method. Comparable sales method of valuation is preferred because it furnishes the evidence for determination of the market value of the acquired land at which a willing purchaser would pay for the acquired land if it had been sold in the open market at the time of issue of notification under Section 4 of the Act. However, comparable sales method of valuation of land for fixing the market value of the acquired land is not always conclusive. There are certain factors which are required to be fulfilled and on fulfilment of those factors the compensation can be awarded, according to the value of the land reflected in the sales. The factors laid down inter alia are: (1) the sale must be a genuine transaction, (2) that the sale deed must have been executed at the time proximate to the date of issue of notification under Section 4 of the Act, (3) that the land covered by the sale must be in the vicinity of the acquired land, (4) that the land covered by the sales must be similar to the acquired land, and (5) that the size of plot of the land covered by the sales be comparable to the land acquired. If all these factors are satisfied, then there is no reason why the sale value of the land covered by the sales be not given for the acquired land. However, if there is a dissimilarity in regard to locality, shape, site or nature of land between land covered by sales and land acquired, it is open to the court to proportionately reduce the compensation for acquired land than what is reflected in the sales depending upon the disadvantages attached with the acquired land.”

(emphasis supplied)

14. In Viluben Jhalejar Contractor v. State of Gujarat (2005) 4 SCC 789 this Court laid down the following principles for determination of market value of the acquired land:

“17. Section 23 of the Act specifies the matters required to be considered in determining the compensation; the principal among which is the determination of the market value of the land on the date of the publication of the notification under sub-section (1) of Section 4.

18. One of the principles for determination of the amount of compensation for acquisition of land would be the willingness of an informed buyer to offer the price therefor. It is beyond any cavil that the price of the land which a willing and informed buyer would offer would be different in the cases where the owner is in possession and enjoyment of the property and in the cases where he is not.

19. Market value is ordinarily the price the property may fetch in the open market if sold by a willing seller unaffected by the special needs of a particular purchase. Where definite material is not forthcoming either in the shape of sales of similar lands in the neighbourhood at or about the date of notification under Section 4(1) or otherwise, other sale instances as well as other evidences have to be considered.

20. The amount of compensation cannot be ascertained with mathematical accuracy. A comparable instance has to be identified having regard to the proximity from time angle as well as proximity from situation angle. For determining the market value of the land under acquisition, suitable adjustment has to be made having regard to various positive and negative factors vis-à-vis the land under acquisition by placing the two in juxtaposition. The positive and negative factors are as under:

Positive factors Negative factors (i) smallness of size (i) largeness of area (ii) proximity to a road (ii) situation in the interior at a distance from the road (iii) frontage on a road (iii) narrow strip of land with very small frontage compared to depth (iv) nearness to developed area (iv) lower level requiring the depressed portion to be filled up (v) regular shape (v) remoteness from developed locality (vi) level vis-à-vis land under acquisition (vi) some special disadvantageous factors which would deter a purchaser (vii) special value for an owner of an adjoining property to whom it may have some very special advantage

21. Whereas a smaller plot may be within the reach of many, a large block of land will have to be developed preparing a layout plan, carving out roads, leaving open spaces, plotting out smaller plots, waiting for purchasers and the hazards of an entrepreneur. Such development charges may range between 20% and 50% of the total price.”

15. In Atma Singh v. State of Haryana (2008) 2 SCC 568 the Court held:

“4. In order to determine the compensation which the tenure-holders are entitled to get for their land which has been acquired, the main question to be considered is what is the market value of the land. Section 23(1) of the Act lays down what the court has to take into consideration while Section 24 lays down what the court shall not take into consideration and have to be neglected. The main object of the enquiry before the court is to determine the market value of the land acquired. The expression ‘market value’ has been the subject-matter of consideration by this Court in several cases. The market value is the price that a willing purchaser would pay to a willing seller for the property having due regard to its existing condition with all its existing advantages and its potential possibilities when led out in most advantageous manner excluding any advantage due to carrying out of the scheme for which the property is compulsorily acquired. In considering market value disinclination of the vendor to part with his land and the urgent necessity of the purchaser to buy should be disregarded. The guiding star would be the conduct of hypothetical willing vendor who would offer the land and a purchaser in normal human conduct would be willing to buy as a prudent man in normal market conditions but not an anxious dealing at arm's length nor facade of sale nor fictitious sale brought about in quick succession or otherwise to inflate the market value. The determination of market value is the prediction of an economic event viz. a price outcome of hypothetical sale expressed in terms of probabilities. See Kamta Prasad Singh v. State of Bihar (1976) 3 SCC 772, Prithvi Raj Taneja v. State of M.P (1977) 1 SCC 684, Administrator General of W.B v. Collector (1988) 2 SCC 150 and Periyar Pareekanni Rubbers Ltd. v. State of Kerala (1991) 4 SCC 195.

