State Of Madras vs D. Namasivaya Mudaliar And Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 6 to 12 of 1963

Decision Date: 3 March 1964

Coram: J.C. Shah, P.B. Gajendragadkar, K.N. Wanchoo, N. Rajagopala Ayyangar, S.M. Sikri

The case was State of Madras versus D. Namasivaya Mudaliar and others, decided on 3 March 1964 by the Supreme Court of India. The judgment was written by Justice J.C. Shah, and the bench comprised Justices J.C. Shah, P.B. Gajendragadkar, K.N. Wanchoo, N. Rajagopala Ayyangar and S.M. Sikri. The petitioner was the State of Madras and the respondents were D. Namasivaya Mudaliar together with several other landowners.

The dispute concerned the Madras Lignite (Acquisition of Land) Act, XI of 1953, specifically sections 2 and 3 of that Act. Those provisions authorised the compulsory acquisition of lands containing lignite and prescribed that compensation be calculated on the market value of the land as of 28 April 1947. The Act also stipulated that any increase in value attributable to non‑agricultural improvements made after that date would not be taken into account when assessing compensation. The Act had been enacted before the amendment of article 31 of the Constitution by the Constitution (Fourth Amendment) Act, 1955, and the validity of the Act, as well as the method of fixing compensation, were the matters under consideration.

According to the headnote, the respondents owned certain parcels of land that the authorities sought to acquire under the 1953 Act. The Act became effective on 20 August 1953, which was prior to the amendment of article 31. The Act required that compensation for the acquisition of lignite‑bearing lands under the Land Acquisition Act be measured on the market value prevailing on 28 August 1947 rather than on the date when a notification was issued under section 4(1) of the Land Acquisition Act. Moreover, the Act expressly excluded from compensation the value of any non‑agricultural improvements carried out after 28 April 1947. After serving notices under sections 4(1) and 6 of the Land Acquisition Act, the Land Acquisition Officer made award orders granting compensation to the respondents. The respondents then filed petitions under article 226 of the Constitution before the Madras High Court, challenging the validity of those awards on the ground that the compensation provisions of the Act infringed article 31(2) as it existed before the Fourth Amendment. The High Court upheld the respondents’ contention.

On appeal, the Supreme Court held that the validity of the Act must be examined in the context of article 31 as it stood before the Fourth Amendment. The Court referred to earlier decisions, including Chiranjit Lai Chowdhuri v. Union of India (1950) S.C.R. 869, State of West Bengal v. Subodh Gopal Bose (1954) S.C.R. 587, and State of West Bengal v. Mrs. Bela Banerjee (1954) S.C.R. 558, to guide its analysis. The Court indicated that the principles articulated in the Bela Banerjee case, concerning the arbitrariness of a compensation ceiling that disregards the land’s value at the time of acquisition, would be applicable to the Act in question. The Court concluded that fixing compensation on a market value that was determined many years before the actual acquisition, and ignoring any increase in value thereafter, was arbitrary and inconsistent with the spirit of article 31(2) as it existed prior to the constitutional amendment.

