Factors Determining Compensation In Compulsory Land Acquisition By The State: Judicial Principles And Precedents

  • Sakshi Shukla
  • 07:19 PM, 25 Mar 2023

Read Time: 01 hours


[It is clarified at the outset that the provisions referred herein relate to Acquisition proceedings commenced before the enforcement of Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act of 2013, more clearly acquisition proceedings commenced under the Land Acquisition Act of 1894. Corollary provisions under the Act of 2013 are however provided wherever necessary.]


Land acquisition, unlike the purchase of land, is a forcible takeover of privately owned land by the Government for a stated “public purpose”. This may include government projects, public-private partnership projects and private projects.  Currently, what qualifies as ‘public purpose’ has been defined to include defence projects, infrastructure projects and projects related to housing for the poor, among others. Up till 2014, Land Acquisition Act of 1894 regulated the process of Land Acquisition.[1]

While the erstwhile Act of 1894 provided compensation to land owners, it did not provide for rehabilitation and resettlement to the displaced families.[2] The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 bridged this lacuna by introducing provisions that focussed on “a humane, participative, informed and transparent process for land acquisition” – For instance, Preparation of Social Impact Assessment Study under Section 4, Appraisal of Social Impact Assessment report by an Expert Group under Section 7, Special provision to safeguard food security under Section 10 and likewise.

For any compulsory acquisition, it is a matter of judicial practice to award the best suitable price/compensation to the landowner. This is because displacement for a public purpose is not an economic issue alone, but also a question of Human Right. Courts are expected to take into account every factor that may assist in the accurate assessment of market value of the acquired land. Some of the determinants are;

(i) Due consideration to Potentiality of the Land under Acquisition;

(ii) Highest sale exemplar placed on record by the landowners;

(ii) Cumulative increase and computation of Interest & Solatium;

(iii) Correct evaluation of all Sale Deeds produced before the Court.

In fact, Land Acquisition Proceedings primarily run on Sale Deeds and Judicial Precedents.

It is in this light that it becomes important to understand factors determining compensation in compulsory acquisitions by the State. While the first part of the Article delves into Acquisition proceedings as provided under the Statute of 1894 and corollary provisions of it under the 2013 Act, the latter part specifically deals in precedents on factors determining the market value of the acquired land.


Compulsory Acquisition by the State commences with the issuance of Section 4 notification under the Land Acquisition Act of 1894. As per Section 4, when a State/Union Government find it appropriate that the land in any locality is needed or is likely to be needed for any public purpose, a notification to that effect is published in the Official Gazette, in addition to two daily newspapers circulating in that particular locality. Under the Act of 2013, Section 11 provides for publication of preliminary notification. Sub-section (3) also add that such notification shall contain a statement on – (i) the nature of the public purpose (ii) reasons necessitating displacement of affected persons (iii) summary of social impact assessment report (iv) particulars of the Administrator appointed for the purposes of rehabilitation and resettlement.

Preliminary notification is followed by a “Declaration” by the State that the land is required for a public purpose. Section 6 of the Act provides that after hearing of objections under Section 5A(2) by any person interested in the land notified under Section 4, a declaration is required specifying that the land acquired is for a public purpose. Under the Act of 2013, the same is provided for under Section 19 adding that such declaration shall also include identification of an area as the “resettlement area” for the purposes of rehabilitation and resettlement of affected families.

The award made by the Land Acquisition Collector (LAC Award) under Section 11 is the next significant stage in Acquisition Proceedings. The Collector is required to pass an award taking into consideration the respective interests of the persons claiming compensation and (i) the true area of the land (ii) compensation, which in his opinion, should be allowed for the land (iii) apportionment of the said compensation among all persons known or believed to be interested in the land, or of whose claims he has information, whether or not they have appeared in person. The statutory limit for such award as mentioned under Section 11A is two years from the date of declaration under Section 6 of the Act. Section 23 and Section 25 of the Act of 2013 provide for the aforementioned, respectively, reducing the time duration from two years to one year for passing the LAC Award.

