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Synopsis

The Supreme Court has observed that determining circle rates should ideally be entrusted to expert committees comprising not just government officials but also market specialists. It expressed concern that public authorities have not paid sufficient attention to the proper fixation of these rates, which are crucial for reflecting true market conditions.

"In the last few decades, the Union of India and the State Governments have laid emphasis on enhancing the ease of living and doing business. Fixing fair and accurate circle rates has a direct impact on each citizen. An inflated rate results in an unfair financial burden on purchasers. Conversely, an undervalued rate leads to inadequate stamp duty collection, adversely affecting the State’s revenue," a bench of Chief Justice of India Sanjiv Khanna and Justice Sanjay Kumar said.

The court emphasised circle rates, which reflect the market price ensure proper revenue collection for the State by preventing under-valuation of properties.

It noted that circle rates often become a politically and economically contentious issue which is reflected in the frequent litigations across various jurisdictions, that discuss the circle rates applicable to properties.     

"Circle rates, when determined while accounting for factors that cause variations in the market price of land, can facilitate predictability in transactions and curtail litigation. The standardised circle rates should be fixed at the floor or baseline price, as it would be grossly unfair to ask the public to pay stamp duty on over-valued circle rates," the court said.  

The bench pointed out methodically and scientifically fixed circle rates can contribute to strengthening the economy and boosting tax collections. While serving the interests of honest taxpayers, accurate circle rates would simultaneously deter non-compliant taxpayers by preventing under-valuation. 

"Rational and fair circle rates reflect and are a prerequisite for good governance. Given the financial implications of fixation of circle rates on each member of the society, the data and details for computation of circle rates should be made public," it said.

The court pointed out that the 2018 Rules framed by the State of Madhya Pradesh attempt to comprehensively address the variable factors that influence the price of land, and, therefore, lay the foundation for a more accurate valuation of land prices. 

"In our opinion, other State Governments would also be well advised in formulating guidelines that can act as a ready reference for determining and revising circle rates regularly, in order for them to reflect market realities," the bench said.  

In a batch of civil appeals filed by Madhya Pradesh Road Development Corporation, the court dealt with the issue of the applicability of the “theory of deduction” for determining the compensation payable under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. 

For the land acquired for widening, four-laning, maintenance, management and operation of National Highway in Jabalpur in Madhya Pradesh, the total compensation payable for the acquisition of the land belonging to Respondent No. 1, Vincent Daniel, was calculated to be Rs 2,05,42,164. Daniel and the other landowners appealed to the Commissioner against the decision of the competent authority. The Commissioner in his arbitral award added 100% solatium and interest, and held that an additional amount of Rs 2,21,11,562 was payable.

On appeal, the Madhya Pradesh High Court held in the impugned judgment dated April 13, 2022, that under Section 26(1) of the Acquisition Act, 2013, if the market value determined under the Stamp Act is the highest among the computed values, it would be binding. The theory of deduction applied by courts while determining market value under the Acquisition Act, 1894, would not apply when determining compensation under Section 26(1) of the 2013 Act. Therefore, judgments applying the theory of deduction under the 1894 Act do not have any precedential value under the 2013 Act.

The impugned judgment also referred to the Madhya Pradesh Preparation and Revision of Market Value Guideline Rules, 2018, for the procedure to calculate market value under the Stamp Act. The high court further stated that it has limited power and jurisdiction under Section 37 read with Section 34 of the Arbitration Act to interfere with the award passed by the Commissioner.

Analysing the facts of the present case, the bench said that to determine the compensation, the market value of the land must first be computed under Section 26 of the Acquisition Act, 2013. The highest value would be the one determined under Clause (a), i.e., the market value specified under the Stamp Act. 

In the present case, the court said, this value would be the circle rate fixed for the year 2014-2015 under the Collector’s Guidelines framed under the Stamp Act. The Commissioner had applied the collector’s guidelines by using the rate provided for non-converted agricultural land. The Commissioner had further supplemented this amount by accounting for the assets attached to the land and adding the solatium payable.

"We hold that the compensation has been calculated in accordance with the mandate of the Acquisition Act, 2013. Thus, no reduction in the amount can be granted by applying the theory of deduction. It has been left to the Collector’s discretion to make adjustments to the market value determined through Section 26(1), if deemed necessary in the opinion of the Collector. In the facts of the present case, there was no such formation of opinion by the Competent Authority or the Commissioner," the bench said.

In the absence of any material to support, the court said, it could not accept the argument advanced by the appellant, Madhya Pradesh Road Development Corporation, that this circle rate was not the baseline or floor rate, and was too high. 

"Concerned authorities should fix circle rates scientifically and in accordance with the law. It is their responsibility to ensure that circle rates are neither inflated nor disproportionately low. When the citizens are required to pay stamp duty on the notified circle rate, the public authorities, including state development corporations acquiring land from private individuals, must adhere to the same," the bench said.

The court said it did not appreciate the appellant, Madhya Pradesh Road Development Corporation, complaining about the circle rate fixed by the State Government. 

"If the circle rate is inflated or does not reflect the true market value, it is incumbent upon the State Government to take corrective steps. The State Government or the development corporation under the State Government cannot complain that they have been compelled to acquire land at the circle rate fixed by the State," the bench said.

The court upheld the computation in the award passed by the Commissioner directing payment of compensation on the basis of the circle rate. It dismissed the appeals filed by the corporation.

Case Title: Madhya Pradesh Road Development Corporation Vs Vincent Daniel & Ors