The Special Land Acquisition Officer, Bangalore vs T. Adinarayan Setty

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

Court: Supreme Court of India

Case Number: Civil Appeal No 138 of 1955

Decision Date: 7 November 1958

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

The case was styled The Special Land Acquisition Officer, Bangalore versus T. Adinarayan Setty and was decided on 7 November 1958 by the Supreme Court of India. The judgment was written by Justice S.K. Das, with Justices Syed Jaffer Imam and J.L. Kapur forming a three‑judge bench. The citation of the decision is reported in 1959 AIR 429 and also appears in the Supreme Court Reports Supplement (1) 404. The matter arose under the Land Acquisition Act, 1894, specifically sections 11 and 23, concerning the principles of valuation of land that had been compulsorily acquired for the purpose of constructing a maternity hospital. The land in question belonged to the respondent and consisted mainly of building sites, a small portion on which a building stood, and a section described as low‑lying land. The Special Land Acquisition Officer, relying on the market values of sites previously sold by the respondent, fixed the market value of the land at ten rupees per square yard and awarded the respondent compensation of one hundred forty‑one thousand one hundred sixty‑nine rupees. No compensation was awarded for the low‑lying land or for the building. The respondent objected to this award and the matter was referred to the District Judge. The District Judge affirmed the rate of ten rupees per square yard as reasonable, reduced the deduction for the provision of electric installations by ten thousand rupees, and granted an additional ten thousand rupees for the low‑lying area at a rate of three rupees per square yard, thereby increasing the total compensation by twenty thousand rupees. Dissatisfied, the respondent appealed to the High Court. The High Court held that, except for the low‑lying portion, the appropriate rate of compensation should be thirteen and one‑eighth rupees per square yard, while for the low‑lying portion it should be eight rupees per square yard. It also awarded seven thousand rupees for the building. In arriving at thirteen and one‑eighth rupees, the High Court considered only four sale transactions made by the respondent at rates of twelve, fifteen, fourteen and seven and one‑eighth rupees per square yard, and omitted two other transactions at six and one‑eighth rupees and ten rupees per square yard. The Court computed the average of the four cited transactions as twelve and one‑half rupees per square yard, then took a second average between the maximum price of fifteen rupees and the earlier average, arriving at the figure of thirteen and one‑eighth rupees per square yard. The High Court’s determination was also influenced by considerations such as the purpose for which the land had been acquired.

In examining the matter, the Court considered a report prepared by certain medical authorities which concluded that the land was unsuitable for the intended maternity hospital and noted that there had been a delay in utilizing the land for its intended purpose. The Court held that, with respect to the valuation of the land excluding the low‑lying portion, the High Court had erred by introducing considerations that were not relevant to the valuation exercise. By relying on such extraneous factors, the High Court committed an error of principle in arriving at a valuation of Rs. 13 8/‑ per square yard, because it employed an incorrect method for determining market value. The Court observed that the proper approach required the High Court to calculate the average of all six sale transactions that had been presented, which would have yielded a correct valuation of Rs. 11 / per square yard. The Court found no justification for the High Court’s decision to disregard two of the transactions or to apply a second averaging step.

Regarding the compensation awarded for the low‑lying land and for the building situated thereon, the Court found that the High Court’s findings were not affected by any error of principle or any other defect, and therefore the Court saw no basis for interfering with those determinations. The judgment proceeded to set out the appellate jurisdiction and procedural history of the case. The appeal, designated as Civil Appeal No. 138 of 1955, was brought before the Civil Appellate Jurisdiction from a judgment and decree dated 15 October 1953 rendered by the Mysore High Court at Bangalore in Regular Appeal No. 255 of 1950‑51. That judgment itself arose from an order dated 18 September 1950 issued by the District Judge of Bangalore in Miscellaneous Case No. 39 of 1947‑48.

