Authority of India Vs. Satyagopal Roy & Ors 
Insc 139 (15 March 2002)
Shah, S.N. Variava & B.N. Agrawal Shah, J.
Authority of India has challenged the judgment and order dated 27.7.2000 passed
by the High Court of Guwahati at Agartala in First Appeal No. 68 of 1995,
whereby the Court determined compensation for cutting of trees by applying the
multiplier of 18 years' yield.
the contention of the learned counsel for the appellant that the impugned order
is against the law laid down by this Court in State of Haryana v. Gurcharan
Singh and Another [1995 Suppl (2) SCC 637] wherein this Court has held that
under no circumstances, the multiplier should be more than 8 years when the
market value is determined on the basis of the yield from the trees or
has also submitted that as such the entire award of compensation to the
respondent is also illegal because by Notification dated 15th March, 1979
issued by the Government of India, Ministry of Tourism and Civil Aviation, New
Delhi in exercise of powers conferred under Section 9A of the Aircraft Act,
1934 (22 of 1934), respondents were directed that no building or structure
should be constructed or erected or no tree should be planted on the land
specified therein which included the land belonging to the claimants.
further pointed out that after issuance of the said Notification, compensation
was paid for cutting the trees which were existing on the land. Thereafter,
similar Notification was issued on 5th January, 1988 for the same purpose and the
claimants again claimed compensation for cutting of trees planted by them on
the specified land. In our view, the aforesaid submission does not require any
consideration as it was neither raised before the High Court nor it was
contended before the Arbitrator appointed by the Central Government.
this Court has issued notice confined to the question whether multiplier
applied by the impugned order is justified in view of the decision in Gurcharan
Singh's case (supra). Hence, this submission is not required to be dealt with
in this appeal.
only question iswhether the multiplier applied by the High Court was justified?
It is true that in the decision rendered by this Court in Gurcharan Singh's
case, it has been held that in catena of decisions rendered by this Court when
the market value is determined on the basis of the yield from the trees or
plantation, 8 years' multiplier would be appropriate multiplier.
against this, learned counsel for the respondents-claimants submitted that this
case does not call for any interference because small amount is awarded to the
claimants and in number of such cases, this Court has refused to interfere. He
referred to various decisions rendered by this Court including State of Madras
Joseph [AIR 1973 SC 2463].
dealing with the contentions raised by the learned counsel for the parties, we
would reiterate that capitalisation means the method used to convert future
benefits to present value by discounting such future benefit at an appropriate
rate of return. It is the process of converting the net income of a property
into its equivalent capital value. While capitalising the income, future
income, its duration along with risk factor is to be taken into consideration. Capitalising
rate means a designated rate of return which coverts net future benefits to
settled law that in evaluating the market value of the acquired property,
namely, land and building or the land with fruit- bearing trees standing
thereon, value of both is to be determined not as separate units but as one
unit. Therefore, it would be open to the Land Acquisition Officer or the Court either
to assess the land with all its advantages and fix the market value thereof on
the basis of comparable sale instances. In case where comparable sale instances
are not available and where there is reliable and acceptable evidence on record
of the annual income, market value could be assessed and determined on the
basis of net annual income multiplied by appropriate multiplier for its
capitalization. In the case of fruit bearing trees its net yield is to be taken
into consideration, that is to say, by deducting expenses incurred for getting
the yield and also the value of the timber and expenses to cut and remove the
trees from the land. For capitalising the income, previously income from the
gilt- edged securities was the basis, but thereafter rate of interest in
nationalized banks where deposits are quite safe is taken into consideration as
proper basis. If the interest rate in a nationalized bank or other safe
investments, on a long term fixed deposit, say is 10%, and the yield from the
trees p.a. is Rs.5,000/-, then for getting the said income, deposits of Rs.50,000/-
would be required to be made. Hence, the value of the said trees along with the
land can be safely assessed as Rs.50,000/-. In the present case, there is no
question of acquiring the land. The land remains with the claimants.
question is limited with regard to payment of compensation for the damages
because of cutting of trees. With regard to fruit bearing trees, its life span
including risk factor is also required to be taken into consideration. Hence,
yield of trees multiplied by an appropriate multiplier for its capitalization
after taking into consideration all relevant factors would be the basis for
determining the compensation.
this point is discussed in Union of India and Another v. Shanti Devi and Others
[(1983) 4 SCC 542], wherein the Court dealing with similar contention, after
considering its earlier decisions observed that in India the multiplier which
is adopted in determining the compensation by the capitalisation method has
been 33 1/3, 25, 20, 16 2/3, 11 and 8 and thereafter held as under: - "The
number of years' purchase has gradually decreased as the prevailing rate of
interest realisable from safe investments has gradually increasedthe higher the
rate of interest, the lower the number of years' purchase.
