WALCHANDNAGAR INDUSTRIES LTD vs STATE OF MAHARASHTRA

WALCHANDNAGAR INDUSTRIES LTD vs STATE OF MAHARASHTRA - Supreme Court Case 2022

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 26712672 of 2016

WALCHANDNAGAR INDUSTRIES LTD. ... APPELLANT (S)

VERSUS

THE STATE OF MAHARASHTRA & ANR. ... RESPONDENT(S)

J U D G M E N T

V. Ramasubramanian, J.

1. Challenging a common Judgment rendered by the High Court

of Judicature at Bombay in two appeals, modifying the award of

the Reference Court passed under Section 18 of the Land

Acquisition Act,1894, the claimantlandowner has come up with

these civil appeals.

2. We have heard Mr. Gopal Sankaranarayanan, learned senior

advocate appearing for the appellant; Mr. Sachin Patil, learned

advocate appearing for the first respondentState and Mr. Deepak

Nargolkar, learned senior advocate appearing for the second

respondentbeneficiary.

3. The appellant is a company incorporated under the

Companies Act. It has established a township in a vast area

measuring about 16000 acres of land, located 136 kms. away from

Pune. The nearest railway station to the township is at Bhigwan,

located 36 kms. away from Walchandnagar Township.

4. For the purpose of transporting sugarcane and other goods,

the appellant had laid trolley lines covering a distance of 50 kms.

inside its estate. The appellant has also set up a 36 km. narrow

gauge trolley line from Walchandnagar to Bhigwan for

transportation of heavy engineering goods.

5. In the year 1967, the Government of Maharashtra approved

the BHIMA (Ujjani) Irrigation Project. As part of the project, a 18

feet height dam across the Bhima River was proposed to be

constructed at Ujjani about 1½ kms. upstream from Hingangaon

bridge on PuneSholapur National Highway. Before undertaking

the construction of the dam, a general survey was carried out,

which revealed that a section of the trolley line may get submerged.

Therefore, a spate of correspondence and personal discussions

ensued between the officials of the Government and the

representatives of the appellant for exploring the possibility of

diverting the trolley line.

6. It is the case of the appellant that they wanted the

Government to invoke the urgency clause for the acquisition of

some other land for diverting the trolley line. But it is the case of

the respondents that the appellant had by then abandoned

transportation through trolley line and switched over to road

transport.

7. Be that as it may, a notification under Section 4 of the Land

Acquisition Act, 1894 was published on 26.10.1972. The proposal

included the land on which a section of the trolley line passed. The

extent of land covered by the trolley line that was expected to be

submerged was measured to be 6 hectares 7 ares. Since the total

land acquired for the project, included the lands of the appellant,

which were located in different villages, a series of awards were

passed.

8. For our present purpose, it may be noted that the Land

Acquisition Officer passed an award on 9.12.1981. The claim of the

appellant in the Award Enquiry was not only for the market value

of the land, but also for: (i) compensation for the loss; and

(ii) compensation for the injurious affection due to the trolley line

becoming obsolete. The claim of the appellant also included a claim

for the loss sustained by the appellant on account of the

unacquired portion being rendered useless.

9. By his Award dated 9.12.1981, the Land Acquisition Officer

awarded :

(i) Rs.15,329 for the acquired portion of land;

(ii) Rs.39032.94 for embankments, rails, bullies, sleepers;

(iii) Rs.43,491.12 for C.D. works;

(iv) Rs.12,754.17 towards labour charges for removing rails

and steel sleepers; and

(v) Rs.16,591.08 for solatium.

10. In effect, the Land Acquisition Officer awarded total

compensation of Rs.1,27,198.31/ and rejected the claim of

Rs.1,49,85,251/ for the unacquired portion.

11. Not satisfied with the award, the appellant sought a reference

under Section 18 on 12.01.1982. It was referred to the District

Court, Pune, which took the same on file as Land Acquisition

Reference No.6 of 1982.

12. Before the Reference Court, the appellant claimed

enhancement of compensation for the land acquired. In addition,

the appellant also claimed compensation for severance and

compensation for injurious affection. The claim under different

heads was summarized by the Reference Court in paragraph 14 of

its award and it is reproduced for easy appreciation as follows:

SUMMARY OF CLAIM FOR COMPENSATION

I. Land in Acquisition in Kumbhargaon village

1 Lands acquired 50,32500

2 Embankment 63,85000

3 C.D. Works 68,20000

4 Trees 36000

1,82,73500

5 Solatium @ 15% 27,41000

Total 2,10,14500

SEVERANCE AND INJURIOUS AFFECTION

II. SEVERANCE

A Land 6,03,80000

B Diminution in value of lands in

Walchandnagar Township

8,64,00000

C Embankment, C.D. Works and

buildings

18,85,20000

D Trees 27,00000

Total 33,80,00000

III. INJURIOUS AFFECTION

E Rails Sleepers etc. 42,45,00000

F Girders (remove) Nil

G Telephone line 16,00000

H Rolling Stocks 22,17,60000

I Increase in transportation costs 80,07,18000

J Remodeling of Bhigwan Yard 4,72,10000

K Loss of earnings (profits) 35,62,00000

L Retrenchment compensation 1,00,00000

Total for injurious affection 1,86,19,70000

Total for Severance and Injurious affection II + III

(Rs.33,80,000 + 1,86,19,700 = 2,19,99,700)

IV. TOTAL COMPENSATION

I Land 2,10,14500

II Severance 33,80,00000

III Injurious Affection 1,86,19,70000

Total Rs.2,22,09,84500

IV Less : Compensation as

awarded by S.L.A.O No.1, Pune

on 9th December 1981

1,27,19800

V Net amount of enhancement 2,20,82,64700

VI Interest on total compensation

from the date of possession to

date of payment of

compensation @ 4% per annum

under Section 34 of L.A. Act is

to be paid by Government to

the Claimant

13. Eventually by a Judgment dated 14.03.1990, the Reference

Court, (i) enhanced the compensation for the acquired part of the

land to Rs.55,893.23; and (ii) fixed an amount of Rs.80,09,725 as

compensation on account of severance and injurious affection.

