PRABHAKAR RAGHUNATH PATIL AND ORS.versusSTATE OF MAHARASHTRA

                 [2010) 13 (ADDL.) S.C.R. 586


A          PRABHAKAR RAGHUNATH PATIL AND ORS.
                                   v.
                     STATE OF MAHARASHTRA
                (Civil Appeal Nos. 2817-18 of 2005)
                        NOVEMBER 11, 2010
B
       [DR. MUKUNDAKAM SHARMA AND SWATANTER
                     KUMAR, JJ.]

        Land acquisition Act, 1894:
c
       Compensation - Increase in valuation of open space -
  Held: When a large tract of land is acquired and the valuation
  thereof is sought to be determined on the basis of sale
  instances relating to small portion of land, deduction of 33%
0 from the value of such small tract of land is the general trend
  - High Court held that reference court was justified in
  awarding compensation @ Rs. 2251- sq meter for open space
  - While coming to the said conclusion, High Court corisidered
  the sale related to a small plot of land as compared to the
  acquired land and made deduction from the exemplar value
E and on the basis thereof upheld the valuation fixed at Rs. 225
  per square meter - Claimants could not produce further
  cogent reasons for an increase in valuation - Plea for increase
  of compensation rejected.

F      Compensation - Valuation of structure - Held: Age of
  structure is relevant for valuation purpose - Expert could not
  state the age of structure when it was notified in 1983 for
  acquisition - The fine condition of structure and superior
  quality of material used for construction in the structure was
G beyond doubt and never questioned - Schedule Rates cover
  costs of construction in the entire district - Cost of construction
  was for the first time introduced in 1991 - Cost of construction
  would admittedly be lower in 1983 than in 1991 - Besides,
  the cost of construction of ground floor is always on the higher
H                                586
   PRABHAKAR RAGHUNATH PATIL v. STATE OF                      587
              MAHARASHTRA

side while the cost of construction of first floor and second floor   A
is on the lower side - Depreciation also would have accrued
to the structures owing to wear and tear over a period of 8
years - In the year 1991, cost of construction of residential
building was Rs. 2, 800 per square meter for the ground floor
and Rs. 2,200 per square meter for the second and the third           B
floors - A deduction of 60 per cent from the said valuation of
the cost of construction in 1991 found appropriate -
Accordingly, compensation fixed at Rs. 1700 per square
meter for the structure - Thus, the valuation raised from Rs.
 1,200 per square meter to Rs. 1700 per square meter.                 c
     The acquisition proceedings were initiated under the
Land Acquisition Act, 1894 in respect of the properties
belonging to the claimants-appellants. Section 4
Notification was issued on 15.9.1983. The Land
                                                                      0
Acquisition Officer passed an award on 22.09.1986 and
possession of the properties was taken on 18.10.1986.
The claimants were not satisfied with the compensation
amount. Before the reference court, they claimed
compensation @ Rs.3501- sq. meter for the open land and
@ Rs.2000/sq. meter for the structures. The reference                 E
court considered the evidence of expert witness to be
unreliable as he failed to state in his evidence, the details
regarding the age of the building acquired under the
notification. It relied on the sale instance and enhanced
the compensation, determining the value of the open land              F
@ Rs.225/- sq. meter and @ Rs.1200/- sq. meter for the
structure. The State and the claimants both challenged
the order of the reference court before the High Court.

    The High Court allowed the appeals filed by the State             G
and dismissed those filed by the claimants. It held that
the reference court was justified in awarding
compensation @ Rs.225/- sq meter for open space. While
coming to the said conclusion, the High Court considered
the sale deed dated 11.12.1982 for an open space
                                                                      H
    588    SUPREME COURT REPORTS (2010] 13 (ADDL.) S.C.R.


A   admeasuring 16' x 16' for which sale consideration of Rs.
    8,000 was received. But, since the same related to a small
  plot of land as compared to the acquired land, the High
  Court made deduction from the exemplar value and on
  the basis thereof upheld the valuation of the reference
B court fixed at Rs. 225 per square meter for the open
  space. The instant appeals were filed by the claimants
  challenging the order of the High court.

