Union of India & ANR Vs. Smt.
Shanti Devi  INSC 142 (5 October 1983)
VENKATARAMIAH, E.S. (J) VENKATARAMIAH, E.S.
(J) SEN, A.P. (J)
CITATION: 1983 AIR 1190 1984 SCR (1) 217 1983
SCC (4) 542 1983 SCALE (2)1020
CITATOR INFO :
R 1984 SC 774 (16) R 1986 SC1466 (11)
Land Acquisition Act 1894 (I of 1894) Section
23- Acquisition of land-Payment of compensation-Market value of land fixed on
basis of capitalisation principle-Multiplier to be adopted in determination of
Certain lands were notified for acquisition
in the years 1962 and 1963 under s.4(1) of the Land Acquisition Act, 1894. On
the question of payment of compensation the Land Acquisition Officer, relying
on an earlier award in respect of similar lands acquired for the very same
public purpose adopted the same criteria and fixed the compensation. He adopted
the principal of capitalisation and determined the compensation at Rs. 650 per
kanal, as the value of the best category of land and awarded compensation equivalent
to 13 times the net annual income.
On reference under Sec.18 the District Judge
determined the market value of the land adopting the capitalisation principle,
and determined the compensation by multiplying the net annual income from each
category of land by 20.
The Union of India and the State Government
preferred appeals and contended before the High Court that if the principle
adopted by the authorities below was used the Government would suffer. These
appeals were however dismissed.
In the meanwhile the High Court in appeals
arising out of similar awards set aside the orders of the District Judge and
remanded the cases for fresh disposal for failure to determine whether the
exemplars on the record could serve as a guide for determining the market
value. After remand the District Judge arrived at the very same valuation and
this was confirmed by the High Court.
In the appeals to this Court on the question
as to what should be the multiplier to be adopted in determining the
compensation payable in respect of land acquired in the year 1962-63 where the
market value of the land is fixed on the basis of the capitalisation principle.
Allowing the appeals in Part,
HELD: 1. The High Court and the District
Court erred in applying the twenty years purchase rule in the case of these
lands which were acquired 218 in the years 1962 and 1963. The proper principle
was fifteen years' purchase rule.[228 H]
2. The relevant date for determining
compensation of a property acquired under the Act, is the date on which the
notification under s.4(1) is published. The capitalised value of a property is
the amount of money whose annual interest at the highest prevailing rate of
interest at any given time will be its net annual income. The net annual income
from a land is arrived at by deducting from the gross annual income all
outgoings such as expenditure on cultivation, land revenue etc. The net return
from landed property, reflects the prevalent rate of interest on safe money
investments. [225 G-H; 228 A]
3. (i) In India the multiplier which is
adopted in determining the compensation by the capitalisation method has varied
from time to time. The number of years purchase has gradually decreased as the
prevailing rate of interest realisable from safe investments has gradually
increased, the higher the rate of interest, the lower the number of years
purchase. This method of valuation involves capitalising the net income that
the property can fairly be expected to produce and the rate of capitalisation
is the percentage of return on investment that a willing buyer would expect
from the property during the relevant period.[227 G-H; 228 A] (ii) In the years
1962 and 1963 an investor in agricultural land expected annual net return of at
If the land yielded a net annual income of
Rs. 8 a willing buyer of land would have paid for it Rs.100 i.e. a little more
than 12 times the annual net income. The multiplier for purposes of
capitalisation would be about thirteen.[228 D-E] (iii) In these cases there was
no evidence about the potential value of the lands.[228 F] (iv)In the instant
cases neither the Land Acquisition Officer nor the High Court nor the District
Court has adopted the other well-known methods of valuation of land namely, the
price paid within a reasonable time in bona fide transactions in respect of the
land acquired or adjacent lands which possess similar advantages, the price
which a willing buyer was prepared to pay to a willing seller of such land or
the opinion of valuers or experts. In the absence of any reliable evidence to
adopt the other methods of valuation the very same capitalisation method was
applied and the Court adopted fifteen years' purchase rule for determining
compensation has to be adopted.[225 C-E] The Collector, Raigarh v. Dr. Harisingh
Thakuar and An. and Vice Versa,  1 S.C.C. 236; State of Kerala v. Hassan
Koya,  3 S.C.R. 459; The State of West Bengal v. Shyamapada etc., A.I.R.