14. Aggrieved by such enhancement and fixation, the State of

Maharashtra filed an appeal in First Appeal No.653 of 1991. Not

satisfied with the quantum fixed, the appellant also filed an appeal

in First Appeal No.709 of 1991. Both the appeals were disposed of

by a Division Bench of the Bombay High Court by a Judgment

dated 19.11.2008. By this Judgment the High Court awarded:

(i) a compensation of Rs.20,62,006/ towards severance

(unacquired trolley line) payable with solatium at 30%

working out to Rs.6,18,601.80, thus totaling to

Rs.26,80,607.80;

(ii) a compensation of Rs.7,39,280/ for injurious affection,

payable together with solatium at 30% working out to

Rs.2,21,784/, thus, totaling to Rs.9,61,064/; and

(iii) a compensation of Rs.1,23,231.25 towards acquired

trolley line together with solatium at 30% working out to

Rs.36,969.37, thus, totaling to Rs.1,60,200.62. The High

Court also held that the claimant company (appellant)

will be entitled to interest under Section 28 as well as

34, on the entire amount of compensation as well as

solatium from March1976 till the date of deposit.

15. It is against the aforesaid Judgment dated 19.11.2008 passed

in First appeal Nos.653 and 709 of 1991 that the claimant

(landowner) has come up with the above appeals. The State does

not appear to have filed any appeal.

16. As observed by the High Court, the award of the Reference

Court was in two parts. The first part dealt with the claim for

compensation on account of severance and injurious affection in

respect of the trolley line running across 28 kms. in the

unacquired portion of the land measuring abut 60.38 hectares.

The second part of the award was in respect of the trolley line

spread over about 7 kms. in the area submerged in water. For a

better understanding of the arithmetic, it will be useful to present in a

tabulation, the different heads of claim, the amount claimed by the appellant, the amount

awarded by the Reference Court and the amount to which the compensation was reduced by the

High Court:-

Heads of claim Amount

claimed by

appellant

Amount awarded

by Reference

Court

Amount

granted by

High Court

Severance

1 Land 6,03,800 1,50,950 1,50,950

2 Diminution in

value

8,64,000 Nil Nil

3 Embankments,

C.D. Works etc.

18,85,200 20,16,019 19,11,056

4 Trees 27,000 Nil Nil

Injurious

Affection

1 Rails Sleepers etc. 48,45,000 31,21,816 6,08,942

2 Telephone Line 16,000 Nil Nil

3 Rolling stocks 22,17,600 17,79,884 Nil

4 Increase in

transportation

costs

80,07,180 8,00,718 Nil

5 Remodelling of

Bhigwan Yard

4,72,100 1,30,338 1,30,338

6 Loss of earnings

(profits)

35,62,000 Nil Nil

7 Retrenchment

compensation

1,00,000 10,000 Nil

17. As could be seen from the above tabulation, the appellant

suffered a huge set back before the High Court, mainly under three

heads of claims, which relate to severance and injurious affection

in respect of the trolley line running in the unacquired portion of

land. These three items are (i) rails and sleepers; (ii) rolling stocks;

and (iii) increase in transportation cost. At the cost of repetition,

we will once again present in a tabulation, the amount claimed by

the appellant, the amount awarded by the Reference Court and the

amount to which the award was reduced by the High Court under

these three heads, so that we have a better focus.

Heads Amount claimed Awarded by

Reference

Court

Awarded by

High Court

Rails &

Sleepers

48,45,000 31,21,816 6,08,942

Rolling Stocks 22,17,600 17,79,884 Nil

Increase in

transportation

cost

80,07,180 8,00,718 Nil

Total 1,50,69,780 5,702,418 6,08,942

18. Insofar as rails and sleepers which became obsolete are

concerned, the claim of the appellant was that they could not be

sold as such, in view of the fact that the railways had switched

over to broad gauge. Though the appellant had to spend huge

money for the removal of the rails and sleepers, they had to be sold

only as scrap. According to the appellant, the Government turned

down the proposal for a new line and hence they were entitled to

be compensated to the extent of the value of the rails and sleepers

which became obsolete.

19. The Reference Court found as a matter of fact that the entire

track had become completely useless and that the rails and

sleepers had to be sold only as scrap. Though the appellant

examined a qualified valuer by name Shri Talim, as a witness to

show the loss sustained by them, the Reference Court could not go

entirely by his evidence, as he admitted to have no personal

knowledge, but went by the information supplied by the appellant.

The Reference Court found that the trolley line was laid in the year

1946 and the valuation was made as of the year 1976. The

Reference Court, therefore, applied depreciation @ 35% and arrived

at the figure of Rs.31,21,816.

20. The High Court set aside the compensation awarded in

respect of the rails and sleepers in the unacquired portion of the

land, but confirmed the compensation for the acquired portion of

the land on the ground that the appellant did not take effective

steps to lay an alternative trolley line. The High Court disbelieved

the case set up by the appellant that the Government was not

responsive to their demand for invocation of the urgency clause to

acquire the land needed for alternative trolley line. The High Court

found, from the balance sheets that the appellant had not suffered

any loss on account of being compelled to switch over to road

transportation.

21. Insofar as rolling stock is concerned, the Reference Court

accepted the evidence of Mr. Kamat, a qualified valuer examined as

PW13. The Reference Court took the life of locomotives to be 20

years and the life of wagons to be 35 years, on the basis of the

guidelines issued by National Council of Applied Economic

Research. After accepting the evidence of PW13 that the estimated

cost of the rolling stock would be Rs.48,49,618/, the Reference

Court applied an arithmetical formula with reference to the

residual life and the total life of the locomotives and three wagons

and arrived at the depreciated value as Rs.22,36,424.70. From

this amount the Reference Court deducted the scrap value and

arrived at the compensation of Rs.17,79,884/.

22. However, the High Court rejected the report of Mr. Kamat

(PW13), on the ground that he started valuation only after the

year 1983 and that his valuation was based on 1986 prices. The

High Court also found that the appellant continued to use the

rolling stocks for the trolley line to a length of 14 kms. till the year

1983 and that, therefore, the appellant was not entitled to any

compensation on this count.

23. As regards “increase in transportation cost”, the Reference

Court found:

(i) that the appellant was forced to discontinue the most

convenient and economical mode of transport;

(ii) that even if the appellant had resorted to an alternative

route for the trolley line, the same would have been

longer by 12 kms, warranting an expenditure of Rs.1.50

crores;

(iii) that the Government could not have invoked the

urgency clause, for acquiring land for alternative trolley

line, as the acquisition could not have been considered

as one for public purpose but rather for the benefit of a

company.

