Holding

In a rural acquisition, the market value should be determined by applying a cumulative escalation of 7.5% per annum to the 1987 price, resulting in a compensation rate of Rs 13 per sq.m., with interest calculated on the total award including additional amounts under sections 23(1‑A) and 23(2).

Summary

The General Manager of ONGC appealed against the compensation awarded to landowners for the acquisition of 13.78 hectares in rural Gujarat. The Special Land Acquisition Officer had fixed a market price of Rs 2.10 per sq.m., while the owners claimed Rs 30 per sq.m. The Reference Court, using two earlier awards of Rs 10 per sq.m. from 1986‑87 in neighboring villages, applied a 10% per annum increase and deducted a distance factor, arriving at Rs 17.10 per sq.m. The High Court upheld this award. The Supreme Court held that, in a rural setting without evidence of rapid price growth, a cumulative escalation of 7.5% per annum over the 1987 price is appropriate, leading to a market value of Rs 13 per sq.m. after a reduced distance deduction, and affirmed interest on the total compensation including additional amounts under sections 23(1‑A) and 23(2). The appeals were partly allowed, modifying the award accordingly.

Issues considered

Whether past awards from other villages can be used to determine market value of the acquired land.
What rate of annual escalation is appropriate for land in a rural area lacking evidence of extraordinary price increase.
Whether the escalation should be applied cumulatively or as a flat rate.
Whether the distance factor deduction of Rs 2 per sq.m. is appropriate.
Whether interest on compensation should include amounts under sections 23(1‑A) and 23(2) of the Land Acquisition Act.

Legislation cited

Land Acquisition Act, 1894s. 23, s. 23(1-A), s. 23(2), s. 28, s. 4(1), s. 6

Subjects

land acquisitioncompensationmarket value determinationescalation ratecumulative increaserural areainterest under Land Acquisition Actsection 23section 28

Judgment

[2008] 11S.C.R.927

).r

THE GENERAL MANAGER, A
OIL & NATURAL GAS CORPORATION LTD.
v.
----.,. " RAME!:>HBHAI JIVANBHAI PATEL & ANR. ·
(Civil Appeal No. 5192 of 2002)
JULY 31, 2008 B
~

, [R.V. RAVEENDRAN AND LOKESHWAR SINGH
PANTA, JJ]

Land Acquisition Act, 1894: c
ss. 23, 23(2) and 23(1-A) - Acquisition of land - Quan-
..,..
~

tum of compensation - Determination of - Comparable sale
method ·- Land acqµired in 1992 - Sale instance of 1987 -
, Annual increase in market price - At cumulative rate - HELD:
Court should avoid determination of market value with refer- D
ence to subsequent/future transactions - In the instant case,
~ acquisition being in a rural area and there being no evidence
of out-of-ordinary developments or increase in price in the
area, an escalation of 7. 5% per annum over and above the
1987 price of sale instance would be appropriate to arrive at E
market value of acquired lands - As percentage of increase
is always with reference to previous year's market valtJe, ap-
propriate method is to calculate the increase cumulatively and
not at flat rate - For calculation of increase in price, the year of
relied-upon transaction would be excluded - Rate of relied- F
upon transaction being Rs. 10 in 1987, market price by in-
crease in 1992 would be 14. 35 per sq. m. - Deducting Rs. 1. 35
towards distance factor, market price would be determined at
Rs.137- persq. m. - Claimants would, thus, be entitled to com-
pensation at the rate ofRs. 131- per sq. m., with additional
G
amount u/s 23(1-A) and solatium uls 23(2) and interest th~reon
@ 9% for one year and 15% thereafter as awarded by re.fer-
ence court- Interest. [Pq_rf;l 13-15, 17-18, 20] [935 0-F; 936 A;
. I
937 C-G; 938 C-FJ
927 H
928 SUPREME COURT REPORTS [2008] 11 S.C.R.

