Dubai-based Emaar holds around 41 per cent in the joint venture that is expected to raise Rs 5,000 crore (Rs 50 billion) from an upcoming maiden public issue.

In its draft red herring prospectus that was recently filed with the Securities and Exchange Board of India, Emaar MGF has said 83 per cent of its 12,544-acre nationwide reserves consists of agricultural land.

But the Department of Industrial Policy and Promotion (DIPP) under the ministry of commerce has, on its website, clarified that a real estate company with foreign investment cannot acquire agricultural land.

The DIPP clarification was given in response to a query on its online bulletin board on October 29, 2007. It shows the department has clarified that foreign direct investment (FDI) cannot be used to buy agricultural land, either directly or indirectly through a special purpose vehicle.

The question and answer did not, however, mention Emaar MGF. The company asserts that its land bank is within the ambit of current government policy on the real estate sector and not in contravention of the rules.

In response to a BS questionnaire, an Emaar MGF spokesperson said: "The company is engaged in the business of real estate development and not in any activity in the agricultural sector.

Press Note No. 2 (2005 Series) of the Ministry of Commerce and Industry, DIPP, relates to FDIs in townships, housing, built-up infrastructure and construction-development projects and imposes certain restrictions for such investments, including minimum capitalisation, repatriation of investment and time period for development of the project.

Press Note 2 of 2005 does not relate to acquisition of land and the company does not believe that FDI norms have been contravened."

This interpretation, however, appears open to debate.

PricewaterhouseCoopers Executive Director Akash Gupt broadly agrees with Emaar MGF, saying: "The intention of a real estate company is to develop the land and not to do agriculture."

But another DIPP document says any such land-holding would not conform to the Rules of the Foreign Exchange Management Act (FEMA), 1999.  "Forget a non-resident, even a non-resident Indian cannot buy agricultural land," said a well-known lawyer who requested anonymity.

The department, however, has also said that FDI can be brought in once the change in land use occurs, which lawyers confirmed.

Emaar MGF has said it is currently converting another 10 per cent, or around 1,254 acres, of its reserves to non-agricultural land.

"The approval process is a well-defined one and the approval for change of land use is normally obtained within three to six months of application," the spokesperson said. "There is no uncertainty on the change of land use, it is only an issue of timing," he added.