In the case of Bela Banerjee, reported in 1954 at page 558 of the Supreme Court Reports, the Court held that a ceiling on compensation that does not take into account the value of the land at the time it is acquired is arbitrary and cannot be regarded as providing due compensation within the meaning and purpose of article 31(2). The Court observed that this principle would also apply to the statute that was being challenged before it. The Court explained that fixing compensation for the compulsory acquisition of land many years after the date of acquisition, by using the market value that prevailed on the date when lignite was first discovered, is wholly arbitrary and is inconsistent with the letter and spirit of article 31(2) as it existed prior to the Constitution (Fourth Amendment) Act of 1955. The Court further noted that any rule for determining compensation that denies the owner all increases in value occurring between a fixed reference date and the date on which the notice under section 4(1) of the Land Acquisition Act is issued must, on its face, be considered to deny the owner the true equivalent of the land that is being taken. Consequently, the burden is on the State to demonstrate that fixing compensation on the basis of an earlier market value does not contravene the constitutional guarantee. In the present appeals, the State had not produced any material that could support such a contention. The Court also held that refusing to compensate for the value of non‑agricultural improvements would deprive the owner of just compensation for the loss suffered because of the compulsory acquisition of his holding, and such refusal would amount to an infringement of article 31(2) of the Constitution. The judgment was delivered in the civil appellate jurisdiction concerning Civil Appeals numbered six to twelve of 1963, which arose from the judgment and decree dated 2 February 1959 of the Madras High Court in writ petitions numbered 1, 2, 202, 203, 204, 309 and 373 of 1958. Counsel for the appellants were A. Ranganadham Chetty and A. V. Rangam in all the appeals; counsel for the respondent in Civil Appeal No. 11/63 was R. Gopalakrishnan; the interveners were represented by S. V. Gupte, Additional Solicitor‑General, and R. H. Dhebar; further interveners were represented by M. C. Setalvad, N. S. Bindra and R. H. Dhebar; and interveners No. 4 were represented by G. C. Kasliwal, Advocate‑General of Rajasthan, R. H. Dhebar and B. R. G. K. Achar. The judgment was pronounced on 3 March 1964 by Justice Shah. The sole question to be resolved in these appeals was whether sections two and three of the Madras Lignite (Acquisition of Land) Act XI of 1953, which aim to amend the Land Acquisition Act of 1894 in their application to the acquisition of lignite‑bearing lands, are invalid because they infringe the fundamental right guaranteed under article 31 of the Constitution to owners whose property is to be compulsorily acquired.

On October 6, 1948, the Government of Madras issued a press‑note announcing its intention to introduce legislation concerning lignite‑bearing lands. The proposed law would give the Government power to compel any person who purchased land in those areas on or after a date to be fixed in 1947. Such persons would be required to sell the land back to the Government at the price originally paid. The Government also advised owners of lignite‑bearing lands in the Vriddhachalam and Cuddalore taluks not to sell their property to speculators. On January 7, 1953, the Government of Madras published a Bill intended to amend the Land Acquisition Act of 1894 in certain respects. The Bill was passed by the State Legislature on June 2, 1953, received the President’s assent, was published as an Act on June 10, 1953, and became effective on August 20, 1953. The Act introduced three principal provisions. First, it prescribed that compensation for acquisition of lignite‑bearing lands, as amended by the Act, should be assessed on the market value of the land as of April 28, 1947. The assessment would not be based on the date a notification was issued under section 4(1) of the Land Acquisition Act. Second, the Act reserved power under section 17 of the Land Acquisition Act to take possession of land in cases of urgency. Such possession could be exercised for the purpose of working lignite mines in the areas covered by the Madras Lignite (Acquisition of Land) Act of 1953. Third, the Act provided that when assessing the market value of land as of April 28, 1947, the value of any non‑agricultural improvements made after that date was to be disregarded. This rule applied even if the improvements had been completed before a notification under section 4(1) was issued. Pursuant to this Act, the government issued notifications under section 4(1) of the Land Acquisition Act between January and May 1957. These notifications were followed by notifications under section 6 of the Land Acquisition Act. Between May and November 1957, the Land Acquisition Officer made awards under section 11 of the Land Acquisition Act. In those awards, compensation was calculated on the basis of the market value of the land as of April 28, 1947. The value of houses or other non‑agricultural improvements made after that date was excluded from the compensation computation. The owners of the lands affected by these awards filed petitions under article 226 of the Constitution in the Madras High Court, challenging the validity of the awards. They argued that the provisions of the Madras Lignite (Acquisition of Land) Act XI of 1953 infringed the fundamental right guaranteed by article 31(2) of the Constitution. They claimed that the Land Acquisition Officer was required to award compensation based on the market value of the land as of the respective dates of the notifications issued under section 4(1). Accordingly, they contended that awards which valued the lands at the market rate of April 28, 1947 were beyond the Officer’s jurisdiction. They also argued that excluding the value of buildings constructed after that date and of trees from compensation was ultra vires.

The petitioners contended that the awards issued under the notifications made pursuant to section 4(1) of the Land Acquisition Act were void because they valued the lands at the market rate that prevailed on 28 April 1947 and deliberately omitted the value of any buildings constructed after that date as well as the value of trees standing on the land. Accordingly, the petitioners prayed that mandamus be issued directing the State of Madras and the Land Acquisition Officers to refrain from taking possession of the petitioners’ lands and buildings without first providing adequate compensation, and they also asked for any other appropriate relief. The High Court accepted the petitioners’ arguments, holding that the awards made on the basis of the provisions of Madras Act XI of 1953 could not be sustained. In response, the State of Madras filed appeals against the High Court’s order, obtaining a certificate of fitness under article 132 of the Constitution in order to pursue the appeals.