A Sunder vs. Union of India 2001 (3) Suppl. SCR 176
,'
i..
= 2001 (7) SCC 211; Patel Joitaram Kalidas & Ors. vs. Spe-
cial Land Acquisition Officer and Anr. LAO 2007(2) SCC 341
- relied on. .
T

Ranjit Singh vs. Union Territory of Chandigarh 1992(4) I
B SCC 659; Land Acquisition Officer and Revenue Divisional l
-'
'
Officer vs. Ramanjulu & Ors. 2005(9) SCC 594; and Krishi
Utpadan Mandi Samiti Sahaswom vs~ Bipin Kumar 2004(2)
sec 283 - distinguished.
c ONGC Ltd. vs. Sendhabhai Vastram Patel & Ors. 2005
(2) Suppl. SCR 448 =2005(6) SCC 454 - referred to.
Case Law Reference
2005 (2 ) Suppl. SCR 448 referred to. Para 7
D 1992(4) sec 659 distinguished para 9
2005(9) sec 594 distinguished para 9
2004(2) sec 283 distinguished para 9
2001 ( 3 ) Suppl. SCR 176 relied on para 19
E 2007(2) sec 341 relied on para 19
CIVILAPPELLATEJURISDICTION: CivilAppeal No. 5192
of 2002
From the final Judgment and Order dated 12.6.2001 of
F the High Court of Gujarat at Ahmedabad in First Appeal No.
1510 of 20.01 .,
WITH
Civil Appeal Nos. 5193, 5194, 5195, 5196, 5197 and 5198
G of 2002
Mohan Parasaran, A.S.G., K.R. Sasiprabhu, R.
Chandrachud, Bindu~K Nair, Kavin Gulati, Jatin Zaveri, H~rish
J. Jhaveri, Prashant Kumar, Mis. l.M. Nanavatl Associates,
~emantika Wahi, Pinky and Somnat for the appearing parties.
H
THE GEN. MANAGER, OIL & NATURAL GAS CORP. LTD. 929
v. RAMESHBHAI JIVANBHAI PATEL & ANR.
y
The Order of the Court was delivered by A
R. V. RAVEENDRAN J., 1.These appeals by special
leave are by the beneficiary of acquisition (ONGC), aggrieved
by the quantum of compensation awarded to the respondents.
2. An extent of 13 Hectares 78 Are and 97 sq.m. in ljapura B
Village, District Mehsana, Gujarat, was acquired for one of
ONGC installations, namely "Influent pit-Santhal I', under pre-
liminary notification dated 15.9.1992 issued under section 4(1)
of the Land Acquisition Act, 1894 ('Act' for short) followed by
final notification dated 31.3.1993 under section 6 of the Act. c
The Special Land Acquisition Officer, ONGC, passed an Award
dated 16.11.1994 determining the market price as Rs.2 .10 per
sq.m. The respondents - land owners, sought reference to civil
court claiming Rs.30 per sq.m.
3. Before the Reference Court, the respondents did not D
place any evidence by way of contemporaneous sale transac-
tions· in the neighbourhood. But they placed reliance on some
awards passed by the said Court in other acquisition cases, in
particular, the following two awards:
(i) Ex. 15 - relating to acquisition of lands for ONGC, in E
the neighbouring Santhal village under preliminary
notification dated 6.1.1987, wherein compensation
at the rate of Rs.10 per sq.m was awarded.

(ii) Ex. 16 - relating to acquisition of lands at Chalasana F
village at a distance of 4 Kms. from ljapura village
under preliminary notification dated 31.7.1986,
wherein compensation at the rate of Rs.10 per sq.m
was awarded.
The Land Acquisition Officer did not choose to adduce G
any evidence nor produce the sale deeds referred to in his award
in support of the market value arrived at by him at Rs.2.1 O per
'. sq. m.

4. The Reference Court allowed the claim in part by Judg- H
930 SUPREME COURT REPORTS [2008] 11 S.C.R.

' -<
A ment and Award dated 7 .10.1999. It determined the market value
of-the acquired lands at Rs.17.10 per sq.m b.ased on the said
two awards - Ex. 15 relating to the neighbouring Santhal vil-
lage and Ex. 16 relating to Chalsana village. It found that under
the said awards Rs.10 per sq. m. has been awarded for acqui-
B sitions in the year 1986 and 1987. As the acquisition in the cases
on hand was on 15.9.1992, it increased the value cumulatively
at the rate of 10% per annum and arrived at a value of Rs.19.10
per sq. m by treating the gap between the relied-on-acquisitions
and the present acquisition as six and half years. Thereafter, it
C reduced Rs.2/- per sq. m. therefrom for the distance factor (dis-
tance between ljapura and the other two villages) to arrive at
the market value as Rs.17.10 per sq.m. The Reference Court
also awarded additional compensation under section 23(1 A)
and solatium under section 23(2) of the Act. It awarded interest
under section 28 of the Act at 9% PA for a period of one year
0
from the date of taking possession and 15% per annum there-
after, on the actual compensq~ion amount, and not on the addi-
tional amount under section 23(1A) or the solatium under sec-
tion 23(2) of the Act.
E 5. The a__ppellant challenged the said award of the Refer-
ence Court before the High Court. The High Court dismi$sed
_ the appeals holding that the determination of the market value
by the Reference Court did not call for interference.
6. The appellant urged the following two contentions in
F support of the appeals against the said judgment:
(i) Ex. 15 and Ex. 16 did not relate to .the ljapura village, . "
but related to other villages, namely neighbouring ·
Santhal and far away Chalsana (at a distance of 4
kms). The market value of. lands in those villages
G
cannot furnish the basis for determining the market
value in regard to the acquired lands situated at
ljapura.
(ii) Even if Ex. 15 and 16 could validly be the basis for ·
H determining the market value of lands at ljapura, the
~

