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CASE NO.: Appeal (civil)  4843 of 2007

PETITIONER: Devinder Singh & Others

RESPONDENT: State of Punjab & Others

DATE OF JUDGMENT: 12/10/2007

BENCH: S.B. Sinha & Harjit Singh Bedi

JUDGMENT: J U D G M E N T [Arising out of S.L.P. (Civil) No. 9954 of 2006] W I T H

CIVIL APPEAL NO. 4844 OF 2007 [Arising out of  S.L. P. (Civil) No. 10182 of 2006]

S.B. SINHA,  J :

 1.      Leave granted in both the Special Leave Petitions.

2.      Appellants herein are owners of various tracts of agricultural lands  situate in Village Chak Gujran, Tehsil and District Hoshiarpur in the State of  Punjab.  Respondent No. 5, M/s International Tractors Limited, is a  Company incorporated under the Companies Act, 1956.  It intended to set up  a project named  \021Ganesha Project\022.  It requested the State to acquire lands in  question in terms of the provisions of the Land Acquisition Act, 1894 (for  short, \021the Act\022).  A notification was issued by the State purported to be  under Section 4 of the Act on 15.02.2002, stating :

       \023Whereas it appears to the Governor of Punjab that  Land is likely to be required to be taken by the  Government at the public expense, for a public purpose  namely for setting up of Ganesha Project, M/s.  International Tractors Ltd. at Village Chak Gujran, Tehsil  & Distt. Hoshiarpur, it is hereby notified that the land in  locality described below is likely to be required for the  above purpose.         This notification is made under the provisions of  Section 4 of the Land Acquisition Act, 1894 to all whom  it may concern.         In exercise of powers conferred by the aforesaid  section, the Governor of Punjab is pleased to authorize  the officers for the time being engaged in undertaking  with their servants and workmen to enter upon and  survey any land in the locality and do all other acts  required or permitted by that section.         Any person interest who has any objection to the  acquisition of any land in the locality may within thirty  days of the publication of this notification file an  objection in writing before the Collector, Land  Acquisition Department of Industries & Commerce,  Punjab, 17-Bays Building, Chandigarh.\024

3.      Objections having been called for, the appellants herein filed their

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objections in terms of Section 5A of the Act, inter alia, stating : \0235.  That the proposed acquisition by the Punjab  Government is unconstitutional, uncalled for and  against law and fact of the case, just in order to  cause loss to the objectors and to give unlawful  gain to other party, i.e., the proposed \021Ganesha  Projectors M/s. International Tractor Ltd.         \005                    \005                    \005 7.      That the acquisition of the proposed land  belonging to the objectors is against the interest of  the objectors keeping in view the policies of the  State.  The land in question is cultivable fertile  land and the proposed project if any can be shifted  some where else at some barren land as well as in  the industrial zone according to Industries Master  Plan and in this way, it is in the interest of the  Pollution Control Department.         \005                    \005                    \005 9.      That the objectors are cultivating the land for the  last over 25 years, it is consolidated at one place  where in the objector has installed electric motors  and planted popular trees around the fields.  The  objectors do not want that the land in question be  acquired since it is against their interest and  objectors are dependent on this Acquisition land.   The Agriculturist/Farmer is entirely dependent on  his land for his livelihood.  There are various  projects in the name of Escorts Tractors, Mohindra  Tractors, Massy Furgon Tractors and so many  other tractors companies/industries fulfilling the  needs of the public and as such there is no need at  all of the proposed industry to be set up in the  lands of the objectors. 10.     That in any way the proposed acquisition is against  the rules of the acquisition and the act itself  keeping in view the interest of the objectors thus  causing wrongful loss to the objectors and causing  wrongful gain to the proposed objectors.\024          4.      Indisputably, a declaration was issued in terms of Section 6 of the Act  and an agreement was entered into by and between the Company and the  State on 27.02.2003.    

5.      Writ petitions were filed by the appellants herein questioning the said  purported  acquisition proceedings praying, inter alia, for the following  relief : \023(b) Quash the notifications dated 15.02.2002  (Annexure P-2) and 27.02.2003 (Annexure P-5)  issued by the respondent No.1 under Sections 4  and 6 of the Land Acquisition Act, 1894,  respectively.\024

6.      During the pendency of the said writ petitions, notices in terms of  Section 9 of the Act were issued on 31.05.2004.  An award was made on  18.02.2005.  Allegedly, during the pendency of the said writ petitions, a sum  of Rs.100/- was deposited by the State as a token amount for acquisition of  the said lands in question.   7.      By reason of the impugned judgment, the High Court opined :

(i)     The acquisition was for a public purpose in view of the report  submitted under the Act, relevant portion whereof is as under :                  \023In case of M/s. International Tractors Ltd. the  company has entered into an agreement with a Fresh  company named M/s. Renault Agriculture France for

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manufacture of latest technology tractors.  M/s. Renault  Agriculture France holds 20% equity in the company.   Production of these latest technology tractors will boost  export, which will contribute to the general welfare and  prosperity of the whole community.