(iv) that the appellant was able to prove through credible

evidence that the cost of transporting 35,000 tones of

goods p.a. increased from Rs.0.20 per km. to Rs.0.80

per km.

(v) that, therefore, the appellant should be compensated for

the increase in transportation cost.

24. The Reference Court agreed with the appellant that the loss of

earnings for the appellant, in this regard, was Rs.80,07,180/, but

awarded compensation only for one year as against the claim of the

appellant for a period of 10 years. The Reference Court awarded a

sum of Rs.8,00,718/.

25. The High Court set aside the amount awarded by the

Reference Court under this head on the ground that the appellant

did not suffer any loss of profit on account of the increase in the

transportation cost, as the same would have been passed on to the

customers. The High Court observed that the balance sheets for

the period 197278 did not show any loss. The High Court went by

the presumption that transportation cost is always factored into

the manufacturing cost of the goods.

26. In the light of the manner in which the High Court interfered

with the award of the Reference Court, it was contended by Mr.

Gopal Sankaranarayanan, learned senior counsel for the appellant:

(i) that the appellant cannot be blamed for not finding an

alternative route to lay the trolley line and for not

insisting on the Government to invoke the urgency

clause for the acquisition of some other land for laying

trolley line, as the provisions of Section 17 could not

have been invoked for the benefit of a company;

(ii) that in any case an alternative trolley line would have

admittedly cost Rs.1.50 cores and the same would have

been 12 kms. longer than the existing line, resulting in

an increase in the operational cost;

(iii) that the appellant was able to prove by cogent evidence

that the cost of transportation by road was higher;

(iv) that the High Court failed to note that the profit of the

appellant went down from Rs.96.07 lakhs in 197576 to

Rs.40.80 lakhs in 197677;

(v) that there was neither any pleading nor evidence to

show that the transportation cost was passed on to the

customers;

(vi) that the High Court failed to note that the acquisition of

land on which a trolley line to a distance of 6 kms.

passed, led to the investment on 28 kms. of trolley line

in the unacquired portion being rendered useless;

(vii) that about 3 diesel locomotives and over 100 wagons

were rendered useless due to the acquisition;

(viii) that the High Court misread the evidence of PW13 as

though he took the price as of the year 1986;

(ix) that despite best efforts, the appellant could sell only

some of the locomotives, on account of there being no

market for them; and

(x) that, therefore, the High Court was completely in error

in rejecting the claim of the appellant and also reducing

the amount awarded by the Reference Court.

27. In response, it is contended by Mr. Deepak Nargolkar, that

the appellant set up a bogey of a claim about the trolley line in the

unacquired portion of land becoming redundant and that having

admittedly switched over to road transportation way back in

September 1972, the appellant was not entitled to claim any

compensation for the purported increase in transportation cost.

Placing reliance upon the decision of this Court in Wazir vs. State

of Haryana1

, it was contended by Mr. Deepak Nargolkar that the

1 (2019) 13 SCC 101

additional component of compensation in terms of clause “thirdly”

under Section 23(1) of the Act is to be granted only when the value

of the left over land is effectively diminished in terms of quality.

Therefore, it is his contention that severance charges in cases of

this nature cannot be allowed.

28. We have carefully considered the rival contentions. As the

dispute now stands confined only to three heads of claims, namely,

(i) rails and sleepers; (ii) rolling stocks; and (iii) increase in

transportation cost, we shall deal with them itemwise.

Law on compensation for severance and injurious affection

29. Before we consider the aforesaid three heads of claim itemwise, it may be useful to take note of the legal principles on the

basis of which these claims are to be tested.

30. Sections 23 and 24 of The Land Acquisition Act, 1894 provide

two lists of matters respectively, namely (i) matters to be

considered in determining compensation; and (ii) matters to be

neglected in determining compensation. Section 23(1), which alone

is relevant for our present purposes, is extracted as follows:

“23. Matters to be considered in determining

compensation (1) In determining the amount of

compensation to be awarded for land acquired under

this Act, the Court shall take into considerationfirst, the marketvalue of the

land at the date of the

publication of the

notification under

section 4, subsection

(1);

secondly

the damage sustained

by the person

interested, by reason of

the taking of any

standing crops trees

which may be on the

land at the time of the

Collector's taking

possession thereof;

thirdly, the damage (if any)

sustained by the person

interested, at the time of

the Collector's taking

possession of the land,

by reason of severing

such land from his

other land;

fourthly, the damage (if any)

sustained by the person

interested, at the time of

the Collector's taking

possession of the land,

by reason of the

acquisition injuriously

affecting his other

property, movable or

immovable, in any other

manner, or his

earnings;

fifthly, in consequence of the

acquisition of the land

by the Collector, the

person interested is

compelled to change his

residence or place of

business, the

reasonable expenses (if

any) incidental to such

change; and

sixthly, the damage (if any)

bona fide resulting from

diminution of the profits

of the land between the

time of the publication

of the declaration under

section 6 and the time

of the Collector's taking

possession of the land.”

31. In simple terms, the six items covered by Section 23(1), which

are to be taken into consideration by the court in determining

compensation, can be summarised as follows:

(i) The market value of the land on the date of

publication of notification under Section 4(1);

(ii) The damage to standing crops or trees, which are

on the land at the time of the Collector taking

possession;

(iii) The damage sustained by reason of severing such land

from the unacquired land;

(iv) The damage sustained by reason of the acquisition

injuriously affecting the other property, movable or

immovable, in any other manner or the earnings, of the

person interested;

(v) The reasonable expenses incurred by the person

interested, in changing his residence or place of

business, when he is compelled to do so in consequence

of the acquisition;

(vi) The damage bona fide resulting from diminution of the

profits of the land between the time of publication of the

declaration under Section 6 and the time of the

Collector’s taking possession.

32. The points arising for determination in these appeals revolve

around clauses “thirdly” and “fourthly” of Section 23(1). These

clauses are referred to in common parlance as clauses concerning

‘severance’ and ‘injurious affection’ respectively.

