Case: WALCHANDNAGAR INDUSTRIES LTD Vs. THE STATE OF MAHARASHTRA &amp; ANR

for the years 1975--76 and 1976--77. From these balance-sheets and profit & loss accounts, it is sought to be highlighted that the appellant made a profit of Rs.96.07 lakhs during the year 1975--76 and that the profit went down to Rs.40.83 lakhs during the year 1976--77. 73. If this claim of the appellant is taken to be true, it would mean that the appellant suffered a reduction in profit to the tune of about Rs.55,00,000/-in one year immediately after possession of the land was taken. The balance sheets and profit & loss accounts produced by the appellant before us are as on 30.09.1976 and 30.09.1977. Even according to the appellant, the reduction in the profit to the extent of nearly Rs.55,00,000/- was not wholly attributable to the increase in transportation cost. The appellant claimed only a sum of Rs.8,00,718/- per year towards increase in transportation cost. This constitutes only 15% of the total amount of reduction in profits. It is seen from the profit & loss account for the year ended 30.09.1977 that the sales turn over itself had come down from Rs.22.09 crores to Rs.18.17 crores. Even the raw material consumed had come down from 13.47 crores to Rs.9.32 crores. There had also been a substantial down slide in sub- contract and process charges. Therefore, the contention of the appellant that the profits went down, may be a point in an answer to the adverse inference drawn by the High Court with regard to profits. But it cannot be used in support of the appellants case that the increase in the transportation cost accounted at least in part to a reduced margin of profit. 74. The impact of the increase in transportation cost, upon the profit margin of a seller of goods, would depend upon the terms and conditions of the contract. It may also vary from sea transport to rail transport to road transport to air transport. Though in shipping contracts there are standard covenants such as FOB (Free on Board), CIF (Cost, Insurance and Freight) etc., there are no such standard covenants in rail and road contracts. In any case, the trolley line of the appellant covered only a distance of 35 kms upto Bhigwan. Delivery of material had to be effected by the appellant to its customers through some method of transport from Bhigwan. Nothing is on record to show that the goods were always dispatched to all customers through goods carriage railway line of the Indian Railways beyond Bhigwan. In the absence of any evidence to show that the increase in the transportation cost due to the submerging of a part of the trolley line, had always to be absorbed only by the appellant, but could not have been passed on to its customers due to specific terms and conditions of contract, the Reference Court could not have accepted a claim in this regard. 75. Moreover there was a finding of fact in the Award passed on 09.12.1981 which was taken note of by the High Court. The relevant portion of the Award reads as follows: Further as per local enquiry it is told that the Trolley line was constructed years back mainly for bringing heavy machinery at Walchandnagar. After this purpose was served, they were using it for movement of goods for some time. The process of moving the goods on the Trolley line became uneconomical. So they resorted to road and truck traffic which was quick and possibly economical. Thus the whole Trolley line was in disuse being uneconomical on the relevant date i.e. 27-9-72. In these circumstances the claim for severance and injurious affection has been rejected. 76. Therefore, the decision of the High Court with regard to the claim for compensation towards increase in transportation cost appears to be reasonable and hence cannot be interfered with. CONCLUSION 77. The upshot of the above discussion is that the refusal of the High Court to award any compensation for the injurious affection to one set of movable property, namely, rolling stock cannot be found fault with, for the reasons stated above. Similarly, the refusal of the High Court to award any compensation for increase in transportation cost, falling under the category of injurious affection to earnings cannot also be faulted, for the reasons indicated separately. However, the refusal of the High Court to grant compensation for the injurious affection sustained by the appellant to one set of movable property, namely, rails and sleepers forming the trolley line for a distance of 28 kms., is clearly unsustainable especially when the grant of compensation for the injurious affection to rails and sleepers to a stretch of 7 kms. submerged in the backwaters, has been sustained by the High Court. In fact, the State has not come up on appeal against the grant of compensation for the injurious affection to the trolley line to a distance of 7 kms which got submerged in back waters. That the remaining portion of the trolley line to a distance of 28 kms has been rendered useless after the acquisition, is not in dispute. 