               Therefore, in view of the facts and the relevant law  as mentioned above, it is proved beyond doubt that the  profits have actually gone to the general public......\024                

(ii)    Acquisition of the lands in question was not a colourable exercise of  power.   (iii)   Acquisition was made in terms of  the provisions contained in Part II  of the Act and not Part VII thereof, as the State had also contributed a  sum of Rs.100/- for the purpose of acquisition of lands. (iv)    Execution of the agreement with Respondent No.5-Company and  declaration made under Section 6 of the Act although were made on  the same day, the same did not suffer from the vice of non-application  of mind.   (v)     Respondent No. 5 being not a private company, statutory limitations  contained in Section 44B of the Act are not attracted. (vi)    Rule 4 of the Land Acquisition (Companies) Rules, 1963 (for short,  \021the Companies Rules\022) being directory in nature, it was not necessary  to comply with the provisions thereof.

8.      Mr. P.N. Lekhi, learned Senior Counsel appearing on behalf of the  appellants, in support of these appeals, would, inter alia, submit :    

i)      The High Court erred in opining that the lands in question could be  compulsorily acquired for a company, other than private company, in  accordance with the provisions of Part II of the Act. ii)     In view of the insertion of clause (viii) of sub-section (f) in Section 3  by Act No. 3 of 1984, provision of Part II were not available for  acquisition of land  for companies.  iii)    Action on the part of the State in entering into the agreement and  issuing a declaration under Section 6 of the Act on the same day was  in excess of its power under the Act.

9.      Mr. Soli J. Sorabjee, learned Senior Counsel appearing on behalf of  Respondent No.5, on the other hand, submitted : i)      Acquisition having been made for a public purpose, and a part of the  expenses having been made from the public exchequer, provisions of  Part VII of the Act were not attracted. ii)     Principles of natural justice as contained in Section 5A of the Act  having been complied with, the State was not required to carry out  any inquiry as  envisaged under Rule 4 of the Companies Rules. iii)    Declaration made under Section 6 of the Act in regard to the existence  of public purpose being conclusive in nature, the court cannot go  beyond the same. (iv)    Rule 4 of the Companies Rules being directory in nature, strict  compliance thereof was not necessary.

10.     The Act was enacted to amend the law for the acquisition of land for  public purposes and for companies.  Section 3 of the Act provides for  interpretation   clauses.  Clause (cc) of  Section 3 of the Act defined the  expression \023corporation owned or controlled by the State\024 in the following  terms :

\023(cc)        the expression \023corporation owned or controlled  by the State\024 means any body corporate established by or  under a  Central, Provincial or state Act, and includes a  Government company as defined in Section 617 of the  Companies Act, 1956 (1 of 1956), a society registered  under the Societies Registration Act, 1860 (21 of 1860),

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or under any corresponding law for the time being in  force in a State, being a society established or  administered by Government and a co-operative society  within the meaning of any law relating to co-operative  societies for the time being in force in any State, being a  cooperative society in which not less than fifty-one per  centum of the paid-up share capital is  held by the Central  Government, or by any State Government or  Governments, or partly by the Central Government and  partly by one or more State Governments.\024  

 11.   The  expression \021company\022 has been defined under clause (e) of  Section 3 of the Act  to mean :

\023(i) a company as defined in section 3 of the  Companies Act, 1956 (1 of 1956), other than a  Government company referred to in clause (cc);

(ii)    a society registered under the Societies  Registration Act, 1860 (21 of 1860), or under any  corresponding law for the time being in force in a  State, other than a society referred to in clause  (cc);                  (iii)   a co-operative society within the meaning of any  law relating to co-operative societies for the time  being in force in any State, other than a co- operative society referred to in clause (cc))    

       The expression \021Public purpose\022 has been defined in Section 3(f) of  the Act to mean :

\023(f) the expression \023public purpose\024 includes \026 (i)     the provision of village-sites, or the extension,          planned development or improvement of existing          village-sites;                  (ii)    the provision of land  for town or rural planning;

(iii)   the provision of land for planned development of  land from public funds in pursuance of any scheme  or policy of Government and subsequent disposal  thereof in whole  or in part by lease, assignment or  outright sale with the object of securing further  development as planned;

(iv)    the provision of land for a corporation owned or  controlled by the State;

(v)     the provision of land for residential purposes to the  poor or landless or to persons residing in areas  affected by natural calamities, or to persons  displaced or affected by reason of the  implementation of any scheme undertaken by  Government, any local authority or a corporation  owned or controlled by the State;

(vi)    the provision of land for carrying out any  educational, housing, health or slum clearance  scheme sponsored by Government, or by any  authority established by Government for carrying  out any such scheme, or, with the prior approval of  the appropriate Government, by a local authority,  or a society registered under the Societies

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Registration Act, 1860 (21 of 1860), or under any  corresponding law for the time being in force in a  State, or a co-operative society within the meaning  of any law relating to co-operative societies for the  time being in force in any State;

(vii)   the provision of land for any other scheme of  development sponsored by Government or, with  the prior approval of the appropriate Government,  by a local authority;

(viii)  the provision of any premises or building for  locating a public office,

but does not include acquisition of land for companies.;\024   12.     Indisputably, the Land Acquisition Act is an expropriatory legislation.   The State ordinarily can acquire a property in exercise of its power of  \021Eminent Domain\022 subject to existence of public purpose and on payment of  reasonable compensation in terms of the provisions of the Act.  However,  the State has been empowered to acquire land also for \021companies\022 and for  purposes other than  public purpose.

