Supreme Court clarifies liability for compensation in land acquisition: Ultra-Tech Cement vs. Mast Ram (2024)

Date of the Judgment: 20 September 2024

Citation: 2024 INSC 709

Judges: J.B. Pardiwala, J., Manoj Misra, J. (authored by J.B. Pardiwala, J.)

Can a company that acquires a cement plant also be held liable for land acquisition compensation, even if the land was not explicitly transferred to it? The Supreme Court of India recently addressed this complex question in a case involving Ultra-Tech Cement Ltd. and landowners affected by land acquisition for a cement plant. The court clarified the responsibilities of different parties involved in a business transfer and land acquisition process.

Case Background

The case revolves around the acquisition of land in Himachal Pradesh for a cement plant. The State of Himachal Pradesh initiated the acquisition of 56-14 bighas of land in 2008 for Jaypee Himachal Cement project, a unit of Jaiprakash Associates Limited (JAL), citing urgency under Section 17 of the Land Acquisition Act, 1894. This land was intended to serve as a safety zone for the mining area.

Some landowners did not allow authorities to evaluate their properties, leading to delays in determining compensation. The acquisition was challenged in court, but the High Court upheld the acquisition in 2016, stating it was for public purpose. The Land Acquisition Collector (LAC) then passed an initial award in 2018, determining compensation, but noted that a supplementary award would be required for structures not yet evaluated. The initial compensation was paid by JAL and the land was officially transferred to JAL in 2020.

Dissatisfied, the landowners filed another petition in 2018, seeking a supplementary award for damages to structures and crops, and an additional 12% on market value. The High Court ordered the LAC to pass a supplementary award, which was done in 2022, adding over ₹3 crore to the compensation. However, this amount was not paid.

Meanwhile, JAL entered into a Scheme of Arrangement with Ultra-Tech Cement Ltd. (the Appellant) for the transfer of the cement project. The High Court, in the impugned order, directed Ultra-Tech to pay the supplementary compensation, with the option to recover it from JAL. This led to the present appeal before the Supreme Court.

Timeline:

Course of Proceedings

The landowners challenged the acquisition in the High Court, arguing it was not for public purpose. The High Court initially stayed the acquisition but later dismissed the petitions, stating the land contained vital raw material for cement production, which served a public purpose. Following the dismissal of the writ petitions, the LAC passed an initial award for compensation. Dissatisfied with the compensation, the landowners filed another writ petition seeking a supplementary award, which the High Court directed the LAC to pass. The High Court then ordered the Appellant to pay the supplementary compensation, leading to the present appeal.

Legal Framework

The case primarily involves the interpretation of the following:

• The Land Acquisition Act, 1894: Specifically, Section 4 (notification of intention to acquire), Section 16 (taking possession), Section 17 (special powers in cases of urgency), and Section 41 (agreement with appropriate government).
• The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (the 2013 Act): Specifically, Section 24(1)(a) (determination of compensation), Section 38 (power to take possession), and Section 101 (return of unutilized land).
• The Companies Act, 1956: Sections 391 to 394 pertaining to schemes of arrangement.
• Article 300A of the Constitution of India: Right to property.

The 1894 Act was the primary law under which the land was acquired. The 2013 Act was considered for the purpose of determining compensation and the return of unutilized land. The Companies Act, 1956, was considered for the Scheme of Arrangement. Article 300A of the Constitution of India was considered to determine the right to property.

Section 101 of the 2013 Act states:
“101. Return of unutilised land. – When any land acquired under this Act remains unutilised for a period of five years from the date of taking over the possession, the same shall be returned to the original owner or owners or their legal heirs, as the case may be, or to the Land Bank of the appropriate Government by reversion in the manner as may be prescribed by the appropriate Government.”

