Prabhakar Raghunath Patil & Ors vs State Of Maharashtra

2,000 per square meter for the structures. After

recording evidence adduced by the parties and

considering the oral as well as documentary evidence

placed before the reference court, it granted enhanced

compensation of ` 2,48,526 to the claimants in Land

Acquisition Reference No. 2 of 1991, ` 5,10,562.50 to the

claimants in Land Acquisition Reference No. 3 of 1991

and ` 10,84,605 to the claimants in Land Acquisition

Reference No. 4 of 1991.

4. At this stage, however, we would like to record that the

reference court, while relying on the sale instance and

the oral evidence of the expert, enhanced the

compensation determining the value of the open land at

the rate of ` 225 per square meter and at the rate of `

1,200 per square meter for the structure. Being aggrieved

by the aforesaid judgment and order passed by the

3 reference court, the State of Maharashtra filed appeals in

the Bombay High Court which was registered as First

Appeal Nos. 133/1995, 134/1995 whereas the three

appeals filed by the claimants were registered as First

Appeal Nos. 338/1995, 339/1995 and 340/1995.

5. Since the issues involved in the said appeals were

similar, all the aforesaid appeals were taken up together

for consideration by the High Court and disposed of the

same by a common judgment and order dated

23.09.2003 whereby the High Court allowed the appeals

filed by the State and dismissed the appeals filed by the

claimants. So far as the valuation with regard to the open

land is concerned, the High Court held that the reference

court was justified in awarding compensation at the rate

of ` 225 per square meter for open space. While coming

to the aforesaid conclusion, the High Court considered a

sale deed dated 11.12.1982 for an open space

admeasuring 16' x 16' for which sale consideration of `

8,000 was received. But, since the same related to a

small plot of land as compared to the acquired land,

therefore, deduction was made by the High Court from

4 the exemplar value and on the basis thereof upheld the

valuation of the reference court fixed at ` 225 per square

meter for the open space.

6. Although a faint argument was made before us, seeking

an increase in the valuation of compensation for the said

open land, the counsel appearing for the appellants,

however, could not show any cogent reason for such

increase in the valuation. Even if the aforesaid sale

consideration is taken to be the exemplar, the same

would indicate that in the year 1982, the approximate

price was around ` 336 per square meter for the land.

When a large tract of land is acquired and the valuation

thereof is sought to be determined on the basis of sale

instances relating to small portion of land, the general

trend of this Court is to deduct 33 per cent from the

value of such small tract of land. Since a very small

portion of land was sold by the aforesaid sale deed

admeasuring 16' x 16', the same can be treated as a base

guide only after proper deduction is made from the value

fixed in such sale deed. Consequently, the plea for

increase of compensation, in so far as open space is

5 concerned, stands rejected by this common judgment

and order.

7. Subsequent to the determination of the valuation of the

open space, we are required to decide regarding the

prayer of the claimants with regard to increase in the

valuation of the structure that was acquired by the

respondents. On this count, reliance was placed by the

appellants on the evidence of the expert witness and also

on the circular dated 03.01.1991 issued by the Chief

Engineer, Amaravati in respect of cost of construction in

justification of their prayer for the increase of the

valuation of the structure. Under the aforesaid circular

dated 03.01.1991 issued by the Chief Engineer,

Amaravati, the cost of residential building was fixed as

under: -

Ground Floor - ` 2,800 per sq. mtr.

First Floor - ` 2,200 per sq. mtr.

Second Floor - ` 2,200 per sq. mtr.

8. In so far as the evidence of the expert witness is

concerned, the reference court however considered the

same to be unreliable as the expert had failed to state in

6 his evidence, details regarding the age of the building

which was acquired under the notification. Since the

counsel appearing for the appellants made a sincere

attempt to justify the increase as sought for by the

appellants, we have looked into the evidence of the expert

as also on the aforesaid notification.

9. In so far as the opinion of the expert is concerned, he has

not given any specific evidence as to what was the age of

the structure when it was notified for acquisition.

Without making an enquiry with regard to the age of the

structure which was acquired, it would be difficult to

assess the valuation and, therefore, the expert was not

justified in not making an assessment with regard to the

age of the structure. He has faulted on the basic principle

of assessment of valuation of a construction. Besides, the

cost of construction of the ground floor is always on the

higher side while the cost of construction of first floor

and second floor is on the lower side. The expert

examined has also ignored the said fact which goes to the

root of the valuation and for that also the evidence of the

expert, in our considered opinion, is not reliable. The

7 only evidence that, therefore, is available before us is the

circular issued by the Chief Engineer, Amravati dated

03.01.1991 regarding District Schedule Rates in respect

of cost of construction with reference to Building and

Construction Department of State of Maharashtra.

