The Maharashtra Industrial Development Act, 1961 (“the Act”) is an act which makes provisions for establishment of industrial areas and industrial estates in Maharashtra. For this purpose, Maharashtra Industrial Development Corporation (“MIDC”) has been established under the Act. MIDC promotes and assists in growth the development of industries in Maharashtra.
MIDC enters into a standard form of Agreement to Lease or Lease Deed with the lessee.
MIDC permits the lessee to assign or transfer its leasehold rights in the MIDC lands on such terms, conditions and on payment of transfer charges as well as differential premium, decided by MIDC from time to time.
The MIDC has issued Transfer Guidelines dated May 12, 1998, these have been modified regularly as per the market trends. These Transfer Guidelines provide additional terms and conditions which may or may not have been covered in the Agreement to Lease and/or Lease Deed. Briefly, stating a few of the terms and conditions:
Transfer Charges – These are documentation charges fixed by MIDC from time to time for processing transfer requests under the formal and non-formal transfers. Transfer charges are payable whether or not differential premium is paid. Different regions of Maharashtra have different rates of transfer charges fixed by MIDC.
Differential Premium – This is the difference of premium amount calculated at the time of transfer application at the prevalence rate and the amount calculated at rate prevalent at the time of initial allotment.
This brings us to the kinds of transfers recognised and categorised by MIDC which are as follows:
Formal Transfers
Individual wants to add a blood relation or close relation as a partner or wants to delete an existing partner not including a legal person. Such transfers would be permitted and would attract minimum transfer charges.
Transfer by death of an individual and changes thereto by way of bequeath /will /heirship and the same would attract transfer charges.
Involuntary transfers being amalgamation, mergers, demergers, etc. which are under the direction of a Court/ tribunal /any other competent transfer charges would be attracted for such transfers.
If a transfer is by a promoter to a private limited company incorporated by him which company was not in existence at the time the promoter was alloted the land the promoter has to incorporate and transfer such lands to the private limited company within 3 years.
If a transfer is by a promoter to a co-operative society incorporated by him.
Change of name of a proprietary concern /Partnership without change in proprietor or partner; change the name of a limited company and change in management offer limited company without transfer of interest therein.
2. Informal Transfers
The simple way of describing Informal Transfers are transfers which are not formal transfers. Few examples of informal transfers:
Transfer to an individual not in blood relation or close relation;
Transfer to partners in a partnership not in close or blood relation;
Transfer from proprietary concern to partners of a partnership firm or not in close or blood relation;
Transfer from a promoter to a partnership:
Transfer from a proprietary concern or partnership to a private limited company or public limited company:
Transfer from a holding company to a subsidiary company or a transfer from a subsidiary company to another subsidiary company of the same holding company;
Transfer from a private limited company to a limited company; and
Transfer of from a private limited company to an individual or a partnership firm.
and many others like transactions or transfers.
3. Change the shareholding
One of the major issues dealt by lessees of MIDC lands, change in shareholding of the Company/ change in partners of the Partnership. In today’s fast growing economy it is often seen that companies have angel investors, venture capital funds, private equity investments, mergers and amalgamations (both voluntary and court directed). In these various investment activities we often see a change in the shareholding pattern of the Company and sometimes there may also be a complete change in the management of the Company. Keeping this in mind, MIDC has provided 5 (five) clarifications on change in shareholding as follows:
If the shares of original directors or shareholders or partners are not going below 51% when changing name of the entity or acting on a proposal except a public limited company it would be considered as a formal transfer and would not be charged.
Where original partner shares are not less than 51% while converting a partnership firm to a private limited company or a public limited company it would be considered as a formal transfer and would not be charged.
Where original shareholder shares are not going below 51% while converting from a private limited company to a public limited company and raising the number of directors it would be considered as a formal transfer and it would not be charged.
Where the original director shareholders or partners shares are going below 51% then such a transfer would qualify as a non-formal transfer and differential premium would be levied on the cost of construction done.
Where in a public company shares of the original shareholders except, of course the public shares of the company, is not less than the majority collective shareholding and the control in management remains unaffected it would be considered as a formal transfer and would not be charged. However, it is mandatory to get a chartered accountant or a company secretary certificate with respect to the shareholder status in a public limited company.
A Company holding MIDC lands under an Agreement to Lease or Lease Deed and undergoing such changes time and again overlook MIDC’s requirement of disclosures and payment of Transfer Charges and/or Differential Premium, in the event of such changes to the Company. Often this leads to MIDC charging a hefty penalty on the Company holding MIDC Lands and in extreme cases terminating the Agreement to Lease or Lease Deed of such Company to the MIDC Lands.
The same can be averted by taking adequate steps at the time of structuring transactions involving angel investors, venture capital funds, private equity investments, mergers and amalgamations, carrying out a complete diligence of the of the MIDC Lands and making applications and seeking approval/permission of the MIDC prior to entering into such transactions.
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