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 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
cent 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 per cent to 6 per
cent per annum. A higher return of the order of 10 per cent is usually
anticipated. Even in the years 1962 and 1963 an investor in agricultural land
expected annual net return of at least 8 per cent. It means that 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."
Similarly, dealing with the principle of capitalisation on the basis of yield,
this Court in Special land Acquisition Officer, Davangere v. P. Veerabhadarappa
and Others [(1984) 2 SCC 120] held that it would be unrealistic to adhere to
the traditional view of capitalized value being linked with the gilt-edged
securities when investment in fixed deposits with nationalized banks, National
Savings Certificates, Unit Trusts and other forms of Government securities and
even in the share market in the shape of blue chips command a much greater
Court further observed (paragraph 18 and 21) thus:
There are certain general considerations which investors of all types take more
or less into account; yield and appreciation possibilities, the ability readily
to dispose of the investment (marketability) and safety. Investments differ
with respect to assurance of income and safety of principal. In the investment
market, the quality of investment is evidenced by the yield or return that is
produced in relation to market price higher the quality, the lower the yield.
Investors must take into account various types of risks associated with
different investment mediums and therefore adopt a type of investment that is
appropriate to their resources and particular investment objectives.
the premises, when the rate of return on investment was 8.25 per cent in the
years 1971 and 1972, person investing his capital in agricultural lands would
ordinarily expect 2 per cent to 3 per cent more than what he could obtain from
gilt-edged securities or other forms of safe investment and therefore the
proper multiplier to be applied for the purpose of capitalization could not, in
any event, exceed "ten".
in the light of the aforesaid two decisions, we would refer to the decision
rendered by this Court in Gurcharan Singh (supra).
that case, the Court considered the question whether the High Court erroneously
enhanced the compensation by 60% on the basis of price index in a case where
Land Acquisition Officer determined the compensation on the basis of market
value as well as on the basis of yield as if both were separate units. In those
circumstances, the Court held thus:
is settled law that the Collector or the Court who determines the compensation
for the land as well as fruit-bearing trees cannot determine them separately.
The compensation is to the value of the acquired land. The market value is
determined on the basis of the yield. Then necessarily applying suitable
multiplier, the compensation needs to be awarded. Under no circumstances the
court should allow the compensation on the basis of the nature of the land as
well as fruit-bearing trees. In other words, market value of the land is
determined twice over; once on the basis of the value of the land and again on
the basis of the yield got from the fruit-bearing trees Under no circumstances,
the multiplier should be more than an 8 years' multiplier, as it is a settled
law of this Court in a catena of decisions that when the market value is
determined on the basis of the yield from the trees or a plantation, 8 years'
multiplier shall be the appropriate multiplier. For agricultural land 12 years'
multiplier shall be a suitable multiplier." In that case, after
considering the fact that the Collector has given compensation which could not
be interfered with by the Court under Section 25 of the Land Acquisition Act,
the Court did not reduce the same. However, the Court set aside 60% enhancement
of compensation given by the High Court on the basis of price index.
in our view, there was no reason for the High Court not to follow the decision
rendered by this Court in Gurucharan Singh's case (supra) and determine the
compensation payable to the respondents on the basis of the yield from the
trees by applying 8 years' multiplier. In this view of the matter, in our view,
the High Court committed error apparent in awarding compensation adopting the
multiplier of 18.
it is true that this Court in State of Madras v. Rev. Brother Joseph [AIR 1973
SC 2463] refused to interfere with the award on the ground that the
compensation awarded was meager.
in Special Land Acquisition Officer, Malaprabha Dam Project, Saundatti and
Others v. Madivalappa Basalingappa Melavanki and Others [(1995) 5 SCC 670],
this Court refused to interfere where compensation was determined on the basis
of annual yield of agricultural land by application of 15 years' multiplier on
the ground that the small area of land was acquired and approved the order of the
High Court in which it was observed that "it is hardly appropriate to
interfere with the award notwithstanding the discernible blemish pointed out by
the learned Government Pleader" and also held thus:
it would not operate as a precedent to any future case or other cases arising
from the same notification. All cases need to be decided applying only 10
years' multiplier." In the present case also, considering the small amount
of compensation awarded to the claimants, we do not think that this would be a
fit case for interference in this appeal. Hence, the appeal is dismissed with
no order as to costs.