Secretary Of State v. Makhan Das, Allahabad High Court, Judgment, Law, casemine.com

Factual and Procedural Background

This matter originally came before the Court as First Appeal No. 109 of 1923 and was argued and decided on the assumption that the Land Acquisition Act (Act 1 of 1894) governed the dispute. On an application for review by the respondent (the Secretary of State for India in Council) it became apparent that the award under challenge was the award of a tribunal constituted under the U.P. Town Improvements Act, 1919 (U.P. Act No. 8 of 1919).

The U.P. Town Improvements (appeals) Act of 1920 (Act 3 of 1920) provided a right of appeal analogous to a second appeal under Section 100 of the Code of Civil Procedure. The U.P. Town Improvements Act modified certain provisions of the Land Acquisition Act for compulsory acquisition purposes; the particular modification in issue altered Clause 1 of Section 23(1) of the Land Acquisition Act so that market value is to be assessed "according to the use to which the land was put at the date" relevant to valuation.

On the facts before the tribunal: land belonging to Makhan Das (5 bighas, 11 biswas, and 1 biswansi) was compulsorily acquired by the Cawnpore Improvement Trust and divided into three portions for compensation purposes: (1) land leased to a mill, (2) land let out in small building sites with huts for labourers, and (3) a third portion (2 bighas, 10 biswas, 17 biswansis) described as vacant with a few scattered trees. The owner stated that this third portion had not been used agriculturally since he acquired it about 30 years earlier. The Land Acquisition Officer treated the third portion as agricultural land and assessed compensation accordingly; the tribunal sustained that award.

The Court found prima facie that the award was wrong because the third portion was not being used for agriculture (indeed was not being used at all) at the material date. Because the amended provision required valuation "according to the use to which the land was put" at the material date, the Court considered whether market value could be assessed when land was being put to no use and directed that the record be placed before the Chief Justice for constitution of a Full Bench to determine: (a) the interpretation of Section 23(1)(1) as amended by the U.P. Town Improvements Act schedule, and (b) how the law is to be applied where the land to be acquired was being put to no use at the material date.

Legal Issues Presented

What is the correct interpretation of Section 23, sub-Section (1), Clause 1 of the Land Acquisition Act (Act 1 of 1894) as amended by para. 10, Clause (3) of the Schedule to the U.P. Town Improvements Act, 1919 (U.P. Act 8 of 1919)?

How is the law as so interpreted to be applied to a case where, at the material date, the land to be acquired was being put to no actual use?

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Fraser v. City of Fraserville [1917] A.C. 187 (House of Lords)	The seller is entitled to the value of the property in its actual condition at the time of expropriation with all existing advantages and possibilities, excluding any advantage due to carrying out the compulsory scheme.	The Court followed this statement as representing the principles ordinarily applied under the Land Acquisition Act, but observed that under the U.P. Town Improvements Act the consideration of potential value is excluded and so the Fraser principle cannot be applied in the same way to matters arising under the special Act.
Narsingh Dass v. Secretary of State, A.I.R. 1925 P.C. 91	Cited as approving the passage from Fraser v. City of Fraserville regarding valuation including existing advantages and possibilities (subject to the exclusion noted in Fraser).	Used to show that the Fraser passage had been followed with approval in earlier authorities applying the ordinary Land Acquisition Act principles; thus it illustrates the contrast with the narrower meaning of "market value" under the U.P. Town Improvements Act.
Manindra Chandra v. Secretary of State [1914] 41 Cal. 967	Held that when land is compulsorily acquired under a cognate special enactment, any future use to which land might be put should not be taken into account in determining its value.	Relied on as an authority that a special enactment with wording similar to the U.P. Town Improvements Act has been interpreted to exclude consideration of future or potential uses when determining market value.