Where a person has not accepted such an award passed by the Collector, an application may be made requesting reference of the matter to a Court of competent jurisdiction. Section 18 of the Act provides for the same which can be found under Section 64 of the Act of 2013. The grounds of objection as provided in the new Act are – (i) Measurement of the land (ii) Amount of compensation awarded (iii) Person to whom it is payable (iv) Rights of Rehabilitation and Resettlement under Chapter V and VI (v) Apportionment of the compensation among the persons interested. The time period of such reference remains same under both the Acts, with addition of one year where there is a sufficient cause of not filing within the period specified in the first proviso [Section 64(2)(a)]. This is followed by Section 54 which provides for an appeal to the High Court. Section 74 of the Act of 2013 is a sequel which further provides for a statutory limitation of 120 days [60+60], subject to sufficient cause shown for the subsequent period of 60 days.

The constitutional remedy provided under Article 136 follows where a party seeks to challenge the judgment of the High Court.


Judicial Precedents and Practises for determining compensation or assessing market value for the land acquired can be summarised under the following categories:

  1. Potentiality of the Land and its Assessment

Potentiality of the land, as the name suggests, indicates at the capacity or resourcefulness of the land in question. If a particular piece of land, by virtue of its location or any other factor has a tendency of offering greater benefit to the purchaser (Appropriate Government in the present case), it must be taken into account for assessing the market value of the land. In Raja Vyricherla Narayana Gajapatiraju v. The Revenue Divisional Officer, Vizagapatnam,[3] the Privy Council rightly observed, “Where the land has unusual features or potentialities, the Valuing Officer must ascertain as best he can from the materials before him the price a willing purchaser would pay for the land with those features or potentialities. The owner is entitled to, and the Valuing Officer must, ascertain the value of the potentialities even when the only possible purchaser of the potentialities is the authority purchasing under powers enabling compulsory acquisition.” Further, in order to assess the potentiality, the Supreme Court in P. Ram Reddy and Ors. v. Land Acquisition Officer,[4] laid down certain factors on which potentiality of a land can be assessed – “(i) the situation of the acquired land vis-à-vis the city or the town or village which had been growing in size because of its commercial, industrial, educational, religious or any other kind of importance or because of its explosive population; (ii) the suitability of the acquired land for putting up the buildings, be they residential, commercial or industrial, as the case may be; (iii) possibility of obtaining water and electric supply for occupants of buildings to be put up on that land; (iv) absence of statutory impediments or the like for using the acquired land for building purposes; (v) existence of highways, public roads, layouts of building plots or developed residential extensions in the vicinity or close proximity of the acquired land; (vi) benefits or advantages of educational institutions, health care centres, or the like in the surrounding areas of the acquired land which may become available to the occupiers of buildings, if built on the acquired land; and (vii) lands around the acquired land or the acquired land itself being in demand for building purposes, to specify a few.”

  1. Determination of Market Value

In order to assess market value of an acquired land, there are certain factors that have been evolved through judicial scrutiny and understanding. In Major General Kapil Mehra and Ors. v. Union of India,[5] the Supreme Court enunciated the following considerations – “While fixing the market value of the acquired land, the land acquisition officer is required to keep in mind the following factors : (i) existing geographical situation of the land; (ii) existing use of the land; (iii) already available advantages, like proximity to National or State Highway or road and/or developed area; and (iv) market value of other land situated in the same locality/village/area or adjacent or very near to the acquired land… The standard method of determination of the market value of any acquired land is by the valuer evaluating the land on the date of valuation publication of notification under Section 4(1) of the Act, acting as a hypothetical purchaser willing to purchase the land in open market at the prevailing price on that day, from a seller willing to sell such land at a reasonable price. Thus, the market value is determined with reference to the open market sale of comparable land in the neighbourhood, by a willing seller to a willing buyer, on or before the date of preliminary notification, as that would give a fair indication of the market value.”

