1984 (1) TMI 64 - SC - Indian Laws

Supreme Court Modifies Land Acquisition Compensation Rules

The Supreme Court allowed the appeals, modifying the judgments and decrees of the High Court. It directed a reduction of one-sixth in compensation awarded ... Whether there has been any error in principle or in law in the method of valuation arrived at by the courts below in adopting ' fifteen ' to be the multiple for computation of capitalized value of certain agricultural lands acquired in the years 1971 and 1972? Held that:- In the premises, when the rate of return on investment was 8.25% in the years 1971 and 1972, a person investing his capital in agricultural lands would ordinarily expect 2% to 3% more than what he could obtain from gilt-edged securities or other forms of safe investment and, therefore, the proper multiplier to be applied for the purpose of capitalization could not, in any event, exceed ' ten '. Ans as the State Government, however, contends that the proper multiple to be applied should be 12 1/2 in computation of the capitalized value of the lands in these cases having regard to the rate of return of 8% at the relevant time, i.e., on the date of the notification under s. 4(1) of the Act. In view of this, it must be held that the multiple of 121 should be applied in the computation of the capitalized value of the lands The appeals must succeed and are allowed. The judgments and decrees of the High Court are modified by directing that the compensation awarded for acquisition of land should be reduced by one sixth in these cases wherever the amount of compensation has been determined by the method of capitalization. The respondents shall get solatium at 15% on the compensation computed on the above basis and shall be paid interest at the rate decreed by the courts below Issues Involved:1. Proper multiplier for determining the capitalized value of agricultural lands.2. Rate of return on investments in 1971 and 1972.3. Method of valuation adopted by the lower courts.4. Applicability of prior judgments in similar cases.5. Determination of market value under the Land Acquisition Act, 1894.Issue-wise Detailed Analysis:1. Proper Multiplier for Determining the Capitalized Value of Agricultural Lands:The central issue in these appeals is the appropriate multiplier to be applied in determining the capitalized value of agricultural lands acquired in 1971 and 1972. The lower courts adopted a multiplier of fifteen times the net annual profits to compute the capitalized value. However, the Supreme Court found this to be erroneous, referencing the unreported decision in Special Land Acquisition Officer, Davangere v. B. Basavarajappa, which adopted a multiple of 12 1/2 times the net annual profits based on the rate of return at the relevant time.2. Rate of Return on Investments in 1971 and 1972:The rate of return on investments in 1971 and 1972 was a critical factor in determining the proper multiplier. The Supreme Court noted that the rate of return from Government Securities was around 6% during those years, and a return of 8% would be expected from investments in agricultural lands. This justified a multiplier of 12 1/2 times the net annual profits, in contrast to the 15 times multiplier adopted by the lower courts.3. Method of Valuation Adopted by the Lower Courts:The lower courts, including the High Court, adopted a method of valuation based on capitalizing the net annual profits by a multiple of fifteen. The Supreme Court found this method to be flawed, emphasizing that the proper multiplier should be based on the rate of return on investments at the relevant time. The High Court's deviation from the established multiplier in Basavarajappa's case was deemed unjustified.4. Applicability of Prior Judgments in Similar Cases:The Supreme Court referenced Basavarajappa's case, where a Division Bench of the High Court had adopted a multiplier of 12 1/2 times the net annual profits for similar agricultural lands acquired at or about the same time. The Court criticized the High Court for not applying this precedent, noting that the quality of the soil has no relevance to the proper multiplier to be adopted in determining the capitalized value.5. Determination of Market Value under the Land Acquisition Act, 1894:The Supreme Court reiterated the principles for determining market value under the Land Acquisition Act, 1894, as elucidated in Vyricherla Narayana Gajapatiraju v. Revenue Divisional Officer, Vizagapatnam. The market value should reflect the price the property may fetch in the open market if sold by a willing vendor unaffected by special needs. The Court emphasized that the method of capitalizing net annual profits should only be adopted when there is no evidence of comparable sales of similar lands.Conclusion:The appeals were allowed, and the judgments and decrees of the High Court were modified. The Supreme Court directed that the compensation awarded for the acquisition of land should be reduced by one-sixth in cases where the amount of compensation was determined by the method of capitalization. The respondents were awarded solatium at 15% on the compensation computed on this basis and interest at the rate decreed by the lower courts. The costs were to be borne by the parties as incurred.