          Partly allowing the appeals, the Court

C      HELD: 1. When a large tract of land is acquired and
  the valuation thereof is sought to be determined on the
  basis of sale instances relating to small portion of land,
  the general trend of this Court is to deduct 33 per cent
  from the value of such small tract of land. Since a very
D small portion of land was sold by the sale deed dated
  11.12.1982 admeasuring 16' x 16', the same can be
  treated as a base guide only after proper deduction is
  made from the value fixed in such sale deed.
  Consequently, the plea for increase of compensation, in
E so far as open space is concerned is rejected. [Para 6)
  [593-D-F]

        2.1. For seeking an increase in the valuation of the
   structure, reliance was placed by the appellants on the
   evidence of the expert witness and also on the circular
F dated 03.01.1991 issued by the Chief Engineer in respect
   of cost of construction. The expert had not given any
   specific evidence as to what was the age of the structure
   when it was notified for acquisition. The age of the
   structure is relevant factor for assessing the valuation.
G Besides, the cost of construction of the ground floor is
   always on the higher side while the cost of construction
   of first floor and second floor is on the lower side. The
   expert also ignored the said fact which would go to the
   root of the valuation and for that also the evidence of the
H .expert was not reliable. It is established from the records
  PRABHAKAR RAGHUNATH PATIL v. STATE OF                 589
             MAHARASHTRA
that the practice of issuing circular by the Chief Engineer    A
with regard to the cost of construction was for the first
time introduced in the year 1991 and no such practice
was in existence in the year 1983. But there is at least
some evidence indicating the District Schedule Rates for
the standing structure in the year 1991. However, such         B
an exercise to determine the compensation with
reference to future documents must be undertaken with
 great care and caution. The compensation as determined
by the reference court for the plot containing the
structures is on the lower side. The High Court, while         c
 referring to the oral evidence adduced by the expert
stated that the fine condition of the structures and the
 superior quality of materials used for construction of the
 same is beyond doubt. Despite the ambiguity
 surrounding the age of the structures, the condition and
                                                               0
 quality of the building was never called into question.
 Therefore, claimants are entitled to enhancement of
 compensation. [Paras 7, 9, 10, 11) (593-F-H; 594-E-G; 595-
 A-D; 596-G-H; 597-A-B]

     2.2. The margin of error in comparing Schedule rates      E
for construction of buildings in the same district would
be lesser than in attempting to use future sale
transactions as exemplars. The Schedule Rates cover
costs of construction in the entire district, thus factoring
any sudden spurt in increase of land prices owing to           F
acquisition in the area. Moreover, the quality of the
structures stands testimony of the fact that the building
possesses considerable value, notwithstanding the fact
that its age was not correctly ascertained. Therefore, the
cost of construction, which would be admittedly lower in       G
1983 than in 1991, must also be juxtaposed with the
depreciation that would have accrued to the structures
owing to wear and tear over a period of 8 years. In the
year 1991, the cost of construction of residential building
was Rs. 2,800 per square meter for the ground floor and        H
    590 SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A Rs. 2,200 per square meter for the second and third
  floors. A deduction of 60 per cent (approximate) from the
  said valuation of the cost of construction in 1991 and
  compensation of Rs.1700 per square meter for the
  structure would be appropriate. The decision to deduct
B the said percentage of 60% is based on the Building Cost
  Index between 1983 and 1991 published by the Central
  Public Works Department, which reflects the rise in cost
  of construction over the said period of time. The valuation
  fixed with regard to the compensation payable in respect
c of the structure which was acquired under the
  notification for acquisition is raised from Rs.1,200 per
  square meter to Rs. 1700 per square meter. The
  respondents would also be entitled to the statutory
  benefits as provided for under Section 23(1 ), 28 and 34
D of the Act. [Paras 11, 12, 13] [597-A-C; E-H; 598-A-C]

        Administrator General of West Bengal v. Collector,
    Varanasi (1988) 2 sec 150 - relied on.

         The General Manager, Oil & Natural Gas Corporation
E   Ltd. v. Rameshbhai Jivanbhai Patel and Anr. MANU/SC/
    7896/2008 - referred to.

        Sunder v. Union of India (2001) 7 SCC 211; Gurpreet
    Singh v. Union of India (2006) 8 SCC 457 - held
    inapplicable.
F
                         Case Law Reference:
        MAN U/SC/789612008      referred to         Para 10
        (1988) 2 sec 150        relied on           Para 11
G
        (2001) 1 sec 211        relied on           Para 13
        (2006) 8 sec 457        held inapplicable   Para 13
        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
H   2817-2818 of 2005.
   PRABHAKAR RAGHUNATH PATIL v. STATE OF                    591
              MAHARASHTRA
    From the Judgment & Order dated 23.09.2003 of the High         A
Court of Judicature at Bombay, Bench at Aurangabad in First
Appeal Nos. 134 & 338 of 1995.

