Supreme Court Modifies Land Compensation: Union of India vs. Premlata (2022)

Date of the Judgment: 06 April 2022

Citation: (2022) INSC 376

Judges: M.R. Shah, J. and B.V. Nagarathna, J.

Can the government deduct a fixed percentage for development charges when compensating landowners for acquired land? The Supreme Court of India recently addressed this question in a case involving land acquired for a defense research project. The core issue was whether the High Court had correctly determined the compensation and the appropriate deduction for development charges. This judgment clarifies how courts should approach compensation for large tracts of land, especially when compared to smaller, developed plots. The bench consisted of Justices M.R. Shah and B.V. Nagarathna, with the judgment authored by Justice M.R. Shah.

Case Background

On November 5, 1992, the Ministry of Defence issued a notification under Section 4 of the Land Acquisition Act, 1894, to acquire 65 hectares and 47 R of land in Borkhedi, Nagpur, for its Research and Development Organization. The actual land acquired was about 45 hectares and 89 R, after dropping acquisition proceedings for 19 hectares and 79 R. The dispute specifically concerns four pieces of land (Survey Nos. 40, 41, 43/2, and 44) owned by Premlata, the original claimant. The Land Acquisition Officer awarded compensation at Rs. 1,13,500 per hectare for land in survey No. 43/2 and Rs. 1,35,000 per hectare for land in survey Nos. 40, 41, and 44. Dissatisfied with the award, the claimant sought a reference under Section 18 of the Land Acquisition Act, 1894.

Timeline

Course of Proceedings

The Reference Court enhanced the compensation to Rs. 6 per square foot, after a 25% deduction for development charges. The acquiring body appealed to the High Court, which initially remanded the case for fresh adjudication due to insufficient opportunity for the acquiring body to contest the reference proceedings. On remand, the Reference Court again determined the compensation at Rs. 6 per square foot with a 25% deduction. The original claimant then appealed to the High Court seeking further enhancement of compensation, while the acquiring body filed a cross-objection challenging the enhanced compensation. The High Court modified the Reference Court’s order, maintaining the compensation at Rs. 6 per square foot but increasing the deduction to 1/3rd (33.33%) for development charges.

Legal Framework

The core legal framework in this case is the Land Acquisition Act, 1894. Specifically, Section 4 of the Land Acquisition Act, 1894, deals with the notification for land acquisition, and Section 18 of the Land Acquisition Act, 1894, allows for references to the court for determination of compensation. The Supreme Court also considered established principles concerning the valuation of land and deductions for development charges as laid down in previous judgments.

Arguments

Arguments by the Acquiring Body (Union of India):

• The acquiring body argued that determining compensation on a square foot basis for a large tract of land (45 hectares 89 R) is impermissible. They contended that small plots of land are not comparable to large extents of land for determining compensation.

• The acquiring body submitted that the High Court erred in relying upon sale instances of small plots of land, which fetch higher market values compared to large extents of land. They cited Pitambar Hemlal Badgujar (dead) by LRs. V. Sub. Divisional Officer, Dhule, [(1996) 7 SCC 554] and Land Acquisition Officer & Sub-Collector, Gadwal v. Sreelatha Bhoopal, [(1997) 9 SCC 628] to support this argument.

• They argued that the deduction for development charges should be determined based on the extent of utilization and the cost of development. They contended that the High Court’s deduction of 1/3rd (33.33%) was insufficient, referring to Lal Chand v. Union of India, [(2009) 15 SCC 769] and Union of India v. Dyagala Devamma, [(2018) 8 SCC 485].

Arguments by the Original Claimant (Premlata):

• The claimant argued that both the Reference Court and the High Court correctly determined the market value at Rs. 6 per square foot, considering the potential of the acquired land. They highlighted that adjacent land (Survey No. 42) was sold at Rs. 7 per square foot in 1992. They relied on Bhagwathula Samanna & Others v. Special Tahsildar & Land Acquisition Officer, Visakhapatnam, Municipality, Visakhapatnam, [(1991) 4 SCC 506] and Trishala Jain v. State of Uttaranchal, [(2011) 6 SCC 47] to support the use of small plot sale examples.

• The claimant contended that the compensation should be at least Rs. 8 per square foot, considering a 15% increase from the sale price of the adjacent land. They argued that the High Court incorrectly increased the deduction for development charges from 25% to 33.33%.

• The claimant argued that since the adjacent land had a deduction of only 15%, the same should be applied to their land. They also argued that considering the land was for a Research & Development project and the long litigation, no deduction should have been granted, relying on Nelson Fernandes & Others v. Special Land Acquisition Officer, South Goa & Others, [(2007) 9 SCC 447].

