Reportable  IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8539 OF 2011 (Arising out of SLP (C) No. 982/2009)

Rajendra Vassudev Deshprabhu (dead) Through Lrs. & Ors. … Appellants

Vs.

Deputy Collector (Retd.) & Land Acquisition Officer, Panaji … Respondents

J U D G M E N T

R.V.RAVEENDRAN, J.

Leave granted.  

2. An extent of 1,06,864 sq.m. of land including 5070 sq.m. of land in  

Survey No. 284 (Part) in Pernem village of which the appellants are co-

owners  was  acquired  in  pursuance  of  preliminary  notification  dated  

12.1.1990  (Gazetted  on  1.2.1990).  By  award  dated  27.3.1991,  the  Land  

Acquisition Officer awarded compensation for the acquired land at the rate  

of  Rs.17  per  sq.m.  As  there  were  three  tenants,  namely,  Krishna  Arjun  

Kauthankar,  Keshav  Bhikaji  Kauthankar  and  Harischandra  Bhikaji

Kauthankar and as the co-owners had admitted their tenancy rights, the Land  

Acquisition Officer directed that the compensation to be divided between the  

owners and the tenants  at  the rate  of 50% each.  The reference court,  by  

judgment  daed  22.11.2002,  increased  the  compensation  from  Rs.17  per  

sq.m. to Rs.175 per sq.m. The appeal by the State was allowed by a division  

bench  of  the  Bombay  High  Court,  by  the  impugned  judgment  dated  

14.11.2008.  The  High  Court  set  aside  the  judgment  and  award  of  the  

reference court, thereby restoring the award of Rs.17/- per sq.m. by the Land  

Acquisition Officer, on the following reasoning:  

“….. the Applicants’ acquired portion was garden land but tenanted and  the  tenants  had  become  deemed  purchasers  of  the  same  and  the  only  interest  which  the  applicants  had  in  the  said  land  was  to  receive  the  purchase  price,  and  in  such  a  case  no  willing  purchaser  would  have  ventured to purchase such a land for building purposes or for that matter  for  any  other  purpose  from  the  applicants.  The  said  Krishna  Arjun  Kauthankar  and others were in possession of the land and had become  deemed owners of the same. The learned reference court was not right in  assessing the value of the acquired land as having building potential based  on  several  awards/sale  instances  which  were  of  land  dissimilar  to  the  acquired land.”    

3. The said judgment is challenged in this appeal by special leave.  At  

the outset the appellants submitted that Late Rajinder Vasdev Deshprabhu  

(of whom appellants  are  the LRs.)  and his brother late Raghuraj  Vasdev  

Deshprabhu were the co-owners of the property, and on their death their  

respective legal  heirs have become the owners thereof; that the land was  

tenanted and is in occupation of Krishan Arjun Kauthankar and two others  

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and vested in the tenants on the Tiller’s day in terms of section 18A of the  

Goa, Daman and Diu Agricultural Tenancy Act, 1964 (‘Tenancy Act’ for  

short).  They  submitted  that  they  do  not  dispute  the  award  of  the  Land  

Acquisition Officer apportioning 50% of the compensation to the landlords  

and  50%  to  the  tenants;  and  that  out  of  50% payable  to  landlords,  the  

appellants are entitled to one half as the LRs. of Rajendra V.Deshprabhu and  

the remaining half is payable to the legal heirs of Raghuraj V.Deshprabhu.  

In other words the appellants restrict their claim to 25% of the award amount  

and submitted that even in regard to any increase in compensation, they are  

entitled to only 25%.

4. The appellants contend that in regard to the remaining extent of land  

acquired under  the same notification,  the High Court  by judgment  dated  

14.11.2008  in  FA  No.  123/2003  (The  Deputy  Collector  (Dev.)  &  LAO,   

Panaji vs. Smt. Sita Devi) had determined the compensation as Rs.78 per  

sq.m. and therefore the compensation should have been the same in regard to  

their  land  also.  Therefore  question  for  consideration  is  whether  the  

compensation for the acquired land should be increased to Rs.78/- per sq.m.  

5. Respondents  do  not  dispute  that  in  regard  to  the  adjoining  lands  

compensation has been determined by the High Court at Rs. 78/- per sq.m.  

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in Deputy Collector vs. Sita Devi (FA No.123/2003 decided on 14.11.2008)  

and that order not having been challenged, has attained finality. They also do  

not dispute the position that if the acquired land had not been subject to any  

tenancy right, the land owners would have been entitled to compensation at  

the  said  rate  of  Rs.78  per  sq.m.  They  however  contend that  the  land  in  

question was different from the other acquired lands for which Rs.78/- per  

sq.m. has been awarded as compensation. They supported the judgment of  

the High Court on the following grounds:

(i) As the land was in  the occupation of  tenants,  the appellants  as  

owners  would  not  have  been  able  to  sell  the  said  land  to  any  

willing purchaser and obtain the market  value. Even the tenants  

had obtained a purchase certificate under section 18H, they could  

not have sold the property, as there was a restriction on transfer of  

the land purchased by the tenant in section 18K of the Tenancy Act  

which required previous sanction of the Mamlatdar for sale.

