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Market Value to be determined after considering the potentiality of the acquired land: SC

The potentiality of the acquired land is one of the primary factors to be taken into consideration to determine the market value of the land. Potentiality refers to the capacity or possibility for changing or developing into the state of actuality. The market value of a property has to be determined while having due regard to its existing conditions with all the existing advantages and its potential possibility when led out in its most advantageous manner. The question whether a land has potential value or not primarily depends upon its condition, situation, use to which it is put or its reasonable capability of being put and also its proximity to residential, commercial or industrial areas/institutions. The existing amenities like water, electricity as well as the possibility of their further extension, for instance whether near about town is developing or has prospects of development have to be taken into consideration. It also depends upon the connectivity and the overall development of the area (Para.29).



UP AWAS EVAM VIKASH PARISHAD VERSUS ASHA RAM THR. LRS. & ORS.

[Arising out of SLP (Civil) No. 4445 of 2020)

Decided on March 23, 2021


This case was decided by a bench of the Supreme Court consisting of Justice Uday Umesh Lalit, Justice Hemant Gupta and Justice S Ravindra Bhat.

The appeals in this case arise out of an order passed by the Allahabad HC, whereby a compensation of Rs. 297 per square yard was awarded to the land acquired in 6 villages. A notification was published in 1982 by the UP Parishad under Section 4 of the Land Acquisition Act, 1984. The compensation given by the Special Land Acquisition Officer was Rs. 50 per square yard, which was changed to Rs. 120 per square yard by the Reference Court.

The HC, on appeal, awarded a sum of Rs. 297 per square yard as compensation for acquiring the land in the six villages, relying on the cases of Narendra & Ors. V. State of UP, where the same compensation had been awarded in 1986, in the Village Makanpur, which is one of the villages under the current case. The second case was Pradeep Kumar V. State of UP, where the same compensation was given in the year 1988.


Mr. Mishra, learned senior counsel, appeared for the Parishad, and argued the following points. Firstly, the year in the current case is 1982, while in Pradeep Kumar (supra), it was 1988. Secondly, the land to be acquired in this case includes land in Makanpur, and five other villages. Whereas, in the above case, it was only in Village Makanpur. Thirdly, the areas where the two lands are situated are different in terms of development.

Mr. Gupta, appearing for the landowners argued that the Village Makanpur was common under the matter of acquisition for Noida, as well as Ghaziabad, therefore, the compensation should be the same. Also, the purpose for which land is acquired, or the authority that acquires it, is inconsequential to the compensation awarded. Further, the Reference Court had found that the land acquired contained industrial and residential units, which appreciates its value.

The respondents also submitted a table showing that villages which are at a distance of 13-14 kms from Delhi have been awarded compensation of Rs. 297, therefore, Village Makanpur, which is only 3 kms away should be awarded the same.

The main issue before the Court was to determine the compensation to be awarded for the land in question. The Supreme Court referred to Sections 23 and 24 of the LAA, which talk about the principles for determining the market value of land. It referred to various decisions of the Court in determining land value, such as using the acid test.

A three Judge Bench of this Court indicated methods of valuation to be adopted to ascertain the market value of land on the date of the notification under Section 4(1) as: (i) opinion of experts, (ii) the price paid within a reasonable time in bona fide transactions of purchase of the lands acquired or the lands adjacent to the lands acquired and possessing similar advantages; and (iii) a number of years' purchase of the actual or immediately prospective profits of the lands acquired [Para 21].

It acknowledged that there is always an element of guesswork in determination, which should arise from totality of evidence, pattern of rate, pattern of escalation, and escalation of price in preceding and succeeding years. In another case, the Court laid down the following factors: situation of the land, nature of development in the surrounding area, availability of land for development in the area and demand for the land.


Another factor is the potentiality of the land. In a case, it was held that the market value is the price that a willing purchaser would pay to a willing seller with regard to its existing condition and advantages, and its potential possibilities. Potentiality means capacity or possibility for changing or developing into state of actuality. This potentiality depends upon- condition, situation, current or capable use, and proximity to residential, industrial or commercial areas.


Considering all the above principles, the Court first attempted to base the market value of the land in question to sale instances. There were 7 sale instances presented, out of which 2 could not be considered, as they were four years later than 1982.

Another factor is potentiality of the land. This also includes existing amenities, such as water, electricity, and the possibility of their extension. In this matter, it is not evident that there were any large-scale developmental activities. Instead, there is evidence of sale of small areas. Also, there is no record to show when industrial units were set up, and at what cost. Lastly, there are no sale instances of land of Village Makanpur prior to 1982. They are only available for Village Sahibabad and Jhandapur.


The potentiality of the acquired land is one of the primary factors to be taken into consideration to determine the market value of the land. Potentiality refers to the capacity or possibility for changing or developing into the state of actuality. The market value of a property has to be determined while having due regard to its existing conditions with all the existing advantages and its potential possibility when led out in its most advantageous manner. The question whether a land has potential value or not primarily depends upon its condition, situation, use to which it is put or its reasonable capability of being put and also its proximity to residential, commercial or industrial areas/institutions. The existing amenities like water, electricity as well as the possibility of their further extension, for instance whether near about town is developing or has prospects of development have to be taken into consideration. It also depends upon the connectivity and the overall development of the area (Para.29).


The sale instances of a smaller area have to be considered while keeping in view the principle that where a large area is the subject matter of acquisition, suitable deduction is required to be made as no prudent purchaser would purchase large extent of land on the basis of sale of a small extent in the open market. The Court thus has to consider whether the willing vendee would offer the rate at which the trial court proposes to determine the compensation. This Court has even provided for 50% deduction for development charges on the price mentioned in the sale deed [Para 31].

The Court referred to the decision of the Reference Court, wherein it had applied 1/3rd deduction in respect of land in Sahibabad on Rs. 180 per square yard, in 1980. Similarly, a deduction of 40% was applied on Rs. 200/- in Jhandapur, in 1982. In both these cases, the fact was that the area sold was very small, unlike in the present case. The Court affirmed this as reasonable and adequate deduction, and deemed the rate of Rs.120/-, as decided by the Reference Court, as appropriate.


Another factor for determination is judicial precedent, proximate to the time and area of acquisition. The cases referred to by the landowners were deemed by the Court to be of later period. Also, the Court stated that the proximity from Delhi would not be considered as a factor.

The Court looked into the location of the land in question, vis-à-vis the other lands acquired under previous judgments. Their location differs considerably. It noted that compensation provided for land in Makanpur in later years, cannot be a reasonable measure for determining compensation of over 1100 acres of land in other villages.


The compensation determined on the basis of a notification five years later cannot be a yardstick for determining compensation of the land which is subject matter of present acquisition years earlier. Still further, the High Court was not justified in observing that gaps of few years in the notification have been ignored by this Court. In fact, on the contrary, the High Court has failed to note that the date of notification for the acquisition of land for the benefit of Parishad is five years earlier than those in the judgments relied upon by the High Court [Para 41].


Therefore, considering all the determinants of land value, it was noted that on the basis of sale deeds, the Reference Court’s award was appropriate. On the basis of potentiality, there was no notable developmental activity going on. Lastly, on the basis of judicial orders, there are no orders pertaining to the year of the acquisition, or near to it. There is no justification of enhancement of compensation awarded by the Reference Court.

Consequently, the present appeals were allowed, and the appeals preferred by the landowners were set aside. The compensation awarded by the Reference Court at Rs.120/- is restored.



Navyaa Shukla

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