CHAPTER IV LAND ACQUISITION AND COMPENSATIONshodhganga.inflibnet.ac.in/bitstream/10603/45164/8/chapter-iv.pdf · Chapter IV Land Acquisition and Compensation | 62 the Act had sought

CHAPTER IV

LAND ACQUISITION AND COMPENSATION

4.1 Introduction

This chapter deals with the concept of compensation, rights of land owners and persons

interested. The chapter especially focusses on right to compensation under the Indian

Constitution. The chapter also deals with valuation and calculations of market value of

land, buildings and attached properties for the purposes of land acquisition.

4.2 Land Acquisition & Compensation

There was a lot of controversy about the payment of compensation in the cases of

acquisition under Art. 31 (2) before and after IV amendment of the Constitution. The

main controversy was whether the compensation should be paid for all kinds of

deprivation of property or only where property was requisitioned or actually acquired?

Though the controversy was not of much relevance after the 17th amendment of Art.

31A by adding second proviso in which the word acquisition was used. The view taken

by the Supreme Court in various decisions is briefly discussed hereinafter.

In order to understand the extent and scope of Art. 31 (2) it is necessary to set out the

provisions of Article before and after the amendment.

"No property, movable or immovable.....shall be taken possession

of or acquired for public purposes under any law authorising the taking of

such possession...... unless the law provides for compensation for the

property taken possession of .... and either fixes the amount of the

compensation of specifies the principles on which and the manner in

which the compensation is to be determined and given.”

As far back as in 1950 Mukherjea J. gave the meaning of “acquisition” in Charanjut Lai

Choudhary v. Union of India18 as follows; “Acquisition means and implies the

acquiring of the entire title of the ex-appropriated owner, whatever the nature and extent

of that title might be. The entire bundle of rights which were vested in the original

holder would pass on acquisition to the acquirer leaving nothing in the form”. But in the

State of West Bengal v. Subodh Gopal Bose19 the majority Judges took the view that

clauses (1) and (2) of Art. 31 were not mutually exclusive in scope and content but

should read together and understood as dealing with the same subject. Thus a wider

18 AIR 1950 SC 41 19 AIR 1954 SC 92.

Chapter IV Land Acquisition and Compensation | 61

meaning was given to acquisition, deprivation contemplated in clause (1) of Art. 31

being no other than the acquisition or taking possession of the property referred to in

clause (2) of Art. 31. In Dwarakdas Srinivas of Bombay v. The Sholapur Spinning &

Weaving Co. Ltd.,20 the Supreme Court, while confirming the above view held that the

word “acquisition” had quite a wide concept, meaning the procuring of property or

taking of it permanently or temporarily and it was not confined only to the acquisition

of a legal title, by the State in the property taken possession of.

The above said view was followed in Sagir Ahmed v. State of U.P.21 as the Advocate-

General conceded to that affect. After a faint attempt to raise this question again in

Deepchand v. State of U. P. 22. The Advocate-General could not support his argument

against to the view taken in Sagir Ahmed’s case21.

By IV amendment23 of the Constitution clause (2) of Art. 31 was amended by inserting

(2A) in that Article. The amendments, in so far as they are relevant to the present

purpose, substitute in place of the words “taken possession of or acquired” the words

“compulsorily acquired or requisitioned” and provide an explanation of the words

“acquired” and requisitioned in clause (2A). It is therefore held in Union of India v.

Sudhansu24 that after the amendment in order to constitute acquisition or requisitioning

there must be transfer of the ownership or right to possession of any property to the

State or the Corporation owned or controlled by the State.

4.3 Seventeenth Amendment

The above discussions is by no means irrelevant even after the Seventeenth amendment

of Art. 31 A. The seventeenth amendment of the Constitution made important changes

in the definition of ‘Estates’ in Art. 31A (2), in order to include the protection of Art.

31A (1). The amended Article 31A proviso 2 uses the word acquisition and lays down

that compensation not less than the market value will be paid, if the land of a person

under ceiling limit was acquired. In two recent cases25 the question was whether a

scheme providing pooling of small bits of land into common land of the village

amounts to acquisition by the State and hits the 2nd proviso of Art. 31 A. The scheme

which was sought to be quashed in Azit Singh's case 24 which was made under the

provisions of East Punjab Holdings Act, 1948. The State acting under the provisions of

20 AIR 1954 SC 119. 21 AIR 1954 SC 728 at 22 AIR 1959 SC 648 23 The Constitution of India (4th Amendment) Act, 1955 24AIR 1971 S.C. 25Azit Singh v State of Punjab AIR 1967 SC 856 and Pritan Sing v State AIR 1967 SC 930.


the Act had sought to reserve some of the land from “the common pool of the village”

to be vested it in the proprietary body (the co-owners of the village, who would include

the owners whose lands were being taken for this purpose), but put it under the manage-

ment of the village Panchayat which was to use it for the common purpose of the

village. One question to be decided in that case was whether the appellant who was a

small land-holder holding land within the ceiling and had lost some of it, was entitled to

compensation at the market rate as required by the second proviso to Art. 31 A. The

majority of Judges, on the particular facts of the case came to the conclusion that there

was no acquisition by state. Here the formal title was left in the body of Co-proprietors;

but the management was handed over to the village panchayat and so the majority felt

that the beneficiary of the modification of rights was not the state. Justice Hidayatullah

(with whom Justice Shelet joined) dissenting from the majority view opined that the

word acquisition must denote not only the acquisition of ownership, that is to say, the

entire bundle of rights but also acquisition of some rights particularly an acquisition

which leaves the person an owner in name only. The majority opinion was also based

on the Justice Wanchoo’s observations in Attarsingh v. State of U.P.26 with respect to

small bits of lands. That was a case under similar, provision in a similar Act U.P.

Consolidation of Holdings Act, 1954 wherein small bits of land acquired from tenure-

holders were consolidated and used for common purposes directly useful for the tenure-

holders. Justice Wanchoo speaking for the Court said that the land which was taken

over was a small bit, which sold by itself would hardly fetch anything.

The minority in Azit Singh’s case reacted to this notion by saying that, what is a small

bit is a very vague and uncertain expression. The safe rule is that the Constitution

means what it says, that is, land within the ceiling is not to be touched unless

compensation at market rate is given27.”

In the case of Bhagat Ram v. State of Punjab28 the facts involved were somewhat

different, where the land was reserved for the income of the Panchayat, the Supreme

Court held that the beneficiary is the Panchayat which falls within the definition of

“State’ under Art. 12 of the Constitution and in accordance with the opinion of majority

the State was directed to modify the scheme in accordance with the Second Proviso.

Justice Hidayatullah & Shelet felt that the ceiling fixed by law is not to be reduced by

26 AIR 1959 SC 564, 568. 27 AIR 1967 SC867. 28AIR 1967 SC 937.


an acquisition by the state unless compensation at market rate is paid and no other

compensatory factor can be taken note of under the second proviso. Thus gave a

declaration leaving the party to demand compensation if the land is reduced below the

ceiling.

If the minority view in Azit Singh's case24 is to be accepted will it be possible to

implement the rural reform scheme basing on the Co-operative System?

4.4 “Compensation” Before and After IV Amendment

The expression “compensation” according to the Supreme Court in Bela Banerjee v.

State of West Bengal 29 meant a just equivalent or full indemnification of the ex-

appropriated owner, and the expression “deprived” had the same connotation as taking

possession of or acquisition. In this case property was acquired in the City of Calcutta

for the settlement of refugees from East Bengal and was handed over to a Co-operative

Credit Society to develop. In accordance with Sec. 8 of the West Bengal Planning and

Development Act, 1948 the Society paid compensation. Sec. 8 laid down that

compensation be fixed with reference to the market value on an anterior date i.e., Dec.