The parties appearing before the Court included counsel for the appellant, who was the Special Land Acquisition Officer, Bangalore, and counsel for the respondent. The judgment was dated 7 November 1958 and delivered by Justice S. K. Das. The appeal was instituted on a certificate granted by the Mysore High Court and challenged the decision of that High Court dated 5 October 1953, which in turn was a regular appeal from an order of the Second Additional District Judge, Bangalore, dated 18 September 1950, made under section 18 of the Land Acquisition Act (hereinafter referred to as “the Act”).

The factual background relevant to the appeal was set out as follows. Approximately 51,243 square yards of land had been acquired by the Government under Notification No. M. 11054 Med. 80‑45‑25 dated 16 April 1946 for the purpose of developing the Appiah Naidu Maternity Home at Malleswaram, Bangalore, into a maternity hospital. Eight owners held interests in the acquired property; two of those owners contested the award made by the Special Land Acquisition Officer, who was the appellant. One of the objecting owners was T. Adinarayana Shetty, a diamond merchant of Mysore. After his death, his son and legal representative were substituted as the sole respondent to the appeal. The deceased respondent, referred to as Adinarayana Setty, had an interest in 48,404 square yards of the total area, and there was no dispute before the Court concerning this extent of ownership.

The Court observed that of the 48,404 square yards owned by the respondent, roughly 3,000 square yards were described as a depression, a pit, or low‑lying land locally called “halla”. The Special Land Acquisition Officer determined that the appropriate total compensation payable to the respondent for his interests amounted to Rs. 1,41,169. The officer based his calculation on several factual findings, the first of which was that land values in and around Bangalore had risen in recent years because of the war. He also noted that the respondent had paid a conversion fine to the Deputy Commissioner of Bangalore District to obtain permission to convert the land from agricultural to non‑agricultural use. Subsequently, a layout of building sites was prepared, approved by the Municipality, and the respondent sold several of those sites to purchasers before the preliminary acquisition notice was issued. After the preliminary acquisition notice was published, the respondent was expressly prohibited from selling any additional building sites that were included in the layout. The officer then considered the prices at which the respondent had sold the sites and concluded that the market value of the land was Rs. 10 per square yard. Applying that rate to the full 48,404 square yards, he arrived at a gross amount of Rs. 2,21,563, from which he first deducted 26,248 square yards that he said were required for roads and drains according to the layout scheme. The monetary value of those 26,248 square yards was taken as Rs. 98,807, which the officer subtracted as the estimated expense for constructing the roads and drains. After this deduction, the net amount calculated was Rs. 1,22,756, and adding the statutory 15 percent compensation provision increased the total payable to Rs. 1,41,169. The respondent objected to this award, and under section 18 of the Act a reference was made to the Bangalore District Judge for consideration. The matter was heard by the second Additional District Judge, who, in an order dated September 18, 1950, reached three principal conclusions. First, he held that the Rs. 10 per square yard rate fixed by the Special Land Acquisition Officer was fair and should be upheld. Second, he decided that Rs. 10,000 for electric installation, which the officer had deducted from the Rs. 98,807 subtraction, should not be allowed as a deduction. Third, regarding the low‑lying land that the officer had completely excluded, the judge ordered that the respondent should receive compensation at Rs. 3 per square yard, amounting to roughly Rs. 10,000.

The District Judge increased the compensation in favour of the respondent by about Rs. 20,000. Dissatisfied with that increase, the respondent appealed to the High Court of Mysore. The learned judges of that court examined the valuation of the land and held that, except for the portion described as low‑lying, the proper rate should be Rs. 13½ per square yard. For the low‑lying portion they observed that a deduction of Rs. 5½ per square yard was necessary because, according to the evidence, Rs. 15,000 was required to fill the land. Consequently the High Court fixed the rate for the low‑lying land at Rs. 8½ per square yard. The High Court also altered the area that had to be deducted for roads and other public works, reducing it from 26,248 square yards to 12,101 square yards, and accordingly cut the layout charges to Rs. 64,432. In addition, the High Court added Rs. 7,000 to the award as the value of a building that the respondent had erected on one of the sites, finding that the building was constructed before the preliminary notification. This finding differed from the Land Acquisition Officer’s conclusion that the building had been put up after the preliminary notification. After making these adjustments, the total compensation awarded by the High Court amounted to roughly Rs. 480,000 and odd. Because the High Court’s judgment reversed the earlier award and the appellant was not satisfied with it, a certificate of fitness was applied for and granted by the High Court on 6 July 1954. The present appeal before this Court was filed in accordance with that certificate.

