Undiverted agricultural land may be valued for residential potential, subject to appropriate development deductions.

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

The Section 4 notification under the Land Acquisition Act, 1894 was issued on 10 May 1991, the Section 6 notification 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.

On references sought by the landowners, the Reference Court held that the lands possessed residential-development potential, relied on comparable sale deeds showing values between ₹25 and ₹50 per square foot, adopted ₹35 per square foot, and, after a 30% development deduction, awarded compensation at ₹24.50 per square foot.

The Housing Board challenged the enhancement in First Appeals Nos. 537–540 of 2014, while the landowners sought further enhancement in First Appeal No. 1103 of 2015.

Whether the acquired agricultural lands, though not formally diverted for residential or commercial use, possessed sufficient potential for development into residential plots as on the date of the Section 4 notification.

Whether the Reference Court correctly assessed compensation by relying on sale exemplars of smaller plots and by applying only a 30% deduction towards development costs.

What rate of compensation should be awarded for the respective acquired parcels, and whether the landowners were entitled to further enhancement.

The Court applied the land-valuation principles under the Land Acquisition Act, 1894, particularly the requirement to determine market value with reference to the date of the Section 4 notification.

It held that the intended future use by the acquiring authority cannot itself determine compensation, but the existing development potential of the land on the acquisition date may be considered.

The Court relied on Ravinder Kumar Goel v. State of Haryana, (2024) 16 SCC 688, for the principle that sale exemplars relating to smaller parcels may be used for valuing larger parcels, subject to appropriate deductions.

The Court relied on New Okhla Industrial Development Authority v. Harnand Singh, 2024 SCC OnLine SC 1691, regarding the “guestimation” or comparable-sale methodology.

The Court relied on State of M.P. v. Kashiram, (2010) 14 SCC 506, which recognises that development deductions may generally range from 20% to 70%, depending on the circumstances.

The applicable deduction must account for land required for roads and basic infrastructure such as water, sewage and electricity.

The Court upheld the finding that the lands possessed development potential because they were situated near Rewa city, the Satna–Rewa Highway/NH-7, existing residential colonies, Transport Nagar, an Agriculture College and several commercial establishments.

Formal diversion of the lands was not treated as decisive; the relevant consideration was their potential on the date of acquisition, although the undiverted agricultural character justified a substantial development deduction.

The Court recalculated the average price from the seven comparable sale deeds at approximately ₹39 per square foot.

It found the Reference Court’s 30% deduction inadequate.

For parcels exceeding one acre, it applied a 60% deduction—40% for roads and 20% for infrastructure—resulting in ₹15.60 per square foot.

For the parcel measuring 0.371 hectare, or 0.916 acre, it applied a 50% deduction, resulting in ₹19.50 per square foot.

The Court also considered both residential and commercial exemplars because the surrounding locality had potential for both forms of development.

First Appeal No. 540 of 2014 was partly allowed, with compensation fixed at ₹19.50 per square foot because the acquired parcel was below one acre.

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

The Reference Court’s directions concerning interest, solatium and other components of compensation were upheld, and all appeals were disposed of accordingly.