13.     Companies Act, 1956 provides for different types of company.  A  Government Company is defined in Section 617 thereof.   Respondent No. 5  may be a public limited company, but it is not a Government Company.   When it filed an application requesting the State to acquire the lands for its  purpose evidently an inquiry was caused to be made.   14.     It its counter affidavit, the State has, inter alia, contended that  Respondent No. 5 is an existing unit for manufacturing tractors and lands  sought to be acquired are adjoining their factory.  The State appointed a Sub- Committee of Land Acquisition Committee constituted by the State  recommending acquisition of 30 acres of lands.  Approval of the State,  therefor was sought for.  \021Ganesha Project\022 was not a project of the State but  one undertaken by Respondent No. 5.  Such a project would come within the  purview of clause (aa) of Section 40(1) of the Act.        15.     When a request is made by any wing of the State or a Government  company for acquisition of land for a public purpose,  different procedures  are  adopted.  Where, however, an application is filed for acquisition of land  at the instance of a \021company\022, the procedures to be adopted therefor are laid  down in Part VII of the Act.  Although it may not be decisive but the  conduct of the State as to how it intended to deal with such a requisition, is a  relevant factor.  The action of the State provides for an important condition  to consider as to whether the purpose wherefor a company requests it for  acquisition of land is a public purpose and/or which could be made at public  expenses either as a whole or in part, wherefor evidently provisions laid  down in Part II shall be resorted to.  On the other hand, if the State forms an  opinion that the acquisition of land at the instance of the company may not  be for public purpose or, therefor the expenses to be incurred therefor either  in whole or in part shall not be borne by the State, the procedures laid down  in Part VII thereof have to be resorted to.  The procedures laid down under  Part VII of the Act are exhaustive.  Rules have been framed prescribing the  mode and manner in which the State vis-‘-vis the company should proceed.   It provides for previous consent of the Appropriate Government, execution  of the agreement, previous inquiry before a consent is accorded, publication  of the agreement, restriction on transfer, etc.  It also provides for statutory  injunction that no land shall be acquired except for the purpose contained in  clause (a) of sub-section (1) Section 40 of the Act for a private company  which is not a Government company.    For the purpose of Section 44B of  the Act, no distinction is made between a private company and a public  limited company.   

16.     The Land Acquisition (Companies) Rules, 1963 for acquisition of  land for the companies have been framed by the Central Government in  exercise of its power under Section 55 of the Act.  It is not in dispute that the  guidelines provided thereunder are followed by the State Government.  

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Concept of constitution of a Land Acquisition Committee appears only from  the Companies Rules; no other provision in respect thereof has been made  either under the Act or the rules framed thereunder.  A bare perusal of sub- rule (1) of Rule 4 of the said Rules categorically states  that the same shall  be applicable where acquisition of land is to be made for the company  envisaged under Part VII.  The State, as indicated hereinbefore, before this  Court has categorically stated that advice rendered by a Sub-Committee of  the Land Acquisition Committee had been taken into consideration by it  with a view to proceed further in the matter.  Rule 4 mandates the  appropriate Government to arrive at a satisfaction in regard to the factors  enumerated therein.  Rule 4 of the Rules reads as under :  \0234. Appropriate Government to be satisfied with regard  to certain matters before initiating acquisition  proceedings \026 (1) Whenever a company makes an  application to the Appropriate Government for  acquisition of any land, that Government shall direct the  Collector to submit a report to it on the following  matters, namely:

(i)     that the company has made its best endeavour to  find out lands in the locality suitable for the purpose of  acquisition;

(ii)    that the company has made all reasonable efforts to  get such lands by negotiation with the persons interested  therein on payment of reasonable price and such efforts  have failed;

(iii)   that the land proposed to be acquired is suitable for  the purpose;

(iv)    that the area of land proposed to be acquired is not  excessive;

(v)     that the company is in a position to utilise the land  expeditiously; and

(vi)    where the land proposed to be acquired is good  agricultural land, that no alternative suitable site can be  found so as to avoid acquisition of that land.

(2)     The Collector shall, after giving the company a  reasonable opportunity, to make any representation in  this behalf, hold an inquiry into the matters referred to in  sub-rule (1) and while holding such enquiry he shall \026  

(i)     in any case where the land proposed to be acquired  is agricultural land consult the Senior Agricultural  Officer of the district whether or not such land is good  agricultural land; (ii)    determine, having regard to the provisions of Secs.  23 and 24 of the Act, the approximate amount of  compensation likely to be payable in respect of the land,  which, in the opinion of the Collector, should be acquired  for the company; and

(iii)   ascertain whether the company offered a  reasonable price (not being less than the compensation so  determined), to the persons interested in the land  proposed to be acquired.