31, 1946. Chief Justice Pathanjali Sastri delivered the judgment of the Court and

observed:

“No matter when the land is acquired, considering that the

impugned Act is a permanent enactment and land may be acquired under

it many years after it came into force, the fixing of the market value on

31st Dec., 1946, as the ceiling on compensation without reference to the

value of the land at the time of acquisition is arbitrary and cannot be

regarded as due compliance in letter spirit with the requirement of Art.

31 (2)....... Any principle for determining compensation which denies to

the owner this increment in value cannot result in the ascertainment of

the true equivalent of the land appropriated”30.

According to State of West Bengal v. Subodh Gopal Bose 31 the law providing for

acquisition or extension of interest of private owners in properties not governed by Art.

31A & 31B read with IX Schedule was liable to be struck down unless the law provided

for payment to the ex-appropriated owner compensation which was a just equivalent.

29 AIR 1954 SC 170. 30 Ibid. p. 8. 31AIR 1954 SC 92


As a result of these two decisions, the IV amendment of the Constitution32 was passed

which came into force on April 27, 1955. Clause (2) of Art. 31 was substituted by new

clause (2) and (2A). Art 31A was amended with retrospective effect; seven more Acts

were added to the IX Schedule and certain consequential provisions were made by

substitution of an amended Article 305 in place of the original Article 305.

The following clause was added to Art. 31 (2):

“......no such law (i.e., which fixed the compensation or lays down the principles

on which it is to be determined) shall be called in question in any Court on the ground

that the compensation provided by law was not adequate”.

But the amendments were not given any retrospective operation and as a result of which

that in cases, where acquisition was made pursuant to the statute, enacted before April,

27, 1955 the law declared in Mrs. Bala Benerjee’s case continued to apply. In the 'three

cases State of Madras v. D. Namasivaya Mudaliar33. N. B. Jeejeeboy v. Asst. Collector,

Thana Prant34 and Union of India v. Kamalabai Hariji Wandas Parekh35 the Supreme

Court followed the principles laid down in Mrs. Bela Banerjee’s case36 as the impugned

enactments in all the three cases were passed before the Constitution IV Amendment

Act 1955.

It is to be noted by the Constitutional Seventh Amendment Act, 1956, which came into

force on November 1, 1956, Entries 33 of List I and 36 of List II were deleted from the

Seventh Schedule and Entry 42 of List II was amended as follows:

“Acquisition or requisitioning of property”. This was done, with a view to

availing technical difficulties in respect of acquisition, and requisitioning of property.

The effect of the amendment was that the power of acquisition and requisitioning of

property falls in the concurrent list and it made no reference to the principles on which

compensation for acquisition or requisitioning is to be determined37.

The true effect of the amended Article 31(2) came for consideration for the first time

before the Supreme Court in P. Vajravelu Mudaliar v. Spl. Deputy Collector, Madras38.

In this case lands belonging to a person were notified for acquisition for the purpose of

housing schemes and proceedings in respect of compensation payable to him in

32. Inserted by Sec. I of the Fourth Amendment Act, 1955. 33 AIR 1965 SC 190. 34 AIR 1965 SC 1096. 35 AIR 1968 SC 377. 36 AIR 1954 SC 170. 37 State of Gujarat v Shantilal AIR 1969 SC 634 650. 38 P. Vajravelu Mudaliar v Spl. Deputy Collector, Madras AIR 1965 SC 1017


accordance with the provisions of The Land Acquisition (Madras Amendment) Act,

1961 were pending. The owner challenged the vires of the Madras Amendment Act,

1961 on the ground that the Act infringed the fundamental rights under Art. 14, 19 and

31 (2) of the Constitution. The Amended Act made provisions which departed from the

Land Acquisition Act, 1894 in determining compensation in three respects;

(1) Compensation was to be determined on the basis of the average market value of the

land during five years immediately preceding the date of the notification under Sec. 4

(1) of the Land Acquisition Act or the market value on the date of notification

whichever was less;

(2) the solatium payable to the owner for compulsory acquisition was to be 5 per cent

of the market value; and

(3) that the owner was not to get any compensation for the suitability of the land for

use other than the use which it was put on the date of publication of the notification i.e.,

potentiality of the land was to be discarded.

The Supreme Court held that in making the threefold modification in the application of

the Land Acquisition Act for determining compensation payable, the Statute did not

infringe the guarantee contained in Art. 31 (2). It only, specifically fixed certain

principles for determination of compensation. These principles may result in

inadequacy of compensation but did not constitute fraud on power and therefore the

amending Act did not offend Art. 31 (2) of the Constitution. But Subbarao J., delivering

the judgment of the Court relying upon a principle of Construction in Cases on Statute

law observed:

“The fact that Parliament used the same expression, namely, “compensation”

and ‘principles” as were found in Act. 31 before the Amendment is a clear indication

that it accepted the meaning given by this Court to those expressions in Mrs. Bela

Banerjee’s case39. It follows that a Legislature in making a law of acquisition or

requisition shall provide for a just equivalent of what the owner has been deprived of or

specify the principles for the purpose of ascertaining the- “just Equivalent” of what the

owner has been deprived of. If Parliament intended to enable a Legislature to make such

a law without providing for compensation so defined, it would have used other

expressions like “price”, “consideration” etc.40.”

It was further observed:

39AIR 1954 SC 170. 40P. Vajravelu Mudaliar v Spl. Deputy Collector, Madras AIR 1965 SC 1017.


“It will be noticed that the law of acquisition or requisition is not wholly

immune from scrutiny by the Court. But what is excluded from the Court’s jurisdiction

is that the said law cannot be questioned on the ground that the compensation provided

by that law is not adequate. It will further be noted that the clause excluding the

jurisdiction of the Court also used the word “compensation'’ indicating thereby that,

what is excluded from the court’s jurisdiction is the adequacy of the compensation fixed

by the Legislature. The argument that the word “compensation” means a just equivalent

for the property acquired and, therefore, the court can ascertain whether it is a “just

equivalent” or not, makes the amendment of the Constitution nugatory. It will be

arguing in a circle. Therefore, a more reasonable interpretation is that neither the

principles prescribing the “just equivalent” nor the “just equivalent” can be questioned

by the Court on the ground of the inadequacy of the compensation fixed or arrived at by

the working of the principles41.”

The legal position was summarised thus, “If the question pertains to the adequacy of

compensation, it is not justiciable; if the compensation fixed or the principles evolved

for fixing it disclose that the legislature made the law in fraud of powers in the sense we

have explained, the question is within the jurisdiction of the Court42.”

Ultimately the Supreme Court declared the law invalid, on the ground that the amended

Act was inconsistent with Art. 14, because it provided different standards of

compensation from the original Land Acquisition Act, 1884.

The next case was that of Union of India v. Metal Corporation Ltd.43 in which the

validity of Metal Corporation of India (Acquisition of Undertaking) Act, 1965, was

challenged and the same was held to be void, as the Act contravened Art. 31 (2). The

Court observed that two principles laid down in clause (b) of paragraph II of the

Schedule to the Act:(1) that compensation was to be equally equated to the cost price in

the case of unused machinery in good condition, and (2) written down value as

understood in the income-tax law was to be the value of the used machinery, were

irrelevant to the fixation of the value of the machinery as on the date of acquisition'’44.

Now we have to consider the Bank Nationalisation case45 which was decided on

February, 2, 1970. First the Banking Companies (Acquisition and Transfer of

41 Supranote 40 p. 1024. 42 Ibid. 43AIR 1967 SC 637. 44 Ibid Page 652 45 R. C. Cooper v Union of India A.I.R 1970 S.C. 564.


Undertakings) Ordinance 1969 was promulgated on July, 19, 1959 and by an Act 22 of

1969 which was given retrospective effect from July 19, 1969 replaced the ordinance.

