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CASE NO.: Appeal (civil)  3148-3157 of 2000

PETITIONER: Atma Singh (died) through LRs. & Ors

RESPONDENT: State of Haryana & Anr

DATE OF JUDGMENT: 07/12/2007

BENCH: G.P. Mathur & D.K. Jain

JUDGMENT: J U D G M E N T

CIVIL APPEAL NOs. 3148-3157 OF 2000

G. P. MATHUR, J.

1.      These appeals, by special leave, have been preferred against the  judgment and decree dated 4.1.1989 of High Court of Punjab and  Haryana at Chandigarh, by which 17 appeals preferred by claimant- appellants (landowners) against the common judgment and award of  the Additional District Judge, Kurukshetra, dated 31.8.1985 had been  decided.  The claimant-appellants had sought enhancement of the  amount of compensation for acquisition of their land.   

2.      A notification under Section 4 of the Land Acquisition Act  (hereinafter referred to as ’the Act’) was issued for acquisition of 89  acres and 3 marlas of land for construction of a cooperative sugar  mill.  The land was situate as one compact unit in four villages viz.  Kankar Shahbad, Chhapra, Jandheri and Jhambara and belonged to 17  families.  In response to the notice issued by the Collector under  Section 9 of the Act, landowners filed objections claiming  compensation for their land which had been acquired.  The Land  Acquisition Collector, after holding an enquiry, gave an award on  14.7.1983 under Section 11 of the Act.  The Collector gave award on  the basis of quality of land, for which purpose he divided the acquired  land in seven categories and the market value was assessed at  Rs.6,000/- to Rs.35,000/- per acre for different types of lands.  Feeling  aggrieved by the award of the Collector, the appellants herein  (landowners) sought reference to the Court under Section 18 of the  Act.  The learned Additional District Judge awarded compensation at  a flat rate of Rs.43,000/- per acre by placing reliance on Ex. R-6 and  R-7, two instances of sale deeds of village Chhapra. After taking  average of these sale transactions, an addition of 25% was made for  fixing the market value of the land.   Against the award made by the  learned Additional District Judge, the claimant-appellants  (landowners) preferred 17 appeals before the High Court.  The High  Court after appraisal of evidence on record held that the market value  of the land acquired was Rs.1,20,000/- per acre.  It further held that  the exemplars filed by the appellants were of small pieces of land and,  therefore, a deduction of 33% had to be made and accordingly the  market value of the land was assessed at Rs.80,000/- per acre.    Besides the market value, the appellants were also held entitled to  statutory sums under Section 23(1-A), 23(2) and 28 of the Act.  The  State of Haryana had also filed appeals against the award of the  Additional District Judge, but the same were dismissed.  

3.      The appeals in this Court have only been filed by the

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landowners and the State of Haryana has not filed any appeal  challenging the judgment and decree of the High Court.   We have  heard Shri M.L. Varma, learned Senior Advocate for the appellants  and Shri Rakesh Dwivedi, learned Senior Advocate for the Shahabad  Cooperative Sugar Mills Ltd., for whose benefit the land has been  acquired.   

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 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 arms 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 Thakur  Kanta Prasad v. State of Bihar, AIR 1976 SC 2219; Prithvi Raj  Taneja v. State of M. P., AIR 1977 SC 1560; Administrator General  of West Bengal v. Collector, Varanasi, AIR 1988 SC 943 and Periyar  v. State of Kerala, AIR 1990 SC 2192.    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 Town is developing or  has prospect of development have to be taken into consideration. See  Collector Raigarh v. Hari Singh Thakur, AIR 1979 SC 472,  Raghubans Narain v. State of U.P., AIR 1969 SC 465 and  Administrator General, W. B. v. Collector Varanasi, AIR 1988 SC  943.  It has been held in Kaushalya Devi v. L.A.O. Aurangabad, AIR  1984 SC 892 and Suresh Kumar v. T.I. Trust, AIR 1980 SC 1222 that  failing to consider potential value of the acquired land is an error of  principle.  6.      As mentioned earlier, the learned Additional District Judge had  awarded compensation at a flat rate of Rs.43,000/- per acre by placing  reliance on Ex. R-6 and R-7, two instances of sale of village Chhapra.   After taking an average of these two sale transactions, an addition of  25% was made while fixing the market value of the land.  The High  Court held that these two sale deeds were of 31.12.1980, while in the  instant case, the notification under Section 4 of the Act was published  much later on 9.2.1983.  That apart, Ex.R-6 and R-7 were mutation  orders and the corresponding sale deeds had not been brought on the  record.   In fact, the learned Additional District Judge, in the earlier

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part of the judgment, had himself discarded Ex. R-6 and R-7 as they  were mutation orders and were inadmissible in evidence.   The High  Court, therefore, rightly held that no reliance could be placed upon  Ex.R-6 and R-7 for determining the market value of the land.   

