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land acquisition act = private land with tenancy encumbrances when acquired comparable sale can be adopted and land is worth for open market value as it is private land and not saddled with conditional purchase. Let us assume the value of a property which is not subject to any lease is Rs.Ten lakhs. If that property was subject to a lease and if the possession was with the lessee, a purchaser will offer only Rs.Five lakhs as he will be purchasing a property with an encumbrance and will not be getting physical possession. But when the property subject to a lease is acquired, under the Land Acquisition Act, 1894, what is acquired is not only the landlord’s right, title and interest, but also the lessee’s right and interest. In other words the property with all rights, free from

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 Reportable 

 IN THE SUPREME COURT OF INDIA

 CIVIL APPELLATE JURISDICTION

 CIVIL APPEAL NO. 8539 OF 2011

 (Arising out of SLP (C) No. 982/2009)

Rajendra Vassudev Deshprabhu (dead)

Through Lrs. & Ors. ... Appellants

Vs.

Deputy Collector (Retd.) & Land

Acquisition Officer, Panaji ... Respondents

 J U D G M E N T

R.V.RAVEENDRAN, J.

 Leave granted. 

2. An extent of 1,06,864 sq.m. of land including 5070 sq.m. of land in 

Survey No. 284 (Part) in Pernem village of which the appellants are co-

owners was acquired in pursuance of preliminary notification dated 

12.1.1990 (Gazetted on 1.2.1990). By award dated 27.3.1991, the Land 

Acquisition Officer awarded compensation for the acquired land at the rate 

of Rs.17 per sq.m. As there were three tenants, namely, Krishna Arjun 

Kauthankar, Keshav Bhikaji Kauthankar and Harischandra Bhikaji 

 2

Kauthankar and as the co-owners had admitted their tenancy rights, the Land 

Acquisition Officer directed that the compensation to be divided between the 

owners and the tenants at the rate of 50% each. The reference court, by 

judgment daed 22.11.2002, increased the compensation from Rs.17 per 

sq.m. to Rs.175 per sq.m. The appeal by the State was allowed by a division 

bench of the Bombay High Court, by the impugned judgment dated 

14.11.2008. The High Court set aside the judgment and award of the 

reference court, thereby restoring the award of Rs.17/- per sq.m. by the Land 

Acquisition Officer, on the following reasoning: 

 "..... the Applicants' acquired portion was garden land but tenanted and 

 the tenants had become deemed purchasers of the same and the only 

 interest which the applicants had in the said land was to receive the 

 purchase price, and in such a case no willing purchaser would have 

 ventured to purchase such a land for building purposes or for that matter 

 for any other purpose from the applicants. The said Krishna Arjun 

 Kauthankar and others were in possession of the land and had become 

 deemed owners of the same. The learned reference court was not right in 

 assessing the value of the acquired land as having building potential based 

 on several awards/sale instances which were of land dissimilar to the 

 acquired land." 

3. The said judgment is challenged in this appeal by special leave. At 

the outset the appellants submitted that Late Rajinder Vasdev Deshprabhu 

(of whom appellants are the LRs.) and his brother late Raghuraj Vasdev 

Deshprabhu were the co-owners of the property, and on their death their 

respective legal heirs have become the owners thereof; that the land was 

tenanted and is in occupation of Krishan Arjun Kauthankar and two others 

 3

and vested in the tenants on the Tiller's day in terms of section 18A of the 

Goa, Daman and Diu Agricultural Tenancy Act, 1964 (`Tenancy Act' for 

short). They submitted that they do not dispute the award of the Land 

Acquisition Officer apportioning 50% of the compensation to the landlords 

and 50% to the tenants; and that out of 50% payable to landlords, the 

appellants are entitled to one half as the LRs. of Rajendra V.Deshprabhu and 

the remaining half is payable to the legal heirs of Raghuraj V.Deshprabhu. 

In other words the appellants restrict their claim to 25% of the award amount 

and submitted that even in regard to any increase in compensation, they are 

entitled to only 25%.

4. The appellants contend that in regard to the remaining extent of land 

acquired under the same notification, the High Court by judgment dated 

14.11.2008 in FA No. 123/2003 (The Deputy Collector (Dev.) & LAO, 

Panaji vs. Smt. Sita Devi) had determined the compensation as Rs.78 per 

sq.m. and therefore the compensation should have been the same in regard to 

their land also. Therefore question for consideration is whether the 

compensation for the acquired land should be increased to Rs.78/- per sq.m. 

5. Respondents do not dispute that in regard to the adjoining lands 

compensation has been determined by the High Court at Rs. 78/- per sq.m. 