Under the Act fourteen Indian Scheduled Banks, with deposits exceeding Rs. 50 crores

were nationalised. The Act laid down principles for determining compensation to be

paid for the acquisition of the Banks. The case came up for hearing before 11 Judges

and two Judgments were delivered. By a leading majority judgment 10: 1 Justice Shah

declared that the impugned Act is void and by a dissenting judgment Justice Ray held

the Act as valid.

i. The following principles emerge from the Bank Nationalisation case:The

Constitution guarantees a right to compensation an equivalent in money of the

property compulsorily acquired. That is the basic guarantee. The law must

therefore provide compensation, and for determining compensation relevant

principles must be specified; if the principles are not relevant the ultimate value

determined is not compensation46.

ii. Compensation may be provided under a Statute, otherwise than in the form

of money: it may be given as equivalent of money e.g., a bond. But in judging

whether the law provides for compensation, the money value at the date of

expropriation of what is given as compensation, must be considered. If the rate

of interest compared with the ruling commercial rate is low, it will reduce the

present value of the bond. The Constitution guarantees a right to compensation

an equivalent of the property expropriated and the right to compensation cannot

be converted into a loan on terms which did not fairly compare with the

prevailing commercial terms. If the Statute in providing for compensation

devises a scheme for payment of compensation by giving it in the form of

bonds, and the present value of what is determined to be given is thereby

substantially reduced, the Statute impairs the guarantee of compensation47.

iii. If the principles specified by the Parliament for determining compensation of

the property to be acquired is conclusive, the Parliament would be invested with

a charter of arbitrariness and by abuse of legislative process the Constitutional

guarantee of the right to compensation may be severely impaired48. Justice Shah

went further and gave an independent reasoning basing Art. 19 (1) (g) because

46 Supranote 45 47 Ibid p. 564. 48 Ibid. p. 609.


the companies, whose undertakings were acquired, were not left in a position to

undertake other business, if they so liked and held that this virtual prohibition of

non-banking business, was an unreasonable restriction upon the Company share

holders’ rights under Art. 19 (1) (g), which the impugned statute could not

impose, while acquiring the banking business and undertakings of the

Companies specified in the Statute.

“If the compensation paid is in such a form that it is not immediately available for

restarting any business, declaration of the right to carry on business other than banking

becomes an empty formality, when the entire undertaking of the named banks is trans-

ferred to and vests in the new banks together with the premises and the names of the

banks, and the named banks are deprived of the services of its administrative and other

staff”49.

The judgment in the Bank Nationalisation case evidently lead to 25th Amendment of the

Constitution of India and by which Art. 31 (2) was amended by substituting the

expression “amount” for the expression “Compensation” which has been subjected to

conflicting interpretations by the Supreme Court' in different cases since 1951. In

addition the 25th amendment inserted a new Art. 31C after Article 31B and thus

brought a radical change on the interrelationship between the fundamental rights and

directive principles of State policy. Under this Article for the first time in the history of

our Constitution a Directive principle was placed above fundamental rights.

4.5 The Constitution (Twenty-Fifth Amendment)

The Constitution (Twenty-fifth Amendment) Act, 1971, has generated mixed feelings in

the country. Official comments have bordered on eulogy. When the Amendment Bill

was being debated in the Lok Sabha, Sri H. R. Gokhale, Law Minister, characterised it

as a “historic step forward for fulfilling, the social objectives” while the, Prime

Minister, Smt. Indira Gandhi, made a more sober assessment by calling it “a little step

forward which will take us in the right direction”. Sri Siddhartha Shankar Ray, at that

time Minister of Education, described it as “constitutionally correct, politically proper,

economically essential and normally just”. The Amendment Bill was voted by a

massive majority and had the support of the ruling party and the Opposition, except the

Swatantra Party, the Jana Sangh and an Independents. One leftist leader, while

supporting the Bill, pointed out that the changes because it sought to restore merely the

49Supranote 45 p. 602.


status quo ante even after twenty-five years. It was pointed out that the right to property

still remained a fundamental right and was not basically, fundamentally changed. The

rightist opinion was uncompromisingly critical of the measure. Sri A. B. Vajpayee,

leader of the Jana Sangh, attacked the Government for its failure to implement the

Directive Principles through ineffective land reforms. Mr. Frank Anthony opined that

Art. 31 (c), however it is rationalised and explained, gives the power of expropriation

simpliciter. One D.M. K. member said the question really was one of implementation of

the Directive Principles and not of property. The Prime Minister, however, came

forward with the declaration that Parliament would not exercise arbitrary powers, and

that arbitrary legislation would always be open to judicial review. While proclaiming

that an impartial judiciary was indispensable for the rule of law, she echoed her father’s

sentiment by pointing out that “we will not allow the judiciary to take over the powers

of Parliament”50.

In fact, some sort of challenge was felt necessary in order that the whole issue could be

re-examined and re-assessed by the Supreme Court, and the controversies arising out of

the ‘Golaknath’ Judgment and the 24th, 25th amendments could be set rest once for all.

Such a challenge was made in Supreme Court through bunch of Writ Petitions in

Kesavananda v. State of Kerala51 . Kesavananda Bharathi challenged the Kerala Land

Reforms Act, 1969 by which land could be taken away without adequate compensation.

During the pendency of the Writ petition before the Supreme Court, the Act was

included in the IX Schedule of the Constitution. The 24th Amendment enacted to rearm

the parliament with the power-to amend the fundamental rights, a power which was

denied to parliament by “Golaknath” Judgment. The Supreme Court after a hearing of

66 working days, which is the longest in the history of the Court, judgment was

delivered on April, 24, 1973 just two days before Chief Justice Sikri laid down office.

While the Court declared the 24th and 29th Amendments to be valid; the majority held

that Sec. 2 (A) and 2 (B) of the 25th amendment valid. The first part of Sec. 3 of the

25th Amendment was also declared valid. But the 2nd part namely, the words ‘'no law

containing a declaration that it is for giving effect to such policy shall be called in

question in any court on the ground that it does not give effect to such policy” was held

to be unconstitutional and void.

The view of the majority in these writ petitions is as follows:

50 S.N. Ray, Judicial Review & Fundamental Rights (Calcutta, Eastern Law House 1974) 252 & 253. 51 AIR 1973 SC 1461.


i. Golaknath’s case 52 is overruled.

ii. Art. 368 does not enable Parliament to alter the basic or frame work of the

Constitution.

iii. The Constitution (Twenty-fourth Amendment) Act, 1971, is valid.

iv. Sec. 2(a) and 2(b) of the Constitution (Twenty fifth Amendment) Act, 1971 is

valid.

v. The first part of Sec. 3 of the Constitution (Twenty-fifth amendment) Act, 1971,

is valid. The second part, namely, “and no law containing a declaration that is

for giving effect to such policy shall be called in question in any court on the

ground that it does not give effect to such policy” is invalid.

vi. The Constitution (Twenty-ninth Amendment) Act, 1971, is valid.

The Constitution Bench will determine the validity of Twenty-sixth Amendment

Act, 1971 in accordance with law.

However, the Supreme Court Judges expressed divergent views on the interpretation of

the word “amount” for compensation.

The views expressed by the Judges are given below:

4.5.1 Extracts from Keshavanath’s Case

Per Sikri C. J.

The object of 25th Amendment is to modify the decision given by the Supreme Court in

Rustom Cavasjee Cooper v. Union of India,53where it was held by ten Judges that the

Banking Companies (Acquisition and Transfer of Undertakings) Act violated the

guarantee of compensation under Article 31 (2) in that it provided for giving certain

amounts determined according to principles which were not relevant in the determina-

tion of compensation of the undertaking of the named Banks and by the method

prescribed the amounts so declared could not be regarded as compensation?54.

