Karnataka High Court Clarifies: TDS Not Deductible on Compulsory Land Acquisition Compensation in Mediated Settlement with KNNL

1. Background of the Dispute

The matter before the Karnataka High Court arose from a long-standing land acquisition dispute connected with irrigation projects undertaken by Karnataka Neeravari Nigam Limited (KNNL). KNNL, as the beneficiary of the acquisition, had filed a writ petition (Writ Petition No. 226180 of 2020 (La-Res)) challenging the judgment and award dated 01.06.2019 passed by the Principal District Judge, Kalaburagi in LACA No.776 of 2017.

The litigation had stretched over many years. During this period:

  • Land losers had not received compensation within the expected statutory or reasonable time;
  • Various execution proceedings were initiated to enforce decrees passed in their favour;
  • KNNL and the State were facing a growing liability on account of statutory interest, additional interest and related obligations under land acquisition law.

Recognizing the cumulative hardship to land losers and the financial exposure of the acquiring agency and the State Government, the High Court considered whether the matter should continue as a purely adversarial proceeding or be resolved through a consensual mechanism.

2. Shift from Adversarial Litigation to Mediation

2.1 Court’s Assessment of Prolonged Pendency

The High Court recorded that:

  • The acquisition proceedings had been pending for an inordinately long time;
  • Landowners were deprived of timely enjoyment of compensation for compulsory deprivation of their property;
  • Prolonged litigation was generating a continuing interest burden and other statutory liabilities for KNNL and the State; and
  • Multiple rounds of execution and related proceedings were consuming considerable judicial time.

In this backdrop, the Court considered that continuing the usual adversarial adjudication might not be the most efficient or just approach, particularly when a negotiated settlement could bring certainty and closure.

2.2 Invocation of Section 89 CPC and Proposal for Mediation

Exercising its powers to promote alternative dispute resolution, the High Court invoked the principles underlying Section 89 of the Code of Civil Procedure, 1908, and explored mediation as a structured alternative.

The Court suggested to all sides that the dispute be referred to mediation with the objective of:

  • Achieving a comprehensive settlement;
  • Ensuring clarity on compensation and interest;
  • Fixing a time-bound framework for payment; and
  • Ending long-pending litigation beneficially for all parties.
  • The Learned Advocate General, after consulting the State Government and concerned departments, confirmed that the State was agreeable to mediation.
  • Learned counsel representing the land losers, led by Sri Harshavardhan R. Malipatil, also expressed willingness to participate in the mediation process, acknowledging the advantage of quicker realization of compensation compared to continued litigation.

In view of this consensus, the High Court formally referred the dispute for mediation under the auspices of Hon’ble Sri A.V. Chandrashekhar, former Judge of the Karnataka High Court, who was requested to act as the Mediator.

3. Mediation Process and Final Settlement

3.1 Conduct of Mediation

Following the Court’s reference:

  • Multiple mediation sessions were held under the guidance of the Mediator;
  • Joint as well as separate meetings were conducted involving representatives of the State Government, KNNL, and the land losers;
  • Parallel internal deliberations took place within government departments to assess the viability of a settlement and secure approvals where necessary.

These sustained negotiations eventually culminated in a mutually acceptable settlement, which was documented as a Mediation Agreement.

3.2 Government Approval

The compromise pertaining specifically to the Bennethora project was duly approved by the State Government of Karnataka on 25.02.2026.

The settlement terms, as recorded in the Mediation Agreement, addressed:

  • Market value of the acquired land;
  • Statutory benefits and interest;
  • Timelines for payment; and
  • Closure of pending execution and related proceedings.

3.3 Key Financial Terms of Settlement

Under the Mediation Agreement:

  • The market value of dry land acquired was fixed at Rs. 1,64,223 per acre.
  • The claimants (land losers) were confirmed as entitled to all statutory benefits under the Land Acquisition Act, except for the period of delay attributable to them in filing the appeal before the First Appellate Court.
  • The claimants expressly agreed:
    • That no interest would be payable for the period of delay in filing the appeal; and
    • To waive statutory interest for an additional period of two and a half years.
  • For interest computation, the parties agreed that interest would be calculated up to 14.03.2026.

A critical conditional clause was inserted: