Just compensation in compulsory acquisition requires relevant valuation principles; arbitrary machinery valuation rendered the acquisition law unconstitutional.

Compulsory acquisition compensation must be based on relevant principles that yield a just equivalent under Article 31(2), and valuation rules tied to cost price for unused machinery and written-down value for used machinery were treated as unrelated to present market value and therefore arbitrary. Because machinery formed the major part of the undertaking, the defective machinery valuation method infected the compensation scheme as a whole, and the valuation provisions were not severable. The impugned compensation provisions were therefore found not to satisfy Article 31(2), and the Act was unconstitutional.

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Issues: Whether the valuation principles in clause (b) of paragraph II of the Schedule to the Metal Corporation of India (Acquisition of Undertaking) Act, 1965, which fixed compensation for unused machinery at cost price and for used machinery at written-down value under the Income-tax law, were relevant to the determination of just compensation under Article 31(2) of the Constitution of India, and whether the Act was therefore unconstitutional.

Analysis: The compensation scheme treated the undertaking as a single unit, but the validity of that scheme depended on whether the principles used for valuing its constituent assets were relevant to the value of the property at or about the time of acquisition. Fixing cost price for unused machinery and written-down value for used machinery was held to be unrelated to present market value and therefore arbitrary. The reasoning applied the settled constitutional requirement that compulsory acquisition must provide a just equivalent or lay down relevant principles for determining it, and that adequacy may not be questioned only if the principles themselves are valid. Since machinery formed the major part of the undertaking, the invalidity of the machinery valuation rule affected the compensation scheme as a whole, and the valuation provisions were not severable.

Conclusion: The impugned compensation provisions did not satisfy Article 31(2) and the Act was unconstitutional.

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