Mathai Poulose and Others vs State of Kerala

Viswanatha Iyer, J.—The above appeal arise out of the common judgment of the 2nd Additional Sub Judge, Ernakulam in L.A.R. Nos. 188, 191 and 190 of 1981. The acquisition was for the purpose of storage space for water for the Periyar Valley Irrigation Project. Notification u/s 3(1) of the Kerala Land Acquisition Act was published on 10th October 1978. The award in the first two cases was passed on November 13, 1979 and in the third, on September 7, 1979. Possession of the land involved in L.A.R. Nos. 188 and 191 of 1981 was taken on November 13, 1979 and of the land involved in L.A.R. No. 190 of 1981 on September 12, 1979.

The lands involved are partly dry and partly wet. The claimants demanded payment of land value at the rate of Rs. 375 percent for dry land and Rs. 600 percent for wetland. They also demanded payment of the value of improvements including buildings, trees like coconut and arecanut, pepper vines and Ors. . The Land Acquisition Officer awarded the land value at the rate of Rs. 250 per Are for dry land and Rs. 400 per Are for wet land. He also awarded value for the improvements after deducting centage for the land occupied by those improvements. In calculating the value of improvements by way of coconut trees, areca nut trees and pepper vines the Land Acquisition Officer adopted the method of capitalisation of the net income. After making allowance for droppings and expenses, he calculated the net annual income with reference to what according to him was the prevailing market rate for the commodity in question. He multiplied the net yield by twenty to arrive at the value of the improvements.

Dissatisfied with the awards, the claimants got the matters referred to Court u/s 20 of the Kerala Land Acquisition Act, 1962. The court has awarded enhanced compensation. We are not, however, detailing the nature of the various enhancements made, as they are not relevant for the purpose of these appeals. Inter alia, the lower court has granted enhanced compensation by way of increased value for the coconut trees, areca nut trees and pepper vines. Since we are concerned in these appeals only with the value awarded for these improvements, we are examining as to how the lower court fixed the value for these improvements.

The lower Court has accepted the fixation of the number, and the yield, of the trees and vines made by the Land Acquisition Officer. However, he has enhanced the value of coconuts, arecanuts and pepper with reference to Ext. A-1, which is a notification issued by the District Collector regarding the market rate of coconut, areca nut and pepper, among Ors. for the period from 1st October 1978 to 31st December 1978. The lower court determined the net income from the coconut trees, areca nut trees and pepper vines with reference to this published price of commodities during the relevant period and then capitalised it at sixteen times to arrive at the compensation payable for the coconut trees, areca nut trees and pepper vines. Since the value of the commodities adopted by the Court was much higher than that adopted by the Land Acquisition Officer, the compensation payable for the improvements got enhanced despite the fact that the multiple adopted by the court was only sixteen as against twenty adopted by the Land Acquisition Officer.

The claimants who are not satisfied with the enhancement made by the Court, and are ambitious to get larger amounts by way of compensation for these improvements, have filed the appeals. As stated earlier, the only question arising in these appeals, and which was argued before us by their counsel Mr. M.V. Ibrahimkutty with much emphasis, was about the compensation payable for the improvements, namely, coconut trees, arecanut. trees and pepper vines. His argument was that the court should have adopted the same multiple of twenty, namely that adopted by the Land Acquisition Officer, and should not have reduced it to sixteen in determining the compensation.

Mr. Ibrahimkutty placed considerable reliance on a circular issued by the Revenue (R) Department of the Government of Kerala, Trivandrum on 30th May 1983, whereby the Government directed that in all future and pending cases where awards had not been passed u/s 11 of the Kerala Land Acquisition Act, capitalisation should be made at a uniform rate of twenty times. This was stated to be to achieve a standard and uniform procedure in regard to calculation of compensation inasmuch as various Land Acquisition Officers were adopting different multiples to arrive at the compensation. He also relied on some passages from the Kerala Land Acquisition Manual issued in the year 1963, to contend that compensation for the improvements should be computed at twenty years'' purchase.

Sri N.N. Venkitachalam, learned Government Pleader, on the other hand, very ably and lucidly presented before us that the court acting on reference u/s 20 of the Kerala Land Acquisition Act was determining on its own, the market value of the land i.e. what a willing purchaser would pay to a willing seller, at the date of publication of the notification u/s 3(1), and was, therefore, free to adopt its own method to arrive at the market value of the land. The court''s jurisdiction to determine the value was not restricted to the method adopted by the Land Acquisition Officer for, in that event, the Court will not be acting in accordance with Section 20. The only constraint on the court was that the value awarded by it should not exceed the amount of compensation claimed by the applicant u/s 9, or be less than the amount awarded by the Collector u/s 11.

