land acquisition, compensation, tahsildar, property law
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Aresh @ Ashok J. Mehta (D) By Prop. Lrs. Vs. Spl. Tahsildar, Balgaum Karnataka & Anr.

  Supreme Court Of India Civil Appeal /5517/2005
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Case Background

The appellant landlord appealed against the judgment of the Division Bench of the High court of Karnataka, whereby the Division bench rejected the prayer for interest on amount of compensation ...

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Page 1  

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5517  OF 2005

ARESH @ ASHOK J. MEHTA (D) BY 

PROP.  LRS.           … APPELLANT

Versus

SPL. TAHSILDAR, BALGAUM

KARNATAKA & ANR.            … RESPONDENT(S)

J U D G M E N T 

SUDHANSU JYOTI MUKHOPADHAYA, J.

This appeal has been preferred by the appellant­

landlord   against   the   judgment   &   order   dated   6

th 

August,   1999   passed   by   the   Division   Bench   of   the 

High Court of Karnataka in Writ Appeal No. 8110/1996  

whereby the Division Bench rejected the prayer for  

interest on amount of compensation w.e.f. 1

st

 March, 

1974 and thereby affirmed the order passed by the  

learned   Single   Judge   but   held   that   the   appellant­

landlord is entitled for interest w.e.f. 1

st

  March, 

1984.

1

Page 2 2.The appellant was the owner of the land bearing  

R.S. No. 16/1, measuring 7 acres 21 guntas in  

village­Examba, Taluka Chikodi, Karnataka.  The  

land in question was vested with the State for  

grant in favour of the tenant w.e.f. 1

st

  March, 

1974   under   Section   44   of   the   Karnataka   Land 

Reforms Act, 1961 as amended by Act No.1 of 1974  

(hereinafter referred to as the ‘Act’). 

3.The Tehsildar, Chikodi under Section 48A(7) and  

Section 53  heard the appellant­landlord and the  

tenant   and   determined   the   quantum   of   amount 

payable   at   Rs.   17,244/­   vide   order     dated  

28.2.1983.     It   was   held   that   a   sum   of   Rs. 

2,000/­ is to be paid as first instalment within  

30   days   from   the   date   of   the   receipt   of   the 

order   and   the   balance   in   19   equated   annual 

instalments with interest @ 5

½%   as indicated

 

therein.   The compensation amount was paid to  

the appellant in between the years 1983­1985 but  

without any interest.   In this background, the  

appellant   moved   in   the   Court   of   Special  

Tehsildar, Chikodi with an application that his  

1/3

rd

 share in the house and well situated in RS  

2

Page 3 No.   16/1   of   Examba   village     vested   with   the 

State   therefore   he   claimed   interest   on   the  

compensation amount @ 5

½% per annum w.e.f. 1

st 

March,   1974   till   the   payment   of   the   entire 

amount.  The details of amount of compensation,  

the   amount   of   interest   acquired   on   the  

compensation   amount,     the   amount   paid   to   the 

appellant and the amount as was due to him on  

25

th

 May, 1988 were shown in the representation.  

The appellant claimed a sum of Rs. 19,116.37.  

The Special Tehsildar, Chikodi vide letter dated  

7

th

  June, 1988 rejected his prayer and informed  

that as per Circular   No. RD 171:LRM­86 dated  

24.11.1986     interest   has   to   be   paid   on   the 

amount   paid   through   the   National   Savings  

Certificate   and,   therefore,   no   interest   is  

payable on the amount received in cash.

4.The   order   of   rejection   was   challenged   by   the 

appellant   by   filing   a   writ   petition   no.   18591/88 

before the Karnataka High Court; a prayer was made  

to   direct   the   respondents   to   pay   interest   for  

delayed payment w.e.f. 1.3.1974.  The Circular dated  

24.11.1986, was also challenged by the appellant, as  

3

Page 4 the same was referred to reject his claim.     The  

learned Single Judge by his judgment held that no  

interest is payable towards the amount paid in cash.  