33. But clauses “thirdly” and “fourthly” of Section 23(1) cannot be

considered in isolation. They have to be read together with Section

49 which reads as follows:

“49. Acquisition of part of house or building.

(1) The provisions of this Act shall not be put in force

for the purpose of acquiring a part only of any house,

manufactory or other building, if the owner desire that

the whole of such house, manufactory or building

shall be so acquired:

Provided that the owner may, at any time before the

Collector has made his award under section 11, by notice in writing, withdraw or modify his expressed desire that the whole of such house, manufactory or

building shall be so acquired:

Provided also that, if any question shall arise as to

whether any land proposed to be taken under this Act

does or does not form part of a house, manufactory or

building within the meaning of this section, the Collector shall refer the determination of such question to

the Court and shall not take possession of such land

until after the question has been determined.

In deciding on such a reference the Court shall have

regard to the question whether the land proposed to be

taken is reasonably required for the full and unimpaired use of the house, manufactory or building.

(2) if, in the case of any claim under section 23, subsection (1), thirdly, by a person interested, on account

of the severing of the land to be acquired from his

other land, the appropriate Government is of opinion

that the claim is unreasonable or excessive, it may, at

any time before the Collector has made his award, order the acquisition of the whole of the land of which

the land first sought to be acquired forms a part.

(3) In the case last hereinbefore provided for, no fresh

declaration or other proceedings under sections 6 to

10, both inclusive, shall be necessary; but the Collector shall without delay furnish a copy of the order of

the appropriate Government to the person interested,

and shall thereafter proceed to make his award under

section 11.”

34. It may be noted that clause thirdly of Section 23(1) relates

only to land, as it speaks only about the severance of the acquired

land from the unacquired land and the damage sustained as a

consequence. In contrast, clause fourthly of Section 23(1) deals

with the damage sustained by the person interested, due to the

injurious affection, (i) of his other movable property; (ii) of his other

immovable property; and (iii) of his earnings. In other words what

is injuriously affected at the time of Collector’s taking possession of

the land, may either be the unacquired portion of the immovable

property or other movable property or even the earnings of the

person interested.

35. It may also be noted that the expression used in clause

fourthly is “earnings”, while the expression used in clause sixthly

is “profits”. But clause sixthly is confined only to diminution of the

profits of the land between the time of publication of the

declaration under Section 6 and the time of the Collector taking

possession.

36. Coming to Section 49, it deals with two contingencies. They

are, (i) cases where what is sought to be acquired is only a part of

any house, manufactory or other building; and (ii) cases where a

claim for compensation under the head ‘severance’ under clause

thirdly of Section 23(1) arises.

37. In so far as the 1st contingency is concerned there is a bar

under subsection(1) of Section 49 for the acquisition of a part only

of any house, manufactory or other building, if the owner desires

that the whole of such house, manufactory or building shall be so

acquired.

38. In so far as the 2nd contingency is concerned, there is a choice

given to the appropriate Government to order the acquisition of the

whole of the land, if the appropriate Government is of the opinion

that the claim for severance compensation is unreasonable or

excessive.

39. The distinction between the scope of subsection (1) and the

scope of subsection (2) of Section 49 was brought out by this

Court in M/s Harsook Das Bal Kishan Das vs. The First Land

Acquisition Collector and Others2

as follows:

“12. The object of Section 49(1) of the Act is to give to

the owner the option whether he would like part to be

acquired. The Government cannot take the other part

under Section 49(1) of the Act unless the owner says

so. Section 49(2) of the Act has nothing to do with

Section 49(1) of the Act. Section 49(2) of the Act gives

the option to the Government only where the claim

under the third clause of Section 23(1) of the Act is

excessive. Reference to the third clause of Section

23(1) of the Act makes it clear that the claim under the

third clause of Section 23(1) is for severance. The

Government in such a case of acquisition of the

remaining portion of the land under Section 49(2) of

2 (1975) 2 SCC 256

the Act saves the public exchequer money which

otherwise will be the subjectmatter of a claim for

severance.”

40. In the case on hand, the provisions of Section 49(1) have no

application. This is due to the fact that the appellant never desired

that the whole of the manufactory shall be acquired by the

Government. In fact, the total extent of land owned by the

appellant was about 16000 acres, on which a township had come

up. Therefore, there was no occasion for the appellant to exercise

any option invoking Section 49(1). In any case, the appellant

actually requested the Government to acquire land from other

people, to divert the trolley line. Therefore, Section 49(1) has no

application to the case on hand.

41. Section 49(2) also may not have any application for the reason

that the appropriate Government did not think fit to seek

acquisition of the whole of the land on which the remaining portion

of the trolley line existed, on the ground that the claim for

severance compensation was unreasonable or excessive.

Therefore, it is enough for us to go back to clauses thirdly and

fourthly of Section 23(1) without the constraints of subsection (1)

or (2) of Section 49.

42. As we have indicated earlier, clause thirdly relates to the

damage sustained by the person interested, by reason of severance

of the acquired land from the unacquired land, at the time of

Collector’s taking possession of the land. In contrast, clause

fourthly of Section 23(1) deals with the damage sustained by

reason of the acquisition injuriously affecting, (i) the other

movable property; (ii) the other immovable property; and/or

(iii) the earnings of the person interested.

43. The claim of the appellant before the Reference Court under

clauses thirdly and fourthly of Section 23(1), presented a mixup,

with some items overlapping with others. This can be seen from

paragraph 22 of the award of the Reference Court, where the claim

of the appellant is extracted by the Reference Court as follows:

“22. The main grievance of the Claimant Company is

that the Special Land Acquisition Officer has not

considered at all the Claimant’ claim for damages

suffered by the Claimant Company on account of

severance and injurious affection. Although the

opponent has acquired only 6 kilometers, i.e., about

20.74 Hectares of land under the trolley line, this

acquisition has rendered the remaining portion of

about 30 Kilometers, i.e., 60.38 Hectares of the land

under the trolley line totally useless. In other words,

the contention of the Claimant Company is that the

acquisition of only 6 kilometers has not only deprived

the Claimant Company of the use of the trolley line

facility, but it has also rendered the remaining portion

of the trolley line of 30 kilometers, i.e. 60.38 hectares

of land, the rolling stock, three diesel engines,

buildings, telephone line and all other items connected

with the trolley line, such as, civil works,

embankments, C.D. works, culverts, bridges, totally

redundant and obsolete. The claim can be divided into

two categories as follows:

i) Enhancement of compensation in respect of the

acquired portion of the land; and

ii) The compensation for the damages suffered by

the Claimant Company in respect of the unacquired portion of the trolley line on account of

severance and injurious affection under the following head:

1) Unacquired portion of the land admeasuring about 60.38 hectars.

