Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 51-52 OF 2011 [Arising out of SLP [C] No.27804-27805/2008]

Executive Engineer, Karnataka Housing Board … Appellant

Vs.

Land Acquisition Officer, Gadag & Ors. … Respondents

WITH

Civil Appeal Nos. 53-54 of 2011 [@ SLP [C] Nos.27806-27807/2008],

Civil Appeal Nos. 55-56 of 2011 [@ SLP [C] Nos.27808-27809/2008],

Civil Appeal Nos. 57-58 of 2011 [@ SLP [C] Nos.27810-27811/2008],

Civil Appeal Nos. 59-60 of 2011 [@ SLP [C] Nos.27812-27813/2008],

Civil Appeal Nos. 61-62 of 2011 [@ SLP [C] Nos.27815-27816/2008],

Civil Appeal Nos. 63-64  of 2011 [@ SLP [C] Nos.27817-27818/2008],

Civil Appeal Nos. 71-72 of 2011 [@ SLP [C] Nos.27819-27820/2008]; and  

Civil Appeal Nos. 73-74 of 2011 [@ SLP [C] Nos.27822-27823/2008].

O R D E R

R.V.RAVEENDRAN, J.

Leave granted.

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 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  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/- 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  

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and  vacant  spaces  and  towards  cost  of  development)  and  arrived  at  the  

market value as Rs.2,17,372/- per acre. The 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 appeals. The  

land owners filed cross-objections. The High Court, by impugned judgment  

dated  30.1.2008,  dismissed  the  appeals  of  the  appellant  and  allowed  the  

cross-objections filed by the land owners and increased the compensation 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  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 value per acre as Rs.6,60,977/-. The High Court was of the view that  

the deduction/cut towards development factor should 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.  

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5. Feeling  aggrieved,  the  Housing  Board  has  filed  these  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 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.

(ii) 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 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 method of  

determination  of  market  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 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, as that would give a fair indication of the market  

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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 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  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 willing  

purchasers. Where however there is evidence or indications that the sale was  

not at prevailing fair market value, 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 the others.  Thus in a well  advertised open  

auction sale, where 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 auction sale is by banks or financial institutions,  

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courts, etc. to recover dues, there is an element of distress, a cloud regarding  

title,  and a  chance of  litigation,  which have the effect  of  dampening the  

enthusiasm 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  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.  

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 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 are of the view that a deduction or cut of  

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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.  

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. 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  

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 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  

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15.9.1994 this court determined the compensation as Rs.426,670/- per acre  

(Executive  Engineer  (Electrical),  Karnataka  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  

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,  

that is 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 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 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 regard to the  

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fact  that  the  acquired  lands  were  within  the  municipal  limits  with  

considerable development potential, adopting a cumulative increase of 10%  

per annum for three years, would 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  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 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. 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).

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11. Accordingly  we  allow  these  appeals  in  part  and  reduce  the  

compensation  awarded  from Rs.4,42,875/-  to  Rs.295,500/-  per  acre.  The  

respondents will be entitled to all statutory benefits as already awarded.  

……………………….J. (R V Raveendran)

New Delhi; ……………………..J. January 4, 2011. (A K Patnaik)

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