  1. Belting of Land

Belting of land in simple terms means partitioning the acquired land in several pieces and assessing different market values for different areas, depending upon its position and potentiality. In Haridwar Development Authority v. Raghubir Singh and Ors.,[6] it was held that whether the acquired lands have to be valued uniformly or whether different areas have to be valued at different rates depends upon the location and proximity of it to the main road/highway, city/town and other suitable circumstances. Under Para 7 of the judgement, the Hon’ble Apex Court observed, “(A) When a small and compact extent of land is acquired and the entire area is similarly situated, it will be appropriate to value the acquired land at a single uniform rate. (B) If a large tract of land is acquired with some lands facing a main road or a national highway and other lands being in the interior, the normal procedure is to value the lands adjacent to the main road at a higher rate and the interior lands which do not have road access, at a lesser rate. (C) Where a very large tract of land on the outskirts of a town is acquired, one end of the acquired lands adjoining the town boundary, the other end being two to three kilometres away, obviously, the rate that is adopted for the land nearest to the town cannot be adopted for the land which is farther away from the town. In such a situation, what is known as a belting method is adopted and the belt or strip adjacent to the town boundary will be given the highest price, the remotest belt will be awarded the lowest rate, the belts/strips of lands falling in between, will be awarded gradually reducing rates from the highest to the lowest. (D) Where a very large tract of land with a radius of one to two kilometres is acquired, but the entire land acquired is far away from any town or city limits, without any special main road access, then it is logical to award the entire land, one uniform rate. The fact that the distance between one point to another point in the acquired lands, may be as much as two to three kilometres may not make any difference.” Further, Courts have also taken a view that merely because some part of the acquired land abuts the main road, does not makes it qualified for a higher rate of compensation. In Land Acquisition Officer v. L. Kamalamma,[7] it was observed, “When a land is acquired which has the potentiality of being developed into an urban land, merely because some portion of it abuts the main road, higher rate of compensation should be paid while in respect of the lands on the interior side it should be at lower rate may not stand to reason because when sites are formed those abutting the main road may have its advantages as well as disadvantages. Many a discerning customer may prefer to stay in the interior and far away from the main road and may be willing to pay a reasonably higher price for that site. One cannot rely on the mere possibility so as to indulge in a meticulous exercise of classification of the land as was done by the Land Acquisition Officer when the entire land was acquired in one block and therefore classification of the same into different categories does not stand to reason.”

  1. Highest Sale Exemplar

In order to fetch the best market value, the landowners in any acquisition proceedings put forth sale exemplars/sale deeds of surrounding areas – Proximate to the date of notification and the acquired area, of a similar land area in size, of a similar potentiality. It is the duty of the Court in such a situation to consider and evaluate as per the Highest sale exemplar produced by the landowners. This is because, when a land is taken away from a person, he is believed to be entitled to the highest value possible. In Mehrawal Khewaji Trust (Registered), Faridkot and Ors. v. State of Punjab,[8] it was held, “It is clear that when there are several exemplars with reference to similar lands, it is the general rule that the highest of the exemplars, if it is satisfied that it is a bona fide transaction, has to be considered and accepted. When the land is being compulsorily taken away from a person, he is entitled to the highest value which similar land in the locality is shown to have fetched in a bona fide transaction entered into between a willing purchaser and a willing seller near about the time of the acquisition. In our view, it seems to be only fair that where sale deeds pertaining to different transactions are relied on behalf of the Government, the transaction representing the highest value should be preferred to the rest unless there are strong circumstances justifying a different course. It is not desirable to take an average of various sale deeds placed before the authority/court for fixing fair compensation.”

