Holding

For purposes of Section 23 of the Land Acquisition Act, market value is the price at which the property would change hands between a willing seller and a willing, but not overly anxious, buyer, and the best evidence of such value is the price of comparable sales made at or about the time of the preliminary notification, excluding distress sales and unreliable instances; post‑acquisition sales may be considered if they are reasonably proximate and not affected by speculative price increases.

Summary

The Supreme Court examined the compensation payable to the heirs of Mehta Ravindrarai Ajitrai for land acquired by the State of Gujarat under the Land Acquisition Act, 1894. The issue was how to determine the market value of the land for purposes of Section 23, specifically whether post‑acquisition sales and other instances could be used as comparable evidence. The Court held that the best evidence of market value is the price of similar lands sold at or about the time of the preliminary notification, and that distress sales or unreliable transactions must be excluded. A sale that occurred five months after the notification, though post‑acquisition, was deemed reasonably proximate and admissible, but appropriate deductions were required for price increases due to the acquisition and for the convenience of adjoining land. Applying these principles, the Court fixed the market value at Rs.8,800 per acre (≈Rs.1.80 per sq. yard) and amended the lower court’s decree accordingly.

Issues considered

Whether prices fetched for similar lands at or about the time of the preliminary notification constitute the best evidence of market value under Section 23 of the Land Acquisition Act.
Whether a post‑acquisition sale can be treated as a comparable instance for determining market value.
Whether a distress sale at a government auction is reliable evidence for market valuation.
Whether a sale deed proved only by a certified copy and involving a minor purchaser is admissible for valuation purposes.
Whether deductions should be made from the price of a comparable sale to account for price rise due to acquisition and convenience of adjoining land.

Legislation cited

Land Acquisition Act, 1894s. 23, s. 4

Subjects

Land acquisitionCompensationMarket valueSection 23Comparable saleDistress salePost‑acquisition saleValuation

Judgment

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MEHTA RAVINDRARAI AJITRAI (DECEASED) THROUGH A •
HIS HEIRS AND LEGAL REPRESENTATIVES & ORS.
v.
STATE OF GUJARAT

AUGUST 8, 1989
B
[M.H. KANIA AND KULDIP SINGH, JJ.] \,;
'"
Land Acquisition Act, 1894: ss. 4 & •.23-Compensation for
'
acquired. land-Market value-Determination. of-Post-acquisition
~ _instances-Admissibility of-Prices fetched for similar lands at or about
•· the time of preliminary notification the best evidence of market value. C
'
+ Certain lands situated · on the outskirts of a large city were
acquired by the respondent-State after issuing preliminary notification
under s. 4(1) of the Land Acquisition Act, 1894 on August 6, 1956 for
construction of an industrial estate. ,
D
The appellants chiimed compensation at the rate of Rs.3 per sq.
yard and cited in support thereof an agreement of sale dated January ..
21, 1957 and a conveyance dated April 2, 1957 pertaining to a piece of
land adjoining the acquired land showing the sale price at the rate of·'
Rs-3 per sq_ yard. The respondent-State relied on an auction sale dated
February 23, 1953 at about 4lp. per ·sq_ yard, evidenced by Ex. ll2, E
and the· instance evidenced by Ex- ll8 pertaining to sale to a miitor,
transacted by his f'lther.

The Land Acquisition Officer classified the land as superior
agricultural land and awarded the compensation at the rate of Rs-2200
per acre, i.e., about 4Sp. per sq. yard. F

In the reference, the Civil Judge did not rely upon any of the
instances proved before him, but considering the general situation of
the land and its considerable building potentiality fixed the rate of
compensation at Rs.4400 per acre, i.e., about 90p. per sq. yard.
G
Dismissing the appeal, the High Court took the view that the
valuation fixed by the Civil Judge was justified. It held that a post-
acquisition sale could not be. regarded as a comparable instance at all,
since the acquisition for construction of the industrial estate was bound
to have pushed up the prices in the surrounding area_ It placed reliance
on the evidence furnished by the instance at Ex.ll2, over a year prior to; H

743
744 SUPREME COURT REPORTS [1989] 3 S.C.R.