It was further held that interest @5 

½%  is payable,

 

if the compensation amount is paid through National  

savings   certificates.     On   challenge,   the   Division 

Bench of the High Court upheld the order passed by  

learned Single Judge but held that in the facts and  

circumstances of the case the appellant is entitled  

for interest w.e.f. 1

st

 March, 1984.

5.Learned counsel for the appellant contended that  

the examples cited in Circular  dated 24.11.1986 is  

illegal and contrary to the provisions of the Act  

and the clarification given therein.    He secondly  

contended that the tenanted lands having vested with  

the State w.e.f. 1

st

  March, 1974, the owners of the  

land   cannot   be   deprived   of   the   interest   on  

compensation amount for which they are entitled from  

the   date   the   principal   amount   become   due.     He 

thirdly   contended   that   once   the   amount   of  

compensation payable is determined in respect of the  

delayed payment then the land owner is also entitled  

to the interest amount even if the principal amount  

4

Page 5 is paid in cash.   It was also contended that when  

Circular dated 24.11.1986 itself makes it clear for  

investment of  the amount which shall carry interest  

@ 5

½%,  there is no bar  as such  either  under the

 

Act or the Rules to deprive the land­owner from the  

interest   in   case     the   amount   is   paid   in   cash. 

Therefore,   according   to   the   learned   counsel   the  

appellant   is   entitled   for   payment   of   interest  

towards   the   amount   paid   in   cash   in   respect   of 

delayed payment of the principal amount by allowing  

the appeal.

6.On the other hand, it was contended by learned  

counsel for the respondent that in the absence of  

any   provision   for   payment   of   interest   for   the  

compensation   paid   in   cash,   the   learned   High   Court 

has rightly rejected such prayer. 

7.The question that arises for our consideration  

in this case is:­

  “Whether   with   respect   to   the   delayed  

payment   of   the   principal   amount,   the  

appellant   is   entitled   for   any   interest  

towards the amount paid in cash and thereby  

5

Page 6 the   Circular   dated   24.11.1986,   contrary   to 

such extend is liable to be set aside?

8.Heard   learned   counsel   for   the   parties   and  

carefully examined the impugned order passed by the  

learned Single Judge and the Division Bench of the  

High Court.   For determination of the issue, it is  

necessary to notice the relevant provisions of the  

Act in so far as determining the mode of payment  of  

Principal amount, interest, etc.

9.The Karnataka Land Reforms Act, 1961 was enacted  

for conferment of ownership on tenants, ceiling on  

land holdings and for certain other matters.  Chapter  

III of the Act deals with the conferment of ownership  

on tenants.  Under Section 44, all lands held by or  

in the possession of tenants immediately prior to the  

date   of   commencement   of   the   (Amendment)   Act   stand 

transferred and vests in the State Government with  

effect   from   1

st

  March,   1974,   i.e.   the   date   of 

commencement   of   the   (Amendment)   Act   No.1   of   1974. 

All rights, title and interest vesting in the owners  

of such lands and other persons interested in such  

land   ceases   with   effect   from   1

st

  March,   1974   and 

vests absolutely with the State Government free from  

6

Page 7 all encumbrances.   Under clause (b) of sub section  

(2) of Section 44  amounts in respect of such lands  

which become due on or after the date of vesting is  

payable to the State Government and not to the land  

owner,   landlord   or   any   other   person.     The   State 

Government takes possession of such lands forthwith.  

Under clause (g) of sub section (2) of Section 44  

permanent   tenants,   protected   tenants   and   other  

tenants holding such lands are entitled for rights  

and privileges which is accrued to them in such lands  

before the date of vesting against the landlord as  

apparent from Section 44 and quoted hereunder:­

“44.   Vesting   of   lands   in   the   State  

Government.—(1) All lands held by or in the  

possession   of   tenants   (including   tenants  

against whom a decree or order for eviction  

or a certificate for resumption is made or  

issued)   immediately   prior   to   the   date   of 

commencement   of   the   Amendment   Act,   other 

than   lands   held   by   them   under   leases  

permitted   under   Section   5,   shall,   with  

effect   on   and   from   the   said   date,   stand 

transferred   to   and   vest   in   the   State  

Government. 