Mr. Venkitachalam also contended that the circular, and the contents of the Land Acquisition Manual, were only departmental instructions for the guidance of the officers and not binding on the courts which have to strictly adhere to the principles laid down in the Land Acquisition Act, and arrive at the true value of the land.

The State has filed a Mamorandum of cross objections in L.A.A. 24 of 1984 wherein they have inter alia challenged the award of compensation made by the Court at sixteen years'' purchase. It may be noted that there is no Memorandum of cross objections filed in L.A.A. Nos. 51 and 52 of 1984, though the method adopted in those cases also, to arrive at the compensation, was the same.

We have examined the rival contentions to the parties. In determining a reference u/s 20, the court has to take into consideration the various matters specified in Section 25, neglect the various matters specified in Section 26, and observe the limitations laid down in Section 27. The compensation payable is fixed with reference to the market value of the land at the date of publication of the notification under Sub-section (1) of Section 3 and this is the price which a willing purchaser would pay to a willing seller. It is the duty of the Court to fix the compensation on reference. It has to proceed to determine the same on its own untrammelled by what has been done, or determined, by the Land Acquisition Officer, except in regard to those matters which are made final u/s 12. It has to be remembered in this connection that the award made by the Land Acquisition Officer is only an offer and that when once that offer is not accepted and the matter goes to court, the entire matter becomes open subject only to the limitations imposed by Section 27. The court''s powers in regard to the determination of the compensation are plenary and the court is free to adopt such method as will enable it to arrive at the true value of the land. In State of Kerala v. Geevarghese Kathanar 1980 KLT 880 this Court observed:

The question of adequacy of the compensation has to be determined by the reference court. In determining such adequacy the court is not entitled to reduce what has been awarded by the Land Acquisition Officer. Then is no principle or rule which precludes the Court from considering the proper principle of valuation to be adopted in any case and determining the value on that basis. If any enhancement is found due on that basis the claimant is entitled to it and if adopting such principle the value determined falls short of what has been determined by the Land Acquisition Officer that will not affect the claimant in any manner. Therefore, in reference proceeding enhancement, if any, has to be made on the proper principles to be adopted in such a case. If tinder law in determining market value there cannot be an award of land value separately when once value has been determined on the basis of capitalisation of income, nothing precludes the reference court from applying the proper rule for determining market value.

In making these observations, this Court made reference to an earlier decision of a I division Bench in State of Kerala v. Periyar and Pareekkanni Rubber Estates Limited, Palai ILR 1973 Ker 1 where this Court inter alia stated, with reference to the analogous provisions of the Travancore Land Acquisition Act (XI of 1089):

We do not think there is any force in the claimant''s objection that having adopted a certain principle of valuation in the award, the State has precluded itself from contending for a different principle at the state of reference or in an appeal from the judgment of reference. While the award may well be regarded as an offer of a fair price to the claimant by the State, there is neither reason nor equity in holding the state bound even by the principles underlying the price offered, when the claimant himself had rejected the offer by soliciting a reference to the Court.... There is no provision which forbids the Court, in a reference from considering a principle of valuation at variance with what was adopted by the award, even where an award is passed on a wrong principle of valuation. We should indeed be surprised to find any. On making the reference to the court, the question of the proper value of land to be awarded to the claimant is at large, and has to be decided by the court within the scope of the enquiry fixed by Section 21, and subject to the considerations and injunctions listed in Sections 22 and 23.

A necessary corollary of this is that the court is not pegged down to the multiple for capitalisation adopted by the Land Acquisition Officer and may adopt such multiplier as it deems fit in the circumstances of the case.

That the Court''s powers are untrammelled in the matter of adopting its own multiple is evident from two decisions of the Supreme Court reported in Union of India and Another Vs. Shanti Devi and Others, and Special Land Acquisition Officer, Davangere Vs. P. Veerabhadarappa and Others, . In the first of these cases the Land Acquisition Officer had fixed the compensation by adopting the rule of twenty year''s purchase. The proceedings on reference came up in appeal to the Supreme Court, where the matter was discussed in detail. It was stated:

Capitalised value of a property is the amount of money whose annual interest at the highest prevailing interest at any given time will be its net annual income. The net annual income from a land is arrived at by deducting from the gross annual income all outgoings such as expenditure on cultivation, land revenue etc. The net return from landed property generally speaking, reflects the prevalent rate of interest on safe money investments.

