A pound of flesh and more: Anomaly in Manilal Shamalbhai Patel

Introduction

Inadequate compensation granted to the landowners whose land is compulsorily acquired has been a source of concern, even expressed the Supreme Court. Yet, the Supreme Court [hereinafter “the Court”] may have provided the State with an additional means to make a deduction in the compensation to be granted. In the judgement titled Manilal Shamalbhai Patel v. Officer on Special Duty (Land Acquisition), delivered in March, 2025, the Court allowed a two-fold deduction in the determination of market value of land – deduction towards development cost and deduction towards the “largeness of land”.

While the deduction towards development costs has been recognised by various earlier judgements of the Court, a redundant deduction due to “largeness of land” has been allowed in the present judgement. This marks a deviation from the established jurisprudence around the determination of market value. Concerningly, the High Courts and the Reference Courts, following the principle of stare decisis, will be bound by the present interpretation of the law, allowing the State to add another column to their list of deductions to be made in determining the market value of the land and subsequent compensation.

What is the concept of Development Cost?

In order to arrive at the market value of the land acquired, courts often place reliance on the sale deeds of the neighbouring lands, dated closer to the Date of Notification. However, in case of acquisition of large tracts of land and unavailability of sale deeds of a comparable size of land with equivalent potential, previous land acquisition awards, or judgements determining the market value, reliance may be placed on sale deeds of smaller pieces of land. The concept of deduction due to development cost is in this context. The Court has explained that if the market value of a large tract of underdeveloped land is to be determined with reference to the market value of a neighbouring small plot of land, it is essential to “work back” the market value of the larger undeveloped land from market value of the relatively developed small plot. The process of “working back” is causing the relevant deduction from the value of smaller piece of land due to its relatively developed status.

Essentially, deduction of development costs is a method to derive the “wholesale price” of a large undeveloped land with reference to the “retail price” of a relatively developed smaller plot. The difference between the value of a relatively developed smaller plot and the value of a large undeveloped land is the “development cost”. Moreover, in the same vein, the Court held that the future purpose of acquisition is no factor to determine the compensation.

Importantly, components of the development costs are two-fold – (a), an area to be left out of the total large tract of land for laying down roads, drains, parks, community areas, etc., and (b), costs for development, such as the cost of levelling the land, providing roads, underground drainage facilities, developing parks and civil amenities, etc. The degree of deduction is a question of fact, the determination of which may take into account factors such as “the relative difference in the size of the land in the sale exemplar vis-à-vis the acquired land, etc.” The deduction due to development cost, albeit not a strict rule, may range from 20 – 75% of the value of a relatively developed smaller plot of land.

Redundant concept of deduction due to the ‘largeness of land’

In Manilal Shamalbhai Patel, the Court was deliberating upon an appeal against the decision of the High Court of Gujrat. The relevant issue before the Court was whether the market value of the acquired land had been estimated erroneously by not placing reliance on the best sale exemplar. The Court allowed the appeal and granted higher compensation to the aggrieved landowners based on the best sale deed of a smaller piece of land. In granting the compensation, the Court allowed a deduction of 40% for development costs and an additional 10% on account of the “largeness of land”. However, there is a lack of comprehensive reasoning in the judgement for the separate deduction.

An additional deduction towards the “largeness of land” is a departure from established jurisprudence around determining the market value of the acquired land. The Court in the present matter observed that larger tracts of land generally attract a lesser market value than smaller plots of land. However, it is to be noted that the primary reason behind the difference is the lack of development. The Court has observed that while calculating deduction due to development costs, the relative difference in size of the exemplar land vis-à-vis the acquired land is one of the essential factors. When such a difference is already accounted for through a deduction due to development costs, the aspect of “largeness of land” stands inherently covered.

To illustrate the case in point, assume a 100-acre tract of agricultural land is being acquired. The landowners place reliance on a developed residential plot of 2 acres (with similar potentiality) to derive the market value of the 100-acre land. The Court will take into account the developed status of the smaller residential plot of 2 acres and make an appropriate deduction, say 50% from the value of the smaller plot to derive the value of the larger tract of land. Hence, a deduction solely for “largeness of land”, say an additional 10%, is unwarranted as it stands subsumed within the deduction towards development costs.

Departure from Established Jurisprudence

From a wider jurisprudential viewpoint, the judgement goes against the principle of stare decisis as it marks a departure from the established jurisprudence around the concept of development cost. A Constitution Bench of the Court has held that since the decisions of the Court embody a declaration of law and operates as a binding principle in future cases, law declared should be certain, clear and consistent. Moreover, a 7-Judge Bench of the Court emphasised that the Court should not depart from an interpretation of law rendered in the earlier decisions of the Court unless there is a fair amount of unanimity that the earlier decision was manifestly wrong.

The Court had in its earlier pronouncement explained the concept of development costs as consisting of two elements i.e., costs towards developing the land and the land to be left unutilized, which merit a deduction while determining market value of the land. These two elements encompass the rationale behind lower valuation for larger tracts. Introducing a separate deduction for “largeness of land” adds confusion, contradicting settled interpretation and threatening coherence in judicial reasoning. Furthermore, given the hierarchal structure of the Indian judiciary, High Courts and Reference Courts may also find themselves bound by the misinterpretation, potentially leading to conflicting judgments and enabling the State to justify unjustified deduction.

Consistency Required

The Court in Manilal Shamalbhai Patel has introduced a troubling precedent. The distinction made based on deduction allows for a needless deduction in compensation. This distinction not only leads to inadequate compensation to the landowners but also amounts to a departure from settled jurisprudence of the determination of the market value of the land acquired. The distinction could potentially allow the State to justify an additional deduction in its assessment of fair compensation. Therefore, such deductions need to be prevented by a clear and consistent judicial approach. The Supreme Court has cautioned against arbitrary deductions, emphasising that the deductions are required to be reasonable and consistent with factual realities. Without imposing generalised reductions, the Court made it clear that deductions must be based on a structured and fact-based approach in land valuation. If followed, this principle prevents the instances of overlapping deductions such as made in Manilal Shamalbhai Patel. It is, therefore, imperative that a consistent and principled judicial approach to safeguard landowners’ right to fair compensation is maintained.