(2) Notwithstanding anything in any decree  

or  order  of or certificate   issued  by any  

Court or authority directing or specifying  

the lands which may be resumed or in any  

contract, grant or other instrument or in  

any other law for the time being in force,  

with effect on and from the date of vesting  

and save as otherwise expressly provided in  

7

Page 8 this Act, the following consequences shall  

ensue, namely:— 

(a) all rights, title and interest vesting  

in   the   owners   of   such   lands   and   other 

persons   interested   in   such   lands   shall  

cease and be vested absolutely in the State  

Government free from all encumbrances; 

(b) [x x x x x] amounts in respect of such  

lands which become due on or after the date  

of  vesting  shall  be payable  to the  State  

Government   and   not   to   the   land   owner, 

landlord   or   any   other   person   and   any  

payment   made   in   contravention   of   this  

clause not be valid;

(c)   all   arrears   of   land   revenue,   cesses, 

water rate or other dues remaining lawfully  

due on the date of vesting in respect of  

such lands shall after such date continue  

to   be   recoverable   from   the   land­owner,  

landlord or other person by whom they were  

payable and may, without prejudice to any  

other mode of recovery, be realised by the  

deduction   of   the   amount   of   such   arrears 

from the amount payable to any person under  

this Chapter; 

(d)   no   such   lands   shall   be   liable   to 

attachment   in   execution   of   any   decree   or 

other   process   of   any   court   and   any  

attachment existing on the date of vesting  

and any order for attachment passed before  

such  date  in respect   of such  lands  shall  

cease to be in force; 

(e)   the   State   Government   may,   after  

removing   any   obstruction   which   may   be  

offered, forthwith take possession of such  

lands: 

Provided   that   the   State   Government   shall 

not  dispossess  any  person  of any  land in  

respect of which it considers, after such  

enquiry  as may  be prescribed,  that  he is  

8

Page 9 prima face  entitled to be registered as an  

occupant under this Chapter; 

(f)   the   land­owners,   landlord   and   every 

person interested in the land whose rights  

have vested in the State Government under  

clause   (a),   shall   be   entitled   only   to 

receive   the   amount   from   the   State  

Government as provided in this Chapter; 

(g)   permanent   tenants,   protected   tenants  

and other tenants holding such lands shall,  

as   against   the   State   Government,   be  

entitled only to such rights or privileges  

and shall be subject to such conditions as  

are provided by or under this Act; and any  

other rights and privileges which may have  

accrued  to them  in such  lands  before  the  

date   of   vesting   against   the   landlord   or 

other person shall cease and determine and  

shall not be enforceable against the State  

Government.”

 

10.The tenants are registered as occupants of land  

on certain conditions under Section 45 and Section 46  

states that if the tenant held land from one or more  

than one landlord he (tenant) is entitled to choose  

particular land.

11.Every land­owner, landlord and all other persons  

interested   in   the   land   are   entitled   for   amount 

payable, for the extinguishment of their rights in  

the lands vested in the State Government determined  

with   reference   to   the   net   annual   income   derivable 

9

Page 10 from   the   land   in   accordance   with   Section   47,   as 

quoted hereunder:

“47. Amount payable .—(1) every land­owner,  

landlord   and   all  other   persons   interested 

in the land shall, for the extinguishment  

of their rights in the lands vesting in the  

State  Government   under   sub­section   (6)   of 

section 15 or section 20 or section 44, be  

entitled   to   an   amount   determined   with  

reference   to   the   net   annual   income  

derivable from the land or all the lands,  

as the case may be, in accordance with the  

following scale, namely:—

(i)     for   the   first   sum   of   rupees   five 

thousand or any portion thereof of the net  

annual income from the land, fifteen times  

such sum or portion; 

(ii)     for   the   next   sum   of   rupees   five 

thousand or any portion thereof of the net  

annual income from the land, twelve times  

such sum or portion; 

(iii)   for   the   balance   of   the   net   annual 

income   from   the   land,   ten   times   such  

balance: 

