Compulsory land purchase to be at top market price

By Vivek Vashi and Kanika Sharma, Bharucha & Partners
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In a judgment which is likely to be hailed by landowners, the Supreme Court has recently ruled that the government must pay landowners the highest market price for land being acquired, rather than the average market price of similar properties in the locality, which is the measure adopted in computing compensation.

The judgment, which dealt with a suit in relation to lands owned by the erstwhile ruler of Faridkot state, Colonel Sir Harinder Singh, should be a cause for concern for both government and the private sector, particularly given the already spiralling costs of land.

Brief facts

In 1979, 33 acres of land belonging to Singh were acquired by the Punjab government under the Land Acquisition Act, 1894, for the extension of a grain market at Faridkot.

Vivek Vashi Bharucha & Partners
Vivek Vashi
Bharucha & Partners

In October 1982, the district collector awarded compensation ranging from ₹10,000 (US$200) to ₹25,000 per acre, depending on the nature of the acquired land. The total compensation awarded was about ₹485,200. Aggrieved by the award, the appellants filed an application for reference before the additional district judge who, in 1998, enhanced the compensation to ₹100,000 per acre.

The appellants appealed against the judgment of the district judge before the High Court of Punjab and Haryana, which declined to interfere with the judgment. Aggrieved by the decision of the high court, the appellants filed a petition by way of special leave before the Supreme Court.

Appellants’ arguments

The appellants argued that instead of relying on the highest exemplar, the district judge who heard the application for reference erroneously determined the market price of the acquired land by averaging the prices of all the exemplars. Their contention was that the judge should have relied on the sale deed evidencing the highest market value. The appellants also argued that the judge ought to have granted interest on the solatium component of the award (i.e. the compensation granted for inconvenience or injured feelings).

Ruling of the court

After hearing the parties, the Supreme Court held that: “When the land is being compulsorily taken away from a person, he is entitled to the highest value which similar land in the locality is shown to have fetched in a bona fide transaction entered into between a willing purchaser and a willing seller near about the time of the acquisition.”

The court further held that this method must be adopted, “unless there are strong circumstances justifying a different course”. Therefore, it was held that calculation of the compensation amount on the basis of the average of various sale deeds placed before the authority for fixing compensation was undesirable.

Kanika Sharma Associate Bharucha & Partners
Kanika Sharma
Associate
Bharucha & Partners

Moreover, the court stated that before fixing the compensation rate for land acquired, the government must only consider bona fide sale deeds in the area proximate to the date of notification for acquisition. The implication is that sales where the price of land is deliberately kept low, so as to pay a lower amount in registration fees, ought not to be taken into consideration.

It was further held that persons entitled to the compensation awarded would also be entitled to interest on the aggregate amount, including solatium.

It was, therefore, held that the appellants had made out a case for enhancement of compensation, and that the market value of the appellants’ land would amount to ₹145,000 per acre including all other statutory benefits, such as interest on solatium and additional market value.

Probable consequences

Landowners whose land is being acquired will likely rely on this judgment to ensure they receive the highest market price, rather than an average market value. This may impact various government projects involving land acquisition.

Among these is the Chennai Metro project, for which the acquisition of land has recently been upheld by Madras High Court. Further, the Greater Hyderabad Municipal Corporation, which is reported to be struggling to acquire land for its metro rail project, road expansion works and other projects, is also likely to be impacted by this judgment. Similarly, the proposal to construct elevated corridors from Churchgate to Virar and CST to Kalyan under the Mumbai Urban Transport Project is expected to be affected.

Owing to the new directives of the Supreme Court, landowners will expect enhanced compensation for land acquired for these projects.

The judgment comes at a time when the acquisition of land has become a politically controversial issue, and raises the spectre of enhanced project costs, impacting returns. Nevertheless, the judgment ought to be hailed in that it sets to rest the issue of quantum of compensation to be awarded to those whose lands are being compulsorily acquired.

Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners where Kanika Sharma is an associate.

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