Karnataka Land Reforms (Amendment) Act, 2020 to Promote Industrial Development?

  • 15 May, 2021
  • Prashantha Kumar S.T.

Land plays a crucial role in defining the degree of Industrial Development in any state and Karnataka is no exception. Land acquisition process is one of the essential factors that contribute to industrial development and related investments.  The State Governments in India have been endeavouring and enacting a plethora of reforms easing the land acquisition process with an intention to attract major investments and in particular industrial development.

There has been a long-pending demand for land reforms in Karnataka from industry patrons. Industrialists have been raising concerns on issues/difficulties attached to the land acquisition process in the state. It has been a major cause for losing huge investment opportunities in Karnataka to other neighbouring states like Tamil Nadu, Andhra Pradesh, Telangana, and Maharashtra. It became a dire necessity for Karnataka Government to work on some land reforms so that the difficulties attached with the land acquisition process by the industrialists can be addressed and the State Government could compete with the neighbouring states in attracting industrial investments.

In appreciation of the current scenario and with a bonafide intention of easing land acquisition process in the state, the Karnataka Government has enacted the Karnataka Land Reforms (Amendment) Act, 2020 on 24th April 2020 (“Amended Act”).

The said amendment addresses certain issues embodied under Section 109 of the Karnataka Land Reforms Act, 1961 (“Act”), viz., deemed conversion with respect to the projects approved by the State High-Level Clearance Committee/ State Level Single Window Clearance Committee and alienation of the permitted land under Section 109 of the Act upon expiry of seven years from the date of the said permission. Accordingly, the following amendments have been effectuated to Section 109 of the Act under the Amended Act:

Section 109 (1) (i) of Act shall be substituted and amended as under: 

“(i) industrial development, the extent of which shall not exceed forty units.

Explanation: ‘industrial development’ includes mining of minor minerals, whether specified or non-specified and stone crushing activity under the Karnataka Regulation of Stone Crushers Act, 2011 (Karnataka Act 8 of 2012).

Provided that in respect of Industrial Development, land to such extent approved by the Government with the approval of the State High-Level Clearance Committee/ State Level Single Window Clearance Committee under the Karnataka Industrial (Facilitation) Act, 2002 (Karnataka Act 45 of 2003) shall be deemed to have exempted by the Government from the provision of Sections 63, 79A, 79B and 80.”

Section 109 (2) the proviso shall be substituted and amended as under: 

 “Provided that, any company or organization after obtaining permission under sub section (1), purchases the land and if the company or organization after utilizing the land for not less than seven years for the purpose of purchase, does not continue to use the land due to various reasons, which are beyond its control, after seven years so permitted under rules from the date of such purchase, may on an application be permitted, by the Government, for sale of the land for the same purpose”.

Through the Amended Act, the Karnataka Government has boosted the investment channel for industrial development directing industrialists to approach Karnataka Udyog Mitra (KUM) under Karnataka Industrial (Facilitation) Act, 2002 for their respective projects so that they can avail the benefits of the deemed conversion.

Though the Amended Act endeavours to address issues related to the land acquisition process being faced by industrialists for causing industrial development in Karnataka, ambiguity remains as to what extent the Amended Act shall be able to achieve ease of land acquisition process for tangible industrial development in the state.

Consequently, except for the industrial project/s approved by the State High-Level Clearance Committee/ State Level Single Window Clearance Committee under the Karnataka Industrial (Facilitation) Act, 2002, issues relating to the land acquisition process for industrial development under Section 109 of the Act have not been specifically addressed and therefore the Amendment Act does not provide real reprieve/benefit to the industrialists aiming to invest in Karnataka. The Karnataka Government could have really eased the situation by enacting bold reforms than providing highly conservative and restrictive reforms and could have adopted the best practices from the neighbouring states to achieve an optimal result.

We hope that, in days to come, the State Government would address the pragmatic issues relating to ease of land acquisition process in Karnataka for industrial development and would be successful in attracting huge industrial investment for the benefit of the State.