1975 S.C. 1723; Oriental Gas Ltd.
219 & CIVIL APPELLATE JURISDICTION: Civil
Appeals Nos. 51-72 of 1981.
Appeals by Special Leave from the Judgment
and Order dated the 22nd September. 1980 of the High Court of Himachal Pradesh
at Simla in R.F.A. Nos. 262, 249, 251, 252, 261, 265, 266, 267, 280, 281, 292,
297, 299, 300, 307, 308, 352, 355, 356, 366, 370 and 220 of 1980 respectively.
M.M. Abdul Khader and Ms. A Subhashini with
him for the Appellants.
K.R. Nagargia, Mr. Naresh Kaushik and Krishna
Prasad for the Respondents.
The Judgment of the Court was delivered by
VENKATARAMIAH. J. What should be the true multiplier to be adopted in
determining the compensation payable in respect of land acquired in or about
the year 1962-63 where the market value of the land is to be fixed on the basis
of the capitalisation principle, is the question which arises for consideration
in these appeals.
The construction of the Beas Project was
commenced in the year 1960 as a joint venture of the erstwhile State of Punjab
and the State of Rajasthan by mutual agreement between the two States. All
decisions on the policy and administrative matters were taken by a Board known
as the Beas Control Board which was set up by the Central Government in
consultation with the two States on February 19, 1961. The Beas Project Board
was presided over by the Governor of the then State of Punjab and its members
included Ministers of the States of Punjab and Rajasthan and senior officers of
the Central Government and of the two States. The decisions of the Beas Control
Board used to be implemented by the Punjab Government which was administering
and executing the works on the Project. The expenditure on the Project was
shared by the Rajasthan Government.
With the coming into force of the Punjab
Reorganisation Act, 1966 (Act 31 of 1966), the new State of Haryana and the Union
Territory of Chandigarh came into being, having been formed out of the
territory of the erstwhile State of Punjab. A part of the Punjab 220 territory
was also transferred to what was then the Union of Territory of Himachal
Pradesh. What remained with Punjab became the new State of Punjab.
Sub-section (1) of section 80 of the Punjab Reorganisation
Act, 1966 provided that the construction including the completion of any work
already commenced of the Beas Project should on and from November 1,1966 be
undertaken by the Central Government on behalf of the successor States (as
defined under that Act) and the State of Rajasthan should provide the necessary
funds to the Central Government for the expenditure on the Project including
the expenses of the Beas Construction Board. For the discharge of its
functions, sub-section (1) and sub- section (2) of section 80 of the Punjab
Reorganistation Act empowered the Central Government in consultation with the
Governments of the successor States and the State of Rajasthan to constitute a
Board to be called the Beas Construction Board, Thus by the Punjab
Reorganisation Act, 1966, the entire expenditure for the construction and
completion of the Beas Project was to be shared by the successor States and the
State of Rajasthan but the responsibility of construction and completion of the
Beas Project was entrusted to the Central Government.
About 70,000 acres of land had to be acquired
for the Beas Dam Project which was located in the Kangra area of the erstwhile
State of Punjab which stood transferred to the then Union Territory of Himachal
Pradesh under the Punjab Reorganisation Act, 1966. The necessary notifications
under section 4 (1) of the Land Acquisition Act, 1894 had been issued by the
appropriate Government for that purpose. We are concerned in these cases with
lands which were notified for acquisition in the years 1962 and 1963 under
section 4 (1) of the Land Acquisition Act. The acquisition proceedings in
respect of the lands which stood transferred to the Union Territory of the
State of Himachal Pradesh, as mentioned above, were to be completed by its officers.
The land in question are situated in Tikka Bhararian, Mauza Dhameta, Tehril
Dehra, District Kangra. Himachal Pradesh. The Land Acquisition Officer issued
notices under section 9 (3) of the Land Acquisition Act to the interested
persons inviting their representations and objections with regard to the
determination and payment of the compensation. After receiving the
representations and objections, the Land Acquisition Officer (Shri Didar Singh)
passed a common award on January 31, 1972 in respect of an extent of 1125.33
acres of land in Tikka Bhararian 221 which had been notified on April 1,1963.