• The claimant argued that the sale instances relied upon by them were undervalued. They also relied on prospective purchasers and the expert valuer’s report to prove that the valuation should be in the range of Rs. 28 to Rs. 40 per square foot, citing Raghubans Narain Singh v. Uttar Pradesh Government through Collector of Bijnor, [AIR 1967 SC 465], Mahesh Dattatray Thirthkar v. State of Maharashtra, [(2009) 11 SCC 141] and Udho Dass v. State of Haryana, [(2010) 12 SCC 51].

Innovativeness of the argument: The claimant’s argument that no deduction should be applied due to the purpose of acquisition and long litigation is a novel approach.

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the High Court was justified in determining the compensation on a square foot basis for a large extent of land.
2. Whether the High Court was justified in relying upon the sale instances of small plots of land for determining the compensation for a large extent of land.
3. Whether the High Court was justified in deducting 1/3rd (33.33%) towards development charges.

Treatment of the Issue by the Court

Authorities

Cases Relied Upon by the Court:

• Pitambar Hemlal Badgujar (dead) by LRs. V. Sub. Divisional Officer, Dhule [(1996) 7 SCC 554] – Supreme Court of India: This case was cited to emphasize that compensation should generally not be determined on a square foot basis for large tracts of land.
• Land Acquisition Officer & Sub-Collector, Gadwal v. Sreelatha Bhoopal [(1997) 9 SCC 628] – Supreme Court of India: This case was cited to support the argument that small plots of land fetch higher market values compared to large extents of land.
• Mahanti Devi v. Jaiprakash Associates Ltd. [(2019) 5 SCC 163] – Supreme Court of India: This case, following Viluben Jhalejar Contractor v. State of Gujarat [(2005) 4 SCC 789], was cited to highlight that suitable deductions for development costs are necessary when comparing small land portions to large tracts.
• Manoj Kumar v. State of Haryana [(2018) 13 SCC 96] – Supreme Court of India: This case was cited to emphasize the need for two types of deductions when considering small developed plots for determining compensation of large areas: one for development and another for the difference in size.
• Lal Chand v. Union of India [(2009) 15 SCC 769] – Supreme Court of India: This case was cited to establish that the deduction for development varies between 20% to 75% depending on the nature of the development.
• Union of India v. Dyagala Devamma [(2018) 8 SCC 485] – Supreme Court of India: This case was cited to highlight that deductions for development charges vary from 10% to 86% depending on the nature of the land and other factors.
• Maya Devi (Dead) through Lrs. V. State of Haryana [(2018) 2 SCC 474] – Supreme Court of India: This case followed Lal Chand v. Union of India, reinforcing the principles of deduction for development.
• Andhra Pradesh Housing Board v. K. Manohar Reddy [(2010) 12 SCC 707] – Supreme Court of India: This case also followed Lal Chand v. Union of India, further establishing the principles of deduction for development.
• Bhagwathula Samanna & Others v. Special Tahsildar & Land Acquisition Officer, Visakhapatnam, Municipality, Visakhapatnam [(1991) 4 SCC 506] – Supreme Court of India: This case was cited by the claimant to support the use of small plot sale examples for determining compensation.
• Trishala Jain v. State of Uttaranchal [(2011) 6 SCC 47] – Supreme Court of India: This case was cited by the claimant to support the use of small plot sale examples for determining compensation.
• Nelson Fernandes & Others v. Special Land Acquisition Officer, South Goa & Others [(2007) 9 SCC 447] – Supreme Court of India: This case was cited by the claimant to argue that the purpose of acquisition is a relevant factor for determining the extent of deduction.
• Raghubans Narain Singh v. Uttar Pradesh Government through Collector of Bijnor [AIR 1967 SC 465] – Supreme Court of India: This case was cited by the claimant to support the relevance of offers from prospective purchasers as evidence of valuation.
• Mahesh Dattatray Thirthkar v. State of Maharashtra [(2009) 11 SCC 141] – Supreme Court of India: This case was cited by the claimant to argue that the valuation report of the expert should normally be accepted.
• Udho Dass v. State of Haryana [(2010) 12 SCC 51] – Supreme Court of India: This case was cited by the claimant to argue that the valuation report of the expert should normally be accepted.

Legal Provisions Considered by the Court:

• Section 4 of the Land Acquisition Act, 1894: This section deals with the notification for land acquisition.
• Section 18 of the Land Acquisition Act, 1894: This section allows for references to the court for determination of compensation.