Precedent

Rule or Principle Cited For

Application by the Court

Fraser v. City of Fraserville [1917] A.C. 187 (House of Lords)

The seller is entitled to the value of the property in its actual condition at the time of expropriation with all existing advantages and possibilities, excluding any advantage due to carrying out the compulsory scheme.

The Court followed this statement as representing the principles ordinarily applied under the Land Acquisition Act, but observed that under the U.P. Town Improvements Act the consideration of potential value is excluded and so the Fraser principle cannot be applied in the same way to matters arising under the special Act.

Narsingh Dass v. Secretary of State, A.I.R. 1925 P.C. 91

Cited as approving the passage from Fraser v. City of Fraserville regarding valuation including existing advantages and possibilities (subject to the exclusion noted in Fraser).

Used to show that the Fraser passage had been followed with approval in earlier authorities applying the ordinary Land Acquisition Act principles; thus it illustrates the contrast with the narrower meaning of "market value" under the U.P. Town Improvements Act.

Manindra Chandra v. Secretary of State [1914] 41 Cal. 967

Held that when land is compulsorily acquired under a cognate special enactment, any future use to which land might be put should not be taken into account in determining its value.

Relied on as an authority that a special enactment with wording similar to the U.P. Town Improvements Act has been interpreted to exclude consideration of future or potential uses when determining market value.

Court's Reasoning and Analysis

The Court analyzed the statutory amendment and its practical effect step by step:

The amendment in para. 10, Clause (3) of the Schedule to the U.P. Town Improvements Act narrows the definition of "market value" for purposes of that Act to "the market value according to the use to which the land was put at the date" relevant to valuation. This alters the scope of Clause 1, Section 23(1) of the Land Acquisition Act as originally enacted.

Under the ordinary Land Acquisition Act principles (as exemplified by Fraser and approved in Narsingh Dass), market value assessment may include potential value and the most advantageous disposition of the land for the owner. These are excluded by the U.P. Town Improvements Act amendment because the amended provision ties valuation exclusively to the actual use at the material date.

The amended language is rigid: the "determining factor is the actual use of the land at the date in question" and prior uses are to be disregarded. Consequently, evidence such as history, physical features, or situation—which might normally indicate potential value—cannot be used to establish potential value because doing so would contravene the statute's clear focus on actual use at the notice date.

This statutory interpretation raises a practical difficulty: where land is not being put to any use at the material date, the statutory formula could lead to a market value of nil. The Court recognized that such a result would effectively permit expropriation without compensation—i.e., a power of confiscation—unless the statute implies otherwise or is to be read down.

The Court resisted inferring that the legislature intended to confer a power of confiscation by necessary implication. Nevertheless, the Court concluded that, as the statute is worded, the amended provision must be applied according to its terms, and the consequences (including the possibility that market value may be nil where land is unused) are for the legislature to address if they are unintended.

Applying these principles to the facts: the third portion of Makhan Das's land was not being used at the material date. Because the U.P. Town Improvements Act requires valuation according to actual use at that date, and because the land was being put to no use, the legal issue requires Full Bench determination as to the proper interpretation and application—leading the Court to refer the questions to the Full Bench and, subsequently, to state the Full Bench's answer that valuation is to be calculated exclusively by reference to the use at the notice date and that where there is no use the market value may be nil.

Holding and Implications

Holding: The Full Bench answered the referred questions as follows:

(1) The correct interpretation of Section 23, sub-Section (1), Clause 1 of the Land Acquisition Act (Act 1 of 1894), as amended by para. 10, Clause (3) of the Schedule to the U.P. Town Improvements Act, 1919 (U.P. Act 8 of 1919), is that the market value of land to be acquired is to be calculated exclusively in accordance with the use to which the land is being put on the date on which notice issues under Section 29 or Section 36 of the U.P. Town Improvements Act.

(2) Where on such date the land to be acquired is not being put to any use, its market value may be nil.

Implications:

Direct effect on the parties: the Court (Full Bench) applied the statutory interpretation above and the appeal was allowed.