                             WITH

C.A. Nos. 2819, 2820-2821 of 2005.                                 B

    Dr. Kailash Chand for the Appellants.

     Sanjay V. Kharde, Uday B. Dube, Asha Gopalan Nair for
the Respondent.
                                                                   c
    The Judgment of the Court was delivered by

     DR. MUKUNDAKAM SHARMA, J. 1. The present
appeals are filed by the appellants-claimants praying for higher
compensation for their lands as also for the structures standing   D
thereon which were acquired by the State of Maharashtra by
issuing a notification under Section 4 of the Land Acquisition
Act, 1894 (hereinafter referred to as "the Act").

     2. The aforesaid properties were proposed to be acquired
by issuing a notification under Section 4 of the Act for the       E
purpose of Hatnoor Project which was published on
15.09.1983. Subsequently, a declaration was issued under
Section 6 of the Act which was published on 24.05.1984. The
Land Acquisition Officer passed an award on 22.09.1986 and
possession of the properties was also taken on 18.10.1986.         F
By the aforesaid award, passed by the Land Acquisition
Officer, compensation for the properties was valued at Rs. 1,
10,547.50 which was directed to be paid to the claimants in
the Land Acquisition Reference No. 2 of 1991. In so far as the
Land Acquisition Reference No. 3of1991 was concerned, the          G
Land Acquisition Officer determined the compensation at Rs.
4,67,500.53 and for the case in Land Acquisition Reference
No. 4 of 1991, the Land Acquisition Officer determined the
compensation at Rs. 7 ,20,464.91.
                                                                   H
    592   SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A      3. The appellants-claimants not being satisfied with the
  compensation awarded by the Land Acquisition Officer,
  requested a reference of their claims to the Civil Court on the
  basis of which the aforesaid reference cases, viz., Lan9
  Acquisition Reference Nos. 2 to 4of1991 were numbered. The
B claimants claimed compensation at the rate of · 350 per square
  meter for the open land and at Rs. 2,000 per square meter for
  the structures. After recording evidence adduced by the parties
  and considering the oral as well as documentary evidence
  placed before the reference court, it granted enhanced
c compensation of Rs. 2,48,526 to the claimants in Land
  Acquisition Reference No. 2 of 1991, Rs. 5, 10,562.50 to the
  claimants in Land Acquisition Reference No. 3 of 1991 and Rs.
  10,84,605 to the claimants in Land Acquisition Reference No.
  4 of 1991.
D      4. At this stage, however, we would like to record that the
  reference court, while relying on the sale instance and the oral
  evidence of the expert, enhanced the compensation
  determining the value of the open land at the rate of Rs. 225
  per square meter and at the rate of Rs. 1,200 per square meter
E for the structure. Being aggrieved by the aforesaid judgment
  and order passed by the reference court, the State of
  Maharashtra filed appeals in the Bombay High Court which was
  registered as First Appeal Nos. 133/1995, 134/1995 whereas
  the three appeals filed by the claimants were registered as First
F Appeal Nos. 338/1995, 339/1995 and 340/1995.

       5. Since the issues involved in the said appeals were
  similar, all the aforesaid appeals were taken up together for
  consideration by the High Court and disposed of the same by
G a common judgment and order dated 23.09.2003 whereby the
  High Court allowed the appeals filed by the State and dismissed
  the appeals filed by the claimants. So far as the valuation with
  regard to the open land is concerned, the High Court held that
  the reference court was justified in awarding compensation at
  the rate of Rs. 225 per square meter for open space. While
H
  PRABHAKAR RAGHUNATH PATIL v. STATE OF  593
 MAHARASHTRA [DR. MUKUNDAKAM SHARMA, J.)
coming to the aforesaid conclusion, the High Court considered       A
a sale deed dated 11.12.1982 for an open space admeasuring
16' x 16' for which sale consideration of Rs. 8,000 was
received. But, since the same related to a small plot of land as
compared.to the acquired land, therefore, deduction was made
by the High Court from the exemplar value and on the b.asis         B
thereof upheld the valuation of the reference court fixed at Rs.
225 per square meter for the open space.

