Holding

The Supreme Court held that the larger, proximate auction sale (Ex. P‑2) should be used, with a 20% deduction for competitive bidding, a 40% development deduction, and a 10% per annum appreciation for three years, yielding a compensation of Rs.2,95,500 per acre.

Summary

The Karnataka Housing Board acquired 127 acres of land in Gadag-Betegeri for a housing project and awarded compensation of Rs.45,000 per acre. The landowners challenged the award, and the Reference Court fixed compensation at Rs.2,17,372 per acre based on an auction sale of a nearby 329 sq.m plot (Ex. P‑2). The High Court later increased compensation to Rs.4,42,000 per acre, relying on a different, smaller auction sale (Ex. P‑19) and applying a lower development deduction. The Supreme Court examined whether auction sales are reliable comparables, the appropriate deduction for competitive bidding, the correct development factor, and the need for appreciation for the three‑year gap between the auction and the notification date. It held that the larger, nearer auction sale (Ex. P‑2) was the proper basis, applied a 20% cut for competitive hype, a 10% per annum appreciation for three years, and a 40% development deduction, resulting in a compensation of Rs.2,95,500 per acre. The Court allowed the appeals in part, reducing the compensation awarded by the High Court.

Issues considered

Whether an auction sale can be used as a comparable transaction for determining market value under Section 4(1) of the Land Acquisition Act, 1894.
What deduction, if any, should be made from auction sale prices to offset the competitive bidding effect.
Which development factor deduction is appropriate for the acquired land.
Whether appreciation should be applied for the period between the auction date and the date of the preliminary notification.
Which of the two auction sales (Ex. P‑2 or Ex. P‑19) is the proper basis for valuation.

Legislation cited

Land Acquisition Act, 1894s. 4(1)

Subjects

Land acquisitionCompensationMarket value determinationAuction saleDevelopment factorAppreciationSection 4(1) Land Acquisition ActComparable transaction

Judgment

[2011) 1 S.C.R. 600

A EXECUTIVE ENGINEERt KARNATAKA HOUSING BOARD
v.
LAND ACQUISITION OFFICER, GADAG & ORS.
(Civil Appeal Nos. 51-52 of 2011)
JANUARY 04, 2011
B
· [R V RAVEENDRAN AND A K PATNAIK1 JJ.]

Land Acquisition Act, 1894:

c s. 4(1) - Land acquisition for State Housing Board -
Issuance of Notification dated 06.02.1992 - Determination of
market value - Evidence relating to auction sales - Other sale
transactions not applicable as they related to far away
properties - Reference Court relying upon auction sale dated
02.01.1989 of a larger plot in the vicinity, arrived at the market
0
value as Rs. 4,62,4941- per acre - Compensation determined
as Rs. 2, 17, 3721- per acre, after deducting 53% towards
development factor - However, the High Court relied on
auction sale dated 20. 11. 1989 of a smaller plot and arrived
at the market value as Rs. 6, 60, 9 77/- per acre -
E Compensation increased to Rs. 4, 42, 0001- per acre, after
deducting 33% towards development factor- On appeal, held:
Having regard to the proximity of location and the size of the
acquired land, the Reference Court was justified in relying upon
the auction sale transaction of a larger plot - On the basis of
F the sale price disclosed by the said auction sale, the value of
the land in question works out to Rs. 4, 62, 4941- per acre -
Deduction of 20% to be made to off-set the impact of
competitive-hike involved in the auction sale and the market
value per acre as on 02.01.89 would be Rs. 3,69,9951- -
G Relevant date for determination of compensation is y /
06.02.1992 and the date of auction is 02.01.1989, thus, there
being a gap of three years, appropriate appreciation has to
be provided for - The acquired lands being within the
municipal limits with considerable development potential, a
H 600
EXECUTIVE ENGINEER, KARNATAKAHOUSING BOARD v. 601
LAND ACQUISITION OFFICER,
cumulative increase of 10% per annum for three years is A
adopted - Market value as on 06.02.1992 would be Rs.
4, 92, 4601- per acre - Having regard to the partial access to
infrastructural facilities, a deduction of 40% towards cost of
development is applied - Thus, rate per acre for the acquired
land as on 06.02.1992 is determined as Rs. 2,95,4761- per B
acre - Compensation awarded as Rs. 2,95,5001- per acre.

