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The Corporation has powers to take over the physical possession of assets of defaulting industrial concerns and to enforce its recovery by way of sale of the securities mortgaged/hypothecated to it. These powers are exercised under the provisions of Section-29 of the State Financial Corporations act, 1951 and this method is resorted to only after all efforts to recover the dues of the Corporation by other means have been exhausted. The procedures for sale of assets are described in detail below :-
1. Valuation
The valuation of assets taken over is conducted by an external valuer on the Corporation’s panel of valuers. The external valuer is required to conduct the valuation as per the prescribed scope of work, which is placed at Annexure-1. The external valuation is to be amended every year. If needed, internal valuation is done in specific cases as per guidelines at Annexure-2.
The valuation of the assets reflects a fair price of the assets and the realizable value for the unit, since the valuation is done duly taking into account all the positive or negative factors associated with the unit viz. its location, industry situation, condition of assets etc.
2. Invitation of Offers
The Regional Manager/H.O. release advertisements inviting offers for the purchase of assets of the units. The interested parties can inspect the assets after contacting the concerned District Manager. All intending buyers are to be provided a copy of the terms and conditions of sale as per Annexure-3. Offers are required to be accompanied with earnest money deposit of 10% of the amount of offer by Demand Draft (subject to a minimum of Rs.1.00 lakh).
The offer is to be given in a prescribed format which is available with all District Managers (Annexed at Annexure-4).
The RM/GMs are authorized to finalize the text of advertisements themselves and to release them. The following guidelines are applicable to the release of advertisement:
· The unit may be advertised in the first instance, i.e. after attachment in 1 or 2 local and 1 national daily having good readership.
· Readvertisement may be done normally once in 6 months. The media for readvertisement may be got approved at every successive advertisement
· At the stage of publication of the highest offer in hand, the media may be as under:-
|
Land/land and building |
Local daily having good readership base. |
|
Equipment |
--do— |
|
Entire unit |
local daily and 1 national newspaper. |
In
case need is felt for additional media, RM may seek approval of H.O.
3.
Terms and Conditions of
sale (Annexure-4)
The salient features of the policy in sale of assets are as under:-
I. The Corporation entertains offers for the unit as a whole (i.e. as a project), or for land and building, and plant and equipment separately).
II. Offers are to be made in the prescribed format and should be accompanied with earnest money deposit (non interest bearing) equal to 10% of the amount of offer (subject to minimum of Rs.1.00 lakh).
The earnest money is required to be deposited at the stage of making the offer. At successive stages of negotiation no incremental earnest money is required from the offerer. But at the stage of publishing the highest offer, the balance of 10% earnest money must be secured from the offerer whose offer is decided to be published.
Payment Terms:
Offers for plant and equipment would be accepted only on 100% cash down payment basis.
Offers for land and building and also for entire fixed assets (i.e. for land, building and plant and equipment) may be on the basis of a part of sale consideration being payable upfront (cashdown) and the remaining being payable within a negotiated period. The portion of sale consideration agreed to be deferred shall be charged interest at the prevailing rate of the Corporation. The period of payment of deferred part of sale consideration shall be as per final negotiation as agreeable to the approving authority of the Corporation.
4. Negotiation Process
The negotiations after receipt of offers proceed as under:-
The offers are invited by concerned Regional Manager/H.O. in whose area the said unit is located, and the offers are negotiated by the Regional Manager/Committee constituted at H.O. A second or third negotiation may also be held if offers are found to be inadequate.
a. If the offer does not increase beyond 50% of the valuation, the earnest money may be refunded by the RM, and no approval of H.O. is required.
b. If the offer has come above 50% of the valuation, then the rejection of the offer and refund of earnest money may be recommended by the RM and approval of H.O. obtained.
c. Once a suitable offer has been received, (i.e. an offer having reached at least 80% or above of the valuation), the Regional Manager will get it published in the news paper and solicit offers at least 5% higher than the offer in hand.
d. If a higher offer is received thereafter, the new offerer and the offerer whose offer was published would be invited for the final round of negotiation by concerned Regional Manager who makes his recommendations thereafter.
e. If an offer is received after the last date mentioned in the advertisement in which the highest offer was published by the Corporation, the same shall be entertained as under:
· The new offerer desirous of having his offer considered after close of negotiations, will have to give an undertaking to bid at least 10% higher than the offer in hand.
