Interest on Shortfall in Compensation Must Follow Statutory Rates Specified Under Section 28 of Land Acquisition Act

The respondents’ lands in Village Detroj, Ahmedabad, were acquired for the Narmada Canal project. An award under Section 11 of the Land Acquisition Act was passed on 19.03.1996.

The Reference Court enhanced compensation on 03.11.1999.

Although the State deposited funds on 30.07.2003, there was a shortfall of ₹9,665/- in the principal amount due to a calculation error by the State.

The original claimants filed a recovery application for the remaining amount plus interest on the delayed payment. The Reference Court allowed the application, directing the State to pay the remaining principal plus 15% interest for 6728 days (the period between 31.07.2003 and 31.12.2021).

1. Whether the Reference Court erred in awarding 15% interest on the delayed payment of the remaining compensation amount for the period from 2003 to 2021.

2. Whether the calculation of interest under Section 28 of the Land Acquisition Act was just and proper in view of a shortfall in the initial deposit.

Section 28 of the Land Acquisition Act, 1894, which mandates interest on excess compensation at 9% p.a. from the date of possession for the first year, and 15% p.a. thereafter on any unpaid "excess or part thereof".

Section 34 regarding interest on unpaid compensation.

The Act is a self-contained code and courts cannot award interest on equitable grounds or in a manner contrary to statutory rates as established in Union of India v. Budh Singh [(1995) 6 SCC 233] and State of Himachal Pradesh v. Dharam Das [(1995) 5 SCC 683].

The State argued that the Reference Court had granted "interest upon interest," which is prohibited by precedent.

The High Court observed that the State had admitted to a shortfall of ₹9,665/- in the 2003 deposit. Under the proviso to Section 28, if any part of the excess compensation is not paid into court within one year of taking possession, interest at 15% p.a. is legally payable on the unpaid portion.

The Court found that the Reference Court did not grant compound interest but rather applied the statutory 15% rate specifically to the "delayed payment of the remaining amount".

Since the State failed to deposit the full amount in 2003, the claimants were entitled by law to the higher interest rate on the deficiency until the date of actual payment.

The Court concluded that the compensation of ₹21,246/- (representing ₹5,643/- principal plus ₹15,603/- interest) was just and proper; the petitions were dismissed and Rule discharged.