2) The entire railway track of 36 kilometers

comprising of rails, sleepers, girders, etc.

3) Rolling stocks, various types of wagons,

tankers etc.

4) Diesel Engines three;

5) Telephone line and telephone poles, trees,

wells, etc. Embankments, C.D. works, Bridges,

Culverts building, nonoperation of nearly 30

kilometers; Diminution in the value of

Walchandnagar Township, due to discontinuance of the trolley line facility which was hitherto available to the said Industrial Complex, the

Additional cost of transport for switching over

from trolley line transport to road transport, the

cost of remodeling the yard at Bhigwan Station

in order to suit the transshipment of loading

and unloading by road transport; total retrenchment compensation for about 52 persons, specially trained and employed for the operation of

trolley line, who had come to be absorbed by

the Claimant Company on humanitarian

grounds and loss of earnings.”

44. The second category of claim indicated in paragraph 22 of the

award of the Reference Court, extracted above, contains a mix of

claims that may fall under clauses thirdly, fourthly and sixthly of

section 23(1). But fortunately the rejection of some of those claims

are not taken up now by the appellant. In the appeals on hand, the

claim is restricted only to three items namely, (i) the value of rails

and sleepers; (ii) the value of rolling stock; and (iii) increase in

transportation costs. These items are covered only by clause

fourthly of Section 23(1) and they do not fall under clause thirdly.

45. Even within clause fourthly, what we are concerned in these

appeals is the injurious affection of, (i) movable property such as

rails and sleepers and rolling stock; and (ii) the loss of earnings

due to increase in transportation costs. But unfortunately what the

appellant did was to claim a sum of Rs.80,07,180/ towards increase in transportation costs and a separate amount of

Rs.35,62,000/ towards loss of earnings. Even under the heading

‘loss of earnings’, what was claimed was actually loss of profits.

The appellant did not realize that the diminution of profits fell under clause sixthly of Section 23(1) and the claim under this head is

restricted to the time between the date of publication of the declaration under Section 6 and the time of Collector taking possession.

Injurious affection to earnings is covered by clause fourthly and the

statute has made a distinction between, (i) injurious affection to earnings; and (ii) diminution of the profits between the time

of publication of the declaration under Section 6 and the time of

taking possession.

46. The Reference Court rejected the claim for compensation of

Rs.35,62,000/ towards loss of earnings, on the ground that it

overlapped with the claim under the heading ‘increase in transportation costs’. It is perhaps after realizing such overlapping of

claim that the appellant has confined their claim in the present appeals only to injurious affection, (i) to rails and sleepers; (ii) to

rolling stock; and (iii) to earnings due to increase in transportation

costs, all of which fall under clause fourthly of Section 23(1).

47. One of the earliest cases to be decided on the question of injurious affection, was a Division Bench decision of the Calcutta High

Court in R.H. Wernickle and Ors. vs. The Secretary of the

State for India3

. The said case arose out of the acquisition of

land which included a tea estate. The purpose of the acquisition

was the extension of the rifle range of the Cantonment in the Villages of Lebong and Pandan at Darjeeling. A claim for injurious affection was made by the owners of the tea estate on the ground

that they were forced to stop work in the unacquired portion of the

tea estate, during the time when firing was practiced in the rifle

range. Dealing with the claim, Doss, J. opined, “There can be no

doubt that it is extremely unsafe to work on land situate behind the

butts when firing is going on, and the consequent loss of time must

inevitably increase the cost of cultivation”. Therefore, Doss, J., held

that the owners of the tea estate were entitled to compensation for

the injurious affection of the 8 acres of tea land behind the butts.

3 2 Ind.Cas 562

Expressing concurrence with the view of Doss, J., Richardson, J.

observed: “ It is said that the rifle range will interfere with the working of 8 acres of land behind the butts and I think that there can be

no doubt as to this. It will not be safe to put coolies on the land

when the range is being used”. An argument was advanced by the

Government that the contemplated injury was contingent and that

it could arise only from the negligent use of the range and that the

same would fall under the category of actionable nuisance. Rejecting the said argument, Richardson, J., opined: “But it is not clear

that the injury which the claimants contemplate will amount to an

actionable nuisance. The Government will have the right to use the

land as a rifle range and no doubt it may be presumed that it will be

so used with the greatest care and circumspection. But even so, no

prudent owner would put his coolies on the land behind the butts

while firing was going on”.

48. In Balammal vs. State of Madras4

, this Court was

concerned with a land acquisition under the provisions of the

4 AIR 1968 SC 1425

Madras City Improvement Trust Act, Section 71 of which

authorized the Board of Trustees to acquire land under the

provisions of The Land Acquisition Act, 1894 with the previous

sanction of the Government. When the dispute relating to

determination of compensation ultimately landed up before this

Court, the argument of one of the land owners was that a part of

the compound of a cinema theatre was acquired compulsorily and

that it deprived the owner of the land, of the facility of providing

additional amenities to the patrons of the theatre and also of

making constructions on the land expanding the business. The

claim was pitched in the alternative on clauses thirdly, fourthly

and sixthly of Section 23(1). While agreeing on principle about the

entitlement of a person interested to compensation under these

clauses, this Court rejected the claim in that case, on the ground

that there was no evidence either to show any loss by reason of

severance or to show that the remaining land was injuriously

affected by reason of acquisition or to show that the earnings of the

owners were affected.

49. Therefore, keeping in mind the above legal principles, let us

now take up for consideration, the claim of the appellant in these

appeals.