Their Lordships then referred to the multiples adopted in various cases ranging between 331/3 and 8, and pointed out that the number of years'' purchase has gradually decreased over the years. It was finally observed that these days nobody thinks of investing in land which would yield a net income of just 5 per cent or 6 percent per annum and that a higher return of the order of 10 per cent was usually anticipated. In this view of the matter, the court fixed the proper multiple to be adopted in that case at fifteen. Thus while the Land Acquisition Officer adopted twenty years'' purchase as reasonable, the Supreme Court reduced it and fixed the compensation at fifteen years'' purchase.

In Special Land Acquisition Officer, Davangere Vs. P. Veerabhadarappa and Others, , the Land Acquisition Officer adopted the multiple of fifteen to arrive at the compensation for the agricultural lands, which had been acquired. When the matter came to the Supreme Court, it was held:

The function of the Court in awarding compensation under the Act is to ascertain the market value of the land at the date of the notification u/s 4(1) of the Act and the methods of valuation may be: (1) Opinion of experts (2) The prices paid within a reasonable time in bona fide transactions of purchase or sale of the land acquired or of the lands adjacent to those acquired and possessing similar advantages. And (3) A number of years'' purchase of the actual or immediately prospective profits of the lands acquired. Normally, the method of capitalising the actual or immediately prospective profits or the rent of a number of years'' purchase should not be resorted to if, there is evidence of comparable sales or other evidence for computation of the market value. It can be resorted to only when no other method is available.

Their Lordships further observed:

In valuing land or an interest in land for purposes of land acquisition proceedings, the rule as to number of years purchase is not a theoretical or legal rule but depends upon economic factors such as the prevailing rate of interest in money investments. The return which an investor will expect from an investment will depend upon the characteristic of income as compared to that of idle security. The main features are: (1) Security of the income; (2) Fluctuation; (3) Chances of increase; (4) cost of collection etc. The most difficult and yet the most important and crucial part of the whole exercise is the determination of reasonable rate of return in respect of investment in various types of properties.

The Court then went on to point out the imponderables regarding investment in agricultural lands, and therefore that an investor in agricultural lands would expect a much higher rate of return from the agricultural lands so that the risk factor is properly discounted (vide paragraph 20.)

The return on investment in gilt edged securities at the relevant time was about 8.25 per cent and therefore the Court thought that the proper multiple should not exceed 10. However, and since the State Government had contended that the proper multiple should be 12.5, their Lordships fixed the multiple at 12.5 as against 15 adopted by the Land Acquisition Officer.

In the light of these decisions, it is clear that the Court is not necessarily bound by or to follow, the method of valuation adopted by the Land Acquisition Officer. The Court is entitled, and is free, to adopt such principles as will enable it to arrive at the true value, be it with reference to the method to be adopted or with reference to the yield, price, income, expenditure, number of years purchase and the like. For instance, if the Land Acquisition Officer had proceeded to fix the compensation with reference to the capitalisation method, nothing precludes the Court from resorting to evidence of sales of similar land and fix the compensation accordingly. Or if the Land Acquisition Officer adopted a particular multiple to arrive at the capitalised value, nothing prevents the court from adopting a higher or lower multiple in the exercise of its jurisdiction u/s 20. The aim and object of the reference is to enable the court to fix the market value with reference to the considerations laid down in Sections 25, 26 and 27 and this the Court has to do without being trammelled by anything done by the Land Acquisition Officer.

Counsel for the Appellant raised a further contention that the multiple of twenty had been adopted by the Land Acquisition Officer, with reference to the future life of the trees and that that was a factor which had to be borne in mind in fixing the multiple. He referred to the decision in The State of Madras Vs. Rev. Brother Joseph, . Counsel laid stress on this passage in paragraph 12 of the decision:

In this case, the Land Acquisition Officer found in his award that all the fruit-bearing trees will yield for more than 20 years. That was the reason which weighed with him to capitalise the net income of these topes at 20 years purchase to find out their market value. We do not think that the learned Subordinate Judge and the High Court went wrong in accepting this estimate of the average yielding life of coconut and orange trees. Therefore, we do not think that the capitalisation of the net yield from these topes at 20 years, purchase was not a fair method to arrive at the market value of these topes. We are not satisfied that the method of valuation adopted for finding out the market value of the topes was, in the circumstances, in any way unreasonable.

It has to be noted that the preliminary notification in this case was on March 7, 1956 at a time when gilt edged securities were still considered the best and perhaps the only safe form of investment. The Supreme Court was not concerned in that case with the comparative blue chip or other safe investments fetching higher returns available in the present day. It was in that context the court affirmed as reasonable the multiple of twenty adopted by the Sub-court and the High Court based on the future yielding life of the trees. Things have changed vastly and today nobody thinks of investing in land which would yield a net income of 5 percent to 6 percent per annum [paragraph 17 of Union of India and Another Vs. Shanti Devi and Others, The position has also been clarified by the Supreme Court in Special Land Acquisition Officer, Davangere Vs. P. Veerabhadarappa and Others, in the passage extracted by us earlier in this judgment.

