Transfer Of Industrial Lands In Odisha And Other Post Allotment Actions – Key Considerations

Mergers and acquisitions in manufacturing, heavy-industrial sectors and real estate typically involve transfer of land as a vital asset. The Odisha Industrial Infrastructure Development Corporation (“IDCO”), the nodal authority for administration of industrial land in Odisha, grants lands on leasehold basis subject to various conditionalities (discussed in the first part ‘Allotment of Industrial lands in Odisha – Key Considerations’ of this article series). 

Post-allotment, an allottee’s leasehold rights to such industrial leasehold lands can be assigned / transferred to a potential acquirer subject to terms and conditions under applicable IDCO laws and the lease documents. We cover the nuances around post allotment transfers and other post allotment actions, which are typical in an M&A context, in this second part of the two-part article series on key considerations around industrial lands in Odisha. The first part of the series deals with issues around allotment of industrial lands by IDCO and can be found here.

For ease of reference, an entity acquiring / intending to acquire the property from an original allottee is referred to as the “acquirer”, and an entity that has been allotted / granted lease of IDCO industrial lands is referred as an “allottee”.

1. Transfer of industrial lands to a third-party buyer

a. Conditionalities on transfer of IDCO leasehold rights 

An allottee may transfer its leasehold rights subject to IDCO’s prior approval and payment of transfer premium / fees and restrictions set out in the lease deed. IDCO Circular No. 15995 dated 23 July 2016 (“IDCO Master Circular, 2016”)¹, among other things, mandates that – (i) a lease deed must have been executed in favour of the allottee²; and (ii) land must not be vacant or ‘unutilized’³, for a valid transfer of leasehold rights. 

During diligence, the acquirer must specifically check for compliance with the requirements of Orissa Industrial Infrastructure Development Corporation Act, 1980, Odisha Industrial Infrastructure Development Corporation (Disposal of land, building, amenities) Regulations, 2016 (“IDCO Regulations, 2016”), IDCO Master Circular, 2016, building regulations such as Orissa Development Authorities Act, 1982 read with Orissa Development Authority (Planning and Building Standards) Rules, 2020. The acquirer must also confirm adherence with the conditionalities under the title documents (such as the agreement to lease and lease deed) including the provisional allotment letter⁴. 

An acquirer will be well advised to conduct a due-diligence on material conditionalities set out in the lease deed, allotment letter and other conditionalities prescribed by the High-Level Clearance Authority (HLCA) / State Level Single Window Clearance Authority (SLSWCA) (such as requirement to take up CSR activities in consultation with district collector, generation of renewables to meet electricity requirements, restrictions on divestment of promoter shareholding beyond identified thresholds, etc) to reduce the risks of resumption / cancellation in the future.

b. Payment of transfer fees and execution of bi-partite lease deed with the transferee 

Transfer fees are payable to IDCO for transfer of leasehold rights. The transfer fee is calculated basis period of land ‘utilisation’ and as percentage of the prevailing IDCO land rates.⁵ Although it is typical for the acquirer to bear the payment liability, the parties may contractually agree to apportion the transfer fee between themselves. 

As any pending dues discovered post the transfer shall be the acquirer’s liability⁶, the acquirer will be well advised to seek documentary evidence to assess if transferor has completed its payment obligations i.e., payment of annual ground rent, cess and infrastructure maintenance charges. 

The parties are also required to submit documents specified under the IDCO Master Circular, 2016 for the final transfer approval (which includes corporate approvals by the allottee entity for such transfer, charter documents of acquirer, acquirer’s detailed project report, indemnity bond by both parties and NOC from financing institutions).⁷ Subsequently, upon grant of approval, IDCO executes a fresh bi-partite lease deed with the acquirer granting leasehold rights in the said land parcels for the remainder of the lease period.⁸  

2. Change in shareholding and corporate reorganization

a. No prior approval for change in name and alteration in board composition

IDCO’s approval is not required if there is a simpliciter change in name provided that there is no change to the constitution⁹ and “the majority shareholding is not diluted”.¹⁰ Change in composition of a company’s board of directors, without any change in shareholding, also does not require IDCO’s prior approval – a post facto intimation along with amended documents and intimation to the Registrar of Companies would typically suffice.¹¹

b. Prior approval for change in constitution / alteration in shareholding 

A merger or an acquisition of shares involving the allottee (and leading to a change in the shareholding pattern / constitution of the entity) would require IDCO’s prior approval.¹² IDCO levies transfer fees for such change in shareholding. In case of promoter shareholding being more than 51% in the resultant entity, the transfer fee payable is calculated pro rata to the percentage of promoter’s shareholding transferred or diluted by him.¹³ However, if the promoter shareholding falls below 51% in the resultant entity, such transaction would be construed as a ‘transfer of lease’ and the transfer fee payable would be at the rates applicable for a direct transfer of land.¹⁴ 

