1 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  36 OF 2004

A. Natesam Pillai ... Appellant

Versus

Spl.  Tahsildar,  Land  

Acquisition, Tiruchy      ... Respondent

JUDGMENT   

Dr. Mukundakam Sharma, J.

2 1. This appeal is directed against the judgment and order dated  

27.11.2002 passed by the Madras High Court whereby the High  

Court  reversed  the  order  passed  by  the  Reference  Court  by  

reducing the amount of  compensation granted  by the  Reference  

Court to the appellant from Rs. 17/- per sq. feet to Rs. 9/- per sq.  

feet.

2.

Before  we  

deal  with  

the  

contentions raised before us, brief facts leading to the filing of the  

present appeal are required to be stated. For providing house sites  

at Adi Dravidas, land measuring an extent of 3.90 acres comprised  

in  Survey  No.  118/A  in  Palangudi  Village  was  acquired  by  the  

Government of Tamil Nadu by issuing a notification under Section  

4(1)  of  the  Land  Acquisition  Act  which  was  published  on

3 23.9.1992.   The Land Acquisition Officer awarded a sum of Rs.  

1.72  per  sq.  ft.  for  the  acquired  land.    At  the  instance  of  the  

aggrieved land owner, i.e. the appellant, reference was made under  

Section 18 of the Land Acquisition Act before the Additional Sub  

Court, Trichy.    

3. Before  the  Reference  Court,  the  appellant  adduced  

documentary evidence in the form of Sale Deeds Exs. A1 to A4 and  

examined two witnesses.   The Revenue also produced documents  

exhibited as Exs. B1 and B2, but no witness was examined from  

the side of the Revenue.   The Reference Court after consideration  

and appreciation of the evidence adduced fixed the market value of  

the acquired land at Rs. 17/- per sq. feet.   

4

4. Being aggrieved by the said order, the State preferred an appeal  

before  the High Court.   The question for consideration before  the  

High  Court  was  whether  the  amount  of  compensation  for  the  

acquired land fixed by the Reference Court i.e. Rs. 17/- per sq. feet is  

correct or not and whether the appeal filed by the State for reducing  

the amount of compensation be allowed.

5. The  

High  

Court  

after  

consideration of the records came to the conclusion that the amount  

of compensation i.e. Rs. 17/- per sq. feet is on the higher side, and  

that the appropriate amount of compensation would be Rs. 9/- per  

sq. feet and accordingly reversed the order passed by the Reference  

Court  with  the  aforesaid  modification  of  the  rate  of  compensation  

fixing the same at Rs. 9/- per sq. ft.

5

6. The appellant, original owner of the land, has filed this appeal  

praying for setting aside the order passed by the High Court and has  

prayed for enhancement of the amount of compensation taking into  

consideration the potential value of the land.   

7. The learned counsel appearing for the appellant contended that  

the  High  

Court  

took  

notice  of  

the  

market  

value  of  

the  

acquired  

land only with reference to the actual use. According to the appellant,  

the Court failed to take notice of its value with reference to the better  

use to which it is reasonably capable of being put to in the immediate  

or near future  and thereby  failed  to take  into consideration future  

potentiality of the land and instead based itself only on the realized

6 possibility and thus committed an error.

8. The learned counsel appearing for the respondent, on the other  

hand, contended that the amount of compensation granted by the  

High Court  is  appropriate,  and does  not  deserve  to  be  interfered  

with.    

9. The  

Reference  

Court  

granted  

compensation at Rs. 17/- per sq. feet after holding that the acquired  

land  is  a  potential  house  site  being  located  in  a  very  important  

locality and that the amount of compensation granted by the Land  

Acquisition Officer, i.e., 1.72 per sq. ft. was totally an unjust and  

inadequate amount.   

10. The High Court, on the other hand, fixed the market value of

7 the acquired land at Rs. 9/- per sq. ft.  by setting aside the order  

passed by the Reference Court. The High Court while coming to the  

aforesaid  conclusion  held  that  Ex.  A3  is  a  comparable  sale  

transaction.   Under  Ex.  A3,  1710  sq.  ft.  land  was  sold  for  Rs.  

20,000/- which would work out to Rs. 11/- per sq. ft. Nonetheless,  

the High Court also pointed out the fact that the acquired land has  

got higher  

potential  

value,  as  

the  

acquired  

land  is  

abutting  

the  main  

road  and  

when compared with the land covered under Ex. A3, the acquired  

land is surrounded by Schools, Shops, Panchayat Union Office etc.  

However, considering the fact that the acquired land is a large tract  

of land wherein while making development there would be loss of  

land due to both internal and external development like roads, etc.,

8 and that when compared with the land of Ex. A3 which is a very  

small area of land, there has to be deduction in value of the acquired  

land and so calculating the rate of compensation was scaled down to  

Rs. 9/- per sq. ft.