It would appear that another Land Acquisition Officer, Shri Jaswant Singh, had
passed an award earlier on April 2,1969 in respect of certain lands situated in
Tikka Bihari which has been acquired for the very same public purpose. The Land
Acquisition Officer who had to pass the award in these cases being of the
opinion that the fertility, productivity and potentiality of land in Tikka
Bhararian (the lands in question) were more or less comparable with those of
the lands situated in Tikka Bihari and that the classification and valuation of
lands in the award passed by Shri Jaswant Singh were quite fair, adopted the
same for the purpose of passing the award in respect of the lands in question.
It may be mentioned here that Shri Jaswant Singh had adopted for the purpose of
valuation of lands the principle of capitalisation. He was of the view that the
rule of 20 years purchase was to be adopted. He accordingly after determining
the net annual profit per kanal of land of the best category at Rs. 50 and
multiplying it by 20 arrived at Rs. 1,000 as the value of one kanal of the best
variety of land. In order to determine the net annual profit from the land, it
appears that he had carried out a crop cutting experiment on some Plot of land
after the publication of the notification under section 4 (1) of the Land
Acquisition Act. It would appear that on behalf of the Department, a statement
had been filed showing that the lands of similar quality were being sold at or
about the time of publication of the notification under section 4 (1) of the
Land Acquisition Act at Rs. 300 per kanal. Shri Jaswant Singh (the Land
Acquisition Officer) found that a mean between the valuation arrived at by him
by adopting the principle of capitalisation i.e.. Rs. 1,000/- per kanal and Rs.
300/- per kanal which, according to the Department was the value of the best
category of land in the area would be a reasonable compensation. Accordingly by
adding the above two figures and dividing the total by two he arrived at Rs.
650/- per kanal as the value of the best category of land and reduced the value
proportionately in respect of other categories of land which were lower in
quality. Virtually what was awarded was equivalent to thirteen times the net
Aggrieved by the award passed by the Land
Acquisition Officer, the claimants demanded that a reference should be made
under section 18 of the Land Acquisition Act to the Civil Court for the
determination of proper compensation payable to them. Accordingly the cases
were referred to the District Court of Kangra at Dharamsala. Alongwith these
references, several other references also had 222 been made to that Court in
respect of several other bits of lands situated at Tikka Bihari Tikka Bhararian
which had been acquired at or about the same time. The learned District Judge
who tried the cases was of the view that the oral evidence adduced by the
owners of the land on whom the burden of proof lay could not be relied upon.
After discarding the oral evidence, the learned District Judge determined the
market value of the land by adopting the capitalisation principle. He
determined the compensation by multiplying the net annual income from each category
of land by 20. Accordingly he fixed the compensation of the best category of
land at Rs. 1,000 per kanal having held that the net annual income per kanal of
that class of land was Rs.
50. For this purpose he appears to have
relied on the result of the crop cutting experiment about which there was no
evidence before him He rejected the reason given by the Land Acquisition
Officer for reducing the compensation from Rs. 1,000 to Rs. 650 on the ground
that the Department had asserted that the land of similar quality was being
sold at or about the relevant time at Rs. 300 per kanal. The compensation was
fixed at comparatively lower rates in respect of other classes of land which
were involved in these cases except in the case of G.M. abadi land for which he
fixed at Rs. 650 per kanal. Aggrieved by the decision of the District Judge,
the Union of India and the State of Himachal Pradesh preferred appeals before
the High Court of Himachal Pradesh. The appellants contended that the methods
adopted by Land Acquisition Officer and the District Judge were both faulty and
if the principle adopted by them was used in respect of all the 70,000 acres of
land acquired, the Government would suffer a huge loss.
