REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 2817-18 OF 2005

PRABHAKAR RAGHUNATH PATIL & ORS.      …. Appellants

Versus

STATE OF MAHARASHTRA    …. Respondent

WITH

CIVIL APPEAL NO. 2819 OF 2005

WITH

CIVIL APPEAL NOS. 2820-2821 OF 2005

JUDGMENT

Dr. MUKUNDAKAM SHARMA, J.

1. The present appeals are filed by the appellants-claimants  

praying for higher compensation for their lands as also  

for the structures standing thereon which were acquired  

by  the  State  of  Maharashtra  by  issuing  a  notification

under  Section  4  of  the  Land  Acquisition  Act,  1894  

(hereinafter referred to as “the Act”).  

2. The aforesaid properties were proposed to be acquired by  

issuing a notification under Section 4 of the Act for the  

purpose  of  Hatnoor  Project  which  was  published  on  

15.09.1983.  Subsequently,  a  declaration  was  issued  

under  Section  6  of  the  Act  which  was  published  on  

24.05.1984.  The  Land  Acquisition  Officer  passed  an  

award on 22.09.1986 and possession of  the  properties  

was also taken on 18.10.1986. By the aforesaid award,  

passed by the Land Acquisition Officer, compensation for  

the properties was valued at  ` 1, 10,547.50 which was  

directed  to  be  paid  to  the  claimants  in  the  Land  

Acquisition Reference No. 2 of 1991. In so far as the Land  

Acquisition Reference No. 3 of 1991 was concerned, the  

Land Acquisition Officer determined the compensation at  

`  4,67,500.53  and  for  the  case  in  Land  Acquisition  

Reference  No.  4  of  1991,  the  Land  Acquisition  Officer  

determined the compensation at ` 7,20,464.91.  

3. The  appellants-claimants  not  being  satisfied  with  the  

compensation awarded by the Land Acquisition Officer,  

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requested a reference of their claims to the Civil Court on  

the  basis  of  which  the  aforesaid  reference  cases,  viz.,  

Land  Acquisition  Reference  Nos.  2  to  4  of  1991  were  

numbered. The claimants claimed compensation at the  

rate of ` 350 per square meter for the open land and at `  

2,000  per  square  meter  for  the  structures.  After  

recording  evidence  adduced  by  the  parties  and  

considering  the  oral  as  well  as  documentary  evidence  

placed before  the  reference  court,  it  granted enhanced  

compensation  of  `  2,48,526  to  the  claimants  in  Land  

Acquisition Reference No. 2 of 1991, ` 5,10,562.50 to the  

claimants in Land Acquisition Reference No. 3  of 1991  

and  `  10,84,605  to  the  claimants  in  Land  Acquisition  

Reference No. 4 of 1991.  

4. At this stage, however, we would like to record that the  

reference court,  while relying on the sale instance and  

the  oral  evidence  of  the  expert,  enhanced  the  

compensation determining the value of the open land at  

the rate of  `  225 per square meter and at the rate of  `  

1,200 per square meter for the structure. Being aggrieved  

by  the  aforesaid  judgment  and  order  passed  by  the  

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reference court, the State of Maharashtra filed appeals in  

the  Bombay High Court  which was registered  as  First  

Appeal  Nos.  133/1995,  134/1995  whereas  the  three  

appeals  filed by the  claimants  were registered as First  

Appeal Nos. 338/1995, 339/1995 and 340/1995.

5. Since  the  issues  involved  in  the  said  appeals  were  

similar, all the aforesaid appeals were taken up together  

for consideration by the High Court and disposed of the  

same  by  a  common  judgment  and  order  dated  

23.09.2003 whereby the High Court allowed the appeals  

filed by the State and dismissed the appeals filed by the  

claimants. So far as the valuation with regard to the open  

land is concerned, the High Court held that the reference  

court was justified in awarding compensation at the rate  

of  ` 225 per square meter for open space. While coming  

to the aforesaid conclusion, the High Court considered a  

sale  deed  dated  11.12.1982  for  an  open  space  

admeasuring 16’ x 16’ for which sale consideration of  `  

8,000  was  received.  But,  since  the  same  related  to  a  

small  plot  of  land  as  compared  to  the  acquired  land,  

therefore, deduction was made by the High Court from  

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the exemplar value and on the basis thereof upheld the  

valuation of the reference court fixed at ` 225 per square  

meter for the open space.  

6. Although a faint argument was made before us, seeking  

an increase in the valuation of compensation for the said  

open  land,  the  counsel  appearing  for  the  appellants,  

however,  could  not  show  any  cogent  reason  for  such  

increase  in  the  valuation.  Even  if  the  aforesaid  sale  

consideration  is  taken  to  be  the  exemplar,  the  same  

would indicate  that in the year 1982,  the approximate  

price was around  `  336 per square meter for the land.  