 

Image Credits: Photo by samer daboul from Pexels

Though the Amended Act endeavours to address issues related to the land acquisition process being faced by industrialists for causing industrial development in Karnataka, ambiguity remains as to what extent the Amended Act shall be able to achieve ease of land acquisition process for tangible industrial development in the state.

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Undue delay in passing Arbitral Award in violation of Public Policy?

A clause for Alternate dispute resolution (ADR) is incorporated in a contract to ensure avoidance of lengthy and costly legal procedures. Undue delay in arbitration procedure tends to vitiate this essential objective that ADR seeks to achieve.  Further, the ADR process is designed to minimize the interference of courts, however, it is more of fiction as parties unhappy with the outcome of the process take the legal recourse as a dilatory tactic. Therefore, it is essential that arbitral awards are set aside only when there is a grave injustice or is unreasonable on the face of it[I].

 

Some light was shed on the issue recently by the Hon’ble Madras High Court in the case of Mr. K. Dhanasekar v Union of India and Ors[ii]. The court set aside an arbitral award on an application made to it under section 34 of the Arbitration and Conciliation Act, 2015 holding that undue and/or inordinate delays in passing an award are in fact violative of public policy.

 

Factual Matrix:

 

The Petitioner, an engineering contractor, entered into an agreement with the Respondent, Southern Railways, for the collection and supply of 50 mm size machine crushed hard granite ballast for railway track doubling purposes. Certain disputes arose between the parties, and in accordance with the provisions of the contract which provided for settlement of disputes by arbitration, an arbitral tribunal consisting of three arbitrators was constituted. The learned arbitral tribunal dismissed the claim of the claimant in its entirety and allowed the counterclaim of the respondent. Challenging the same, the Petitioner approached the Hon’ble Madras High Court.

The Petitioner, inter alia, contended that there was a severe delay in passing the award. The arbitral tribunal passed the impugned award after a period of 3 years and 7 months which was not a reasonable time period. The Respondent countered that the learned arbitral tribunal, upon hearing the parties at length and upon consideration of all facts and circumstances, had passed the impugned award. Further, the delay in passing the award had not caused any prejudice to anyone and therefore, the award must not be set aside.

 

Issue:

 

Whether inordinate delays in passing an arbitral award was sufficient cause to set aside the impugned award.

 

Judgment:

 

The Hon’ble Court observed that the fact that there were delays in passing the impugned award was not disputed. What was disputed was whether such delay warranted the interference of the Hon’ble Court in setting aside the award.

To answer the question, reliance was placed on the decision of the Hon’ble Delhi Court in the case of Harji Engineering Works Pvt. Ltd. v Bharat Heavy Electricals Limited[iii], wherein the Hon’ble Delhi High Court had held that an arbitrator was required to make and publish an award within a reasonable period of time, and in the event that there is a delay, the same had to be adequately explained. The lack of any satisfactory explanation to such delays would be prejudicial to the interests of the parties. The Hon’ble Delhi High Court also held that the parties to an arbitration agreement had the right to be satisfied that the arbitrator was conscious of and had taken into consideration all contentions and claims before adjudicating on the claim. An inordinate delay from the last date of hearing would not provide such satisfaction to the parties.

The Hon’ble Madras High Court, adopting the same rationale found that arbitrators are likely to forget the contentions and pleas raised by parties during the course of arguments. Further, unexplained delay in passing an arbitral award was violative of the public policy of India and therefore liable to be set aside.  

       

Conclusion:

 

The Hon’ble High Court has proceeded on the assumption that the arbitrators must have forgotten the arguments placed by the parties, despite the fact that written submissions were placed on record by each party. Additionally, Section 29A introduced by the Arbitration Amendment Act, 2015 (further amended in 2019) has prescribed a time limit of 12 months from the date of completion of pleadings, within which period, the Arbitrator must necessarily make the award.  Although the amendment is not applicable to the case at hand (Consequent to the decision of the Supreme Court in Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and Ors[iv] on the retrospective application of the Arbitration Amendment Act, 2015), however, a similar case today would reach the same fate because of these set timelines. The said decision, as well as the amending provision, have the tendency of acting as a tool for the losing party to have the arbitral award set aside on procedural ground rather than on merits. These also increase the interference of the court which might result in unnecessary delays which the amending provision or the decision basically condemns. Further, with the 12 month or 18 months limit (if extended by the parties), the delay might not happen in ADR proceedings but may happen in the legal proceedings which the parties seek to avoid by opting for the ADR mechanism in the first place. In addition, court interference or dependence would hamper the confidentiality that parties seek to achieve through the ADR process. This is violative of the sanctity of arbitral awards and goes against the very fabric of the Arbitration and Conciliation Act itself.