78. A question may arise as to whether the reasoning given by us for rejecting the claim for loss of earnings in the form of increase in transportation costs, will not apply ipso facto to the claim for compensation for the rails and sleepers also, since the appellant had switched over to road transport in the year 1972 itself. But our answer would be that clause fourthly of Section 23(1), uses a significant phrase viz., injuriously affecting his other property, movable or immovable, in any other manner, or his earnings. Therefore, injurious affection to property, in any other manner, may stand on a different footing from injurious affection to earnings. While there is no evidence on record to connect the drop in the level of profits from 1975--76 to 1976--77, with the increase in transportation costs, there is acceptable evidence to show that movable property became useless after the acquisition. Therefore, both stand on different footings.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]31. In simple terms, the six items covered by Section 23(1), which are to be taken into consideration by the court in determining compensation, can be summarised as follows:-(i) The market value of the land on the date of publication of notification under Section 4(1);(ii) The damage to standing crops or trees, which are on the land at the time of the Collector taking possession;(iii) The damage sustained by reason of severing such land from the unacquired land;(iv) The damage sustained by reason of the acquisition injuriously affecting the other property, movable or immovable, in any other manner or the earnings, of the person interested;(v) The reasonable expenses incurred by the person interested, in changing his residence or place of business, when he is compelled to do so in consequence of the acquisition;(vi) The damage bona fide resulting from diminution of the profits of the land between the time of publication of the declaration under Section 6 and the time of the Collectors taking possession.32. The points arising for determination in these appeals revolve around clauses thirdly and fourthly of Section 23(1). These clauses are referred to in common parlance as clauses concerning severance and injurious affection respectively.34. It may be noted that clause thirdly of Section 23(1) relates only to land, as it speaks only about the severance of the acquired land from the unacquired land and the damage sustained as a consequence. In contrast, clause fourthly of Section 23(1) deals with the damage sustained by the person interested, due to the injurious affection, (i) of his other movable property; (ii) of his other immovable property; and (iii) of his earnings. In other words what is injuriously affected at the time of Collectors taking possession of the land, may either be the unacquired portion of the immovable property or other movable property or even the earnings of the person interested.39. The distinction between the scope of sub-section (1) and the scope of sub-section (2) of Section 49 was brought out by this Court in M/s Harsook Das Bal Kishan Das vs. The First Land Acquisition Collector and Others (1975) 2 SCC 256  as follows:-12. The object of Section 49(1) of the Act is to give to the owner the option whether he would like part to be acquired. The Government cannot take the other part under Section 49(1) of the Act unless the owner says so. Section 49(2) of the Act has nothing to do with Section 49(1) of the Act. Section 49(2) of the Act gives the option to the Government only where the claim under the third clause of Section 23(1) of the Act is excessive. Reference to the third clause of Section 23(1) of the Act makes it clear that the claim under the third clause of Section 23(1) is for severance. The Government in such a case of acquisition of the remaining portion of the land under Section 49(2) of the Act saves the public exchequer money which otherwise will be the subject-matter of a claim for severance.40. In the case on hand, the provisions of Section 49(1) have no application. This is due to the fact that the appellant never desired that the whole of the manufactory shall be acquired by the Government. In fact, the total extent of land owned by the appellant was about 16000 acres, on which a township had come up. Therefore, there was no occasion for the appellant to exercise any option invoking Section 49(1). In any case, the appellant actually requested the Government to acquire land from other people, to divert the trolley line. Therefore, Section 49(1) has no application to the case on hand.41. Section 49(2) also may not have any application for the reason that the appropriate Government did not think fit to seek acquisition of the whole of the land on which the remaining portion of the trolley line existed, on