It is necessary to state here that in the
meanwhile the High Court disposed of two appeals being R.F.A. Nos. 16 and 17 of
1970 in respect of the same lands in Tikka Bihari where the two learned Judges
(R.S. Pathak, C.J. (as he then was) and D.B. Lal, J.) who heard the said
appeals by their separate judgments dated January 14, 1976 set aside the
judgment of the District Judge and remanded the cases for fresh disposal to the
District Court. Pathak, C.J. in the course of his judgment observed :
"In my opinion the position is this. The
Collector had determined the market value at Rs. 1000 per kanal of the best
category of land. He did this on the basis of a method recognised in law. He
then took into account 223 an offer of Rs. 300 per kanal made by the State. He
did not, when taking that rate into account, determine whether it was based on
valid material on the record.
He acted arbitrarily in taking that offer
Moreover, although he took that offer into
account, he did not accept it as a proper basis for determining the market
value. He embarked on the novel method of adopting a mean between the market
value of Rs. 1000 per kanal determined by him and the offer of Rs. 300 per
kanal made by the State. The learned Additional District Judge was entirely
right in holding that the award of the Collector was misconceived. But the
learned Additional District Judge then proceeded wholly on the basis of the
market value of Rs. 1000 per kanal determined by the Collector. What he should
also have done was to determine whether the exemplars on the record could serve
as a guide for determining the market value. It is this error which has
vitiated the decision of the learned Additional District Judge".
After remand the claimants in those cases
adduced some evidence which was not of much value. Again the District Judge arrived
at the very same valuation which had been determined by that Court earlier. The
appellants once again preferred appeals before the High Court. The High Court
dismissed those appeals in limine by a short order dated May 20, 1981. The
appeals filed against that order are also before us now.
Now coming back to the present appeals which
arise out of R.F.A. No. 262 of 1980 and connected cases which were disposed of
by a common judgment dated September 22, 1980, the High Court dismissed all the
said connected appeals. The present appeals are filed against that common
judgment after obtaining the special leave of this Court under Article 136 of
the Constitution. Although the award passed by the Land Acquisition Officer
deals with 18 classes of lands, we are concerned in this case with some of them
only. The rates of compensation awarded by the Land Acquisition Officer and the
District Judge for the following classes of land involved in these cases are as
224 Class of Land Rate per kanal Rate per kanal
fixed in the award fixed by the of the Land District Judge Acquisition Officer
Nehri awal Rs. 650 per kanal Rs. 1000 per kanal Nehri Bramdi Rs. 520 -do- Rs.
800 -do- Barani Dofasli Rs. 455 -do- Rs. 700 -do- Barani Ekfasli Rs. 390 -do-
Rs. 600 -do- Banjar Kadim Rs. 260 -do- Rs. 400 -do- G.M. Abadi Rs. 650 -do- Rs.
1000 -do- (In Himachal Pradesh, 1 acre = 8 kanals) The High Court has confirmed
the rates fixed by the District Judge.
At the outset we should state that we are not
happy about the manner in which the proceedings have gone on in these and other
similar cases relating to the acquisition of land for the Beas Project. As
mentioned earlier the total extent of land acquired is 70,000 acres. We are
told there are nearly 800 cases before this Court arising out of those
acquisition proceedings. There may be many others which have not yet reached
this Court. The only method of valuation adopted in all cases appears to be the
capitalisation method. The evidence regarding the crop cutting experiment said to
have been conducted is not satisfactory. The crop in question is said to have
been grown after the acquisition proceedings commenced only for the purpose of
determining the compensation. Naturally if such crop is grown by the owner,
there is bound to be some anxiety on his part to adopt extraordinary
agricultural practices to show a higher yield than what would be the normal
yield of the land. It is seen that the direction given by Pathak, C.J. in the
order of remand passed in 1976 in the cases pertaining to lands in Tikka Bihari
referred to above appears not to have been kept in view either by the District
Court and by the High Court when they subsequently disposed of hundreds of
cases arising out of these land acquisition proceedings. The approach on their
part has been very casual. The fact that any error committed in one of these
cases would affect the compensation payable in respect of 70,000 acres of land
does not appear to have weighed with the District Court and the High Court. The
spirit behind the observation made by one of us (A.P. Sen, J,) on the question
of fixing the compensation for lands acquired under the Land Acquisition Act in
the minority judgment of this Court 225 in The Collector. Raigarh v. Dr.