The appellant has limited the present appeal to three specific questions: first, whether a sum of Rs. 7,000 should be paid as compensation for the building said to have been constructed before the publication of the preliminary notification; second, whether compensation for the low‑lying land (halla) should be fixed at Rs. 8½ per square yard; and third, whether the remaining land should be compensated at Rs. 13½ per square yard after deducting the area required for roads and buildings. The Court notes that there is no longer any dispute regarding the amount of area to be deducted for roads and other public works, nor regarding the quantum of the layout charges, because the findings of the High Court on those two matters have not been challenged. The respondent submits that the adjustments made by the High Court with respect to the layout charges and the area to be deducted are correct and should not be revisited, while the appellant emphasizes that the compensation for the building and the valuation rates for both the low‑lying and the remaining land are erroneous. Counsel for the respondent has drawn the Court’s attention to several decisions of the Privy Council, namely Charan Das v. Amir Khan, Narsingh Das v. Secretary of State for India, and Nowroji Bustomji Wadia v. Bombay Government. On the basis of those decisions, counsel submits that, although Section 26 of the Act was amended in 1921 by insertion of sub‑section (2), which says that every award shall be deemed to be a decree’ and thus an appeal may be taken therefrom, the established practice of the Privy Council is to refrain from interfering with a valuation finding unless a fundamental principle affecting the valuation is shown to be unsound. The Court therefore must consider whether the present points of contention fall within the limited scope of review permitted by the statutory amendment and the Privy Council’s approach.

The Court observed that, pursuant to the amendment of section 26 of the Act in 1921 which deemed every award to be a decree, the valuation issue must be treated in the same way as a judgment on a decree in an ordinary suit. It noted that the Privy Council had traditionally refrained from interfering with a finding on valuation unless a fundamental principle affecting the valuation rendered the finding unsound. The Court explained that this practice was based on two considerations: first, Indian courts were more familiar with the local conditions and circumstances upon which the valuation depended, and second, the Privy Council sought to limit the scope of enquiry so as to spare the parties from costly and fruitless litigation. Counsel for the appellant submitted that, although this Court had generally adopted the Privy Council’s approach of not ordinarily interfering with concurrent findings of fact, there was no established practice in this Court comparable to that of the Privy Council in valuation cases, even where two courts differed on the amount per yard to be allowed for a plot of land. The appellant further argued that the reasons underlying the Privy Council’s practice did not apply with equal force to the present Court. After hearing counsel for both parties, the Court held that it was unnecessary to make a definitive pronouncement on the practice that should be followed when two courts disagree on valuation. Instead, the Court stated that it would not interfere unless there was something to show that, beyond a mere possibility of reaching a different conclusion on the balance of evidence, the judgment could not be supported because of an erroneous application of principle or because an important point affecting valuation had been overlooked or misapplied. The Court then expressed satisfaction that there was no error of principle or otherwise in the High Court’s findings on the first two points raised in support of the appeal. Regarding the construction of the building for which a compensation of Rs 7,000 had been awarded, the Court noted that the High Court had clearly found that the building had been constructed prior to the preliminary notification and that the building was actually occupied by the medical department. Counsel for the appellant had taken the Court through the evidence concerning the construction of the house and the application for a licence to build the house, which had been made by the respondent to the Bangalore Municipality. The Court was unable to conclude that this evidence displaced the High Court’s clear finding. Concerning the low‑lying land, the Court found that the High Court had provided very good reasons for its determination. The Court accepted that the area of the low‑lying land (halla) was about 3,000 sq yards, as established by the record.

