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Finance Ministry Bars SEZ Developers From Selling Controlling Stake In Their Ventures.


Date: 16-07-2011
Subject: Finance Ministry Bars SEZ Developers From Selling Controlling Stake In Their Ventures
In a move to prevent special economic zones (SEZs) from turning into real estate projects, the finance ministry has barred SEZ developers from selling controlling stake in their ventures.

"Transfer of controlling stake in an SEZ project is equivalent to developers selling land acquired to set up the zone," a finance ministry official told ET.

The SEZ law prohibits sale of land but some developers have tried to offload controlling stake in their ventures, forcing the finance ministry to take up the issue.

"When a company is sold, ownership of land also gets automatically transfered," said Gurgaonbased SEZ consultant Hitender Mehta. "This is what the finance ministry is trying to prevent."

Under the current rules, the board of approvals for SEZs could, on a case-by-case basis, allow majority stake sales by developers. The board falls under the commerce & industry ministry.

But the finance ministry wants a blanket ban on land acquired for industrial development being sold off through stake sale for real estate development.

The ministry has conveyed to the commerce & industry ministry that such sales could not be permitted, as they also amount to transfer of land rights. SEZs, which were envisaged as enclaves of export infrastructure excellence, enjoy substantial tax concessions from the government.

But dilutions in tax benefits over the years have made them less attractive for developers. The latest restrictions, which deny the developers an exit option, would add to their woes.

In line with the finance ministry's tough stance, the board of approvals recently rejected proposals of Hyderabad Infratech Private Limited and Aachvis Softech Private Limited to induct co-developers in their projects.

A number of developers including large realty players, such as DLF Limited , have exited from some of their SEZ ventures by getting the zone denotified by the board of approvals. Some of the developers have also sought more time to implement their projects.

Exports from SEZs touched Rs 3.15 lakh crore in 2010-11, a 43.11% jump over the previous year. They generated 676,608 job opportunities with a total investment of Rs 2.02 lakh crore The manufacturing sector SEZs exported merchandise worth Rs 1.94 lakh crore.

Diversion of land acquired for industrial use to residential projects would become increasingly difficult after the Supreme Court took strong exception to such change in land use in the case of Noida Extension. The court has asked that land such acquired be returned to the farmers from whom it was purchased.

Source : economictimes.indiatimes.com

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