(ii) Section 3 of the Tenancy Act provided that when a request is made  

by  the  owner  of  an  agricultural  land  to  convert  it  to  non  

agricultural purpose, the authority concerned can grant conversion,  

or  in public interest  prohibit  the conversion.  There was thus no  

absolute right to get the land converted to non agricultural use and  

develop it for other non-agricultural purposes.

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(iii) Section 2 of the Goa Land Use (Regulations) Act, 1991 (‘Land Use  

Act’ for short) provides that no land which vested in the tenant  

under the provisions of the Tenancy Act shall be used or allowed  

to be used for any purpose other than agriculture. As the land in  

question had vested in the tenants on the Tiller’s Day (8.10.1976),  

the land had to be used only for agricultural purposes. The land  

therefore did not have the potential for development for any non-

agricultural purpose and therefore will have to be valued only as an  

agricultural land. Even as agricultural land, the market value will  

not be the normal market value as it was tenanted.

6. We are not required to decide in this appeal, either the entitlement of  

the  landlords/owners  for  compensation  or  the  extent  of  share  in  the  

compensation. It is an admitted position that the land is tenanted and vested  

in the tenants under section 18A of the Tenancy Act on the Tiller’s Day (that  

is, 8.10.1976) and the tenants are deemed to have purchased the land. The  

purchase price under section 18D of the Tenancy Act was not however paid  

to the landlords and no purchase certificate had been issued to the tenants  

under section 18H of the Tenancy Act. According to the appellants, where  

land is acquired under the Land Acquisition Act, 1894, before payment of  

the purchase price to the landlords under section 18D of Tenancy Act and  

before the issue of purchase certificate to the tenants under section 18H of  

the Tenancy Act, inspite of the vesting under section 18A of the Tenancy  

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Act,  the  compensation  will  be  divided equally  between the  landlord  and  

tenant  as  per  standing  instructions  of  the  government.  The  appellants  

contend that the said procedure had been followed by the Land Acquisition  

Officer in making the award by holding that 50% of the compensation was  

payable  to  the  landlords  and  50%  of  compensation  was  payable  to  the  

tenants. The appellants submitted that neither the landlords, nor the tenants,  

have  disputed  the  said  apportionment  and therefore  this  appeal  does  not  

involve any issue relating to entitlement to compensation or apportionment  

thereof. It was further submitted that the only issue in this appeal relates to  

the quantum of compensation. In view of the said submission, we have only  

considered the question of quantum in this appeal, and have not examined  

the rights of the landlord vis-à-vis the tenants.  

7. We  may  first  deal  with  the  contention  of  the  respondents  with  

reference to the regulation of land use under the Land Use Act.  Section 2 of  

the said Act provides that  no land which is vested in a tenant under the  

provisions of the Tenancy Act shall be used or allowed to be used for any  

purpose other than agriculture. If the Land Use Act was applicable to the  

land  at  the  time  of  acquisition,  then  the  land  could  be  used  only  as  

agricultural land and could be valued only as an agricultural land. But the  

Land Use Act, came into force with effect from 2.11.1990. The relevant date  

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for the purpose of determination of compensation is the date of publication  

of preliminary notification under section 4(1) of the Land Acquisition Act,  

1894 which is 1.2.1990. On that day the Land Use Act was not in force and  

consequently there was no restriction that the use land vested in the tenant  

should be used only for agricultural purposes. Therefore the market value of  

the land could be determined with reference to the development potential for  

non agricultural purposes.

8. The next contention of the respondents is that a land purchased by a  

tenant under Chapter IIA of the Tenancy Act, could not be sold without the  

previous sanction of Mamlatdar, under section 18K of the Tenancy Act. The  

mere fact that the sanction has to be obtained from Mamlatdar for sale of  

such land would not depress the price of the land, nor affect its potential for  

being developed as residential or industrial use.

9. The next contention of the respondents was based on Section 3 of the  

Tenancy  Act.  Section  3  provides  that  if  any  owner  of  agricultural  land  

applies for conversion thereof for non-agricultural use, the Government may,  

instead of granting conversion, prohibit such conversion in public interest.  

The risk not being permitted to convert the land should also be taken note of  

while assessing the market value with reference to development potential of  

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the land.  Such a contingency exists in regard to all agricultural lands and is  

not  specific  to  the  appellants.  Inspite  of  section  3  of  Tenancy  Act,  

compensation has been determined as Rs.78/-  per sq.m.  for  neighbouring  

agricultural lands and we see no reason why the said rate should not apply to  

the land in question also.