Provided that,— 

(i) if the tenant in respect of the land is  

a   permanent   tenant,   the   amount   payable  

shall  be   six­times   the  difference  between  

the rent and the land revenue payable for  

such land; 

(ii)   if   the   tenant   holds   land   from  

intermediaries the amount shall be paid to  

the   land­owner   and   the   intermediaries   in 

the same proportion in which the rent paid  

for   the   land   by   the   tenant   was   being 

appropriated by them immediately before the  

date of vesting; 

10

Page 11 (iii)   if   the   land   vesting   in   the   State 

Government is D class land referred to in  

Part A of Schedule I or if the landlord is,

— 

 (1) a small holder; 

 (2) a minor; 

 (3) a widow; 

 (4) a woman who has never been married; 

 (5)   a   person   who   is   subject   to   [such 

physical or mental disability     as may be  

prescribed] ; or 

(6) such soldier or seamen whose lands vest  

in the State Government under section 44,  

an   amount   equal   to   twenty   times   the   net 

annual   income   from   such   land   shall   be 

payable.

(2) For the purpose of sub­section (1), the  

net  annual  income  from  the  land shall  be  

deemed to be the amount payable as annual  

rent in respect of the land as specified in  

section 8. But where in a land assessed as  

wet   land   or   dry   land   the   landlord   has 

raised   fruit   bearing   trees,   the   annual  

income   for   purpose   of   sub­section   (1)  

[shall,   subject   to   such   rules   as   may   be 

prescribed, be determined] on the basis of  

assessment for garden land which could have  

been levied having regard to the nature of  

the fruit bearing trees. 

 (3)   Where   there   are   wells   or   other  

structures   of   a   permanent   nature   on   the 

land constructed by the landlord the value  

thereof calculated in the prescribed manner  

shall also be payable. 

(4)   Notwithstanding   anything   in   sub­

sections (1) and (3), the aggregate amount  

payable according to the said sub­sections  

shall not exceed rupees two lakhs.]”

12.Section 48 relates to constitution of Tribunals.  

Under Section 48A, on receipt of an application from  

11

Page 12 a tenant for being registered as an occupant, the  

Tribunal   is   required   to   make   an   enquiry   after  

publication   of   a   public   notice   in   the   village   in 

which the land is situated calling upon the landlord  

and   all   other   persons   having   an   interest   in   the 

land.  Under Section 48B, the Tahsildar is required  

to determine the amount payable on receipt of the  

orders passed under sub section (4) or sub section  

(5) of Section 48A by the Tribunal,

13.The Tahsildar while determining the amount under  

Section 48B is required to determine the encumbrances  

and the amount payable in terms of Section 50 of the  

Act;   the   mode   of   payment   of   the   amount,   which   is 

relevant for the present case, is stipulated under  

Section 51 which reads as follows:

“51. Mode of payment [of the amount] .—[(1)] 

[Save   as   provided   in   Section   106]   the 

[amount]   payable   to   any   person   under  

Section 47 shall subject to the provisions  

of Section 50,— 

[(a) be paid in cash in a lumpsum if the  

amount   payable   does   not   exceed   [two  

thousand rupees] and 

(b)   if   the   amount   payable   exceeds   [two 

thousand   rupees],   the   amount   up   to   [two 

thousand rupees]  shall be paid in cash and  

the   balance   shall   be   paid   in   [non­

12

Page 13 transferable   and   non­negotiable]     bonds  

carrying interest at the rate of [five and  

a   half   per   cent]   per   annum   and   of  

guaranteed   face   value   maturing   within   a 

specified   period   not   exceeding   twenty  

years:

 

Provided that the amount payable under the  

bonds issued under this clause may be paid  

in such number of instalments not exceeding  

twenty as may be prescribed:] 