Finally, the Arbitration Council being set up through the 2019 amendment, to undertake necessary measures to promote and encourage the ADR mechanism and to frame policy and guidelines for uniform professional standards, must take cognizance of this. Although provisions for penalizing arbitrators have not been provided in the amendment, the Arbitration Council should consider making regulations on the same to ensure compliance. This might provide an impetus to the overall arbitration process and ensure timely resolution in a fair and equitable manner while avoiding the interference of the court.

References:

 

[i] Oil and Natural Gas Corporation Ltd., v. Saw Pipes Ltd., [2003 (5) SCC 705]

[ii] O.P. No. 4 of 2015 and O.A. No. 31 of 2015 at http://164.100.79.153/judis/chennai/index.php/casestatus/viewpdf/489701

[iii] [2009 (107) DRJ 213]

[iv] (SLP (C.) No. 19545-19546 of 2016)

 

 

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The Hon’ble High Court has proceeded on the assumption that the arbitrators must have forgotten the arguments placed by the parties, despite the fact that written submissions were placed on record by each party. Additionally, Section 29A introduced by the Arbitration Amendment Act, 2015 (further amended in 2019) has prescribed a time limit of 12 months from the date of completion of pleadings, within which period, the Arbitrator must necessarily make the award.

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Differential Voting Rights – A Boost to Listed Tech Start-ups

Finding a balance between infusion of capital and retaining control are two sides of a scale that every corporate intending to survive and thrive must strive for. Being cognizant of the stress induced by this balancing act, SEBI, the market regulator, decided to relieve the corporate sector by providing a framework[i] for Issuance of Differential Voting Rights (DVR) shares.

 

Finding a balance between infusion of capital and retaining control are two sides of a scale that every corporate intending to survive and thrive must strive for. Being cognizant of the stress induced by this balancing act, SEBI, the market regulator, decided to relieve the corporate sector by providing a framework[i] for Issuance of Differential Voting Rights (DVR) shares.

DVR is not a new concept in India. It can be traced back by two decades when the Companies Act, 1956 was amended by Companies (Amendment) Act, 2000 to substitute Section 86, which allowed Indian companies to issue DVR Shares.

Issue of DVR can be in two ways:

  1. a) Issue of shares with superior voting rights to founders and/or
  2. b) Issue of shares with lower or fractional or inferior voting rights to raise funds from private/ public investors.

Interestingly, in the year 2009, with the apprehension of possible misuse of the issue of shares with Superior Voting Rights by listed companies, SEBI disallowed and prohibited issue of such shares for listed companies[ii]. However, it permitted issue of shares with inferior voting rights.

Recently, in an apparent reversal of its policy position, SEBI has allowed the issuance of DVR with superior voting rights by listed companies and disallowed any further issuance of shares with inferior voting rights.

The change seems to be a result of the increasing debate on the need to enable promoters/founders of companies, especially technology-based start-ups, to retain decision-making powers and rights vis-à-vis other shareholders while also raising capital.

The framework along with amendments (dated July 29,2019) to the relevant SEBI Regulations[iii] has been notified after considering the recommendations of the Primary Market Advisory Committee (PMAC) and the public comments on the Consultation Paper.  

In this context, we analyse the key aspects introduced by SEBI on DVR for listed companies.

  1. SR shares for listed start up:

Under the new framework, SEBI permitted issue of Superior Voting Rights (“SR shares”) in the ratio of a minimum of 2:1 up to a maximum of 10:1 compared to ordinary shares to the listed companies. However, the market regulator restricted SR shares only to promoters/founders of tech related listed companies.

