SEZ policy: Land acquisition a grey area

Some of the New Year cheer has evaporated with the SEZ policy being put on hold. By revamping the Exim Policy, the government has sought to establish duty free enclaves to promote exports, generate employment and investments -- free from infrastructural deficiencies, high interest rates, labour bottlenecks -- with liberal tax breaks and exemptions thrown in.

Departing from the piecemeal policy approach, the government has taken care to promulgate the SEZ Act, 2005. Expectedly, the package had many takers, and there was more euphoria than brickbats. Yet SEZs have become a burning issue and are currently under the scanner.

The backlash has been on the issue of land acquisition, or the exercise of "eminent domain", the common law principle underlying the state's power to acquire private property for public purpose. Increasingly, in developed countries, due to space crunch in prime areas, governments have been expanding the scope of public purpose to include various commercial uses.

The US Supreme Court has recently extended the "eminent domain" rule to clarify that local governments may force property owners to sell off their holdings  and make way for not just public, but also private economic development.

Indian expropriation law acquired corporate dimension in the 1960s, when under Section 55 of the Land Acquisition Act, Centre issued rules for initiating acquisition proceedings on behalf of companies. The applicant had to fulfil certain conditions before the process was initiated, as having made best efforts to identify suitable land, and failed in negotiating a reasonable price.

The land had to be suitable for the purpose of acquisition; and if agricultural, acquisition would be considered, only if there was no alternative. The collector had to determine this in consultation with the district's senior agricultural officer, with public purpose as the ultimate objective of the acquisition. The company was bound by strict compliances and obligations, a breach could entail reversion of the land to the government.

After the initial notification and hearing of objections, the collector was required to prepare a report, and in case of a company, provide reasons as to why the land had to be acquired, and if it was good agricultural land, deal with the objections in accordance with the above rules. If the government was not funding the acquisition, the collector did not have to justify it against the touchstone of public purpose.

The controversy has gained gargantuan proportions as a result of public protests, manipulation by political parties and media frenzy. It's important to step down from the political platform, and examine it from a legal perspective, to remove misconceptions from the public mind.

The distinction between land acquisition for a company and for public purpose was made in the 1984 amendments, which specifically excluded land acquisition for firms from the definition of public purpose. Section 6 of the Act, which requires a declaration by the government that a particular land is needed for public purpose, clarifies that no such declaration is required in case of companies, unless any part of the compensation is paid out of public funds.

The conclusion drawn from this is that while other acquisitions are for public purpose, in case of a company, provided it meets the entire cost of acquisition, no such justification is required. Going by the 1963 rules, a company can seek acquisition, if it has failed to renegotiate a reasonable price otherwise. But would that absolve companies from commitment to public purpose under the rules?, courts, however, have consistently held that, if put to test, public purpose is involved even in acquisition for establishing an industry by the private sector, and no government can be faulted for facilitating acquisition for investors.

The Act is criticised as an imperial legislation, lacking ameliorative measures for the deprived, with obsolete benchmarks for determining compensation. The Act envisages compensation parameters to include market value of property on date of preliminary notification, damages suffered by "interested" person(s) on account of his earnings, other properties etc, reasonable expenses for relocation, 12 per cent interest up to date of handing over of possession, and a 30 per cent solatium on the above.

On paper, this appears a more attractive option than a private sale for the seller, then why the angst? Possibly, as not all stakeholders are legally entitled to compensation. More importantly, "market price" is neither properly defined nor regulated, and therefore very often not justified. There is a serious lack of coordination between the various arms of the government in this exercise -- rehabilitation, commence and industry, and rural development. And its important not to lose sight of the 235 SEZs cleared without acquisition issues, and the investments and jobs involved.

Kumkum Sen is a Partner at Rajinder Narain & Co.