  1. Averaging Sale Instances

The general practice is of considering the Highest Sale Exemplar, nevertheless, many a time, Courts take an average of relevant sale instances to arrive at the market value of the acquired land. Averaging of sale instances, as per judicial precedents is not wholly impermissible, however, there may be some irregularities that may follow. In State of Punjab v. Hans Raj,[9] the Court noted,“… method of averaging the prices fetched by sales of different lands of different kinds at different times, for fixing the market value of the acquired land, if followed, could bring about a figure of price which may not at all be regarded as the price to be fetched by sale of acquired land. One should not have, ordinarily recourse to such method. It is well settled that genuine and bona fide sale transactions in respect of the land under acquisition or in its absence the bona fide sale transactions proximate to the point of acquisition of the lands situated in the neighbourhood of the acquired lands possessing similar value or utility taken place between a willing vendee and the willing vendor which could be expected to reflect the true value, as agreed between reasonable prudent persons acting in the normal market conditions are the real basis to determine the market value.” This principle was further relied in computing market value in Anjani Molu Dessai v. State of Goa & Anr.[10]

  1. Imposition of Development Cut

When any land is acquired by the State, there is a certain cut that requires to be imposed for the purpose of development on that area which generally depends on the size of the plot, area and location of the plot and so on. This cut is termed as “Development Cut” – more precisely, cut imposed on account of forseeable development in which the State will have to invest on. Generally, when a sale exemplar of small plots are considered to assess market value of larger plots, some cut has to be imposed for development. In Lal Chand v. Union of India,[11] it was observed under Paras 13 and 14 of the judgment that,“The percentage of deduction for development to be made to arrive at the market value of large tracts of undeveloped agricultural land (with potential for development), with reference to the sale price of small developed plots, varies between 20% to 75% of the price of such developed plots, the percentage depending upon the nature of development of the layout in which the exemplar plots are situated. The “deduction for development” consists of two components. The first is with reference to the area required to be utilised for developmental works and the second is the cost of the development works.” Further, in Subh Ram and Anr. v. State of Haryana,[12] the Court clarified when is a development cut actually necessary and whether or not purpose of acquisition finds any relevant in imposing such cut – Para 16 of the judgment provides, “… when deduction is made from the value of a small residential plot towards the development cost, to arrive at the value of a large tract of agricultural or undeveloped land with development potential, the deduction has nothing to do with the purpose for which the land is acquired. The deduction is with reference to the price of the small residential plot, to work back the value of the large tract of undeveloped land. On the other hand, where the value of acquired agricultural land is determined with reference to the sale price of a neighbouring agricultural land, no deduction need be made towards development cost.”

  1. Comparable Sales Method

Comparable Sales Method is preferred because it provides evidence for determining the market value of the acquired land at the price that a willing buyer would pay for the acquired land if it had been sold in the open market, at the time of issuance of Section 4 notification (under the 1894 Act). However, it is found that this method is not always accurate and is subject to certain factors, upon fulfilment of which compensation may be granted in accordance with the price reflected in the sales. These factors, as laid down in the case of Shaji Kuriakose and Anr. v. Indian Oil Corporation Ltd.[13] are, “(1) the sale must be a genuine transaction, (2) that the sale deed must have been executed at the time proximate to the date of issue of notification under Section 4 of the Act, (3) that the land covered by the sale must be in the vicinity of the acquired land, (4) that the land covered by the sales must be similar to the acquired land, and (5) that the size of plot of the land covered by the sales be comparable to the land acquired. If all these factors are satisfied, then there is no reason why the sale value of the land covered by the sales be not given for the acquired land. However, if there is a dissimilarity in regard to locality, shape, site or nature of land between land covered by sales and land acquired, it is open to the court to proportionately reduce the compensation for acquired land than what is reflected in the sales depending upon the disadvantages attached with the acquired land.”

  1. Cumulative Increase in the Market Value

As per judicial understanding, there are primarily four elements that determine increase in land prices in a particular area – (i) Location of the land, (ii) Kind of development in the neighbourhood (iii) Amount of land that can be developed in that area and (iv) the Demand for land in that area. While in the rural areas, price increases are steady without any unexpected spikes or surges, urban and semi-urban areas see a significantly higher rate of escalation in the market price.

In General Manager, Oil and Natural Gas Corporation Ltd. v. Rameshbhai Jivanbhai Patel and Anr.,[14] it was observed, “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… 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 specific evidence relating to increase in prices. Where there are special reasons for applying a higher rate of increase, or any specific evidence relating to the actual increase in prices, then the increase to be applied would depend upon the same…” The judgment further adds that increase in market value is always calculated with reference to the market value during the immediate preceding year. In that sense, a cumulative increase should be preferred over applying a flat rate.