SEBI has also made it very clear that a company having superior voting rights shares (SR shares) would be permitted to do an initial public offering (IPO) of only ordinary shares to be listed on the Main Board, subject to fulfilment of eligibility requirements of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and the following conditions:

  1. The issuer company should be a technology-based company
  1. The SR shareholder should not be a part of the promoter group whose collective net worth exceed Rs 500 Crores. However, the investment of SR shareholders in the shares of the issuer company shall not be considered in the calculation of the collective net worth.
  1. The issue of these SR shares has been authorized by a special resolution passed at a general meeting with notice of specific matters including the size of issues, the ratio of voting rights, differential dividend, sunset clause, and coat tail provisions. Further, the issuer company should have only one class of SR equity shares.
  1. The SR shares should have the following traits:
  • Have been issued only to the promoters/ founders who hold an executive position in the company.
  • Have been held for a period of at least 6 months prior to the filing of Red Herring Prospectus (RHP)
  • Have voting rights in the ratio of a minimum of 2:1 up to a maximum of 10:1 compared to ordinary shares and such ratio shall be in whole numbers;
  • Have the same face value as ordinary shares
  • Should be equivalent to ordinary equity shares in all respects, except for having superior voting rights.
  1. Enabled Corporate Governance

Since there are increasing debates that introduction of DVRs would result in corporate governance issues such as abuse of minority shareholders, weakening of the checks and balances between shareholders and management, etc, the PMAC has recommended measures to mitigate the corporate governance issues that arise with existence of DVR structure.

As such, in view of disproportionate voting rights conferred to promoters vis-à-vis their economic holding, the new framework adopted following measures to make the companies having SR shareholders subject to enhanced corporate governance:

  1. All companies with SR Shares to have independent directors making up at least half of their total directors and two-thirds of their board committees (other than the audit committee). The audit committee is required to comprise only independent directors.
  2. The framework also provides for additional safeguards for ordinary shareholders by way of ‘Coat-tail provisions. The framework enlists the circumstances where SR shares are considered as ordinary shares. The list covers circumstances like winding up of the company, appointment/ removal of independent, related party transactions etc. In these circumstances, SR shareholders will vote on a ‘one share one vote’ basis.
  3. SR shareholder shall be entitled to SR shares in case of bonus, split or rights issues, however, rights cannot be renounced, and ratio shall remain the same as initially adopted by the company.
  4. The SR equity shares shall be treated at par with the ordinary equity shares in every respect, including dividends, except in the case of voting on resolutions.
  5. The total voting rights of SR shareholders (including ordinary shares) in the issuer upon listing, pursuant to an initial public offer, shall not at any point of time exceed 74%.
  6. The SR share shall be converted into ordinary voting rights after five years of listing or resignation, demise, merger or demerger where the control would be longer with him.

 

 

 

 

  1. No more inferior voting rights

 

Prior to the amendment and framework, inferior voting rights were allowed. Now with the new framework disallowing issuance of inferior voting rights, the watchdog has taken away the investors chance to get benefits like bonus, split etc. PMAC committee and SEBI Board is of opinion that such shares should not be encouraged as they attract less investor interest, trade at discount and therefore negatively impact retail shareholders attracted to such shares. Further, lower fractional rights would likely result in existing ordinary shares to trade at premium resulting in lower returns for institutional investors.

 

Amendment to the Companies Act, 2013

In line with amendments to the SEBI Regulations, the Ministry of Corporate Affairs has amended the Companies (Share Capital & Debentures) Rules, 2014 relating to issue of DVRs vide notification dated August 16, 2019[iv]. Brief changes made are:

  • The requirement of distributable profit for three years as an eligibility to issue shares with DVR has been removed.
  • The existing cap of 26% of the total post issue paid up equity share capital has been revised to a cap of 74% of total voting power in respect of shares with Differential Voting Rights of a company.
  • The time period for issuance of Employee Stock Options (ESOPs) to promoters or Directors holding more than 10% has been enhanced from 5 years to 10 years from the date of their incorporation.

