Reportable  IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5192 OF 2002

The General Manager, Oil & Natural Gas Corporation Ltd. … Appellant

Vs.

Rameshbhai Jivanbhai Patel & Anr. … Respondents

(With CA Nos.5193,5194,5195,5196,5197 and 5198 of 2002)

O R D E R

R. V. Raveendran J.,  

These  appeals  by  special  leave  are  by  the  beneficiary  of

acquisition  (ONGC),  aggrieved  by  the  quantum  of  compensation

awarded to the respondents.  

2. An  extent  of  13  Hectares  78  Are  and  97  sq.m.  in  Ijapura

Village, District  Mehsana, Gujarat, was acquired for one of ONGC

installations,  namely  “Influent  pit-Santhal  I’,  under  preliminary

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notification dated 15.9.1992 issued under section  4(1)  of  the Land

Acquisition Act, 1894 (‘Act’ for short) followed by final notification

dated  31.3.1993  under  section  6  of  the  Act.  The  Special  Land

Acquisition  Officer,  ONGC,  passed  an  Award  dated  16.11.1994

determining the market price as Rs.2.10 per sq.m. The respondents -

land owners, sought reference to civil court claiming Rs.30 per sq.m.

3. Before the Reference Court, the respondents did not place any

evidence  by  way  of  contemporaneous  sale  transactions  in  the

neighbourhood. But they placed reliance on some awards passed by

the said Court in other acquisition cases, in particular, the following

two awards:

(i)   Ex.  15  –  relating  to  acquisition  of  lands  for  ONGC,  in  the neighbouring  Santhal  village  under  preliminary  notification  dated 6.1.1987,  wherein compensation  at  the rate  of Rs.10  per  sq.m was awarded.  

(ii) Ex. 16 – relating to acquisition of lands at Chalasana village at a  distance  of  4  Kms.  from   Ijapura  village  under  preliminary notification  dated  31.7.1986,  wherein  compensation  at  the  rate  of Rs.10 per sq.m was awarded.   

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The Land Acquisition Officer did not choose to adduce any evidence

nor produce the sale deeds referred to in his award in support of the

market value arrived at by him at Rs.2.10 per sq. m.

4. The Reference Court  allowed the claim in  part  by Judgment

and Award dated 7.10.1999.  It  determined the market value of  the

acquired lands at Rs.17.10 per sq.m based on the said two awards –

Ex.  15  relating  to  the  neighbouring  Santhal  village  and  Ex.  16

relating to Chalsana village. It found that under the said awards Rs.10

per sq.  m. has been awarded for  acquisitions  in the year 1986 and

1987. As the acquisition in the cases on hand was on 15.9.1992, it

increased the value cumulatively at the rate of 10% per annum and

arrived at a value of Rs.19.10 per sq.m by treating the gap between

the relied-on-acquisitions and the present acquisition as six and half

years.  Thereafter,  it  reduced  Rs.2/-  per  sq.  m.  therefrom  for  the

distance factor (distance between Ijapura and the other two villages)

to  arrive  at  the market  value  as  Rs.17.10 per  sq.m. The Reference

Court  also  awarded  additional  compensation  under  section  23(1A)

and solatium under section 23(2) of the Act. It awarded interest under

section 28 of the Act at 9% PA for a period of one year from the date

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of  taking  possession  and 15% per  annum thereafter,  on  the  actual

compensation  amount,  and  not  on  the  additional  amount  under

section 23(1A) or the solatium under section 23(2) of the Act.  

5. The appellant challenged the said award of the Reference Court

before the High Court. The High Court dismissed the appeals holding

that the determination of the market value by the Reference Court did

not call for interference.  

6. The appellant urged the following two contentions in support

of the appeals against the said judgment:

(i) Ex.  15  and  Ex.  16  did  not  relate  to  the  Ijapura  village,  but

related to other villages, namely neighbouring Santhal and far away

Chalsana (at a distance of 4 kms). The market value of lands in those

villages cannot furnish the basis for determining the market value in

regard to the acquired lands situated at Ijapura.

(ii) Even  if  Ex.  15  and  16  could  validly  be  the  basis  for

determining the market value of lands at Ijapura, the Reference Court

and High Court committed three errors in calculating the increase: (a)

in applying an annual increase at a high rate of 10% per annum; (b) in

calculating the annual increase cumulatively instead of at a flat rate;

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and (c) in calculating the increase for a period of six and half years

instead of for five years.  