      6. Although a faint argument was made before us, seeking
an increase in the valuation of compensation for the said open      C
land, the counsel appearing for the appellants, however, could
not show any cogent reason for such increase in the valuation.
Even if the aforesaid sale consideration is taken to be the
exemplar, the same would indicate that in the year 1982, the·
approximate price was around ' 336 per square meter for the
land. When a large tract of land is acquired and the valuation      D
thereof is sought to be determined on the basis of sale
instances relating to small portion of land, the general trend of
this Court is to deduct 33 per cent from the value of such small
tract of land. Since a very small portion of land was sold by the
 aforesaid sale deed admeasuring 16' x 16', the same can be         E
treated as a base guide only after proper deduction is made
from the value fixed in such sale deed. Consequently, the plea
 for increase of compensation, in so far as open space is
 concerned, stands rejected by this common judgment and
 order.                                                             F

     7. Subsequent to the determination of the valuation of the
open space, we are required to decide regarding the prayer
of the claimants with regard to increase in the valuation of the
structure that was acquired by the respondents. On this count, G
reliance was placed by the appellants on the evidence of the
expert witness and also on the circular dated 03.01.1991 issued
by the Chief Engineer, Amaravati in respect of cost of
construction in justification of their prayer for the increase of the
valuation of the structure. Under the aforesaid circular dated
                                                                    H
    594    SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R.


A   03.01.1991 issued- by the Chief Engineer, Amaravati, the cost
    of residential building was fixed as under: -

          Ground Floor - Rs. 2,800 per sq. mtr.

          First Floor - Rs. 2,200 per sq. mtr.
B
          Second Floor - Rs. 2,200 per sq. mtr.

       8. In so far as the evidence of the expert witness is
  concerned, the reference court however considered the same
C to be unreliable as the expert had failed to state in his evidence,
  details regarding the age of the building which was acquired
  under the notification. Since the counsel appearing for the
  appellants made a sincere attempt to justify the increase as
  sought for by the appellants, we have looked into the evidence
D of the expert as also on the aforesaid notification.

        9. In so far as the opinion of the expert is concerned, he
  has not given any specific evidence as to what was the age of
  the structure when it was notified for acquisition. Without making
  an enquiry with regard to the age of the structure which was
E acquired, it would be difficult to assess the valuation and,
  therefore, the expert was not justified in not making an
  assessment with regard to the age of the structure. He has
  faulted on the basic principle of assessment of valuation of a
  construction. Besides, the cost of construction of the ground
F floor is always on the higher side while the cost of construction
  of first floor and second floor is on the lower side. The expert
  examined has also ignored the said fact which goes to the root
  of the valuation and for that also the evidence of the expert, in
  our considered opinion, is not reliable. The only evidence that,
G therefore, is available before us is the circular issued by the
  Chief Engineer, Amravati dated 03.01.1991 regarding District
  Schedule Rates in respect of cost of construction with reference
  to Building and Construction Department of State of
  Maharashtra.
H
  PRABHAKAR RAGHUNATH PATIL v. STATE OF  595
 MAHARASHTRA [DR. MUKUNDAKAM SHARMA, J.]
     1O. The High Court, however, held that the aforesaid A
evidence is also not reliable as the same shows the District
Schedule Rates for the year 1991 in District Amravati and that
the same cannot be a safe guide for the determination of the
compensation of the structure in question acquired in the year
1983. It is established from the records that the practice of B
issuing circular by the Chief Engineer with regard to the cost
of construction was for the first time introduced in the year 1991
and no such practice was in existence in the year 1983. But
since there is at least some evidence indicating the District
Schedule Rates for the standing structure in the year 1991 we         c
can relate back the said valuation to the year 1983. However,
such an exercise to determine the compensation with reference
to future documents must be undertaken with great care and
caution. The dangers of such a comparison have already been
amply illustrated by this Court in The General Manager, Oil & D
Natural Gas Corporation Ltd. v. Rameshbhai Jivanbhai Patel
 and Anr. reported at MANU/SC/7896/2008 wherein it was
observed:

    13. Much more unsafe is the recent trend to determine the
    market value of acquired lands with reference to future sale      E
    transactions or acquisitions. To illustrate, if the market
    value of a land acquired in 1992 has to be determined and
    if there are no sale transactions/acquisitions of 1991 or
    1992 (prior to the date of preliminary notification), the
    statistics relating to sales/acquisitions in future, say of the   F
    years 1994-95 or 1995-96 are taken as the base price and
    the market value in 1992 is worked back by making
    deductions at the rate of 10% to 15% per annum. How far
    is this safe? One of the fundamental principles of valuation
    is that the transactions subsequent to the acquisition            G
    should be ignored for determining the market value of
    acquired lands, as the very acquisition and the
    consequential development would accelerate the overall
    development of the surrounding areas resulting in a sudden
    or steep spurt in the prices. Let us illustrate. Let us assume    H
    596     SUPREME COURT REPORTS (2010] 13 (ADDL.) S.C.R.


