Haji Mohammad Ekramul Haq vs The State of West Bengal

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 191 of 1955

Decision Date: 16 December 1958

Coram: J.L. Kapur, Syed Jaffer Imam, S.K. Das

In this case, the parties were Haji Mohammad Ekramul Haq as the petitioner and the State of West Bengal as the respondent, and the judgment was delivered on 16 December 1958 by a Bench of the Supreme Court of India consisting of Justice J. L. Kapur, Justice Syed Jaffer Imam and Justice S. K. Das. The case is reported as 1959 AIR 488 and 1959 SCR Supl. (1) 922. The legal issues arose under the Defence of India Act, section 19, and the Land Acquisition Act, 1894, section 23, concerning the requisition and compensation for a four‑storey building that belonged to the petitioner. According to the headnote, the premises were requisitioned by the respondent for the use of the Controller of Army Factory Accounts, whose office was located in a neighbouring house. The question of compensation was referred to an arbitrator, who awarded a sum of Rs. 2,581‑8‑0 based on the prevailing rent for similar properties with comparable accommodation and amenities in the locality. The arbitrator’s award additionally included a 10 percent uplift to reflect the potentialities of the premises, specifically the special value to the Controller, the indefinite period of the requisition and the extra burden placed on the building’s lift. On appeal, the Calcutta High Court held that the appropriate compensation should be Rs. 2,773 per mensem and rejected the arbitrator’s 10 percent increase for potential value. The Supreme Court observed that the High Court erred in ignoring the potential value that the arbitrator had quantified at ten percent. The Court explained that the principles governing compensation under section 19 of the Defence of India Act are identical to those under section 23 of the Land Acquisition Act, and one of those principles requires the assessment of the premises’ potentialities, which may vary according to the circumstances. Such valuation must be made by the arbitrator to the best of his ability from the material before him, following the precedent set in Vyricherla Narayana Gajapatiraju v. The Revenue Divisional Officer (1939) L.R. 66 I.A. 104. The judgment arose on appeal No. 191 of 1955, filed by special leave, against a decree dated 31 July 1953 issued by the Calcutta High Court in First Appeal No. 88 of 1950, which itself stemmed from the arbitrator’s decree dated 18 May 1950 in Land Acquisition Case No. 71 of 1944. Counsel for the petitioner were A. V. Viswanatha Sastri and Naunit Lal, while counsel for the respondent included B. Sen and P. K. Ghose appearing for P. K. Bose. The Court noted that the appellant owned a four‑storey building consisting of a ground floor and three upper floors, and that the respondent was the State of West Bengal.

In this case the property at No 9 Chittaranjan Avenue, which had been erected before 28 July 1940, was leased on a registered basis for three years by the Bengal Central Public Works Division at a rent of Rs 1,950 per month inclusive of taxes. When the lease terminated, the building was requisitioned by the Government of West Bengal and possession was taken on 30 July 1943. The Land Acquisition Officer then offered a compensation of Rs 2,200 per month inclusive of taxes in the form of rent. Because the appellant rejected that amount, the dispute was referred under section 19 of the Defence of India Act to an arbitrator, Mr J. De, who held that the amount fixed by the Land Acquisition Collector, namely Rs 2,200 per month, constituted fair compensation. The appellant appealed this award to the High Court. The High Court set aside the arbitrator’s order, remanded the matter back to arbitration and articulated a principle for determining compensation under section 23 of the Land Acquisition Act. It stated that a fair rent must be a notional rent that a hypothetical tenant would pay, and that the assessment must ignore any temporary restrictions imposed by executive orders or legislation such as rent‑control orders. The assessment should be made as if the premises were a new house being let for the first time on the relevant date, to a tenant who is not compelled to accept the lease.

On remand the appellant, who had previously claimed Rs 3,998 as compensation together with Rs 125 for the operation and maintenance of the lift, raised his demand to Rs 7,700 per month exclusive of municipal taxes and retained the claim of Rs 125 for lift use. He explained that his earlier claim had been “unduly low” because it was based on a mistake, miscalculation, a misconceived principle and the lack of proper information at the time. After the remand both parties examined further evidence and called additional witnesses. The new arbitrator, Mr J. C. Mazumdar, held that the appropriate measure was the rent prevailing in the locality in 1943 for buildings of similar nature, accommodation and amenities. Applying that methodology, he awarded a compensation of Rs 2,581‑8 per month inclusive of all taxes, the cost of normal and essential repairs, the cost of maintaining the lift and the potential value of the building situated in an important commercial area, taking into account that the period of requisition was indefinite. The award was to be payable from 1 August 1943. This award, however, did not satisfy the appellant, who subsequently appealed to the High Court.

In the proceedings arising from the arbitrator’s award, the appellant filed an appeal before the High Court. The High Court fixed the monthly compensation on the basis of a differentiated rent per hundred square feet for each floor: Rs 16 for the ground floor, Rs 13 for the first floor, Rs 12 for the second floor and Rs 11 for the third floor. Applying these rates to the total floor area of 5,333 sq ft. per floor, the Court arrived at a sum of Rs 2,773 per mensem. The Court then rejected the arbitrator’s additional award of ten per cent on account of the potential value of the premises, but it allowed an extra amount of Rs 77 per mensem for the use of the lift. Consequently, the total compensation awarded by the High Court was Rs 2,850 per mensem. While delivering this award, the Court observed that, in arriving at the monthly figure of Rs 2,850, it had also taken into account the “additional advantages due to the special adaptability of the disputed premises for the purposes of the Controller of the Army Factory Accounts and his possible willingness to pay a somewhat higher rent for the same” (see reference 66 I.A. 104). Dissatisfied with this determination, the appellant obtained special leave to appeal to this Court.

