Annual escalation of 12% is appropriate for determining market value of agricultural lands in comparable acquisition proceedings.

The State of Maharashtra acquired agricultural lands in Village Parhar (Khurd), Taluka Bhor, Pune, for the Neera Deoghar Irrigation Project via a Section 4 notification dated 9 October 1997.

The Land Acquisition Officer (LAO) awarded compensation ranging from ₹40,000 to ₹46,000 per hectare in 1999.

Dissatisfied, the claimants sought a reference under Section 18 of the Land Acquisition Act, 1894, claiming ₹3,68,000 per hectare.

The Reference Court enhanced the compensation to ₹2,54,000 per hectare by applying a 6% annual escalation to the base rate of a neighboring village (Dapkeghar).

Both the claimants and the Acquiring Body (MKVDC) appealed to the High Court.

1. Whether Village Parhar (Khurd) is comparable to neighboring Village Dapkeghar for the purpose of determining market value.

2. Whether the Reference Court was justified in granting only a 6% annual escalation instead of the 12% claimed by the land owners.

3. Whether the reference applications were filed within the period of limitation prescribed under Section 18.

The Court applied the Land Acquisition Act, 1894, specifically Section 18 (Reference to Court) and Section 23 (Matters to be considered in determining compensation).

The Court followed the principle that a Section 18 proceeding is an original proceeding where the court must determine market value based on evidence of a willing purchaser and seller.

Precedents including Chimanlal Hargovinddas v. SLAO, Poona and Mehrawal Khewaji Trust v. State of Punjab established that where several comparable sale instances are available, the highest bona fide sale should generally be preferred.

Balwant Singh v. State of Haryana and the 1984 Amendment (Section 23(1A)) supported the principle of granting 12% annual escalation to account for the rise in land prices over time.

The High Court found that the LAO himself relied on sale instances from adjoining villages like Apti and Nandgaon because no transactions existed in Parhar due to rehabilitation restrictions.

The Court rejected the State's argument that River Neera created a geographical disadvantage, noting that prior to the dam, it was nearly dry and connected by a bridge.

It noted that the Coordinate Bench in First Appeal No. 150 of 2009 (Dapkeghar) had already established the similarity of terrain and agricultural quality in this specific river basin.

Critically, the Court held that the Reference Court's reduction of escalation to 6% was erroneous; the lack of "commercial potential" is not a valid ground to deny the standard 12% escalation for agricultural lands, especially when the LAO and previous High Court judgments for the same project utilized the 12% rate.

The Court enhanced the compensation from ₹2,54,000 to ₹3,13,981 per hectare by taking the base market value of Village Dapkeghar (₹2,05,000) and applying a 12% annual escalation for the 4-year and 5-month gap between the two notifications.

Claimants were also awarded all statutory benefits including 30% solatium, 12% additional amount under Section 23(1A), and interest under Section 28.