The appellant submitted that even if Ex.15 was to be the basis, having

regard to the date of relied-on acquisition under Ex.15 (6.1.1987) and

date  of  present  acquisition  of  the  Ijapura  lands  (15.9.1992),  the

increase ought to have been calculated for only five years; that the

percentage of increase should not have been more than a flat rate of

5% per annum; that therefore, the increase ought to have been only

Rs.2.50 for  5 years and the market value of Santhal  lands in 1992

would have  been Rs.12.50  per  sq.m. and not  Rs.19.10;  and that  if

Rs.2/-  was  deducted  for  the  distance  factor,  as  was  done  by  the

Reference Court, the market price would be only Rs.10.50 per sq. m.

and not Rs.17.10 per sq.m.

Whether reliance on Ex.15 and 16 erroneous?  

7. The fact  that  Santhal  village  adjoins  Ijapura  is  not  disputed.

The  fact  that  Ex.15  related  to  the  acquisition  of  lands  in  the

neighbouring Santhal village, for the benefit of the appellant - ONGC

is also not disputed. The Reference Court and the High Court have

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recorded  a  concurrent  finding  of  fact  that  having  regard  to  the

proximity and similarity between the lands at Santhal covered by Ex.

15 and the acquired lands in Ijapura, the market value determined in

regard  to  the  Santhal  lands  afforded  a  reasonable  basis  for

determining  the  market  value  of  the  acquired  lands.  We also  find

from the evidence of one of the claimants – Laljibhai examined as

CW1, that the boundaries of Santhal, Kasalpura and Modipur villages

are  adjacent  to  the  acquired  lands;  and  that  the  lands  of  one

Ramanbhai  Keshavlal  of  Santhal  Village  acquired  on  6.1.1987

(subject matter of Ex.15) and the acquired lands were in neighbouring

areas divided only by three or four agricultural fields. We also find

that the Ex. 15 was also the basis for determining the market value of

lands which were the subject matter of another acquisition for ONGC

in Santhal and other villages under notification dated 31.7.1986; and

that  this  Court  affirmed  the  award  of  compensation  at  the  rate  of

Rs.10 per sq. m. in regard to such acquisition relying on Ex. 15 (vide

in  ONGC Ltd. v. Sendhabhai Vastram Patel & Ors., 2005 (6) SCC

454). We are therefore of the view that in the absence of any evidence

relating to sale transactions or acquisitions relating to the village of

Ijapura itself, and having regard to the evidence relating to proximity

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of Santhal lands, Ex.15 offered a reasonable basis for determining the

market  value  of  the  acquired  lands  in  Ijapura.   In  view of  Ex.15

relating  to  neighbouring  Santhal,  Ex.16  relating  to  Chalsana  loses

relevance.  

What should be the increase per annum?

8. The contention of appellant is that even if Ex. P15 should be

the basis, in the absence of any specific evidence regarding increase

in prices between 1987 and 1992, the annual increase could not be

assumed to be 10% per year.  

9. On  the  other  hand,  the  learned  counsel  for  the

respondents/claimants submitted that the rate of escalation in market

value at the relevant time was in the range of 10% to 15% per annum.

He relied on  the  decisions  of  this  Court  in  Ranjit  Singh  v.  Union

Territory of Chandigarh [1992 (4) SCC 659], and Land Acquisition

Officer and Revenue Divisional Officer v. Ramanjulu & Ors. 2005 (9)

SCC 594 wherein this  Court had accepted an escalation of ten per

cent  per  annum, and the decision in  Krishi  Utpadan Mandi  Samiti

Sahaswom v. Bipin Kumar 2004 (2) SCC 283 where this Court had

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accepted an escalation of 15% per annum. He, therefore, submitted

that  escalation at  the rate of 10 per cent  adopted by the Reference

Court  and approved by the High Court  is a reasonable  and correct

standard to be applied.  

10. We have examined the facts of the three decisions relied on by

the respondents. They all related to acquisitions of lands in urban or

semi-urban areas. Ranjit Singh related to acquisition for development

of Sector 41 of Chandigarh.  Ramanjulu related to acquisition of the

third phase of an existing and established industrial estate in an urban

area.  Bipin  Kumar related  to  an  acquisition  of  lands  adjoining

Badaun-Delhi  Highway  in  an  semi-urban  area  where  building

construction activity was going on all around the acquired lands.