· The new bid can be considered only when open chance is given to all others.
· The new offerer will be required to tender 10% earnest money deposit with his undertaking.
· A fresh advertisement publishing the new highest bid will be released by PICUP and cost of such readvertisement will be borne by the new entrant in the sale process.
· As it is possible that a new bidder may intervene in a bid with intent to thwart the sale, hence in the event that the highest bidder withdraws his bid, the loss so suffered by PICUP wil be borne by the new bidder. This would be enforced by seeking some easily enforceable security clause such as personal guarantee, etc.
5. Association of Promoters in Sale Process:
With a view to bringing about move transparency in the sale procedure and also ensuring receipt of a better offer from promoters, the promoters shall be informed about the sale by sending them copy of the advertisement by which the highest offer has been published and advising them to introduce a better offer on the date fixed for negotiation.
6. Delegation of Powers for approvals of Sale Proposals:
The sale proposals in prescribed format would be considered and approved at 3 levels:-
(A) General Manager - in cases where the loans outstanding (incl. Those of pari-passu charge holders) are upto Rs.100.00 lakhs and sale offer covers the valuation of assets.
(B) Managing Director – in cases where the loans outstanding are upto Rs.100.00 lahs and sale offer does not cover the valuation of assets.
OR
In cases where the loans outstanding are over Rs.100.00 lakhs and sale offer covers the valuation of assets.
(C) Settlement Committee - in cases where the loans outstanding are over Rs.100.00 lakhs and sale offer does not cover the valuation of assets.
No negotiations are to be conducted until the valuations have been completed. If offers are received in cases where valuation/revaluation is pendng, they may be retained with the consent of the purchaser or may be returned, with the advice in both cases, as to the earliest date when the same can be considered.
7. Issue of Sale Letter:
The letter of sale is issued after approval of competent authority has been obtained.
8. Handing Over of Physical Possession of the Unit:
Once sale consideration or the down payment (as per negotiated terms of payment approved by the PICUP) has been received, the possession of the unit is handed over to the purchaser. If the entire sale consideration is required to be paid upfront, then a sale deed is executed right away with the purchaser. If, however, a portion of sale consideration is deferred, i.e. payable over a span of time, then the rightful title of the assets can not be transferred to the purchaser but he would be allowed to take possession of the unit on depositing down payment and be required to pay interest on the deferred part of sale consideration at the prevailing rate of interest alongwith principal sale consideration under an `Agreement to Sell’. In such cases the purchaser is required to provide the personal guarantees of the directors, partners, etc. alongwith details of their personal assets (networth)
9. Default in making payment of Sale Consideration:
In case of sale on deferred payment basis/terms, the mortgage on the assets existing in favour of the Corporation continues. In the event of default in payment of sale consideration the Corporation has the right to retake possession of the assets after issuance of a notice to purchaser under Section-29 of the State Financial Corporations Act, 1951. In this case, all payments made by purchaser are forfeited by the Corporation. For delays in making payment, the Corporation will charge penal interest over and above the current rate of interest for the defaulted amount and defaulted period.
10. Treatment of Liabilities of the Company whose assets have been sold:
Electricity Dues:
Under the law, the electricity dues of the previous consumer are not to be charged to/collected from the purchaser of assets (Isha Marbles v. Bihar State Electricity Board). The corporation will provide all assistance to purchaser to procure the reconnection of power.
Trade Tax, Excise, Custom etc. Dues
These due are not payable by the purchaser. In case of any difficulty, the Corporation liaises with concerned departments to sort out problems/remove irritants, if any.
Dues of other pari-passu charge holders/second charge holders:
The dues of other pari-passu charge (FIs/Banks) creditors are settled from out of the sale consideration on a prorata basis. The Banks normally have the stock of current assets hypothecated to them by way of a first charge. As the Corporation does not dispose of such current assets under the sale process, the purchaser does not get any right to utilize the current assets. The concerned Banks are advised to remove the current assets charged to them, at the time of handing over possession of fixed assets to the purchaser. If it is not done, the purchaser is required to keep the same in safe custody until the Bank removes such assets from the premises.