the ground that the claim for severance compensation was un-reasonable or excessive. Therefore, it is enough for us to go back to clauses thirdly and fourthly of Section 23(1) without the constraints of sub-section (1) or (2) of Section 49.42. As we have indicated earlier, clause thirdly relates to the damage sustained by the person interested, by reason of severance of the acquired land from the unacquired land, at the time of Collectors taking possession of the land. In contrast, clause fourthly of Section 23(1) deals with the damage sustained by reason of the acquisition injuriously affecting, (i) the other movable property; (ii) the other immovable property; and/or (iii) the earnings of the person interested.44. The second category of claim indicated in paragraph 22 of the award of the Reference Court, extracted above, contains a mix of claims that may fall under clauses thirdly, fourthly and sixthly of section 23(1). But fortunately the rejection of some of those claims are not taken up now by the appellant. In the appeals on hand, the claim is restricted only to three items namely, (i) the value of rails and sleepers; (ii) the value of rolling stock; and (iii) increase in transportation costs. These items are covered only by clause fourthly of Section 23(1) and they do not fall under clause thirdly.45. Even within clause fourthly, what we are concerned in these appeals is the injurious affection of, (i) movable property such as rails and sleepers and rolling stock; and (ii) the loss of earnings due to increase in transportation costs. But unfortunately what the appellant did was to claim a sum of Rs.80,07,180/- towards in- crease in transportation costs and a separate amount of Rs.35,62,000/- towards loss of earnings. Even under the heading loss of earnings, what was claimed was actually loss of profits. The appellant did not realize that the diminution of profits fell un- der clause sixthly of Section 23(1) and the claim under this head is restricted to the time between the date of publication of the decla- ration under Section 6 and the time of Collector taking possession. Injurious affection to earnings is covered by clause fourthly and the statute has made a distinction between, (i) injurious affec- tion to earnings; and (ii) diminution of the profits between the time of publication of the declaration under Section 6 and the time of taking possession.46. The Reference Court rejected the claim for compensation of Rs.35,62,000/- towards loss of earnings, on the ground that it overlapped with the claim under the heading increase in trans- portation costs. It is perhaps after realizing such overlapping of claim that the appellant has confined their claim in the present ap- peals only to injurious affection, (i) to rails and sleepers; (ii) to rolling stock; and (iii) to earnings due to increase in transportation costs, all of which fall under clause fourthly of Section 23(1).47. One of the earliest cases to be decided on the question of inju- rious affection, was a Division Bench decision of the Calcutta High Court in R.H. Wernickle and Ors. vs. The Secretary of the State for India (2 Ind.Cas 562). The said case arose out of the acquisition of land which included a tea estate. The purpose of the acquisition was the extension of the rifle range of the Cantonment in the Vil- lages of Lebong and Pandan at Darjeeling. A claim for injurious af- fection was made by the owners of the tea estate on the ground that they were forced to stop work in the unacquired portion of the tea estate, during the time when firing was practiced in the rifle range. Dealing with the claim, Doss, J. opined, There can be no doubt that it is extremely unsafe to work on land situate behind the butts when firing is going on, and the consequent loss of time must inevitably increase the cost of cultivation. Therefore, Doss, J., held that the owners of the tea estate were entitled to compensation for the injurious affection of the 8 acres of tea land behind the butts. Expressing concurrence with the view of Doss, J., Richardson, J. observed:It is said that the rifle range will interfere with the work- ing of 8 acres of land behind the butts and I think that there can be no doubt as to this. It will not be safe to put coolies on the land when the range is being used. An argument was advanced by the Government that the contemplated injury was contingent and that it could arise only from the negligent use of the range and that the same would fall under the category of actionable nuisance. Reject- ing the said argument, Richardson, J., opined: But it is not clear that the injury which the claimants contemplate will amount to an actionable nuisance. The Government will have the right to use the land as a rifle range and no doubt it may be presumed that it will be so used with the greatest care and circumspection. But even so, no prudent owner would put his