 [Provided further that the amount payable  

shall,   subject   to   such   rules   as   may   be 

prescribed, be paid,­ 

(i) in the case of a minor, [a person who  

has attained the age of sixty five years] a  

woman who has never been married, a small  

holder, a person subject to the prescribed  

physical   or  mental   disability   and  subject 

to clause (ii), a widow,— 

(a) in a lumpsum where the amount payable  

does not exceed fifty thousand rupees,; and  

(b) where the amount payable exceeds fifty  

thousand   rupees,   the  first   fifty   thousand 

rupees in a lumpsum and the balance in non­

transferable   and   non­negotiable   bonds  

carrying interest at the rate of five and  

half per cent per annum and of guaranteed  

face   value   maturing   within   a   specified  

period not exceeding twenty years;

(ii)   in   the   case   of   a   widow,   if   she   so 

elects in writing, in the form of annuity  

during her life time, a sum determined in  

such   manner   as   may   be   prescribed,   which 

shall   not   be   less   than   the   net   annual 

income   referred   to   in   sub­section   (2)   of 

section 72.

Explanation:—For the purpose of this clause  

widow,   minor   and   a   person   subject   to  

13

Page 14 physical   or   mental   disability   include,   a 

woman who is a widow, a   person who is a  

minor,   a   person   subject   to   physical   or 

mental disability respectively at the time  

when the amount payable is determined:  

Provided also that in relation to a small  

holder the second proviso shall have effect  

as if it was in force on and from the First  

day of March, 1974.]

[(2)   Notwithstanding   anything   in   sub­

section (1), on or after 1st March, 1984,  

the balance and interest thereon payable in  

accordance   with  clause   (b)  of  sub­section  

(1) of the second proviso to the said sub­

section   shall,   in   lieu   of   the   bonds  

specified therein, be paid in the following  

manner, namely:— 

(a)   the   interest   accrued   at   the   rate   of 

five and a half per cent per annum till 1st  

March, 1984 remaining unpaid shall be paid  

in five consecutive annual, as far as may  

be,   equal   instalments  commencing   from  1st 

March,   1984   in   National   Savings  

Certificates; 

(b) the whole or, as the case may be, part  

of   the   balance   specified   in   sub­section 

(1),   payable   before   1st   March,   1984  

remaining   unpaid   shall   be   paid   in   five 

consecutive annual, as far as may be, equal  

instalments   commencing   from   the  said   date 

in National Savings Certificates; and 

(c) the whole or, as the case may be, part  

of the said balance payable on or after 1st  

March,   1984   shall   be   paid   in   ten  

consecutive annual, as far as may be equal  

instalments   commencing   from   the  said   date 

in National Savings Certificates: 

Provided   that   along   with   each   of   the  

instalments   referred   to   in   items   (b)   and 

(c), the interest thereon from 1st March,  

14

Page 15 1984  at the  rate  of five  and a half  per  

cent   per   annum   upto   the   date   of   payment 

thereof   shall   also   be   paid   in   National 

Savings Certificates.]”

14.Under Section 52, payment of the amount to the  

land­owner/landlord shall be a full discharge of the  

liability for payment of the amount and no further  

claims or payment of amount shall lie against the  

State Government or any other person.

15.From the aforesaid provisions, it is clear that  

the all lands held by or in the possession of tenants  

prior to 1.3.1974 has been transferred and vested in  

the State Government with effect from 1.3.1974.   All  

rights, title and interest vesting in the owners of  

such lands stand cease and is vested absolutely with  

the State Government.  The amount in respect of such  

lands which becomes due on or after 1.3.1974 is only  

payable to the State Government and not to the land­

owners/landlords.       The   land­owners/landlords   are  

entitled to receive the amount only from the State  

Government and not from any other person.    

The   amount   payable   to   the   land­owner/landlord 

for the extinguishment of their rights is to be paid  

in   the   manner   prescribed   under   Section   51.       The 

amount upto Rs. 2,000/­  is  to be paid in cash and  

15

Page 16 balance of the amount is payable in non­transferable  

and non­negotiable bonds carrying interest @5 

½% per

 

annum.

Therefore,   it   is   clear   that   no   provision   has 

been made in the Act for payment of interest if any  

amount is paid in cash.  On the other hand, the State  

Government   is   entitled   to   earn   interest   by  

establishment   of   separate   fund   under   Section   53A 

which   is   created   out   of   the   amount   of   premium 

collected   from   the   tenants   or   sub­tenants   of   land 

belonging to the institutions referred to in Section  

106.

