In business acquisition transactions involving large scale manufacturing or infrastructure projects, land is often the core asset. Given the importance, land ownership or occupancy can materially affect both the value of the target entity and the deal structure. Acquirers must therefore carry out thorough land due diligence to assess legal ownership, identify regulatory and contractual restrictions, and anticipate risks that may not be immediately apparent from the title documents alone.
Particular attention must be paid to where the land has been allotted by a State Industrial Development Corporation (SIDC) such as MIDC, HSIIDC, RIICO, GIDC, or TSIIC. These bodies typically lease or allot land on concessional terms, with use restrictions tied to specific industrial activity. The lease deeds, sale deeds, or allotment letters often include clauses requiring prior consent for transfer, sub-lease, or even a change in control of the business entity. Such conditions are frequently triggered in a business acquisition context, including by share acquisitions or business transfers by slump sales. Non-compliance may lead to cancellation of the allotment or repossession of the land. Hence, it is critical that the acquirer review all original allotment terms and secure necessary approvals before closing. Even a change of business activity may sometimes trigger a prior approval requirement from the land allotting authority. Where regulatory consents take time, these requirements must be documented as conditions precedent to the closing. Such allotment conditions also generally include provisions on repossession if the land allotted is not fully utilized for the intended business. Therefore, it is also essential for acquirers to ascertain the total land allotted and the actual land put to use.
In certain cases, the land held by the target entity may have been acquired through government land acquisition processes and subsequently transferred for industrial use. Especially in States with large-scale industrial development, the land acquisition process may have involved promises of socio-economic rehabilitation to original landowners commonly referred to as land losers or project-affected persons (PAPs). These may include employment guarantees to PAPs or other community benefits under the relevant state rehabilitation and resettlement policy. Often, such obligations are recorded in memorandums with the district administration or referenced in policy documents, but may not appear in the title chain. If these promises remain unfulfilled, the target entity, and by extension the acquirer, may face reputational and legal risks. It is therefore essential to conduct inquiries with the local administration, examine correspondence with landowners or gram panchayats, and evaluate whether any claims or litigations are pending in relation to these obligations. If there are any continuing obligations, the acquirer must factor them while arriving at a business valuation.
In parallel, the legal status of land use, zoning, and environmental compliance must be examined. This includes verifying whether the land is designated for industrial use under local development plans, whether construction permissions and occupancy certificates are in order, and whether consents from pollution control authorities are current. In some cases, there may be restrictions on building height, setbacks, or usage imposed under State building codes or municipal laws, maintenance of green bodies, etc. These are especially important if the acquirer intends to expand the project or redevelop the site, or utilize it for other purposes than as permitted initially. For example, in Hyderabad, there is a prohibition on the establishment of new industries or the expansion of existing industries within 1 kilometer on either side of the outer ring road (referred to as ORR Growth Corridor). There have been instances of the Telangana State Pollution Control Board refusing to grant environment-related approvals in lands falling within the ORR Growth Corridor for both new units and expansion of existing industrial units.
An emerging and often overlooked risk relates to establishments located near water bodies such as lakes, tanks, streams, buffer zones, full tank level (FTL) areas, etc. Many Indian States classify lakes and other public water bodies as ecological commons, protected under the public trust doctrine. While private ownership of lakes is not illegal in States like Telangana, such ownership is typically subject to zoning and land use restrictions.
Construction activity, extraction of water, or alteration of natural boundaries in or near such water bodies can result in regulatory action. Encroachments, intentional or accidental, can lead to demolitions or litigation by environmental groups or municipal authorities. For this reason, the acquirer must obtain accurate site maps and survey records, including those maintained by the revenue and irrigation departments, to confirm whether the land falls within any buffer zone or protected catchment area. If risks are identified, these must be addressed through corrective action or appropriate risk allocation in the deal documentation. In Telangana, the State government in 2024 set up a specialized agency Hyderabad Disaster Response and Asset Protection Agency (HYDRAA), inter alia, to reclaim lake lands encroached by private parties in and around the capital city of Hyderabad. In more than twelve months of its existence, HYDRAA had demolished several structures built on lake beds and buffer zones and reclaimed lake lands.
Finally, in cases where land was acquired under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (LARR Act) or its predecessor legislation, the acquirer must verify whether the land is being used in accordance with the public purpose stated, and whether the conditions under the LARR Act have been met. The legislation allows for the reversion of land to the original owners if it remains unused for a specified period and mandates extensive rehabilitation and compensation obligations. Any deviation from the statutory process or pending litigation under the LARR Act must be flagged during due diligence. The LARR Act also imposes a prohibition on change of ownership without prior permission of the appropriate government, which is generally the State government.
In conclusion, land due diligence in business acquisition transaction deals must go beyond typical title flow and encumbrance checks, for which the look-back period typically is 30 years. It must examine how the land was acquired, under what conditions it is held, whether those conditions are fulfilled, and what risks continue to persist, whether legal, regulatory, or community-driven. A failure to do so could result in regulatory penalties, project disruption, or even loss of land rights, making it critical for the investors to invest in comprehensive land diligence as a foundational step in the transaction lifecycle.
About the authors: Dinesh Babu Eedi is a Partner and Kumar Panda is a Principal Associate at Lakshmikumaran & Sridharan attorneys.
Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.
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