7.      The claimant-appellants (landowners) had filed copies of four  sale deeds which are Exs.P-7, P-8, P-9 and P-10.  In fact, Ex. P-7 is a  copy of a sale deed by which Laxman Singh bought some land in  village Chhapra on 28.7.1982, which itself became subject matter of  acquisition.  Laxman Singh had deposed that he had bought the land  for construction of shops.   All these four sale deeds related to sale  transactions prior to the issuance of the notification under Section 4 of  the Act on 9.2.1983. The High Court excluded Ex.P-8 from  consideration as it related to a very small piece of land measuring 19  marlas only.  The average price of the three sale deeds viz. Ex. P-7, P- 9 and P-10 came to little more than Rs.1,20,000/- per acre.   Apart  from these three sale deeds, no other exemplars were filed either by  the State of Haryana or by the landowners.   The High Court accepted  the price exhibited by the aforesaid three sale transactions which came  to little more than Rs.1,20,000/- per acre.  It thus recorded a finding  that the market value of the land was Rs.1,20,000/- per acre.  In our  opinion, there being no other documentary evidence, the view taken  by the High Court that the market value of the land was Rs.1,20,000/-  per acre is perfectly correct and calls for no interference.   

8.      Shri Rakesh Dwivedi, learned senior counsel for the sugar mill  has submitted that the exemplars filed by the appellants were of very  small pieces of land and, therefore, they are not safe guide to  determine the market value of the land.  It may be mentioned here that  while determining the market value, the potentiality of the land  acquired has also to be taken into consideration.   The appellants have  led evidence to show that the acquired land had the potentiality to be  used for commercial, industrial and residential purposes. PW.1  Rakesh Kumar had prepared a site plan which showed that the  acquired land was adjacent to the abadi of Shahabad and abutted the  Shahabad-Ladwa Road.  The site plan also shows that there existed  rice shellers, cold storage, shops, godowns, a college and houses etc.  on both sides of Shahabad-Ladwa Road.  PW.2 Baldev Singh was  Patwari of village Chhapra in the year 1983.   He deposed that all the  four villages viz. Kankar Shahbad, Chhapra, Jandheri and Jhambara  are adjacent to each other and the acquired land abutted the Shahabad- Ladwa Road.   He further deposed that the acquired land was 2  kilometer from G.T. Road and there were buildings, godowns, a  cinema hall, factories on both sides of the Shahabad-Ladwa Road.  Therefore, there can be no manner of doubt that the acquired land had  the potentiality for being used for commercial, industrial and  residential purposes and there was fair possibility of increase in its  market value in the near future.  Therefore, the fact that the exemplars  filed by the appellants were of the small pieces of land could not be a  ground to discard them specially when exemplars of large pieces of  land were not available. They could, therefore, be used as a safe guide  for determining the market value of the land.    

9.      Learned counsel for the appellants has seriously challenged the  finding of the High Court that the market value of the land determined  on the basis of the exemplars filed by the parties should be reduced by  one-third on account of the fact that the exemplars relied upon for  ascertaining the market value related to sale of small pieces of land.    According to Shri M.L. Verma, learned senior counsel for the  appellants, there is no uniform principle that if a large area has been  acquired and the exemplars are of small pieces of land, the market  value exhibited by the exemplars must necessarily be reduced by one- third. Shri Verma has placed strong reliance on Bhagwathula  Samanna & Ors. v. Special Tehsildar & Land Acquisition Officer,  Visakhapatnam Municipality (1991) 4 SCC 506, wherein it was held

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as under :-         "In fixing the market value of a large property on  the basis of a sale transaction for smaller property,  generally a deduction is given taking into consideration  the expenses required for development of the larger tract  to make smaller plots within that area in order to  compare with the small plots dealt with under the sale  transaction. However, in applying this principle of  deduction it is necessary to consider all relevant facts. It  is not the extent of the area covered under the acquisition  which is the only relevant factor. If smaller area within  the large tract is already developed and situated in an  advantageous position suitable for building purposes and  have all amenities such as roads, drainage, electricity,  communications etc. then the principle of deduction  simply for the reason that it is part of the large tract  acquired, may not be justified.           In the present cases the lands covered by the  acquisition are located by the side of the National  Highway and the Southern Railway Staff Quarters with  the Town Planning Trust road on the north.  The  neighbouring areas are already developed ones and  houses have been constructed, and the land has potential  value for being used as building sites.   Having found that  the land is to be valued only as building sites and having  stated the advantageous position in which the land in  question lies though forming part of the larger area, the  High Court should not have applied the principles of  deduction.  It is not in every case that such deduction is  to be allowed.  Therefore, the High Court erred in  making a deduction of one third of the value of the  comparable sale and thus reducing the fair market value  of land from Rs. 10 per sq. yard to Rs.6.50 per sq. yard."  

