When the landowner is the promoter's family
Promoter families in Indian real estate often own land their listed company could develop. Independent valuation is necessary but not sufficient; boards need a standing policy, agreed before the next parcel arrives, that fixes the evidence and structure such deals require.
Many listed Indian developers began as family businesses, and many promoter families still own land in their own names, through partnership firms or in LLPs. Some of it was bought decades ago, before the company existed. Some was bought more recently, occasionally close to the company's own projects. Sooner or later a family member proposes that the company develop it.
There is nothing wrong with that proposal in itself. The family may own the best plot in a micro-market, and a joint development with the company may be the most valuable use of it for every shareholder. But I have come to think that promoter-group land is the most difficult related-party transaction an Indian board will examine, and that the usual safeguards, an independent valuation and an Audit Committee approval, are necessary without being sufficient.
Why land invites the hardest related-party questions
Most related-party transactions have a market to compare against. A lease can be benchmarked against similar buildings, and a supply contract against other suppliers' quotes. Land is different. Every parcel is unique in location, title, approvals and the time it will take to develop. Valuations depend on assumptions about future prices, approval timelines and the floor space a plot will eventually carry, and two competent valuers can differ by a fifth or more. A family that wants a generous price can usually find a defensible number.
The SEBI Listing Regulations require prior Audit Committee approval for related-party transactions and, where a transaction is material, approval by shareholders, with related parties not voting to approve it. In a joint development the value of the transaction is not the price of the land. It is the stream of payments or homes the landowner will receive over the life of the project, which may be several times the land's present value and may become clear only years later. Directors should insist that the materiality calculation uses that stream.
Land deals with a family also arrive with history. A plot the family bought near a company project may have risen in value precisely because of the company's development next door. Whether the company should pay for value it helped to create is a fair question, and it rarely appears in a valuation report.
Approvals add another layer. Family land is sometimes converted for non-agricultural use, rezoned or cleared for more floor space while the family still owns it, and the company's own staff may have helped with the applications. A board should know who did that work and who paid for it, because the value it created is part of what the company is now being asked to buy.
Area share, revenue share and what each conceals
A joint development agreement usually pays the landowner in one of two ways. Under an area share, the landowner receives a fixed proportion of the homes built and sells them on its own account. Under a revenue share, the landowner receives a proportion of what the developer collects from buyers.
An area share looks simpler, and many landowners prefer it. For a related party it creates two problems. The landowner holds inventory inside the company's project and can sell it at prices the company does not control, in direct competition with the company's own sales. And the value transferred depends on which homes are allotted to the landowner: floor, view and timing can shift it by several percentage points without any change in the headline share.
A revenue share is easier to monitor, because it can be checked against the project's collections every quarter, and it keeps pricing with the company. It also ties the landowner's return to the company's sales performance. Its weakness is that it needs careful definition: what counts as revenue, whether parking, clubhouse and other charges are included, and how cancellations and refunds are treated.
When a Kirtane family LLP proposed a joint development of 18 acres in Tathawade in 2023, the proposal was a 45 per cent area share with a refundable deposit of ₹120 crore. Our comparison with eleven agreements signed with unrelated landowners nearby pointed to a revenue share between 30 and 36 per cent. The Audit Committee approved 35 per cent, a ₹40 crore deposit and a long-stop date, and shareholders approved those terms. At current prices the change is worth about ₹180 crore to the company over the project's life.
A policy written before the parcel arrives
The more important lesson concerned timing. Negotiating a specific parcel with the family that controls the company is uncomfortable for everyone. Management reports to the family, the family feels its good faith is being questioned, and every recommendation becomes personal. The way to make it less personal is to agree the rules before any parcel is on the table.
In 2024 our Audit Committee adopted such a policy. It requires two valuations by valuers the committee appoints, a comparison with all of the company's joint development agreements with unrelated landowners in the same micro-market over the previous five years, a revenue-share structure unless the committee records its reasons for an exception, a cap on refundable deposits and a long-stop date. It also asks the family to disclose each year all land it holds within five kilometres of any company project, so that the committee knows what may one day come before it.
The policy does not stop the company from developing family land. It makes the terms predictable, and it lets a promoter bring a proposal knowing in advance what evidence will be required. Our founder told me afterwards that he would have preferred the policy to my recommendations, because it would have been the committee's rule rather than his CFO's judgement. He was right.
Independent directors of promoter-led developers can ask for something similar without accusing anyone. Ask whether the promoter group holds land near company projects, whether the company has a written basis for transacting in it, and whether joint development payments are measured as a stream over the life of the project. A board that has those answers before the next proposal will find the conversation far easier than one that begins with a parcel and a deadline.