A the date of s. 4 notification, but discarded tbe instance evidence by Ex. ~"'°
I I8 relied on by the State.

Allowing the claimants' appeal by special leave, the Court,

HELD: The market value or a piece of property for purposes of
B s. 23 of the Land Acquisition Act, is stated to be the price at which the
property changes hands from a willing seller to a willing, but not too
anxious a buyer, dealing at arm's length. Prices fetched for similar
lands with similar advantages lmd potentialities under bona fide trans-
actions of sale at or aoout till' time of the preliminary notification are I
the usual and, indeed, the best, evidence of market value. [747C] -~
c Administrator General of West Bengal v. Collector, Varanasi, +j
[I988] 2 SCC ISO, referred to.

In the instant case, the instance evidenced by Ex. 112 pertaining

l
to sale of land in government auction relied on by the High Court was a
O distress sale. There were execution proceedings pending against the
vendor. It could, thus, hardly furnish any reliable evidence for estimat-
ing the market value of the land in question. The instance evidenced by
Ex. I I8 was rightly discarded by the High Court. Only a certified copy
of the sale deed pertaining thereto was produced in the trial court. The
evidence of the purchaser, who was minor at the time when the sale
E deed was executed, had no evidentlary value as he bad no personal
information regarding the sale. No other person conversant with the
sale wa5 examined by the State. [748AB, CF]

The only comparable instance on the basis of which the market
value at the time of the s. 4 notification in respect of the acquired land
F could be determined was, therefore, the sale proved by the sale deed
dated April 2, 1957 and the preceding agreement of sale dated January
2I, 1957. Though entered into about five months after the notification It
could be fairly regarded as reasonably proximate to the acquisition.
The price fixed under the said agreement was Rs.3 per sq. yard. How-
ever, there seems to have been some rise in the price of land on account
G of the acquisition of the land in question for purposes of con rtructing

·~.
the industrial estate. Further, the land proposed to be purchased under
the agreement was adjoining the land of the purchaser and the pur-
chaser might have paid some extra amount for the convenience of get-
ting the neighbouring land. These factors have to be taken into account
and appropriate deductions made from the rate disclosed in the agree-
H ment in estimating the market value. Considering these together with
M.R. AJ!TRAI >. STATE OF GUJARAT [KANIA, J.J 745

the situation and potentialities of the acquired land, it would be proper A
to nx its market value al Rs.8800 per acre, which comes to about
Rs. l.80p. per sq. yard. The aecree passed by the Civil Judge to be
amended accordingly. [748G, 747E)

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2169 B
of 1970. · '

From the Judgment arid Order dated 12.8.68 of the Gujarat High
Court in F.A. No. 233 <if 1963.

~~ B.K. Mehta, U.A. Rana, Bhushan B. Oza and K.L. Hathi for
the Appellants. c
G ,A. Shah and M.N. Shroff for the Respondent.

The Judgment of the Court was delivered by

KANIA, J. This is an apeal by special leave gia~ted by this D
Court under Article 136 of ihe Constitution. The appeal arises out of
land acquisition proceedings.

The appellants before us are the heirs and legal representatives
of the original claimants. Appellants Nos. l(a) to l(c) are the heirs and
legal representatives of original claimant No. 1 and appellants Nos. E
2(i) to 2(ii) are the heirs and legal representatives of original claimant
No.2.

The acquisition was in respect of an area admeasuring 15 acres
~. and 1 guntha belonging to claimant No. 1 (Original) and area
. admeasuring 6 acres and 25 gunthas belonging to claimant Nos. 1 and 2 F

(Original).' The lands are situated in the Bliavnagar District and are on
the outskirts of the Bhavnagar City and adjoining the Bhavnasar-
Raikot Road, The acquisition forms part of a larger acquisition for the
construction of an industrial estate at Bhavnagar. The preliminary
notification under section 4( 1) of the Land Acquisition Act, 1894 was
published on August 6, 1956. The claimants made their claims before G
the Land Acquisition Officer who classified the lands as superior of
Bagayat type of agricultural land and awarded compensation at the
rate of Rs.2200 per acre which would come to about 0.48 p. per sq.
yard. This award was not accepted by the claimants and they made a
reference which came up for hearing before the learned Civil Judge,
Senior Division, Bhavnagar. The evidence of some instances of sale H
746 SUPREME COURT REPORTS [1989] 3 S.C.R.