Section 43(a)(ii) of the Companies Act, 2013, provides that a company incorporated under the laws of India and limited by shares is permitted to have equity shares with differential voting rights as part of its share capital. 

 

DVRs in Other Jurisdictions

 

Internationally, the listing of shares with differential voting rights, i.e, DVRs is known as Dual Class Shares or DCS which is permitted in many countries. However, in countries like Australia, Spain, Germany and China, they do not permit Issuers with DCS structure for listing.

In US, issuers with pre-existing DCS structures are permitted to list on the NYSE and NASDAQ. Once listed, issuers with one share one vote structure are not permitted to implement a DCS structure that would reduce or restrict the interest of existing shareholders. Founders of companies like Google, Facebook, Alibaba have adopted this DCS structure in one form or another to retain control over their entity.  However, there are investor activists who are widely against such concentrated voting rights with few founders/ managements. Also, there is ongoing debate in the U.S. Securities & Exchange Commission (SEC) about the continuation of DCS.

When we analyse UK, we can see that DCS structures were used in the 1960s to protect corporations from hostile takeovers or for the Queen to have ‘golden share’. However, now with the emergence of institutional investors, who strongly support one share one vote, DCS shares have become unpopular. Supporting the same, the market regulator there has prohibited DCS for companies listing on the UK’s premium Listing.

On the other end of the spectrum, Singapore and Hong Kong have recently permitted DCS structures with the intent to encourage new technology firms. However, considering the cons of such shares, these countries have adopted detailed checks and balances.  

 

Conclusion

 

DVR is widely accepted as a defense mechanism for hostile takeover and dilution of interest in a company. Nevertheless, a highly evolving entrepreneurial community in India that is desperately starving for capital will welcome this initiative that could help pitch their companies on a higher scale. Further, it is in consonance with the government’s strategy for ease of doing business and propelling the start-up environment.

However, only time would tell how effective superior DVR shares would be in achieving the desired objective since fractional shares had been brought in place with similar intent but failed to deliver. Moreover, when the voting interest is separated from economic interests, there are always chances of misuse by promoters. It may also lead to other externalities such as misalignment of interests among shareholders, excessive compensation of management, reduced dividend pay-out, management entrenchment, and expropriation. Finally, it remains to be seen whether the checks and balances put in place to curb misuse are effective or need overhauling.

References:

[i] https://www.sebi.gov.in/sebi_data/meetingfiles/aug-2019/1565346231044_1.pdf

[ii] SEBI circular no. SEBI/CFD/DIL/LA/2/2009/21/7 dated July 21, 2009

[iii] SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, SEBI (Buy-Back of Securities) Regulations, 2018, and SEBI (Delisting of Equity Shares) Regulations, 2009.

[iv] https://pib.gov.in/newsite/PrintRelease.aspx?relid=192676

 

 

 

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DVR is widely accepted as a defence mechanism for hostile takeover and dilution of interest in a company. Nevertheless, a highly evolving entrepreneurial community in India that is desperately starving for capital will welcome this initiative that could help pitch their companies on a higher scale. Further, it is in consonance with the government’s strategy for ease of doing business and propelling the start-up environment.

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A Brief Analysis of the Patents (Amendment) Rules, 2019

The Government of India, Ministry of Commerce and Industry (Department for Promotion of Industry and Internal Trade) vide its notification dated September 17, 2019, has published the Patents (Amendment) Rules, 2019[i] (hereinafter the “Rules”) amending the Patents Rules, 2003 (hereinafter the “Principal Rules”). The amendment came into force from the date of notification.

 

The Government of India, Ministry of Commerce and Industry (Department for Promotion of Industry and Internal Trade) vide its notification dated September 17, 2019, has published the Patents (Amendment) Rules, 2019[i] (hereinafter the “Rules”) amending the Patents Rules, 2003 (hereinafter the “Principal Rules”). The amendment came into force from the date of notification.

 

The highlights of the amendments are as follows:

 

  1. Rule 6: Leaving and serving documents

 

The amended Rules substitute Rule 6 (1-A) with the following:

“Notwithstanding anything contained in sub-rule (1), a patent agent shall file, leave, make or give all documents only by electronic transmission duly authenticated:

Provided that any document, if asked to be submitted in original, shall be submitted within a period of fifteen days, failing which such documents shall be deemed not to have been filed.”