The appellant contended that the High Court’s method of arriving at the compensation figure was erroneous because it was based on incorrect principles. Specifically, the appellant argued that the Court had taken an average of rents paid for premises No. 5 and No. 22 Chittaranjan Avenue, thereby ignoring the expert opinion of the witness U. P. Malik, who had suggested a rent of Rs 23 per hundred square feet for the ground floor and Rs 17‑8 per hundred square feet for the other floors, and also failing to consider the potentialities of the building. The High Court, however, found that premise No. 22 was slightly better than the disputed premises, while the disputed premises were “somewhat better” than premise No. 5; on this basis it concluded that taking an average of the two premises did not constitute an error of principle. The Court further held that Malik’s testimony was merely an opinion unsupported by reasons, and therefore it was proper not to rely on it. The appellant also challenged the admissibility of the rent figure for premise No. 22, which was excerpted from Exhibit D, an award concerning premises No. 31. Since the document had not been printed and its contents were unknown, and because no objection to its admissibility had been raised before either the arbitrator or the High Court, the Court noted that the document was merely referred to in the evidence of the respondent’s witness, Nanibhushan Sen Gupta, who had based his conclusion of a fair rent of Rs 2,200 on the award in L. A. Case No. 61 of 1944 relating to premises No. 22 and No. 31. Accordingly, the Court held that no objection to the admissibility of the document could be entertained at this stage.

In this case, the Court examined the testimony of Nanibhushan Sen Gupta, who contended that a fair monthly rent for the premises was Rs. 2,200. He explained that his figure was derived by referring to the award rendered in L. A. Case No. 61 of 1944, which concerned premises numbered 22 and 31 on Chittaranjan Avenue, and that Exhibit D represented the judgment of that earlier case. Because the document had already been relied upon in the proceedings before the arbitrator and before the High Court, the Court held that no objection to its admissibility could be entertained at this stage.

The next issue raised before the Court was that the High Court, while fixing the amount of compensation, had omitted consideration of the “potential value” of the premises situated in a commercially important locality. That potential value had been assessed by the arbitrator, Mr. J. C. Mazumdar, at an additional ten per cent of the amount he had otherwise determined. The Court found this contention to be well founded. It observed that the High Court had rejected the arbitrator’s ten‑per‑cent award without providing any reason. The High Court’s order stated, in part, that although it did not wholly accept the arbitrator’s additional award on account of alleged potentialities, including the lift, it was inclined to assess further compensation for the lift at Rs. 77 per month. The Court further noted that the principles governing compensation under section 19 of the Defence of India Act are identical to those set out in section 23(1) of the Land Acquisition Act, 1894, and that a recognised principle is to evaluate the potentialities of land or premises, which may vary according to the circumstances.

The arbitrator’s reasoning on potentialities was then recounted. He observed that in 1943, when the building was first requisitioned, the Controller of Army Factory Accounts already occupied the neighbouring house at 5 Chittaranjan Avenue. Consequently, the building held a special value to the Controller because locating his office there would be advantageous, thereby giving the landlord greater bargaining power and increasing the landlord’s potential value. The arbitrator also noted that the requisition was for an indefinite period. He pointed out that the municipal assessment valuation, shown in Exhibit B, was based solely on the rent the building fetched before 1943 and failed to consider the long‑term potential value or the extra burden imposed by the lift. For these three reasons, the arbitrator allowed an additional ten per cent compensation of Rs. 234‑12 per mensem.

The Court affirmed that the arbitrator must determine the value of potentialities as best as possible from the material before him. It cited the decision in Vyricherla Narayana Gajapatiraju v. The Revenue Divisional Officer, where Lord Romer remarked that the arbitrator must ascertain the value of potentiality from the available evidence without indulging in imagination. Finally, the Court addressed another objection concerning compensation for the lift, noting that the High Court had awarded Rs. 77 for that item.

The Court observed that the record did not show on what basis the earlier compensation had been fixed, and therefore the foundation of that award was unclear. The Court then expressed the view that the claim for a monthly amount of Rs. 125 per mensem was not excessive. This conclusion was reached because the lift in question was being used by two different departments of the Government, a fact that was evident from the construction of an overhead bridge. The bridge connected premises No. 9 Chittaranjan Avenue with another building that the Government had also requisitioned, and the Court cited the authority (1)(1939) L.R. 66 I.A. 104, 118 in support of this observation. By applying the figures supplied, the Court found that the total monthly compensation arrived at Rs. 3,175. Considering the circumstances, the Court held that rounding this amount up to Rs. 3,200 per mensem would constitute a fair compensation. Accordingly, the Court enhanced the compensation to that figure and allowed the appeal to that extent. While the appellant did not succeed in having his entire claim decreed, the Court noted that there was no justification for depriving him of costs that were proportionate to his partial success. Consequently, the Court granted proportionate costs to the appellant. In sum, the appeal was partly allowed, the compensation was increased to Rs. 3,200 per mensem, and proportionate costs were awarded.