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The controversy over the interpretation of Section 24 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 [hereinafter Act of 2013’] has finally been set at rest by a Constitution Bench of the Supreme Court in Indore Development Authority v. Manoharlal [hereinafter ‘Manoharlal’]. In this post, I propose to examine a very important finding in the judgment that the “non-deposit of compensation in Court does not result in lapse of the acquisition.” In other words, deposit in treasury of the compensation in land acquisition cases is permitted as a valid mode of discharge of payment under Section 31 (2) of the Land Acquisition Act, 1894 [hereinafter ‘Act of 1894’] This piece intends to examine the correctness of the above view.

An Analysis of Statutory Provisions

Section 24 of the Act of 2013 is a transitory provision to take care of the pending land acquisition proceedings which were ongoing under the Act of 1894 when the Act of 2013 was brought into force with effect from 1.1.2014. Section 24 (2), the interpretation of which was the controversy in issue, provided that in case where the award has been passed five years or more prior to the commencement of the Act of 2013, “the physical possession of the land has not been taken, or the compensation has not been paid”, the proceedings shall be deemed to have lapsed, and such proceedings cannot continue as per the provisions of Act of 1894.  The proviso to Section 24(2) further carves out an exception to Section 24(2) by stating that in case the award has been made and compensation in respect of majority of landholdings has not been deposited in the account of the beneficiaries, no lapsing will take place, but all the beneficiaries specified in the notification for acquisition shall be entitled to compensation in accordance with the provisions of the Act of 2013.

The provisions relating to payment of compensation under the Act of 1894 are contained in Part V of the said Act from Sections 31 to 34. Under Section 31 (1), the Collector shall tender payment of the compensation awarded by him to the persons interested entitled according to the award. Section 31 (2) provides for ‘deposit of compensation in Court’ in case State is prevented from making payment in the event of (i) refusal to receive it; (ii) if there be no person competent to alienate the land; (iii) if there is any dispute as to the title to receive the compensation; or (iv) if there is dispute as to the apportionment. In such exigencies, the Collector shall deposit the amount of the compensation in the court to which a reference under Section 18 would be submitted. Sections 32 and 33 lays down the manner in which the money deposited in Court under Section 31 (2) is to be utilised.  Section 34 deals with a situation where any of the obligations under Section 31 is not fulfilled. The consequence of such non-deposit is that a higher rate of interest becomes payable on the compensation. 

The Rules contrary to Statute

While the above is the statutory provision on the mode of making payment of compensation , the Rules made by various States under Section 55 of the Act of 1894 provided for ‘deposit in treasury’. To highlight, one instance of the many such Rules, Rule 14 (2) of the Land Acquisition (Kerala) Rules, 1990 may be taken note of. Thus, Rules were made contrary to the statutory provision. 

The Interpretation of Section 24 (2) of the Act of 2013

The logical conclusion of reading Section 31 (2) [without reference to the Rules referred above], would be that “deposit in treasury” is impermissible and cannot qualify as ‘compensation paid’ to the persons interested/landowner. This was also the reasoning of the three Judge Bench in Pune Municipal Corporation v. Harakchand Misrimal Solanki,  [hereinafter ‘Pune Municipal Corporation’] which held that the deposit of compensation amount in the government treasury is of no avail and cannot be held to be equivalent to compensation paid to the landowners/persons interested. Therefore, in cases where the compensation was not deposited in court, it was held that the compensation cannot be treated as ‘paid’, resulting in the lapsing of acquisition under Section 24 (2) of the Act of 2013. 

Over the years, the decision in Pune Municipal Corporation was followed in large number of cases by the Supreme Court as well as the High Courts. [See: Delhi Development Authority v. Sukhbir Singh, observing that the decision in Pune Municipal Corporation is now stare decisis]. 

How the Stare Decisis was disturbed?

The contradicting provision in the Rules regarding the deposit was taken note of by the two Judge Bench in Indore Development Authority v. Shailendra [hereinafter ‘Shailendra-I’] and the correctness of Pune Municipal Corporation was doubted, leading to a reference before a three Judge Bench. The said three Judge Bench in Indore Development Authority v. Shailendra [hereinafter ‘Shailendra-II’] controversially held the decision in Pune Municipal Corporation to be per incuriam. The matters were eventually referred to a Constitution Bench, leading to the decision in Manoharlal.

Interpretation of ‘Paid’ and Legalising ‘Treasury Deposit’

The reasoning of the Supreme Court in Manoharlal and Shailendra-II are virtually similar, since both the judgments were authored by the very same learned Judge- Hon’ble Mr. Justice Arun Mishra. For the purpose of analysis, the reasoning in Manoharlal is referred to. This reasoning is substantially contained in paragraphs 198 to 224, and paragraph 224 summarises the discussion in the following words:

Thus, in our opinion, the word “paid” used in Section 24(2) does not include within its meaning the word “deposited”, which has been used in the proviso to Section 24(2). Section 31 of the Act of 1894, deals with the deposit as envisaged in Section 31(2) on being ‘prevented’ from making the payment even if the amount has been deposited in the treasury under the Rules framed under Section 55 or under the Standing Orders, that would carry the interest as envisaged under Section 34, but acquisition would not lapse on such deposit being made in the treasury. In case amount has been tendered and the landowner has refused to receive it, it cannot be said that the liability arising from non-payment of the amount is that of lapse of acquisition. Interest would follow in such a case also due to non-deposit of the amount. Equally, when the landowner does not accept the amount, but seeks a reference for higher compensation, there can be no question of such individual stating that he was not paid the amount (he was determined to be entitled to by the collector). In such case, the landowner would be entitled to the compensation determined by the Reference court.”