c. Prior approval in case of mergers

Courts have taken the view that court approved schemes of mergers, demergers and/or arrangements, wherein leasehold property and rights are transferred will qualify as a ‘transfer’. The Supreme Court has held that even in court approved schemes (which typically include language around transfer and vesting of property, rights, duties, assets, liabilities, etc. from the transferor entity to the transferee entity without any further act or deed), the lessee would still need to abide by the terms and conditions imposed by the lessor, including under the title documents.¹⁵ In schemes of arrangement involving change in constitution / shareholding of the allottee entity, the allottee would be required to obtain prior approval from IDCO and pay the stipulated transfer fees as provided under the IDCO Master Circular, 2016 for such transfer to be effective.    

3. Subletting and grant of land on leave and license arrangements

a. Conditionalities on sub-letting or license of leasehold lands

Sub-letting of IDCO allotted lands is subject to IDCO’s prior approval and certain conditionalities, including (i) restricting sub-letting to a maximum of 50% of built-up area, (ii) end usage being industrial in nature, (iii) the initial term of sub-letting shall be for a period of 5 years and renewal for further period would depend on case to case basis subject to utilisation, and (iv) levy of sub-letting charges at the prescribed rates.¹⁶ 

b. Sub-letting – downsides for long term arrangements

The allottee is required to execute a standard form agreement with the tenants governing the inter-se relations between the allottee and the tenants. IDCO levies sub-letting charges linked to annual rent (calculated based on Fair rent assessment as per PWD norms).¹⁷ Time based restrictions around sub-letting, limits on usage area, and end-use restrictions make sub-letting unfeasible for long-term and high value commercial arrangements but may be useful for transitional business needs.    

4. Change in nature of activity for which land was originally granted  

a. Prior approval of IDCO for change in activity 

Land is allotted by IDCO for specific end-use as proposed by the allottee at the project evaluation stage. The provisional allotment letter as well as the lease deed restricts allottee from altering the end-utilization purpose of the land. However, a prospective acquirer may be engaged in a distinct business activity compared to the allottee. 

The acquirer may alter or seek (from the allottee) alteration of nature of activity / end use, either on or prior to acquisition, with prior approval of IDCO.¹⁸ Further, in case of allotted lands being vacant, applications for change in activity beyond the implementation period with respect to such vacant lands are not favourably considered. 

b. Prohibition on broad change in activity – possible deterrence for cross-sectoral arrangements 

Change of activity may be allowed without any fees, during the implementation period, if the altered activity broadly falls under the original end-use category.¹⁹ However, if land is acquired / allotted for a specific industry cluster, change of activity from one sector to another is not permitted.²⁰ For example, an allottee in a food processing industrial cluster will not be permitted to change nature of activity to IT/ITES. Any change in activity from industrial to social infrastructure projects (education, warehouses, hospitals, etc.) will be liable to payment of transfer fees.²¹   

An acquirer who intends acquire IDCO lands from a previous allottee and subsequently changes the nature of activity, must (i) do its due diligence to ensure that there is no vacant land involved, and (ii) be cognizant of the restrictions on the end-use of land and associated cost implications.          

5. Other miscellaneous considerations 

a. Issues around land acquisition

Typically, acquirers assume IDCO’s valid title over land parcels. However, this assumption is subject to limitations and there could be potential challenges if there are gross irregularities during the land acquisition process by IDCO. Judicial precedents have made it clear that any land acquisition done by state instrumentalities are void if such acquisition is carried out without following procedures prescribed under land acquisition laws. 

Indian courts have emphasised the need for a strict interpretation of the Land Acquisition Act, 1894 and held that the acquisition of lands by IDCO for a beneficiary company in violation of provisions of the Land Acquisition Act, 1894 read with Land Acquisition (Companies) Rules, 1963 are unlawful. To safeguard public interests, acquisition of lands for a private company (not being a government company) is permitted only for purposes envisaged under clause (a) of sub-section (1) of Section 40 of Land Acquisition Act, 1894,²² and cannot be given the colour of ‘public purpose’ to bypass processes and procedures prescribed under Part VII of the Land Acquisition Act, 1894.²³ The High Court of Orissa has, on various occasions, quashed the land acquisition proceedings in relation to lands acquired by IDCO for a large university and directed for resumption of land and restoration of possession to the original landowners.²⁴