Explanation \026 For the purpose of this rule \023good  agricultural land\024 means any land which, considering the  level of agricultural production and the crop pattern of  the area in which it is situated, is of average or above

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average productivity and includes a garden or grove land.

(3)     As soon as may be after holding the enquiry under  sub-rule (2), the Collector shall submit a report to the  Appropriate Government and a copy of the same shall be  forwarded by the Government to the Committee.

(4)     No declaration shall be made by the Appropriate  Government under Sec. 6 of the Act unless \026  

(i)     the Appropriate Government has consulted the  Committee and has considered the report submitted under  this rule and the report, if any, submitted under Sec. 5-A  of the Act; and

(ii)    the agreement under Sec. 41 of the Act has been  executed by the company.\024

17.     The State is also enjoined with a duty to make an inquiry  wherefor an  opportunity of hearing to the company is required to be given.  When the  State intends to proceed with the acquisition of land it must form an opinion  that the lands which are going to be acquired are not good agricultural lands.   The rules by and large lay down a statutory policy in that behalf and  question of ignoring the same by the State does not arise.   18.     We would consider the question as to whether Rule 4 aforementioned   is mandatory or directory or at what stage an inquiry is required to be made,  a little later.  But we must record that it is not the case of the State that Rule  4, despite the fact that acquisition is made in terms of Part VII of the Act,  can be ignored.   19.     The High Court proceeded on the basis that as the State formed an  opinion that the purpose for which the provisions of the Act were taken  recourse to is a public purpose, the provisions of Part II would apply in the  instant case.  We are not unmindful of the fact that the definition of \021public  purpose\022 as contained in Section 3(f) of the Act is an inclusive one.   Therefore, the said definition need not be kept confined to the matters  referred to therein.  But with a view to ascertain as to what should be a  public purpose, we may notice its dictionary meaning as contained in  Black\022s Law Dictionary, Fifth Edition which is as under :

\023Public purpose: In the law of taxation, eminent domain,  etc., this is a term of classification to distinguish the  objects for which, according to settled usage, the  government is to provide, from those which, by the like  usage, are left to private interest, inclination, or liberality.   The constitutional requirement that the purpose of any  tax, police regulation, or particular exertion of the power  of eminent domain shall be the convenience, safety, or  welfare of the entire community and not the welfare of a  specific individual or class of persons.

The term is synonymous with governmental purpose.  As  employed to denote the objects for which taxes may be  levied, it has no relation to the urgency of the public need  or to the extent of the public benefit which is to follow;  the essential requisite being that a public service or use  shall affect the inhabitants as a community, and not  merely as individuals.  A public purposeor public  business has for its objective the promotion of the public  health, safety, morals, general welfare, security,  prosperity, and contentment of all the inhabitants or  residents within a given political division, as, for  example, a state, the sovereign powers of which are  exercised to promote such public purpose or public  business.\024

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20.     General meaning of the word \021public policy\022 has always been held to  be an unruly horse by this Court. [See Gherulal Parakh  v. Mahadeodas  Maiya and Others [See AIR 1959 SC 781].

21.     Our attention has been drawn to a recent decision of this Court in  Pratibha Nema and Others   v. State of  M.P. and Others  [(2003) 10 SCC  626].  Therein, for establishment of a diamond park,  73.3 hectares of dry  land was to be acquired.  The proposal emanated from the General Manager  of the District Industries Centre.  Sanction in principle for acquisition was  given by the Government of Madhya Pradesh; even Section 17 of the Act  was taken recourse to.  The State contributed a token sum of Rs.100/-  towards the cost of acquisition.  This Court clearly noticed that where the  acquisition is for a company, its cost is to be borne entirely by the company  itself, provisions of Part 7 would apply.   But we must hasten to add that the  Bench did not have any occasion to consider the question as to whether the  State is entitled to take recourse to the provisions of both Part II and Part VII  of the Act simultaneously. The Bench furthermore proceeded to consider the  requirements to hold that a public purpose need not be ascertained only from  the point of view of applicability of Part II but also the provisions of  Part  VII, stating :

\02322. Thus the distinction between public purpose  acquisition and Part VII acquisition has got blurred under  the impact of judicial interpretation of relevant  provisions. The main and perhaps the deceive distinction  lies in the fact whether cost of acquisition comes out of  public funds wholly or partly. Here again, even a token  or nominal contribution by the Government was held to  be sufficient compliance with the second proviso to  Section 6 as held in a catena of decisions. The net result  is that by contributing even a trifling sum, the character  and pattern of acquisition could be changed by the  Government. In ultimate analysis, what is considered to  be an acquisition for facilitating the setting up of an  industry in the private sector could get imbued with the  character of public purpose acquisition if only the  Government comes forward to sanction the payment of a  nominal sum towards compensation. In the present state  of law, that seems to be the real position.\024

22.     We need not go into the nicety of the question, keeping in view the  fact that there are binding precedents in that behalf that in a case of  acquisition for a public company, public purpose is not to be assumed and  the point of distinction between acquisition of lands under Part II and Part  VII would be the source of funds to cover the cost of acquisition.  This Court  in Pratibha Nema  (supra) held :

\023\005In other words, the second proviso to Section 6(1) is  the main dividing ground for the two types of  acquisition\005\024      

23.     The undisputed fact is that apart from the inquiry conducted by the  Land Acquisition Committee in terms of the provisions of Part VII of the  Act, admittedly an agreement had also been entered into on 27.02.2003.

