Mary George vs State of Kerala

Thomas P. Joseph, J.—The question involved is whether the interest component u/s 28 of the Land Acquisition Act (for short, "the Act") would get assimilated into compensation awarded under S. 23 of the Act and therefore on such interest component, the State is liable to pay further interest either under S. 34 of the Act or u/s of the CPC (for short, "the Code")? Petitioners are the E, M, S, V, and W claimants in L.A.R. No. 44 of 1986 of the Sub Court, Thrissur. 43.6814 Hectares of land was acquired for the 2nd respondent. The reference court passed a common award on 05.03.1991 in L.A.R. Nos. 44 and 45 of 1986. Against the award in L.A.R. No. 44 of 1986, 1st respondent filed L.A.A. No. 595 of 1992. By Ext.P2, judgment dated 23.05.2003 this Court allowed the appeal by way of remand. Though the 2nd respondent filed SLP (C) No. 17650 of 2003, that was dismissed as per Ext.P4, judgment dated 6.10.2003. Second petitioner as a legal representative of one of the J claimants filed L.A.A. No. 346 of 2003. That appeal was allowed by Ext.P3, judgment dated 04.09.2003 by way of remand. Reference court thereafter passed Ext.P5, common judgment dated 27.09.2007.

M claimant filed L.A.A. No. 1159 of 2008 while the S claimant filed L.A.A. No. 358 of 2008. In that appeal, the E, P, V and W claimants preferred cross objection. Second respondent filed L.A.A. No. 944 of 2009. This Court passed Ext.P6, common judgment on 23.4.2010 awarding compensation under sub-ss. (1A) and (2) of S. 23 of the Act as well and allowing interest under S. 28 of the Act. Though 2nd respondent challenged the common judgment in the Supreme Court, SLP was dismissed as per Ext.P8, judgment dated 14.3.2011.

Petitioner filed Ext.P9, execution petition pursuant to Ext.P6, judgment dated 23.4.2010 claiming Rs. 15,23,77,455.67. Second respondent contended that petitioners have computed interest on the interest awarded under S. 28 of the Act. Executing Court accepted that contention as per Ext.P11, order which is under challenge.

Learned counsel for petitioners contended that the executing court has proceeded as if petitioners have claimed compound interest and disallowed it. It is contended that what is claimed by the petitioners is not compound interest. According to the learned counsel, interest awarded under S. 28 of the Act would get assimilated into the compensation awarded under S. 23 of the Act and would form part of the principal sum adjudged. On that amount, interest is payable under S. 34 of the Act Learned counsel has placed reliance on the decisions in Satinder Singh and Others Vs. Amrao Singh and Others, , Renusagar Power Co. Ltd. Vs. General Electric Co., , Central Bank of India Vs. Ravindra and Others, , Gurpreet Singh Vs. Union of India (UOI), and Commissioner of Income Tax, Faridabad Vs. Ghanshyam (HUF), . It is also argued that by virtue of S. 53 of the Act, provisions of the Code so far as it is not inconsistent with the provisions of the Act are made applicable and hence at any rate interest is payable on the amount awarded under S. 23 of the Act to which interest awarded under S. 28 of the Act got assimilated, by virtue of S. 34 of the Code. At any rate there is an implied agreement between the parties to the acquisition that the acquiring authority would pay interest on the amount awarded. Learned counsel has contended that the view taken by the executing court, in the circumstances, is not correct.

Learned Government Pleader for the 1st respondent and learned Standing Counsel for the 2nd respondent supported Ext.P11, order. It is argued that question of interest awarded under S. 28 of the Act getting assimilated into compensation awarded under S. 23 of the Act does not arise. It is argued that petitioners have calculated interest on the interest component awarded under S. 28 of the Act which amounts to claiming compound interest. There is neither any contractual nor statutory obligation, implied or express on the part of respondents 1 and 2 to pay interest on the interest component. Reliance is placed on the decisions in State of Kerala Vs. Lakshmanan, , State of Haryana and Others Vs. S.L. Arora and Company, and ((2011) 4 SCC 734). It is also argued that S. 34 of the Code has no application since the said provision is not merely procedural and affects substantive right of the parties.

Section 23 of the Act deals with matters to be considered in determining compensation. The first is assessment of market value of the land on the date of publication of notice under S. 4(1) of the Act. The second item is solatium (30%) on the market value thus assessed. The third is additional amount at 12% of the market value of the land as mentioned in sub-s.(2) of S. 23 of the Act. Section 28 of the Act deals with liability to pay interest on compensation. Section 34 of the Act deals with payment of interest when compensation is not paid or deposited on or before taking possession of the land.

It is relevant to note that under Ss. 28 and/or 34 of the Act as the case may be, interest is payable on the amount of compensation. As aforesaid compensation is to be calculated in the way stated in S. 23 of the Act. Thus it is clear that interest is payable under S. 28 or 34 of the Act only on compensation assessed under S. 23 of the Act.

In Satinder Singh v. Amrao Singh the Supreme Court stated broadly that the act of taking possession of immovable property generally implies an agreement to pay interest on the value of the property and that it is on that principle that a claim for interest is made against the State. It is further stated.

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 S. 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.