When a large tract of land is acquired and the valuation  

thereof is sought to be determined on the basis of sale  

instances relating to small  portion of land, the general  

trend of  this  Court  is  to  deduct  33 per  cent  from the  

value  of  such  small  tract  of  land.  Since  a  very  small  

portion  of  land  was  sold  by  the  aforesaid  sale  deed  

admeasuring 16’ x 16’, the same can be treated as a base  

guide only after proper deduction is made from the value  

fixed  in  such  sale  deed.  Consequently,  the  plea  for  

increase  of  compensation,  in  so  far  as  open  space  is  

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concerned,  stands  rejected  by  this  common  judgment  

and order.

7. Subsequent to the determination of the valuation of the  

open  space,  we  are  required  to  decide  regarding  the  

prayer  of  the  claimants  with regard  to  increase  in  the  

valuation  of  the  structure  that  was  acquired  by  the  

respondents. On this count, reliance was placed by the  

appellants on the evidence of the expert witness and also  

on  the  circular  dated  03.01.1991  issued  by  the  Chief  

Engineer, Amaravati in respect of cost of construction in  

justification  of  their  prayer  for  the  increase  of  the  

valuation of the structure. Under the aforesaid circular  

dated  03.01.1991  issued  by  the  Chief  Engineer,  

Amaravati, the cost of residential building was fixed as  

under: -

Ground Floor - ` 2,800  per sq. mtr.

First Floor - ` 2,200  per sq. mtr.

Second Floor - ` 2,200  per sq. mtr.

8. In  so  far  as  the  evidence  of  the  expert  witness  is  

concerned,  the  reference  court  however  considered the  

same to be unreliable as the expert had failed to state in  

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his  evidence,  details  regarding  the  age  of  the  building  

which  was  acquired  under  the  notification.  Since  the  

counsel  appearing  for  the  appellants  made  a  sincere  

attempt  to  justify  the  increase  as  sought  for  by  the  

appellants, we have looked into the evidence of the expert  

as also on the aforesaid notification.  

9. In so far as the opinion of the expert is concerned, he has  

not given any specific evidence as to what was the age of  

the  structure  when  it  was  notified  for  acquisition.  

Without making an enquiry with regard to the age of the  

structure  which  was  acquired,  it  would  be  difficult  to  

assess the valuation and, therefore, the expert was not  

justified in not making an assessment with regard to the  

age of the structure. He has faulted on the basic principle  

of assessment of valuation of a construction. Besides, the  

cost of construction of the ground floor is always on the  

higher  side while  the cost  of  construction of  first  floor  

and  second  floor  is  on  the  lower  side.  The  expert  

examined has also ignored the said fact which goes to the  

root of the valuation and for that also the evidence of the  

expert,  in  our  considered  opinion,  is  not  reliable.  The  

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only evidence that, therefore, is available before us is the  

circular  issued  by  the  Chief  Engineer,  Amravati  dated  

03.01.1991 regarding District Schedule Rates in respect  

of  cost  of  construction  with  reference  to  Building  and  

Construction Department of State of Maharashtra.

10.The  High  Court,  however,  held  that  the  aforesaid  

evidence  is  also  not  reliable  as  the  same  shows  the  

District  Schedule  Rates  for  the  year  1991  in  District  

Amravati and that the same cannot be a safe guide for  

the determination of the compensation of the structure in  

question acquired in the year 1983. It is established from  

the records that the practice of issuing circular by the  

Chief  Engineer  with regard  to  the  cost  of  construction  

was for the first time introduced in the year 1991 and no  

such  practice  was  in  existence  in  the  year  1983.  But  

since  there  is  at  least  some  evidence  indicating  the  

District Schedule Rates for the standing structure in the  

year 1991 we can relate back the said valuation to the  

year 1983. However, such an exercise to determine the  

compensation with reference to future documents must  

be undertaken with great care and caution. The dangers  

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of  such  a  comparison  have  already  been  amply  

illustrated by this Court in The General Manager, Oil &  

Natural  Gas  Corporation  Ltd. v. Rameshbhai  

Jivanbhai  Patel  and  Anr. reported  at  

MANU/SC/7896/2008 wherein it was observed:

13.  Much  more  unsafe  is  the  recent  trend  to  determine  the  market  value  of  acquired  lands  with  reference  to  future  sale  transactions  or   acquisitions. To illustrate, if the market value of  a land acquired in 1992 has to be determined  and  if  there  are  no  sale  transactions/acquisitions of 1991 or 1992 (prior   to  the  date  of  preliminary  notification),  the  statistics relating to sales/acquisitions in future,  say of the years 1994-95 or 1995-96 are taken  as the base price and the market value in 1992  is  worked  back  by  making  deductions  at  the  rate of 10% to 15% per annum. How far is this   safe?  One  of  the  fundamental  principles  of   valuation is that the transactions subsequent to  the acquisition should be ignored for determining  the market value of acquired lands, as the very  acquisition  and  the  consequential  development  would accelerate the overall development of the  surrounding areas resulting in a sudden or steep  spurt  in  the  prices.  Let  us  illustrate.  Let  us  assume there was no development activity in a  particular area. The appreciation in market price  in such area would be slow and minimal. But if   some  lands  in  that  area  are  acquired  for  a  residential/commercial/industrial  layout,  there  will be all round development and improvement  in the infrastructure/ amenities/facilities in the  next one or two years, as a result of which the   surrounding  lands  will  become  more  valuable.   Even  if  there  is  no  actual  improvement  in  infrastructure,  the  potential  and  possibility  of   