Harisingh Thakur and Anr. and Vice Versa to the effect that "While it is
not suggested that unfairly low value should be offered, on the other hand the
temptation to over-generosity must be equally resisted. Such generosity at the
public expense reacts against the development and against the prosperity of the
country and imposes an unnecessary burden on the taxpayer" appears to be
lacking in the disposal of these cases by the District Court and the High
In these and other connected cases, neither
the Land Acquisition Officer nor the High Court and the District Court have
adopted the other well-known methods of valuation of land namely, the price
paid within a reasonable time in bona fide transactions in respect of the land
acquired or adjacent lands which possess similar advantages, the price which a
willing buyer was prepared to pay to a willing seller of such lands or the
opinion of valuers or experts.
They have all followed the capitalisation
method by adopting the 20 years' purchase rule. In the absence of any reliable
evidence to adopt the other methods of valuation, we are also driven in these
cases to adopt the very same capitalisation method in disposing of these
Although we are not satisfied with the
determination of the net annual profit from each plot of land acquired in these
proceedings, we have to adopt the finding of the District Court which has been
affirmed by the High Court on the facts and in the circumstances of these cases
as none of the parties has questioned it.
The only question which remains to be
determined is the appropriate number of years purchase that should be followed
in the case of acquisition made in the years 1962 and 1963.
The relevant date for determining
compensation of a property acquired under the Land Acquisition Act, 1894 is the
date on which the notification under section 4 (1) is published. The
capitalised value of a property is the amount of money whose annual interest at
the highest prevailing interest at any given time will be its net annual
The net annual income from a land is arrived
at by deducting from the gross annual income all out goings such as expenditure
226 on cultivation, Land revenue etc. The net return from landed property
generally speaking, reflects the prevalent rate of interest on safe money
investments. It is on this basis, Rajamannar offg. C. J. held in T.
Radhakrishna Chettiar v. The Province of Madras that the number of years'
purchase to be adopted was 33 1/3 where the interest paid on gilt-edged
securities at the time of acquisition i. e. in 1942 was 3% per annum. But the
same learned Chief Justice held in Sri Lakshmi Narasimha Devaru & Anr. v.
The Revenue Divisional Officer. Mangalore & Anr. that 20 years' purchase
was the appropriate rule to be followed in determining the value of
agricultural Land acquired in the year 1943 by capitalisation method. In State
of Kerala v. Hassan Koya in the case of a Land with building acquired in the
year 1954 when Government securities were yielding 3 1/2% per annum, this Court
upheld the decision of the Kerala High Court which had adopted 33 1/3 as the
multiple for determining compensation payable in respect of it. For a land
acquired in the year 1952. this Court in The State of West Bengal v. Shyama
Pada etc. awarded compensation at 20 times the net annual income. In Varadarajulu
Naidu v. The Revenue Divisional Officer, Tirukoilur, the High Court of Madras
in the case of a land acquired in the year 1956 adopted the rule of 11 years'
purchase. In Oriental Gas Ltd. & Ors. v. State of West Bengal, the
Constitution Bench of this Court speaking through Chinnappa Reddy, J. observed:
"The next target of Mr. Sen's attack was
the choice of the multiplier. He submitted that in the year 1962 gilt-edged
securities were fetching no more than six per cent per annum and therefore, not
eight, but some other higher multiplier should have been specified.
The argument of Shri Sen is based on the
observation of Shah, J., in Cooper's case that `capitalisation of the net
annual value of the property at a rate equal in normal cases to the return from
gilt-edged securities' was an important method of determination of
compensation. The very use of the word normal by Shah J., indicates 227 that it
was not intended to lay down any invariable rule that whenever a method of
capitalisation of net profit was adopted, the return from gilt-edged securities
was to be the basis. That should depend on a variety of circumstances such as
the nature of the property, the normal return which may be expected on like
investment, the state of the capital market and several such factors. For
example, it is well known that a large investment yields a higher return that a
smaller investment and similarly a long term investment yields a better return
than a short term investment. A different principle and a different multiplier
may have to be applied to different kinds of property, such as, agricultural
land, residential buildings, industrial undertakings etc. In the case of a
going business or industrial undertaking the appropriate multiplier may be
determined on the basis of the annual return of an undertaking with similar
capital investment. If the Legislature thinks that a return of 12 1/2% in the
case of a large industrial undertaking such as the petitioner's is reasonable
and on that basis adopts the multiplier `eight', it is not for this Court to
sit in judgment and attempt to determine a more appropriate multiplier. We are
unable to see how the adoption of the particular multiplier in the present case
is the result of the application of any irrelevant principle.