Rails and Sleepers

50. It was the claim of the appellant that Walchandnagar

Township is situate at a distance of 36 kms. from Bhigwan Railway

Station on the Central Railway line and that with a view to provide

a direct and rapid connection from Walchandnagar to Bhigwan, the

appellant had provided its own trolley line with a private telephone

line, goods yard with transshipment siding and other facilities. The

trolley line was laid in the year 1946. According to the appellant,

35,000 tonnes of material used to get transported through this

trolley line which included heavy machinery. Part of the trolley line

got submerged in the backwaters of Ujjani Dam and the remaining

portion of the trolley line situate in the unacquired part of the land

had become useless. According to the appellant, they had to spend

Rs.1,90,000/ for the removal and transport of the material

relating to trolley line. The proposal for acquisition of alternative

land to lay a new trolley line did not materialize due to various

problems, not attributable to the appellant. In any case, the cost

of such acquisition was estimated at Rs.1.5 crores even at that

time. The rails and sleepers forming part of the trolley line to a

length of 28 kms. had thus become useless. Therefore, the

appellant claimed a sum of Rs.50,08,328/ towards compensation

for rails and sleepers.

51. This claim was resisted by the respondents on the ground

that the trolley line was laid in the year 1946 for the purpose of

carrying material from the sugar industry and that the appellant

started manufacturing heavy machinery only from 1956. The

trolley line was actually a narrow gauge line, having a width of

2 feet 6 inches. Therefore, the respondents contended that no

compensation was payable towards rails and sleepers, especially

when the appellant had also claimed compensation towards

increase in transportation costs for switching over from rail

transport to road transport.

52. Before the Reference Court, the Chief Administrative Manager

of the appellant, who was a qualified Civil Engineer was examined

as PW1, and a retired Director of Town Planning was examined as

PW15. Both these witnesses referred to the quotations given by

Hindustan Steels Limited, towards estimated cost of laying the

trolley line. After allowing depreciation and the value for which the

material was sold and after adjusting transportation cost, these

witnesses estimated the cost of rails and sleepers at

Rs.50,08,288/.

53. Though the respondents examined one Shri Mahajan, who

also produced independent calculations, the Reference Court

rejected his evidence on the ground that it did not inspire

confidence. Interestingly the Reference Court did two things,

namely, (i) it agreed that the method or formula adopted by

Shri Mahajan was proper and recognized by the standard authors

and yet rejected his evidence; and (ii) it agreed with the

submissions of the Government Pleader as to why the evidence of

Shri Talim, retired Director of Town Planning should not be relied

upon, but eventually held that the evidence of Shri Talim cannot

be discarded totally. Thereafter, the Reference Court proceeded to

take the estimated cost of rails and sleepers at Rs.2,41,053/

per km., and applied a depreciation of 35% and arrived at the

depreciated value at Rs.1,56,650/ per km. Applying this rate for

the trolley line of a distance of 35 kms. and after deducting the

actual scrap value received by the appellant, the Reference Court

arrived at the compensation for rails and sleepers at

Rs.31,21,816/.

54. Both the appellant as well as the State Government were

aggrieved by the compensation so fixed by the Reference Court and

both of them were on appeal before the High Court. The High Court

held that the appellant was not entitled to any compensation for

rails and sleepers lying in the trolley line for a distance of 28 kms.,

since the appellant was at fault for not taking effective steps to lay

alternative trolley line to a distance of 6 to 7 kms. which got

submerged in the backwaters. The High Court held that in any

case, the appellant did not suffer any loss, as was evident from the

balance sheets placed on record upto the year 1978. The finding

recorded by the High Court in this regard may be usefully

extracted as follows:

“In our opinion, the company cannot be granted

compensation for rails and sleepers covering 28 kms.

of the trolley line. In the earlier part of this judgment

we have held that the company was at fault in not

taking due steps to lay the alternative trolley line for 6

to 7 kms. area submerged in the backwater. It gave

up this proposal by its own choice and the reasons put

forward before the Reference Court were false and

fabricated. Even otherwise the company did not suffer

any loss after the trolley line was discontinued in

1976, as was evident from the balance–sheets placed

on record upto the year 1978. The increase in

transport cost i.e. road transportation by trucks was

offset by increasing the manufacturing cost which is

so obvious from the fact that the company did not

incur any losses after it resorted to road

transportation. The company could not have prayed

for injurious affection on account of discontinuation of

the trolley line and claimed compensation for rails and

sleepers spread over 28 kms. of the trolley line. We do

not find any justification that the company should be

allowed to go with this compensation amount and have

the double benefit. It would be a premium for its

inaction for laying the alternative trolley line.”

55. After rejecting the claim with regard to the rails and sleepers

of the trolley line for a distance of 28 kms., on the basis of the

reasons extracted above, the High Court proceeded to award

compensation for the rails and sleepers in the trolley line to a

distance of 7 kms. which got submerged in the backwaters. This

compensation, payable for the rails and sleepers in the trolley line

to a distance of 7 kms. which got submerged in the backwaters,

was worked out, by accepting the depreciated cost fixed by the

Reference Court at Rs.1,56,650/ per km. For a distance of 7 kms.,

it worked out to Rs.10,96,550/. From this amount the High Court

deducted the scrap value of Rs.4,87,608/ and arrived at the

compensation payable under this heading at Rs.6,08,942/

56. But as rightly contended by Shri Gopal Sankaranarayanan,

learned senior counsel for the appellant, the acquisition of land for

laying alternative trolley line was not an easy task, especially when

there were lot of land owners. The urgency clause under Section 17

of the Land Acquisition Act could not have been invoked, as the

appellant is a company.

57. The fundamental flaw in the reasoning of the High Court is

that the High Court presumed that it was enough if the land for

relocating 7 kms. of trolley line was acquired. If trolley line to a

distance of 7 kms., out of a total stretch of 35 kms. admittedly got

submerged in the backwaters, the trolley line relating to the entire

stretch would naturally become redundant. Railway line is not like

a roadway. Roads can take deviation easily, but not railway lines.

Therefore, if land had to be acquired for relocating the trolley line,

it should have been for the entire stretch of 35 kms. It is not

possible to retain 28 kms. of trolley line and relocate the remaining

7 kms. stretch alone. Therefore, we are of the considered view that

the High Court committed a gross error in reversing the finding of

the Reference Court under this heading.

Rolling Stocks

58. The claim of the appellant was that due to the entire trolley

line becoming useless, three diesel locomotives, about 100 four

wheeler wagons, few 8 wheeler wagons and a one way bridge

became redundant and that they are entitled to compensation

towards the loss of value/utility of these rolling stocks. The

appellant quantified the claim under this head at Rs.22,16,044/.