Madras Act XI of 1953 represents a significant departure from the scheme laid down in the Land Acquisition Act 1894. Under the 1894 Act, a person whose land is compulsorily acquired is entitled to receive the market value of his interest in the land as of the date of publication of the notification made under section 4(1); that compensation includes the value of all improvements, whether agricultural or non‑agricultural, made on the land up to that date. By contrast, Madras Act XI of 1953 provides that compensation for compulsory acquisition shall be determined on the basis of the value of the land as it stood on 28 April 1947, together with the value of any agricultural improvements made after that date but before the issuance of the notification under section 4(1). The effect of this provision is to freeze the land prices for the purpose of acquisition at their 1947 levels, thereby depriving owners of any benefit arising from the appreciation of land values after that date and also excluding any non‑agricultural improvements made thereafter.

The petitioners challenged this departure as illegal, arguing that it robs landowners of the right to receive just compensation for the compulsory acquisition of their property. Since Madras Act XI of 1953 was enacted prior to the Constitution (Fourth Amendment) Act 1955, the Court was required to examine the validity of the Act in light of the constitutional provisions that existed in article 31 before the amendment. The Court clarified that, for the purposes of the present judgment, it would not express an opinion on whether, after the amendment of article 31(2) by the Fourth Amendment—which was not given retrospective effect—it might be permissible for legislation to fix compensation for compulsory acquisition on the basis of a market value that predates the date of the notification issued under section 4(1).

Article 31, as it existed before being amended by the Constitution (Fourth Amendment) Act 1955, contained two clauses. Clause (1) declared that no person could be deprived of his property except by authority of law. Clause (2) stipulated that no movable or immovable property, including any interest in a company that owned a commercial or industrial undertaking, could be taken possession of or acquired for public purposes under any law authorising such taking unless that law provided for compensation, and either fixed the amount of the compensation or specified the principles and the manner by which the compensation was to be determined and paid. The Supreme Court earlier explained in Chiranjit Lal Chowdhuri v. Union of India and others (1) and in The State of West Bengal v. Subodh Gopal Bose and others (2) that the two clauses of Article 31 dealt with the same subject of eminent domain. Accordingly, Article 31 protected every person against deprivation of his property except by lawful authority, and it required that any law authorising the taking of possession or acquisition of property for public purposes must either state the exact amount of compensation or lay down the principles that would govern the determination of such compensation. The power to legislate on compensation for acquisition and requisitioning of property was situated in Entry 42 of List III of the Seventh Schedule, which read: “Principles on which compensation for property acquired or requisitioned for the purpose of the Union or of a State or for any other public purpose is to be determined, and the form and the manner in which such compensation is to be given.” Thus, through Article 31(2) the Constitution conferred a fundamental right on every person, protecting his property against compulsory acquisition unless it was carried out by authority of law and accompanied by just indemnification for the loss suffered. In The State of West Bengal v. Mrs. Bela Banerjee and others (1) the Court observed that when Entry 42 granted the legislature discretionary power to prescribe the principles governing the amount payable to a property owner whose land was appropriated, those principles had to ensure that the amount determined was a just equivalent of what the owner had been deprived of. Subject to this essential limitation, the Constitution allowed the legislature freedom to decide which principles should guide the calculation of the payable amount. The Court therefore held that the West Bengal Land Development and Planning Act, 1948, which was enacted mainly for the settlement of immigrants who had moved to West Bengal because of communal disturbances in East Bengal, and which in section 8 provided that compensation for compulsory acquisition would not exceed the market value of the land on 31 December 1946, was ultra vires the Constitution and void under Article 31(2). The Court pointed out that fixing a ceiling on compensation based on a market value dated many years before the actual acquisition, without reference to the land’s value at the time of acquisition, was arbitrary and could not be regarded as providing due compensation in accordance with the spirit of Article 31(2). This principle was to be applied when assessing the validity of Madras Act XI of 1953.