A was led before the learnell Civil Judge by the respective parties but he >
did not rely upon any of the instances proved before him. He con-
sidered the general situation of the lands and held that on the evidence
it was shown that the lands had a considerable building potentiality
and the Land Acquisition Officer was in error in so far as he did not
take that potentiality into account. The learned Civil Judge considered
B the general situation of the land under acquisition and the potential
value of the same for building purposes and fixed the rate of compen-
sation at Rs.4,400 per acre which had come to about 0.90p. per sq.
yard. Being dissatisfied, the claimants preferred an appeal against the f
decision of the learned Civil Judge, Bhavnagar to the High Court of~
Gujarat: The Division Bench of the High Court, which disposed of the
C appeal, took the view that the valuation fixed by the learned Civil
Judge was justified and dismissed the appeal. This appeal is directed
against the said decision of the High Court.

We do not feel called upon to enter into a detailed scrutiny of the
evidence led by the parties before the learned Civil Judge. The main
D instance relied upon by the claimants was by way' of an agreement to
sell dated January 21, 1957 and a sale deed dated April 2, 1957. in
respect of the sale of 42552 square yards of land out of survey No.
333/2 which is adjoining the land with which we are concerned which )
forms part of survey No. 331. The land sold under this instance was
known as "Kesarbagh" and was sold to Mahalaxmi Mills Limited by
E Prince Nirrnalkumarsinghji. The rate at which it was sold works out to
Rs.3 per sq. yard. On the basis of this instance, the claimants had
made their claim at Rs.3 per sq. yard before the Land Acquisition
Officer. The High Court inter a/ia rejected this instance on the basis
that th~ cantents of the sale dee!i were not properly proved. However,
after an order for remand made by this Courut on August 25, 1981 )
F evidence has been led regarding this sale and the. sale deed has been
duly proved by the evidence of one Dharamdas, a director of
Mahalaxmi Mills Limited, the purchaser, and the vendor Prince
Nirmalkumatsinghji.It was marked originally as Exhibit 87 and after
the evidence on remand as Exhibit 152. The evidence shows that this
land was just adjacent to the land of the purchaser, Mahalaxmi Mills
G Limited. The agreement of sale is dated January 21, 1957 and the
conveyance or sale-deed is dated April 2, 1957 as aforestated. The ,,.
price has been fixed·under the agreement of sale. This agreement of
sale was entered into about five months after the publication of section
4 notification in the case before us. The High Court rejected. the said
instance on the ground that the <»ntents of the sale-deed were not
H proved although the execution was hereof duly proved. In view of the
M.R. AJITRAh. STATE OF GYJARAT (KANIA, J.( 747
"
evidence led after remand, it cannot be disputed that this agreement of. A
sale as well as the sale deed have been duly proved and they have been
duly marked as exhibits. The High Court further took the view that in·
any event, no reliance could be placed on this instance of sale because
the acquisition of the land in question before us was for the construc-
tion of an industrial estate at Bhavnagar and such construction was~
:-...{ bound_ to have.pushed up the price of land in the surrounding area. B .

•
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There is, however, nothing in the evidence to show that there was any
sharp or speculative rise in the price of the land after the acquisition
and this .has been notjced by the High Court. It appears 'that under
~ these circumstances, the High Court was not justified in not taking this
instance into account at all as it has done on the ground that it was a
post-acquisition sale and could not be regarded as a comparable C
instance at all. The market value of a piece of property for purposes of
section 23 of the Land Acquisition Act is stated to be the price at which
the property changes hands from a willing seller to a willing, but not
too anxious a buyer, dealing at arms length. Prices fetched for similar
lands with similar advantages and potentialities under bona fide trans-
actions of sale at. or about the time of the preliminary notification are D
the usual and, indeed the best, evidences of -market value. (See:
Administrator. General of West Bengal v. Collector, Varanasi, [ 1988] 2
SCC.J50atpara8.), . ., ·'