59. This claim was resisted by the Government on the ground

that the appellant was put on notice of the proposed acquisition

way back in 1967 and that after showing inclination to lay an

alternative trolley line at the initial stages, the appellant

abandoned the proposal in the year 1974 and that, therefore, the

claim for compensation under this head was liable to be rejected.

60. The appellant examined an Industrial Consultant and a

registered valuer by name Shri Kamat, in support of this claim. His

report containing the valuation of the rolling stock was filed as

Exhibit93. This witness testified that before preparing the

estimate, he obtained quotations from one Shahajhan Engineers

and Suyog Electricals.

61. Though the respondents relied upon the evidence of the

Executive Engineer, Mechanical Division, examined as DW5, the

Reference Court rejected his evidence on the ground that it was of

no assistance. This witness had admitted that he never had any

occasion to value any railway wagons or locomotives.

62. In the light of the oral and documentary evidence, the

Reference Court came to the conclusion that the life of the

locomotives can be taken as 20 years and the life of wagons can be

taken as 35 years. Applying depreciation on a straight line

formula, the Reference Court arrived at the depreciated value of

rolling stock as Rs.22,36,424.70/. After deducting the scrap

value of Rs.4,56,540/, the Reference Court fixed the

compensation payable for the rolling stock at Rs. 17,79,884.70/.

63. The High Court, on reappreciation of evidence found that the

appellant company did not bring before the Court, the book value

of the rolling stock. But the expert witness Shri Kamat examined

as PW13 admitted during crossexamination that as per the Asset

value of the rolling stock was almost zero. By selling the rolling

stock as scrap, the company had actually earned a sum of

Rs.4,56,540/. Moreover the High Court found from the evidence

on record that within the company premises, the trolley line to a

distance of 14 kms. was in operation till the year 1983. This was a

clear indication that the rolling stock was used at least till the year

1983. Therefore, the High Court reversed the grant of

compensation made by the Reference Court in respect of the rolling

stock.

64. Though it is contended on behalf of the appellant that the

evidence of PW13 (Shri Kamat) was misread by the High Court

and that due to good maintenance, the life of the rolling stock had

increased, we do not think that the view taken by the High Court

was completely out of sync with the evidence on record. The High

Court has actually extracted one portion of the evidence of

Shri Kamat (PW13). He has clearly admitted that though he

inspected the Assets Register in 1986 before preparing the report

he did not record in his report, the book value of the asset. He

clearly stated “it is possible that in book value, the assets might

become zero value in the instant case.”

65. Therefore, no exception can be taken to the finding recorded

by the High Court insofar as rolling stock is concerned.

Increase in transportation cost

66. In simple terms, the claim of the appellant was that the cost

of transportation through trolley line was Rs.0.20 per km. per

tonne and that the cost of transportation by road was Rs.0.80 per

km. per tonne. Since a portion of the trolley line got submerged in

the backwaters and as a consequence, the entire stretch of trolley

line became unusable, the company had to switch over to road

transport, resulting in an increased cost of Rs.8,00,718/ per year.

Applying a multiplier of 10, the appellant made a claim for

Rs.80,07,180/ under this head.

67. The appellant examined the Chief Administrative Manager as

PW1, the Planning Manager as PW3 and a person working as a

clerk in the transport Section of the company as PW6. The Chief

Accountant of the company was examined as PW7 and a person

who was carrying on road transport business under the name and

style of Purohit Road Lines was examined as PW12.

68. The Reference Court accepted the evidence adduced on the

side of the appellant and came to a conclusion that the appellant

was transporting about 35,000 tonnes of goods per year through

the trolley line at the cost of Rs.0.20 per tonne per km and that the

cost of road transport for the same quantity of material was

Rs.0.80 per km. per tonne. The Reference Court thus arrived at the

increase in the cost of transportation per year at Rs.8,00,718/.

However, the Reference Court rejected the claim of the appellant in

this regard for a total period of 10 years, on the ground that there

is no basis for allowing such a claim for a total period of 10 years.

Therefore as against the claim of the appellant for a sum of

Rs.80,07,180/ (increase in cost for 10 years), the Reference Court

awarded only Rs.8,00,718/ (increase in cost for one year only).

69. The High Court reversed the finding of the Reference Court on

the short ground that the appellant had not demonstrated to have

suffered any loss of profits on account of the increase in the

transportation cost and that even the balancesheets for the years

1972 to 1978 did not disclose any loss of profit. Therefore, the High

Court opined that the increase in transportation cost, even if any,

would have been absorbed in the price charged to the customers

and that there was no case for allowing compensation under this

head even for one year, when the appellant had not suffered any

loss of profit. In fact, the appellant had made a claim separately for

a sum of Rs.35,62,000/ towards loss of profits, but the same was

turned down by the Reference Court. Therefore, the High Court

held that the Reference Court could not have granted any

compensation under this heading ‘increase in transportation cost’.

70. The objections of the appellant to the finding of the High

Court in this regard are twofold namely, (i) that the profits

actually went down from Rs.96.07 lakhs in 197576 to Rs.40.80

lakhs in 197677; and (ii) that without any evidence on record the

High Court presumed that the increase in transportation cost was

offset and recovered from the buyers of the goods manufactured

by the company.

71. Insofar as the first objection is concerned, we must point out

at the outset that the Notification for acquisition under Section 4

was published in the Government Gazette on 26.10.1972. The

declaration under Section 6 was published in the Government

Gazette on 01.08.1974. Notices under Sections 9(1) and 9(2) were

published in September1974 and Feburary1975. Though the

exact date on which possession was taken is not mentioned by

either of the parties, the appellant has stated in their synopsis that

the Government took possession of the land in 1976.

72. The appellant has produced before us the copy of the balancesheets and profit & loss account for the years 197576 and 1976

77. From these balancesheets and profit & loss accounts, it is

sought to be highlighted that the appellant made a profit of

Rs.96.07 lakhs during the year 197576 and that the profit went

down to Rs.40.83 lakhs during the year 197677.