16.The question that arises further is that whether  

the appellant is entitled for payment of interest as  

per Circular No. ND 171 LWM 86 dated 24.11.1986 or as  

a matter of general rule.

17.Doubts were raised time and again by some of the  

Deputy Commissioners of the Districts about the mode  

of calculation and disbursement of amount.  The same  

was   made   clear   by   the   State   Government   by   its 

Circular dated 24.11.1986 which reads as follows:­

“ Circular No. ND 171 LWM  86 dt. 24

th

 Nov. 

1986.

CIRCULAR

16

Page 17 Doubts have been raised time and again  

by some of the Deputy Commissioners of the  

Districts,   about   the   mode   of   calculation 

and   disbursement   of   amount   in   national  

savings   certificates   for   the   lands   lost 

under   the   provisions   of   Karnataka   Land  

Reforms Act, 1961. The field officers are  

hereby clarified once again the method to  

be   followed   in   commuting   the   amount   and 

interest payable to the ex­land­lords. 

1.The entire amount due to the ex­land­

lords  shall  be   calculated   taking   1.3.1974 

as   the   cut   of   date   for   the   purpose   of 

calculating interest.

2.On the total principal amount interest at  

the   rate   of   5­1/2%   shall   be   calculated 

till   1.3.1984.     The   principal   amount  

means the entire amount due to the Ex­

Landlords (1.3.1974 to 1.3.1984) and the  

subsequent   ten   instalments   also.     The  

Principal amount so calculated will bear  

on   interest   at   5­1/2%   per   annum   from 

1.3.1974   to   1.3.1984.     The   amount   so 

arrived both principal and interest shall  

be paid in National Savings Certificates.

3.Further   the   interest   @   5­1/2%   shall   be 

calculated on the entire principal amount  

from 1.3.1984 till the date of purchase  

of   National   savings   certificates,   and  

paid in cash at the time of handing over  

the national savings certificates.

4.The fraction amount of less than Rs.50.00  

shall also be paid in cash. The action on  

all these should be simultaneously taken­

For Example:

Total amount 1. Rs.3,000/­

Determined: 2.   Rs.2,000/­   paid   in 

cash.

3. Amount due is Rs.1,000/­

17

Page 18 (in   20   instalments   from  

1.3.74 to 1.3.84)

Interest   at   5­1/2%   from  

1.3.1974 date 

Of vesting) till 1.3.84

550/­

To be invested in N.S. Cas

550/­

4.Interest   at   5­1/2%   from  

1.3.84 till the date

Of purchase of N.S. Co­cash

5.   Fraction,   if   any,   below 

Rs. 50/­ each.

The above guidelines shall be followed  

scrupulously in all cases.  x x x x x x x x  

Sd/­ S. Ashok

Under Secretary to Govt.  

Rev. Dept.

(Land Reforms)

No. RS.KLR.HP.86­87 Belgeum   Dt.  

27.12.1986

Copy   forwarded   to   all   the   Tehsildars 

and Spl. Tehsildar,

Land     Reforms,   in   Belgaum   Distt.   for  

information and further

necessary  action.

Sd/­ 

for   Spl.   Dy.  

Commissioner

Belgaum.”

 

18.The   aforesaid   clarification   made   by   the   State 

Government makes it clear that the entire amount due  

to   the   ex­landlords   shall   be   calculated   taking  

1.3.1974   as   the   cut   off   date   for   the   purpose   of 

calculating   interest.   However,   we   find   that   the  

18

Page 19 example   given   therein   is   confusing   which   does   not 

make it clear whether amount Rs.3000/­ shown therein  

includes the interest w.e.f. 1.3.1974 apart from the  

principal   amount   to   which   the   ex­landlords   are  

entitled. 