Market value of acquired land - Determination of -
~ ..
_Comparable sale transaction - Auction Sale - Held: Element ~.,

of competition in auction sales makes them unsafe guides
for determining the market value - But where an open auction
c
sale is the only comparable sale transaction available on
account of proximity in situation and proximity in time to the
acquired land, the court may with caution, rely upon the price
disclosed by such auction sales, by providing appropriate
deduction or cut to off-set the competitive-hike in value. D
~

Raj Kumar v. Haryana State 2007 (7) SCC 609 - relied
on.

Executive Engineer (Electrical), Karnataka Power E
Transmission Corporation Ltd. Vs. Assistant Commissioner
& LAO, Gadag CA Nos.1768-1775 of 2010 decided on
11.2.2010 - referred to.
-+
Case Law Reference:
F
2001 (7) sec 609 Relied on. Para 6

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 51-
52-of 2011.

.. ~
From the judgment & order dated 30.01.2008 of the High
Court of Karnataka at Bangalore in M.F.A. No. 7037 of 2003
G

with M. F. A. GROB. No: 243 of 2004.

WITH
H
602 SUPREME COURT REPORTS (2011) 1 S.C.R.
•
A C. A. Nos. 53-54, 55-56, 57-58, 59-60, 61-62, 63-64,71-72 &
73-74,of 2011.

Jagjit Singh Chhabra for the Appellant.

Mallikarjun S. Mylar, E. R. Sumathy, Anitha Shenoy for the
8 Respondents.

The order of the Court was delivered by

R.V.RAVEENDRAN, J. 1. Leave granted.
c 2. An extent of 127 acres 26 guntas of lands in Betegeri
village .within the municipal limits of Gadag-Betegeri
Municipality, was acquired for Karnataka Housing Board in
pursuance of Preliminary Notification dated 6.2.1992. The Land
Acquisition Officer, Gadag, made an award dated 14.2.1997
D awarding a compensation of Rs.45,000/- per acre.
~

3. On a reference being made at the instance of the land
owners, the Reference Court, by judgment and award dated
11.7.2003, determined the compensation for the acquired lands
E as Rs.2, 17,372/- per acre. For this purpose, the Reference
Court relied upon Exhibit P-2 which is a sale deed dated
30.7.1992 executed by the Municipal Commissioner, Gadag-
Betegeri Municipality in favour of one Manikamma in regard to
a plot measuring 329 sq. meters which was sold for Rs.37,600/ --
F - in an auction sale on 2.1 . 1989 (which works out to Rs.114.29
per sq.m). The Reference Court, therefore, arrived at the market
value per acre as Rs.4,62,494/-. It deducted 53% towards
development (that is, towards areas to be set apart for roads,
drains and vacant spaces and towards cost of development)
and arrived at the market value as Rs.2, 17,372/- per acre. The
G
Reference Court referred to the evidence showing that the plot -... "-
covered by Ex. P-2 was across the road from the acquired
lands and was therefore a neighbouring property.

4. Feeling aggrieved, the Appellant (Housing Board) filed
H appeals. The land owners filed cross-objections. The High
EXECUTIVE ENGINEER, KARNATAKA HOUSING BOARD v. 603
LAND ACQUISITION OFFICER, [RV. RAVEENDRAN, J.l
Court, by impugned judgment dated 30.1.2008, dismissed the A
-~ appeals of the appellant and allowed the cross-objections filed
by the land owners and increa~ed thecompensation to
Rs.4,42,000/- per acre. Instead of Ex. P-2 relied upon by the
Reference Court, the High Court relied upon Ex. P-19 which
related to another auction sale of a smaller plot measuring 150 Bl
sq.m. by the Gadag-Betegeri municipality on 20.11.1989, for
a price of Rs.24500/- (which works out to a price of Rs.163.33
per sq.m). On that basis the High Court works out the market
-J..
value per acre as Rs.6,60,977/-. The High Court was of the
view that the deduction/cut towards development factor should c
be only 33% instead of 53% adopted by the 'Reference Court.
By deducting 33% from Rs.6,60,977/- it arrived at the market
value as Rs.4,42,875/- per acre which was rounded off to
Rs.442,000/- per acre. while awarding the compensation.