11. Refund of Earnest Money
i) If offer does not increase to atleast 50% of the valuation on negotiation, the earnest money may be refunded by the RM and no approval of H.O. is required.
ii) If the offer has come above 50% of the valuation, then rejection of offer and refund of earnest money may be done by RM after recommendation by him and approval of H.O.
12. Forfeiture of Earnest Money:
If the offerer withdraws his bid at any stage prior to negotiation, or the highest tenderer withdraws his bid at any stage before issuance of letter of sale, the earnest money deposited by him shall be forfeited.
ANNEXURE-2
INTERNAL VALUATION GUIDELINES
In supersession of previous circulars regarding
valuation of assets for disposal of units u/s-29, one time
settlement and permission for sale of total assets/part
assets, the updated guidelines shall be as follows :
1) The valuation should be conducted only after the
physical inspection of the assets (to be valued by Tech.
Officer) No valuation can be conducted without inspecting the
assets to be valued.
2) We should assess the fair market value of the assets
which means the value which the assets would fetch, if they
were disposed of in the open market.
A) VALUATION OF LAND:
i) Private land:-
The basis of valuation of land shoud be the circle
rates, rates of the nearby areas, rates taken in the cases of
valuation in recent past, as mentioned in the sale register
with registration authorities and local enquireies. However,
care must be taken as quite often value of the land as
recorded in the sale register may not be actual. The
valuation report should clearly specify the circle rate, the
rate of the sale register (alongwith the location and
distance of the land from the land under valuation) and
details of local enquiries for market rate. The names &
address of the persons who were contacted for local enquiries
for making assessment of land price should also be recorded.
However, following points should also be kept in mind while
making actual assessment of value of land:
a) Specific location, size & shape of the land.
b) Future development plans of the area.
c) Connectivity & Infrastructure facility availability.
d) Rates prevailing in Govt. Indl. area (NOIDA/UPSIDC/DI
ETC.) in the vicinity of land under valuation.
ii) GOVERNMENT/DEVELOPMENT AUTHORITY LAND:
For the land belonging to industrial areas of UPSIDC,
DI or Industrial Development Authorities, the current rate of
the land in that area should be found from the respective
organisation/deptts. and same must be recorded. However many
times it is found that these rates are lower than the market
rates prevailing in that area. Hence with these rates,
market rates must also be invariably recorded and valuation
should be made on the basis of these rates. In case of lower
market value in the area, the guidelines for valuation of
private land be kept in mind and recorded for valuation.
iii) LEASE HOLD LAND:-
There has been some confusion over the valuation of
land which is available to the unit on lease. If the lease
is given by some Govt. Deptt. (like to D.I. etc.), Some Govt.
Corporation (like UPSIDC ETC). OR Govt. Industrial
Development Authorities (like NOIDA, Greater NOIDA etc.) then
the valuation of the land should be done on the basis of
current rates (please see para (ii) above irrespective of the
remaining period of lease.
However, if the lease is from private person/bodies the
ramaining period of lease would be an important factor in
evaluating the land. Following discount may be taken for
balance lease period available :
Perpetual lease - full value
More than 60 yrs. - -do-
30-60 yrs. - 25% discount
10-30 yrs. - 50% discount
Less than 10 yrs. - 90% discount
However, it is important to find out as to who is the
lessor/title holder of the land. If a
partner/proprietor/promoter director (whose personal
guarantee has been taken)/guarantor is the lessor/title
holder of land, the land be considered to be available as
free hold if it is assigned/mortgaged to the corporation (as
by invoking the personal guarantee the land can be attached
and sold freely). In such cases full market value of the
land can be taken in the valuation.
B) VALUATION OF FACTORY BUILDING :
i) The basis for valuation of the building is the average
useful life of the factory building which has to be assessed.
