REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOs.     2549-2553               OF 2009

(Arising out of SLP (C) Nos.12860 -12864 of 2007)

Karnataka Urban Water Supply and …..Appellants Drainage board, etc.

Versus

K.S. Gangadharappa & Anr. etc. …..Respondents

J U D G M E N T

Dr. ARIJIT PASAYAT, J.

1. Leave granted.

1. Challenge in these appeals is to the judgment of a Division Bench

of the Karnataka High Court dismissing the appeals filed by the appellant,

while allowing the appeals filed by the respondents.  While the appellants

had questioned the correctness of the Award made by the Reference Court

in proceedings under the Land Acquisition Act, 1894 (in short the ‘Act’),

the land owners i.e. respondents herein filed the appeals for enhancement of

the compensation.

3. Background facts in a nutshell are as follows:

On 15.5.1985 the Govt. of Karnataka issued a preliminary notification

under Section 4 of the Act in respect of land situated in the city of Shimoga

for the purpose of underground drainage scheme for the city.

On 24.9.1986 the final notification under Section 6 of the Act was

issued.

On 9.2.1988 the Land Acquisition Officer determined compensation

@ Rs.12,500 per acre.

The  claimants  sought  reference  under  Section  18  of  the  Act  for

determination of compensation by the Civil Court.

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On  29.10.2001,  Civil  Court  enhanced  the  compensation  to

Rs.54,500/- per acre and the same was set aside by the High Court in MFA

No.750 of 1999 and the matters were remanded to the Civil Court.

On 31.10.2002 the Principal Judge, Senior Division, Shimoga, after

remand in LAC No.10 of  1989, determined the compensation payable  in

respect of land in Survey No.24 measuring 5 acres 5 guntas at Rs.1,35,000/-

per acre on the following findings:

(a) the land was agricultural land at the time of notification;

(b) P3,P4 and P5,  which  were  the  sale  deeds  of  municipal

sites in Survey No. 13 cannot be taken into consideration while

determining the compensation of a larger area;

(c) evidence  of  PW  1  was  not  sufficient  to  arrive  at  the

compensation for the lands.  

It is to be noted that the learned Civil Judge permitted the production

of the judgment of the High Court of Karnataka in MFA No. 348 of 1995 in

respect  of  Survey  No.77,  wherein  the  compensation  was  determined  at

Rs.1,60,000/-  per  acre  and  placed  reliance  on  the  said  judgment  on  the

ground that the lands are similarly situated.

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In  this  view  the  Civil  Judge  determined  the  compensation  at

Rs.1,35,000/- per acre.

Feeling aggrieved by the said order, the claimants therein preferred

Misc. First Appeal before the High Court of Karnataka in MFA No.1396 of

2003.

The  Principal  Judge,  Senior  Division,  Shimoga  in  LAC No.  8  of

1989, dealing with the land in Survey No.23 to the extent  of 3 acres 20

guntas determined the compensation at Rs.1,50,000/- per acre.

Feeling  aggrieved  by the  said  judgment  the  petitioner  herein  filed

Misc. Appeal in MFA No. 658 of 2005 before the High Court of Karnataka.

The claimant therein had filed cross objection in CROB No.211/06.

State  of  Karnataka  filed  Misc.  Appeal  in  MFA No.  1339  of  2003

before the  High Court  from the judgment  and decree in  LAC No. 10 of

1989.

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All the Misc. Appeals and Cross Objections were heard and disposed

of by a common judgment in the High Court of Karnataka.

4. The basic stand of the appellants is that no basis has been indicated

by the High Court to determine the value at Rs.4,00,000/- per acre.  It is

pointed out that Exhs. P4 and P5 were small plots of land measuring about

30’ x 50’ and cannot provide a foundation for determination of the market

value.

5. Learned counsel  for the respondent on the other hand supported the

judgment  of  the  High  Court   contending  that  though  the  price  paid  in

respect of small plots of land may not provide a foundation but it can be

taken note of and after making adjustments for development the same can

provide such a foundation.

6. It is a 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 not a safe guide in valuing large extents of land has to be

understood  in  its  proper  perspective.  The  principle  requires  that  prices

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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.  In  Sahib  Singh  Kalha v.  Amritsar

Improvement  Trust  [1982  (1)  SCC  419]   this  Court  indicated  that

deductions for  land required for roads and other  developmental  expenses

can, together, come up to as much as 53 per cent. But the prices fetched for

small  plots  cannot  directly  be  applied  in  the case of  large  areas,  for  the

reason that the former reflects the “retail” price of land and the latter the

“wholesale” price.

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7. What is to be estimated therefrom is the “wholesale” price of land. In

Bombay Improvement  Trust v.  Mervanji  Manekji  Mistry [AIR 1926 Bom

420] Macleod, C.J. suggested a simple rule:

“Valuation cases must be dealt  with just as  much from the point  of  view of the hypothetical  purchase as  of the  claimant. The  valuation  itself  must  often  be  more  or  less  a  matter  of guesswork.  But  it  is  obviously  wrong to  fix  upon a  valuation which,  judged by everyday principles,  no  purchaser  would  be likely  to  give....  I  have  always  been  adverse  to  elaborate hypothetical calculations which are no more likely to lead to a fair conclusion than far simpler methods. But, in any event, no harm can be done by testing a conclusion arrived at in one way by a conclusion arrived at in another.... A very simple method of valuing  land  wholesale  from retail  prices  is  to  take  anything between one and half one-third, according to circumstances, of the expected gross valuation, as the wholesale price.”

(emphasis supplied)

8. Where a large area is the subject matter of acquisition, rate at which

small plots are sold cannot be said to be a safe criteria. Reference in this

context may be made to three decisions of this Court in  The Collector of

Lakhimpur v.  Bhuban  Chandra  Dutta (AIR  1971  SC 2015),  Prithvi  Raj

Taneja (dead) by Lrs. v. The State of Madhya Pradesh and Anr. (AIR 1977

SC 1560) and Smt. Kausalya Devi Bogra and Ors. etc. v. Land Acquisition

Officer, Aurangabad and Anr. (AIR 1984 SC 892).  

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9. It cannot, however, be laid down as an absolute proposition that the

rates fixed for the small plots cannot be the basis for fixation of the rate. For

example, where there is  no other material  it  may in appropriate cases be

open to the adjudicating Court to make comparison of the prices paid for

small  plots  of  land.  However,  in  such  cases  necessary

deductions/adjustments have to be made while determining the prices.  

10. In the  case of  Suresh Kumar v.  Town Improvement Trust, Bhopal

(1989  (1)  SVLR (C)  399)  in  a  case   under  the  Madhya  Pradesh  Town

Improvement Trust Act, 1960 this Court held that the rates paid for small

parcels of land do not provide a useful guide for determining the market

value of the land acquired. While determining the market value of the land

acquired it has to be correctly determined and paid so that there is neither

unjust enrichment on the part of the acquirer nor undue deprivation on the

part of the owner. It is an accepted principle as laid down in the case of

Vyricherla  Narayana  Gajapatiraju v.  Revenue  Divisional  Officer,

Vizagapatam (AIR 1939 P.C. 98) that the compensation must be determined

by reference to the price which a willing vendor might  reasonably expect to

receive  from the  willing  purchaser.  While  considering  the  market  value,

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disinclination of the vendor to part with his land and the urgent necessity of

the  purchaser  to  buy  it  must  be  disregarded  alike;  neither  must  be

considered as acting under any compulsion. The value of the land is not to

be estimated as its value to the purchaser. But similarly this does not mean

that the fact that some particular purchaser might desire the land more than

others is to be disregarded. The wish of a particular purchaser, though not

his compulsion may always be taken into consideration for what it is worth.

Section  23  of  the  Act  enumerates  the  matters  to  be  considered  in

determining compensation. The first criterion to be taken into consideration

is  the  market  value  of  the  land  on  the  date  of  the  publication  of  the

notification under Section 4(1). Similarly, Section 24 of the Act enumerates

the matters which the Court shall not take into consideration in determining

the compensation. A safeguard is provided in Section 25 of the Act that the

amount of compensation to be awarded by the Court shall not be less than

the  amount  awarded  by  the  Collector  under  Section  11.  Value  of  the

potentiality  is  to  be  determined  on  such  materials  as  are  available  and

without  indulgence  in  any  fits  of  imagination.  Impracticability  of

determining the potential  value is writ  large in almost all  cases.  There is

bound to be some amount of guess work involved while determining the

potentiality.

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11. It can be broadly stated that the element of speculation is reduced to

minimum if  the  underlying  principles  of  fixation  of  market  value  with

reference to comparable sales are made:  

(i) when sale is within a reasonable time of the date

of notification under Section 4(1);

(ii) it should be a bona fide transaction;

(iii) it  should be of the land acquired or of  the land

adjacent to the land acquired; and  

(iv) it should possess similar advantages.

12. It is only when these factors are present, can it  merit a consideration

as a comparable case (See The Special Land Acquisition Officer, Bangalore

v. T. Adinarayan Setty (AIR 1959 SC 429).  

13. These aspects have been highlighted in Ravinder Narain and Anr. V.

Union of India (2003 (4) SCC 481)

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14. The deduction to be made towards development  charges cannot be

proved in any strait-jacket formula. It would depend upon the facts of each

case.  

15. It is right as contended by learned counsel for the respondents that

deductions can be made for development.   But the deductions have to be

made from some definite figure.  In the instant case the High Court has not

indicated any basis but has come to an abrupt conclusion that the claim of

the owners for enhancement has to be accepted but not for Rs.9,00,000/- per

acre as claimed but at Rs.4,00,000/- per acre.  Market value has a definite

concept and it cannot be evaluated without any foundation or basis.  

16.  In the circumstances we set aside the impugned judgment of the High

Court to decide the matter afresh and indicate a basis for fixation of market

value at a definite figure.

17. The appeals are allowed to the aforesaid extent.

 ...................................................J. (Dr. ARIJIT PASAYAT)

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....................................................J. (LOKESHWAR SINGH PANTA)

....................................................J. (P. SATHASIVAM)

New Delhi April 15, 2009

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