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Report No. 10

43. (b) Principles for determining compensation.-

Sections 23 and 24 of the Land Acquisition Act lay down for the principles for determining the amount of compensation. Section 23 deals with matters to be considered, while section 24 relates to matters to be excluded, in determining compensation. The Act, therefore, lays down the rules for guidance in determining compensation both in a positive as well as a negative manner. The most important provision is the first clause in section 23, which enjoins that, in determining the amount of compensation to be awarded for land acquired under the Act, the Court shall take into consideration the market value of the land at the date of publication of the notification under section 4. The two points to be noticed in this sub-clause are, first, that the basis for determining compensation is the market value of the land, and, secondly, that the crucial date for the determination of the market value is the date of publication of the notification under section 4. The date so fixed is, in our view, appropriate and needs no alteration.

44. A considerable volume of case law has, however, been built up on the interpretation of the expression 'market value'. It is not possible to define the expression nor is it possible to lay down any uniform set of rules for the determination of market value of the land, applicable to all cases. In the nature of things, therefore, it must be left to the courts to evolve the principles for the determination of compensation, in different classes of cases, having regard to the nature of the property, its situation and other relevant considerations.

Though the Bill of 1893, which was subsequently enacted into Act I of 1894, contained a definition of market value, it was dropped by the Select Committee which preferred to leave the term undefined. The Committee observed: "No material difficulty has arisen in the interpretation of it; the decisions of several High Courts are at one in giving it the reasonable meaning of the price a willing buyer would give to a willing seller; but the introduction of a specific definition would sow the field for a fresh harvest of decisions; and no definition could lay down for universal guidance in the widely divergent conditions of India any further rule by which that price should be ascertained." We agree with this view. Some Judges have attempted a definition but we feel that no useful purpose will be served by a critical examination of these views expressed by them. The principles for determining the market value have been fully expounded by the Privy Council in Raja Vyricherla Narayana Gajapatraju Badadur Garu v. The Revenue Divisional Officer, Vizagapatam, ILR 1939 Mad 532 (known as the Chemudu case).

45. The first principle established by the Chemudu easel is that, in the case of compulsory acquisition, "the land is not to be valued merely by reference to the use to which it is being put at the time at which its value has to be determined, but also by reference to the uses to which it is reasonably capable of being put in the future". This proposition was treated by the Judicial Committee as axiomatic. The second principle laid down by this decision is that when the land has unusual or unique features or potentialities, the valuing officer must ascertain, as best as he can from the materials before him, the price a willing purchaser would pay for the land with those features or potentialities.

It is further laid down that the value of the potentialities is to be taken into account even where the only possible purchaser for the potentialities is the acquiring authority. The 'market value' is defined by the Judicial Committee, as the price which a willing vendor might reasonably expect to obtain from a willing purchaser. "The disinclination of the vendor to part with his land and the urgent necessity of the purchaser to buy must alike be disregarded and both must be treated as persons dealing in the matter at arm's length and without compulsion. The principle of awarding compensation is based on the right of the owner to be indemnified by the community for whose benefit he is deprived of the property against his will.

It is no doubt true that, under Article 31(2) of the Constitution, if once either the amount of compensation or the principles for determining compensation are enacted by law, the justness of the amount of the compensation or the principles cannot be canvassed, in a court of law. The article does not use the expression 'just terms' (Australian Constitution) or 'just compensation' (American Constitution). But it does not follow that a responsible legislature would ignore the basic principles underlying the award of compensation and enact a law opposed to the principles of equity and natural justice.

The principles for determining compensation adopted in the case of the acquisition of large zamindari and jagir estates would obviously be inapplicable to cases where the legislature has to deal with owners of land who are not intermediaries. As far as possible, every one who is deprived of his property by compulsory acquisition should be enabled by the compensation awarded to him to place himself in substantially the same position in which he was before the acquisition. The community which benefits from the acquisition must also bear the burden of justly compensating the owner.

46. Two important suggestions considered: 'Potential value'.-On the question of compensation, two important suggestions have been made by some of the State Governments. The first is, that in determining the market value of the land, the actual use to which the land is put at the relevant date should be the basis for fixing its value and that its potential value should be altogether excluded from consideration. Secondly, that the provision for a solatium of 15% under section 23(2) of the Act should be omitted.

47. These suggestions are, perhaps, inspired by recent English legislation. The most important enactment in England in this behalf is the Acquisition of Land (Assessment of Compensation) Act, 1919, which applies only to Government Departments and public or local authorities. To some extent, the principles for determining compensation laid down under that Act have been further modified by the Town and Country Planning Acts, 1947 and 1954. A detailed examination of the provisions of these Acts is unnecessary and it is sufficient for our purposes to notice the general effect of the law as it stands today. The provisions of the Land Clauses Act, 1845 still apply to some statutory undertakers.

In such cases, the principles applicable are, first, that where the Act applies unaffected by subsequent legislation, the value to the owner at the date of the notice to treat is the basis for the assessment of compensation. In this context, the value of land includes the value of the land with all its potentialities1. Secondly, the fact that the land is peculiarly suitable for some particular purpose must be taken into account and it is immaterial that the purpose is one to which the undertakers propose to apply it. Thirdly though there is no specific provision in the Land Clauses Act, it is customary to add 10% to the value as compensation for the compulsory nature of the acquisition.

1. South Eastern Rly. Co. (in re:) and London Country Council, Contract, South Eastern Rly. Co. v. London Country, (1915) 2 Ch 252 (258).