Normally for industrial buildings this could be taken around
25 to 30 years. On the basis of this useful life and some
residual value, depreciation @ 5% per year (By W.D.V. method)
may be taken on the present gorss cost of the building
construction as per the prevailing rates approved by the
Corporation.
ii) If the factory building has been constructed on the
land available on lease from private persons/bodies, full
value as per our current rates should be taken in the
valuation provided the remaining lease period of the land is
more than 10 years. If a partner/proprietor/promoter
director (whose personal guarantee has been taken)/guarantor
is the lesssor/title hoder of land, the land be considered to
be available as free hold if it is assigned/mortgaged to the
corporation. However, in case the remaining lease period of
the land is less than 10 years and neither personal guarantee
of lessor/title holder of the land is available nor is it
assigned/mortgaged to the Corporation, then it may not be
possible to get full value of the building. In that case 50%
discount may be taken for 10 years and further 5% decrease
per year for subsequent years.
iii) If any part of the building has damaged significantly
(i.e. beyond normal deterioration) a realistic assessment of
the same must be made as per the current rates. The details
of this should be clearly mentioned in the valuation report.
Proper justification for allowing deduction must be given
clearly. These deduction should be made from the present
gross value of the building construction as per the current
rates before allowing depreciation.
iv) The rates for part construction of building shall be
considered on the basis of following break up :
i) Upto plinth 10%
ii) Brick work in super structure 16%
upto lintel level
iii) As above but upto roof level 14%
iv) Roofing 24%
v) Flooring 7%
vi) Wood work 18%
vii) Internal finishing 7%
viii) External finishing 4%
------
Total : 100%
------
v) Realisable value of building :
It has been observed that reasonable offers are not
available for the units of slow moving and very slow moving
areas because of the fact that the offer is compared to the
valuation of the assets which is being done as per prevailing
norms of the Corporation. For example, value of a building
at NOIDA and value of another building of similar
construction and covered area at Selakui, will be the same as
per our norms. But while building at NOIDA may fetch close
to 100% of its valuation or even more it may not fetch half
of its value at Selakui due to locational disadvantage &
other several reasons.
Hence it is felt that for the units of slow moving and
very slow moving areas, there should be some indicative
guidelines to spell out some optimum realisable value for the
assets particularly for building of the unit.
Hence while assessing realisable value, officer making
valuation will use his common prudence and will record
specific reasons, if assessement of realisable valuation is
on lower side within the given range :
REALISABLE VALUE
i. FAST MOVING AREA 100% of the normal valuation.
ii. SLOW MOVING AREA 85% of the normal valuation.
iii. VERY SLOW MOVING AREA 75% of the normal valuation.
NOTE :
i) Assessment to be done as per suggestive remarks in the
preceding para.
ii) RRV to be taken after calculating dep. value.
C) VALUATION OF PLANT & MACHINERY
The valuation of plant & machinery depends upon so many
factors, such as :
- Whether there is any case of technological obsolescence
- Whether there is any reduction in the price of plant &
machinery since installation of these machines.
- What is actual condition of plant & machinery, i.e.
Whether critical/crucial parts of the machines have
lost their accuracy and workability.
- Whether major parts are missing.
- Whether dies and moulds(as the case may be) are really
suitable and marketable.
- Whether currently same machines are being sold with
more accessories and technological upgradation.
- Whether any particular industrial sector is passing
through a bad phase/recession, etc.
- Loss of facility of Sales Tax exemption.
- Loss of opportunity of warranty which is normally
available to new machines.
In case of imported machines, the valuation shall also
depend on the following factors :-
- Variation in Landed value ( in foreign currency).
- Variation in currency exchange rate
- Variation in customs duty
i) Ideally the value of machines should be the replacement
value but looking to the various factors as mentioned above
and the fact that the escalation in prices of machines for
the last 4/5 yrs is generally insignificant due to
competitiveness, parctically the bill value of the machines
can be considered, hence base of value for arriving at
saleable prices, in case of imported m/cs., the pre-
depreciated base-value will be calculated considering
original bill value & above mentioned parameters.
ii) In case a particular machine is damaged or some parts
are missing then a realistic assessment should be made to the
repair cost and the current value of missing parts. The
present value of missing parts should be reduced from the
base value of the plant & machinery before allowing the
depreciation.
iii) The depreciation rate would be 10% per annum (by W.D.V.
method) for normal plant & machinery, 15% for those parts of
plant & machinery which are in regular contact with
liquid/corrosive chemicals and 20% in cases of fabricated
furnaces and dies & moulds. The Gen. Sets be depreciated @
10% before the date of possession of the unit and @ 5% after
the date of possession of the unit.
