A court in India's northeastern state of West Bengal has ruled the state's government acted legally in taking back 400 hectares of agricultural land purchased by Tata automaker to build a new car factory.

The Kolkata High Court upheld a law passed in June allowing the state government to reclaim the land allotted for Tata to make what has been touted as the world's cheapest car, the Nano. West Bengal's government has pledged to hand the land in the town of Singur back to local farmers.

The court also ruled that all equipment should be moved out of the factory within two months and the company should seek compensation.

The factory, which Tata says was nearly complete at a cost of almost $400 million, was abandoned in 2008 after violent protests by farmers who said they were not properly compensated. The automaker then shifted production to the western state of Gujarat.

The case has become a symbol of the growing conflict between farmers and industry. Farmers complain that governments often take over their land for very low prices under India's archaic land acquisition laws and hand it over to private companies for lucrative projects.

Industry complains that the biggest hurdle to expansion in a fast growing economy is to find land for new factories.

Earlier this month, the government in New Delhi introduced a new land-acquisition bill in parliament, under which the government will only be able to acquire land if 80 percent of the affected families agree to sell. If passed, the bill will also raise compensation for farmers several times over the market value.