5. Feeling aggrieved, the Housing Board has filed these D
~
appeals by special leave. The appellant have put forth the
following contentions :

(i) Ex. P-19 relied upon by the High Court did not relate to
a neighbouring land whereas there was specific evidence E
that_ the plot covered by Ex. P-2 was in regard to a nearby
land. Therefore, Ex. P-2 ought to have been preferred to
Ex. P-19. Further as Ex.P-19 related to a very small plot it
ought .to have been ignored and the transaction relating to
the larger plot (Ex.P-2) should have been preferred. F
(i_i) The High Court ought to have maintained the cut
towards cost of development
. as 53% instead of applying
.
a cut of 33%.

.. ..,,.
..
(iii) Auction sales do not furnish a safe guide for
determination of market value and therefore, the High Court
G

and Reference Court ought not to be relied upon either
Ex.P19 or ExP2 which relate to auction sales.

6. We may deal with the last submission first. The standard
H
604 SUPREME COURT REPORTS [2011] 1 S.C.R.

A method of determination of marke.t value of any acquired land
is by the valuer evaluating the land on the date of valuation "'"-
(publication of notification under section 4(1) of the Land
Acquisition Act, 1894 - 'Act' for short) notification, acting as a
hypothetical purchaser willing to purchase the land in open
B market at the prevailing price on that day, from a seller willing
to sell such land at a reasonable price. Thus, the market value
is determined with reference to the open market sale of
comparable land in the neighbourhood, by a willing seller to a _.,.
willing buyer, on or before the date of preliminary notification,
c as that would give a fair indication of the market value. A 'willing
seller' refers to a person who is not acting under any pressure
to sell the property, that is, where the sale is not a distress sale.
A willing seller is a person who knowing the advantages and
disadvantages of his property, sells the property after
ascertaining the prevailing market prices at the fair and
D
reasonable value. Similarly, a willing purchaser refers to a
person who is not under any pressure or compulsion to
purchase the property, and who, having the choice of different
properties, voluntarily decides to buy a particular property by
assessing its advantages and disadvantages and the prevailing
E market value thereof. Of course, unless there are indications
to hold otherwise, all sale transactions under registered sale
deeds will be assumed to be normal sales by willing sellers to
wi!ling purchasers. Where however there is evidence or
indications th~t the sale was not at prevailing fair market value,
F it has to be ignored. But auction sales stand on a different
footing. When purchasers start bidding for a property in an
auction, an element of competition enters into the auction.
Human ego, and desire to do better and excel other
competitors, leads to competitive bidding, each trying to outbid
G the others. Thus in a well advertised open auction sale, where 'r
.
a large number of bidders participate, there is always a
tendency for the price of the auctioned property to go up
considerably. On the other hand, where the al!ction sale is by
banks or financial institutions, courts, etc. to recover dues, there
H is an element of distress, a cloud regarding title, and a chance
EXECUTIVE ENGINEER, KARNATAKA HOUSING BOARD v. 605
LAND ACQUISITION OFFICER, [R.V. RAVEENDRAN, J.]
of litigation, which have the effect of dampening the enthusiasm A
. ...., of bidders and making them cautious, thereby depressing the
price. There is therefore every likelihood of auction price being
either higher or lower than the real market price, depending
upon the nature of sale. As a result, courts are wary of relying
upon auction sale transactions when other regular traditional B
sale transactions are available while determining the market
value of the acquired land. This Court in Raj Kumar v. Haryana
~
State - 2007 (7) SCC 609, observed that the element of
competition in auction sales makes them unsafe guides for
determining the market value.
c
7. But where an open auction sale is the only comparable
sale transaction available (on account of proximity in situation
and proximity in time to the acquired land), the court may have
to, with caution, rely upon the price disclosed by such auction
sales, by providing an appropriate deduction or cut to off-set D
'-'r
the competitive-hike in value. In this case, the Reference Court
and High Court, after referring to the evidence relating to other
sale transactions, found them to be inapplicable as they related
to far away properties. Therefore we are left with only the
auction sale transactions. On the facts and circumstances, we E
are of the view that a deduction or cut of 20% in the auction
price disclosed by the relied upon auction transaction towards
the factor of 'competitive - price hike' would enable us to arrive
at the fair market price.
F
8. There is clear evidence that the plot sold under Ex. P-2
. was very near to the acquired lands whereas there is no such
. specific evidence in regard to the proximity of the plot sold
under Ex.P19, though that plot was also in the vicinity. Further,
though both Ex. P2 and P19 relate to developed plots, Ex. P19
...
'
,.. relates to a comparatively small plot of 150 sq.m. whereas Ex.
G
P2 refers to a larger plot of 329 sq.m. Having regard to the
proximity of location and the size, we. are of the view that the
. Reference Court was justified in relying upon the sale
transaction under Ex. P2 and the High Court was not justified
H
606 SUPREME COURT REPORTS [2011] 1 S.C.R.