In its analysis, the Court held that the provision which limited the amount of compensation for compulsory acquisition to a value that could not exceed the market value of the land on 31 December 1946 was ultra vires the Constitution and void under article 31(2). The judgment quoted the discussion at page 564, stating: “Turning now to the provisions relating to compensation under the impugned Act, it will be seen that the latter part of the proviso to section 8 limits the amount of compensation so as not to exceed the market value of the land on 31 December 1946, no matter when the land is acquired. Considering that the impugned Act is a permanent enactment and lands may be acquired under it many years after it came into force, the fixing of the market value on 31 December 1946 as the ceiling on compensation, without reference to the value of the land at the time of the acquisition is arbitrary and cannot be regarded as due compensation in letter and spirit with the requirement of article 31(2).” The Court observed that the same principle must be applied when evaluating the validity of Madras Act XI of 1953. It was noted that 28 April 1947 could be presumed to be the date on which lignite deposits were discovered in the areas covered by the Act, but there was no genuine connection between the acquisition of the lands in the present cases and the fixing of compensation on the basis of the market rate that prevailed on that discovery date. The Court explained that fixing compensation for compulsory acquisition of lands that are notified many years after the discovery, using the market value as of 28 April 1947, is wholly arbitrary and runs contrary to the letter and spirit of article 31(2) as it stood before the Fourth Amendment of 1955. Since the Constitution guarantees a property owner protection against expropriation except for a just monetary equivalent, any law that authorises acquisition of land for a value frozen on a date prior to the acquisition—on the assumption that any increase in value since that date is attributable to future state use—must be regarded as infringing the fundamental right. Counsel for the State of Madras relied upon the observation of Chief Justice Patanjali Sastri in the Bela Banerjee case (1) at page 564, which stated: “The fixing of an anterior date for the ascertainment of value may not, in certain circumstances, be a violation of the constitutional requirement as, for instance, when the proposed scheme of acquisition becomes known before it is launched and prices rise sharply in anticipation of the benefits to be derived under it, but the fixing of an anterior date, which might have no relation to the value of the land when it is acquired, many years later, cannot but be regarded as arbitrary.” The State contended that a law which merely fixes the market value on a date preceding the actual expropriation, and makes that figure determinative of the compensation, cannot without further inquiry be said to infringe article 31(2) of the Constitution.

The Court observed that a law which merely fixes the market value on a date anterior to the date on which the owner’s land is expropriated, and then uses that fixed value as the basis for compensation, could not be said to infringe article 31 (2) of the Constitution without a further enquiry. The Court further held that the observation cited by the State of Madras could not assist that State in preserving the provisions of Madras Act XI of 1953 from being struck down as violative of the constitutional guarantee contained in article 31 (2). The guaranteed right was, according to the Court, the right to a just indemnification for the loss suffered, and any appreciation in the market value of the land because of the proposed acquisition might be disregarded in the assessment of compensation. The Court noted that the Land Acquisition Act itself required that compensation be assessed on the basis of the market value of the land not on the date when the owner’s interest was extinguished under section 16, but on the basis of the market value prevailing on the date when the notification under section 4 (1) was issued. The Court declined to decide whether this rule, applied in all cases regardless of subsequent developments, always ensured a just indemnification that would be immune from attack, because such a question did not arise for determination in the present case. Nevertheless, the Court explained that any principle for determining compensation which denied the owner all increments in value between a fixed earlier date and the date of the notification under section 4 (1) must, on its face, be regarded as denying the owner the true equivalent of the land that was expropriated. Accordingly, the burden was on the State to demonstrate that fixing compensation on the market value of an earlier date did not amount to a violation of the constitutional guarantee. The Court recorded that the State had placed no materials before the Court that could support any argument to the contrary.

