Due Diligence for the Acquisition of Industrial property in Pune, Maharashtra

Background

Our client, a midsize company seeking to expand its operations, identified a strategically located industrial property within the limits of Pune, Maharashtra. To facilitate a seamless acquisition, they engaged our services to perform comprehensive due diligence, addressing potential legal and logistical challenges. 

We initiated the process by collecting detailed information from the client regarding the property, including its exact location, zoning classification, and the identities of all parties involved in the transaction. Upon receipt of the relevant documentation, we meticulously cross-referenced these with the executed Term Sheet/Memorandum of Understanding (MOU) to ensure alignment on all terms and conditions.

We reviewed and refined the Term Sheet between the client (buyer) and the seller, incorporating necessary revisions to protect our client’s interests. A thorough legal due diligence process was undertaken, which included sub-registrar searches and online litigation reports to verify the property’s legal standing and historical context.

Subsequently, we prepared a public notice and obtained a no objection certificate (NOC) from the sellers, confirming their consent for publication as mandated by law. After a comprehensive review and analysis, we delivered a Due Diligence Report and Title Search Report to the client, highlighting potential risks and offering recommendations concerning the property.

We also secured pertinent tax documentation from the sellers to ensure compliance with applicable tax regulations. Following this, we meticulously reviewed the conveyance deed to protect our client’s interests & ensure its alignment with the agreed terms between the parties.

Issues Identified & Solutions Offered

If India appears as an attractive market, it is also a market influenced by local specificities, unique market trends, and strict regulations. 
For these reasons, any business must receive step-by-step guidance to minimize risks related to their international expansion and successfully enter this exciting market.

1. Title Issues

Issue: To assess the legality of the title and investigate any ongoing disputes related to the land parcel with multiple owners.

Solution: Conducted a title search for the preceding 30 years and obtained an encumbrance certificate to confirm the absence of legal claims. In cases of identified disputes, negotiations with current owners were initiated to resolve them prior to acquisition. An online litigation search was undertaken, and the findings stated that there are no relevant cases in relation to the subject property on the Sellers. 

2. Compliance with PMRDA Regulations

Issue: The land being situated in an area with specific zoning regulations/PMRDA regulations that restricted commercial development, it was essential to ensure that the land was compliant with applicable regulations.

Solution: UJA advised to update the Zonal certificate and obtain the documents from Sellers with reference to Pune Metropolitan Region Development Authority (PMRDA) to verify the current zoning status and to seek approval from PMRDA for sanctioned and revised layout plan. If the land was not zoned for commercial use, we explored options for rezoning or alternative uses compliant with existing regulations. 

3. Environmental Concerns

Issue: Initial assessments indicated possible soil contamination due to previous industrial activities.
Solution: Recommended the client to engage a technical expert to conduct a site assessment to check if there is any soil contamination. If confirmed, a remediation plan was to be developed to address any contamination before construction commenced.

4. Sub-division and Land Demarcation

Issue: The proposed land for acquisition was part of a larger parcel, necessitating certification and demarcation through a physical survey and technical diligence to ensure its suitability for the intended use. No demarcation plan or subdivision order from the competent authority was provided.

Solution: Verified that the mutation entry had been duly signed and authorized by the authorities. UJA further advised to Conduct a physical survey and technical diligence to confirm the viability of the proposed land for intended activities, ensuring that the buyer’s operations could proceed without restriction. The sellers were required to conduct the necessary demarcation and subdivision, securing mutation entries and updating land records accordingly. Additionally, advised to procure a 281 Certificate from each vendor confirming no outstanding dues with the Income Tax authority that could impede the transaction.

5. Insufficiently Stamped Agreements and Tax Compliance Issues

Issue: Upon review, it was noted that certain agreements were insufficiently stamped. Under applicable stamp laws, an insufficiently stamped instrument is inadmissible as evidence and may incur penalties if impounded by stamping authorities.
Solution: Recommended that each vendor provide comprehensive title representations and warranties to the buyer regarding compliance with stamp duty obligations, alongside indemnities for any related issues. Incorporated indemnity clauses into the sale deed to protect the buyer from liabilities associated with past payment obligations and penalties.

6. Easement Rights and Regulatory Compliance

Issue: There were adjoining plots. Existing easement rights for a pathway intersecting the land could hinder the buyer’s intended activities. Our concern was the business activities undertaken by one Plot should not hamper the right of the Buyer to peacefully undertake its business and to possess the land.

Solution: Informed the client about potential easement issues and verified whether easements were necessary for access. Advised the client to verify and negotiate the easement rights with the sellers and explore alternatives for ease of access.

7. Regulatory Compliance

Issue: Given the initial Occupancy Class II status of the land, obtaining proper consent from the Collector for the sale was critical; lack of such consent could jeopardize the transaction.

Solutions Offered:

  • Conditions Precedent: Vendors were mandated to conduct demarcation and subdivision with local authorities and secure mutation entries in land records. A 281 Certificate confirming no outstanding dues to the Income Tax authority was also required.
  • Indemnification: Each vendor agreed to indemnify the buyer against liabilities arising from non-compliance, particularly concerning past payment obligations and penalties.
  • Title Representations: Vendors were required to provide comprehensive title representations and warranties, especially regarding compliance with stamp duty and land conversion regulations.

 

 

Conclusion

The thorough due diligence process empowered our client to confidently proceed with the acquisition, effectively mitigating risks associated with the property. Our rigorous checks confirmed the absence of outstanding legal issues, and the client expressed satisfaction with the comprehensive support provided throughout the transaction.

UJA recommends incorporating an indemnity clause to address various observations noted during due diligence. The vendors agreed to indemnify and hold the purchaser harmless from any claims, penalties, or liabilities arising from defects in title or non-compliance issues related to the land. 

This case study highlights the critical importance of meticulous due diligence in real estate transactions, particularly in a dynamic market like Pune, ensuring that all legal, environmental, and regulatory concerns are addressed effectively.

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