932 SUPREME COURT REPORn, [2008] 11 S.C.R.
'>(

or four agricultural fields. We also find that the Ex. 15 was also ~
A
the basis for determining the market value of lands which were ,
the subject matter of another acquisition for ONGC in Santhal r
and other villages under notification dated 31. 7 .1986; and that ~

this Court affirmed the award of compensation at the rate of
B Rs.10 per sq. m. in regard to such acquisition relying on Ex. 15 ~
(vide in ONGC Ltd. v. Sendhabhai Vastram Patel & Ors., 2005
(6) SCC 454). We are therefore of the view that in the absence
of any evidence relating to sale transactions or acquisitions re-
lating to the ·.tillage of ljapura itself, and having regard to the
c.evidence relating to proximity of Santhal lands, Ex.15 offered a
reasonable basis for determining the market value of the ac-
quired lands in ljapura. In view of Ex.15 relating to neighbouring
Santhal, Ex.16 relating to Chalsana loses relevance.
What should be the increase per annum?
D
8. The contention of appellant is that even if Ex. P15 should
be the basis, in the absence of any specific evidence regard- ""
ing increase in prices between 1987 and 1992, the annual in-
crease could not be assumed to be 10% per year.

E 9. On the other hand, the learned counsel for the respon-
dents/claimants submitted that the rate of escalation in market
value at the relevant time was in the range of 10% to 15% per
annum. He relied on the decisions of this Court in Ranjit Singh
v. Union Territory of Chandigarh [1992 (4) SCC 659], and Land r
F Acquisition Officer and Revenue Divisional Officer v.
Ramanjulu & Ors. 2005 (9) SCC 594 wherein this Court had A.
accepted an escalation of ten per cent per annum, and the de-
cision in Krishi Utpadan Mandi Samiti Sahaswom v. Bipin ~
Kumar 2004 (2) SCC 283 where this Court had accepted an
escalation of 15% per annum. He, therefore, submitted that
G
escalation at the rate of 10 per cent adopted by the Reference
Court and approved by the High Court is a reasonable and cor-
rect standard to be applied. 4 ~
1O. We have examined the facts of the three decisions
H relied on by the respondents. They all related to acquisitions of
L
\
THE GEN. MANAGER, OIL & NATURAL GAS CORP. LTD. 933
)<
v. RAMESHBHAI JIVANBHAI PATEL&ANR. [R.V. RAVEENDRAN J.,]
lands in urban or semi-urban areas. Ranjit Singh related to A
acquisition for development of Sector 41 of Chandigarh.
Ramanjulu related to acquisition of the third phase of an exist-
ing and established industrial estate in an urban area. Bipin
Kumarrelated to an acquisition of lands adjoining Badaun-Delhi
Highway in an semi-urban area where building construction B
1
activity was going on all around the acquired lands.
11. Primarily, the increase in land prices depends on four
factors- situation of the land, nature.of development in surround-
ing area, availability of land for development in the area, and
the demand for land in the area. In rural areas unless there is c
any prospect of development iA the vicinity, increase in prices
would be slow, steady and gradual, without any sudden spurts
or jumps. On the other hand, in urban or semi-urban areas, where
the development is faster, where the demand for land is high
and where there is construction activity all around, the escala- D
.. tion in market price is at a much higher rate, as compared to
. - rural areas. In some pockets in big cities, due to rapid develop-
ment and high demand for land, the escalations in prices have
touched even 30% to 50% or more per year, during the nine-
ties. On the other extreme, in remote rural areas where there E
was no chance of any development and hardly any buyers, the
prices stagnated for years or rose marginally at a nominal rate
of 1%or2% per annum. There is thus a significant difference in
increases in market value of lands in urban/semi-urban areas
and increases in market value of lands in the rural areas. There- F
.i fore if the increase in market value in urban/semi-urban areas
is about 10% to 15% per annum, the corresponding increases
in rural areas would at best be only around half of it, that is about
5% to 7.5% per annum. This rule of thumb refers to the general
trend in the nineties, to be adopted in the absence of clear and
G
specific evidence relating to increase in prices. Where there
are special reasons for applying a higher rate of increase, or
any ppecific evidence relating to the actual increase in prices,
then the increase to be applied would depend upon the same.
12. Normally, recourse is taken to the mode of determin.:. H
~