It is very difficult to comprehend the exact meaning which can be ascribed to the word

“amount”. In this context, it is true that it is being used in lieu of compensation, but the

word “amount” is not a legal concept as “compensation’’ is. The figurative meaning of

“amount” given by Oxford English Dictionary, viz., the full value, cannot be given

because of the deliberate omission of the word “compensation” and substitution of the

52AIR 1967 SC 1643. 53 (1970) 1 SCC 248. 54 AIR 1973 SC 1461: (1974) 4 SCC 225


word “amount” in lieu thereof55.

The article postulates that in some cases principles may be laid down for determining

the amount and these principles may lead to an adequate amount or an inadequate

amount. So this shows that the word “amount” here means something to be given in lieu

of the property to be acquired but this amount has to be worked out by laying down

certain principles. These principles must then have a reasonable relationship to the

property which is sought to be acquired. If this is so, the amount ultimately arrived at by

applying the principles must have some reasonable relationship with the property to be

acquired; otherwise the principles of the Act could hardly be principles within the

meaning of Article 31 (2)56.

The amount has to be fixed by law but the amount so fixed by law must also be fixed in

accordance with some principles because it could not have been intended that if the

amount is fixed by law, the legislature would fix the amount arbitrarily. So the amount,

if fixed by the legislature, has also to be fixed according to some principles. These

principles cannot be different from the principles which the legislature would lay

down57.

Per Shelat and Grover, JJ.

The obligation to act on some principle while fixing the amount arises both from Article

31 (2) and from the nature of the legislative power. For, there can be no power which

permits in a democratic system an arbitrary use of power. If an aggrieved owner

approaches the Court the norms or principles of fixing or determining the “amount” will

have to be disclosed to the Court. It will have to be satisfied that the “amount” has

reasonable relationship with the value of the property acquired or requisitioned and one

or more of the relevant principles have been applied and further that the “amount" is

neither illusory nor it has been fixed arbitrarily, nor at such a figure that it means virtual

deprivation of the right under Article 31 (2). The question of adequacy or inadequacy,

however, cannot be gone into58.

Per Hegde & Mukherjea, JJ.

The word “amount” is a natural word. Standing by itself, it has no norm and is

completely colourless. The dictionary meaning of the word appropriate to the present

context is "sum total or a figure”. We have to find out its connotation from the context.

55 (1974) 4 SCC Paras 400 to 403. 56(1974) 4 SCC Para 404. 57Ibid Para 405 and 406. 58 (1974) 4 SCC Para 591.


In so doing, we have to bear in mind the fact that Article 31 (2) still continues to be a

fundamental right59.

If we bear in mind the fact that the “amount” in question is to be paid in lieu of the

property taken, then it follows that it must have a reasonable relationship with the value

of the property taken. It may not be the market value of the property taken. The market

value of a property is the result of an inter-action of various forces. It may not have any

reasonable relationship with the investment made by its successive owners. It is

undoubtedly open to the State to appropriate to itself that part of the market value of a

property which is not the result of any contribution made by its owners. In this regard

the legislative judgment is entitled to great weight. However, so long as the basis

adopted for computing the value of the property is relevant to the acquisition in

question or the amount fixed can be justified on any such basis it is no more open to the

court to consider whether the amount fixed or to be determined is adequate. But it is

still open to the court to consider whether the “amount” in question has been arbitrarily

determined or whether the same is an illusory return for the property taken. It is also

open to the court to consider whether the principles laid down for the determination of

the amount are irrelevant for the acquisition or requisition in question therefore, the

amended Article 31 (2) is valid60.

Per Ray, J.

After the substitution of the neutral expression “amount” for “compensation” in Article

31 (2) by the Constitution (25th Amendment) Act, the Article still binds the legislature

to provide for giving to the owner a sum of money either in cash or otherwise. The

legislature may either lay down principles for the determination of the amount or may

itself fix the amount. It cannot be said that the legislature would be under the necessity

of providing a standard to measure an adequacy with reference to fixing the amount.

The Constitution does not allow, judicial review of a law on the ground of adequacy of

the amount and the manner as to how such amount is to be given otherwise than in

cash61.

The word “amount” in Article 31 (2) after the 25th Amendment is to be read in the

entire collection of words. In Art. 31 (2) the use of the word “amount” in conjunction

with payment in cash shows that a sum of money is being spoken of. Amount is a sum,

59(1974) 4 SCC Para 700. 60 Ibid Para 707 61(1974) 4 SCC Para 1019.


a quantity or amount of money, or, in other words, amount means a sum of money. In

fixing the amount or compensation the legislature is not required to set out in the law

the principles on which compensation had been fixed in the un-amended clause or the

amount is fixed in the amended clause62.

Just as the amount can be fixed on principles of social justice the principles for

determining the amount can be specified on the same consideration of social justice. No

reason for fixing amount would or need appear in the legislation. If any person

aggrieved by the amount fixed challenges, the Court can neither go into the question of

adequacy nor as to how the amount is fixed. If adequacy cannot be questioned any

attempt to find out as to why the particular amount is fixed or how that amount has been

fixed by law will be examining the adequacy which is forbidden as per the

constitutional mandate. If one alleges that the amount is illusory one will meet the

insurmountable constitutional prohibition that the adequacy or the alleged arbitrariness

of the amount fixed is not within the area of challenge in courts. The amount fixed is

not justiciable. The adequacy cannot be questioned. The correctness of the amount

cannot be challenged. The principles specified are not justiciable63.

Per Jaganmohan Reddy, J.

The Legislature,’[ even in cases where it fixes an amount for the acquisition or

requisition of a property, must be presumed to have fixed it on some basis, or applied

some criteria or principles to determine the amount so fixed, and, therefore, where the

law is challenged on the ground of arbitrariness, illusoriness or of having been based on

irrelevant principles or any other ground that may be open to challenge by an

expropriated owner, the State will have to meet the challenge, and the Court will have

to go into these questions. This will be so even in respect to the manner of payment64.

Notwithstanding this amendment, it is apparent that the expropriated owner still

continues to have ‘the fundamental right that his property will not be acquired save by

the authority of law and for a public purpose. These propositions have been admitted by

the learned Solicitor-General. The question whether an acquisition is for a public

purpose is justiciable, only the adequacy of the amount is not65 .

Per Palekar, J.

By substituting “compensation” by “amount” in Article 31 (2) all that the amendment

62 (1974) 4 SCC Para 1023 and 1024. 63Ibid Para 1046 to 1048, 64(1974) 4 SCC Para 1166. 65.Supranote 61 Para 1168.


has done is to negative the interpretation put by this Court on the concept of

compensation66.

Per Khanna, J.

Whatever may be the connotation of the word “amount”, it would not affect the validity

of the amendment made in Article 31 (2). Another change made in Article 31 (2) is that

the law for the purpose of acquisition or requisition shall not be called in question on

the ground that the whole or any part of the “amount” fixed or determined for the

acquisition or requisition of the property is to be given otherwise than in cash. I have

not been able to find any infirmity in the above change made in Article 31 (2)67.

Per Mathew, J.

When property is acquired for implementing the directive principles under Article 39

(b) or 39 (c), there is no ethical obligation upon the State to pay the full market value.

No absolute principle of justice requires it. An adequate theory of social justice should

enable one to draw the line between justifiable and unjustifiable cases of confiscation68.

The whole purpose of the amendment was to exclude judicial review of the question

whether the “amount” fixed or the principle laid down by law is adequate or relevant69.

The fundamental Right to property is attenuated to a certain extent. But it is not wholly

taken away. The right that the property could be acquired only under a law fixing an

amount or the principles for determining it and for a public purpose would still remain.