In UdhoDass v. State of Haryana,[15] the Court observed, “The 12% per annum increase which courts have often found to be adequate in compensation matters hardly does justice to those landowners whose lands have been acquired as judicial notice can be taken of the fact that the increase is not 10 or 12 or 15% per year but is often up to 100% a year for land which has the potential of being urbanised and commercialised such as in the present case.”

  1. Best Evidence Rule

If a sale exemplar of the same acquired land is available for assessment of the market value, which is authentic and proximate to the date of Section 4 notification (under the 1894 Act) – it must be considered as “Best Evidence” for calculating the market value of the land in question. In Periyar and Pareekanni Rubbers v. State of Kerala,[16] it was observed, “When the courts are called upon to fix the market value of the land in compulsory acquisition, the best evidence of the value of property is the sale of the acquired land to which the claimant himself is a party, in its absence the sales of the neighbouring lands. In proof of the sale transaction, the relationship of the parties to the transaction, the market conditions, the terms of the sale and the date of the sale are to be looked into.” Further in Bangaru Narasingha Rao Naidu v. Revenue Divisional Officer, Vizianagaram,[17] it was held that “There cannot be any doubt that the best evidence of the market value of the acquired land is afforded by transactions of sale in respect of the very acquired land, provided of course there is nothing to doubt the authenticity of the transactions.” 

  1. Sale Deeds after Preliminary notification

It is a general rule practised by Courts that sale exemplars post the date of Section 4 notification (under the 1894 Act) are not considered as after the declaration and publication about acquisition, the prices are likely to increase. However, in Chimanlal Hargovinddas v. Special Land Acquisition Officer, Poona and Anr.,[18] it was held, “Even post-notification instances can be taken into account (1) if they are very proximate, (2) genuine and (3) the acquisition itself has not motivated the purchaser to pay a higher price on account of the resultant improvement in development prospects.”


Land Acquisition Proceedings are peculiar as a subject of study. Every factor mentioned herein can be treated differently in different facts and circumstances. For example – Belting as a concept is permissible for assessing the market value, however, where the entire piece of land is acquired for the sole purpose of developing a commercial unit or an adjoining land with the same potentiality has been treated differently, it becomes unconvincing to accept a lower rate of compensation only on the ground that one portion is situated otherwise. After the enactment of the 2013 Act, the position of the landowners seems to have improved as it also provides for Rehabilitation and Resettlement, however, under-assessment leading to prolonged fight for Right of the Landowners, continue. An aspect that may be relooked into – Under Section 2(2) of the 2013 Act, consent of 80% of affected people (for acquisition by private companies) and consent of 70% of affected people (for acquisition by public private partnerships) is provided, but, no such requirement is stipulated for acquisitions by the Public Sector Undertakings. This creates a separate class of acquisitions, not requiring any consent of affected parties under the Act and hence, may be considered.

(Views expressed are personal.)

[1] Land Acquisition: An overview of proposed amendments to the law, PRS Legislative Research (https://prsindia.org/theprsblog/land-acquisition-an-overview-of-proposed-amendments-to-the-law?page=8&per-page=1)

[2] Id

[3] (1939) 2 Mad LJ 45 (PC)

[4] (1995) 2 SCC 305

[5] (2015) 2 SCC 262

[6] (2010) 11 SCC 581

[7] (1998) 2 SCC 385

[8] (2012) 5 SCC 432

[9] (1994) 5 SCC 734

[10] (2010) 13 SCC 710

[11] (2009) 15 SCC 769

[12] (2010) 1 SCC 444

[13] (2001) 7 SCC 650

[14] (2008) 14 SCC 745

[15] (2010) 12 SCC 51

[16] (1991) 4 SCC 195

[17] (1980) 1 SCC 575

[18] (1988) 3 SCC 751