The Court examined the valuation of the low‑lying land, which measured approximately three thousand square yards. The Land Acquisition Officer had placed a value of three rupees per square yard on this tract. Accordingly, a sum of fifteen thousand rupees was deducted from the compensation that was otherwise payable to the respondent, on the basis that this amount would be required to fill the low‑lying area and to convert it into buildable sites. Consequently, the respondent was required not only to surrender the three thousand square yards at a rate of three rupees per square yard, but also to bear the additional burden of fifteen thousand rupees for the filling work. When these two components were aggregated, the effective market value of the land still amounted to roughly eight rupees per square yard. This calculation held even if the Court did not adopt the method employed by the High Court, which had derived an average of five rupees per square yard by dividing the fifteen thousand rupees by the three thousand square yards and then subtracting that figure from the rate of thirteen rupees eight annas per square yard fixed for the remaining land. The Court concluded that, based on the material before it, the rate per square yard fixed by the High Court for the low‑lying tract was fully justified, even when the approach suggested by the counsel for the appellant was applied. The respondent’s counsel had drawn attention to the fact that some of the building sites sold by the respondent were situated on the low‑lying land, and had also emphasized that houses had been constructed directly opposite the low‑lying area at the eastern end of the whole parcel. The Court considered these observations but determined that they did not compel the conclusion sought by the respondent. First, it was not established that the sales of building sites at the low price of approximately six rupees eight annas per square yard pertained exclusively to the low‑lying portion. Second, the mere existence of buildings on land opposite the low‑lying tract, albeit on the other side of the road, did not automatically imply that the low‑lying land possessed a value equal to that of the surrounding plots. Accordingly, the Court held that the compensation awarded by the High Court for the low‑lying land was not tainted by any error that would warrant interference.

Turning to the principal issue raised by the appellant, the Court addressed the rate of thirteen rupees eight annas per square yard that had been fixed for the remainder of the land in the area. The appellant’s counsel argued that the High Court had committed two fundamental errors in arriving at that figure. Moreover, the appellant contended that the High Court had been improperly influenced by considerations extraneous to the valuation process, including the purpose for which the land was acquired, a report from certain medical authorities deeming the land unsuitable for the intended use, and the delay in putting the land to that use. The Court noted that such factors were indeed extraneous and had no bearing on the question of valuation. It further observed that the High Court had misdirected itself regarding the scope of the enquiry by allowing those considerations to affect the valuation. The Court also agreed with the appellant that the High Court erred in principle by adopting an incorrect method to ascertain the market value of the land at the relevant time. While the parties did not dispute that the function of the court in awarding compensation under the Act was to determine the market value of the land as of the date of the notification made under section four, paragraph one, the Court reiterated that the appropriate methods of valuation could include expert opinion or the price paid in bona fide transactions for lands of similar character within a reasonable period. The Court therefore proceeded to re‑examine the methodology applied by the High Court in fixing the rate of thirteen rupees eight annas per square yard.

In this case the Court observed that the delay in putting the land to the use for which it was acquired was an extraneous factor that should not have influenced the valuation, and agreed with counsel for the appellant that such considerations were irrelevant to the question of market value. The Court further criticised the High Court for misdirecting itself on the scope of the enquiry by introducing those extraneous factors into the valuation process. It was held that the High Court also erred in principle by arriving at the figure of Rs 13 8 per square yard through an incorrect method of determining market value at the relevant time. The Court noted that the function of a court in awarding compensation under the Act is to ascertain the market value of the land as of the date of the notification under section 4(1), and that valuation may be based on expert opinion, the price paid in bona‑fide transactions of comparable lands within a reasonable time, or a number of years’ purchase of actual or prospective profits. In the present matter the High Court had adopted the second method but committed two serious errors. The record showed that seven alienation transactions were effected by the respondent, one of which was a gift and therefore must be excluded. The earliest sale, to Muniratham, occurred on 15 May 1945; another sale to Venugopal, the husband of a respondent’s granddaughter, took place on 18 July 1945. Four further sales to Kapinapathy, Puttananjappa, Shamanna and Rajagopal Naidu occurred in August 1945. The statutory notification under section 4 of the Land Acquisition Act was issued on 4 October 1945. Instead of considering all six relevant sales, the High Court considered only four of them and computed an average price, giving no adequate explanation for omitting the other two transactions. The Court quoted the High Court’s reasoning that the appellant had effected four sales a couple of months before the preliminary notification, securing rates of Rs 12, Rs 15, Rs 14 and Rs 7 8 per square yard, which yielded an average of Rs 12 2 per square yard. The Court found it difficult to understand why the May 15 sale at Rs 6 8 per square yard and the July 18 sale at Rs 10 per square yard were excluded. This selective inclusion, the Court held, vitiated the High Court’s finding. If all six sales are taken into account, the average rate would be approximately Rs 10 13 per square yard, demonstrating that the arbitrary selection of only four transactions undermined the correctness of the valuation.