The next decision cited by the learned counsel for petitioner is Central Bank of India v. Ravindra & Ors. There, the Supreme Court considered the meaning of the expression "the principal sum adjudged" occurring in S. 34 of the Code. It is held,

as we have already held that the interest once capitalized ceases to be interest and becomes a part of principal sum or capital. That being so the interest forming amalgam with the principal, in view of having been capitalized, is principal sum and therefore the question of awarding interest on interest does not arise at all.

It is further held,

recognition of the method of capitalization of interest so as to make it a part of the principal consistently with the contract between the parties or established banking practice does not offend the sense of reason, justice and equity....

...The expression ''principal sum'' cannot be given different meaning at different places in the language of same section, i.e., Section 34 of the C.P.C.

The Supreme Court was dealing with S. 34 of the Code.

In Gurpreet Singh Vs. Union of India (UOI), , referring to S. 26 of the Act it is held,

every award shall be deemed to be a decree within the meaning of Section 2(2) of the CPC and every reasoned award shall be deemed to be a judgment as defined in Section 2(9) of the Code of Civil Procedure.

There is also reference to the interest payable under the provisions of the Act. Referring to S. 53 of the Act it is held that the said provision makes the Code applicable to all proceedings before Court under the Act save in so far as the provisions of the Code are found to be inconsistent with anything contained in the Act.

In Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF) it is held,

...Interest u/s 28 is part of the amount of compensation whereas interest u/s 34 is only for delay in making payment after the compensation amount is determined. Interest u/s 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest u/s 34.

In Haryana v. M/s. S.L. Arora and Company though dealing with liability to pay interest under S. 34 of the Code, it is held,

...Compound interest cam be awarded only if there is a specific contract, or authority under a Statute, for compounding of interest. There is no general discretion in courts or tribunals to award compound interest or interest upon interest.

In State of Punjab Vs. Amarjit Singh and Another, the Supreme Court was dealing with various factors to be taken into account while awarding compensation under S. 23(1A) of the Act. In paragraph 12, summing up the discussion it is held that a person whose land is acquired is entitled to get compensation determined under S. 23(1A) of the Act, solatium at 30% and of the market value thus determined and additional amount at 12% per annum of the market value. It is also held that interest is payable on the aggregate amount of market value, solatium at 30% and additional amount at 12%. Payments made are to be adjusted and set out in the manner stated in Gurpreet Singh Vs. Union of India (UOI), .

Section 28 of the Act only contemplates payment of simple interest. In Priya Vart and another Vs. Union of India, it is held that S. 28 of the Act only contemplates payment of simple interest and not compound interest. A Division of this Court considered the question in State of Kerala v. Lakhmanan (supra). There, reliance was placed on the decision in State of Punjab and others Vs. Mohinder Singh Randhawa and another, and it was held that question of awarding interest on interest (a warded under S. 28 of the Act) does not arise.

Learned counsel for petitioners contends that the decisions cited first above are not considered in State of Kerala v. Lakhmanan. It is also argued that it is not a case of compound interest being claimed - it is a case where interest awarded under S. 28 of the Act getting assimilated into the compensation payable under S. 23 of the Act and hence question of claiming interest on interest does not arise. It is in this connection that learned counsel has placed reliance on the decision Central Bank of India v. Ravindra and Others.

So far as that decision is concerned, I must notice that the Supreme Court was Considering the meaning of the expression "principal sum adjudged" occurring in S. 34 of the Code. I must also notice that the Supreme Court observed that recognition of method of capitalization of interest so as to make it a part of the principal consistently with the contract between the parties or established banking practice does not offend the sense of reason, justice and equity.

Liability of the acquiring authority to pay interest on the amount of compensation adjudged under S. 23 of the Act is as provided under Ss. 28 and 34 of the Act. So far as S. 34 of the Code is concerned, true that S. 53 of the Act makes the provisions of the Code applicable to proceedings before court so far as it is not inconsistent with the provisions of the Act. But what is made applicable by S. 53 of the Act is the procedure prescribed by the Code. Section 34 of the Code cannot be taken as a matter of mere procedure - it affects substantive right of parties. In so far as Ss. 28 and 34 of the Act provides for awarding interest, recourse cannot be had to S. 34 of the Code.

Nor am I impressed by the contention that there is an implied agreement between the parties for payment of interest on the amount of interest (according to the petitioners, it gets assimilated into the principal amount awarded under S. 23 of the Act). None of the authorities relied on by the learned counsel for petitioners say that interest awarded under S. 28 of the Act gets assimilated into compensation awarded under S. 23 of the Act so that, interest is payable on the interest component. Even the decision Commissioner of Income Tax, Faridabad v. Ghanshyam only says that interest awarded under S. 23 of the Act is part of the compensation and not that it get assimilated into the compensation awarded under S. 23 of the Act so that, such interest will again carry interest. In whatever way petitioner may call it, if interest is awarded on the interest component under S. 28 of the Act, it is awarding compound interest. That is what State of Kerala v. Lakhmanan has held. There is no reason to reconsider the said decision with which I am bound. It follows that claim of petitioners for interest on the interest component which according to the petitioners got assimilated into Compensation awarded under S. 23 of the Act cannot be allowed as it amounts to awarding interest on interest which is not provided either by any contract between the parties or by any provision of the Act. Hence that claim of the petitioners cannot be sustained. The executing court was therefore right in rejecting the calculation made by the petitioners.

The Original Petition fails and it is accordingly dismissed.