'~-

934 SUPREME COURT REPORTS [2008] 11 S.C.R.
'>(

A ing the market value by providing appropriate escalation over I-=
the proved market value of nearby lands in previous years (as
evidenced by sale transactions or acquisition), where there is
no evidence of any contemporaneous sale transactions or ac-
quisitions of comparable lands in the neighbourhood. The said
B method is reasonably safe where the relied-on-sale transac-
'!'
tions/acquisitions precedes the subject acquisition by only a
few years, that is upto four to five years. Beyond that it may be r
unsafe, even if it relates to a neighbouring land. What may be a
reliable standard if the gap is only a few years, may become ' .
c unsafe and unreliable ~tandard where the gap is larger. For
example, for determir~ing the market value of a land acquired in
1992, adopting the annual increase method with reference to a
sale or acquisition in 1970 or 19~0 may have many pitfalls. This
is because, over the course of years, the 'rate' of annual in-
crease ma-y itself undergo drastic change apart from the likeli-
D
hood of occurrence of varying periods of stagnation_in prices or
sudden spurts in prices affecting the very standard of increase. ...
13. Much more unsafe is the recent trend to determine the
market value of acquired lands with reference to future sale trans-
E actions or acquisitions. To illustrate, if the market value of a land
acquired in 1992 has to be determined and if there are r.o sale
transactions/acquisitions of 1991 or 1992 (prior to the date of
preliminary notification), the statistics relating to sales/acquisi-
tions in future, say of the years 1994-95 or 1995-96 are taken
F 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 yalu- " ~
I-

ation is that the transactions subsequent to the acquisition should
be ignored for determining the market val•Je of acquired lands,
\.--
as the very acquisition and the consequential development
G
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 devalopment activity in a ~

particular area. The appreciation in market pr!ce in such area
would be slow and minimal. But if some lands in that area are
H
THE GEN. MANAGER, O!L & NATURAL GAS CORP. LTD. 935
v. RAMESHBHAI JIVANBHAI PATEL & ANR. [RV RAVEENDRAN J.,]
acquired for a residential/commercial/industrial layout, there will A
be all round development and improvement in the infrastruc-
ture/ 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 improvement on account of the proposed resi.: s
dential/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 acquisi-
tion, the annual increase of market value of lands in the areas
neighbouring the acquired land, will become much more, say" c
20% to 30%, or even more on account of the deveiopment/pro-
posed 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 mar-
ket value with reference to future acquisitions/sale transactions
0
should not be 10% per annum, but much more. The percentage
of standard increase becomes unreliable. Courts should there-
fore avoid determfnation of market value with reference to sub-
sequent/future transactions. Even if it becomes inevitable, there
should be greater caution in applying the prices fetched for trans-
/
actions in future. Be that as it may. E
14. In this case, the acquisition was in a rural area. There
was no evidence of any out-of-ordinary developments or in-
creases in prices in the area. We are of the view that providing
an escalation of 7.5% per annum over the 1987 price under F
Ex.15, would be sufficient and appropriate to arrive at the mar-
ket value of acquired lands.
Whether the increase should be at a cumulative rate or
a flat rate?
G
15. The increase in market value is calculated with refer-
ence to the market value during the immediate preceding year.
When market value is sought to be ascertained with reference
to a transaction which took place some years before the acqui-
sition, the method adopted is to calculate the year to year in-
H
936 SUPREME COURT REPORTS [2008] 11 S.C.R.

A crease. As the percentage of increase is always with reference
to the previous year's market value, the appropriate method is
to calculate the increase cumulatively and not applying a flat
rate. The difference between the two methods is shown by the
following illustration (with reference to a 10% increase over a
B basic price of Rs.10/- per sq.m):

Year By flat rate increase By cumulative
·~ ·· method increase ·method
1987 10.00 10.00
c (Base Year)
1988 10+1= 11.00 10.00+1.00 = 11.00
1989 11+1 = 12.00 11.00+1.10 = 12.10
1990 12+1= 13.00 12.10+1.21 = 13.31
D
1991 13+1= 14.00 13.31+1.33 = 14.64
1992 14+1= 15.00 14.64+1.46 = 16.10 r
'