5. For ascertaining the market value of the land, the potentiality of the acquired land should also be taken into consideration. Potentiality means capacity or possibility for changing or developing into state of actuality. It is well settled that market value of a property has to be determined having due regard to its existing condition with all its existing advantages and its potential possibility when led out in its most advantageous manner. The question whether a land has potential value or not, is primarily one of fact depending upon its condition, situation, user to which it is put or is reasonably capable of being put and proximity to residential, commercial or industrial areas or institutions. The existing amenities like water, electricity, possibility of their further extension, whether near about a town is developing or has prospect of development have to be taken into consideration. See Collector v. Dr. Harisingh Thakur (1979) 1 SCC 236, Raghubans Narain Singh v. U.P Govt. AIR 1967 SC 465 and Administrator General of W.B v. Collector (1988) 2 SCC 150. It has been held in Kausalya Devi Bogra v. Land Acquisition Officer (1984) 2 SCC 324 and Suresh Kumar v. Town Improvement Trust (1989) 2 SCC 329 that failing to consider potential value of the acquired land is an error of principle.”

16. In fixing market value of the acquired land, which is undeveloped or underdeveloped, the courts have generally approved deduction of 1/3rd of the market value towards development cost except when no development is required to be made for implementation of the public purpose for which land is acquired. In Kasturi v. State of Haryana (2003) 1 SCC 354 the Court held:

“7. … It is well settled that in respect of agricultural land or undeveloped land which has potential value for housing or commercial purposes, normally 1/3rd amount of compensation has to be deducted out of the amount of compensation payable on the acquired land subject to certain variations depending on its nature, location, extent of expenditure involved for development and the area required for roads and other civic amenities to develop the land so as to make the plots for residential or commercial purposes. A land may be plain or uneven, the soil of the land may be soft or hard bearing on the foundation for the purpose of making construction; maybe the land is situated in the midst of a developed area all around but that land may have a hillock or may be low-lying or may be having deep ditches. So the amount of expenses that may be incurred in developing the area also varies. A claimant who claims that his land is fully developed and nothing more is required to be done for developmental purposes, must show on the basis of evidence that it is such a land and it is so located. In the absence of such evidence, merely saying that the area adjoining his land is a developed area, is not enough particularly when the extent of the acquired land is large and even if a small portion of the land is abutting the main road in the developed area, does not give the land the character of a developed area. In 84 acres of land acquired even if one portion on one side abuts the main road, the remaining large area where planned development is required, needs laying of internal roads, drainage, sewer, water, electricity lines, providing civic amenities, etc. However, in cases of some land where there are certain advantages by virtue of the developed area around, it may help in reducing the percentage of cut to be applied, as the developmental charges required may be less on that account. There may be various factual factors which may have to be taken into consideration while applying the cut in payment of compensation towards developmental charges, maybe in some cases it is more than 1/3rd and in some cases less than 1/3rd. It must be remembered that there is difference between a developed area and an area having potential value, which is yet to be developed. The fact that an area is developed or adjacent to a developed area will not ipso facto make every land situated in the area also developed to be valued as a building site or plot, particularly when vast tracts are acquired, as in this case, for development purpose.”

(emphasis supplied)

17. The rule of 1/3rd deduction was reiterated in Tejumal Bhojwani v. State of U.P (2003) 10 SCC 525, V. Hanumantha Reddy v. Land Acquisition Officer (2003) 12 SCC 642, H.P Housing Board v. Bharat S. Negi (2004) 2 SCC 184 and Kiran Tandon v. Allahabad Development Authority (2004) 10 SCC 745.

18. In Lal Chand v. Union of India (2009) 15 SCC 769 the Court indicated that percentage of deduction for development to be made for arriving at market value of large tracts of undeveloped agricultural land with potential for development can vary between 20% and 75% of the price of developed plots and observed:

“14. The ‘deduction for development’ consists of two components. The first is with reference to the area required to be utilised for developmental works and the second is the cost of the development works. …

20. Therefore the deduction for the ‘development factor’ to be made with reference to the price of a small plot in a developed layout, to arrive at the cost of undeveloped land, will be far more than the deduction with reference to the price of a small plot in an unauthorised private layout or an industrial layout. It is also well known that the development cost incurred by statutory agencies is much higher than the cost incurred by private developers, having regard to higher overheads and expenditure.”