73. If this claim of the appellant is taken to be true, it would

mean that the appellant suffered a reduction in profit to the tune

of about Rs.55,00,000/in one year immediately after possession of

the land was taken. The balance sheets and profit & loss accounts

produced by the appellant before us are as on 30.09.1976 and

30.09.1977. Even according to the appellant, the reduction in the

profit to the extent of nearly Rs.55,00,000/ was not wholly

attributable to the increase in transportation cost. The appellant

claimed only a sum of Rs.8,00,718/ per year towards increase in

transportation cost. This constitutes only 15% of the total amount

of reduction in profits. It is seen from the profit & loss account for

the year ended 30.09.1977 that the sales turn over itself had come

down from Rs.22.09 crores to Rs.18.17 crores. Even the raw

material consumed had come down from 13.47 crores to Rs.9.32

crores. There had also been a substantial down slide in subcontract and process charges. Therefore, the contention of the

appellant that the profits went down, may be a point in an answer

to the adverse inference drawn by the High Court with regard to

profits. But it cannot be used in support of the appellant’s case

that the increase in the transportation cost accounted at least in

part to a reduced margin of profit.

74. The impact of the increase in transportation cost, upon the

profit margin of a seller of goods, would depend upon the terms

and conditions of the contract. It may also vary from sea transport

to rail transport to road transport to air transport. Though in

shipping contracts there are standard covenants such as FOB

(Free on Board), CIF (Cost, Insurance and Freight) etc., there are

no such standard covenants in rail and road contracts. In any

case, the trolley line of the appellant covered only a distance of 35

kms upto Bhigwan. Delivery of material had to be effected by the

appellant to its customers through some method of transport from

Bhigwan. Nothing is on record to show that the goods were always

dispatched to all customers through goods carriage railway line of

the Indian Railways beyond Bhigwan. In the absence of any

evidence to show that the increase in the transportation cost due

to the submerging of a part of the trolley line, had always to be

absorbed only by the appellant, but could not have been passed on

to its customers due to specific terms and conditions of contract,

the Reference Court could not have accepted a claim in this regard.

75. Moreover there was a finding of fact in the Award passed on

09.12.1981 which was taken note of by the High Court. The

relevant portion of the Award reads as follows:

“Further as per local enquiry it is told that the Trolley

line was constructed years back mainly for bringing

heavy machinery at Walchandnagar. After this

purpose was served, they were using it for movement

of goods for some time. The process of moving the

goods on the Trolley line became uneconomical. So

they resorted to road and truck traffic which was quick

and possibly economical. Thus the whole Trolley line

was in disuse being uneconomical on the relevant date

i.e. 27972. In these circumstances the claim for

severance and injurious affection has been rejected.”

76. Therefore, the decision of the High Court with regard to

the claim for compensation towards increase in transportation

cost appears to be reasonable and hence cannot be interfered

with.

CONCLUSION

77. The upshot of the above discussion is that the refusal of the

High Court to award any compensation for the injurious affection

to one set of movable property, namely, rolling stock cannot be

found fault with, for the reasons stated above. Similarly, the

refusal of the High Court to award any compensation for increase

in transportation cost, falling under the category of “injurious

affection to earnings” cannot also be faulted, for the reasons

indicated separately. However, the refusal of the High Court to

grant compensation for the injurious affection sustained by the

appellant to one set of movable property, namely, rails and

sleepers forming the trolley line for a distance of 28 kms., is clearly

unsustainable especially when the grant of compensation for the

injurious affection to rails and sleepers to a stretch of 7 kms.

submerged in the backwaters, has been sustained by the High

Court. In fact, the State has not come up on appeal against the

grant of compensation for the injurious affection to the trolley line

to a distance of 7 kms which got submerged in back waters. That

the remaining portion of the trolley line to a distance of 28 kms has

been rendered useless after the acquisition, is not in dispute.

78. A question may arise as to whether the reasoning given by us

for rejecting the claim for loss of earnings in the form of increase in

transportation costs, will not apply ipso facto to the claim for

compensation for the rails and sleepers also, since the appellant

had switched over to road transport in the year 1972 itself. But our

answer would be that clause fourthly of Section 23(1), uses a

significant phrase viz., “injuriously affecting his other

property, movable or immovable, in any other manner, or his

earnings”. Therefore, injurious affection to property, in any other

manner, may stand on a different footing from injurious affection

to earnings. While there is no evidence on record to connect the

drop in the level of profits from 197576 to 197677, with the

increase in transportation costs, there is acceptable evidence to

show that movable property became useless after the acquisition.

Therefore, both stand on different footings.

79. Therefore, the appeals are partly allowed, setting aside that

portion of the findings and conclusions reached by the High Court

in the impugned judgment (para 22), whereby the award of the

Reference Court relating to compensation for injurious affection to

rails and sleepers, was reversed by the High Court. As a

consequence, the award of the Reference Court granting a sum of

Rs.31,21,860/ towards compensation for rails and sleepers shall

stand restored. In respect of all other claims, the impugned

judgment is not interfered with.

80. Before parting we are obliged to bring one important fact on

record. It appears that at the time of filing of the First Appeal

before the High Court of Judicature at Bombay, the respondents

deposited on 17.07.1992, the award amount of Rs.2,72,25,680/.

By virtue of an order passed subsequently, the appellant withdrew

the said amount apparently after furnishing bank guarantee. But

by the impugned judgment dated 19.11.2008, the High Court of

Bombay allowed the appeal of the respondents and reduced the

award amount. When the Special Leave Petitions out of which the

present appeals arise, came up for admission, this Court passed

an order dated 16.03.2009 which reads as follows:

“Issue notice.

If the petitioner has furnished any bank guarantee in

regard to the amount already drawn, there shall be

interim stay of enforcement of the guarantee by the

respondent subject to the petitioner extending validity

of the bank guarantee till disposal of this matter.”

We hope that the bank guarantee is kept alive as per the above

order of this Court dated 16.03.2009. Now that the judgment of

the Bombay High Court is modified by us, the appellant will be

entitled to retain so much of the amount as they would be entitled

to, by virtue of this judgment and the appellant shall pay the

respondents the excess amount, within four weeks. In case the

bank guarantee furnished by the appellant is alive, the Land

Acquisition Officer may prepare fresh calculations and enforce the

bank guarantee only to the extent of disallowed portion. There

will be no order to costs.

…..…………....................J.

(Hemant Gupta)

.…..………......................J.

(V. Ramasubramanian)

New Delhi

February 4, 2022

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