24.     The agreement in terms of the provisions referred to above by the  Company and the Government, a satisfaction of the Government in that  behalf  for acquisition of the piece of land described in therein was  arrived  at on the premise that the said work is likely to be useful for the company.

25.     Section 41 of the Act has specifically been mentioned for the purpose  of entering into the agreement.  The terms and conditions of the agreement  envisaged : (i) the company was to pay to the Government of Punjab the  amount of compensation; (ii) it was to deposit all the sums demanded by the  Collector in anticipation, which may be necessary therefor; (iii) only on

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payment by the company it was to get possession wherefor also the  Government reserved its discretion; (iv) use by the company of the land only  for the purpose for which acquisition was made was insisted.; (v) provision  in regard to time for completion of the project.   

26.     The Government reserved the right of resumption of the land, if time  schedule prescribed therein is not adhered to; in which event land shall vest  in the Government.  The opinion of the Government in that behalf is said to  be final.

27.     Whether in the aforementioned situation, the provisions of Part II can  be said to have been complied with, is the question.

28.     Submission of Mr. Sorabjee is that any declaration that the land has  been acquired for public purpose is conclusive.

29.     We would proceed on the said assumption but it is a well-settled  principle of law that where an action taken is without jurisdiction, even an  order which is conclusive may be subject to judicial review.  Jurisdictional   errors, as is well-known, are divided in two broad categories \026 (i) an order  passed which is wholly without jurisdiction; and (ii)  Although the action is  not ultra vires, the jurisdictional error has been committed while exercising  jurisdiction. [See John v. Rees and Others (1969) 2 All ER 274].

30.     In R.L. Arora v. State of U.P. [(1962) Supp 2 SCR 149], this Court  held : \023Then it was urged on behalf of the respondents that s.  6(3) makes the purpose noted in the notification under s.  6(1) not justiciable. We have not been able to understand  how that provision helps the respondents. All that s. 6(3)  says is that the declaration shall be conclusive evidence  that the land is needed for a public purpose or for a  company. In this case the declaration was that the land  was needed for a company and that according to s. 6(3) is  conclusive evidence that the land is so needed. Now it is  not the case of the appellant that the land was not needed  for the Works in the present case, nor does the appellant  say that though the land was needed for some other  purpose, the notification falsely declares that it was  needed for the Works. In the circumstances the  conclusiveness envisaged by s. 6(3) is of no assistance to  the solving of the problem with which we are concerned  in the present case.\024

31.     Mr. Sorabjee has strongly relied upon a decision of this Court in  Smt.  Somawanti and Others v. The State of Punjab and Others [AIR 1963 SC 151  :  1963 (2) SCR 774].                  In Somawanti (supra), this Court opined :

       \023Though we are of the opinion that the courts are  not entitled to go behind the declaration of the  Government to the effect that a particular purpose for  which the land is being acquired is a public purpose we  must emphasise that the declaration of the Government  must be relatable to a public purpose as distinct from a  purely private purpose. If the purpose for which the  acquisition is being made is not relatable to a public  purpose then a question may well arise whether in  making the declaration there has been, on the part of the  Government a fraud on the power conferred upon it by  the Act. In other words the question would then arise  whether that declaration was merely a colourable  exercise of the power conferred by the Act, and,  therefore, the declaration is open to challenge at the

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instance of the party aggrieved. To such a declaration the  protection of s. 6(3) will not extend. For, the question  whether a particular action was the result of a fraud or  not is always justiciable, provisions such as s. 6(3)  notwithstanding.\024                                                            [Emphasis supplied]

32.     When an order is passed without jurisdiction it amounts to colourable  exercise of power.  Formation of opinion must precede application of mind.   Such application of mind must be on the materials brought on records.  The  materials should be such which are required to be collected by the  authorities entitled therefor.  The authorities must act within the four-corners  of the statute.  An opinion formed even on the basis of an advice by an  authority which is not contemplated under the statute render the decision bad  in law.  A statutory authority is bound by the procedure laid down in the  statute and must act within the four-corners thereof.   

33.     The effect of contribution of a sum of Rs.100/- by the State purported  to be towards the amount of compensation,  may not be noticed.