 

Analysis: This amendment is brought to reduce the burden of submission of scanned copies of original documents subsequent to the filing of the same online. The amendment clarifies that the original copies are required to be submitted only when requested by the Indian Patent Office, within 15 days from the date of request.

 

  1. Rule 7: Fees

 

The amended Rules substitute the second proviso of Rule 7(1) with the following:

“Provided further that in the case of a small entity, or startup, every document, for which a fee has been specified, shall be accompanied by Form-28.”

 

Analysis: Again, this amendment is merely clarificatory in nature with respect to the filing of Form 28 along with documents that specify fee. In the principal rule, the provision existed only for small entities and the word ‘startup’ was not expressly mentioned. However, it was already in practice i.e. the patent office required Form 28 to be submitted with documents requiring fee even for startups.

 

  1. Rule 24-C: Expedited examination of applications

 

The amended Rules substitute Rule 24C(1)(b) with the following:  

“(b) that the applicant is a startup; or

(c) that the applicant is a small entity; or

(d) that if the applicant is a natural person or in the case of joint applicants, all the applicants are natural persons, then the applicant or at least one of the applicants is a female; or

(e) that the applicant is a department of the Government; or

(f) that the applicant is an institution established by a Central, Provincial or State Act, which is owned or controlled by the Government; or

(g) that the applicant is a Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013); or

(h) that the applicant is an institution wholly or substantially financed by the Government;

Explanation:- For the purpose of this clause, the term ‘substantially financed’ shall have the same meaning as in the Explanation to sub-section (1) of section 14 of the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971(56 of 1971); or

(i) that the application pertains to a sector which is notified by the Central Government on the basis of a request from the head of a department of the Central Government.:

 Provided that public comments are invited before any such notification; or

(j) that the applicant is eligible under an arrangement for processing a patent application pursuant to an agreement between Indian Patent Office and a foreign Patent Office.

Explanation: – The patentability of patent applications filed under clause (j) above will be in accordance with the relevant provisions of the Act.”

 

Analysis: The Principal Rules had provision for expedited examinations only in case of startups and international applications where India was a competent searching/examining authority, however, that has been amended to include additional categories of applicant such as small entity, natural person(s) having at least one female applicant, institution or department of Government or controlled by Government. Also, Government companies, institutions wholly or substantially financed by the Government, sectors notified by the Government and applicants eligible under an agreement with a foreign patent office can also file for expedited examination. This amendment will motivate other categories of applicants to have fast track examination of patent applications for early grant of patent.

 

Further, in order to accommodate the said categories, the corresponding Form 18A has been amended.

 

  1. First Schedule: Transmittal Fee & Certified copy fee towards filing an International Patent Cooperation Treaty (PCT) application

 

The amended Rules add:

  1. If the PCT application is filed online, the applicant is not required to pay any fee towards the Transmittal fee. Earlier applicants were required to pay fees ranging from 3200 to 16000. The fees for physical filing remain unchanged.
  2. If a request is filed for preparation of a certified copy of priority document and sharing the same via e-transmission through WIPO DAS, the applicant is not required to pay any fee for the same. Earlier applicants had to pay fees ranging from 1000 to 5000. The fees for physical filing remain unchanged.

 

The amendment in the Rules, especially the expansion of the expedited examination system, would augment the government’s patent prosecution highway (PPH) program that intends to harmonize the patent examination standards and encourage the filing of patent applications in India. In September 2018, after the Second JPO- DIPP Review Meeting in August 2018, the Japan Patent Office (JPO) and the Department of Industrial Policy and Promotion (DIPP) had agreed in principle, to start a bilateral PPH program on a pilot basis in certain identified fields of inventions in the first quarter of fiscal year 2019.[ii] The amendment seems to be a result of the agreement and the intention of improving the overall IP environment of the country. Additionally, the waiver of the transmittal and certified copy fees would also increase the filing of PCT applications and facilitate the ease of doing business in India.