The Court also recorded that the Province of Madras had issued a press note in 1948 announcing that the Government intended to introduce legislation giving it the power to compel any person who had purchased land in the lignite‑bearing areas to sell that land to the Government at the price at which it had been purchased. The only information conveyed to the owners of the lands by that press note was that the Government might undertake legislation for the purpose of purchasing lands at the price paid by the speculators. The Court found no evidence that, in 1947, the Government of Madras had prepared any scheme for the acquisition of land for the purpose of mining lignite. It observed that the mining operations carried out in 1947 must, by their very nature, have been exploratory, and that the statement of objects and reasons for the Act clearly disclosed that the initial mining operations were started by the Government on a small area. The Court accepted that, in appropriate cases, fixing a date earlier than the publication of the notification under section 4 (1) for ascertaining the market value of the land to be acquired might not always be regarded as a violation of the constitutional guarantee. However, the Court emphasized that, in the present case, there was an absence of any evidence that compensation assessed on the basis of market value fixed on an earlier date would accord the expropriated owner a just monetary value of his property at the date on which his interest was extinguished.

In this case the Court observed that when a law fixes compensation by referring to a market value determined on a date that precedes the issuance of a notification under section 4(1), the owner of the expropriated land is nevertheless entitled to receive a monetary amount that reflects the true value of his property at the moment his interest is extinguished. Consequently, the statutory provision that arbitrarily bases compensation on a market valuation made many years before the notification cannot be sustained as a valid measure. The Court noted that it is common knowledge that, following the end of hostilities in the last World War, land values have shown an upward trend, often rising to amounts far above the original values of the lands. However, the State failed to produce any evidence showing that the increase in market value of lands in the relevant area since April 1947 was solely the result of a specific scheme for acquiring lignite‑bearing lands. By refusing to compensate the landowner at rates that would fairly indemnify him for his loss and instead applying rates that were in force ten years prior to the date on which the notification under section 4(1) was issued, the State effectively committed a flagrant infringement of the owner’s fundamental right to compensation under Article 31(2) as it stood at the time the Act was enacted.

The Court further held that the validity of the provision dealing with the fixation of compensation must be examined in light of the constitutional protection guaranteed at the moment the Act came into operation. Any subsequent amendment of Article 31(2) that was not given retrospective effect must be disregarded entirely. In addition, the provision that deprives the landowner of compensation for non‑agricultural improvements made after April 28 1947 also contravenes the protection afforded by Article 31(2). Under section 3(a) of the Land Acquisition Act, “land” is defined to include the benefits that arise from the land, any things attached to the earth, and anything permanently fastened to those things. When, under section 4(1), land is notified for acquisition, the acquisition encompasses the entire interest of the owner, including any underground rights, crops, trees and superstructures. By virtue of the Madras Act, the owner is therefore deprived of the value of all non‑agricultural improvements, including the value of non‑agricultural buildings erected on the land after April 28 1947. It remains unclear whether such buildings, constructed after the specified date, become forfeited to the State upon acquisition or whether the owner retains a right to remove them. In either circumstance, the owner is denied the fair value of his land together with the superstructures that were taken from him. The Court concluded that denying the owner compensation for the structures he built—even those erected after April 28 1947 with knowledge that the Government might enact legislation for compulsory acquisition—constitutes a denial of just compensation for the loss suffered because of the compulsory acquisition of his holding.

The Court held that the requirement to assess compensation for land acquired compulsorily only on the basis of the market value of the land as of 28 April 1947, together with the value of agricultural improvements made after that date but before the publication of the notification under section 4(1), would constitute a breach of Article 31(2) of the Constitution. Accordingly, the Court was of the view that any statutory provision obliging the Land Acquisition Officer and the Court to limit compensation to those elements, while ignoring the value of any non‑agricultural improvements erected after 28 April 1947, must be treated as void. The Court further clarified that it was not called upon to express an opinion on whether the power conferred by section 17 of the Land Acquisition Act, as amended by section 2 of Madras Act XI of 1953, to take possession of land under the emergency clause for the purpose of operating lignite mines in the area covered by the Madras Lignite (Acquisition of Land) Act, 1953, is invalid. Neither party had raised any argument on that specific question before the Court, and the High Court had not been asked to consider the validity of that provision. Consequently, the Court concluded that the appeals failed and were dismissed. The Court noted that, except for appeal number 11 of 1963, the respondents in this group of appeals had not appeared before the Court. Accordingly, in appeal number 11 of 1963 alone, the State of Madras was ordered to pay the costs of the respondent, while no order as to costs was made in the remaining appeals. The appeals were therefore dismissed.