10. The High Court committed an error in holding that the compensation  

for the land in question should be lesser than the compensation for a land  

which is not subject to tenancy. It relied upon the decision of this Court in  

M.B. Gopala Krishna & Ors. v. Special Deputy Collector, Land Acquisition  

(1996) 3 SCC 594 wherein this Court observed :  

“A freehold land and one burdened with encumbrances  do make a big  difference  in  attracting  willing  buyers.  A  free  hold  land  normally  commands  higher  compensation  while  the  land  burdened  with  encumbrances  secures  lesser  price.  The  fact  of  a  tenant  in  occupation  would be an encumbrance and no willing purchaser would willingly offer  the same price as would be offered for a freehold land.”

The said principle will apply only where a property subject to encumbrances  

is to be sold to a private purchaser or is acquired subject to the tenancy. The  

decision  of  this  Court  made  those  observations  when  upholding  the  

compensation  that  was  payable  to  the  landlord,  without  reference  to  the  

tenant’s rights, where the tenant did not claim any compensation. But in this  

case,  the  landlords  have  been  awarded  only  50%  of  the  compensation  

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amount and remaining 50% has been awarded to the tenants. The High Court  

has mixed up a sale subject to encumbrances with an acquisition free from  

encumbrances  under  the  Land  Acquisition  Act,  1894.  The  two  are  

conceptually different. If a property subject to a lease and in the possession  

of  a  lessee  is  offered  for  sale  by  the  owner  to  a  prospective  private  

purchaser, the purchaser being aware that on purchase he will get only title,  

but  not  possession  and that  the  sale  in  his  favour  will  be  subject  to  an  

encumbrance,  namely  the  lease,  will  offer  a  price  taking  note  of  the  

encumbrances.  Naturally  such  a  price  would  be  less  than the  price  of  a  

property without any encumbrances. But when a land is acquired free from  

encumbrances, what is acquired is not only the landlord’s right, but also the  

lessee’s rights. In such a case compensation awarded is for the property free  

from  encumbrances,  which  includes  the  lessee’s  rights  also.  We  may  

illustrate by the following example:   

Let us assume the value of a property which is not subject to  

any lease is Rs.Ten lakhs. If that property was subject to a lease  

and if the possession was with the lessee, a purchaser will offer  

only Rs.Five lakhs as he will be purchasing a property with an  

encumbrance and will not be getting physical possession. But  

when the property subject to a lease is acquired, under the Land  

Acquisition  Act,  1894,  what  is  acquired  is  not  only  the  

landlord’s right, title and interest, but also the lessee’s right and  

interest. In other words the property with all rights, free from  

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encumbrances is acquired and the compensation is determined  

and paid for the property as one free from encumbrances. The  

rights of lessor as  well  as lessee are extinguished.  Therefore  

compensation payable will  be the entire market  value that  is  

Rs.Ten lakhs which may be shared by the lessors and lessee at  

the rate of Rs.Five lakhs each or such other ratio as may be  

determined  with  reference  to  the  extent  of  their  respective  

rights. The Land Acquisition Officer issue notice to all persons  

interested and hears them before making the apportionment of  

the compensation  among the persons  interested.  The ‘market  

value’ of the property free from encumbrances acquired by the  

State will  not therefore be the same as the price a purchaser  

may pay to buy the property subject to a lease (encumbrances).

11. As the  High Court  has  already  determined  Rs.78 per  sq.m.  as  the  

compensation  in  regard  to  the  adjoining  lands  acquired  under  the  same  

notification  vide  its  judgment  dated  14.10.2008  (Dy.Collector   

(Development) and Land Acquisition Officer, Panaji v. Smt. Sitadevi & Ors.  

in FA No.123/2003) and the said judgment has attained finality, there is no  

reason why the same compensation should not be awarded for this land also.  

The appellants have no grievance in regard to the apportionment made by  

the Land Acquisition Officer at the rate of 50% for the landlords and 50%  

for the tenants. The tenants apparently have not raised any dispute in regard  

to  the  apportionment.  It  is  made  clear  that  if  any  dispute  regarding  

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apportionment  is  pending,  this  decision  shall  not  be  construed  as  

determining the percentage of entitlement of appellants or other co-owners  

(not before us) or the tenants (not before us).

12. In view of the above, this appeal is allowed and the order of the High  

Court is modified by increasing the compensation for the acquired land from  

Rs.17 per sq.m. to Rs.78 per sq.m. All statutory benefits are also granted.  

……………………….J. (R V Raveendran)

New Delhi; ……………………….J. October 11, 2011. (A K Patnaik)

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