References:

[i] http://www.ipindia.nic.in/writereaddata/Portal/News/569_1_The_Patent_Amendment_Rules_2019_.pdf

[ii] https://www.meti.go.jp/english/press/2018/0920_001.html

 

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The amendment in the Rules, especially the expansion of the expedited examination system, would augment the government’s patent prosecution highway (PPH) program that intends to harmonize the patent examination standards and encourage the filing of patent applications in India. In September 2018, after the Second JPO- DIPP Review Meeting in August 2018, the Japan Patent Office (JPO) and the Department of Industrial Policy and Promotion (DIPP) had agreed in principle, to start a bilateral PPH program on a pilot basis in certain identified fields of inventions in the first quarter of fiscal year 2019

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FAQs on Karnataka Land Reforms (Amendment) Ordinance, 2020

The Government of Karnataka has taken a bold and timely decision of promulgating the Karnataka Land Reforms (Amendment) Ordinance, 2020 (“Ordinance”) to liberalize agricultural land ownership in the state. The ordinance repeals Sections 79A, B & C (Restriction on Holding or Transfer of Agricultural Lands), amends Sections 63, 70, 72, 80, 81, 104, 109 of the Karnataka Land Reforms Act, 1961 (“Reforms Act”) and inserts new section 80(A) to the Reforms Act. This has been a long-pending demand and is expected to work as a catalyst towards increasing investment into the state of Karnataka, as well as to facilitate the wholesome development of the agricultural sector.

Here are a few queries based on the Ordinance that have been answered by our Real Estate Partner, Prashantha Kumar:

  1. Who can acquire/purchase agriculture land in Karnataka without any restrictions/ prior permission?

 

Any person/s, being Indian citizen, can acquire/purchase agricultural land in Karnataka without any prior permission and without any conditions subject to the prescribed ceiling limit under the Ordinance. However, any restrictions imposed on the grant of an agricultural land will continue to prevail, and any purchase of the grant land shall be subjected to such terms and conditions stipulated under the respective Grant Certificate and the Reforms Act.    

 

  1. Can corporate entities, partnership firms, private/public trusts, corporations and association of persons acquire/purchase agriculture land in Karnataka?

 

Yes, entities not being a foreign entity can acquire/purchase agricultural land in Karnataka subject to prescribed ceiling limit; and without seeking a prior conversion of agricultural land under Section 95 of the Karnataka Land Revenue Act, 1964 for non-agriculture purpose or special permission under Section 109 of the Reforms Act.  

 

  1. What is the revised landholding ceiling limit as per the Ordinance?

 

Under the Ordinance, the landholding ceiling limit of a family of five members, non-family member and a tenant under Section 5 (b) of the Reforms have been revised and enhanced as under:

Members

Land Parcels in Unit

Person who is not a member of a family or has no family (non-family member)

20 units

A family comprised of five members

20 units

A family consisting of more than five members

20 units + 4 units for every member in excess of ten. However, total aggregate units of the family irrespective of the number of members shall not exceed 40 units

Tenant under Section 5(2)(b) of the Reforms Act

80 units

 

A separate formula for determining the equivalent extent of different classes of land mentioned above is prescribed in Part B of Schedule I to the Reforms Act for the purpose of calculation of the extent of the ceiling. The said formula has been simplified for a better understanding as provided in the table below:

Classification of the lands based on its fertility

The extent of One Unit for the purposes of calculating the applicable ceiling:

A Class

1.3 Acres

B Class

2 Acres

C Class

3 Acres

D Class

5.4 Acres

 

  1. Does the pre-requirement of special permission under Section 109 of the Reforms Act to acquire agricultural land for a specific purpose become infructuous upon passing of the Ordinance?

 

No, the enactment of the Ordinance does not take away the requirement, and only permits non-agriculturists including corporate entities, partnership firms, private/public trusts, corporations and association of persons to hold and enjoy an agricultural land for agricultural purposes. Accordingly, to use agricultural land for non-agricultural purposes, one needs to obtain prior special permission under Section 109 of the Reforms Act or alternatively one can get agricultural land converted under Section 95 of the Karnataka Land Revenue Act, 1964 for non-agriculture purpose post-acquisition of agricultural land.  