coolies on the land behind the butts while firing was going on.48. In Balammal vs. State of Madras AIR 1968 SC 1425 , this Court was concerned with a land acquisition under the provisions of the Madras City Improvement Trust Act, Section 71 of which authorized the Board of Trustees to acquire land under the provisions of The Land Acquisition Act, 1894 with the previous sanction of the Government. When the dispute relating to determination of compensation ultimately landed up before this Court, the argument of one of the land owners was that a part of the compound of a cinema theatre was acquired compulsorily and that it deprived the owner of the land, of the facility of providing additional amenities to the patrons of the theatre and also of making constructions on the land expanding the business. The claim was pitched in the alternative on clauses thirdly, fourthly and sixthly of Section 23(1). While agreeing on principle about the entitlement of a person interested to compensation under these clauses, this Court rejected the claim in that case, on the ground that there was no evidence either to show any loss by reason of severance or to show that the remaining land was injuriously affected by reason of acquisition or to show that the earnings of the owners were affected.56. But as rightly contended by Shri Gopal Sankaranarayanan, learned senior counsel for the appellant, the acquisition of land for laying alternative trolley line was not an easy task, especially when there were lot of land owners. The urgency clause under Section 17 of the Land Acquisition Act could not have been invoked, as the appellant is a company.57. The fundamental flaw in the reasoning of the High Court is that the High Court presumed that it was enough if the land for relocating 7 kms. of trolley line was acquired. If trolley line to a distance of 7 kms., out of a total stretch of 35 kms. admittedly got submerged in the backwaters, the trolley line relating to the entire stretch would naturally become redundant. Railway line is not like a roadway. Roads can take deviation easily, but not railway lines. Therefore, if land had to be acquired for relocating the trolley line, it should have been for the entire stretch of 35 kms. It is not possible to retain 28 kms. of trolley line and relocate the remaining 7 kms. stretch alone. Therefore, we are of the considered view that the High Court committed a gross error in reversing the finding of the Reference Court under this heading.64. Though it is contended on behalf of the appellant that the evidence of PW--13 (Shri Kamat) was misread by the High Court and that due to good maintenance, the life of the rolling stock had increased, we do not think that the view taken by the High Court was completely out of sync with the evidence on record. The High Court has actually extracted one portion of the evidence of Shri Kamat (PW--13). He has clearly admitted that though he inspected the Assets Register in 1986 before preparing the report he did not record in his report, the book value of the asset. He clearly stated it is possible that in book value, the assets might become zero value in the instant case.65. Therefore, no exception can be taken to the finding recorded by the High Court insofar as rolling stock is concerned.71. Insofar as the first objection is concerned, we must point out at the outset that the Notification for acquisition under Section 4 was published in the Government Gazette on 26.10.1972. The declaration under Section 6 was published in the Government Gazette on 01.08.1974. Notices under Sections 9(1) and 9(2) were published in September--1974 and Feburary-1975. Though the exact date on which possession was taken is not mentioned by either of the parties, the appellant has stated in their synopsis that the Government took possession of the land in 1976.72. The appellant has produced before us the copy of the balance- sheets and profit & loss account for the years 1975--76 and 1976--77. From these balance-sheets and profit & loss accounts, it is sought to be highlighted that the appellant made a profit of Rs.96.07 lakhs during the year 1975--76 and that the profit went down to Rs.40.83 lakhs during the year 1976--77.73. If this claim of the appellant is taken to be true, it would mean that the appellant suffered a reduction in profit to the tune of about Rs.55,00,000/-in one year immediately after possession of the land was taken. The balance sheets and profit & loss accounts produced by the appellant before us are as on 30.09.1976 and 30.09.1977. Even according to the appellant, the reduction in the profit to the extent of nearly Rs.55,00,000/- was not wholly attributable to the increase in transportation cost. The appellant claimed only a sum of Rs.8,00,718/- per year towards increase in transportation cost. This constitutes only 15% of the total amount of reduction in profits. It is seen from