· Keeping these factors in mind, we feel that although the instance
reflected in the sale deed (Exhibit 152) and the agreemenl:for.sale in E
connection with that land, pertains to a sale after the acquisition, it can
be fairly regarded as reasonably proximate to the acquisition and, in
the absence of any evidence to show that there was any speculative or
sharp rise in the prices after the acquisition the agreement to sell dated
January 21, 1957. must be regarded as furnishing some light on the
market value of the land on the date of publication of section 4 notifi- F

•
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cation. However, certain factors ha_ve to be taken into account and
appropriate deductions made from the rate disclosed in the said agree-
ment to sell in estimating the market value of the land with which we
are concerned at the date of the acquisition. One of these factors is
that there seem·s to have been some rise. in the price of land on account
of the· acquisition of the land in question before us for purposes of G
constructing an industrial estate. Another factor is that the land pro-
posed to be purchased under the said agreement to sell was ad joining
the land of the purchaser and the purchaser might have paid some
e~tra amount for the C\)nvenience of getting the neighbouring land.

We find that the High Court placed reliance on the •evidence H, ·
j}
748 SUPREME COURT REPORTS [1989] 3 S.C.R.

A furnished by the instances at Exhibit 112 relied on by the State. By.
Exhibit 112 land admeasuring 4 acres ( 19 ,360 sq. yard) was sold from
Survey No. 384 for Rs.8,000. This sale deed is dated February 23,
1953, that is, over a year prior to the date of the section 4 notification
in the case before us. The purchaser stated in the witness box that
apart from Rs.8,000 mentioned as the consideration in the sale deed,
B he had to pay an extra amount of Rs.4,000. Although the High Court
has not relied upon this statement, it cannot be altogether ignored.
The land was sold at a Government auction which means that it was a
distress sale. There were execution applications pending against the
vendor. Under these circumstan.ces, there is a little doubt that it was a
distress sale and it hardly furnishes any reliable evidence for estimating
)
C the market value of the land. Therefore, although the price of the land
appearing in that instance comes to about 0.62p. per sq. yard, it
furnishes no reliable guidance regarding the market price of the land.
As far as the sale instance evidenced by Exhibit 118 is concerned, it
has been discarded by the High Court and, in our view, rightly so. In
the Trial Court neither the vendor nor the purchaser nor any person
D conversant with the sale was examined. Not the original but only a
certified copy of the sale deed was produced. After the remand the
situation appears to be hardly any better. The State examined one
Virbhadrasingh on whose behalf the land was purchased under the said
sale deed. He was a minor at the time when the sale deed (Exhibit 118)
was executed. Virbhadrasingh's father had purchased the land in Vir-
E bhadrasingh's name as Virbhadrasingh was a minor only about 12
years old at that time.

The evidence of Virbhadrasingh has no evidentiary value as he
has no personal information regarding the sale under Exhibit 118. One
Ratilal who prepared the said document gave evidence in court but he j·
f did not have any personal knowledge about the transaction either.
Under these circumstances, no reliance can be placed on Exhibit 118.

In our view, the only comparable instance on the basis of which
the market value at the time of the section 4 nqtification in respect of
the acquired land can be determined is the sale proved by the sale-
G deed (Exhibit 152) and the preceding agreement for sale in respect of
the land sold which was entered into about five months after the notifi-
cation. The price thereunder is Rs.3 per sq. yard. From that price
certain deductions have to be made on account of the various factors
which have been enumerated earlier such as the rise in prices of land
after the acquisition and so on. Taking into account all these factors
H including the situation and potentialities of the acquired land, it ap-
(
M.R. AJITRAI v. STATE OF GUJARAT [KANIA, J.] 749
--,...(
pears to us that it would be proper to fix the market value of the A
acquired land at Rs.8,800 per acre which come,s to about Rs.1.80 per
sq. yard and we direct accordingly. The decree passed by the Civil
Judge, Senior Division, Bhavnagar will be amended accordingly:

The respondent will pay to the appellants one half of the costs of
B
the appeal in this Court. There will be no change as far as the rest of
the order is concerned.

, ~ P.S.S.

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