This Court can strike down an amendment of the Constitution only on the ground that

the amendment was not made in the manner and form required by Article 368, or that

the amendment was made in violation of some express or implied limitation upon the

power of amendment.

A constitutional amendment which provides for the law fixing the ‘amount’ or the

principles for determining the amount instead of compensation or the principles for its

determination and which deprives the Court of the power of judicial review of the

question whether the amount or the principles fixed by law is adequate or are relevant,

cannot be adjudged bad on the ground of some invisible radiation from the concept that

the right to acquire, hold or dispose of property is a Fundamental Right. There is no

conceivable basis on which I can strike down the amendment to Article 31 (2)70.

66(1974) 4 SCC Para 1319. 67.Ibid Para 1513. 68(1974) 4 SCC Paras 1736 and 1737. 69.Ibid Para 1747. 70(1974) 4 SCC Paras 1759 and 1761.


Per Beg, J.

On Amendment of Article 31(2), I agree with Ray, Mathew and Dwivedi, JJ.71

Per Dwivedi, J.

Unlike ‘compensation’ the work ‘amount’ is not a term of art. It bears no specific legal

meaning. The amount fixed by law or determined in accordance with the principles

specified by law may be paid partly in cash and partly in kind. The notice of ‘the

relevancy of principles to compensation’ is discarded by Section 2 of the 25th

Amendment. Obviously, where the law fixes the amount, it cannot be questioned in any

court on the ground that it is not adequate, that is, not equal to the value of the property

acquired or requisitioned. The legislative choice is conclusive. It would accordingly

follow that the amount determined by the principles specified in the law is equally

unquestionable in courts. It is not permissible to import in the amended Article 31 (2)

the notions of ‘arbitrary amount’ or ‘illusory amount’ or ‘fraudulent amount’. As some

amount must be paid the law may be virtually confiscatory, but not literally

confiscatory. It is not permissible to import the notion of reasonableness in Article 31

(2) as amended by Section 272.

The value of the property acquired or requisitioned, the nature of the property acquired

or requisitioned, the circumstances in which the property is being acquired or

requisitioned and the object of acquisition or requisition will be the guiding principles

for legislative determination of amount. The second principle may involve, inter alia,

consideration of the income already received by the owner of the property and the

social contribution to the value of the property by way of public loans at lower rates of

interest, cheap State supply of energy and raw materials, subsidies and various kinds of

protection, etc. It should be remembered that the value of a property is the resultant of

the owner’s industry and social contribution. The owner ought not to receive any

amount for the value contributed by society. He is entitled to payment for his own

contributions. The third principle will include the element of social justice73.

Per Chandrachud, J.

The substitution of the neutral expression “amount” for “compensation” still binds the

Legislature to give to the owner a sum of money in cash or otherwise. The Legislature

may either lay down principles for the determination of the amount or may itself fix the

71(1974) 4 SCC Para 1856. 72. Ibid. Paras 1970 and 1971. 73(1974) 4 SCC Para 1972.


amount. There is, however, intrinsic evidence in Article 31 (2) that it does not empower

the State to confiscate or expropriate property. The obligation to pay an “amount” does

not connote the power not to pay any amount at all. The alternative obligation to evolve

principles for determining the amount also shows that there is no choice not to pay. The

choice open to the Legislature is that the amount may directly be fixed by and under the

law itself or alternatively the law may fix principles in accordance with which the

amount will be determined. The amount may, of course, be paid in cash or otherwise.

The specific obligation to pay an “amount” and in the alternative the use of the word

“principles” for determination of that amount must mean that the amount fixed or

determined to be paid cannot be illusory. But this is subject to an important,

qualification. The amount fixed for being paid to the owner is wholly beyond the

challenge that it is inadequate74.

With these findings it is very difficult to answer whether the court can go into the

question whether the “amount” fixed is illusory. One thing is clear that the meaning

given to the word '‘compensation”, on adequacy of compensation and on relevant

principles in Coopers case was held to have been nullified by the 25th Amendment of

the Constitution. The question still remains that in view of the fact that Art. 31 (2)

confers a fundamental right, a challenge with respect to adequacy of the amount is

completely excluded? The fixation or determination of the amount under Art. 31 (2) has

to be based on some norms or principles which just be relevant for the purpose of

arriving at the amount payable with respect to the property acquired or requisitioned.

The amount can neither be illusory nor nominal. Further, though the courts are debarred

from examining the adequacy of the amount yet the relevancy of the norms for fixing

the amount, reasonableness or the arbitrariness of the amount, or whether it is illusory

or nominal can still be subjected to judicial review. If the principles laid down for fixing

the amount are based on irrational classification and arbitrary it can still be questioned

under Art. 14 of the Constitution of India.

4.6 The Land Acquisition and Compensation

4.6.1 The Land Acquisition Act 1894 & Compensation

The power of the sovereign to take private property for public use and the consequent

rights of the owner to compensation are well established. In justification of the power,

two maxims are often cited Salus Populi est Supreme lex (regard for the public welfare

74Supranote 73, Paras 2121 to 2123.


is the highest law) and Necessities Public a major est quam Privata (Public necessity is

greater than private necessity).

The Land Acquisition Act, 1894 provides for the acquisition of land for a public

purpose, and also for Companies. The Land Acquisition Act was an existing law when

the Government of India Act 1935 was enacted and also when the Constitution came

into force, and so, the provisions of the Land Acquisition Act were protected under the

umbrella of Article 31 (5) (a). The effect of Art. 31 (5) (a) is that, if any law provided

for the acquisition and requisition of property without a public purpose, or did not

provide for payment of compensation, such a law if validly enacted, would not be open

to challenge on the a ground that it violated Art. 31 (2). Similarly S. 299 (41 of the

Government, of India Act provides that nothing containing in that section was to affect

existing laws. Sec. 6 of the Land Acquisition Act, 1894 provides that a declaration by

Govt., that the land is required for public purpose or for a Company shall be a

conclusive evidence that it is required for such purpose or for a Company75. Unless it is

shown that there was colourable exercise of power, the Court cannot go behind the

declaration of the Govt., and find out in a particular case whether the purpose for which

the land was a public purpose or not76 . The result therefore is that although public

purpose is justiciable. Sec. 6 being part of an existing law, is protected from challenging

under Art. 31 (2) and is valid. This protection was not available to the subsequent

amendments made to the Land Acquisition Act.

In Vishnu Prasad Sarma v. State of M.P. 77 under the Land Acquisition Act, the State

had issued Sec. 4 notification in May, 1949, covering a substantial area. Some land was

acquired in the year 1956 and for some land the Govt. issued Sec. 6 declarations in the

year 1960. At that stage the land-holders approached the Madhya Pradesh High Court

questioning the validity of Sec. 6 declarations. The High Court observed at page 272:

“The result is inevitable that once an area in the locality is fixed to be acquired

and notified under Sec. 6 of the Act, all the efficacy of the notification under Sec. 4 in

pursuance of which the area becomes fixed, comes to an end and it becomes a dead

letter. Any proposal for further acquisition in the same locality would have to be

followed by a fresh notification under Sec. 4.”

75Smt. Somawanti v State of Punjab AIR 1963 SC 151. 76Jage Ram v State of Haryana AIR 1971 SC 1035 77AIR 1962 MP 270.


On appeal to the Supreme Court in State of M. P. v. Vishnu Prasad Sarma78the decision

of the High Court was upheld. It was observed by Justice Wanchoo79 ;

“There is nothing in Sec. 4, 5A and 6 to suggest that Sec. 4 (1)

is a kind of reservoir from which the Govt., may from time to time

draw out land, make declarations with respect to it successively. If

that was the intention behind Secs. 4, 5A, 6 we would have-found

some indication of it in the language used therein. When once a

declaration under Sec. 6 particularising the area out of the area in the

locality specified in the notification under Sec. 4 (1) is issued, the

remaining non-particularized area stands automatically released”.