11. Therefore, it falls upon us to determine whether the High Court  

was correct  and justified  in scaling down the compensation to be  

given  to  

the  

appellant.  

To  this  

effect,  we  

must  give  

due  

consideration  to  the  Sale  Deeds  Exs.  A1  to  A4  placed  by  the  

appellant,  in  order  to  determine  the  appropriate  and  just  

compensation that must be given in pursuance of the instant land  

acquisition.  

12. It  is important to note that Ex. A1 and Ex. A4 are sale deeds  

executed subsequent to the date of notification under Section 4(1)

9 and for this reason, the High Court held these to be irrelevant for the  

purpose of determining compensation. The first clause of Section 23  

of the Act clearly provides that the amount of compensation awarded  

for the land acquired is required to be determined on the basis of  

market value of the land at the time of publication of the notification  

under Section 4 of the Act.  Therefore, it is the duty of both of the  

Land  

Acquisition  Officer  as  also  of  the  Court  to  determine  the  actual  

compensation payable for the land acquired by referring to evidence  

regarding fair and just compensation near about the proximate date  

or  on  the  date  itself  of  the  publication  of  the  notification  under  

Section  4.    At  times,  in  order  to  prove  the  actual,  fair  and  just  

compensation for the land acquired, sale deeds of the adjacent land

10 or nearabout adjacent land are produced to indicate the trend of the  

value of the land within the near vicinity of the acquired land.   Such  

sale deeds are taken notice of generally when they are prior in point  

of time to the date of notification, and any sale deed which is post  

notification dated is generally ignored, unless evidence is led to show  

that there was no increase in price despite such acquisition.

13. This  

Court  in  

Administrator General of W.B. v. Collector, Varanasi, reported at  

(1988) 2 SCC 150, has held:  

“Such  subsequent  transactions which  are  not  proximate in  point of time to the acquisition can be taken into account for   purposes of determining whether as on the date of acquisition  there was an upward trend in the prices of land in the area.   Further under certain circumstances where it is shown that  the market was stable and there were no fluctuations in the  prices between the date of the preliminary notification and the  

11 date of  such  subsequent  transaction,  the  transaction could  also be relied upon to ascertain the market value. This Court  in  State of U.P. v. Jitendra Kumar, reported at (1982) 2  SCC 382 observed: (SCC p. 383, para 3)

“It is true that the sale deed Ex. 21 upon which the High   Court  has relied  is  of  a date three years later  than the  notification under Section 4 but no material was produced  before the court to suggest that there was any fluctuation in  the market rate at Meerut from 1948 onwards till 1951 and   if so to what extent. In the absence of any material showing  any fluctuation in the market rate the High Court thought it  

fit  to  rely upon Ex.  21 under  which the Housing Society  itself had purchased land in the neighbourhood of the land  in dispute. On the whole we are not satisfied that any error   was committed by the High Court in relying upon the sale  deed Ex. 21.”

But  this  principle  could  be  appealed to  only  where there  is  evidence to the effect that there was no upward surge in the   prices in the interregnum. The burden of establishing this would  be  squarely  on  the  party  relying  on  such  subsequent  transaction.”

12 14. As a result of such acquisition, the market value of the adjacent  

land would generally, and in most cases, go up and therefore, such  

post  notification  transaction  may  not  be  a  sound  criterion  to  

determine and assess the value of the acquired land. In the present  

case, the appellant has also not adduced any evidence to show that  

the  market  value  of  adjacent  land  has  not  increased  in  the  

interregnum.  The Reference Court and the High Court were justified  

in rejecting these sale deeds from consideration. We must, therefore,  

keep the aforesaid two sale deeds outside our consideration while  

assessing and determining  the just and fair compensation for the  

acquired land.   Ex. A2 is also a sale deed but the same also is not a  

safe  guide  as the  price  for  the  land covered  therein  was later  on

13 increased to make it in parity with the government prescribed rate.  

15. Consequently, it is to be seen if Ex. A3 may be relied upon in  

determining the claim of the appellant. The High Court, while noting  

that Ex. A3 does indeed represent  a comparable sales transaction  

also held that since the same concerns a very small area of land, it  

could be applicable to the acquisition of a large tract of land as the  

one  in  

question,  

once  

deduction  

as  

necessary  

and  

required  

is given.

