THE STATUTORY INTERPRETATION OF
EXPLANATION 2 TO SECTION 26(1) OF
THE 2013 LAND ACQUISITION ACT:
THE “HIGHEST-HALF RULE” AND
THE SUPREME COURT’S CLARIFICATION IN PRADYUMNA MUKUND KOKIL
I. Introduction
The 2013 Act revolutionised land-acquisition compensation
by replacing administrative discretion with
objective, statutory criteria.
Section 26(1) prescribes three modes of determining market value—
(a) the circle rate under the Indian Stamp Act, 1899;
(b) the average sale price of comparable land; and
(c) the consented compensation in PPP or private acquisitions—
whichever is higher.
Within this framework,
Explanation 2 to Section 26(1) serves
as the critical filter that defines how the “average sale price”
in clause (b) must be computed.
Its language has generated controversy between revenue authorities,
who often average all transactions, and landowners,
who insist that only the highest-priced exemplars can be considered.
The Supreme Court’s recent ruling
in Pradyumna Mukund Kokil v. Nashik Municipal Corporation
(2025 INSC 1236) conclusively resolves this debate.
II. Statutory Text
Explanation 2.—
For determining the average sale price referred to in Explanation 1,
one-half of the total number of sale deeds or the agreements to sell
in which the highest sale price has been mentioned
shall be taken into account.
This formulation contains three mandatory elements:
Quantitative limit — “one-half of the total number”;
Qualitative test — “in which the highest sale price has been mentioned”;
Imperative verb — “shall be taken into account”.
Each element carries legal compulsion; none is optional.
III. Legislative Object
The object of Explanation 2
is to prevent the depression of compensation
through inclusion of low-value or distress transactions—
a practice rampant under the repealed 1894 Act.
By prescribing that
only the higher half of comparable transactions be used,
Parliament ensured that market value reflects
realistic economic behaviour rather than manipulated averages.
The provision thus secures the constitutional guarantee of
“fair compensation” implicit in Article 300-A.
IV. Two-Stage Statutory Process
Compilation Stage (Explanation 1):
The Collector gathers all registered sale deeds or agreements concerning similar lands in the nearest vicinity during the immediately preceding three years.
Selection Stage (Explanation 2):
From that dataset, only one-half of the transactions showing the highest prices are retained; the average of those deeds constitutes the “average sale price.”
Any attempt to average the entire dataset— say 50 deeds including low-price sales—is contrary to the Act.
Compilation Stage (Explanation 1):
The Collector gathers all registered sale deeds or agreements concerning similar lands in the nearest vicinity during the immediately preceding three years.
Selection Stage (Explanation 2):
From that dataset, only one-half of the transactions showing the highest prices are retained; the average of those deeds constitutes the “average sale price.”
Any attempt to average the entire dataset— say 50 deeds including low-price sales—is contrary to the Act.
V. The Supreme Court’s Clarification
in Pradyumna Mukund Kokil v. Nashik Municipal Corporation
(2025 INSC 1236)
Facts
The appellant’s land in Nashik was acquired under the 2013 Act.
The Reference Court examined six genuine sale deeds
of similar nearby lands.
Applying Explanation 2, it selected the three highest-priced transactions, averaged them, and added 10 % annual escalation to reflect appreciation up to the notification date—arriving at ₹ 26,814 per sq m.
The High Court interfered, terming the valuation excessive.
Held
The Reference Court’s method precisely followed the statutory formula.
Explanation 2 mandates consideration of only the highest-priced half of comparable sale deeds.
Averaging all six transactions would violate the legislative scheme.
Addition of 10 % yearly increase was permissible and consistent with precedent.
The Reference Court’s method precisely followed the statutory formula.
Explanation 2 mandates consideration of only the highest-priced half of comparable sale deeds.
Averaging all six transactions would violate the legislative scheme.
Addition of 10 % yearly increase was permissible and consistent with precedent.
The Supreme Court therefore set aside the High Court’s interference
and restored the Reference Court’s award.
Ratio DecidendiUnder Section 26(1)(b) r/w Explanation 2,
the Collector or Reference Court must determine
the average sale price
only from the higher-priced half of comparable transactions;
inclusion of the lower-priced half is statutorily impermissible.
This is the first direct and binding interpretation of Explanation 2
by the Apex Court.
VI. Analytical Interpretation
Mandatory, Not Discretionary
The words “shall be taken into account” remove any administrative choice; the Collector must confine averaging to the upper-half dataset.
Economic Logic
Real-estate valuation excludes “outlier” or distress sales to capture fair market value. Explanation 2 embodies this logic in statutory form.
Quantitative Application
6 deeds → average top 3.
20 deeds → average top 10.
10 deeds → average top 5.
The average of these highest-priced exemplars represents the market value for clause (b).
Transparency Requirement
The Collector should publish a comparative chart showing (a) all collected deeds, (b) those forming the higher half, and (c) the computed average, so that the process remains auditable.
Mandatory, Not Discretionary
The words “shall be taken into account” remove any administrative choice; the Collector must confine averaging to the upper-half dataset.
Economic Logic
Real-estate valuation excludes “outlier” or distress sales to capture fair market value. Explanation 2 embodies this logic in statutory form.
Quantitative Application
6 deeds → average top 3.
20 deeds → average top 10.
10 deeds → average top 5.
The average of these highest-priced exemplars represents the market value for clause (b).
Transparency Requirement
The Collector should publish a comparative chart showing (a) all collected deeds, (b) those forming the higher half, and (c) the computed average, so that the process remains auditable.
VII. Distinguishing Non-Applicable Precedents
Earlier 2025 decisions— M.P. Road Development Corporation v. Vincent Daniel (2025 INSC 408) and Manohar & Ors. v. State of Maharashtra (2025 INSC 900)— clarified the general operation of Section 26 and the inapplicability of the “theory of deduction,” but did not interpret Explanation 2.
Hence, only Pradyumna Mukund Kokil constitutes direct authority on the Explanation’s computation method.
VIII. Consequences of Non-Compliance
Awards based on:
all collected sale deeds, or
mixed inclusion of high and low-value transactions, violate Explanation 2 and are ultra vires the statute.
Such awards can be rectified under Section 64 reference proceedings or appellate review.
IX. The “Highest-Half Rule”: A Doctrinal Summary
X. Conclusion
Explanation 2 to Section 26(1) is the cornerstone of the 2013 Act’s
promise of fair compensation.
Its textual command—“one-half …
in which the highest sale price has been mentioned”—
creates a mandatory highest-half rule
that guarantees landowners compensation
reflective of genuine market value.
The Supreme Court in
Pradyumna Mukund Kokil v. Nashik Municipal Corporation
(2025 INSC 1236) has now crystallised this rule into binding doctrine:
Only the higher-priced half of comparable transactions
may be averaged;
any dilution by including low-value deeds
is contrary to the statute and unconstitutional in effect.
This interpretation restores the balance envisioned by Parliament—
scientific valuation, statutory transparency, and justice to landowners.