iv) It only the plant & machinery of a unit is proposed to
be sold (and not the land & building) only bare cost of plant
& machinery should be considered. However if the entire unit
i.e. land, building & plant & machinery is proposed to be
disposed of, installation and transportation charges etc.
should also be considered for the valuation.
v) If certain vital parts or plant & machinery have badly
damaged beyond repair and the machinery has been rendered
useless as in the case of furnaces made of civil work and
refractory, etc., the scrap value of the same may have to be
considered for the valuation. In such cases a team of 2
Tech. Officers will make the valuation.
vi) Consideration may also be given if the plant & machinery
has become totally obsolete and operationally uneconomical
and uncompetitive, as in the case of computers etc. In this
case also a team of two technical officers will made this
valuation.
D) OTHER FIXED ASSETS :
i) Generating Sets/Pump/Boiler/Transformer etc. be
assessed as plant & machinery.
ii) Civil Constructions be valued as per building.
iii) Furniture & fixtures be valued as plant & machinery.
GENERAL :
i) Valuation as conducted above shall remain valid for a
period of one year from the date of valuation. After one
year, fresh valuation would have to be conducted. However in
between if there is a significant increase in the market
value of land (in case of land of UPSIDC/DI/Indl. Dev.
Authority, these institutions/Deptts may also revise price of
land) or plant & machinery or rates of construction are
modified by the Corporation, the valuation would have to be
corrected/modified accordingly.
ii) Valuation of D-II category & those cases where
sanctioned amount is above Rs. 50.00 lakhs, should be done by
a team of at least 2 Tech. Officers.
Annexure-3
TERMS
& CONDITIONS FOR SALE OF ASSETS OF
UNITS ATTACHED
U/S 29 OF SFC'S ACT, 1951
PRESALE
CONDITIONS
1- The assets of units are available for sale on `As is
where is basis'.
2- Interested parties are invited to submit their
offer(s) in sealed cover so as to reach the
Sr.Manager (Technical), PICUP Head Office, or the Sr.
Regional Manager,Noida,PICUP (as the case may be),on
or before the date mentioned in the advertisement
for sale of unit. The offer should be accompanied
with detailed background of the purchaser company,
its directors/ partners/proprietor, particulars of
net worth with details of personal assets of
promoters/directors/ partners and liabilities.
3- The offer should be accompanied by a Demand Draft
equivalent to 10% of the amount of offer, (subject to
minimum of Rs. 1,00,000) in favour of 'PICUP'
payable at Lucknow as earnest money and the
envelope containing the offer should be superscribed
with the words `Offers for (Name of the Industrial
Unit)'. No interest is payable by the Corporation
on the earnest money.
4- The offered sale consideration may be on 100% cash
down basis. In case the offer is on part cash down
& part deferred payment basis, the deferred
portion of sale consideration will carry interest at
the prevailing rate and payable as per a mutu-
ally agreed schedule.
5- Interested parties may also submit their offer for
Land & Building and Plant & Machinery (including
Misc. fixed assets) separately. In case of offers
for purchase only of plant and machinery (including
miscellaneous fixed assets), the sale price will be
required to be paid 100% cash down.
6- If the offer is accepted by the Corporation and
offerer does not come forward to make the agreed
downpayment within stipulated time as mentioned in
the sale letter, the offer shall stand rejected and
the amount deposited towards earnest money shall be
automaticaly forfeited without any notice.
7- The Corporation reserves the right to accept any
offer or to reject all or any of them without
assigning any reason.
8- The unit can be inspected by prior arrangement with
the converned District Manager at Head Office of PI
CUP, Gomti Nagar, Lucknow (Tel.: 0522-2720798,803,805,
FAX-0522-2720792); or the Regional Manager (Noida),PICUP
Regional Office,B-35, Sector-14, NOIDA. (Tel. 0120-
2512624,2516691;FAX:0120-2510039)for units located in
Noida, Ghaziabad, Gautam Budh Nagar, Bulandshahr, and Meerut.
POST SALE
CONDITIONS (applicable to sale
on deferred
payment basis):
1. The purchaser will not remove from site, transfer,
sell or otherwise dispose of or encumber the plant
and machinery and other assets without prior
approval of PICUP in writing.
