The International Finance Corporation (IFC) - a member of the World Bank Group - said its accountability office decided to probe the project, run by Amalgamated Plantations Private Limited (APPL), after charities complained that tea pickers were being exploited.
"The Compliance Advisor Ombudsman (CAO) has announced an investigation into whether IFC followed its policies and procedures in the case of APPL," said an IFC statement emailed to the Thomson Reuters Foundation in response to questions.
"IFC takes all concerns in relation to its investments/projects that are expressed by stakeholders and affected communities seriously."
Both Tata Global Beverages and APPL have denied any violation of workers rights. APPL said it would extend full cooperation to the CAO probe.
"We at APPL look after our workers and are compliant with the law," Kaushik Biswas, APPL's company secretary, said in an emailed statement.
"Wages are paid as per industry agreements. Cash wage plus benefits total up to 189 rupees per man day. Working hours are as specified in the Plantations Labour Act, 1951," he said.
APPL was set up in 2009 to acquire and manage tea plantations previously owned by Tata Global Beverages - which owns Tetley, the second largest tea brand in the world.
The IFC's $7.8 million involvement in the $87 million "Tata Tea" project was aimed at promoting the idea of shareholder workers and helping to create more than 30,000 permanent jobs.
Tata Global Beverages took a 41 percent stake in APPL and the IFC took 20 percent, with the remainder held by workers and smaller firms.
"LONG WORKING HOURS, UNSAFE PESTICIDES"
Three non-governmental organisations complained to the CAO in February last year about alleged worker violations in three of APPL's 24 plantations.
The complaint cited long working hours, inadequate compensation and poor health conditions, including the unsafe use of pesticides. It said there is restricted freedom of association among workers and barriers to voicing grievances.
Productivity targets are so difficult to meet, it said, that tea pickers engage other family members, including children, to receive a single wage.
The charities also questioned the share-buying program, saying workers were being pressured into buying shares, often without proper information about the investment risks.
"We invite the investigation team to see with their own eyes that nothing has changed on the plantations since the World Bank got involved," said Stephen Ekka, director of PAJHRA, one of the charities which complained to the CAO.
"The supposedly ethical and sustainable Tata company continues to make large profits from the mistreatment and exploitation of plantation workers. This cannot continue."
Tata Global Beverages said in a statement denying the charges that it is committed to the fair and ethical treatment of workers.
"Regarding the specific complaints made, the APPL management has let us know .. they treat their workers fairly and in compliance with all legal norms, and their employees receive benefits over and above many other tea plantation companies in India," the statement said.
A damning report on the project by Columbia University earlier this month said tea pickers faced "dire living and working conditions, in violation of Indian law and the World Bank's standards for environmental and social sustainability."
The report, "The More Things Change: The World Bank, Tata and Enduring Abuses on India's Tea Plantations" is written by Prof. Peter Rosenblum at Columbia Law School's Human Rights Institute and is based on three years of research and visits to 17 of APPL's plantations.