19. In A.P Housing Board v. K. Manohar Reddy (2010) 12 SCC 707 the rule of 1/3rd deduction towards development cost was invoked while determining market value of the acquired land. In Subh Ram v. State of Haryana (2010) 1 SCC 444, this Court held as under: (Subh Ram case (2010) 1 SCC 444)

“24. Deduction of ‘development cost’ is the concept used to derive the ‘wholesale price’ of a large undeveloped land with reference to the ‘retail price’ of a small developed plot. The difference between the value of a small developed plot and the value of a large undeveloped land is the ‘development cost’. Two factors have a bearing on the quantum (or percentage) of deduction in the ‘retail price’ as development cost. Firstly, the percentage of deduction is decided with reference to the extent and nature of development of the area/layout in which the small developed plot is situated. Secondly, the condition of the acquired land as on the date of preliminary notification, whether it was undeveloped, or partly developed, is considered and appropriate adjustment is made in the percentage of deduction to take note of the developed status of the acquired land.

25. The percentage of deduction (development cost factor) will be applied fully where the acquired land has no development. But where the acquired land can be considered to be partly developed (say for example, having good road access or having the amenity of electricity, water, etc.) then the development cost (that is, percentage of deduction) will be modulated with reference to the extent of development of the acquired land as on the date of acquisition. But under no circumstances, will the future use or purpose of acquisition play a role in determining the percentage of deduction towards development cost.”

(emphasis supplied)

20. If the impugned judgment is considered in the light of the principles laid down in the aforesaid cases, there is no escape from the conclusion that the same suffers from multiple errors and calls for interference by this Court.

21. The first error committed by the High Court relates to deduction of 40% towards development charges. While doing so, the High Court ignored its own finding that the acquired land was situated in the vicinity of the residential colonies developed by the Board and other establishments as also the fact that the respondents had not produced any evidence to show that they will have to start the development work from scratch. Therefore, the High Court could have, at best, applied 1/3rd deduction towards development cost. The second error committed by the High Court is that while fixing market value, it did not take into account the escalation in land prices.

22. In Ranjit Singh v. UT of Chandigarh (1992) 4 SCC 659, Land Acquisition Officer v. Ramanjulu (2005) 9 SCC 594, Krishi Utpadan Mandi Samiti v. Bipin Kumar (2004) 2 SCC 283, Sardar Jogendra Singh v. State of U.P (2008) 17 SCC 133, Revenue Divl. Officer-cum-LAO v. Sk. Azam Saheb (2009) 4 SCC 395 and ONGC Ltd. v. Rameshbhai Jivanbhai Patel (2008) 14 SCC 745, this Court has repeatedly held that the exercise undertaken for fixing market value and determination of the compensation payable to the landowner should necessarily involve consideration of escalation in land prices. In the last mentioned judgment, the Court noticed the earlier precedents and observed as under: (ONGC Ltd. case (2008) 14 SCC 745)

“12. We have examined the facts of the three decisions relied on by the respondents. They all related to acquisition of lands in urban or semi-urban areas. Ranjit Singh (1992) 4 SCC 659 related to acquisition for development of Sector 41 of Chandigarh. Ramanjulu (2005) 9 SCC 594 related to acquisition of the third phase of an existing and established industrial estate in an urban area. Bipin Kumar (2004) 2 SCC 283 related to an acquisition of lands adjoining Badaun-Delhi Highway in a semi-urban area where building construction activity was going on all around the acquired lands.

13. Primarily, the increase in land prices depends on four factors: situation of the land, nature of development in surrounding area, availability of land for development in the area, and the demand for land in the area. In rural areas, unless there is any prospect of development in the vicinity, increase in prices would be slow, steady and gradual, without any sudden spurts or jumps. On the other hand, in urban or semi-urban areas, where the development is faster, where the demand for land is high and where there is construction activity all around, the escalation in market price is at a much higher rate, as compared to rural areas. In some pockets in big cities, due to rapid development and high demand for land, the escalations in prices have touched even 30% to 50% or more per year, during the nineties.

14. On the other extreme, in remote rural areas where there was no chance of any development and hardly any buyers, the prices stagnated for years or rose marginally at a nominal rate of 1% or 2% per annum. There is thus a significant difference in increases in market value of lands in urban/semi-urban areas and increases in market value of lands in the rural areas. Therefore, if the increase in market value in urban/semi-urban areas is about 10% to 15% per annum, the corresponding increases in rural areas would at best be only around half of it, that is, about 5% to 7.5% per annum. This rule of thumb refers to the general trend in the nineties, to be adopted in the absence of clear and specific evidence relating to increase in prices. Where there are special reasons for applying a higher rate of increase, or any specific evidence relating to the actual increase in prices, then the increase to be applied would depend upon the same.

15. Normally, recourse is taken to the mode of determining the market value by providing appropriate escalation over the proved market value of nearby lands in previous years (as evidenced by sale transactions or acquisitions), where there is no evidence of any contemporaneous sale transactions or acquisitions of comparable lands in the neighbourhood. The said method is reasonably safe where the relied-on sale transactions/acquisitions precede the subject acquisition by only a few years, that is, up to four to five years. Beyond that it may be unsafe, even if it relates to a neighbouring land. What may be a reliable standard if the gap is of only a few years, may become unsafe and unreliable standard where the gap is larger. For example, for determining the market value of a land acquired in 1992, adopting the annual increase method with reference to a sale or acquisition in 1970 or 1980 may have many pitfalls. This is because, over the course of years, the ‘rate’ of annual increase may itself undergo drastic change apart from the likelihood of occurrence of varying periods of stagnation in prices or sudden spurts in prices affecting the very standard of increase.”

