Supreme Court of India

GUJARAT INDUSTRIAL DEVELOPMENT CORPORATIONversusNAROTTAMBHAI MORARBHAI AND ANR.

Citation: 1996 INSC 939
Decided: 23 August 1996
Disposal: Appeal(s) allowed
Bench: K RAMASWAMYG B PATTANAIK

Holding

Compensation for land acquired under the Act must be based on the land's own potential value, not on distant sale deeds, and the appropriate rate was set at Rs 22 per sq m after a one‑third deduction for development charges, with statutory benefits awarded.

Summary

The Gujarat Industrial Development Corporation acquired 861,515 sq m of waste land on the outskirts of Surat for industrial development under a notification of the Land Acquisition Act, 1894. The Land Acquisition Officer initially awarded compensation of Rs 5 per sq m, which was later enhanced to Rs 25 per sq m by an extra Assistant Judge and further to Rs 33 per sq m by the Gujarat High Court, the latter relying on a sale deed of land situated two kilometres away. The Supreme Court held that reliance on such a distant sale deed was legally unjustified and that compensation must reflect the potential value of the land itself, not speculative market prices of unrelated parcels. Applying the “prudent purchaser” test, the Court fixed reasonable compensation at Rs 22 per sq m after deducting one‑third for developmental charges and affirmed the claimants’ entitlement to statutory benefits. The appeals were allowed and no costs were awarded.

Issues considered

Whether compensation for land acquired under Section 4(1) of the Land Acquisition Act, 1894 should be based on the market value of a distant parcel of land sold in a separate transaction.
Whether the High Court’s reliance on a sale deed of land located two kilometres from the acquired land is justified for determining compensation.
What method should be employed to ascertain the appropriate compensation for waste land possessing potential value for industrial development.
Whether the claimants are entitled to statutory benefits on the enhanced compensation.

Legislation cited

Land Acquisition Act, 1894s. 23, s. 4(1)

Subjects

land acquisitioncompensationpotential valuemarket valuestatutory benefitsSection 4(1)industrial developmentSupreme Court of India

Judgment

    GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION                                    A
                         v.
         NAROTTA.MBHAI MORARBHAI AND ANR.

                              AUGUST 23, 1996
                                                                                  B
              (K. RAMASWAMY AND G.B. PATTANAIK, JJ.J


         Land Acquisition Act, 1894: Sectio11 4(1) and 23.

       Land Acquisition--Compensatioit-Detennination of-Acquisition of
large e;.tent of land for i11dustrial development-Acquired land was waste land
                                                                                  c
but possessed of potential value fit for building purposes and situated in out-
skilts of industrial city-Compensation awarded by Land Acquisition Officer
@ Rs. 5 per sq. mtr.-Reference Coult e11ha11ced compensation to Rs. 25 per
sq. mtr.-High Court further e11hanced compe11sation to Rs. 33 per sq.
mtr.-High Coult relying upo11 a sale deed in respect of la11ds situated at a      D
distance of 2 kms.from acquired land-Appeal-Held reliance 011 such a sale
deed was unjustified-Courts below were right in taking into consideration
potential value of land for deiennination of compensation-Held in the cir-
cumsta11ces of the case reasonable and adequate compensation for acquired
land would be Rs. 22 per sq. mtr.-Claimants also held entitled for statutory      E
benefits on the enhanced compensation.

     CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 11924
and 11934 of 1996.
                                                                                  F
     From the Judgment and Order dated 20.1.95 of the Gujarat High
Court in F.A. No. 2319 and 2277 of 1994.

         Harish Salve, Sunil Dogra, A. Roy, S.S. Shroff for the Appellants.

         G.L. Sanghi, Ms. Reerna Bhandari and M.N. Shroff, for the Respon- G
dents.

         The following Order of the Court was delivered :

         Delay condoned.                                                          H
                                      199
    200                    SUPREME COURT REPORTS [1996] SUPP. 5 S.C.R.

A         Leave granted.

          Heard learned counsel on both sides.

           Notification under Section 4(1) of the Land Acquisition Act, 1894
    (for short, the "Act") was last published on April 10, 1989 acquiring a large
B
    extent of land admeasuring 8,61,515 sq. mtr. for public purpose, viz.,
    industrial development; the land was at that time fit for cultivation but
    possessed of potential value and was situated in outskirts of Surat. The
    Land Acquisition Officer in his award dated April 15, 1991 awarded
    compensation@ Rs. 5 per sq. mtr. On reference, the extra Assistant Judge
c   by his award and decree dated April 19, 1994 enhanced the compensation
    to Rs . 25 per sq. mtr. On appeal by both the claimants as well as the State,
    the High Court while dismissing the appeals of the State further enhanced
    the compensation to Rs. 33 per sq. mtr. Thus these appeals by special leave.

D          Though the land was waste land but being possessed of potential
    value was fit for building purposes and is situated in outskirts of industrial
    city, the courts below were right in taking into consideration potential
    value of the land for determination of compensation. In awards for lands
    notified under Section 4(1) published between December 15, 1986 and
E   December 29, 1989, compensation was awarded in the range of Rs. 4.75
    per sq. mtr. to Rs. 7 per sq. mtr. In respect of land situated in lchhapur
    to an extent of around 908 sq. mtr., the market value was in the range of
    Rs. 33 per sq. mtr. Relying upon that, the High Court enhanced the
    compensation. In view of 1the fact that the lands are situated at a distance
    of two kilometers from the acquired lands, reliance on sale deed, Ex. 22
F
    by the High Court was wholly unjustified in law. It is accordingly excluded.
    However, we agree that the lands are possessed of potential value, as found
    by all the courts below.

        No prudent purctJ.aser would purchase large extent of land on the
G basis of sale of a small extf:nt -0f land in the open market. The acid test the
  court should always adopt in determining market value in the matter of
  compulsory acquisition would be to eschew feats of imagination, sit in the
  arm chair of a prudent willing purchaser, it should consider whether the
  willing vendee would offer the rate at which the trial court proposes to
H determine the compensation. Taking these facts into consideration, we are          c
      GUJ. INDL. DEY. CORPN. v. NAROTIAMBHAI MORARBHAI               201

of the view that the reasonable and adequate compensation for the lands A
would be at a net rate of Rs. 22 per sq. mtr. after giving deduction of 1/3rd
of the amount towards developmental charges. Therefore, the claimants
would be entitled to the compensation@ Rs. 22 per sq. mtr. They are also
entitled to the statutory benefits on the enhanced compensation.

     The appeals are accordingly allowed. No costs ..                      B

T.N.A.                                                  Appeals allowed.

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