 4

in Deputy Collector vs. Sita Devi (FA No.123/2003 decided on 14.11.2008) 

and that order not having been challenged, has attained finality. They also do 

not dispute the position that if the acquired land had not been subject to any 

tenancy right, the land owners would have been entitled to compensation at 

the said rate of Rs.78 per sq.m. They however contend that the land in 

question was different from the other acquired lands for which Rs.78/- per 

sq.m. has been awarded as compensation. They supported the judgment of 

the High Court on the following grounds:

 (i) As the land was in the occupation of tenants, the appellants as 

 owners would not have been able to sell the said land to any 

 willing purchaser and obtain the market value. Even the tenants 

 had obtained a purchase certificate under section 18H, they could 

 not have sold the property, as there was a restriction on transfer of 

 the land purchased by the tenant in section 18K of the Tenancy Act 

 which required previous sanction of the Mamlatdar for sale.

 (ii) Section 3 of the Tenancy Act provided that when a request is made 

 by the owner of an agricultural land to convert it to non 

 agricultural purpose, the authority concerned can grant conversion, 

 or in public interest prohibit the conversion. There was thus no 

 absolute right to get the land converted to non agricultural use and 

 develop it for other non-agricultural purposes.

 5

 (iii) Section 2 of the Goa Land Use (Regulations) Act, 1991 (`Land Use 

 Act' for short) provides that no land which vested in the tenant 

 under the provisions of the Tenancy Act shall be used or allowed 

 to be used for any purpose other than agriculture. As the land in 

 question had vested in the tenants on the Tiller's Day (8.10.1976), 

 the land had to be used only for agricultural purposes. The land 

 therefore did not have the potential for development for any non-

 agricultural purpose and therefore will have to be valued only as an 

 agricultural land. Even as agricultural land, the market value will 

 not be the normal market value as it was tenanted.

6. We are not required to decide in this appeal, either the entitlement of 

the landlords/owners for compensation or the extent of share in the 

compensation. It is an admitted position that the land is tenanted and vested 

in the tenants under section 18A of the Tenancy Act on the Tiller's Day (that 

is, 8.10.1976) and the tenants are deemed to have purchased the land. The 

purchase price under section 18D of the Tenancy Act was not however paid 

to the landlords and no purchase certificate had been issued to the tenants 

under section 18H of the Tenancy Act. According to the appellants, where 

land is acquired under the Land Acquisition Act, 1894, before payment of 

the purchase price to the landlords under section 18D of Tenancy Act and 

before the issue of purchase certificate to the tenants under section 18H of 

the Tenancy Act, inspite of the vesting under section 18A of the Tenancy 

 6

Act, the compensation will be divided equally between the landlord and 

tenant as per standing instructions of the government. The appellants 

contend that the said procedure had been followed by the Land Acquisition 

Officer in making the award by holding that 50% of the compensation was 

payable to the landlords and 50% of compensation was payable to the 

tenants. The appellants submitted that neither the landlords, nor the tenants, 

have disputed the said apportionment and therefore this appeal does not 

involve any issue relating to entitlement to compensation or apportionment 

thereof. It was further submitted that the only issue in this appeal relates to 

the quantum of compensation. In view of the said submission, we have only 

considered the question of quantum in this appeal, and have not examined 

the rights of the landlord vis-`-vis the tenants. 

7. We may first deal with the contention of the respondents with 

reference to the regulation of land use under the Land Use Act. Section 2 of 

the said Act provides that no land which is vested in a tenant under the 

provisions of the Tenancy Act shall be used or allowed to be used for any 

purpose other than agriculture. If the Land Use Act was applicable to the 

land at the time of acquisition, then the land could be used only as 

agricultural land and could be valued only as an agricultural land. But the 

Land Use Act, came into force with effect from 2.11.1990. The relevant date 

 7

for the purpose of determination of compensation is the date of publication 

of preliminary notification under section 4(1) of the Land Acquisition Act, 

1894 which is 1.2.1990. On that day the Land Use Act was not in force and 

consequently there was no restriction that the use land vested in the tenant 

should be used only for agricultural purposes. Therefore the market value of 

the land could be determined with reference to the development potential for 

non agricultural purposes.

8. The next contention of the respondents is that a land purchased by a 

tenant under Chapter IIA of the Tenancy Act, could not be sold without the 

previous sanction of Mamlatdar, under section 18K of the Tenancy Act. The 

mere fact that the sanction has to be obtained from Mamlatdar for sale of 

such land would not depress the price of the land, nor affect its potential for 

being developed as residential or industrial use.

9. The next contention of the respondents was based on Section 3 of the 

Tenancy Act. Section 3 provides that if any owner of agricultural land 

applies for conversion thereof for non-agricultural use, the Government may, 

instead of granting conversion, prohibit such conversion in public interest. 