Substantive consequence of the holding: under the U.P. Town Improvements Act as amended, courts are constrained to assess market value solely with reference to the actual use of the land at the notice date; potential or most advantageous dispositions are excluded. This may result, where land is unused at that date, in a market value assessed as nil and thereby in expropriation without monetary compensation.

The opinion explicitly notes the potential hardship of such results (e.g., fallow agricultural land, suspended building schemes) and observes that avoidance of those hardships would require legislative amendment or clarification; the Court did not itself modify the statutory wording but declared the statutory meaning as above.

Secretary Of State v. Makhan Das

Lindsay and Sulaiman, JJ.:— We have decided that it is expedient that this case should be referred for decision to a Full Bench.

2. The case first came before us as first appeal No. 109 of 1923 and was argued and decided on the assumption that the law to be applied was that laid down in the Land Acquisition Act (Act 1 of 1894). On an application for review of judgment being made on behalf of the respondent, the Secretary of State for India in Council—it became apparent that what was really under appeal was the award of a tribunal constituted under the U.P Town Improvments Act, 1919 (U.P Act No. 8 of 1919).

3. In S. 58, Cl. (d) of that Act as originally enacted it was provided that the award of such a tribunal should be final. But under the U.P Town Improvements (appeals) Act of 1920 (Act 3 of 1920) it is now declared by S. 3 that a right of appeal exists analogous to the right of second appeal conferred by Section 100 of the CPC.

4. The U.P Town Improvements Act has for the purposes of compulsory acquisition modified certain provisions of the Land Acquisition Act (Act 1 of 1894). Some of these modifications are set out in the Schedule to the Act and the particular modification with which we are concerned here is contained in para. 10, Cl. (3) of the schedule which introduces an alteration into Clause 1, Section 23, sub-Section (1) of the Land Acquisition Act, under which in acquisition proceedings the Court must take into consideration:

The market value of the land at the date of the publication of the declaration relating thereto under S. 6.

5. In para. 10, Cl. (3) of the Schedule above mentioned it is provided that the expression “market value of the land” shall (for purposes of the U.P Town Improvements Act) be the market value according to the use to which the land was put at the date with reference to which the market value is to be determined under that clause. This enactment, therefore, indicates a departure from the ordinary principles applied in the determination of market value under Act 1 of 1894. Those principles have been laid down in varying language. Thus it has been said in many cases that the fairest and most favourable principle of compensation to owners is to estimate the market value of the property not according to its present disposition, but aid out in the most lucrative and advantageous way in which the owners could dispose of it.

6. Again it has been laid down that in assessing compensation the probable use to which the land may be put is necessarily an element to be taken into consideration so that, for example, land which may probably be used for building purposes cannot be valued on the same basis as merely agricultural land. Potential value, e.g, suitability for any particular purpose, should be taken into account in determining market value.

7. In deciding the appeal we followed the statement of the law as laid down by the House of Lords in Fraser v. City of Fraserville . [1917] A.C 187, p. 194, thus:

The seller is entitled to the value to him of the property id its actual condition at the time of expropriation with all its existing advantages and with all its possibilities, excluding any advantage due to the carrying out of the scheme for the purpose for which the property is compulsorily acquired.

8. This passage was cited with approval in the case of Narsingh Dass v. Secretary of State . A.I.R 1925 P.C 91.

9. Now, it would seem that under the special legislation we have referred to, it is not permissible to take into account any potential value of the land and a Court is precluded from making a valuation based upon the most advantageous disposition of the land. Such was the view of a Bench of the Calcutta High Court in dealing with a cognate enactment, viz., the Calcutta Municipal Act (Bengal Act 3 of 1899), S. 557, sub-Ss. (c) and (d) under which it is provided that the market value is to be deemed “the market value according to the disposition of the land or building” at the material date.