the profit & loss account for the year ended 30.09.1977 that the sales turn over itself had come down from Rs.22.09 crores to Rs.18.17 crores. Even the raw material consumed had come down from 13.47 crores to Rs.9.32 crores. There had also been a substantial down slide in sub- contract and process charges. Therefore, the contention of the appellant that the profits went down, may be a point in an answer to the adverse inference drawn by the High Court with regard to profits. But it cannot be used in support of the appellants case that the increase in the transportation cost accounted at least in part to a reduced margin of profit.74. The impact of the increase in transportation cost, upon the profit margin of a seller of goods, would depend upon the terms and conditions of the contract. It may also vary from sea transport to rail transport to road transport to air transport. Though in shipping contracts there are standard covenants such as FOB (Free on Board), CIF (Cost, Insurance and Freight) etc., there are no such standard covenants in rail and road contracts. In any case, the trolley line of the appellant covered only a distance of 35 kms upto Bhigwan. Delivery of material had to be effected by the appellant to its customers through some method of transport from Bhigwan. Nothing is on record to show that the goods were always dispatched to all customers through goods carriage railway line of the Indian Railways beyond Bhigwan. In the absence of any evidence to show that the increase in the transportation cost due to the submerging of a part of the trolley line, had always to be absorbed only by the appellant, but could not have been passed on to its customers due to specific terms and conditions of contract, the Reference Court could not have accepted a claim in this regard.75. Moreover there was a finding of fact in the Award passed on 09.12.1981 which was taken note of by the High Court. The relevant portion of the Award reads as follows:Further as per local enquiry it is told that the Trolley line was constructed years back mainly for bringing heavy machinery at Walchandnagar. After this purpose was served, they were using it for movement of goods for some time. The process of moving the goods on the Trolley line became uneconomical. So they resorted to road and truck traffic which was quick and possibly economical. Thus the whole Trolley line was in disuse being uneconomical on the relevant date i.e. 27-9-72. In these circumstances the claim for severance and injurious affection has been rejected.76. Therefore, the decision of the High Court with regard to the claim for compensation towards increase in transportation cost appears to be reasonable and hence cannot be interfered with.77. The upshot of the above discussion is that the refusal of the High Court to award any compensation for the injurious affection to one set of movable property, namely, rolling stock cannot be found fault with, for the reasons stated above. Similarly, the refusal of the High Court to award any compensation for increase in transportation cost, falling under the category of injurious affection to earnings cannot also be faulted, for the reasons indicated separately. However, the refusal of the High Court to grant compensation for the injurious affection sustained by the appellant to one set of movable property, namely, rails and sleepers forming the trolley line for a distance of 28 kms., is clearly unsustainable especially when the grant of compensation for the injurious affection to rails and sleepers to a stretch of 7 kms. submerged in the backwaters, has been sustained by the High Court. In fact, the State has not come up on appeal against the grant of compensation for the injurious affection to the trolley line to a distance of 7 kms which got submerged in back waters. That the remaining portion of the trolley line to a distance of 28 kms has been rendered useless after the acquisition, is not in dispute.78. A question may arise as to whether the reasoning given by us for rejecting the claim for loss of earnings in the form of increase in transportation costs, will not apply ipso facto to the claim for compensation for the rails and sleepers also, since the appellant had switched over to road transport in the year 1972 itself. But our answer would be that clause fourthly of Section 23(1), uses a significant phrase viz., injuriously affecting his other property, movable or immovable, in any other manner, or his earnings. Therefore, injurious affection to property, in any other manner, may stand on a different footing from injurious affection to earnings. While there is no evidence on record to connect the drop in the level of profits from 1975--76 to 1976--77, with the increase in transportation costs, there is acceptable evidence to show that movable property became useless after the acquisition. Therefore, both stand on different footings.