       In Somawanti (supra) although this Court while upholding that  contribution of sum of Rs.100/- as a part of the cost of acquisition may  subserve the requirement of law, proceeded to opined :

       \023We would like to add that the view taken in  Senga Naicken’s case [I.L.R. 50 Mad. 308 : AIR 1927  Mad. 245] has been followed by the various High Courts  of India. On the basis of the correctness of that view the  State Governments have been acquiring private  properties all over the country by contributing only token  amounts towards the cost of acquisition. Titles to many  such properties would be unsettled if we were now to  take the view that ’partly at public expense’ means  substantially at public expense. Therefore, on the  principle of stare decisis the view taken in Senga  Naicken’s case [I.L.R. 50 Mad. 308 : AIR 1927 Mad.  245] should not be disturbed. We would, however, guard  ourselves against being understood to say that a token  contribution by the State towards the cost of acquisition  will be sufficient compliance with the law in each and  every case. Whether such contribution meets the  requirements of the law would depend upon the facts of  every case. Indeed the fact that the State’s contribution is  nominal may well indicate, in particular circumstances  that the action of the State was a colourable exercise of  power. In our opinion ’part’ does not necessarily mean a  substantial part and that it will be open to the Court in  every case which comes up before it to examine whether  the contribution made by the State satisfies the  requirement of the law. In this case we are satisfied that it  satisfies the requirement of law. What is next to be  considered is whether the acquisition was only for a  company because the compensation was to come almost  entirely out of its coffers and, therefore, it was in reality  for a private purpose as opposed to public purpose. In  other words, the question is whether there was on the part  of the Government a colourable exercise of power.  Elaborating the point it is said that the establishment of a  factory for manufacturing refrigeration equipment is  nothing but an ordinary commercial venture and can by  no stretch of imagination fall within the well-accepted  meaning of the expression ’public purpose’, that even if it  were to fall within that expression the factory is to be  established not by the Government, nor by Government  participation but solely by the respondent No. 6, a public

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limited concern and that, therefore, the concern could  acquire land for such a purpose only after complying  with the provisions of Part VII and that the use of the  provisions of s. 6(1) is merely a colourable device to  enable the respondent No. 6 to do something which,  under terms of s. 6(1), could not be done.\024

[Emphasis supplied]

34.     Strong reliance has also been placed by the High Court in Jage Ram  and Others v. The State of Haryana and Others [AIR 1971 SC 1033 : (1971)  1 SCC 671] for the proposition that once the Government had contributed  any sum towards the cost of the acquisition of land, it was not necessary for  the Government to proceed under Part VII of the Act and, therefore, does not  lie in the mouth of State that acquisition was under Part II.

35.     In this case we may notice that purported contribution had been made  only after the writ petitions were filed.  Ordinarily, this Court would not  have gone into the said question but the agreement provides for payment of  entire compensation by the company.  We do not know as to at what stage  the State thought it fit to meet a part of the expenses for acquisition of land.   Such an opinion on the part of the State having regard to the statutory  scheme should have been formed prior to entering into the agreement itself.  The agreement does not mention about any payment of a part of  compensation by the State.  We, in absence of any other material on record,  must hold that the State had not formed any opinion in that behalf at least  when the agreement was executed.  The wisdom in all probabilities dawned  on the officers of the State at a later stage.

36.     Satisfaction on the part of the State required to be arrived at upon  formation of opinion on the basis of materials brought on records for the  purpose of Part II of the Act are different from that of Part VII.  Once the  appropriate Government arrives at a decision that the land sought to be  acquired is needed for a public purpose,  the court would not go behind it, as  the same may furnish a valid argument for upholding an acquisition under  Part II.  But when an acquisition is made under Part VII, the conditions  precedents therefor as contained in the Companies Rules must be satisfied.   On the face of record, if it can be shown that the Government had ignored  the mandatory provisions of the Act, the acquisition would have to be struck  down.   

37.     In Shyam Behari and Others v. State of Madhya Pradesh and Others  [1964 (6) SCR 636], it was held :

\023\005In the second place, the declaration under s. 6 may be  made that land is needed for a company in which case the  entire compensation has to be paid by the company.  It is  clear therefore that where the entire compensation is to  be paid by a company, the notification under s.6 must  contain a declaration that the land is needed for a  company.  No notification under s. 6 can be made where  the entire compensation is to be paid by a company  declaring that the acquisition is for a public purpose, for  such a declaration requires that either wholly or in the  part, compensation must come out of public revenues or  some fund controlled or managed by a local authority\005\024                      

38.     Distinction between acquisition under Part II and Part VII are self- evident.  The  State was not only obligated to issue a notification clearly  stating as to whether the acquisition is for a public purpose or for the  company.  Section 6 categorically states so, as would appear from the  second proviso appended thereto.

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39.     A declaration is to be made either for a public purpose or for a  company.  It cannot be  for both.    