10. In Manindra Chandra v. Secretary of State . [1914] 41 Cal. 967, the Court held that the meaning of this provision is that when land is compulsorily acquired any use to which the land may be put in future should not be taken into consideration in determining its value. In the present case the law as amended by the special legislation has to be applied to the following facts. An area of land, 5 bighas, 11 biswas, and 1 biswansi belonging to Makhan Das has been compulsorily acquired by the Cawnpore Improvement Trust. For purposes of compensation this area has been divided into three portions: one leased to a mill, a second let out in small building sites to labourers who have erected huts to live in, and a third portion, measuring 2 bighas, 10 biswas, 17 biswansis—vacant land oil which there are a few scattered trees.

11. It is with reference to this third portion that the difficulty of applying the Act arises. At the material date it was being put to no use whatsoever. According to the owner this land has never been applied to agricultural purposes since he got possession of it some 30 years ago. The Land Acquisition Officer, however, treated this portion as agricultural land and has assessed compensation accordingly. This award has been sustained by the tribunal.

12. Prima facie the award is wrong for the land was not being used for agriculture at the time of notification: it was not being used at all. In these circumstances how is the law to be applied?

The market-value of the land shall be the market-value according to the use to which the land was put but the land was being put to no use.

13. We may mention that in our judgment; in the appeal we came to the conclusion that the land in dispute lay in what might properly be described as the industrial area of Cawnpore. The land has a frontage on the main road running, from Cawnpore to Kalpi, and the evidence shows that it is in a neighbourhood where the land has been used for the manufacture of bricks and pottery. In fact the sale-deed under which Makhan Das acquired the land in 1896 speaks of it as a grove known as pazawawali (i.e, brick-kiln grove), and the award of the Acquisition Officer shows that much of the land round about has been devoted to the making of brick and pottery. Speaking of the particular area, in dispute, Abdul Majid, a surveyor in the employment of the trust, says in his evidence:

Some portion of the land was level and in some portions there were pits. They were ordinary pits. It did not appear that the earth was dug out for a kiln.

14. It is difficult to see, therefore, how it is possible to treat the land as agricultural land. But if not treated as such for purposes of compensation, how is it to be treated when it is shown that at the time to be regarded it was not being used for any purpose. We direct that the record be laid before the Hon'ble Chief Justice for the constitution of a Full Bench to determine the questions raised above, namely, the interpretation of S. 23, sub-s. (1) Cl. 1, as amended by the special legislation referred to, and the application of the law to a case in which the land being acquired was being put to no use at the material date.

15. We think it proper to note that the tribunal, whose decision is now under appeal was presided over by Mr. Ashworth (now Mr. Justice Ashworth).

Opinion

Lindsay, J.:— There are two questions referred to this Full Bench for decision, namely:

(1) What is the correct interpretation of Section 23, sub-Section (1), Clause 1 of the Land Acquisition Act (Act 1 of 1894), as amended by para. 10, Cl. (3) of the Schedule to the U.P Town Improvements Act, 1919 (U.P Act 8 of 1919)? and (2) how the law as so interpreted is to be applied to a case where at the material date the land to be acquired was being put to no actual use?

16. As regards the first question it is at once apparent that the amendment above referred to materially affects the scope of Cl. 1, S. 23, sub-S. (1) as originally enacted for the market-value of the land which has now to be taken into consideration is the market value according to the use to which the land was put at the date with reference to which the market value is to be determined under that clause.

17. In the cases to which S. 23, sub-S. (1), Cl. 1, has been applied it has always been held that the potential value of the land should be taken into account. To quote from the judgment of the House of Lords, in Fraser v. City of Fraserville:

The seller is entitled to the value to him of the property in its actual condition at the time of its expropriations with all its existing advantages and with all its possibilities, excluding any advantage due to the carrying out of the scheme for the purpose for which the property is compulsorily acquired.