23. Though it may appear repetitive, we deem it necessary to mention that the acquired land is situated in the close vicinity of various residential colonies, educational institutions, hospitals, etc. and is on the junction of two important roads. Therefore, it can safely be concluded that the land is semi-urban and has huge potential for being developed as housing sites and the High Court should have added 10% per annum escalation in the price specified in the sale deeds relied upon for fixing market value of the acquired land.

24. The third error committed by the High Court is that in fixing market value of the land acquired vide Notifications issued in 1991, 1992 and 1995 with reference to sale deed dated 4-9-1990 vide which a piece of land was sold at the rate of Rs 20 per square foot, the High Court did not add 10% escalation per annum in the land prices.

25. We may have sustained 20% deduction keeping in view the smallness of the plots which were sold vide sale deeds dated 4-9-1990 and 8-2-1991, but, in the peculiar facts of the case, we think that it will be wholly unjust to allow such deduction. Majority of the appellants have been deprived of their entire landholding and they have waited for 14 to 20 years for getting the compensation. It appears that in compliance with the interim orders passed by the Court, some of the appellants did get 25% and one of them got 35% of the compensation, but majority of them have not received a single penny towards compensation and at this distant point of time, it will be wholly unjust to deprive them of their legitimate right by approving the 20% deduction made by the High Court. In such matters, the Court cannot be oblivious of the fact that the landowners have been deprived of the only source of livelihood, the cost of living has gone up manifold and the purchasing power of rupee has substantially declined.

26. In the result, the appeals are allowed and market value of the acquired land is fixed as under:

(i) For the acquisition made vide Notification dated 9-10-1990, the base document will be sale deed dated 4-9-1990 vide which land was sold at the rate of Rs 20 per square foot. One-third of Rs 20 comes to Rs 6.6 per square foot. After deducting Rs 6.6 from Rs 20, market value of the acquired land will be Rs 13.4 per square foot which is rounded off to Rs 14 per square foot.

(ii) For the acquisitions made by the Notifications issued on 15-4-1991, 16-4-1991 and 27-5-1991, the base document will be sale deed dated 8-2-1991 vide which land was sold at the rate of Rs 30 per square foot. One-third of Rs 30 is equal to Rs 10 per square foot. After deducting Rs 10 from Rs 30, market value will be Rs 20 per square foot.

(iii) For the acquisition made vide Notification dated 8-4-1992, the base document will be sale deed dated 8-2-1991 vide which land was sold at the rate of Rs 30 per square foot. By adding 10% per annum in lieu of escalation in the land prices and deducting 1/3rd towards development cost, market value of the acquired land will be Rs 29.2 per square foot which is rounded off to Rs 30 per square foot.

(iv) For the acquisition made vide Notification dated 15-3-1995, the base document will be sale deed dated 8-2-1991 vide which land was sold at the rate of Rs 30 per square foot. By adding 10% per annum in lieu of escalation in the land prices and deducting 1/3rd towards development cost, market value of the acquired land will be Rs 29.2 per square foot which is rounded off to Rs 30 per square foot.

(v) For the acquisitions made by the Notifications issued on 17-1-1997 and 19-3-1997, the base document will be sale deed dated 8-2-1991 vide which land was sold at the rate of Rs 30 per square foot. If 10% per annum is added in lieu of escalation in the land prices and 1/3rd is deducted towards development charges, market value of the acquired land will be Rs 35.3 per square foot which is rounded off to Rs 36 per square foot.

The appellants shall get solatium, interest and other statutory benefits in accordance with the provisions of the Act.

27. With a view to ensure that the landowners are not fleeced by the middlemen, we deem it proper to issue the following further directions:

(i) Within one month from the date of receipt of copy of this judgment, the Land Acquisition Officer shall depute an officer subordinate to him not below the rank of Naib Tahsildar or an equivalent rank, who shall get in touch with the landowners and/or their legal representatives and inform them about their entitlement to receive enhanced compensation.

(ii) The officers concerned shall instruct the landowners and/or their legal representatives to open savings bank account in a nationalised or scheduled bank, in case they already do not have such account.

(iii) The account numbers of the landowners and/or their legal representatives should be furnished by the officer concerned to the Land Acquisition Officer within a period of two months.

(iv) Within next one month, the Land Acquisition Officer shall deposit the amount of compensation along with other statutory benefits in the bank accounts of the landowners and/or their legal representatives by way of cheques.