Undiverted agricultural land may be valued according to its residential development potential at acquisition.

The Madhya Pradesh Government acquired lands situated at Village Padra, Tehsil Hujur, District Rewa, for implementation of a housing scheme by the Madhya Pradesh Housing and Infrastructure Board.

The Section 4 notification under the Land Acquisition Act, 1894 was issued on 10 May 1991, the Section 6 declaration was published on 14 June 1991, and the award was passed on 30 April 1993.

The Collector assessed compensation at ₹95,200 per acre for unirrigated land and ₹1,23,760 per acre for irrigated land.

The landowners sought references under the Act, contending that the assessment was inadequate.

The Reference Court held that the lands possessed residential-development potential and, relying on comparable sale deeds showing values between ₹25 and ₹50 per square foot, fixed the average value at ₹35 per square foot and deducted 30% towards development costs, resulting in a value of ₹24.50 per square foot.

The Housing Board challenged the enhancement in First Appeals Nos. 537, 538, 539 and 540 of 2014, while the landowner in First Appeal No. 1103 of 2015 sought further enhancement.

1. Whether the acquired agricultural lands had sufficient 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.

2. Whether the Reference Court correctly assessed market value by relying on sale exemplars of smaller, developed plots and applying a 30% deduction towards development costs.

3. Whether the landowners were entitled to further enhancement beyond the amount awarded by the Reference Court.

Market value in land-acquisition proceedings is to be determined with reference to the value and potentiality of the land on the date of the Section 4 notification; the proposed future use by the acquiring authority cannot itself determine compensation, but the existing development potential of the land may be considered.

Formal diversion of agricultural land is not a prerequisite for recognising its potential for residential or commercial development.

Comparable sale deeds of smaller parcels may be relied upon for valuing larger acquisitions, provided appropriate deductions are made for development and the difference in size and developmental requirements; the Supreme Court so held in Ravinder Kumar Goel v. State of Haryana, (2024) 16 SCC 688.

The “guess-estimation” or approximate valuation method may be used where necessary to determine market value, as recognised in New Okhla Industrial Development Authority v. Harnand Singh, 2024 SCC OnLine SC 1691.

Development deductions may vary substantially, generally between 20% and 70%, depending on the facts, as stated in State of M.P. v. Kashiram, (2010) 14 SCC 506.

The Court found that the lands were situated near Rewa city, the Satna–Rewa Highway/NH-7, Transport Nagar, Shanti Vihar Colony, Agriculture College, existing colonies, commercial establishments and other developed infrastructure.

These surrounding circumstances established substantial development potential as of the notification date, irrespective of the absence of formal diversion.

The Court accepted the use of the seven comparable sale deeds, but recalculated their average value at approximately ₹39 per square foot rather than ₹35.

Applying the principles governing deductions for larger undeveloped tracts, it held that a 30% deduction was inadequate.

For parcels exceeding one acre, 40% of the land would reasonably be consumed by roads and a further 20% by roads, utilities, diversion charges and other infrastructure, warranting a total deduction of 60%.

For parcels below one acre, the deduction was fixed at 50% because of comparatively lower wastage for roads.

Accordingly, the net rates were fixed at ₹15.60 per square foot for the lands in Appeals Nos. 537, 538 and 539 of 2014, and ₹19.50 per square foot for the land in Appeal No. 540 of 2014.

First Appeals Nos. 537, 538, 539 and 540 of 2014 were partly allowed: the Reference Court’s rate of ₹24.50 per square foot was reduced to ₹15.60 per square foot in Appeals Nos. 537, 538 and 539, and to ₹19.50 per square foot in Appeal No. 540.

First Appeal No. 1103 of 2015, seeking further enhancement by the landowner, was dismissed.

The awards relating to interest, solatium and other components were maintained, and all appeals were disposed of accordingly.