Land Acquisition Act | Supreme Court Explains Principle Of De-Escalation, Says Highest Of Sale Exemplars Must Be Taken

The Supreme Court on Thursday (April 3) reaffirmed that the highest bona fide sale exemplar must be considered when determining land acquisition compensation to ensure a fair market value for the acquired land.

Holding so, the bench comprising Justices BR Gavai and KV Viswanathan allowed the landowner's plea seeking enhancement of compensation fixed by the High Court and enhanced the compensation from ₹55.71 lakh to ₹1.18 crore per acre for lands acquired in Dharuhera village (Haryana) in 2008 under the Land Acquisition Act, 1894 by applying the principle of de-escalation.

The Court set aside the High Court's decision to selectively rely on lower-value exemplars while ignoring comparable higher-value transactions. The High Court committed an error by ignoring evidence of proximity and potential for non-agricultural use since the acquired land was in a controlled urban area surrounded by various Multinational Companies and had a big residential colony opposite to it with multiple schools and townships within 1KM range, the court observed.

The Court emphasized that while determining the compensation, crucial factors such as the close proximity of the acquired land to the developed zone and non-agricultural utility should also be kept into consideration.

“It is also well settled that the potentiality of the land is also to be taken into consideration while assessing the market value. It has been held that potentiality is the use to which the land is put to use or reasonably capable of being put to use.”, the court observed.

The judgment authored by Justice Viswanathan agreed with the Appellants-land owner's contention that when there were several exemplars, the highest exemplar ought to have been taken into account while determining the compensation as held in the case of Mehrawal Khewaji Trust (Registered), Faridkot and Ors. v. State of Punjab and Ors., (2012) 5 SCC 432.

What Are the Principles of Escalation and De-Escalation? Why Is De-Escalation Applied in This Case?

The principle of escalation signifies adjusting the base value of land upwards to account for appreciation in market value over time. The principle is used when the reference sale deed or award is from an earlier period than the acquisition date.

Whereas, the principle of de-escalation signifies adjusting the base value downward to account for time gaps when the reference point is from a later period, but the land was acquired earlier.

The major issue before the Court was whether the compensation awarded for lands acquired under 2008 notifications in Dharuhera village could be linked to the price determined for lands acquired under 2010 notifications in adjoining villages in the case of BESCO Ltd. v. State of Haryana (2023) where the Court allowed the appeals of the land losers and enhanced the compensation to Rs. 1.49 crore per acre along with other statutory benefits.

Further, in BESCO Ltd.'s case, the Court fixed 12% as the escalation/de-escalation rate as a standardized rate.

Relying on the market value of Rs. 1.49 Crore per acre determined in BESCO Ltd.'s case, the Court applied the principle of de-escalation as the May 2010 value (Rs. 1.49 crores) was adjusted backward for the 17-month gap (2008–2010) appeared when the land in Dharuhera was acquired in December 2008.

Applying 12% annual de-escalation for 1 year on Rs. 1.49 crore, the resultant market value appeared Rs. 1.31 crore, moreover, an additional 6% de-escalation was applied for the remaining 5 months to arrive at a final market value i.e., Rs. 1.23 crores/acre.

Since in BESCO Ltd.'s case the landowners had paid the amount for Change of Land Use (“CLU”) justifying higher compensation, the Court in the present case deducted Rs. 5 lakhs/acre from the de-escalated value, arriving at Rs. 1.18 crores/acre as the final compensation amount.

In terms of the aforesaid, the Court allowed the appeal and set aside the High Court's decision for ignoring the utility of the acquired land, and failure to sync the market value of the acquired land with the value determined in BESCO Ltd.'s case.

Case Title: RAM KISHAN (SINCE DECEASED) THROUGH HIS LRS ETC. VERSUS STATE OF HARYANA & ORS.

Citation : 2025 LiveLaw (SC) 388

Click here to read/download the judgment

Appearance:

For Petitioner(s) Mr. Varun Kumar, Adv. Mr. R. C. Kaushik, AOR Mr. Sureshan P., AOR Mr. Shivam Yadav, Adv. Ms. Kavita Wadia, Sr. Adv. Mr. Rohan Yadav, Adv. Mr. Tushar Mahajan, Adv. Mr. Ajit Kumar Ekka, AOR Mr. S.B. Upadhyay, Sr. Adv. Mr. Nishant Kumar, AOR 3 Mr. Gagan Gupta, Sr. Adv. Mr. Ananta Prasad Mishra, AOR

For Respondent(s) Mr. Alok Sangwan, Sr. AAG. Mr. Akshay Amritanshu, AOR Ms. Pragya Upadhyay, Adv. Ms. Drishti Saraf, Adv. Ms. Swati Mishra, Adv. Mr. Sumit Kumar Sharma, Adv. Mr. Rajat Sangwan, Adv.