48. The above principles laid down in the Land Clauses Act, 1845 have been radically altered by section 2 of the Acquisition of Land (Assessment of Compensation) Act, 1919, in its application to Government Departments and public and local authorities. Section 2 of the Act lays down the following six rules:

(1) No allowance shall be made on account of the acquisition being compulsory.

(2) The value of land shall, subject as hereinafter provided, be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise: Provided always that the arbitrator shall be entitled to consider all returns and assessments of capital value for taxation made or acquiesced in by the claimant.

(3) The special suitability or adaptability of the land for any purpose shall not be taken into account if that purpose is a purpose to which it could be applied only in pursuance of statutory powers, or for which there is no market apart from the special needs of a particular purchaser or the requirements of any Government Department or any local or public authority: Provided that any bona fide offer for the purchase of the land made before the passing of this Act which may be brought to the notice of the arbitrator shall be taken into consideration.

(4) Where the value of the land is increased by reason of the use thereof or of any premises thereon in a manner which could be restrained by any court, or is contrary to law, or is detrimental to the health of the inmates of the premises or to the public health, the amount of that increase shall not be taken into account.

(5) Where the land, is, and but for the compulsory acquisition, would continue to be, devoted to a purpose of such a nature that there is no general demand or market for land for that propose, the compensation may, if the official arbitrator is satisfied that reinstatement in some other place is bona fide intended, be assessed on the basis of the reasonable cost of equivalent reinstatement.

(6) The provisions of Rule (2) shall not affect the assessment of compensation for disturbance or any other matter not directly based on the value of land.

The Town and Country Planning Act, 1947, introduced a further principle that if there is a potential development value, it should be excluded in fixing the compensation and the land should be valued on the basis of the existing use. The expression 'existing use' has not been defined but it has been interpreted as being similar to lawful use and not synonymous with actual use.

49. The combined effect of these provisions is that under rule 1 of section 2 of the Acquisition of Land (Assessment of Compensation) Act, 1919, no allowance would be made for the compulsory nature of the acquisition; that is, the solatium of 10% which was allowed by usage in the case of an acquisition governed by the Land Clauses Act, 1845, is ruled out. Secondly, the potential value has to be left out of consideration. In England, therefore, at the present day, there are two methods of assessment of compensation. Section 6 of the Land Clauses Act, 1845 still applies, to statutory undertakers though that class is gradually diminishing, and the Acts of 1919, 1947 and 1954 apply to other cases.

50. In an Article1 entitled "The Law and Ethics of Compulsory Acquisition of Land", Rr. Richard C. Fitzrgerald has critically examined the principles laid down in section 2 of the English Act of 1919 and severely criticised them. He points out that it is not the grant of compulsory powers of acquisition which causes hardships but the exercise of such powers. "The problem is how to confer power to act to the public advantage without, at the same time, unreasonably violating private rights. This difficulty can be avoided to a considerable extent by framing the power in such a way that there is no room for doubt as to the precise purposes for which land can be compulsorily acquired; by giving the dispossessed owner a legal right to proper compensation and by devising reasonable safeguards for the exercise of such power".

Commenting on the first rule in section 2 of the Act of 1919, he points out that the disallowance of the solatium for the compulsory nature of the acquisition is unethical and that the social and economic conditions (when the rule was made in 1919) were entirely different from what they are now. The reduction of the amount of compensation by excluding the value of development rights, that is, the potential value, has also been commented upon by him as unjust.

1. Current legal Problems, 1952, p. 54 (60).

51. The basis of compensation adopted under the Act of 1919 has, in fact, created dissatisfaction in England. This is borne out by the Report of the Committee on Administrative Tribunals and Enquiries known as the Franks Committee. In paragraph 278 they observe:

"One final point of great importance needs to be made. The evidence which we have received shows that much of the dissatisfaction with the procedures relating to land arises from the basis of compensation. It is clear that objections to compulsory purchase would be far fewer if compensation were always assessed at not less than market value.1 It is not part of our terms of reference to consider and make recommendations upon the basis of compensation. But we cannot emphasis too strongly the extent to which these financial considerations affect the matters with which we have to deal. Whatever changes in procedure are made dissatisfaction is, because of this, bound to remain".

1. Italic Ours.

52. In our view, it would not be expedient or proper to adopt in India, for purposes of determination of compensation, principles which have been severely criticised by jurists and have caused dissatisfaction among the public in England. The object of the suggestion to restrict the market value to the actual use of the land is undoubtedly to exclude from consideration the potential value of the land. Such a provision is to be found, in our country, in the U.P. Town Improvement Act (VIII of 1919). The relevant provision in the Act is "market value according to the use to which the land was put at the date with reference to which market value is to be determined under that clause".

We do not see any justification for modifying the law as laid down in the Chemudu case, ILR 1939 Mad 532 PC and exclude the potential value from consideration altogether. The Union and the States have not, in their recent legislation, excluded it, and in the latest instance of the Coal Bearing Areas (Acquisition and Development) Act, 1957 (Act XX of 1957), Parliament has adopted section 23(1) of the Land Acquisition Act, 1894, without any modification, for determining compensation. The following sections of the Requisition Acts passed by the States may also be perused in this connection:

The Assam (Requisition and Acquisition) Act, 1948, section 7(1);

The West Bengal (Requisition and Acquisition) Act, 1948, section 7(1).

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