16. In  Rishi  Pal  Singh  and  Others  vs.  Meerut  Development  

Authority and Anr. reported in (2006) 3 SCC 205 this Court while  

dealing  with  the  issue  relating  to  a  large  tract  of  land  held  as  

follows:-

14

“5…….With respect to the first reason, that is, exemplars of   small  plots  have  been  taken  into  consideration  by  the  Reference Court, in the first instance our attention was invited  to  some  judgments  of  this  Court  to  urge  that there  is  no  absolute  bar  to  exemplars  of  small  plots  being  considered  provided adequate discount is given in this behalf. Thus there   is no bar in law to exemplars of small plots being considered.  In  an  appropriate  case,  specially  when  other  relevant  or  material  evidence  is  not  available,  such  exemplars  can  be   considered after making adequate discount. This is a case in  which appropriate exemplars are not available. The Reference   

Court has made adequate discount for taking the exemplars of   small plots into consideration…………”

17. Furthermore, in Administrator General of W.B. v. Collector,  

Varanasi (cited hereinabove), this Court has held:  

“It  is  trite  proposition  that prices  fetched  for  small  plots  cannot form safe bases for valuation of large tracts of land  as the two are not comparable properties. The principle that  evidence of market value of sales of small, developed plots is

15 not a safe guide in valuing large extents of land has to be   understood in its proper perspective. The principle requires  that prices fetched for small developed plots cannot directly  be adopted in valuing large extents. However, if it is shown  that the large extent to be valued does not admit of and is   ripe  for  use  for  building  purposes;  that building  lots that  could  be  laid  out  on  the  land  would  be  good  selling  propositions and that valuation on the basis of the method of   hypothetical lay out could with justification be adopted, then   in valuing such small, laid out sites the valuation indicated  by sale of comparable small sites in the area at or about the  time of  the notification would be relevant. In such a case,  

necessary deductions for the extent of land required for the   formation of  roads and other  civil  amenities;  expenses  of   development of the sites by laying out roads, drains, sewers,  water and electricity lines, and the interest on the outlays for   the period of  deferment of  the realisation of  the price; the  profits on the venture etc. are to be made.”  

18.  The small area of land measuring 1710 sq. ft. was sold for  

Rs. 20,000/- as per Ex. A3 dated 15.7.92 which works out to a

16 value  of  Rs.  11/-  per  sq.  ft.   A  comparison  of  the  two  plots,  

namely, land in Ex. A3 and the acquired land shows that they are  

not identical. While the land in Ex. A3 may not be an excellent  

guide it is still a better guide than any other document exhibited  

on  record.  The  same  could  be  used  as  a  relevant  yardstick  to  

assess the just and reasonable compensation in the present case.  

19. We  

find  from  

the  

counter  

affidavit  

filed  by  

the  

respondent-State  that  the  said  land  covered  by  the  Ex.  A3  is  

located out of the Municipal Corporation limit of Trichy, whereas  

the acquired land is located within the Municipal Corporation limit  

of Trichy. Consequently, it cannot be disputed that the acquired  

land, being in the heart of the city and having excellent prospects  

of being used as residential site, definitely has an edge regarding

17 the potential value over the land covered by Ex. A3.   

20. This building potentiality of acquired land must also be taken  

into  consideration  while  determining  compensation.  In  P.  Ram  

Reddy  v. Land  Acquisition  Officer,  Hyderabad  Urban  

Development Authority reported at (1995) 2 SCC 305, this Court  

held as follows: -

“8. Building potentiality of acquired land.— Market value of   land acquired under the LA Act is the main component of the  amount of  compensation awardable  for  such  land  under   Section 23(1) of the LA Act. The market value of such land  must  relate  to  the  last  of  the  dates  of  publication  of   notification or  giving of  public notice of  substance of  such  notification according  to  Section  4(1)  of  the  LA  Act.  Such  market value of the acquired land cannot only be its value   with reference to the actual use to which it was put on the   relevant date envisaged under Section 4(1) of the LA Act, but  ought to be its value with reference to the better use to which  it is  reasonably capable  of  being  put in the  immediate or

18 near future. Possibility of  the acquired land put to certain   use on the date envisaged under Section 4(1) of the LA Act,  of becoming available for better use in the immediate or near  future, is regarded as its potentiality. It is for this reason that  the  market  value  of  the  acquired  land  when  has  to  be  determined  with  reference  to  the  date  envisaged  under   Section 4(1)  of  the LA  Act,  the same has to be  done  not  merely with reference to the use to which it was put on such  date, but also on the possibility of  it becoming available in  the  immediate  or  near  future  for  better  use,  i.e.,  on  its  potentiality. When the acquired land has the potentiality of   being used for  building purposes in the immediate or near  

future it is such potentiality which is regarded as building  potentiality of  the acquired land. Therefore, if  the acquired  land has the building potentiality, its value, like the value of   any  other  potentiality  of  the  land  should  necessarily  be  taken into account for determining the market value of such  land.  Therefore,  when a land with building  potentiality  is  acquired, the price which its willing seller could reasonably  expect to obtain from its willing purchaser with reference to   the date envisaged under Section 4(1) of the LA Act, ought to   necessarily  include  that portion  of  the  price  of  the  land  attributable  to  its  building  potentiality.  Such  price  of  the  acquired  land  then  becomes  its  market  value  envisaged

19 under Section 23(1) of the LA Act. If that be the market value   of  the  acquired  land  with  building  potentiality,  which  acquired  land  could  be  regarded  to  have  a  building  potentiality and how the market value of such acquired land  with such building potentiality requires to be measured or  determined are matters which remain for our consideration  now.”

