No Reduction by Theory of Deduction – Supreme Court Upholds Compensation Based on Circle Rate under 2013 Act States Public Authorities Cannot Disown Their Own Guidelines
Isabella Mariam
The Supreme Court of India, Civil Appellate Jurisdiction, through a Division Bench comprising Chief Justice Sanjiv Khanna and Justice Sanjay Kumar, addressed the question of whether the "theory of deduction" could be applied to reduce compensation awarded in a land acquisition conducted under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.
The court dismissed appeals filed by the Madhya Pradesh Road Development Corporation seeking a reduction in compensation awarded to landowners, holding that compensation must be calculated based on the highest value determined under Section 26(1) of the 2013 Act and that the Collector's Guidelines (circle rate) constitute a valid basis for such valuation.
The matter arose from a land acquisition initiated by Gazette Notification dated September 12, 2014, for a stretch of land on the Jabalpur-Mandla-Chilpi section of National Highway No. 12-A in the Jabalpur district, Madhya Pradesh. The acquisition aimed at widening and four-laneing the highway.
Subsequently, a notification dated February 2, 2015, confirmed the acquisition. On August 31, 2015, the Competent Authority and Land Acquisition Officer issued an award determining compensation using Section 105(3) of the Acquisition Act, 2013, thereby applying the First, Second, and Third Schedules for compensation, rehabilitation, and amenities, respectively.
The valuation adopted the Collector's Guidelines for 2014-2015, referring to rates fixed under the Indian Stamp Act, 1899. For non-converted agricultural land exceeding 1000 square meters, Category (B) applied. The Competent Authority used the rate of Rs. 1,50,00,000 per hectare for Village Katiyaghat and calculated the land value at Rs. 97,50,000. Including assets and solatium, the total compensation awarded to respondent Vincent Daniel was Rs. 2,05,42,164.
The respondent challenged this before the Commissioner, arguing that the rate was below the actual market value. The appellant, Madhya Pradesh Road Development Corporation, argued that the land was undeveloped, and a significant portion would be used for infrastructure, requiring application of the "theory of deduction."
The Commissioner revised the award, applying Rs. 12,000 per square meter for the first 1000 square meters and Rs. 1,50,00,000 per hectare for the remaining area. An additional amount of Rs. 2,21,11,562 was awarded.
The appellant challenged this before the District Judge under Section 34(3) of the Arbitration and Conciliation Act, 1996. The objections were dismissed. The District Judge recorded that the land was within municipal limits, and compensation was rightly enhanced as per Collector's Guidelines.
The appellant then filed an appeal under Section 37 of the Arbitration Act before the High Court of Madhya Pradesh. The High Court dismissed the appeal on April 13, 2022, noting that the theory of deduction, applicable under the Land Acquisition Act, 1894, was not relevant under the 2013 Act. It stated that compensation must be computed as per the highest value under Section 26(1), and guideline rates under the Stamp Act were binding when highest.
The appellants then approached the Supreme Court.
The Supreme Court undertook a detailed comparison between the Acquisition Act of 1894 and the 2013 Act, particularly focusing on Sections 23, 24, 25 of the 1894 Act and Sections 23, 26, 27, and 28 of the 2013 Act.
The court noted that under the 1894 Act, compensation was determined based on market value at the time of notification, guided by expert opinion, exemplars, or yield value, and the theory of deduction was applied for undeveloped lands.
In contrast, Section 26(1) of the 2013 Act mandates that market value be determined using three criteria:
- The market value specified under the Indian Stamp Act.
- The average sale price for similar land in the vicinity.
- The consented amount of compensation in certain cases.
The statute requires the highest of these to be used. "The values computed in terms of Clauses (a), (b) and (c) of Section 26(1)... are not to be averaged. The highest... is to be treated as the market value," the court recorded.
The court further noted that Explanation 4 to Section 26 allows the Collector to discount or adjust the computed value "if... not indicative of actual prevailing market value," but requires reasons to be recorded.
On the theory of deduction, the court reiterated its applicability under the 1894 Act to reflect development expenses or non-developed status, but clarified that its use under the 2013 Act depends on the Collector’s discretion per Explanation 4.
The bench stated, "It has been left to the Collector’s discretion to make adjustments to the market value... if deemed necessary in the opinion of the Collector." Since no such adjustment was recorded in the present case, the valuation based on the Collector's Guidelines remained valid.
Addressing the appellant’s contention that the circle rate was excessive, the court said, "In the absence of any material to support the same, we cannot accept the argument... that this circle rate is not the baseline or floor rate, and is too high."
The judgment acknowledged the importance of accurate circle rates, noting that "methodically and scientifically fixed circle rates can contribute to strengthening the economy and boosting tax collections." It called for expert committees to fix such rates, stating transparency and regular revision.
The Supreme Court dismissed the appeals filed by the Madhya Pradesh Road Development Corporation.
The court upheld the Commissioner’s award, stating, "we uphold the computation in the award passed by the Commissioner directing payment of compensation on the basis of the circle rate." It further added, "There will be no order as to costs."
Advocates Representing the Parties
For the Petitioner: Harmeet Singh Ruprah
Case Title: Madhya Pradesh Road Development Corporation v. Vincent Daniel and Others
Neutral Citation: 2025 INSC 408
Case Number: Civil Appeal No. 3998 of 2024 & Ors.
Bench: Chief Justice Sanjiv Khanna and Justice Sanjay Kumar
[Read/Download order]