The risk not being permitted to convert the land should also be taken note of 

while assessing the market value with reference to development potential of 

 8

the land. Such a contingency exists in regard to all agricultural lands and is 

not specific to the appellants. Inspite of section 3 of Tenancy Act, 

compensation has been determined as Rs.78/- per sq.m. for neighbouring 

agricultural lands and we see no reason why the said rate should not apply to 

the land in question also.

10. The High Court committed an error in holding that the compensation 

for the land in question should be lesser than the compensation for a land 

which is not subject to tenancy. It relied upon the decision of this Court in 

M.B. Gopala Krishna & Ors. v. Special Deputy Collector, Land Acquisition 

(1996) 3 SCC 594 wherein this Court observed : 

 "A freehold land and one burdened with encumbrances do make a big 

 difference in attracting willing buyers. A free hold land normally 

 commands higher compensation while the land burdened with 

 encumbrances secures lesser price. The fact of a tenant in occupation 

 would be an encumbrance and no willing purchaser would willingly offer 

 the same price as would be offered for a freehold land."

The said principle will apply only where a property subject to encumbrances 

is to be sold to a private purchaser or is acquired subject to the tenancy. The 

decision of this Court made those observations when upholding the 

compensation that was payable to the landlord, without reference to the 

tenant's rights, where the tenant did not claim any compensation. But in this 

case, the landlords have been awarded only 50% of the compensation 

 9

amount and remaining 50% has been awarded to the tenants. The High Court 

has mixed up a sale subject to encumbrances with an acquisition free from 

encumbrances under the Land Acquisition Act, 1894. The two are 

conceptually different. If a property subject to a lease and in the possession 

of a lessee is offered for sale by the owner to a prospective private 

purchaser, the purchaser being aware that on purchase he will get only title, 

but not possession and that the sale in his favour will be subject to an 

encumbrance, namely the lease, will offer a price taking note of the 

encumbrances. Naturally such a price would be less than the price of a 

property without any encumbrances. But when a land is acquired free from 

encumbrances, what is acquired is not only the landlord's right, but also the 

lessee's rights. In such a case compensation awarded is for the property free 

from encumbrances, which includes the lessee's rights also. We may 

illustrate by the following example: 

 Let us assume the value of a property which is not subject to 

 any lease is Rs.Ten lakhs. If that property was subject to a lease 

 and if the possession was with the lessee, a purchaser will offer 

 only Rs.Five lakhs as he will be purchasing a property with an 

 encumbrance and will not be getting physical possession. But 

 when the property subject to a lease is acquired, under the Land 

 Acquisition Act, 1894, what is acquired is not only the 

 landlord's right, title and interest, but also the lessee's right and 

 interest. In other words the property with all rights, free from 

 1

 encumbrances is acquired and the compensation is determined 

 and paid for the property as one free from encumbrances. The 

 rights of lessor as well as lessee are extinguished. Therefore 

 compensation payable will be the entire market value that is 

 Rs.Ten lakhs which may be shared by the lessors and lessee at 

 the rate of Rs.Five lakhs each or such other ratio as may be 

 determined with reference to the extent of their respective 

 rights. The Land Acquisition Officer issue notice to all persons 

 interested and hears them before making the apportionment of 

 the compensation among the persons interested. The `market 

 value' of the property free from encumbrances acquired by the 

 State will not therefore be the same as the price a purchaser 

 may pay to buy the property subject to a lease (encumbrances).

11. As the High Court has already determined Rs.78 per sq.m. as the 

compensation in regard to the adjoining lands acquired under the same 

notification vide its judgment dated 14.10.2008 (Dy.Collector 

(Development) and Land Acquisition Officer, Panaji v. Smt. Sitadevi & Ors. 

in FA No.123/2003) and the said judgment has attained finality, there is no 

reason why the same compensation should not be awarded for this land also. 

The appellants have no grievance in regard to the apportionment made by 

the Land Acquisition Officer at the rate of 50% for the landlords and 50% 

for the tenants. The tenants apparently have not raised any dispute in regard 

to the apportionment. It is made clear that if any dispute regarding 

 1

apportionment is pending, this decision shall not be construed as 

determining the percentage of entitlement of appellants or other co-owners 

(not before us) or the tenants (not before us).

12. In view of the above, this appeal is allowed and the order of the High 

Court is modified by increasing the compensation for the acquired land from 

Rs.17 per sq.m. to Rs.78 per sq.m. All statutory benefits are also granted. 

 ............................J.

 (R V Raveendran)New Delhi; ............................J.October 11, 2011. (A K Patnaik)

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