21. This Court in Hasanali Khanbhai & Sons v.  State of Gujarat  

reported in (1995) 5 SCC 422 also held that:-

“3.   …….But it is settled law by series of judgments of   this  Court  that the  court  is  not  like  an  umpire  but  is  required  to  determine  the  correct  market  value  after  taking  all  the  relevant  circumstances,  evinces  active  participation in adduction of evidence; calls to his aid his  judicial experience; evaluate the relevant facts from the   evidence  on  record  applying  correct  principles  of  law  which  would  be  just  and  proper  for  the  land  under   acquisition. It  is  its  constitutional,  statutory  and  social   duty. The court should eschew aside feats of imagination  but occupy the armchair of a prudent, willing but not too  anxious, purchaser and always ask the question as to  what are the prevailing conditions and whether a willing  purchaser would as a prudent man in the normal market  conditions offer to purchase the acquired land at the rates

20 mentioned in the sale deeds. After due evaluation taking  all  relevant  and  germane  facts  into  consideration,  the  Court must answer as to what would be the just and fair   market value…... “

22.  Therefore,  it is clear from the aforementioned decisions of  

this Court that the potentiality of the acquired land, in so far as it  

relates to the use to which it is reasonably capable of being put in  

the  

immediate or near future, must be given due consideration. The  

present  acquired  land  has  all  the  potentiality  to  be  used  as  

building sites, even in the immediate future, as it is located at a  

place in and around which building activity has already started.  

The evidence on record also clearly indicates that acquired land is  

abutting the main road.   The acquired land is also surrounded by

21 schools, Panchayat union office, shops and residential building in  

all three sides. The High Court also found, as a matter of fact,  

that  the  area  where  the  acquired  land  is  situated  is  fit  for  

construction  of  houses.  On  an  overall  consideration  and  

appreciation of the records, we feel that the deduction due to the  

small  size  of  the  exemplar  land  can  easily  be  set  off  with  the  

corresponding  increase  in  price  of  the  acquired  land  when  

compared  with  the  land  in  Ex.  A3  from  the  point  of  view  of  

potential value.

23. Although it is true that the land covered by Ex. A3 is a small  

tract of land and therefore  cannot be compared in size with the  

large area of land acquired under the present notification, it is to

22 be  concluded  that the  land in question would  definitely  fetch a  

higher price than what is fixed by the High Court. A prospective  

purchaser would only be too willing to pay for the acquired land  

having immediate potentiality of being used as a residential site in  

a prime locale at almost the same, if  not, higher price than the  

land covered by Ex. A3 which is located outside the Municipality  

area.     

24.  We  

are  in  

agreement  with  the  conclusion  of  the  High  Court  that  the  

acquisition  of  a  large  tract  of  land  merits  a  discount  in  

compensation.  However,  in  the  present  circumstance,  it  is  

significant  to  note  that  the  compensation  granted  by  the  High  

Court does not match the potentiality of the land, even after the  

discount  has  been  taken  into  consideration.  Even  on  giving  a

23 discount  in  respect  of  the  acquired  land  being  a  large  tract  as  

compared to the small portion of land sold under Ex. A3, according  

to  us,  the  rate  of  Rs.  11/-  would  be  adequate  and  just  

compensation for the same.      

25. In  our  considered  opinion,  by  scaling  down  the  rate  of  

compensation to Rs. 9/- from Rs. 11/- per sq. ft., the High Court  

denied  

just  and  

reasonable  compensation  to  appellant,  thereby  resulting  in  a  

miscarriage of justice.

26. We,  therefore,  hold  that  the  appellant  shall  be  entitled  to  

compensation at Rs. 11/- per sq. ft. for the acquired land which we  

consider to be just and fair. Needless to say that the State shall  

also be liable to pay additional compensation and solatium on the

24 amount  enhanced  and  fixed  in  terms  of  this  order  including  

payment of interest in terms of the rate of interest awarded by the  

Reference Court. The appeal stands allowed to the aforesaid extent  

without any costs.

     ...........………………………J.  [Dr.  

Mukundakam Sharma]

…...............………………..J.                        [Anil R. Dave]

New Delhi, August 11, 2010.