Case: Special Land Acquisition Officer, Davangere Vs. P. Veerabhadarappa and Others

The facts giving rise to these appeals are more or less similar, and the essential facts may be shortly stated. Due to the construction of D. B. Kere Pick-up Project, several thousand acres of agricultural land in two villages in the State of Karnataka videlicet Budihar village in Harihar taluq and Siraganahally village in Davangere taluq got submerged and were accordingly acquired by the State Government pursuant to different notifications issued under s. 4(1) of the Act published on diverse dates in the years 1971 and 1972 followed by the usual notifications under s. 6. In response to notices issued under s. 9(2) of the Act, the respondents appeared before the Special Land Acquisition Officer, Davangere, and claimed compensation varying between Rs. 15, 000 per acre to Rs. 25, 000 per acre for dry and wet lands depending upon the quality of the soil, the nature of the yield and the income derived therefrom. In some cases they also claimed compensation at more than rupees one lakh per acre for arecanut garden lands. The Special Land Acquisition Officer, however, by his various awards adopted a multiple of fifteen and awarded compensation at a flat rate of Rs. 3, 300 per acre for dry agricultural lands and Rs. 5, 000 per acre for wet agricultural lands. On reference under s. 18 of the Act in each of these cases, the Civil judge, Davangere, enhanced the amount of compensation to Rs. 19, 500 per acre for wet agricultural lands and Rs. 1, 10, 000 for arecanut garden lands. There was common evidence adduced by the parties in all these cases and the evidence disclosed that the acquired lands were more or less similar in nature and contiguously situated. On a consideration of the evidence, the learned judge came to the conclusion that the lands affected were capable of yielding two crops in a year with assured irrigation facility, the first being of paddy and the second of jowar, groundnut, chillies, etc. As there was no other method of determining the market value of the land, the learned Civil Judge applied a multiple of 15 times the net annual profits. On appeal by the Special Land Acquisition Officer, the High Court also adopted the capitalized value at 15 years purchase of the net annual profits but reduced the amount of compensation to Rs. 15, 000 per acre for wet agricultural lands and Rs. 25, 000 per acre for arecanut garden lands, i.e., depending upon the nature of the lands acquired. It would, therefore, appear that the High Court and the courts below have both adopted fifteen to be the proper multiplier for computation of the capitalized value of the lands acquired for the purpose of determining the amount of compensation payable for acquisitionKacker, learned counsel appearing on behalf of the appellant, contends that the High Court was wrong in adopting the multiple of 15 of the actual or immediately prospective net annual profits of the lands acquired to be the capitalized value thereof when the rate of return in the years 1971 and 1972 was 8% per annum. According to the learned counsel, there is an error in principle or in law in the method employed and he draws our attention to the unreported decision of the High Court in Special Land Acquisition Officer, Davangere v. B. Basavarajappa (Misc. First Appeals Nos. 881-4 of 1976 decided on 21-11-1977), laying down that the proper multiple for computation of the capitalized value should be 12 1/2 having regard to the rate of return at the relevant time, i.e., on the (late of the notification under s. 4(1) of the Act.The contention must, in our opinion,Basavarajappas case, a Division Bench of the High Court while dealing with the determination of compensation payable for similar agricultural lands in the neighbourhood of the same two villages acquired at or about the same time adopted the multiple of 12 1/2 times the net annual profits for purposes of determining the capitalized value thereof. In coming to that conclusion, the High Courtrate of return from Government Security, which is gilt-edged security, was around 6% in the year 1971-72. A person investing his capital in irrigated land would expect a return of about 2% more than what he obtains from Government securities. That means, a return of 8% would be the normal return expected by an agriculturist investing in purchase of wet lands. If 8% was the return expected, the number of years purchase value comes to 12facts giving rise to these appeals are more or less similar, and the essential facts may be shortly stated. Due to the construction of D. B. Kere Pick-up Project, several thousand acres of agricultural land in two villages in the State of Karnataka videlicet Budihar village in Harihar taluq and Siraganahally village in Davangere taluq got submerged and were accordingly acquired by the State Government pursuant to different notifications issued under s. 4(1) of the Act published on diverse dates in the years 1971 and 1972 followed by the usual notifications under s. 6. In response to notices issued under s. 9(2) of the Act, the respondents appeared before the Special Land Acquisition Officer, Davangere, and claimed compensation varying between Rs. 15, 000 per acre to Rs. 25, 000 per acre for dry and wet lands depending upon the quality of the soil, the nature of the yield and the income derived therefrom. In some cases they also claimed compensation at more than rupees one lakh per acre for arecanut garden lands. The Special Land Acquisition Officer, however, by his various awards adopted a multiple of fifteen and awarded compensation at a flat rate of Rs. 3, 300 per acre for dry agricultural lands and Rs. 5, 000 per acre for wet agricultural lands. On reference under s. 18 of the Act in each of these cases, the Civil judge, Davangere, enhanced the amount of compensation to Rs. 19, 500 per acre for wet agricultural lands and Rs. 1, 10, 000 for arecanut garden lands. There was common evidence adduced by the parties in all these cases and the evidence disclosed that the