Holding

Compensation for the acquired land must be based on its fair market value (fixed at Rs 40,000 per acre) and cannot be determined on a per‑square‑foot, per‑square‑yard, or potential‑value basis; claimants are entitled to solatium and interest but not to the additional amount under Section 23(1‑A).

Summary

The Supreme Court considered the compensation payable for 12.5 acres of land acquired by the State of Maharashtra for extending a thermal power station. The original award fixed Rs 3,000 per acre, later enhanced on a per‑square‑foot basis, which the Court held to be illegal. It ruled that compensation cannot be based on sales of small parcels, on a per‑square‑foot or per‑square‑yard basis, or on the land’s potential value when no development existed at the time of notification. The Court fixed a fair market value of Rs 40,000 per acre for land situated near the power station and awarded the claimants solatium and interest but denied any additional amount under Section 23(1‑A). The appeals of the State and the Electricity Board were allowed, and the claimants’ appeal was dismissed.

Issues considered

What is the appropriate method for determining compensation for land acquired under the Land Acquisition Act, 1894?
Can compensation be based on per‑square‑foot or per‑square‑yard rates, or on the potential value of land lacking development at the date of notification?
Are sales of small parcels of land admissible as evidence for fixing compensation for a large acquisition?
Are the claimants entitled to solatium, interest, and the additional amount under Section 23(1‑A) of the Land Acquisition Act?

Legislation cited

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

Subjects

Land acquisitionCompensationMarket valueSolatiumInterestSection 4(1)Section 23(1-A)Thermal power stationDevelopment charges

Judgment

A STATE OF MAHARASHTRA ETC.
v.
-
DIGAMBAR BHIMASHANKAR TANDALE AND ORS. ETC.

FEBRUARY 2, 1996

B [K. RAMASWAMY AND G.B. PATTANAIK, JJ.j

Land Acquisition Act, 1894:

Compensation-Award of-When large eJ.tent of land is acquired sales
c of small pieces of lctnd though genuine cannot be relied upon-Also on date
of notification though lands converted into non-a!Jlicultural lands, there was
no development in tlie area-The lands did not possess potential value as
building site on the date of notification-Therefore ~ompensation cannot be
-
. detennined on sq. yd. or Sq. mt. basis-However lands situated near 17iennal
Power Station fixed at Rs. 40,000 per acre-Claimants entitled to solatium
D and interest as also interest on enhanced compensation.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3374-76
of 1996 Etc.

From the Judgment and Order dated 8.3.94 of the Bombay High
E Court in F.A. Nos. 68, 70 and:71 of 1988. ·

D.M, Nargolkar and A.S. Bhasme for the Appellants.

V.N. Ganpule, Ashok Kumar Singh, Ms. Punam Kumar and A.B. Lal
for the Respondents.
F
The following Order of the Court was delivered :

Delay condoned. Leave granted.

We have heard the counsel on both sides. The notification under
G Section 4(1) of the Land Acquisition Act was published in the State
Gazette on July 14, 1977 acquiring 12.50 acres of land for extension of the
Thermal Power Station at Parali Vaidyanath Municipality. The Land Ac-
quisition Officer in his award dated 20.9.1978 determined the compensa-
tion at Rs. 3,000 per acre, namely, 72.5 per Acre, On reference, the
-
H Additional District Judge by his award and decree dated April ·27, 1987
90
j
STATEv. D.B. TANDALE 91

enhanced the compensation at Rs. 5 per sq. ft. On appeal, the High Court A
while confirming the said determination, reduced l/3rd of the amount
towards development charges. Thus these appeals by special leave by the
State as well as by the Electricity Board and also by the claimants against
the deduction of 1/3rd amount. Thus these appeals are heard together.

The only question is : what will be the just and adequate compensa-
B
tion to which the lands are capable to fetch in open market? It is settled
law that the determination of compensation on sq. ft. basis is an illegal
principle followed by the courts. The reference Court on feats of imagina-
tion has done it. When 12.50 acres of land is sought to be acquired, no
reasonable prudent purchaser would come forward to purchase the land c
on the sq. ft. basis. It would be incredulous to believe such a purchase.
Therefore, the premise on which the reference Court and the High Court
had proceeded to determine the compensation is obviously illegal. It is not
in dispute that as on the date of the notification the lands were agricultural
lands though situated within the municipal limits. It is also in evidence that D
the lands were converted for non-agricultural purpose. But as on the date
of notification there was no development in that area. the oral evidence
was adduced in which it was shown that upto a distance of 3/4th km. to the
lands there was development. Some illegal constructions were made on the
lands. Under those circumstances, as on the date of the notification there
was no potential value to the lands though converted into non-agricultural E
lands. The determination of the compensation on the basis of the potential
value is also illegal.

The reference Court has relied upon several sale deeds dated
14.1.1976, Exs. 48, 49 and 50 of a small extent of land sold on sq. ft. basis p
and on that premise the Court had determined the compensation. It is
settled law that when a large extent of land is acquired, the sales of small
pieces of land though genuine, cannot be relied -upon as the basis to
determine the compensation. Accordingly, they are excluded. Having ex-
cluded those documents, there is no other acceptable evidence to deter-
mine compensation on the basis of sq. yd. or sq. mtr. Accordingly, it is not G
capable to determine the compensation on sq. yd. or sq. mt. basis since the
-- lands are not possessed of potential value as building site as on the date
of notification.

The question then is what would be the just, fair and adequate H
92 SUPREME COURT REPORTS (1996] 2 S.C.R.

A compensation the lands can fetch? In the facts and circumstances and in
view of the statement made by the Land Acquisition Officer that the lands
are abutting the Thermal Power Situation, the possibility of extension for
building purpose can also be easily ruled out. However, the compensation
B for the lands situated near the Thermal power Station can be fixed at Rs.

-
40,000 per acre.

Accordingly, the appeals of the State as well as the Electricity Board .
C are allowed and that of the claimants is dismissed. The claimants are
entitled only to payment of solatium and interest under the Act as amended
by Act 68 of 1984. They are entitled to interest at 9% per annum for one
year on enhanced compensation from the date of taking possession and
D thereafter at 15% till the date of deposit. They are also entitled to payment
of solatium at 30% on the enhanced compensation. However, they are not
entitled to payment of additional amount under section 23(1-A) of the
Land Acquisition Act. No costs.

G.N. Appeals of State and
Electricity Board are allowed
and claimants appeal dismissed.