Potentiality Of Acquired Land Has To Be Taken Into Consideration To Determine Market Value: Supreme Court

The Supreme Court observed that potentiality of the acquired land is one of the primary factors to be taken into consideration to determine the market value of the land.

The question whether a land has potential value or not primarily depends upon its condition, situation, use to which it is put or its reasonable capability of being put and also its proximity to residential, commercial or industrial areas/institutions, the bench comprising Justices UU Lalit, Hemant Gupta and S. Ravindra Bhat observed while allowing the appeals filed by Uttar Pradesh Awas Evam Vikas Parishad against enhancement of compensation by the Allahabad High Court to land owners of the acquired lands in some villages in the State. The acquisition relates to a notification dated 26.06.1982 by the Parishad under Section 28 of the Land Acquisition Act, 1894, to acquire 1229.914 acres of land.

The court said that the methods of valuation to be adopted to ascertain the market value of land on the date of the notification under Section 4(1) of the Land Acquisition Act, 193 are: (i) opinion of experts, (ii) the price paid within a reasonable time in bona fide transactions of purchase of the lands acquired or the lands adjacent to the lands acquired and possessing similar advantages; and (iii) a number of years' purchase of the actual or immediately prospective profits of the lands acquired.  The acid test which the court should always adopt in determining the market value in matters of compulsory acquisition is to eschew feats of imagination and sit in the armchair of a prudent willing purchaser, the bench observed. The bench said: 

The potentiality of the acquired land is one of the primary factors to be taken into consideration to determine the market value of the land. Potentiality refers to the capacity or possibility for changing or developing into the state of actuality. The market value of a property has to be determined while having due regard to its existing conditions with all the existing advantages and its potential possibility when led out in its most advantageous manner. The question whether a land has potential value or not primarily depends upon its condition, situation, use to which it is put or its reasonable capability of being put and also its proximity to residential, commercial or industrial areas/institutions. The existing amenities like water, electricity as well as the possibility of their further extension, for instance whether near about town is developing or has prospects of development have to be taken into consideration. It also depends upon the connectivity and the overall development of the area.

The bench observed that the record in the present matter does not suggest that there were large scale development activities and that the evidence is rather of sale of small areas. "There is nothing on record as to when the industrial units were set up and what was the cost of land. Furthermore, there are no sale instances of land situated in Village Makanpur prior to date of 23 notification i.e. 26.6.1982.", the court said.

The court also observed that the land owners have not produced any other sale deed or award of compensation on account of acquisition of land in the northern side of National Highway-24 prior to notification. The court also observed that the compensation determined on the basis of a notification five years later cannot be a yardstick for determining compensation of the land which is subject matter of present acquisition years earlier.

Allowing the appeal, the bench said that there is no justification of enhancement of compensation awarded by the Reference Court i.e. Rs.120/- per square yard.

Case: U.P. Awas Evam Vikash Parishad Vs Asha Ram (D) Thr. Lrs  [CA  337 OF 2021]
Coram: Justices UU Lalit, Hemant Gupta and S. Ravindra Bhat
Citation: LL 2021 SC 180

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