b. Non-compliances with law, conditionalities, and risk of subsequent scrutiny

In our experience, land allottees are often non-compliant with IDCO laws and the conditionalities in lease documents. That said, in the last few years, IDCO land allotments have faced scrutiny of the office of the Comptroller and Auditor General of India (a constitutional authority established under the Indian Constitution), political activism and internal enforcement drives. IDCO has cancelled land allotment when allottees are engaged in substantive and brazen non-compliances.²⁵ The Supreme Court has upheld the validity of such resumption by IDCO on account of allottee’s failure to adhere to the terms and conditions in the allotment letter, agreements, etc.²⁶

c. Information flow

Unlike freehold properties where land documents are publicly available with sub registrar’s office / revenue officials such as tahasildar; in case of IDCO lands, there is reliance on the target entity for securing information. Since IDCO mandates adherence to terms and conditions under other ancillary documents (apart from definitive title documents), non-compliance of which could impact the allottee’s rights to the property. To the extent information is unavailable or unclear, acquirer will be advised to secure its interests by incorporating representations and warranties, backed by indemnities, to the effect that the target has not withheld any material information around its compliance with the lease deed executed with IDCO, timely payments to IDCO, compliance with lease and allotment conditionalities, etc

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1.   IDCO Circular No. 15995 dated 23 July 2016. By way of a circular dated 28 November 2019 (Circular No. IDCO-LAE-6534/2016-20751), IDCO has clarified and confirmed that the existing IDCO Master Circular, 2016 dated 23 July 2016 shall be applicable for all MSME projects and Large / Mega projects for following all the procedures and processes required for effecting the post allotment activities.  ↩︎
2.   Paragraph 2.1(ii) of the IDCO Master Circular, 2016.  ↩︎
3.   Paragraph 2.2(ii) of the IDCO Master Circular, 2016 read with Regulation 19 of the IDCO Regulations, 2016. ↩︎
4.   Regulation 19 of the IDCO Master Circular, 2016. ↩︎
5.   Paragraph 2.2(iv) of the IDCO Master Circular, 2016.  ↩︎
6.   Paragraph 2.4 of the IDCO Master Circular, 2016.  ↩︎
7.   Paragraph 2.1(iv) of the IDCO Master Circular, 2016 read with Annexure 1 to the IDCO Master Circular, 2016. The requisite documents inter alia include (i) Detailed project report of the acquirer unit, (ii) charter documents and certificate of incorporation, (iii) NOC from financing institutions (if property has been mortgaged) ad (iv) board approvals permitting disposal of land parcel by the transferee entity.   ↩︎
8.   Paragraph 2.4 of the IDCO Master Circular, 2016.   ↩︎
9.   Paragraph 2.6 of the IDCO Master Circular, 2016 requires the allottee to seek IDCO’s prior approval for any proposed change in constitution of the board if there is a change in promoters’ shareholding, subject to payment of prescribed fees. ↩︎
10.   Paragraph 2.5 of the IDCO Master Circular, 2016 read with Regulation 20(2) of the IDCO Regulations, 2016. ↩︎
11.   Paragraph 2.6(i) of the IDCO Master Circular, 2016. ↩︎
12.   Regulation 20(3) of the IDCO Regulations, 2016. ↩︎
13.   Paragraph 2.6(ii)(1) of the IDCO Master Circular, 2016.  ↩︎
14.   Paragraph 2.6 (ii)(2) of the IDCO Master Circular, 2016.  ↩︎
15.   Jaiprakash Industries Limited v. Delhi Development Authority, (2024) 6 SCC 252  ↩︎
16.   Paragraph 2.9 of the IDCO Master Circular, 2016.  ↩︎
17.   Paragraph 2.9 (5) of the IDCO Master Circular, 2016.  ↩︎
18.   Regulation 20 of the IDCO Regulations, 2016 read with Paragraph 2.7 of the IDCO Master Circular, 2016.   ↩︎
19.   Paragraph 2.7 (ii) of the IDCO Master Circular, 2016. ↩︎
20.   Paragraph 2.7 (iii) of the IDCO Master Circular, 2016. ↩︎
21.   Paragraph 2.7 (ix) of the IDCO Master Circular, 2016. ↩︎
22.   Section 44-B of the Land Acquisition Act, 1894. ↩︎
23.   Anil Agarwal Foundation vs State of Orissa, Civil Appeal Nos. 1144-1146 of 2011, Supreme Court of India, Order dated April 12, 2023. ↩︎
24.   Rajiv Pujari v State of Orissa, 2010 SCC Online Ori 222. ↩︎
25.   The New Indian Express, ‘Odisha Government to take back leased land unused by 14 industries’, https://www.newindianexpress.com/states/odisha/2023/Mar/13/odisha-government-to-take-back-leased-land-unused-by-14-industries-2555601.html accessed on 22 February 2025.  ↩︎
26.   Orissa Industrial Infrastructure Development Corporation vs Mesco Kalinga Steel Limited and Ors. (2017) 5 SCC 86 ↩︎