We do not, therefore, agree with the
submission of Shri Sen.,' In the above case the Court felt that if 12 1/2% was
the annual return, the adoption of multiplier `eight' could not be unreasonable
in the year 1962 in the case of an industrial undertaking.
A perusal of the decisions referred to above
and some others which have not been cited here shows that in India the
multiplier which is adopted in determining the compensation by the
capitalisation method has been 33 1/3, 25, 20, 16 3/2 11 and 8. The number of
years' purchase has gradually, decreased as the prevailing rate of interest
realisable from safe investments has gradually increased the higher the rate of
interest, the lower the number of years' purchase. This method of valuation
involves capitalising the net income that the property can fairly be expected
to produce and the rate of capitalisation is the percentage of return on his
investment that a willing buyer would expect 228 from the property during the
relevant period. It was once felt that the relevant rate of interest that
should be taken into consideration was the interest which gilt-edged securities
or Government bonds would normally fetch. The safety and liquidity of the
investment in bonds were relied on as the twin factors to take the view that
the interest on gilt-edged securities should alone be taken into consideration.
This was at a time when there were not many avenues of safe investments and
investment in private commercial concerns was not quite reliable. But from the
year 1959-60 circumstances have gradually changed. There are many State Banks
and nationalised banks in which deposits made are quite safe. Even in the share
market we have many `blue chips' which command stability and other attendant
benefits such as the possibility of issue of bonus shares and rights shares and
appreciation of the value of the shares themselves. They are attracting a lot
of capital investment. A return of 10% per annum on such safe investments is
almost assured. Today nobody thinks of investing on land which would yield a
net income of just 5% to 6% per annum. A higher return of the order of 10%
usually anticipated. Even in the years 1962 and 1963 an investor in
agricultural land expected annual net return of at least 8%.
It means that if the land yielded a net
annual income Rs. 8 a willing buyer of land would have paid for it Rs. 100 i.
e. a little more than 12 times the annual net income. The multiplier for
purposes of capitalisation would be about thirteen.
On the question of the potential value of the
lands involved in these cases, we may state here that there is no evidence
suggesting that the lands were likely to be in demand for any other purpose.
They were all agricultural lands or banjar lands on which no agricultural
operations could be carried on. They were situated in a hilly tract.
There were no potential buyers who were in
need of this vast tract of 70,000 acres. If the project work had not been
undertaken possibly there would have been no occasion for the sale of all these
lands in one lot.
Having regard to all the facts and
circumstances of the case we feel that the High Court and the District Court
erred in applying the twenty years, purchase rule in the case of these lands
which were acquired in the years 1962 and 1963. The proper principle was
fifteen years' purchase rule. The District Judge awarded compensation in all
these cases at Rs. 1,000 per kanal for the land of the first category by
applying the twenty years' purchase rule and has fixed the compensation for
other lands on the above basis.
The 229 High Court has affirmed it. Since we
have held that the proper basis of fixing compensation in these cases was
fifteen years' purchase rule, the compensation awarded for lands in these cases
should be reduced by one-fourth i.e. for lands of the first category
compensation payable should be Rs. 750 per kanal instead of Rs. 1,000 per
Similarly in the case of other lands also
there should be a reduction of the compensation awarded by one-fourth. The
claimants shall get solatium of 15% on the compensation computed on the above
basis and they shall be paid interest at the rate ordered by the District Judge
on the aggregate amount from the date of taking possession of the land till the
date of payment. The orders passed by the High Court in all these cases shall
stand modified accordingly.
The appeals are accordingly allowed in part.
Parties shall bear their own costs throughout.
N.V.K. Appeals partly allowed.