10.The High Court, however, held that the aforesaid

evidence is also not reliable as the same shows the

District Schedule Rates for the year 1991 in District

Amravati and that the same cannot be a safe guide for

the determination of the compensation of the structure in

question acquired in the year 1983. It is established from

the records that the practice of issuing circular by the

Chief Engineer with regard to the cost of construction

was for the first time introduced in the year 1991 and no

such practice was in existence in the year 1983. But

since there is at least some evidence indicating the

District Schedule Rates for the standing structure in the

year 1991 we can relate back the said valuation to the

year 1983. However, such an exercise to determine the

compensation with reference to future documents must

be undertaken with great care and caution. The dangers

8 of such a comparison have already been amply

illustrated by this Court in The General Manager, Oil &

Natural Gas Corporation Ltd. v. Rameshbhai

Jivanbhai Patel and Anr. reported at

MANU/SC/7896/2008 wherein it was observed:

13. Much more unsafe is the recent trend to determine the market value of acquired lands with reference to future sale transactions or acquisitions. To illustrate, if the market value of a land acquired in 1992 has to be determined and if there are no sale transactions/acquisitions of 1991 or 1992 (prior to the date of preliminary notification), the statistics relating to sales/acquisitions in future, say of the years 1994-95 or 1995-96 are taken as the base price and the market value in 1992 is worked back by making deductions at the rate of 10% to 15% per annum. How far is this safe? One of the fundamental principles of valuation is that the transactions subsequent to the acquisition should be ignored for determining the market value of acquired lands, as the very acquisition and the consequential development would accelerate the overall development of the surrounding areas resulting in a sudden or steep spurt in the prices. Let us illustrate. Let us assume there was no development activity in a particular area. The appreciation in market price in such area would be slow and minimal. But if some lands in that area are acquired for a residential/commercial/industrial layout, there will be all round development and improvement in the infrastructure/ amenities/facilities in the next one or two years, as a result of which the surrounding lands will become more valuable.

Even if there is no actual improvement in infrastructure, the potential and possibility of

9 improvement on account of the proposed residential/commercial/ industrial layout will result in a higher rate of escalation in prices. As a result, if the annual increase in market value was around 10% per annum before the acquisition, the annual increase of market value of lands in the areas neighbouring the acquired land, will become much more, say 20% to 30%, or even more on account of the development/proposed development. Therefore, if the percentage to be added with reference to previous acquisitions/sale transactions is 10% per annum, the percentage to be deducted to arrive at a market value with reference to future acquisitions/sale transactions should not be 10% per annum, but much more. The percentage of standard increase becomes unreliable. Courts should therefore avoid determination of market value with reference to subsequent/future transactions. Even if it becomes inevitable, there should be greater caution in applying the prices fetched for transactions in future.

11.In this instance, however, we are of the considered

opinion that the compensation as determined by the

Reference Court for the plot containing the structures is

on the lower side. The High Court, while referring to the

oral evidence adduced by the expert, has stated that the

fine condition of the structures and the superior quality

of materials used for construction of the same is beyond

doubt. Despite the ambiguity surrounding the age of the

structures, the condition and quality of the building has

10 never been called into question. Therefore, we are

inclined to raise the compensation awarded in the

present case. We are also of the opinion that the margin

of error in comparing Schedule rates for construction of

buildings in the same district would be lesser than in

attempting to use future sale transactions as

exemplars. The Schedule Rates cover costs of

construction in the entire district, thus factoring any

sudden spurt in increase of land prices owing to

acquisition in the area. Moreover, the quality of the

structures stands testimony of the fact that the building

possesses considerable value, notwithstanding the fact

that its age has not been correctly ascertained. In

Administrator General of West Bengal v. Collector,

Varanasi reported at (1988) 2 SCC 150, this Court held

that

8. [...] building value is estimated on the basis of the prime-cost or replacement-cost less depreciation. The rate of depreciation is generally, arrived at by dividing the cost of construction (less the salvage value at the end of the period of utility) by the number of years of utility of the building. The factors that prolong the life and utility of the building, such as good maintenance, necessarily influence and bring down the rate of depreciation.

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12.Therefore, the cost of construction, which would be

admittedly lower in 1983 than in 1991, must also be

juxtaposed with the depreciation that would have

accrued to the structures owing to wear and tear over a

period of 8 years. In the year 1991, the cost of

construction of residential building was ` 2,800 per

square meter for the ground floor and ` 2,200 per square

meter for the second and third floors. We are of the

considered opinion that a deduction of 60 per cent

(approximate) from the said valuation of the cost of

construction in 1991 would be appropriate, and

accordingly arrive at a compensation of ` 1700 per

square meter for the structure. Our decision to deduct

the said percentage of 60% is based on the Building Cost

Index between 1983 and 1991 published by the Central

Public Works Department, which reflects the rise in cost

of construction over the said period of time.

13.Therefore, we allow these appeals partly to the extent of

the valuation fixed with regard to the compensation

payable in respect of the structure which was acquired

12 under the notification for acquisition raising it from `

1,200 per square meter to ` 1700 per square meter. We,

however, reject the prayer for increase in the amount of

compensation so far as open space is concerned. It is

needless to point out here that the respondents shall also

be entitled to the statutory benefits as provided for under

Section 23(1), 28 and 34 of the Act for which the decision

rendered in the case of Sunder v. Union of India

reported in (2001) 7 SCC 211 which was later affirmed

and elaborated in the case of Gurpreet Singh vs. Union

of India reported in (2006) 8 SCC 457 would be

applicable. We leave the parties to bear their own costs.

............................................J [Dr. Mukundakam Sharma ]

............................................J [ Swatanter Kumar ]

New Delhi, November 11, 2010.

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