The background here is that, regardless of Indian law, the IRS will view the transaction under US tax law. This can sometimes result in very different tax treatment between two countries. (For example, I understand that at least sometimes in India, a seller will get an inflation adjustment to the cost basis. The US does not allow this.) I also don't know if the rules for depreciation and recapture are the same or different between the US and India. If you don't do the section 1031 exchange exactly correctly, you will pay capital gains tax on the sale of property #1 this year. (Of course, that would mean that you would pay less capital gains tax in the US when you sell property #2, because property #2 will not carry the deferred gain from property #1, at least in the US.). You may want to hire a professional tax advisor.