The argument of Counsel for the Appellant that the Court was not entitled to reduce the multiple from 20 to 16 is therefore, without substance and is liable to be rejected.

The further contention based on the instructions given in the Land Acquisition Manual and in the circular is equally unsustainable. It has to be remembered that it is the Court that is determining the compensation. The Court is bound only by the considerations laid down in Sections 25, 26 and 27 and no Ors. . What ever instructions are issued by the State for the guidance of its officers do not bind the Court. These instructions or the circular are not issued by virtue of any power vested in Government under the Land Acquisition Act. It is not possible to have a standard or uniform multiple applicable to all cases, in such matters. The principle to be applied and the multiple to be adopted will vary from case to case. The instructions are at best only guidelines and not binding rules. They are not enforceable in a court of law. Even the Land Acquisition Officer is not bound by the same inasmuch as he is bound by Section 11 to fix the compensation, which in his opinion is payable for the land. Apart from that, the Land Acquisition Manual was prepared in the year 1963. Conditions have changed and the rate of interest has gone up even for guilt edged securities. New avenues of safe investment like deposits or bonds in Government or quasi Government Corporations have sprung up. Nationalised banks are also offering attractive rates of interest. The conditions which led to the issue of the instructions in 1963 no longer subsist. The instructions regarding the multiple to be adopted have become irrelevant in the present context. With regard to the circular also the position is similar. We are not aware of the circumstances in which it was issued. We are not bound by it. In any case, it does not apply to the proceedings in question, as it can if at all, apply only to awards to be made after its date. We are, therefore, ignoring the circular and the instructions contained in the Land Acquisition Manuel.

Even the multiple of sixteen adopted by the Court seems to be on the high side having regard to the prevailing rates of interest in October, 1978 and the decisions of the Supreme Court and of this Court referred to earlier. The notification u/s 3 was issued on 10th October 1978 when the prevailing rate of interest was over 10 per cent. The memorandum of cross objections filed by the State in L.A.A. No. 24 of 1984 has therefore, great force. However, we are not inclined to interfere with the award of the lower court or to reduce the compensation in L.A.A. No. 24 of 1984 for the reason that the State has not chosen to file any memorandum of cross objections in the other two related appeals. The lands acquired are adjacent lands. The references u/s 20 were tried jointly and disposed of by a common judgment. It will look incongruous if we apply varying rates of compensation for the lands comprised in the acquisition despite their similarity in all other respects. For the reason, we are inclined to dismiss the Memorandum of cross objections in L.A.A. No. 24 of 1984.

In view of what is stated above, no interference is called for with the award made by the lower Court.

However, Counsel for the claimants stated that they are entitled to the benefits conferred by the amendments effected by the Central Land Acquisition (Amendment) Act 68 of 1984. Having regard to the various decisions of this Court, we hold that the claimants are entitled to the benefits under Sections 23(1A), 23(2) and 28. Accordingly, the claimants in L.A.R. Nos. 188 and 191 of 1981, namely Appellants in L.A.A. Nos. 24 and 51 of 1984, will be entitled to an additional amount calculated at 12 per cent of the compensation per annum from 10th October 1978 to 13th November 1979 u/s 23(1 A). The claimant in L.A.A. No. 190 of 1981, namely Appellant in L.A.A. No. 52 of 1984 will be entitled to an amount calculated at 12 percent of the compensation per annum for the period from 10th October 1978 to 7th September 1979 u/s 23(1A). The claimants will also entitled to solarium at the rate of 30 per cent u/s 23(2), so however that the amount awarded u/s 23(1A) shall not be taken into account in calculating the amount of solarium. The claimants in L.A.R. Nos. 188 and 191 of 1981 will also entitled u/s 28 to interest on the excess amount awarded by court at 9 per cent per annum from 13th November l979 for a period of one year and at 15 per cent for the period subsequent to 13th November 1980 till such time as the excess amount is paid or deposited in Court. The claimant in L.A.R. No. 190 of 1981 will similarly entitled to interest on the excess amount awarded by Court at 9 per cent per annum from 7th September 1979 for a period of one year and at 15 percent for the period subsequent to 7th September 1980 till such time as the said amount is paid or deposited in Court.

The appeals are disposed of as above. There will be no order as to costs.