Consequent on the decision of Vishnu Prasad Sarma’s case the Land Acquisition

(Amendment and Validation) Ordinance I of 1967 was promulgated on 20-1-1967. This

was followed by an Act of Parliament, Land Acquisition (Amendment and Validation)

Act, 1967. The amendment validated earlier acquisitions retrospectively by providing

that the new terms should be deemed always to have in effect, but allowed the payment

of 6 per cent simple interest when there had been a delay of more than 3 years, the

interest to be payable for any period that elapsed after the three years.

In Udia Ram Sarma v. Union of India80 the Supreme Court upheld the 1967

Amendment to the Land Acquisition Act. The contentions of the petitioners that

different owners would be treated differently, and some would be deprived of

substantial increments in value as the years had gone by were negative. Mitter J. who

delivered the judgment of the majority observed at para 32:

“The date of valuations is that of the issue of notification under Sec. 4 (1) the

principle which has held the field since 1923. It is true that the underlying principle of

the Land Acquisition Act, 1894 was that all increments due to the setting foot of the

acquisition proceedings were to be ignored, whereas due to the ever spiraling of all

prices all over India land values are mounting up all the time in all the States, an

occurrence quite unconnected with the issue of a notification under Sec. 4 (1), but it

cannot be said that because the owners of land are to be deprived of all the increments

due to the latter phenomenon it must be held that there is a violation of Art. 31 (2) read

with sec. 4 and 23 of the Land Acquisition Act are protected by Art. 31 (5) (a) of the

78 AIR 1966 SC 1593. 79 Ibid at page 1600. 80 AIR 1968 SC 1138 & 1154.


Constitution. Only Sections 5 A and 6 of the Act have been amended. The amendments

do not alter the principle of compensation fixed by the Act nor contravene Art. 31 of the

Constitution in any way”.

Due to delay in payment and uncertainty in valuation increases unrest and compelled to

think about major change in law as a result, The Right to Fair Compensation and

Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.

4.6.2 The Right to Fair Compensation and Transparency in Land Acquisition,

Rehabilitation and Resettlement Act, 2013& Compensation

The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation

and Resettlement Act 2013, enacted by Parliament to provide just and fair

compensation to those whose land is taken away for constructing roads, buildings or

factories, had come into force from January 1, replacing the 120-year-old legislation,

after a thorough perusal of The Right to Fair Compensation and transparency in land

Acquisition, rehabilitation and Resettlement Act, 2013, on compensation and valuation

of property there is detailed provision to ensure justice and fair calculations as

following:

4.6.2.1 Determination of Market Value of Land by Collector

As per Section 26(1) the collector shall adopt the following criteria in assessing and

determining the market value of the land namely-

i. As specified in The Indian Stamp Act, 1899 for the registration of the sale deeds

or agreement to sell of particular area.

ii. Average sale price for similar type of land situated in the nearest village.

iii. Consented amount of compensation as agreed upon under sub. sec. (2) of sec. 2

in case of acquisition of lands for private companies or for the public-private

partnership projects.

Whichever is higher provided date of determination of market value shall be the date on

which notification has been issued. Further four explanations are there, according to

first explanation, the average sale price shall be determined taking into account, the sale

deeds or the agreements to sell registered for similar type of area in the near village of

near vicinity area during immediately preceding three year of the year in which such

acquisition of land is proposed to be made. Second explanation is, for determining the

average sale price referred to in explanation-1, one half of the total number of sale

deeds or the agreement to sell shall be taken into account. Third explanation is, while

determining the market value under section 26 and the average sale price referred in


exp.1 and exp.2, any price paid as compensation for land acquired under the provisions

of this Act or an earlier occasions in the district shall be taken into consideration. As per

explanation four, while determining the market value under section 26 and the average

sale price referred to in exp. 1 or exp. 2 any price paid, which in the opinion of the

collector is not indicative of actual prevailing market value may be discounted for the

purpose of calculating market value81. The market as calculated under Section 26 (1)

shall be multiplied by a factor to be specified in the first schedule82.

Where the market value under sub. Sec. (1) & (2)83 cannot be determined for reason,

land is situated in such an area where the transaction in land are restricted by or under

any law for the time being in force in that area; or the registered sale deed or agreement

to sell as mentioned in clause (a) of sub. Sec. (1) for similar land are not available for

immediately preceding three years; or the market value has not been specified under the

Indian Stamp Act, 1899 by the appropriate authority84.

The state Govt. concerned shall specify the floor price or minimum per unit area of the

said land based on the price calculated in the manner specified in sub. Sec. (1) of

Sec.2685 in respect of similar adjoining areas provided that in a case where the requiring

body offers its shares to the owners of the land.

Where lands have been acquired as a part compensation for acquisition of land such

shares in no case shall exceed 25% of the value so calculated under sub sec. (1) Sub

Sec. (2) or sub. Sec. (3) as the case may be86.

As per the proviso of sub sec.(3) where land has been acquired, land owner shall not be

compelled by requiring body to take his share, the value of which is deductible in the

value of the land calculated under sub sec. (1)87. Also collector shall before initiation of

any land acquisition proceeding in any area, take all necessary steps to revise and

upload the market value of the land on the basis of the prevalent market value in that

area. The appropriate Govt. shall ensure that, the market value determined for

acquisition of any land or property of an educational institution established and

administered by a religious or linguistic minority shall be such as would not restrict or

81 The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and

Resettlement Act, 2013 82 Sec 26 (2), The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and

Resettlement Act, 2013 83 Ibid. Sec.26, 84 Ibid. Sec.26 (3) 85 Ibid. 86 Ibid. 87 Ibid.


derogate the right to establish and administer educational institution of their choice88.

4.6.2.2 Determination of Amount of Compensation

The collector having determined the market value of land to the acquired, shall

calculate the total amount of compensation to be paid to the land owner (where land has

been acquired) by including all assets attached to the land89.

4.6.2.3 Parameters to be considered by Collector in Determination of Award

According to sec. 28, in determining the amount of compensation to be awarded for

land acquired under ‘The Right to Fair Compensation and transparency in land

Acquisition, rehabilitation and Resettlement Act, 2013, the collector shall take into

consideration;

i. Firstly, the market value as determined under sec. 26 and the award amount in

accordance with the first and second schedules;

ii. Secondly, the damage sustained by the person interested by reason of the taking

of any standing crop and trees which may be as the land at the time of the

collector’s taking possession thereof;

iii. Thirdly, the damage (if any) sustained by the person inserted, at the time of the

collector’s taking possession of the land, by reason of severing such land from

his other land;

iv. Fourthly, the damage (if any) sustained by the person interested, at the time of

collector’s taking possession of the land by reason of the acquisition injuriously

affecting his other property movable or immovable, in any other manner or his

earnings;

v. Fifthly, in consequence of the acquisition of the land by the collector, the

person, interested is compelled to change his residence or place of business, the

reasonable expense (if any) incidental to such charge;

vi. Sixthly, the damage (if any) bonafide resulting from diminution of the profit of

the land between the time of the publication of the declaration under sec. 19 and

the time of the collector’s taking possession of the land; and

vii. Seventhly, any other ground which may be in the interest of equity, justice and

beneficial to the affected families.

These parameters make the law of compensation more humane.

88 Supranote 84. 89 Sec. 27, The Right to Fair Compensation and transparency in land Acquisition, rehabilitation and

Resettlement Act, 2013.


