Paragraph numbers below are the court’s original numbering, recovered from the source text.
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- 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- .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 ing the market value by providing appropriate escalation over 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 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- D crease ma-y itself undergo drastic change apart from the likeli- 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- 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 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- 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 H would be slow and minimal. But if some lands in that area are 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 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 should not be 10% per annum, but much more. The percentage of standard increase becomes unreliable. Courts should there- fore avoid determf nation 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.
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 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?
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- 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 10.00 10.00 c (Base Year) 10+1= 11.00 10.00+1.00 = 11.00 11+1 = 12.00 11.00+1.10 = 12.10 12+1= 13.00 12.10+1.21 = 13.31 13+1= 14.00 13.31+1.33 = 14.64 14+1= 15.00 14.64+1.46 = 16.10
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, 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 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. It will thus be seen that even if the percentage of increase is constant, the application of a flat rate leads to different amounts 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~ r .>.. i t 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? 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 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. 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- 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 as Rs.13/- per sq. m. 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 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 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 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.