Payment of Compensation — Land Law Notes

Payment of Compensation

The Act promised fair compensation — but a promise only becomes real when the money reaches the right hands. What if the owner refuses the cheque to protest the amount? What if the land belonged to a minor who cannot legally give a valid receipt? What if two families are fighting over who owns it? The Act cannot just leave the money on the table. Sections 77 to 80 answer each of these — pay if you can, deposit with the Authority if you cannot, invest it safely meanwhile, and pay interest if you are late.

How payment works

The everyday rule is simple: the Collector must pay the settled compensation into the interested person’s bank account (s. 77). The interesting law is the exceptions — the three situations where he must not pay the person directly, and must instead deposit the money with the Authority.

A. Payment, and when to deposit instead (s. 77)

On making the award, the Collector tenders the compensation and pays it by depositing into the persons’ bank accounts — unless one of three things is true, in which case he deposits the amount with the Authority:

the person entitled has not consented to receive it (for example, he is protesting the amount); or
there is no person competent to alienate the land (for example, a minor or other person under a legal disability); or
there is a dispute as to the title to receive the compensation, or as to its apportionment.

Section 77(1), RFCTLARR Act, 2013: “On making an award … the Collector shall tender payment of the compensation awarded … to the persons interested entitled thereto … and shall pay it to them by depositing the amount in their bank accounts unless prevented by some one or more of the contingencies mentioned in sub-section (2)” — namely, that no person is competent to alienate the land, or the person does not consent to receive it, or there is a dispute as to title or apportionment, in which cases the Collector deposits the amount with the Authority.

In Simple Terms: Normally the money goes straight into the owner’s bank account. But if the owner won’t take it, can’t legally take it, or people are fighting over it, the Collector parks the money with the Authority instead — so it is safe until the right person can be paid.

Payment under protest. A person may receive payment “under protest” as to the sufficiency of the amount, and still challenge it by a reference (Topic 2). But a person who accepts payment without protest cannot later apply to the Authority — accepting quietly means accepting the amount.

A key limit (case law). For a person incompetent to alienate, the Collector is bound to deposit the compensation with the Authority/court; he cannot instead park it in the Government treasury with an informal arrangement to release it — any such device is ultra vires (Govardhandhari Devasthan).

B. Investment of the deposited money (ss. 78–79)

Money deposited with the Authority is not left idle; it is invested so the true owner is no worse off than if he had kept the land:

Land belonging to a person incompetent to alienate (s. 78). If the land belonged to someone with no power to alienate (a limited owner, a minor), the Authority orders the money to be invested in the purchase of other land held on the same title and conditions, or (if that is not possible at once) in Government or other approved securities, with the income paid to the person entitled to possession — until it is used to buy such land or paid to a person absolutely entitled. This protects reversionary heirs: the land is converted to money only temporarily, so a limited owner cannot pocket the fund as if he owned it absolutely (Mrinalini Dasi — “constructive reconversion” of the money back into land).
Other cases (s. 79). Where money is deposited for any other cause, the Authority may, on the application of an interested party, order it to be invested in Government or approved securities and paid out so that the parties benefit as they would have from the land.

C. Payment of interest (s. 80)

If compensation is not paid or deposited on or before taking possession, the Collector must pay it with interest at 9% per annum from the time of taking possession until it is paid or deposited. If it stays unpaid beyond one year from possession, the rate rises to 15% per annum on the unpaid amount for the period after that one year.

Interest is mandatory (case law). Once s. 80 is attracted, paying interest is obligatory and does not depend on the owner making a claim; if the Collector fails, it can be claimed on a reference or on appeal (Osman Khan).

⚠️ CAUTION — “deposit with the Authority” is NOT “keep it in the treasury”

A common error is to say the Collector may hold the money in the Government treasury when he cannot pay the owner. He may not. Sections 77–78 require deposit with the Authority (and investment for those incompetent to alienate); consigning it to the treasury with an informal release arrangement is ultra vires the Act (Govardhandhari Devasthan). Write “deposited with the Authority”, not “kept by the Government”.

🧩 WORKED EXAMPLE — the minor’s land and the delayed payment

Facts. Land belonging to a minor (through his guardian) is acquired for ₹30 lakh. The Collector takes possession immediately but does not pay for fourteen months. How must the money be dealt with, and what interest is due?

Rule. A minor is a person incompetent to alienate, so the Collector must deposit the compensation with the Authority (s. 77), which invests it — ideally in other land on the same title, else in approved securities (s. 78). Because payment/deposit did not happen on taking possession, interest runs at 9% from possession, rising to 15% for the period beyond one year (s. 80).

Apply. The Collector cannot pay the ₹30 lakh to the guardian directly (nor stash it in the treasury); he deposits it with the Authority, which invests it for the minor. On the delay: 9% interest applies from possession, and since the money was unpaid past twelve months, 15% applies for the two months beyond the first year, until deposit.

Conclusion. Deposit-then-invest protects the minor’s fund, and the escalating interest penalises the delay — the two mechanisms the payment rules exist to enforce.

flowchart TD
    ROOT["Payment of Compensation (ss.77-80)"]:::root
    ROOT --> PAY{"s.77 Can the Collector<br/>pay the person directly?"}:::decide
    PAY -->|"Yes"| BANK["Pay into their bank account<br/>(may receive UNDER PROTEST)"]:::leaf
    PAY -->|"No: refuses / incompetent /<br/>title or apportionment dispute"| DEP["Deposit with the AUTHORITY<br/>(NOT the treasury)"]:::warn
    DEP --> INV["s.78 incompetent to alienate:<br/>invest in like land / securities<br/>s.79 other cases: invest on application"]:::leaf
    ROOT --> INT["s.80 Interest if not paid/deposited<br/>by possession: 9% p.a.,<br/>then 15% p.a. after 1 year"]:::leaf
    classDef root fill:#FFF8DC,stroke:#000,stroke-width:1px,color:#000;
    classDef leaf fill:#E6F3FF,stroke:#1E3A8A,color:#000;
    classDef decide fill:#FEF3C7,stroke:#92400E,color:#000;
    classDef warn fill:#FDECEA,stroke:#B22222,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

Case Laws

Govardhandhari Devasthan, Kopargaon vs Collector of Ahmednagar (1982) — for persons incompetent to alienate, the Collector is bound to deposit the compensation with the Authority/court; consigning it to the Government treasury with an informal release device is ultra vires the Act.
Mrinalini Dasi vs Abinash Chandra Dutt (1910) — deposited compensation for land held by a limited owner is impressed with the character of the land (“constructive reconversion”), protecting reversionary heirs — the basis of the s. 78 investment rule.
Osman Khan vs State of Maharashtra (1994) — the duty to pay interest where compensation is unpaid on taking possession is mandatory and independent of any claim by the owner; it can be enforced on reference or appeal.

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