Examination of the Reasoning of the Court

To arrive at the conclusion that the deposit in treasury is also a valid mode of discharge, the Court examines the consequence of non-deposit under Section 31 (2) and notes that the only consequence of such non- deposit is payment of higher interest under Section 34. According to the Court, no prejudice is caused to the landowner by non-compliance of Section 31 (2). It is most respectfully submitted that this reasoning is not correct for the following reasons.   

Firstly, land acquisition legislations are expropriatory legislations and they need to be strictly construed. There can be no escaping from the rigours of the law by substantial compliance of its provisions. The Collector can only act in the manner so provided under Sections 31 to 34. It is a well settled proposition of law that where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all. Other methods of performance are necessarily forbidden. [See: King Emperor v. Khwaja Nazir Ahmed AIR 1945 PC 18]. Thus, deposit in Court is the only valid mode of discharge under the Act of 1894. Allowing any other mode of discharge is certainly contrary to the express provision of the Act.

Secondly, it is significant to note that the Parliament while enacting the Act of 2013 retained the deposit in Court as the only mode of discharge in Sections 77 to 80 of the Act of 2013. Section 77 (2) of the Act of 2013 is akin to Section 31 (2) of the Act of 1894. The Parliament, which certainly was aware of the mode of deposit under Section 31 (2) despite Rules to the contrary made under the Act of 1894 Act, yet did not permit deposit in treasury account while enacting Sections 77 to 80 of the Act of 2013. The legislative mandate is thus overwhelmingly in favour of deposit in court than deposit in treasury account.

Thirdly, one of the criticism levelled against the decision in Pune Municipal Corporation by the two Judge Bench in Shailendra-I was that the former decision did not notice the Rules framed by several States regarding the mode of deposit under Section 31 (2). Section 55 (1) of the Act of 1894 stipulates that the appropriate Government shall have the power to make rules ‘consistent’ with the Act. Most of the Rules framed appear to be contrary to the mode prescribed under Section 31 (2) of the Act of 1894 and hence ultra vires the Act. In the above circumstance, the Court was required to consider the validity of these Rules. Instead, the Court says, without offering any reason, “Rules and the Standing Orders are binding on the concerned Authorities and they have to follow them.”[See: paragraph 229]

Fourthly, the Court says that treasury deposit will not cause any prejudice to the land owners, as they will be entitled to higher interest as per law and that every infraction of law would not vitiate the act. It is most respectfully submitted that it is erroneous to say that no prejudice is caused to the landowner. By not depositing the amount in accordance with Section 31 (2) of the Act of 1894, acquisition proceedings would have lapsed under Section 24 (2) of the Act of 2013. The landowners would have then had the benefit of the Act of 2013, which provides a higher compensation than the Act of 1894. Such an interpretation would have also secured the valuable constitutional guarantee of the right to property in Article 300-A of the Constitution. The prejudice caused is not only deprivation of a higher compensation under the Act of 2013 but also additional benefits beyond monetary compensation, which the Act of 2013 intended to confer. It is doubtful whether this deprivation of a beneficial legislation and its associated benefits can be mitigated by merely providing higher interest.  

Tail Piece

By validating deposit in treasury account when the statute expressly provided for deposit in Court, what did the Court achieve?

The Government was very well aware of the difficulty caused by the judgment in Pune Municipal Corporation that deposit in treasury cannot be regarded as a valid mode of discharge and therefore sought to get over the judgment by an amendment of Section 24 (2) of the Act of 2013. With the said objective, The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Bill 2015 sought to introduce a proviso to Section 24 (2) of the Act of 2013, as under:

Provided further that in computing the period referred to in this sub-section, any period or periods during which the proceedings for acquisition of the land were held up on account of any stay or injunction issued by any court or the period specified in the award of a Tribunal for taking possession or such period where possession has been taken but the compensation is lying deposited in a court or in any designated account maintained for this purpose shall be excluded.

By the said Amendment, the Parliament intended to save those acquisitions in which the compensation was deposited in treasury accounts. In other words, deposit in treasury was also sought to be treated as a valid mode of discharge under Section 31 (2) of the Act of 1894.

Though the Amendment Bill was passed by the Lok Sabha, it could not get the nod of Rajya Sabha. With the dissolution of the 16th Lok Sabha, the Bill lapsed. Now, the Court by its judgment validating treasury deposits as a mode of discharge, has done what the Parliament could not do.

(Hari Krishnan is an advocate at the High Court of Kerala)

Cite as: Hari Krishnan, ‘Deposit of Compensation in Treasury: Is the view in Indore Development Authority v. Manoharlal Correct?’ (The Contemporary Law Forum, 04 May 2020) , <http://tclf.in/2020/05/04/deposit-of-compensation-in-treasury:-is-the-view-in-indore-development-authority-v-manoharlal-correct?>, date of access.

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