acquired lands were more or less similar in nature and contiguously situated. On a consideration of the evidence, the learned judge came to the conclusion that the lands affected were capable of yielding two crops in a year with assured irrigation facility, the first being of paddy and the second of jowar, groundnut, chillies, etc. As there was no other method of determining the market value of the land, the learned Civil Judge applied a multiple of 15 times the net annual profits. On appeal by the Special Land Acquisition Officer, the High Court also adopted the capitalized value at 15 years purchase of the net annual profits but reduced the amount of compensation to Rs. 15, 000 per acre for wet agricultural lands and Rs. 25, 000 per acre for arecanut garden lands, i.e., depending upon the nature of the lands acquired. It would, therefore, appear that the High Court and the courts below have both adopted fifteen to be the proper multiplier for computation of the capitalized value of the lands acquired for the purpose of determining the amount of compensation payable for acquisition

Court's reasoning:
There is no security of principal, no liquidity of investment nor any certainty of income. The appreciation of principal or income is also uncertain. The reasons for these is that agricultural lands are not readily transferable under the various land reform legislations, e.g., laws relating to ceiling on agricultural holdings under the existing, State laws and tenancy laws which place restrictions on transfer of such lands with concomitant danger of effacement of the rights of the absentee landlords and the creation of rights in the tillers of the soil. In evaluating the rate of return which would ordinarily satisfy an investor in such property, the risk factor has further to be evaluated. There may be total or partial failure of crops either through failure of rain or drought or inadequate or excessive rainfall. There may be a failure of crops on account of locust invasion or insects or pests. The cost inputs such as seeds, water, fertilizer, labour charges, etc., would vary from year to year. If the overall cost goes up, the income from agricultural produce would be comparatively less. The fluctuations in price of agricultural produce introduce a great deal of uncertainty in regard to the income that can be expected from the sale of the produce. If the yield of the crop in other producing countries is large, or the market prices prevailing in such countries are low, the prices of such agricultural produce in India would go down. In view of these considerations, an investor would expect a much higher rate of return so that the risk factor is properly discountedIn the premises, when the rate of return on investment was 8.25% in the years 1971 and 1972, a person investing his capital in agricultural lands would ordinarily expect 2% to 3% more than what he could obtain from gilt-edged securities or other forms of safe investment and, therefore, the proper multiplier to be applied for the purpose of capitalization could not, in any event, exceed " ten ". In the present case, the State Government, however, contends that the proper multiple to be applied should be 12 1/2 in computation of the capitalized value of the lands in these cases having regard to the rate of return of 8% at the relevant time, i.e., on the date of the notification under s. 4(1) of the Act. In view of this, it must be held that the multiple of 121 should be applied in the computation of the capitalized value of theWe regret to find that in these cases, the High Court instead of having adopted the multiple of 121 times observed that the decision in Basavarajappas case, was not applicable because the lands acquired in these cases were far superior for which there is no rational basis. If the lands acquired were of a superior quality, the actual or immediately prospective net annual profits would be more and when multiplied by the proper multiplier arrived at on the rate of return at the relevant time) i.e., on the date of the notification under s. 4(1) of the Act, the amount of compensation for acquisition of such lands would necessarily be more. The quality of the soil has no relevance to the proper multiplier to be adopted in determining the capitalized valueIn Vyricherla Narayana Gajapatiraju v. Revenue Divisional Officer, Vizagapatnam [1939] LR 66 IA 104, the Privy Council adopted the traditional legal definition of value as the price at which the property would sell " as between a willing buyer and a willing seller"In its narrowest sense, it is designed to preclude a valuation based on an assumed forced sale; the property must be appraised at what it would probably bring if the owner allowed a reasonable opportunity for negotiations. But the courts have invoked a mythical Willing buyer to justify a valuation higher than any attainable sale price. According to the Privy Council, " market value " of the land within the meaning of s. 23 of the Act is the price the property may fetch in the open market, if sold by a willing vendor unaffected by the special needs of a particular purpose. The owner is entitled to the value of the property in its actual condition at the time of expropriation, with all its advantages and with all its possibilities, excluding any advantage due to the carrying out of the scheme for the purpose for which the property is acquired. It is not only realized possibilities but also the future possibilities that must be taken into consideration. The Privy Council further observed that there is not in general any market for land in the sense that one speaks of market for shares or commercial goods. The value of any such article at any particular time can readily be ascertained by the prices being obtained for similar articles in the market. In the case of land, its value can also be measured by a consideration of the prices that have been obtained in the past for lands of similar quality and in similar positions, and that is what must be meant in general by the " market value " in s. 23