2. The purchaser will repair and keep the assets in
good working condition and shall get the same
insured in joint names of PICUP and itself as per
norms of the Corporation and will deposit the cover
note with the Corporation.
3. In case the purchaser is a company within the
meaning of the companies Act, 1956, the Corporation
will have a right to nominate one Director at least
on the Board of the purchaser company in case the
sale is on deferred payment basis.
4. The Corporation will have a right to inspect the
factory with or without prior appointment and will
have a right to call for any statements, periodical
returns, or financial details in connection with the
working of the unit.
5. The assets of the unit shall remain
hypothecated/pledged/mortgaged/assigned in favour of
the Corporation until the full/final realization of
the dues in respect of the deferred portion of sale
consideration.
6. In case of breach of any terms and conditions or
default in payment of the balance outstanding
amount, the Corporation will have the right to
initiate recovery proceedings by way of taking over
the assets under Section 29 of the SFC's Act, 1951
or by issuing a Recovery Certificate against
purchaser or through any other remedy available as
per SFC Act or otherwise.
7. In the event of default in making payments of
interest/instalments of deferred sale consideration,
an additional interest @ 2.5% p.a., by way of
penal interest, would be charged on the defaulted
amount and for the defaulted period, over and
above the prevailing rate of interest.
8. The directors/promoters of the purchaser company
shall furnish irrevocable personal guarantee for
payments of interest and instalments of Sale
Consideration on due dates.
9. In the event of default in making payments of any
interest or deferred instalments or total sale
consideration as stipulated in sale letter, or
payments against bills raised by PICUP, if any,
PICUP reserves the right to cancel the sale and
forfeit the amounts already deposited.
10. The cost of stamp duty and sale deed shall be borne
by the purchaser.
GENERAL
1. The Corporation shall not bear any liability
whatsoever in respect of the assets being sold. As
far as old power dues of UPSEB are concerned, the
Hon'ble Supreme Court has laid down the law in its
judgement in the case of M/s. Isha Marbles Vs Bihar
State Electricity Board (1995) 2 SCC that the
auction-purchase is not liable to pay the old
electricity dues of the old previous consumer/owner
of assets.
2. Offers found suitable on a preliminary scrutiny would
be taken up by a Negotiation Committee of the
Corporation constituted for the purpose and the
parties making such offers may be invited to appear
before such committee for negotiation on a day and
time notified in writing.
3. The Corporation may postpone the date of sale at its
discretion by an order pasted on the Notice-Boards
in its offices.
4. The highest negotiated offer will be readvertised
and offers at least 5% higher shall be invited by
the Corporation. Opportunity will be allowed to the
highest bidder to match or better the new offer so
received and a negotiation may be held. After close
of final negotiation no fresh offers would be
entertained.
Annexure 4
FORMAT FOR MAKING OFFER FOR PURCHASE OF ASSETS UNDER
S.29, SFCs ACT,1951
The Regional Manager/ The Senior Manager
Pradeshiya Industrial & Investment Corporation
of U.P.Ltd.,
B-35, Sector 14, Noida/ PICUP Bhawan,
Gomti Nagar,
Lucknow
Dear Sir,
SUB:REQUEST FOR PURCHASE OF ASSETS OF M/S_________________________
I am submitting an application for purchase of fixed assets of the unit, alongwith Bank Draft no. _______
dated_________ draw on _____________________ for Rs.______________, being 10% of the amount of offer /
Rs.1,00,000/- (whichever is higher) towards earnest money. I am submitting the offer after having gone through
the TERMS AND CONDITIONS OF SALE prescribed by the PICUP, which are acceptable to me/us.
The particulars of the offer/ offerers are as under:
A. Amount of offer:
B. Payment Terms
C. Name of offerer (Individual/Firm/Company)
D. Address
E. Phone Nos./Fax Nos.
F. Details of Partners/Directors (append sheets)
Name and Age Educ.Qual. Experience Details Details
Address of Immovable Movable
Property Property
____________________________________________________________________
We have authorized Shri ____________________ to negotiate on our behalf. His signatures are attested below:
Yours faithfully,
( )