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:-

• 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).
• 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.

• 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.
• 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.
• 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.
• 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.
• 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

• 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.
• 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

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 :

Sr. No.	Subject	Status
i)	Upto plinth	10%
ii)	Brick work in super structure upto lintel level	16%
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 mutually 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 inNoida, 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.

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.

5. 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.
6. 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.
7. The directors/promoters of the purchaser company shall furnish irrevocable personal guarantee for payments of interest and instalments of Sale
   Consideration on due dates.
8. 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.
9. 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 _________________________
Age _________________________
Educ.Qual. _________________________
Experience _________________________
Details of Immovable Property _________________________
Details of Movable Property_________________________

__________________________________________________

We have authorized Shri ____________________ to negotiate on our behalf. His signatures are attested below:

Yours faithfully,

(          )