4.6.2.4 Determination of Value of Thing Attached to Land Building

The collector in determining the market value of the building and other immovable

property or assets attached to the land or building which are to be acquired, use the

services of a competent engineers or any other specialist in the relevant field, as may be

considered necessary by him90. The collector for the purposes of determining the value

of trees and plants attached to the land acquired, use the services of experienced persons

in the field of agriculture, forestry, horticulture, sericulture or any other field, as may be

considered necessary by him91. The collector for the purpose of assessing the value of

the standing crops damaged during the process of land acquisition, may use the services

of experienced person in the field of agriculture as may be considered necessary by

him92.

4.6.2.5 Award of Solatium

The collector having determined the total compensation to be paid, shall to arrive at the

final award, impose a “solatium” amount equivalent to one hundred percent of the

compensation amount93. For the removal of doubts it is hereby declared that solatium

amount shall be in addition to the compensation payable to any specified in First

Schedule94.

In addition to the market value of the land provided under sec 26, the collector shall, in

every case, award an amount calculated at the rate of 12% per annum on such market

value for the period commencing on and from the date of the publication of the

notification of the Social Impact Assessment study under sub sec. (2) of Sec. 4 in

respect of such land till the date of award of the collector or the date of taking

possession of the land, whichever is earlier.

4.6.2.6 Period of Award

According to sec.24(2), in case of land acquisition initiated under the Land Acquisition

Act, where an Award under the said Section 11 has been made five years or more prior

to the commencement of this Act but the physical possession of the land has not been

taken or the compensation has not been paid the said proceedings shall be deemed to

have lapsed and the appropriate government, if it so chooses, shall initiate the

90 The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and

Resettlement Act, 2013sec 29(1). 91 Ibid. sec 29(2). 92 Ibid sec 29(3). 93 Sec. 29, The Right to Fair Compensation and transparency in land Acquisition, Rehabilitation and

Resettlement Act, 2013. 94 Ibid.


proceedings of such land acquisition afresh in accordance with the provisions of this

Act. Provided that whether an award has been made and compensation in respect of a

majority of land holdings has not been deposited in the account of the beneficiaries

specified in the notifications for acquisition under Section 4 of the said land acquisition

and shall be entitled to compensation in accordance with the provisions of this Act.

The above said provision of, The Right to Fair Compensation and Transparency in Land

Acquisition, Rehabilitation and Resettlement Act, 2013 quoted above has been

interpreted by the three Judge Bench of this Court in the case of Pune Municipal

Corporation and Anr. v Harakchand Misirimal Solanki & Ors95, the relevant paras 20

and 21 from the case are extracted hereunder;

“It is clear that the award pertaining to the subject land has been made by

the Special Land Acquisition Officer more than five years prior to the

commencement of the 2013 Act. It is also admitted position that

compensation so awarded has neither been paid to the landowners/persons

interested nor deposited in the court. The deposit of compensation amount

in the Government treasury is of no avail and cannot be held to be

equivalent to compensation paid to the landowners/persons interested. We

have, therefore, no hesitation in holding that the subject, land acquisition

proceedings shall be deemed to have lapsed under Section 24(2) of, The

Right to Fair Compensation and Transparency in Land Acquisition,

Rehabilitation and Resettlement Act, 2013.”

Same was upheld in Union of India & others v. Shiv Raj & others96, Bimla Devi &

Others v. State of Haryana & Others97, Bharat Kumar v. State of Haryana &

Another98 and Sree Balaji Nagar Residential Association v. State of Tamil Nadu

& others99

4.6.3 Problems of Valuation

The broad object underlying the principle of valuation is to award to the owner the

equivalent of his property with its existing advantages and its potentialities. Where

there is an established market for the property acquired the problem of valuation

presents little difficulty. Where there is no established market for the property, the

95 (2014) 3 SCC 183 96 (2014) 6 SCC 564. 97 (2014) 6 SCC 583. 98 (2014) 6 SCC 586. 99 2014 (10) SCALE 388.


object of the principle of valuation must be to pay to the owner for what he has lost,

including the benefits of advantageous present as well as in future, without taking into

account the urgency of acquisition, the disinclination of the owner to part with the

property, and the benefit which the acquirer is likely to obtain by the acquisition100.

The problem of valuation is the determination of present market value in relation to

lands and buildings, Market value means, the price at which a property can be expected

to sell as between a willing vendor and a willing purchaser both of whom are fully

informed regarding the property in question, who are neither forced to buy nor to sell

and who are free to deal elsewhere if they choose.

“The important methods of determination of compensation are;(i) market value

determined from sales of comparable properties, proximate in time to the date of

acquisition, similarly situate, and possessing the same or similar advantages and subject

to the same or similar disadvantages. Market value is the price of the property may

fetch in the open market if sold by a willing seller unaffected by the special needs of a

particular purchase; (ii) capitalization of the net annual profit out of the property at a

rate equal in normal cases to the return from gilt-edged securities. Ordinarily value of

the property may be determined by capitalizing the net annual value obtainable in the

market at the date of the notice of acquisition, (iii) where the property is a house,

expenditure likely to be incurred for constructing a similar house and reduced by the

depreciation for the number of years since it was constructed; (iv) principle of reinstate-

ment, where it is satisfactorily established that reinstatement in some other place is

bona fide intended, there being no general market for the property for the purpose for

which, it is devoted (the purpose being a public purpose) and would have continued to

be devoted, but for compulsory acquisition. Here compensation will be assessed on the

basis of reasonable cost of reinstatement, (v) when the property has out-grown its utility

and it is reasonably incapable of economic use, it may be valued as land plus the break-

up value of the structure. But the fact that the acquirer does not intend to use the

property for which it is used at the time of acquisition and desires to demolish it or use

it for other purpose is irrelevant; and (vi) the property to be acquired has ordinarily to

be valued as a unit. Normally an aggregate of the value of different components will not

be the value of the unit. There are, however, not the only methods. The method of

determining the value of property by the application of an appropriate multiplier to the

100 Nagpur Improvement Trust v Vithal Rao AIR 1973 SC 609.


net annual income or profit is a satisfactory method of valuation of lands with

buildings, only if the land is fully developed, i.e., it has been put to full use legally

permissible and economically justifiable, and the income out of the property is the

normal commercial and not a controlled return or a return depreciated on account of

special circumstances. If the property is not fully developed, or the return is not

commercial the method may yield a misleading result101 .

Are compensation provisions adequate?

Since much of the disgruntlement seems to stem from perceptions of inadequate

compensation as much as from abuse of process, the story about compensation, initiated

in the late 19th century law, is far from over either.

In KT Plantation’s case, the Supreme Court recently read compensation’ into the

requirements of law under Article 300A of the Constitution. Compensation, in previous

decisions, has been held to be ‘just equivalent of what the owner has been deprived of’

(Bela Banerjee’s case102), ‘something not illusory’ (Shantilal Mangaldas103 case). Yet,

the same Supreme Court has also held in Bhim Singh’s case, that Rs. 2 lacs was

adequate, whatever was the value of the property104.

In the recent case of Rajiv Sarin v. State of Uttarakhand105, the Supreme Court held that

‘as mandated by Article 300 A, a person can be deprived of property but in a just, fair

and reasonable manner, where the State exercises the power of acquisition of a private

property thereby depriving the private persons of that property, provision is generally

made in the statute to pay compensation to be fixed or determined according to criteria

laid down in the statute itself, the adequacy of compensation cannot be questioned in a

court of law, but at the same time the compensation cannot be illusory, the criteria to

determine possible income on the date of vesting would be to ascertain such

compensation paid to similarly situated owners of neighbouring [forests] on the date of

vesting106.