A         there was no development activity in a particular area. The
          appreciation in market price in such area would be slow
          and minimal. But if some lands in that area are acquired
          for a residential/commercial/industrial layout, there will be
          all round development and improvement in the
B         infrastructure/ amenities/facilities in the next one or two
          years, as a result of which the surrounding lands will
          become more valuable. Even if there is no actual
          improvement in infrastructure, the potential and possibility
          of improvement on account of the proposed residential/
c         commercial/ industrial layout will result in a higher rate of
          escalation in prices. As a result, if the annual increase in
          market value was around 10% per annum before the
          acquisition, the annual increase of market value of lands
          in the areas neighbouring the acquired land, will become
          much more, say 20% to 30%, or even more on account of
D
          the development/proposed development. Therefore, if the
          percentage to be added with reference to previous
          acquisitions/sale transactions is 10% per annum, the
          percentage to be deducted to arrive at a market value with
          reference to future acquisitions/sale transactions should
E         not be 10% per annum, but m~ch more. The percentage
          of standard increase becomes unreliable. Courts should
          therefore avoid determination of market value with
          reference to subsequent/future transactions. Even if it
          becomes inevitable, there should be greater caution in .
F         applying the prices fetched for transactions in future.

       11. In this instance, however, we are of the considered
  opinion that the compensation as determined by the Reference
  Court for the plot containing the structures is 'on the lower side.
G The High Court, while referring to the oral evidence adduced
  by the expert, has stated that the fine condition of the structures
  and the superior quality of materials used for construction of
  the same is beyond doubt. Despite the ambiguity surrounding
  the age of the structures, the condition and quality of the building
H has never been called into question. Therefore, we are inclined
  PRABHAKAR RAGHUNATH PATIL v. STATE OF  597
 MAHARASHTRA [DR. MUKUNDAKAM SHARMA, J.)
to raise the compensation awarded in the present case. We             A
are also of the opinion that the margin of error in comparing
Schedule rates for construction of buildings in the same district
would be lesser than in attempting to use future sale
transactions as exemplars. The Schedule Rates cover costs
of construction in the entire district, thus factoring any sudden     B
spurt in increase of land prices owing to acquisition in the area.
Moreover, the quality of the structures stands testimony of the
fact that the building possesses considerable value,
notwithstanding the fact that its age has not been correctly
ascertained. In Administrator General of West Bengal                  c
v. Collector, Varanasi reported at (1988) 2 SCC 150, this
Court held that
     8. [ ... ) building value is estimated on the basis of the
     prime-cost or replacement-cost less depreciation. The rate
     of depreciation is generally, arrived at by dividing the cost    D
     of construction (less the salvage value at the end of the
     period of utility) by the number of years of utility of the
     building. The factors that prolong the life and utility of the
     building, such as good maintenance, necessarily influence
     and bring down the rate of depreciation.                         E
     12. Therefore, the cost of construction, which would be
admittedly lower in 1983 than in 1991, must also be juxtaposed
with the depreciation that would have accrued to the structures
owing to wear and tear over a period of 8 years. In the year
                                                                      F
1991, the cost of construction of residential building was ' 2,800
per square meter for the ground floor and Rs. 2,200 per square
meter for the second and third floors. We are of the considered
opinion that a deduction of 60 per cent (approximate) from the
said valuation of the cost of construction in 1991 would be
appropriate, and accordingly arrive at a compensation of Rs.          G
1700 per square meter for the structure. Our decision to deduct
the said percentage of 60% is based on the Building Cost Index
between 1983 and 1991 published by the Central Public Works
Department, which reflects the rise in cost of construction over
the said period of time.                                              H
    598    SUPREME COURT REPORTS [2010] 13 (ADDL.) S.C.R


A         13. Therefore, we allow these appeals partly to the extent
    of the valuation fixed with regard to the compensation payable
    in respect of the structure which was acquired un(ifer the
    notification for acquisition raising it from Rs. 1,200 per square
    meter to Rs. 1700 per square meter. We, however, reject the
B   prayer for increase in the amount of compensation so far as
    open space is concerned. It is needless to point out tiere that
    the respondents shall also be entitled to the statutory benefits
    as provided for under Section 23(1 ), 28 and 34 of the Act for
    which the decision rendered in the case of Sunder v. Union of
C   India reported in (2001) 7 SCC 211 which was later affirmed
    and elaborated in the case of Gurpreet Singh vs. Union of India
    reported in (2006) 8 SCC 457 would be applicable. We leave
    the parties to bear their own costs ..

    D.G.                                   Appeals partly allowed.