E 16. We may also point out that application of a flat rate will
lead to anomalous results. This may be demonstrated with fur-
ther reference to the above illustration. In regard to the sale trans'.'
action in 1987, where the price was Rs.10 per sq.m, ifthe an-
nual increase to be applied is a flat rate of 10%, the increase
will be Rs.1 per annum during each of the five years 1988, 19.89,
F 1990, 1991 and 1992. If the price increase is to be determined .>..
with reference .to sale transaction of the year 1989 wben the
price was Rs.12 per sq.m, the flat rate increase will be Rs.1.20
per annum, for the years 1990, 1991 and 1992. If the price in-
crease is determined with reference to a sale transaction of the ~

I
G year 1990 when the price was Rs.13 per sq.m, then the flat rate
increase will be Rs.1.30 per annum for the years 1991 and 1992. I

\.-
It will thus be seen that even if the percentage of increase is i \
constant, the application of a flat rate leads to different amounts t
being ad.ded depending upon the market value in the base year.
H On the other hand, the cumulative rate method will lead to con~
THE GEN. MANAGER, OIL & NATURAL GAS CORP. LTD. 937
v. RAMESHBHAI JIVANBHAI PATEL&ANR. [RV. RAVEENDRAN J.,]

sistency and more realistic results. Whether the base price is A
Rs.10/- or Rs.12/10 or Rs. "13/31, the increase will lead to the
same result. The logical, practical and appropriate method is
therefore to apply the increase cumulatively and not at a flat
rate.
For what period, the increase should be calculated? 8
1'

17. The reference court has stated that the gap between
6.1.1987 (the date of transaction covered by Ex.Pl 5) and
15.9.1992 (the date of acquisition under consideration) was six
and half years. It therefore calculated the increase for six and c
half ,years. This is obviously erroneous. The actual gap is five
years and eight months and not six and half years. However, for
the purpose of calculation, we have to exclude the year of the
relied-upon transaction, which is the base year. If the year of
relied-upon transaction in 1987, the increas~ is applied not from
D
1987 itself but only from the next year which is 1988. If the rate
was Rs.10 per sq.m. in 1987, and the cumulative rate of in-
crease is 7.5% per year, the price will be Rs.10.75 in 1988,
Rs.11.56 in 1989, Rs.12.42 in 1990, Rs.13.35 in 1991 and
Rs.14.35 in 1992. Thus the calculation of increase is only for
five years and not for six and half years. E

What should be the market value of the acquired land?
18. By applying a cumulative rate of escalation of 7.5%
over the market price of Rs.10 per sq.min 1987, we find that
the market value in the year 1992 was Rs.14.35. The Refer- F
J
ence Court and High Court had deducted Rs.2/- towards dis-
tance factor. As the lands are similarly situated and are in ad-
joining villages, it will be sufficient to deduct Rs.1.35 per sq.m.
instead of Rs.2/-. We accordingly determine the market value
I
as Rs.13/- per sq. m. G

Interest:
19. Subsequent to the decision of the High Court, a Con-
stitution Bench of this Court in Sunder v. Union of India [2001
(7) sec 211 ], held that the 'amount awarded' for the purpose of H
938 SUPREME COURT REPORTS [2008] 11 S.C.R.

A ·interest will include not only the market value but also the addi-
tional amount under section 23(1A) and solatium under section
23(2) of the Act. In Patel Joitaram Kalidas & Ors. V Special
Land Acquisition Officer and Anr. LAO 2007 (2) SCC 341, this
Court held that the calculation of interest on the additional amount
B ·under section 23(1A) and 23(2) is automatic and consequen-
tial, even in the absence of any specific appeal by the claim-
ants in resr?ect of non-grant of such interest. At all events, as we
are reducing the compensation from Rs.17.10 to Rs.13 per sq.
meter, the claimants are entitled to support and sustain the award
c · for the higher amount as per the decision of reference court
and High Court on other factors.
C{Jnc/usion :
20.,We accordingly allow these appeals in part and make
the following modification to the award made by the Reference
D
Court confirmed by the High Court: The claimants/respondents
win be entitled to compensation at the rate of Rs.13/- per sq. m.
with additional amount under section 23(1A) and solatium un-
der section 23(2) as awarded. The respondents-claimants will
be entitled to interest at the rates awarded by the reference
E court (9% per annum for one year and 15 per cent per annum
thereafter) on the total compensation amount including addi-
tional amount under section 23(1A) and solatium under section
23(2). Parties to bear their respective costs. ~
R.P. Appeals Partly allowed.