11. Primarily, the increase in land prices depends on four factors –

situation  of  the  land,  nature  of  development  in  surrounding  area,

availability of land for development in the area, and the demand for

land  in  the  area.  In  rural  areas  unless  there  is  any  prospect  of

development in the vicinity, increase in prices would be slow, steady

and gradual, without any sudden spurts or jumps. On the other hand,

in urban or semi-urban areas, where the development is faster, where

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the demand for land is high and where there is construction activity

all around, the escalation in market price is at a much higher rate, as

compared to rural areas. In some pockets in big cities, due to rapid

development and high demand for land, the escalations in prices have

touched even 30% to 50% or more  per  year,  during  the  nineties.

On  the  other  extreme,  in  remote  rural  areas  where  there  was  no

chance  of  any  development  and  hardly  any  buyers,  the  prices

stagnated for years or rose marginally at a nominal rate of 1% or 2%

per  annum.  There  is  thus  a  significant  difference  in  increases  in

market  value  of  lands  in  urban/semi-urban  areas  and  increases  in

market value of lands in the rural areas. Therefore if the increase in

market  value  in  urban/semi-urban  areas  is  about  10% to  15% per

annum, the corresponding increases in rural areas would at best be

only around half of it, that is about 5% to 7.5% per annum. This rule

of thumb refers to the general trend in the nineties, to be adopted in

the  absence  of  clear  and  specific  evidence  relating  to  increase  in

prices. Where there are  special reasons for applying a higher rate of

increase,  or any specific evidence relating to the actual  increase in

prices, then the increase to be applied would depend upon the same.   

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12. Normally,  recourse  is  taken  to  the  mode of  determining  the

market  value  by  providing  appropriate  escalation  over  the  proved

market value of nearby lands in previous years (as evidenced by sale

transactions  or  acquisition),  where  there  is  no  evidence  of  any

contemporaneous  sale  transactions  or  acquisitions  of  comparable

lands  in  the  neighbourhood.  The  said  method  is  reasonably  safe

where the relied-on-sale transactions/acquisitions precedes the subject

acquisition  by  only  a  few  years,  that  is  upto  four  to  five  years.

Beyond that  it  may be unsafe,  even if  it  relates  to  a  neighbouring

land. What may be a reliable standard if the gap is only a few years,

may become unsafe and unreliable standard where the gap is larger.

For example, for determining the market value of a land acquired in

1992, adopting the annual increase method with reference to a sale or

acquisition in 1970 or 1980 may have many pitfalls. This is because,

over  the  course  of  years,  the  ‘rate’  of  annual  increase  may  itself

undergo drastic  change  apart  from the  likelihood  of  occurrence  of

varying  periods  of  stagnation  in  prices  or  sudden  spurts  in  prices

affecting the very standard of increase.  

13. Much more unsafe is the recent trend to determine the market

value of acquired lands with reference to future sale transactions or

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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. Be

that as it may.

14. In this case, the acquisition was in a rural area. There was no

evidence of any out-of-ordinary developments or increases in prices

in the area. We are of the view that providing an escalation of 7.5%

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per annum over the 1987 price under Ex.15, would be sufficient and

appropriate to arrive at the market value of acquired lands.   

Whether the increase should be at a cumulative rate or a flat rate?

15. The increase in market value is calculated with reference to the

market  value  during  the  immediate  preceding  year.  When  market

value is sought to be ascertained with reference to a transaction which

took place some years before the acquisition, the method adopted is to

calculate the year to year increase. As the percentage of increase is

always  with  reference  to  the  previous  year’s  market  value,  the

appropriate method is to calculate the increase cumulatively and not

applying a flat rate. The difference between the two methods is shown

by the following illustration (with reference to a 10% increase over a

basic price of Rs.10/- per sq.m):

Year By flat rate increase method By cumulative increase method

1987 (Base Year)

                                 10.00                         10.00

1988 10 + 1=                      11.00 10.00 + 1.00 =  11.00 1989 11 + 1=                      12.00 11.00 + 1.10=   12.10 1990 12 + 1=                      13.00 12.10 + 1.21=   13.31 1991 13 + 1=                      14.00 13.31 + 1.33 =  14.64 1992 14 + 1=                      15.00 14.64 + 1.46 =  16.10