In the latest Noida Extension case where dissatisfied farmers appear ready to approach

the Supreme Court. These farmers have reported that the 64% hike in compensation as

per the Allahabad High Court is inadequate and that they are entitled to the prevailing

101 R.C.Cooper v UOI AIR 1970 SC 609-610. 102 AIR 1954 SC 170. 103 AIR 1969 SC 634. 104 State of Gujarat v Shri Shantilal Mangaldas and Others AIR 1969 SC 634. 105 (2011) 8 SCC 708. 106 Ibid.


circle rate of Rs. 18,000 per square metre107. In such a scenario, The Right to Fair

Compensation and Transparency in Land Acquisition, Rehabilitation, Resettlement Act,

2013, being the governing statute when passed, needs to provide much need clarity on

the criteria for compensation. (R&R details being already provided in the Schedules).

The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation,

Resettlement Act, 2013, computes market value on the basis of the documentation

available with the official records. It is expected that such official value will under-

represent the real value of the land, since stamp duty payments are high. According to


Resettlement Act, 2013, the market value is the higher of average sale price of

surrounding lands for the past 3 yrs or the price mentioned in the Stamp Act for

registration of sale deeds. This value is then to be multiplied by a factor of 2 in rural

areas and by 1 in urban, plus an amount of 100% more added as solatium. It is yet

unclear why the ratio of 2:1 was chosen, if such questions are essentially those of

relative economic value, determined by the manner the market operates. This ratio

seems to also simultaneously incentivize the transformation of rural areas (with better

compensation prices) into the urban, while keeping open the political and institutional

avenues for receipt of entitlements specified, and then even perhaps enabling the

continued retention of the hitherto rural character of the land if acquisitions are

subsequently nullified for abuse of law or process.


Resettlement Act, 2013 relies on a retrospective price, based on previous and not future

use. This approach seems to raise questions on price and not value, if the price to be

paid as compensation does not reflect the changed use of the land. There are examples

of recent State Acts which examine whether more can be done, the new Kerala

enactment did initially discuss Redeemable Infrastructure Bonds/Transferable

Development bonds instead of cash; Rajasthan’s new Bill explored the possibility of

providing 25% of developed land in lieu of cash for urban development and housing

purposes; Gujarat follows a TP Scheme model where the losses are spread across the

area; in Maharashtra, there have also been instances of the community organizing

themselves to form a corporation, where farmers pooled their lands and each farmer

107 India Today, ‘UP Land Row: Noida Farmers to move SC’ <http://indiatoday.intoday.in/story/g.-noida-

land-row-allahabad-hc-order-supremecourt/1/157520.html> accessed on 15th September, 2014.

http://indiatoday.intoday.in/story/g.-noida-land-row-allahabad-hc-order-supremecourt/1/157520.html

http://indiatoday.intoday.in/story/g.-noida-land-row-allahabad-hc-order-supremecourt/1/157520.html


became a shareholder of the company in proportion to the value of the respective land

vis a vis the cost of the total land108. It is this spirit of partnership, as enshrined in The

Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation,

Resettlement Act, 2013, preamble, that The Right to Fair Compensation and

Transparency in Land Acquisition, Rehabilitation, Resettlement Act, 2013, may do

more to provide, without which other distributive suggestions are inadequate. One way

of ensuring such partnership is through incentives in the actual benefits of the land

acquired for newer and more productive uses. This is what makes opportunity costs

come alive. This shifts the political stakes from a purely entitlement driven model for

the dispossessed to one that also talks about stake holders and partners of development.

If the farmers foresee a possible rise on incomes from selling off their lands, they will,

if the prospect of getting a share of the proceeds of future use holds promise compared

to existing returns from the land. ‘Impatient capital’, in a difficult economic

environment, which will look for a one-time settlement of dues and not seek to engage

in a protracted continuum of negotiations with affected parties. Livelihood options are

another issue altogether, dependant on the availability of requisite skills and general

employability, of particular relevance also here are comparisons with adjoining areas,

the gains that are made by those who do not lose land but actually benefit from the

rising value of land through acquisitions in such areas. The Right to Fair Compensation

and Transparency in Land Acquisition, Rehabilitation, Resettlement Act, 2013 does

provide particularly that ‘where the land is acquired for urbanization purposes, twenty

per cent of the developed land will be reserved and offered to land owning project

affected families, in proportion to the area of their land acquired and at a price equal to

cost of acquisition and the cost of development. How does one take care of potential

value in commonsense terms, the price paid by a willing purchaser to a willing seller

after taking into account the existing and potential possibility of the land? In its

absence, it is likely that the usual arguments about computation will continue lack of

land titles, under-valuation of land for stamp duty purposes, information asymmetry,

delays pushing cost of land up; lack of speedy implementation and so on. In R&R, the

responsibility of the State (and private companies) will be particularly tested. Will

implementation of R&R as a precondition be effectively implemented? Is there enough

108The Indian Express, http://www.indianexpress.com/news/magarpatta-building-a-city-with-ruralurban-

partnership/623701/1; accessed on 15th September, 2014.

http://www.indianexpress.com/news/magarpatta-building-a-city-with-ruralurban-partnership/623701/1;

http://www.indianexpress.com/news/magarpatta-building-a-city-with-ruralurban-partnership/623701/1;


land for R&R, especially to implement the 20% land for land provision? Where the land

market is beset with large information and other asymmetries, questions are rife as to

whether the State can indeed effectively manage compensation and fair payment of

market value.

The immediate question stemming from the compensation and market value approaches

is where will the new urbanisation take place? Will there be an increasing number of

greenfield sites (whether under The Right to Fair Compensation and Transparency in

Land Acquisition, Rehabilitation, Resettlement Act, 2013 or as SEZs or under possibly

diluted requirements of townships) or are we going to continue to see urbanisation as

increasing peripheral development, incrementally across the blurred rural-urban/ peri-

urban boundaries?

While discussing about relevant principles of compensation Seervai commented109:

“Relevant to what? If compensation means the market value, then relevant

principles of compensation mean general rules whose application enables us to

determine the market value, and irrelevant principles mean principles whose

application does not enable us to determine the market value. For example, if in the

open market, the potentiality of agricultural land as a building site in the near future is

taken into account, and a higher price paid for such land than would be paid for

agricultural land without such potentiality, then a rule (principle) which excluded' the

potential value of land would be irrelevant, for its application would not enable us to

determine the market value. On the other hand, where land is acquired, and there is

evidence of the prices realized by the sales of comparable lands at or about the time of

acquisition, the principle that ordinarily such sales provide the best evidence of the

market value is relevant, because its application enables us to determine the market

value. But if it is established that the prices mentioned in the sale deeds of the lands in

question were substantially less in order to avoid liability for income-tax and wealth

tax, and that in addition to the specified price, an unknown amount of black market

money passed from the purchaser to the seller, the principle of referring to such sales

would be irrelevant because it does not enable us to arrive at the market value”.

4.7 Conclusion

This chapter is mainly focused on compensation and its protection under Indian

Constitution, judicial approach and development of concept of compensation, relevant

109 H.M Seervai, Constitutional Law of India: A Critical Commentary, (2nd Edn, N.Delhi, Universal Law

Publication2010)656.


principles of compensation mean general rules whose application enables us to

determine the market value. The problem of valuation is the determination of present

market value in relation to lands and buildings. The tops-turvy journey of Indian

Supreme Court has been swaying in between the idea of ‘Social Justice’, ‘Distributive

Justice’, land reforms and Zamindari abolition by compensatory acquisition of land. But

in doing so the achievement of Indian Supreme Court has that one size fit all type of

computation formula for calculation of compensation cannot be applied to each and

every case. The Judiciary has discussed all pros and cons of various types of valuation

method. However due to variety of properties and allied attachments one type cannot be

applied to each case uniformly.

Documents

CHAPTER IV LAND ACQUISITION AND COMPENSATIONshodhganga.inflibnet.ac.in/bitstream/10603/45164/8/chapter-iv.pdf · Chapter IV Land Acquisition and Compensation | 62 the Act had sought