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Land Acquisition: Fear Factor for Companies

Mrinal Kumar & Ekta Gupta  |  New Delhi 

Land acquisition process, in the recent times, has emerged as a major bottleneck resulting in time lags, cost over runs, business uncertainties and even shelving of projects by Tata’s Singur project in West Bengal, Vedanta’s (Sterlite) project in Orissa, Posco’s Paradeep project in Orissa and Jindal’s Raigarh project in Chattisgarh are some classic examples that showcase project shelving due to the cumbersome land acquisition process in India. This article discusses the challenges faced by in land acquisition for their projects in India and the way forward.

Firstly, since there is no concept of title certificates in India, the buyer of property is required to establish the ‘chain of title’ in respect of the property for the preceding 30 years in order to obtain a clear and marketable title in respect of such property. This is because under the Evidence Act, 1897, there is a presumption of validity with respect to the documents that are 30 years old and under the Limitation Act, 1963, the mortgagor can redeem possession of the mortgaged property mortgaged within 30 years from the date when the right to redeem the property accrued. Typically, a title search exercise, for a mid-sized project takes alteast 2-3 months. Thus, establishing ‘the chain of title’, obviously, is time consuming, expensive and complex resulting in huge project delays. Hence, taking leads from Australia, England, Ireland and New Zealand, the presumptive nature of recording ownership in the land must be done away with and all States must enact legislations for issuing title certificates establishing conclusive proof of ownership in respect of the property.

Secondly, in most states either the land/property records are not available or are available in vernacular language. Further, the land records are maintained manually and that too across various departments like the Revenue Department for mutations, Registration Department for registration of transfers and verification of encumbrances, Survey and Settlement Department for cadastra maps. Therefore, this makes the process of land acquisition more time consuming and cumbersome. Hence, the record of rights, mutations, register and registration records must be updated and computerized under the National Land Records Modernization Programme and there must be a single window to handle land/property records integrating the functions of various departments, in the rural and urban areas respectively.

Thirdly, under the seventh schedule of the Constitution of India, all matters relating to land are a subject matter of the State Government. Accordingly, each state has enacted its own legislation in relation to land, registration, stamping and development thereon. Further, there are often disconnects between the state laws and the central laws. To illustrate, under Press Note 2 (2005) the minimum area required to be developed for construction of serviced housing plots is 10 hectares whereas under Haryana Ceiling on Land Holdings Act, 1972 and the Punjab Land Reforms Act, 1972, the ‘permissible area’ that can be held by a person cannot be more than 7.25 hectares and 7 hectares respectively. To overcome this cap on land ceiling, developers purchase land through a number of entities, which further contributes to complicating the procedure of land acquisition. Thus, the existing local laws need to be brought in sync with the central laws.

Fourthly, as per the foreign exchange laws in India, foreign investment is prohibited in acquisition of agricultural land. Accordingly, prior to a foreign company’s investment in India for development of the land, the land usage in respect of the identified land must be converted from agricultural to non-agricultural usage. More often than not, the process of land use conversion takes minimum 6 months to 1 year, consequently resulting in time lags, cost overruns, and business uncertainties.

Fifthly, with the liberalization of foreign direct investment norms and increasing real estate transactions in India the risks associated with property transactions in the country have increased substantially. While title insurance is very common in the US and Europe, the same is yet to be offered by any Indian insurer. Certain states in India for instance, Delhi, Rajasthan and Andhra Pradesh are in the process of drafting the legislations for the issue of title certificates by the Government which shall be a conclusive proof of title. Thus, the foreign consider land acquisition in India as a high risk transaction because there is no comfort of title insurance to protect their financial interest in immovable property against loss due to title defects, liens or other matters.

Sixthly, the stamp duty and registration charges payable on property transactions vary across states, from 4% to as high as 14%. Such high stamp duty and registration charges is a deterrent factor for the companies from investing in certain states as such huge cash outflows result in high project costs. Hence, there is a need to remove such stark variations in stamp duty and registration fees across states.

Last but not the least, often companies look at land acquisition process purely from the business perspective and belittling factors like adequacy of compensation package to farmers, rehabilitation of farmers, fertility of land. Infact, most often companies prefer to interact with the farmers through the Government as intermediary or other middlemen and avoid direct interaction with the locals. Both Posco (for their project in Orissa) and Tata group (for their steel project in Kalinganagar, Orissa) avoided direct dialogue with the locals and this ultimately resulted in breeding violent protest amongst the farmers against land acquisition. Vedanta Aluminium Refinery, part of Vedanta (Sterlite) group, was not allowed to commission its open-cast mine project in the Niyamgiri hills in Orissa because of lack of clarity on the rehabilitation package. Hence, in addition to the various changes that need to be brought about by the Government in the land acquisition process, companies also must obtain the ‘social approval’ by providing attractive compensation to local communities; opening direct communications channels with the locals; avoid acquiring fertile land; resulting in minimal scope for manipulation of the situation by middlemen.

Mrinal Kumar is Principal Associate and Ekta Gupta is Associate, Amarchand Mangaldas & Suresh A. Shroff & Co.

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First Published: Sat, January 16 2010. 14:23 IST