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improvement  on  account  of  the  proposed  residential/commercial/  industrial  layout  will   result in a higher rate of escalation in prices. As  a result, if the annual increase in market value   was  around  10%  per  annum  before  the  acquisition, the annual increase of market value  of lands in the areas neighbouring the acquired  land, will become much more, say 20% to 30%,   or  even  more  on  account  of  the   development/proposed  development.  Therefore,  if the percentage to be added with  reference to   previous  acquisitions/sale  transactions  is  10%  per  annum,  the  percentage to  be  deducted to  arrive at a market value with reference to future  acquisitions/sale  transactions  should  not  be  10% per annum, but much more. The percentage  of standard increase becomes unreliable. Courts  should therefore avoid determination of market  value  with  reference  to  subsequent/future  transactions. Even if it becomes inevitable, there  should be greater caution in applying the prices  fetched for transactions in future.  

11.In  this  instance,  however,  we  are  of  the  considered  

opinion  that  the  compensation  as  determined  by  the  

Reference Court for the plot containing the structures is  

on the lower side. The High Court, while referring to the  

oral evidence adduced by the expert, has stated that the  

fine condition of the structures and the superior quality  

of materials used for construction of the same is beyond  

doubt. Despite the ambiguity surrounding the age of the  

structures, the condition and quality of the building has  

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never  been  called  into  question.  Therefore,  we  are  

inclined  to  raise  the  compensation  awarded  in  the  

present case. We are also of the opinion that the margin  

of error in comparing Schedule rates for construction of  

buildings  in the  same district  would be lesser than in  

attempting  to  use  future  sale  transactions  as   

exemplars.  The  Schedule  Rates  cover  costs  of  

construction  in  the  entire  district,  thus  factoring  any  

sudden  spurt  in  increase  of  land  prices  owing  to  

acquisition  in  the  area.  Moreover,  the  quality  of  the  

structures stands testimony of the fact that the building  

possesses  considerable  value,  notwithstanding  the  fact  

that  its  age  has  not  been  correctly  ascertained.  In  

Administrator  General  of  West  Bengal  v. Collector,  

Varanasi reported at  (1988) 2 SCC 150, this Court held  

that  

8. […] building value is estimated on the basis of   the  prime-cost  or  replacement-cost  less  depreciation.  The  rate  of  depreciation  is  generally,  arrived  at  by  dividing  the  cost  of   construction (less the salvage value at the end of   the  period of  utility)  by the  number of  years  of  utility of the building. The factors that prolong the  life  and  utility  of  the  building,  such  as  good  maintenance,  necessarily  influence  and  bring  down the rate of depreciation.

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12.Therefore,  the  cost  of  construction,  which  would  be  

admittedly  lower  in  1983  than  in  1991,  must  also  be  

juxtaposed  with  the  depreciation  that  would  have  

accrued to the structures owing to wear and tear over a  

period  of  8  years.  In  the  year  1991,  the  cost  of  

construction  of  residential  building  was  `  2,800  per  

square meter for the ground floor and ` 2,200 per square  

meter  for  the  second  and  third  floors.  We  are  of  the  

considered  opinion  that  a  deduction  of  60  per  cent  

(approximate)  from  the  said  valuation  of  the  cost  of  

construction  in  1991  would  be  appropriate,  and  

accordingly  arrive  at  a  compensation  of  `  1700 per  

square meter for the structure. Our decision to deduct  

the said percentage of 60% is based on the Building Cost  

Index between 1983 and 1991 published by the Central  

Public Works Department, which reflects the rise in cost  

of construction over the said period of time.

13.Therefore, we allow these appeals partly to the extent of  

the  valuation  fixed  with  regard  to  the  compensation  

payable in respect of the structure which was acquired  

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under  the  notification  for  acquisition  raising  it  from  `  

1,200 per square meter to ` 1700 per square meter. We,  

however, reject the prayer for increase in the amount of  

compensation so far  as open space  is  concerned.  It  is  

needless to point out here that the respondents shall also  

be entitled to the statutory benefits as provided for under  

Section 23(1), 28 and 34 of the Act for which the decision  

rendered  in  the  case  of  Sunder  v.  Union  of  India  

reported in  (2001) 7 SCC 211 which was later affirmed  

and elaborated in the case of Gurpreet Singh vs. Union  

of  India  reported  in  (2006)  8  SCC  457  would  be  

applicable.  We leave the parties to bear their own costs.  

   ............................................J

      [Dr. Mukundakam Sharma ]

............................................J       [ Swatanter Kumar ]

New Delhi, November 11, 2010.

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