Section 41 of the Land Acquisition Act, 1894 states:
“41. Agreement with appropriate Government. – If the appropriate Government is satisfied [after considering the report, if any, of the Collector under section 5A, sub-section (2), or on the report of the officer making an inquiry under section 40 that the proposed acquisition is for any of the purposes referred to in clause (a) or clause (aa) or clause (b) of sub-section (1) of section 40, it shall require the Company to enter into an agreement with the appropriate Government, providing to the satisfaction of the appropriate Government for the following matters, namely: – (1) the payment to the appropriate Government of the cost of the acquisition; (2) the transfer, on such payment, of the land to the Company …”

Arguments

Appellant (Ultra-Tech Cement Ltd.) Arguments:

• The initial and supplementary awards were passed against JAL, not the Appellant.
• Under the Scheme of Arrangement, all contingent liabilities related to the “JAL Business” before the effective date (29.06.2017) remain with JAL. The land acquisition proceedings began before this date, and the supplementary award was passed after it.
• JAL paid the initial compensation, acknowledging its liability.
• The subject land was acquired for JAL, and the possession certificate and revenue records are in JAL’s name. The land was not transferred to the Appellant under the Scheme.
• The Appellant only purchased certain assets on a “slump exchange basis” and did not take over JAL as a whole. JAL remains a separate entity.
• A previous Supreme Court order clarified that third-party claims against the Appellant must adhere to the Scheme of Arrangement.
• JAL declared under oath that the subject land is still owned by JAL.

Respondents 1-6 (Landowners) Arguments:

• The land is part of the safety zone for the cement plant now operated by the Appellant.
• The Appellant acquired all assets and liabilities of JAL in 2017, which was affirmed by a tripartite MOU.
• The Appellant had made the payment for the initial award.
• The Appellant and JAL are colluding to avoid paying compensation.
• The land is being used by the Appellant.

Respondent 10 (Land Acquisition Collector, Arki) Arguments:

• The land was acquired for a safety zone for the cement plant, which was taken over by the Appellant in 2016.
• The land is being used by the Appellant, but is recorded in JAL’s name.
• The State’s role was limited to initiating acquisition proceedings, and all costs are to be borne by the company.
• The initial compensation was paid by JAL.
• The supplementary award was passed under court direction.
• The liability for payment should be fixed on the Appellant or JAL, to avoid burdening public funds.

Respondent 11 (Jaiprakash Associates Limited – JAL) Arguments:

• JAL handed over the cement project to the Appellant in 2017, and the land was for mining and safety zone purposes.
• The land is an integral part of the cement project, so the operator should pay the supplementary compensation.
• The Appellant stated that it did not require the land.
• Although symbolic possession was given to JAL, physical possession remained with the landowners.
• The delay in the award frustrated the purpose of acquisition for JAL.
• If the Appellant does not need the land, it should be returned to the landowners, and the initial compensation should be refunded to JAL.
• JAL sold the entire cement project to the Appellant, including the land, so the responsibility for maintaining the safety zone is with the Appellant.

Submissions of Parties

Issues Framed by the Supreme Court

1. Whether the subject land and all other liabilities associated with it were transferred to the Appellant in terms of the Scheme?
2. Whether it was the Appellant or JAL who was legally obliged to pay the compensation amount determined under the Supplementary Award?
3. Whether the land in terms of Section 101 of the 2013 Act can be returned to the Respondent Nos. 1-6 at this stage under the scheme of the Act? In other words, what is the scope of Section 101?
4. Whether the State of Himachal Pradesh, being a welfare state, had the responsibility to ensure full payment of compensation amount determined under the Supplementary Award dated 02.05.2022?

Treatment of the Issue by the Court

Authorities

The Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court used the authorities as follows:

• Kolkata Municipal Corporation & Anr. v. Bimal Kumar Shah & Ors., 2024 SCC OnLine SC 968* – Used to define the sub-rights of a landowner during the acquisition process, emphasizing the right to fair compensation.
• Roy Estate v. State of Jharkhand, (2009) 12 SCC 194* – Used to highlight the importance of following timelines in land acquisition and the need for expeditious compensation.
• Union of India v. Mahendra Girji, (2010) 15 SCC 682* – Used to highlight the importance of following timelines in land acquisition and the need for expeditious compensation.
• Mansaram v. S.P. Pathak, (1984) 1 SCC 125* – Used to highlight the importance of following timelines in land acquisition and the need for expeditious compensation.
• Dharnidhar Mishra (D) and Another v. State of Bihar and Others, 2024 SCC OnLine SC 932* – Used to emphasize that the right to property is a human right.
• State of Haryana v. Mukesh Kumar, (2011) 10 SCC 404* – Used to emphasize that the right to property is a human right.
• Tukaram Kana Joshi and Ors. thr. Power of Attorney Holder v. M.I.D.C. and Ors., (2013) 1 SCC 353* – Used to underscore the obligation of the State to pay adequate compensation and rehabilitate landowners.
• Kukreja Construction Company & Ors. v. State of Maharashtra & Ors., 2024 SCC OnLine SC 2547* – Used to emphasize that compensation is payable immediately without any request from the landowners.
• Ultratech Cement Ltd. v. Tonnu Ram, SLP (C) (Diary) No. 42997 of 2019* – Used to reiterate that third-party claims against the Appellant must adhere to the Scheme of Arrangement.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Scheme of Arrangement: The Court emphasized that the Scheme of Arrangement between the Appellant and JAL clearly stated that liabilities arising before the effective date of the transfer (29.06.2017) remained with JAL. The land acquisition process had begun before this date, and the supplementary award was a continuation of this process.
• Ownership of Land: The Court noted that the subject land was not transferred to the Appellant under the Scheme and remained in JAL’s ownership. Therefore, the liability for compensation could not be transferred to the Appellant.
• Nature of Land Acquisition: The land was acquired for a safety zone, not for direct use in the cement plant operations. Therefore, the argument that the operator of the cement plant should pay the compensation was not accepted.
• Constitutional Mandate: The Court emphasized the State’s duty to ensure fair compensation for landowners, especially when land is acquired under the power of eminent domain. The State should have ensured payment of compensation before taking possession of the land.
• Statutory Obligations: The Court highlighted that the payment of full compensation is a precursor to taking possession of the land as per Section 38 of the 2013 Act. The State failed to ensure this.

Logical Reasoning

Judgment

The Supreme Court held that the High Court’s order directing Ultra-Tech Cement Ltd. to pay the supplementary compensation was incorrect. The Court reasoned that:

• The Scheme of Arrangement between Ultra-Tech and JAL clearly stated that liabilities arising before the effective date remained with JAL.
• The subject land was not transferred to Ultra-Tech and remained in JAL’s ownership.
• The State, as a welfare state, had a constitutional duty to ensure that landowners receive fair compensation.
• The State failed to ensure payment of compensation before taking possession of the land, which is a violation of Section 38 of the 2013 Act and Section 41 of the 1894 Act.

The Court quoted the following from the judgment:

“…Therefore, the State of Himachal Pradesh, being a welfare State, should have ensured the payment of compensation before taking possession of the land. This is a clear violation of Section 38 of the Act, 2013 as well as Section 41 of the Act, 1894. We are of the view that the State of Himachal Pradesh should have intervened proactively to ensure that the landowners get their dues.”

The Court ordered that:

• JAL is liable to pay the supplementary compensation to the landowners.
• The State of Himachal Pradesh shall pay the supplementary compensation to the landowners in the first instance and recover the same from JAL, with interest at the rate of 9% per annum from the date of the supplementary award (02.05.2022).
• The State was given 6 months to complete the payment.

Ratio Decidendi

The ratio decidendi of the judgment is that:

• In cases of business transfers through a Scheme of Arrangement, the liabilities are to be determined based on the terms of the scheme.
• The liability for compensation in land acquisition remains with the entity that was the owner of the land at the time of the acquisition proceedings, unless explicitly transferred through the Scheme.
• The State has a constitutional duty to ensure that landowners receive fair compensation for land acquired under the power of eminent domain.
• The State should ensure payment of compensation before taking possession of the land.

Obiter Dicta

The obiter dicta in the judgment includes:

• The court emphasized that the State should have intervened proactively to ensure that the landowners received their dues.
• The Court highlighted that the right to property is not only a constitutional or statutory right but also a human right.
• The Court reiterated that third-party claims against the Appellant must adhere to the Scheme of Arrangement.

Conclusion

The Supreme Court’s judgment in the Ultra-Tech Cement vs. Mast Ram case clarifies the liability for compensation in land acquisition when a business transfer has occurred. It emphasizes the importance of the terms of the Scheme of Arrangement, the ownership of the land, and the State’s responsibility to ensure fair compensation for landowners. The Court’s decision ensures that landowners are not left without compensation due to complex corporate transactions and that the State fulfills its constitutional duties.