Holding

The purchase price paid by the respondent is the sole basis for determining the market value of the land for compensation under the Land Acquisition Act.

Summary

The respondents purchased 22 acres 63 decimals of land for Rs.1,08,000 on September 4, 1974, two days before a notification under Section 4(1) of the Land Acquisition Act, 1894 was issued to acquire the same land for industrial purposes. The Land Acquisition Officer initially fixed compensation at Rs.1,500 per acre; the Civil Court enhanced it to Rs.4,900 per acre, and the Madhya Pradesh High Court further raised it to Rs.10,000 per acre, totaling Rs.2,27,000. The State appealed to the Supreme Court, arguing that the market value should be higher than the purchase price. The Supreme Court held that the price paid by the respondent is the sole and proper basis for determining market value, and that no reasonable buyer would pay double that amount within two days. Consequently, the Court set aside the High Court’s award and affirmed the District Judge’s award based on the purchase price, allowing the appeal with costs.

Issues considered

Whether the purchase price paid by the landowner can be the sole basis for determining market value for compensation under the Land Acquisition Act, 1894.
Whether the High Court erred in enhancing compensation beyond the purchase price despite the recent sale of the land.

Legislation cited

Land Acquisition Act, 1894s. 4(1), s. 54

Subjects

Land acquisitionCompensationMarket valuePurchase priceSection 4(1)Section 54Industrial purposeSupreme Court

Judgment

r
A STATE OF MADHYA PRADESH
-~·
v.
SMT. SHANTABHAI AND ORS.

JANUARY 18, 1995

E [K. RAMASWAMY AND N. VENKATACHALA, JJ.]

Land Acquisition Act, 1894-Notiftcation u/s 4(1)-Land acquired-- l
Compensation-Determination of market value-Reliance on respondents'
purchase price.
c
Respondents' 22 acres 63 decimals of l~nd for Rs. 1,08,000 on Sep·
tember 4, 1974 for industrial purposes for RS. 1,08,000 was acquired by
publication of notification just two days latei~n reference the Land
Acquisition Officer's award of Rs. 1500 per acre wa~enhanced to Rs. 4,900
D per acre by the Civil Court which amounted to Rs. 1,08~000 in all. The High
Court, on appeal by the Respondent, enhanced the Compensation to Rs.
10,000 per acre making the total amount Rs. 2,27,000. Appeal by special
leave was filed against the order.

Allowing the appeal, this Court
E
HELD : 1. The respondent's purchase of the property for a con·
sideration of Rs. 1,08,000, ipso facto furnishes the sole basis for determina·
tion of market value of the self same land. 1417-H, 418-A]

2. No reasonable and prudent buyer in normal market conditions
F would agree to pay a sum of Rs. 2,27,000 for land purchased by the seller
two days earlier for Rs. 1,08,000. [418-B]

3. The High Court .totally ignored relevant consideration while en·
hancing the compensation without application of mind on the basis of sale
G transactions of small bits of other land. [418-C]

V.M. Salgoacar and Brother Ltd. v. Union of India, C.A. No. 3800/89 >-
dated January II, 1995, relied on.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2944 of
H 1984.
416
STATEOFM.P.v. SHANTABHAI 417

From the Judgment and Order dated 1.11.83 of the Madhya Pradesh A
High Court in F.A. No. 17 of 1981.

B.S. Banthia, S.K. Agnihotri for the Appellant.

R.P. Bhatt, Vivek Gambhir and S.K. Gambhir for the Respondents.
B
The following Order of the Court was delivered :

l A notification under s.4(1) of the Land Acquisition Act, 1894, (fo1
short, 'the Act') was published in the State gazette on September 6, 1974
acquiring 22 acres 63 decimals of the land situated in village Rasoolpur of
Devdas Distt. of M.P. for industrial purpose. The Land Acquisition Officer C
in his award dated June 1975 determined the market value at Rs. 1,500 per
acre and given the compensation with statutory benefits. On reference, the
Civil Court by its award and decree dated October 22, 1980 enhanced the
compensation to Rs. 4,900 per acre which worked out to Rs.1,08,000 in all.
At this stage it is relevant to mention that the respondent herself purchased D
the entire acquired land under registered sale deed dated September 4,
1974, just two days earlier to the date of publication of preliminary notifica-
tion for a total sum of Rs. 1,08,000. The respondent not being satisfied,
carried the matter in appeal to the High Court under s.54 of the Act. The
High Court, by its impugned judgment in Transfer appeal No. 323/82 dated E
November 1, 1983, enhanced the compensation to R~. 10,000 per acre. In
other words, the High Court awarded a total compensation of Rs. 2,27,000
with statutory benefits thereon, Feeling aggrieved against enhanced com-
pensation awarded by the High Court this appeal by special leave has been
filed.
F
The High Court, in our considered view, committed palpable and
manifest error of law in ignoring the sale deed of the respondent herself
dated September 4, 1974 wherein she had paid total consideration of a sum
of Rs. 1,08,000 for the acquired land. It is contended by learned senior
counsel for the respondent that this is an industrial area and the very
purpose for which acquisition is sought to be made is for industrial pur· G
pose. The respondent herself purchased the property for industrial pur-
pose. The High Court had rightly taken into consideration those facts and
circumstances and enhanced the compensation. We find no force in the
contention. When the respondent herself had purchased the property for
the purpose of establishing an industry and got the sale deed registered on H
418 SUPREME COURT REPORTS (1995) 1 S.C.R.

A Septt::mber 4, 1974, it would furnished ipso facto the sole basis for deter-
mination of market value of the self same land. For the property purchased
by paying a consideration of Rs. 1,08,000, no reasonable and prudent
buyer, within two days thereafter, would purchase the land. by paying a
sum of Rs. 2,27,000 as determined by the High Court. It is quite un-
B reasonable and credulous to believe that a prudent buyer in normal market
conditions would agree to pay Rs. 1,19,000 more within two days for the
self same land. The High Court, therefore, totally ignored these relevant
considerations while enhancing the compensation without application of
mind on the basis of sale transactions of small bits of other lands. In M. V. l
Salgoacar& Pvt. Ltd. v. Union of India, C.~. No. 3800/89 dated January 11,
C 1995 on similar facts, this Court affirmed the judgment of High Court of
Bombay reversing the award of the reference court and awarded at the rate
purchased by the claimants itself. The Judgment and decree of the High
Court is, therefore, set aside and that of the Dist. Judge is affirmed. The
appeal is accordingly allowed with costs.
D The cross objections are consequently dismissed with costs.

A.G. Appeal allowed.