 

  1. Will requirement of the conversion under Section 95 of the Karnataka Land Revenue Act to use agricultural land for a specific purpose become infructuous upon passing of the Ordinance?

 

No, the enactment of the Ordinance shall not take away the requirement. It only permits non-agriculturists including corporate entities, partnership firms, private/public trusts, corporations and association of persons to hold and enjoy an agricultural land for agricultural purposes. To use agricultural land for non-agricultural purposes, one needs to seek the conversion of agricultural land to non-agricultural purposes under Section 95 of the Karnataka Land Revenue Act, 1964.

 

However, one cannot claim conversion of agricultural land for non-agricultural purposes as a matter of right, and the same may be subjected to number of parameters and conditions. 

 

  1. Whether the permission for non-agriculture use under Section 95 of Karnataka Land Revenue Act, 1964 can be obtained post-acquisition of agricultural land subject to payment of conversion fees, etc.?

 

Yes. Upon acquisition of agricultural land as well as upon mutating the company’s/individual name in the revenue records as the owner in possession thereof, one can get such agricultural land converted under Section 95 of the Karnataka Land Revenue Act, 1964. However, one has to be mindful that one cannot claim conversion of agricultural land to non-agricultural purposes as a matter of right, and the same may be subject to a number of parameters and conditions. 

 

  1. Further, is there any plan to amend Section 95 to permit use of agricultural land for bonafide industrial purposes without obtaining prior conversion approval?

 

So far, there are no such plans by the Government of Karnataka. One must procure requisite permission under Section 95 of the Karnataka Land Revenue Act, 1964 to change the land usage from agricultural to non-agricultural purposes by following the procedure prescribed thereunder.

 

  1. What is the fate of pending cases initiated under Section 79 A, B & C of the Reforms Act?

 

Cases initiated under Section 79 A, B & C of the Reforms Act that are pending, shall be abated from the date of publication of the Ordinance; and cases that are disposed before the publication of the Ordinance shall in no way be affected.

 

  1. What is the legislative intention behind this Ordinance?

 

The Ordinance aims to encourage the agricultural sector as a career option and to motivate non-agricultural young or mid-age crowd to pursue agricultural activities. Further, the Ordinance once enacted shall open up the agricultural sector for everyone (Indian Citizens) without conditions, save for landholding ceiling limit as prescribed under Section 63 of the Reforms Act; and terms and conditions imposed for grant of agricultural land.

 

Post this, a surge of innovation and infusion of technology can be expected in the agricultural sector. It has also opened the gates for co-operative farming as well as corporatization of the agricultural sector and will lead to a strong agriculture-based economy. It may further catalyse synthesis of urban and rural skills and may lead to a new class of the population.         

 

  1. Will the Ordinance boost investment as well as lead to industrial development?

 

To the extent possible, I would like to respond affirmatively. Ease of doing business has no meaning unless one has ease of acquisition of land. There is a plethora of industries that have preferred to move their activities to states neighbouring Karnataka due to the restrictions the Government had imposed on the acquisition of land. This Ordinance is a much-needed investment booster, wherein companies/corporate entities can acquire land parcels cost-effectively without opting for back door entry of land aggregation through aggregators for their industrial needs. Karnataka may experience a surge in investments.

 

  1. Which sectors will be benefited through this Ordinance?

 

Sectors like renewable energy, logistics, manufacturing, infrastructure, horticulture and agro-based industries will be highly benefited through this Ordinance.    

 

Image Credits:  Photo by freestocks.org from Pexels

The ordinance repeals Sections 79A, B & C (Restriction on Holding or Transfer of Agricultural Lands), amends Sections 63, 70, 72, 80, 81, 104, 109 of the Karnataka Land Reforms Act, 1961 (“Reforms Act”) and inserts new section 80(A) to the Reforms Act. This has been a long-pending demand and is expected to work as a catalyst towards increasing investment into the state of Karnataka, as well as to facilitate the wholesome development of the agricultural sector.

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