       Shri Verma has also referred to Kasturi & Ors. v. State of  Haryana (2003) 1 SCC 354, wherein it was observed that in cases of  those 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 development 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 development charges, may be in some cases it  is more than 1/3rd and in some cases less than 1/3rd.   Therefore, in this  case taking into consideration the potentiality of the acquired land for  construction of residential and commercial buildings, the deduction  made was only 20%.    10.     Shri Rakesh Dwivedi, learned senior counsel for the sugar mill  has, on the other hand, strenuously urged that the evidence of market  value shown by sale of small plots is not a safe guide in valuing large  areas of land and the prices fetched for small plots cannot be directly  adopted in valuing large extent of land as has been acquired in the  present case. He has thus contended that a deduction of 30% had  rightly been made by the High Court on account of acquisition of a  large area. In support of his contention, Shri Dwivedi has placed  reliance upon several decisions of this Court. In order to appreciate  the principle laid down therein, it will be useful to refer to them in  some detail.  In Administrator General of West Bengal v. Collector,  Varanasi, AIR 1988 SC 943, it was held as follows in para 6 of the  report:- "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 admit of and is ripe for use for building

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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 a 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 civic 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 prices; the profits on the venture etc. are  to be made."  

11.     In Chimanlal v. Special Land Acquisition Officer, AIR 1988 SC  1652 it was held as follows in para 4 (15) of the reports.         "Firstly while a smaller plot is within the  reach of many, a large block of land will have to  be developed by preparing a lay out, carving out  roads, leaving open space, plotting out smaller  plots, waiting for purchasers (meanwhile the  invested money will be blocked up) and the  hazards of an entrepreneur.  The factor can be  discounted by making a deduction by way of an  allowance at an appropriate rate ranging approx,  between 20% to 50% to account for land required  to be set apart for carving out lands and plotting  out small plots.  The discounting will to some  extent also depend on whether it is a rural area or  urban area, whether building activity is picking up,  and whether waiting period during which the  capital of the entrepreneur would be locked up,  will be longer or shorter and the attendant  hazards"."

12.     Shri Dwivedi has also referred to Basant Kumar & Ors. v.  Union of India & Ors. (1996) 11 SCC 542, K. Vasundara Devi v.  Revenue Divisional Officer (LAO) (1995) 5 SCC 426, H.P. Housing  Board v. Bharat S. Negi & Ors. (2004) 2 SCC 184.  In the first cited  case land was acquired for planned development of Delhi and in the  other two cases for Housing Boards and a deduction of 33% was  applied.   

13.     The reasons given for the principle that price fetched for small  plots cannot form safe basis for valuation of large tracks of land,  according to cases referred to above, are that substantial area is used  for development of sites like laying out roads, drains, sewers, water  and electricity lines and other civic amenities. Expenses are also  incurred in providing these basic amenities. That apart it takes  considerable period in carving out the roads making sewers and drains  and waiting for the purchasers. Meanwhile the invested money is  blocked up and the return on the investment flows after a considerable  period of time. In order to make up for the area of land which is used  in providing civic amenities and the waiting period during which the  capital of the entrepreneur gets locked up a deduction from 20%  onward, depending upon the facts of each case, is made.    

14.     The question to be considered is whether in the present case  those factors exist which warrant a deduction by way of allowance  from the price exhibited by the exemplars of small plots which have  been filed by the parties. The land has not been acquired for a  Housing Colony or Government Office or an Institution. The land has

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been acquired for setting up a sugar factory. The factory would  produce goods worth many crores in a year. A sugar factory apart  from producing sugar also produces many by-product in the same  process.   One of the by-products is molasses, which is produced in  huge quantity. Earlier, it had no utility and its disposal used to be a big  problem.   But now molasses is used for production of alcohol and  ethanol which yield lot of revenue. Another by-product begasse is  now used for generation of power and press mud is utilized in manure.   Therefore, the profit from a sugar factory is substantial.  Moreover, it  is not confined to one year but will accrue every year so long as the  factory runs.   A housing board does not run on business lines.  Once  plots are carved out after acquisition of land and are sold to public,  there is no scope for earning any money in future.  An industry  established on acquired land, if run efficiently, earns money or makes  profit every year.  The return from the land acquired for the purpose  of Housing Colony, or Offices, or Institution cannot even remotely be  compared with the land which has been acquired for the purpose of  setting up a factory or industry. After all the factory cannot be set up  without land and if such land is giving substantial return, there is no  justification for making any deduction from the price exhibited by the  exemplars even if they are of small plots.   It is possible that a part of  the acquired land might be used for construction of residential colony  for the staff working in the factory. Nevertheless where the remaining  part of the acquired land is contributing to production of goods  yielding good profit, it would not be proper to make a deduction in the  price of land shown by the exemplars of small plots as the reasons for  doing so assigned in various decisions of this Court are not applicable  in the case under consideration.  

15.     Having regard to the entire facts and circumstances of the case,  we are of the opinion that a deduction of 10% from the market value  of the land, which has been arrived at by the High Court would meet  the ends of justice.  Therefore, the market value of the acquired land  for the purpose of payment of compensation to the land owners has to  be assessed at Rs.1,08,000/- per acre.  

16.     In the result, the appeals are partly allowed.  The claimant- appellants will be entitled to compensation at the rate of Rs.1,08,000/-  per acre.  Besides the above amount, they will also be entitled to the  statutory sum in accordance with Section 23(1-A) and solatium at the  rate of 30% on the market value of the land in accordance with  Section 23(2) of the Act.   They will also be entitled to interest as  provided in Section 28 of the Act.   The appellants will be entitled to  their costs.