18. These principles cannot be applied to cases arising under the U.P Town Improvements Act for, as pointed out, the expression “market value” has under this Act a narrower meaning. “Market value” is to be assessed in accordance with the use to which the land is being put at the date when the notice issues under S. 36 of the Act. It is therefore not possible for the purposes of this Act to take into account any potential value of the land; no valuation can be made with reference to what has been called “the most advantageous disposition of the land.” The consideration of potential value being excluded, the question is what factors can be considered when assessing the market value according to the use to which the land was put at the material date.

19. The basis of compensation should be the value to the owner of the date of the notification, and prima facie this would depend upon the profit which on that date the owner is deriving from the land, and that profit could be estimated from the use to which, at that point of time, the land was being actually put. No great difficulty could arise in dealing with a case where, at the material date, the land is actually being used. But what is to be said in a case where on this date, the land is not being used for any apparent purpose which can bring in profit to the owner? Is it to be taken that in the absence of immediate profit the land is of no value to the owner, that its market value is nil and that, in consequence, the Improvement Trust can expropriate the owner without paying him compensation?

20. That is a conclusion to be avoided, if possible, for it involves the inference that the legislature has conferred upon the trust authorities a power of confiscation. There is no express provision to the effect in the Act. It remains to be considered whether the existence of a power of confiscation must be inferred by necessary implication.

The market-value of the land shall be the market value according to the use to which the land was put at the date with reference to which the market-value is to be determined under that clause.

21. The language of the section is rigid. The governing words are “according to the use to which the land was put, etc.” The determining factor is the actual use of the land at the date in question, and any use of the land prior to that date is to be disregarded. In view of this phraseology it appears to be impossible, for the purpose of assessing the market value to resort to any other facts such, for example, as the history of the land, its physical features or its situation; for while data of this nature might otherwise be of weight as indicating the value of the land to the owner, they could only be of service in estimating a potential value based upon the use to which the land might most profitably be put. But the section expressly excludes all consideration of potential use by laying down that the determining factor in the assessment of the market value is the actual use to which the land is being put on the date of the notification: and from this the conclusion appears to be that either intentionally or through inadvertence the legislature has declared that in certain conditions the market value of the land on the material date may be nil.

22. It need hardly be pointed out that such an enactment is fraught with much possible hardship to owners of property which has become subject to the operation of the Act. Lands of great value may from a variety of causes fall temporarily out of use. Agricultural land may have to be left fallow for a season or two in order that it may recover productivity. Or the owner of a valuable site acquired for a building scheme may have to suspend the execution of his project in order, for example, to contest in Court a claim to a right of way over the land. In either case the owner is liable to be expropriated without compensation if a notification issues under the Act while the land is not being put to actual use. It is difficult to imagine that cases of this kind were in contemplation when the Act was passed, but the language of the Act, as it stands, must, if followed, lead to these results. It must be left therefore to the legislature to declare whether it was intended to invest the Improvement Authorities with this power of confiscation or to amend the Act so as to avoid the results above mentioned. In my opinion we must answer the two questions referred to the Full Bench as follows:

(1) The correct interpretation of Section 23, sub-Section (1), Clause 1 of the Land Acquisition Act, as amended by para. 10, Cl. (3), of the Schedule to the U.P Town Improvements Act, 1919 (U.P Act 8 of 1919) is that the market value of the land to be acquired is to be calculated exclusively in accordance with the use to which the land is being put on the date on which notice issues under Section 29 or Section 36 of the U.P Town Improvements Act; and (2) where on such date the land to be acquired is not being put to any use its market value may be nil.

Sulaiman, J.:— I agree.

Mukerji, J.:— I agree.

Lindsay and Sulaiman, JJ.:— Them decided the case in accordance with the principles laid down by the Full Bench.

D.D

23. Appeal allowed.

Review Appln. from First Appeal No. 109 of 1923

Secretary Of State v. Makhan Das

Structured Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Secretary Of State v. Makhan Das

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