Proposed amendments to the Land Acquisition Act

The Land Acquisition Act, 1894, governs the acquisition of private land for any purpose by government or private entities. Practical experience shows that the process of land acquisition is beset with uncertain timelines, administrative holdups, undue delay in awarding compensation and lack of fair land valuations.

These issues are a major concern for project developers; to address them, the Land Acquisition (Amendment) Bill, 2009, was laid before the Lok Sabha (lower house of parliament), where it was passed. However, it remains pending with the Rajya Sabha (upper house of parliament) and is therefore not yet on the statute books.

Acquisition for public purposes

Once the bill is passed the government will be authorized to acquire land only for “public purposes”, defined to include setting up any project useful to the general public for which a project developer has already purchased 70% of the land required. The definition of public purpose also covers infrastructure projects such as those relating to electricity, roads, highways, bridges, airports, railways and mining.

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The bill mandates a social impact assessment study if the acquisition process involves large-scale displacement of families. If the land belongs to tribal or other constitutionally protected communities, special provisions must be made for them; specifically, they must be properly resettled. Also, an independent committee is to be set up by the central government to scrutinize proposals submitted for land acquisition. The committee must ensure that waste, degraded and barren land be given primary consideration as the potential location of infrastructure projects, ahead of productive agricultural land.

The bill proposes compensation to be paid to “interested persons” – both those whose land has been acquired and those whose land, though not itself acquired, has otherwise been affected by activities directly related to the acquisition. The definition of interested persons also includes members of traditional communities which enjoy easement rights in the land that is intended to be acquired. If the acquisition is for a company, the bill mandates that 20% to 50% of the compensation amount must be offered through shares or debentures issued by that company. The interested persons may choose either to accept these shares or debentures, or to settle for cash compensation.

If acquired land is re-sold, the acquirer company must give a share of up to 80% of the capital gains to the original owner, or to his or her heirs.

Further, the bill envisages a Land Acquisition Compensation Disputes Settlement Authority to be established at the state and central levels, its task being to settle compensation disputes and so reduce the need for court intervention in relation to acquisition disputes.

Will it work?

The virtues of the bill are self-evident. It is a commendable effort by the legislature to make the acquisition process a time-limited one, reducing the already-long typical gestation period of infrastructure projects. For instance, under the bill the compensation amount for the acquired land is to be paid within 90 days of the award. The bill also states that if the acquired land is not utilized within a period of five years, its ownership will revert to the government. The scrutiny by an autonomous body of the purpose for which land is required will help ensure transparency, and reduce litigation on the issue of land acquisition. Further, encouraging the use of waste and barren land for projects will enhance the efficient utilization of land resources, and reduce the administrative difficulties typically faced by project developers in seeking conversion orders and consent from multiple agencies when applying to acquire agricultural and forest land.

However, the bill has attracted some serious criticism. For example, the broad definition of “interested persons” may encumber the process, due to the likelihood of an increased number of oppositions and associated representations. Project developers may have to pay a higher amount of compensation than at present, which may affect project economics.

Though the offering of shares or debentures of the company acquiring land will lend greater sanctity and substance to the idea of community participation in projects, its practical implementation and effects remain to be seen. It may affect the capital structure of the company, and create ambiguity around the nature of the rights and benefits these instruments will offer. It is desirable that the project developer be given the option to pay compensation either in cash or by way of shares or debentures. Further, the bill’s provisions relating to re-sale of acquired land – which require the acquirer to track and contact the original owners and their heirs in perpetuity – should be changed, as they are onerous and unrealistic.

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Akshay Jaitly is a partner at Trilegal in Delhi where Shailendra Kumar Singh is a senior associate and Anuja Tiwari is an associate. The firm has offices in Delhi, Mumbai, Bangalore and Hyderabad and has over 100 lawyers, some of whom have experience with law firms in the United States, the United Kingdom and Japan.