19.  As per Circular dated 24.11.1986, as noticed  

above, the entire amount of compensation payable to  

the   ex­landlords   along   with   interest   is   to   be  

calculated taking 1.3.1974 as the cut off date upto  

1.3.1984. But if the amount is paid earlier then upto  

the   date   of   payment.     Out   of   the   aforesaid   total 

amount two thousand rupees is to be paid in cash and  

the rest through National Savings Certificates.   If  

the   amount   is   not   paid   on   or   before   1.3.1984, 

provisions have been made to pay further interest @ 5  

½

% on the entire principal amount from 1.3.1984 till

 

the   date   of   purchase   of   the   National   Savings  

Certificates;     that   means   the   authorities   are  

required   to   either   invest   the   amount   in   National 

Savings Certificates or pay interest till the amount  

is invested.  

19

Page 20 20.There is no ambiguity in the clarification made  

by circular dated 24.11.1986, but the example cited  

therein is not only confusing but also contradictory  

to the main clarification. 

21.Substantive provision of ‘mode of calculation’  

as prescribed under Section 51 has been clarified by  

Circular dated 24.11.1986.  The example cited in the  

circular   is   merely   an   illustration.     If   the  

illustration is conflicting with the clarification of  

the substantive law/provision or if the illustration  

is   vague,   the   clarification   will   prevail   over   the 

illustration.  In such case, a person who is entitled  

for the interest as per the clarification aforesaid  

cannot be deprived of or denied his right relying on  

the illustration.

22.The   question   of   payment   of   interest   on  

compensation amount on acquisition of land fell for  

consideration before a larger bench of four judges of  

this Court in the case of   Satinder Singh vs. Umrao  

Singh reported in AIR 1961 SC 908.   That was a case 

of   property   which   was   acquired       under   the   East 

Punjab Requisition of Immovable Property (Temporary  

20

Page 21 Powers) Act (48 of 1948).   The Act was replaced by  

Punjab   Requisitioning   and   Acquisition   of   Immovable 

Property   Act   (11   of   1953).     Under   1948   Act,  

compensation   was   to   be   paid   in   accordance   with 

provisions of that Act.   In the said case, the party  

claimed the interest on the amount of compensation.  

The   argument   was   that   the   amount   of   compensation 

awarded should carry a reasonable interest from the  

date of acquisition as the claimants lost possession  

of their property.   The said argument earlier was  

rejected by the High Court principally on the ground  

that   relevant   Act   of   1948   makes   no   provision   for 

payment of interest   and   omission to make such a  

provision amounts in law to an intention not to award  

interest in regard to compensation amount determined  

under it.  This Court noticed the contention  raised  

on behalf of the landlords and held as follows:­

“17.  What then is the contention raised  

by the claimants? They contend that their  

immovable property has been acquired by the  

State and the State has taken possession of  

it.   Thus   they   have   been   deprived   of   the 

right   to   receive   the   income   from   the  

property   and   there   is   a  time   lag   between 

the taking of the possession by the State  

and  the  payment  of   compensation  by   it   to 

the claimants. During this period they have  

been deprived of the income of the property  

and   they   have   not   been   able   to   receive 

interest   from   the   amount   of   compensation. 

21

Page 22 Stated broadly the act of taking possession  

of immovable property generally implies an  

agreement to pay interest on the value of  

the  property   and   it  is   on   this   principle 

that a claim for interest is made against  

the   State.   This   question   has   been  

considered   on   several   occasions   and   the 

general   principle   on   which   the   contention 

is raised by the claimants has been upheld.  

In  Swift & Co. And Board of Trade (1925)  

AC520  at   p.532    it  has   been  held   by  the 

House of Lords that “on a contract for the  

sale   and   purchase   of   land   it   is   the 

practice   of   the   Court   of   Chancery   to  

require   the   purchaser   to   pay   interest   on 

his  purchase   money   from  the  date   when   he 

took,   or   might   safely   have   taken,  

possession of the land”. This principle has  

been recognised ever since the decision in  

Birch  v.  Joy (1852) 3 H L C 565 . In his 

speech   Viscount   Cave,   L.C.,   added   that  

“this practice rests upon the view that the  

act   of   taking   possession   is   an   implied 

agreement to pay interest”, and he points  

out that the said rule has been extended to  

cases   of   compulsory   purchase   under   the  

Lands   Clauses   Consolidation   Act,   1845.   In 

this   connection   distinction   is   drawn  

between   acquisition   or   sales   of   land   and 

requisition   of   goods   by   the   State.   In 

regard   to   cases   falling   under   the   latter 

category this rule would not apply.