In the record, the average price of the land in question was shown to be about Rs 10 13 per square yard when all six transactions were taken into account. The High Court, however, had arbitrarily omitted two of those transactions and then committed a further error by computing a second average. First, the Court calculated an average of Rs 12 2 per square yard based on the four transactions that it had retained. After arriving at that figure, the Court took another average by combining the maximum price obtained by the respondent, which was Rs 15 per square yard, with the previously computed average of Rs 12 2. From this second averaging the Court derived a final rate of Rs 13 8 per square yard. No adequate justification was offered for this additional averaging, and the only reasons supplied were the extraneous explanations previously noted. It was clear that the maximum price of Rs 15 per square yard had already been included in the first average drawn from the four selected transactions; therefore, using it again to determine the market value of the land was difficult to comprehend. The Court concluded that, if the two identified errors were removed, the correct market value of the land would be Rs 11 per square yard. Counsel for the appellant then drew the Court’s attention to a statement made by the respondent before the Land Acquisition Officer (Exhibit 11). In that statement the respondent observed that, according to the standing orders, compensation for building land in the neighbourhood should be paid at rates ranging from Rs 10 to Rs 12 per square yard, with an average of Rs 10 per square yard, a figure that could be verified from the records of the local Sub‑Registrar’s Office and the Bangalore City Municipal Office. He further disclosed that, during the current year, he had sold six sites of the land proposed to be acquired for prices between Rs 7 and Rs 15 per square yard, resulting in an average of approximately Rs 10 per square yard. Based on that average, he calculated compensation of Rs 5,12,430 and, after adding a statutory allowance of Rs 76,860 (15 percent) for the compulsory nature of the acquisition, arrived at a total cost of Rs 5,89,290, or nearly six lakh rupees. The High Court interpreted this claim to mean that the average rate of Rs 10 per square yard applied only when the entire area was considered, and that a different rate would apply for the sale of small building sites laid out according to a scheme. Nevertheless, the respondent’s own claim clearly stated that even for building land the neighbourhood’s average rate ranged from Rs 10 to Rs 12 per square yard, and that he himself had sold six small building sites at an average price of about Rs 10 per square yard. The six transactions he referenced were indeed sales of small building sites. Consequently, the Court perceived that the High Court had, in effect, given the respondent a more favorable rate than the one he himself had claimed.

In doing so, the Court observed that the High Court had assigned to the respondent a compensation rate that was more favorable than the rate the respondent himself had asserted. Accordingly, after a careful examination of the record and after correcting the two mistakes identified in the High Court’s reasoning, the Court concluded that the appropriate valuation of the land should be Rs. 11 per square yard. Consequently, the Court permitted the appeal only to the extent of modifying the High Court’s order by replacing the previously fixed rate of Rs. 13/8 per square yard with the corrected rate of Rs. 11 per square yard for the portion of the land that is not low‑lying. The Court affirmed the High Court’s direction that each party shall bear the costs incurred in the lower courts in proportion to their respective successes and failures as now determined. However, with respect to the costs of the present proceedings, the Court ordered that each party shall bear its own costs because the parties achieved a mixed result. Thus the appeal was partly allowed.