A in ignoring Ex. P2 and relying upon the transaction under Ex.
P19. We may also note that the general rule that the highest of ~
the comparable sales should be relied upon will not apply,
where the sale transactions relied upon are auction sales, for
the reasons mentioned in para (6) above. There is yet another
B important reason for ignoring the said auction sale for
determining the market value of the acquired lands. In regard
to acquisition of nearby lands within the Gadag-Betegeri
municipal limits for the Karnataka Power Transmission
~
Corporation in pursuance of a preliminary notification dated
c 15.9.1994 this court determined the .compensation as
Rs.426,670/- per acre (Executive Engineer (Electrical),
Kamataka Power Transmission Corporation Ltd. Vs. Assistant
Commissioner & LAO, Gadag - CA Nos.1768-1775 of .2010
decided on 11.2.2010). That land abutted the Sambarpur Road
and was also near to the bus stand, market and educational
D
institutions. That land was equally well-situated, if not better ._,,..
situated than the acquired lands. When this court has
determined a market value of Rs.426,670/- in regard to a
acquisition more than two and a half years later, Jhat is
c 15.9.1994, the determination of higher compensation of
- Rs.4,42,875/- as on 6.2.1992 based on Ex. P19, is
unsustainable.

9. We may now consider what should be the proper
compensation with reference to Ex. P2. The sale price
F disclosed by the said auction sale on 2.1.1989 is Rs.37600 for
329 sq.m. On that basis the value of one acre of land works
out to Rs.4,62,494. We have already held that a deduction of
20% has to be made to off~set the impact of competitive-hike
involved in the auction sale. On such deduction of 20%, the
G market value per acre as on 2.1.1989 would be Rs.3,69,995.
The relevant date for determination of compensation in this ~
.
case is 6.2.1992 and there is a gap of three years for which
appropriate appreciation has to be provided for. Having rega;d
to the fact that the acquired lands were within the municipal
H limits with considerable development potential, adopting a
EXECUTIVE ENGINEER, KARNATAKA HOUSING BOARD v. 607
LAND ACQUISITION OFFIC~R. [RV. RAVEENDRAN, J.]
cumulative increase of 10% per annum for three years, woulc A
enable us to arrive at the market value as on 6.2.1992. By
applying such increase, the market value as on 6.2.1992 will
be Rs.4,92,460/- per acre.

10. Evidence shows that the acquired lands were situated B
within the municipal limits, though on the outskirts of Gadag-
Betegeri within a distance of one kilometer from Gadag Railway
·Station and the bus stand; and that there were several
residential colonies and colleges in the surrounding areas.
Therefore though the lands were agricultural, they could be
classified as lands having urban development potential. Having C
regard to the partial access to infrastructural facilities, we are
of the view that a deduction of 40% towards cost of
development would meet the ends of justice. On the facts and
circumstances, the cut of 53% applied by the Reference Court
is too high and the cut of 33% applied by the High Court is low. D
On applying a cut of 40%, the rate per acre for the acquired
.. land as on 6.2.1992 would be Rs.2,95,476/- (rounded off to
' Rs.2,95,500). -

11. Accordingly we allow these appeals in part and reduce E
the compensation awarded from Rs.4,42,875/- to Rs.295,500/
- per acre. The respondents will be entitled tc all statutory
benefits as alre~dy awarded.

N.J. Appeals partly allowed.

,.