40.     It is furthermore trite that Land Acquisition Act is an expropriatory    legislation.  [See  Hindustan Petroleum Corporation Ltd. v. Darius Shapur  Chenai & Ors.  (2005) 7 SCC 627;  and Chairman, Indore Vikas Pradhikaran  v. M/s Pure Industrial Cock & Chem. Ltd. & Others  [2007 (8) SCALE 110]

41.     Expropriatory legislation, as is well-known, must be strictly  construed.  When the properties of a citizen is being compulsorily acquired  by a State in exercise of its power of Eminent Domain, the essential  ingredients thereof, namely, existence of a public purpose and payment of  compensation are principal requisites therefor.  In the case of acquisition of  land for a private company, existence of a public purpose being not a  requisite criteria, other statutory requirements call for strict compliance,  being imperative in character.

42.     Another question which arises for our consideration is as to whether   Rule 4 of the Companies Rules is mandatory or directory in nature.  The  High Court held it to be directory.  

43.     Rule 4 of the Rules employs the word \021shall\022 not once place but twice.   Ordinarily, it is imperative in character.  No reason has been shown before  us as to why it should be held to be directory provision particularly when the  Land Acquisition Act is an expropriatory legislation.

44.     In State of Gujarat and Another v. Patel Chaturbhai Narsibhai and  Others [AIR 1975 SC 629], this Court held :         \02315. The contention of the State that the enquiry  under Rule 4 is administrative and that the owner of the  land is not entitled to be given an opportunity to be heard  at the enquiry cannot be accepted for these reasons. The  enquiry under Rule 4 shows that the Collector is to  submit a report among other matters that the Company  has made all reasonable efforts to get such lands by  negotiation with the persons interested therein on  payment of reasonable price and such efforts have failed.  The persons interested therein are the owners of the land  which is proposed to be acquired. The Company at such  an enquiry has to show that the company made  negotiations with the owners of the land. The owners of  the land are, therefore, entitled to be heard at such an  enquiry for the purpose of proving or disproving the  reasonable efforts of the company to get such land by  negotiation. The contention on behalf of the State that the  owners of the land will get an opportunity when an  enquiry is made under Section 5A of the Act is equally  unsound. Section 17 of the Act provides that the  appropriate Government may direct that the provisions of  Section 5A shall not apply, and if it does so direct a  declaration may be made under Section 6 at any time  after the publication of the notification under Section 4 of  the Act. Therefore, the enquiry under Section 5A may not  be held.

45.     In General Government Servants Cooperative Housing Society Ltd.,  Agra etc. v. Sh. Wahab Uddin and Others etc.  [(1981) 2 SCC 352], this  Court held :         \02313. Sub-rule (1) requires the Government to direct  the Collector to submit a report to it on the matters  enumerated in Clauses (i) to (vi) of the Sub-rule (1)  which is for the benefit of the Company. The purpose is  to avoid acquisition of land not suitable for a Company.  Clause (ii) of Sub-rule (1) requires that the Company has  to make all reasonable efforts to get such lands by

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negotiation with the person interested therein on payment  of reasonable prices and that such efforts have failed. The  purpose of Clause (ii) seems to be to avoid unnecessary  land acquisition proceedings and payment of exorbitant  prices. The purpose of Clauses (iii), (iv) and (v) is  obvious. The purpose of Clause (vi) is to avoid  acquisition of good agricultural land, when other  alternative land is available for the purpose. Sub-rule 2 of  Rule 4 requires the Collector to give reasonable  opportunity to the Company so that the Collector may  hold an inquiry into the matters referred in Sub-rule (1).  The Collector has to comply with Clauses (i), (ii) and (iii)  of Sub-rule 2 during the course of the inquiry under Sub- rule (1). The Collector under Sub-rule 3 then has to send  a copy of his report of the inquiry to the appropriate  Government and a copy of the report has to be forwarded  by the Government to the Land Acquisition Committee  constituted under Rule 3 for the purpose of advising the  Government in relation to acquisition of land under Part  VII of the Act, the duty of the Committee being to advise  the Government on all matters relating to or arising out  of acquisition of land under Part VII of the Act (Sub-rule  (5) of Rule 3). No declaration shall be made by the  appropriate Government under Section 6 of the Act  unless the Committee has been consulted by the  Government and has considered the report submitted by  the Collector under Section 5A of the Act. In addition,  under Clause (ii) of Sub-rule (4) of Rule 4, the Company  has to execute an agreement under Section 41 of the Act.  The above consideration shows that Rule 4 is mandatory;  its compliance is no idle formality, unless the directions  enjoined by Rule 4 are complied with, the notification  under Section 6 will be invalid. A consideration of Rule 4  also shows that its compliance precedes the notification  under Section 4 as well as compliance of Section 6 of the  Act.\024

46.     In M/s Fomento Resorts and Hotels Ltd. v. Gustavo Ranato Da Cruz  Pinto and Others [(1985) 2 SCC 152], a three-Judge Bench of this Court  categorically held :         \02317. Reading the Act and the Rules and keeping in  view the scheme of the Act, it is apparent, in our opinion,  that before the issuance of Section 4 notification, there is  no requirement as such of compliance with the procedure  contemplated by Rule 4 of the Rules. We are therefore  unable to subscribe to the view that enquiry by Rule 4  must precede the issuance of notification under Section  4(1) of the Act. Furthermore as indicated before certain  matters which are required to be done under Rule 4 can  not be done because the officer or the person authorised  by him would have no authority unless notification under  Section 4 is issued.\024

47.     Repelling a contention that the provisions of Sections 6 to 37 are not  required to be complied with in view of Section 39 thereof, it was held :

\023\005This Section, in our opinion, has no relevance for  determining whether to be a proper acquisition, enquiry  contemplated under Rule 4 must precede issuance of the  notification under Section 4 of the Act\005\024  

48.     The lands in question are recorded as Shahi lands.  It is not in dispute  that they are agricultural lands.  The Act contemplates that such lands may  not be acquired.