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16. We may also point out that application of a flat rate will lead to

anomalous results. This may be demonstrated with further reference

to the  above illustration.  In regard to  the  sale  transaction  in  1987,

where  the  price  was  Rs.10  per  sq.m,  if  the  annual  increase  to  be

applied is  a flat  rate  of  10%, the increase will  be Rs.1 per  annum

during each of the five years 1988, 1989, 1990, 1991 and 1992. If the

price increase is to be determined with reference to sale transaction of

the  year  1989  when  the  price  was  Rs.12  per  sq.m,  the  flat  rate

increase  will  be  Rs.1.20  per  annum, for  the years  1990,  1991  and

1992.  If  the  price  increase  is  determined  with  reference  to  a  sale

transaction of the year 1990 when the price was Rs.13 per sq.m, then

the flat rate increase will be Rs.1.30 per annum for the years 1991 and

1992. It will thus be seen that even if the percentage of increase is

constant, the application of a flat rate leads to different amounts being

added depending upon the market value in the base year. On the other

hand, the cumulative rate method will lead to consistency and more

realistic  results.  Whether  the  base  price  is  Rs.10/-  or  Rs.12/10  or

Rs.13/31,  the  increase  will  lead  to  the  same  result.  The  logical,

practical  and appropriate method is  therefore  to  apply the increase

cumulatively and not at a flat rate.  

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For what period, the increase should be calculated?  

17. The reference court has stated that the gap between 6.1.1987

(the date of transaction covered by Ex.P15) and 15.9.1992 (the date

of acquisition under consideration) was six and half years. It therefore

calculated  the  increase  for  six  and  half  years.  This  is  obviously

erroneous. The actual gap is five years and eight months and not six

and half years. However, for the purpose of calculation, we have to

exclude  the  year  of  the  relied-upon  transaction,  which  is  the  base

year.  If  the year of relied-upon transaction in 1987, the increase is

applied  not  from 1987 itself  but  only from the next  year which is

1988. If the rate was Rs.10 per sq.m. in 1987, and the cumulative rate

of  increase  is  7.5% per  year,  the  price  will  be  Rs.10.75  in  1988,

Rs.11.56 in 1989, Rs.12.42 in 1990, Rs.13.35 in 1991 and Rs.14.35 in

1992. Thus the calculation of increase is only for five years and not

for six and half years.  

What should be the market value of the acquired land?

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18. By applying a cumulative rate of escalation of 7.5% over the

market price of Rs.10 per sq.m in 1987, we find that the market value

in the year 1992 was Rs.14.35. The Reference Court and High Court

had  deducted  Rs.2/-  towards  distance  factor.  As  the  lands  are

similarly situated and are in adjoining villages, it will be sufficient to

deduct Rs.1.35 per sq.m. instead of Rs.2/-. We accordingly determine

the market value as Rs.13/- per sq. m.   

Interest :

19. Subsequent to the decision of the High Court, a Constitution

Bench of this Court in Sunder v. Union of India [2001 (7) SCC 211],

held that the ‘amount awarded’ for the purpose of interest will include

not  only  the  market  value  but  also  the  additional  amount  under

section 23(1A) and solatium under section 23(2) of the Act. In Patel

Joitaram Kalidas  & Ors.  V. Special  Land Acquisition  Officer  and

Anr. LAO 2007 (2) SCC 341, this Court held that the calculation of

interest on the additional amount under section 23(1A) and 23(2) is

automatic  and  consequential,  even  in  the  absence  of  any  specific

appeal by the claimants in respect of non-grant of such interest. At all

events, as we are reducing the compensation from Rs.17.10 to Rs.13

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per sq. meter,  the claimants  are entitled to support  and sustain the

award for the higher amount as per the decision of reference court and

High Court on other factors.

Conclusion :

20. We  accordingly  allow  these  appeals  in  part  and  make  the

following  modification  to  the award  made by the  Reference  Court

confirmed  by  the  High  Court:  The  claimants/respondents  will  be

entitled  to  compensation  at  the  rate  of  Rs.13/-  per  sq.  m.  with

additional amount under section 23(1A) and solatium under section

23(2)  as  awarded.  The  respondents-claimants  will  be  entitled  to

interest at the rates awarded by the reference court (9% per annum for

one  year  and  15  per  cent  per  annum  thereafter)  on  the  total

compensation amount including additional amount under section 23

(1A) and solatium under section 23(2). Parties to bear their respective

costs.

…………………………J (R. V. Raveendran)

New Delhi; …………………………J.

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July 31, 2008. (Lokeshwar Singh Panta)  

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