18. In Inglewood Pulp and Paper Co. Ltd.  

And   New   Brunswick   Electric   Power  

Commission, 1928 AC 492(AIR 1928 P C 287)  

it was held by the Privy Council that “upon  

the   expropriation   of   land   under   statutory 

power, whether for the purpose of private  

gain or of good to the public at large, the  

owner   is   entitled   to   interest   upon   the 

principal   sum   awarded   from   the   date   when 

possession   was   taken,   unless   the   statute 

clearly   shows   a   contrary   intention”.  

Dealing   with   the   argument   that   the  

expropriation with which the Privy Council  

was concerned was not effected for private  

gain,   but   for   the   good   of   the   public   at 

large, it observed “but for all that, the  

22

Page 23 owner is deprived of his property in this  

case as much as in the other, and the rule  

has   long   been   accepted   in   the  

interpretation   of   statutes   that   they   are 

not  to   be   held   to   deprive   individuals   of 

property   without   compensation   unless   the  

intention to do so is made quite clear. The  

right   to   receive   the   interest   takes   the 

place of the right to retain possession and  

is   within   the   rule”.   It   would   thus   be 

noticed   that   the   claim   for   interest  

proceeds   on   the   assumption   that   when   the 

owner   of   immovable   property   loses  

possession   of   it   he  is   entitled  to   claim 

interest   in   place   of   right   to   retain  

possession. The question which we have to  

consider is whether the application of this  

rule is intended to be excluded by the Act  

of 1948, and as we have already observed,  

the mere fact that Section 5(3) of the Act  

makes Section 23(1) of the Land Acquisition  

Act of 1894 applicable we cannot reasonably  

infer that the Act intends to exclude the  

application   of   this   general   rule   in   the 

matter of the payment of interest. That is  

the  view   which   the   Punjab   High   Court   has 

taken   in  Surjan   Singh  v.  East   Punjab 

Government ( AIR 1961 SC 908)  and we think 

rightly.

19.  …….   When   a   claim   for   payment   of 

interest   is   made   by   a   person   whose  

immovable   property   has   been   acquired  

compulsorily   he   is   not   making   claim   for 

damages properly or technically so called;  

he is basing his claim on the general rule  

that   if   he   is   deprived   of   his   land   he 

should be put in possession of compensation  

immediately; if not, in lieu of possession  

taken   by   compulsory   acquisition   interest  

should be paid to him on the said amount of  

compensation.   In   our   opinion,   therefore,  

the   fact   that   Section   5(1)   deals   with 

compensation   both   for   requisition   and  

acquisition   cannot   serve   to   exclude   the 

application of the general rule to which we  

have just referred.”

23

Page 24 23.In view of the specific clarification made vide  

Circular   dated   24

th

  November,   1986   and   decision   of 

this Court in Satinder Singh (Supra),   we hold that 

the   appellant   is   entitled   for   interest   w.e.f.  

1.3.1974 @ 5 

½%  till the total amount was  paid to

 

him.  The respondent cannot deny the interest on the  

amount   of   compensation   to   which   the   appellant   is 

entitled   as   a   matter   of   general   rule,   and   in   the 

light   of   the   clarification   made   by   Circular   dated 

24.11.1986.

 24.The orders passed by the Single Judge and the  

Division   Bench   of   the   Karnataka   High   Court   are, 

accordingly, set aside.  The respondents are directed  

to pay the appellant interest @ 5 

½% per annum w.e.f.

 

1.3.1974 as ordered above within three months.  The  

appeal   is   allowed   with   aforesaid   observation   and 

direction, but there shall be no order as to costs.

   ……………………………………………………………….J.

     ( G.S. SINGHVI )

  ……………………………………………………………….J.

         ( SUDHANSU JYOTI MUKHOPADHAYA)

NEW DELHI,

MARCH  11,  2013.

24

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