Land acquisition compensation must reflect development potential, with 60% or 50% deductions based on parcel size.

The appeals arose from acquisition of lands situated at Village Padra, Tehsil Hujur, District Rewa, for execution of a housing scheme by the Madhya Pradesh Housing and Infrastructure Board. The acquisition was initiated under Section 4 of the Land Acquisition Act, 1894, through notification dated 10 May 1991; the Section 6 declaration was published on 14 June 1991, and the award was passed on 30 April 1993.

The Collector initially assessed compensation at ₹95,200 per acre for unirrigated land and ₹1,23,760 per acre for irrigated land. On references made by the landowners, the Reference Court held that the acquired lands possessed residential-development potential and assessed their value at ₹24.50 per square foot after applying a 30% deduction towards development costs.

In a connected batch of appeals led by First Appeal No. 538/2014, decided on 3 August 2026, the High Court reassessed the rate by taking the average of comparable sale deeds at ₹39 per square foot and applying deductions of 60% for parcels exceeding one acre and 50% for parcels below one acre. It consequently fixed compensation at ₹15.60 and ₹19.50 per square foot, respectively.

The present appeals concerned the same project and village. The parties agreed that the determination in the earlier batch should apply to these matters mutatis mutandis.

Whether the acquired agricultural lands possessed potential for development into residential or commercial plots on the date of the Section 4 notification, notwithstanding that they had not been formally diverted for non-agricultural use?

Whether the compensation determined by the Reference Court at ₹24.50 per square foot required modification by applying an appropriate deduction towards development costs?

Whether the rates of ₹15.60 per square foot for land exceeding one acre and ₹19.50 per square foot for land below one acre should govern the present appeals?

The Court applied the principles governing determination of market value under the Land Acquisition Act, 1894, particularly the requirement to assess the value of acquired land with reference to its market value and potentiality on the date of the Section 4 notification.

Formal diversion of agricultural land is not indispensable where surrounding circumstances establish its potential for residential or commercial development. Comparable sale exemplars involving smaller parcels may be relied upon for valuing larger acquisitions, subject to suitable deductions for development.

The Court also relied on New Okhla Industrial Development Authority v. Harnand Singh, 2024 SCC OnLine SC 1691, regarding the estimation of land value, and State of M.P. v. Kashiram, (2010) 14 SCC 506, which recognises that development deductions may generally range between 20% and 70%, depending on the circumstances.

The Court found that the lands were situated near the Satna–Rewa Highway, existing residential colonies, Transport Nagar, Agriculture College, commercial establishments and other developed areas. These surrounding circumstances demonstrated that, on the date of acquisition, the lands had development potential, even though they remained undiverted agricultural lands.

The Court accepted the comparable sale deeds showing prices ranging from ₹25 to ₹50 per square foot and calculated their average at approximately ₹39 per square foot. It held that the Reference Court’s 30% deduction was inadequate because development would require land for roads, diversion charges and essential infrastructure such as water, sewerage and electricity.

Accordingly, it applied a 60% deduction to parcels exceeding one acre and a 50% deduction to parcels below one acre.

Since the present appeals related to the same acquisition project and village, the Court adopted the same methodology and rates for maintaining consistency.

The compensation was therefore to be calculated at ₹15.60 per square foot for acquired land exceeding one acre and ₹19.50 per square foot for acquired land below one acre, with the remaining components of compensation, including interest and solatium, governed by the Reference Court’s award as upheld in the earlier decision.