Judgment

How each authority was viewed by the Court:

• The Court relied on Pitambar Hemlal Badgujar (dead) by LRs. V. Sub. Divisional Officer, Dhule [(1996) 7 SCC 554]* to highlight that compensation should generally not be determined on a square foot basis for large tracts of land, but clarified that it can be used if no other sale instances are available.
• The Court used Land Acquisition Officer & Sub-Collector, Gadwal v. Sreelatha Bhoopal [(1997) 9 SCC 628]* to support the argument that small plots of land fetch higher market values compared to large extents of land.
• The Court followed Mahanti Devi v. Jaiprakash Associates Ltd. [(2019) 5 SCC 163]* and Viluben Jhalejar Contractor v. State of Gujarat [(2005) 4 SCC 789]* to justify the need for suitable deductions for development costs when comparing small land portions to large tracts.
• The Court relied on Manoj Kumar v. State of Haryana [(2018) 13 SCC 96]* to emphasize the need for two types of deductions when considering small developed plots for determining compensation of large areas.
• The Court followed Lal Chand v. Union of India [(2009) 15 SCC 769]*, Maya Devi (Dead) through Lrs. V. State of Haryana [(2018) 2 SCC 474]* and Andhra Pradesh Housing Board v. K. Manohar Reddy [(2010) 12 SCC 707]* to establish that the deduction for development varies between 20% to 75% depending on the nature of the development.
• The Court relied on Union of India v. Dyagala Devamma [(2018) 8 SCC 485]* to highlight that deductions for development charges vary from 10% to 86% depending on the nature of the land and other factors.
• The Court did not accept the claimants reliance on Bhagwathula Samanna & Others v. Special Tahsildar & Land Acquisition Officer, Visakhapatnam, Municipality, Visakhapatnam [(1991) 4 SCC 506]*, Trishala Jain v. State of Uttaranchal [(2011) 6 SCC 47]* and Nelson Fernandes & Others v. Special Land Acquisition Officer, South Goa & Others [(2007) 9 SCC 447]* to justify the deduction of 15% and no deduction.
• The Court did not accept the claimants reliance on Raghubans Narain Singh v. Uttar Pradesh Government through Collector of Bijnor [AIR 1967 SC 465]*, Mahesh Dattatray Thirthkar v. State of Maharashtra [(2009) 11 SCC 141]* and Udho Dass v. State of Haryana [(2010) 12 SCC 51]* to justify the valuation of Rs. 28 to Rs. 40 per square foot.

The Supreme Court modified the High Court’s order, directing that the original claimant shall be entitled to compensation at the rate of Rs. 6 per square foot, subject to a 40% deduction towards development charges. The Court reasoned that the High Court did not adequately consider the relevant factors for determining development charges, especially given that the acquired land was a large, undeveloped agricultural area and the sale instances relied upon were for small, developed plots. The court emphasized that the deduction for development charges depends on the nature of the land, the area under acquisition, and the extent of development.

The Court observed, “As per the settled position of law, generally the sale instances with respect to small plots/parcels of land are not comparable to a large extent of land for the purpose of determining the compensation.”

The Court further noted, “In the present case, the acquired land is a barren agricultural land which may have a non-agricultural potentiality. Therefore, considering the fact that the sale exemplars/sale deeds produced at Ex. 91 to 93 are in respect of very small plots of land and were non-agricultural developed plots and even the same were on the highway and having the access to the main road, we are of the opinion that there shall be at least 40% deduction towards development charges.”

The Court concluded, “Considering the aforesaid facts and circumstances and the relevant factors, we are of the opinion that if 40% deduction is ordered to be made towards development charges, it can be said to be an appropriate deduction towards development charges in the facts and circumstances of the case.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to balance the interests of the landowner with the principles of fair compensation in land acquisition cases. The Court emphasized the following points:

• Nature of the Land: The acquired land was a large, undeveloped agricultural area, which required significant development before it could be compared to the small, developed plots used as sale instances.
• Size of the Land: Large tracts of land do not command the same per-unit value as small plots due to the economics of scale and the costs associated with developing large areas.
• Development Costs: The Court recognized that substantial development costs are involved in converting agricultural land into non-agricultural, developed plots, and these costs must be factored into the compensation.
• Comparable Sales: The Court stressed that the sale instances used for comparison must be truly comparable, and if not, suitable deductions must be made.
• Fair Compensation: The Court aimed to strike a balance between providing fair compensation to the landowner and ensuring that the acquiring body is not burdened with inflated costs.

Fact:Law Ratio:

Logical Reasoning:

Final Order

The Supreme Court modified the High Court’s order and directed that the original claimant shall be entitled to compensation at the rate of Rs. 6 per square foot, subject to a 40% deduction towards development charges. The Court set aside the High Court’s order to the extent of the deduction for development charges and directed the acquiring body to pay the enhanced compensation within a period of eight weeks.

Conclusion

The Supreme Court’s judgment in Union of India vs. Premlata (2022) provides significant guidance on the determination of fair compensation in land acquisition cases, particularly when large tracts of undeveloped land are acquired. The Court clarified that while sale instances of small, developed plots can be used as a basis for determining compensation, appropriate deductions must be made to account for the size and nature of the acquired land and the costs associated with development. The judgment emphasizes the need for a balanced approach, ensuring that landowners receive fair compensation while also preventing inflated costs for the acquiring body. This case serves as a crucial reference point for future land acquisition disputes, highlighting the importance of considering all relevant factors when determining compensation for acquired land.