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49.     We may  notice that in Collector (District Magistrate) Allahabad and  Another etc. v.  Raja Ram Jaiswal etc., (1985) 3 SCC 1] this Court held that  such a contention requires an indepth study, stating :         \02327. The validity of the impugned notification was  also challenged on the ground that even though the  acquisition is for the Sammelan, a company, the  notification was issued without first complying with the  provisions of Rule 4 of the Land Acquisition  (Companies) Rules, 1963. The High Court has negatived  this challenge. We must frankly confess that the  contention canvassed by Mr. Nariman in this behalf  would necessitate an indepth examination of the  contention. However, we consider it unnecessary in this  case to undertake this exercise because the judgment of  the High Court is being upheld for the additional reason  that the acquisition in this case was mala fide. Therefore,  we do not propose to examine the contention under this  head.\024

       It is, on that premise, we have undertaken some study in this behalf.  

50.     The decision of this Court in Somawanti (supra) holding that the stage  at which Rule 4 is required to be complied with is not the stage prior to  issuance of a notification under Section 4 of the Act, but declaration under  Section 6 does not appear to be correct from the decisions of this Court in  Patel Chaturbhai Narsibhai (supra) and Wahab Uddin (supra), the earlier  binding precedent, with utmost respect, having not been taken into  consideration in its entirety.   

51.     In  Abdul Husein Tayabali & Others v. State of Gujarat & Others  1968 (1) SCR 597], this Court observed :       \023\005Next it was urged that the inquiry under Rule 4 has to  be held after the notification under section 4 is issued and  not before and therefore the inquiry held by Master was  not valid. We do not find anything in Rule 4 or in any  other Rule to warrant such a proposition. The inquiry, the  report to be made consequent upon such inquiry,  obtaining the opinion of the Land Acquisition  Committee, all these are intended to enable the  Government to come to a tentative conclusion that the  lands in question are or are likely to be needed for a  public purpose and to issue thereafter section 4  notification\005.\024

52.     In Srinivasa Cooperative House Building Society Ltd. v. Madam  Gurumurthy Sastry and Others [(1994) 4 SCC 675], noticing Somavanti  (supra) wherein it was held that the manufacturing of the articles was for the  benefit of the community and to save substantive part of foreign exchange  and staff quarters to workmen, it was held :  \023\005On the other hand, in the case of an acquisition for a  company, the compensation has to be paid by the  company. In such a case there can be an agreement under  Section 41 for transfer of the land acquired by the  Government to the company on payment of the cost of  acquisition, as also other matters. The agreement  contemplated by Section 41 is to be entered into between  the company and the appropriate Government only after  the latter is satisfied about the purpose of the proposed  acquisition, and subject to the condition precedent that  the previous consent of the appropriate Government has  been given to the acquisition. Section 6 is in terms, made  subject to the provisions of Part VII of the Act. The  declaration for acquisition for a company shall not be

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made unless the compensation to be awarded for the  property is to be paid by a company. In the case of an  acquisition for a company simipliciter, the declaration  cannot be made without satisfying the requirements of  Part VII. But that does not necessarily mean that an  acquisition for a company for a public purpose cannot be  made otherwise than under the provisions of Part VII, if  the cost or a portion of the cost of the acquisition is to  come out of public funds. In other words, the essential  condition for acquisition is for a public purpose and that  the cost of acquisition should be borne, wholly or in part,  out of public funds. Hence an acquisition for a company  may also be made for a public purpose, within the  meaning of the Act, if a part or the whole of the cost of  acquisition is met by public funds. If, on the other hand,  the acquisition, for a company is to be made at the cost  entirely of the company itself, such an acquisition comes  under the provisions of Part VII\005\024        53.     The approach of the High Court in this behalf, in our opinion, is  totally erroneous.  A provision of a statute is either mandatory or directory.   Even if a provision is directory, the same should be substantially complied  with.  It cannot be ignored in its entirety only because the provision is held  to be directory and not an imperative one.   

54.     In this case admittedly there has been no compliance of Rule 4.  If  Rule 4 has not been complied with, the exercise of jurisdiction under Part  VII must be held to have been erroneous.

55.     For the reasons aforementioned, the impugned judgment cannot be  sustained, which is set aside accordingly.  The appeals are allowed with  costs.   Counsel\022s  fee assessed at Rs.25,000/- (Rupees twenty five thousand  only).