Case: Union of India and Another Vs. Smt. Shanti Devi Etc

rule that whenever a method of capitalisation of net profit was adopted, the return from gilt- edged securities was to be the basis. That should depend on a variety of circumstances such as the nature of the property, the normal return which may be expected on like investment, the state of the capital market and several such factors. For example, it is well known that a large investment yields a higher return that a smaller investment and similarly a long term investment yields a better return than a short term investment. A different principle and a different multiplier may have to be applied to different kinds of property, such as, agricultural land, residential buildings, industrial undertakings etc. In the case of a going business or industrial undertaking t he appropriate multiplier may be determined on the basis of the annual return of an undertaking with similar capital investment. If the Legislature thinks that a return of 12 1/2% in the case of a large industrial undertaking such as the petitioners is reasonable and on that basis adopts the multiplier `eight, it is not for this Court to sit in judgment and attempt to determine a more appropriate multiplier. We are unable to see how the adopt ion of the particular multiplier in the present case is the result of the application of any irrelevant principle. We do not, therefore, agree with the submission of Shri Sen., In the above case the Court felt that if 12 1/ 2% was the annual return, the adoption of multiplier `eight could not be unreasonable in the year 1962 in the case of an industrial undertaking. 10. A perusal of the decisions referred to above and some others which have not been cited here shows that in India the multiplier which is adopted in determining the compensation by the capitalisation method has been 33 1/3, 25, 20, 16 3/2 11 and 8. The number of years purchase has gradually, decreased as the prevailing rate of interest realisable from safe investments has gradually increased the higher the rate of interest, the lower the number of years purchase. This method of valuation involves capitalising the net income that the property can fairly be expected to produce and the rate of capitalisation is the percentage of return on his investment that a willing buyer would expect from the property during the relevant period. It was once felt that the relevant rate of interest that should be taken into consideration was the interest which gilt-edged securities or Government bonds would normally fetch. The safety and liquidity of the investment in bonds were relied on as the twin factors to take the view that the interest on gilt-edged securities should alone be taken into consideration. This was at a time when there were not many avenues of safe investments and investment in private commercial concerns was not quite reliable. But from the year 1959-60 circumstances have gradually changed. There are many State Banks and nationalised banks in which deposits made are quite safe. Even in the share market we have many `blue chips which command stability and other attendant benefits such as the possibility of issue of bon us shares and rights shares and appreciation of the value of the shares themselves. They are attracting a lot of capital investment. A return of 10% per annum on such safe investments is almost assured. Today nobody thinks of in vesting on land which would yield a net income of just 5% to 6% per annum. A higher return of the order of 10% usually anticipated. Even in the years 1962 and 1963 investor in agricultural land expected annual net return of at least 8%. It means that if the land yielded a net annual income Rs. 8 a willing buyer of land would have paid for it Rs. 100 i. e. a little more than 12 times the annual net income. The multiplier for purposes of capitalisation would be about thirteen.On the question of the potential value of the lands involved in these cases, we may state here that there is no evidence suggesting that the lands were likely to be in demand for any other purpose. They were all agricultural lands or banjar lands on which no agricultural operations could be carried on. They were situated in a hilly tract. There were no potential buyers who were in need of this vast tract of 70, 000 acres. If the project work had not been undertaken possibly there would have been no occasion for the sale of all these lands in one lot. 11. Having regard to all the facts and circumstances of the case we feel that the High Court and the District Court erred in applying the twenty years, purchase rule in the case of the se lands which were acquired in the years 1962 and 1963. The proper principle was fifteen years purchase rule. The District Judge awarded compensation in all these cases at Rs. 1, 000 per kanal for the land of the first category by applying the twenty years purchase rule and has fixed the compensation for other lands on the above basis. The High Court has affirmed it. Since we have held that the proper basis of fixing compensation in these cases was fifteen years purchase rule, the compensation awarded for lands in these cases should be reduced by one-fourth i.e. for lands of the first category compensation payable should be Rs. 750 per kanal instead of Rs. 1, 000 per kanal. Similarly in the case of other lands al so there should be a reduction of the compensation awarded by one-fourth. The claimants shall get solatium of 15% on the compensation computed on the above basis and they shall be paid interest at the rate ordered by the District Judge on the aggregate amount from the date of taking possession of the land till the date of payment. The orders passed by the High Court in all these cases shall stand modified accordingly.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]Having regard to all the facts and circumstances of the case we feel that the High Court and the District Court erred in applying the twenty years, purchase rule in the case of the se lands which were acquired in the years 1962 and 1963. The proper principle was fifteen years purchase rule. The District Judge awarded compensation in all these cases at Rs. 1, 000 per kanal for the land of the first category by applying the twenty years purchase rule and has fixed the compensation for other lands on the above basis. The High Court has affirmed it. Since we have held that the proper basis of fixing compensation in these cases was fifteen years purchase rule, the compensation awarded for lands in these cases should be reduced by one-fourth i.e. for lands of the first category compensation payable should be Rs. 750 per kanal instead of Rs. 1, 000 per kanal. Similarly in the case of other lands al so there should be a reduction of the compensation awarded by one-fourth. The claimants shall get solatium of 15% on the compensation computed on the above basis and they shall be paid interest at the rate ordered by the District Judge on the aggregate amount from the date of taking possession of the land till the date of payment. The orders passed by the High Court in all these cases shall stand modified accordingly.