Govt must withdraw orders on transfer of SEZ units' assets

In a puzzling move, the Commerce Ministry has issued instructions for transfer of physical and financial assets of units in Special Economic Zones (SEZ) that opt to exit from the SEZ to another entity eligible to set up a SEZ unit. The procedures envisage engagement of an independent valuer by the SEZ Authority to assess the current value of the physical assets as well as financial assets, in the nature of unutilized portion of any upfront lump-sum payment by way of premium, advance lease rentals etc. made by the exiting unit to the SEZ developer.
 
The instructions detail the pre-conditions to be fulfilled by the outgoing unit and the potential buyer/bidder, the documents to be submitted by the outgoing unit, the formula to be adopted by the valuer for arriving at the value of financial assets, the essential conditions to be incorporated in the e-auction to be conducted by the SEZ Authority, the bid-variable and base price for the e-auction, the basis for deciding the successful bidder, the time limit for completing the e-auction process and transfer of physical assets to the incoming unit and financial assets to the outgoing unit etc.

 
The SEZ laws allow the developers to only lease (not sell) the plots or standard design factories (SDF) to the SEZ units. So, many developers have collected lump-sum amounts upfront (based on the market value of the plot/SDF) as development charges, consideration for leasing the property etc. and charge only a nominal rent besides maintenance charges periodically. Some have taken a refundable deposit and charge rent at market rates.  Various types of lease agreements contain different clauses dealing with transfer of the physical assets such as surrender of the plot/SDF back to the developer at the time of exit or payment of a transfer fee to the developer or taking a ‘no objection certificate’ from the developer etc.

 

Most SEZ units invest heavily in construction or upgrading the physical facilities after taking the plot/SDF from the SEZ developers. The selling units and potential buyers understand the value of such assets better.  Also, when taking the plot/SDF on lease, many units pay almost the full market value of the assets to the developer upfront. The value of such physical assets might have gone up substantially over the years. Any number of factors may influence a seller to prefer a buyer and sell his assets at a particular price/consideration. The government need not interfere to say that the buyer or price should be decided through an e-auction and that too conducted by the SEZ authority.

 
The new procedures envisage no role for SEZ developers. That may not be acceptable to many developers whose lease agreements with the SEZ units envisage transfer fee or surrender of the plot/SDF back to the developer.
 
The need for a valuer is also difficult to understand when the base price for auction is based on the price agreed between the existing unit and the pot­ential buyer. Also, a calculator, instead of valuer, is enough for arithmetically wor­king out the value of original consideration proportionate to the remaining period of lease. The government must withdraw its instr­uctions and only facilitate transfer of assets on the basis of the agreements between the sellers and buyers and terms of lease. It should not interfere with the market mechanism.

 email:tncrajagopalan@gmail.com