Chapter XVII: The Companies (Registered Valuers and Valuation) Rules, 2017

[YAGAY andSUN]

The Companies (Registered Valuers and Valuation) Rules, 2017 were introduced under the Companies Act, 2013, to regulate the process of valuation in corporate matters, specifically related to assets, securities, and liabilities of companies. These rules are a part of the broader framework established to ensure transparency, fairness, and accountability in corporate valuation practices.

The rules also establish the process for the registration of valuers, their qualification, and the conduct of valuation activities, in line with the provisions of the Companies Act. These rules aim to ensure that companies seeking to use the services of valuers do so in a manner that complies with legal and regulatory requirements, thereby improving the reliability of financial information in corporate governance.

Key Provisions of the Companies (Registered Valuers and Valuation) Rules, 2017

1. Objective and Scope

• The primary objective of these rules is to establish a standardized, regulated, and professional system for valuation.
• They apply to the valuation of assets, securities, and liabilities of companies for various purposes under the Companies Act, 2013, including mergers, demergers, amalgamations, takeovers, and other corporate actions.

The scope of these rules covers:

• Registration and regulation of registered valuers.
• Standards of valuation to be followed.
• The methods and processes for conducting valuations of assets.
• Transparency and accountability in the valuation process.

2. Definition of Registered Valuer

• A Registered Valuer is a person or firm who is registered with the Valuation Regulatory Authority (VRA), and is qualified to carry out valuations of assets, securities, or liabilities as per the guidelines and standards set under the Companies Act.
• The rules specify that registered valuers should have the necessary qualifications and experience in valuation, as well as demonstrate their competence to conduct valuations professionally.

3. Valuation Regulatory Authority (VRA)

• The Valuation Regulatory Authority (VRA) is established under the Companies (Registered Valuers and Valuation) Rules, 2017. Its role is to oversee and regulate the activities of registered valuers and ensure that they adhere to the prescribed standards.
• The VRA is responsible for:
  • Registering valuers and granting them a license to practice.
  • Establishing and updating standards for valuation.
  • Monitoring compliance with valuation practices and professional conduct.
  • Regulating the education and training of valuers.
• The VRA ensures that registered valuers comply with the legal and ethical standards while carrying out valuations.

4. Qualification and Registration of Valuers

4.1. Qualifications for Registration

To be eligible for registration as a Registered Valuer, an individual must:

• Hold an Institute of Chartered Accountants of India (ICAI) or Institute of Cost Accountants of India (ICAI) qualification, or a similar professional qualification.
• Have completed a prescribed number of hours of training or education under the guidelines set by the VRA.
• Possess relevant practical experience in the field of valuation.

4.2. Registration Process

The process for registering valuers involves:

• Application submission to the VRA with the required credentials.
• Payment of applicable registration fees.
• Submission of documents evidencing qualifications, experience, and training.

Once approved, the Valuation Regulatory Authority issues the Certificate of Registration to the applicant, authorizing them to practice as a Registered Valuer.

4.3. Renewal of Registration

Valuers must renew their registration periodically (typically every 5 years), and continue to meet the qualifications and experience requirements.

5. Types of Valuers

• Valuers can be registered in one or more of the following areas:
  1. Asset Valuation: This includes the valuation of property, plant and machinery, intangible assets, etc.
  2. Securities or Financial Assets Valuation: Involves valuation of shares, bonds, debentures, and other financial instruments.
  3. Liability Valuation: Involves assessing the liabilities of a company, such as debts, claims, and contingent liabilities.

6. Standards of Valuation

The rules require that registered valuers must follow the valuation standards specified by the Valuation Standards Board (VSB). These standards are developed and updated periodically by the VRA to ensure consistency and accuracy in valuations.

The main standards include:

• Valuation Methods: These should be based on recognized methods such as the market approach, income approach, and cost approach, depending on the type of asset being valued.
• Assumptions and Limitations: Valuers must clearly state any assumptions or limitations under which the valuation is conducted, and ensure that these are reasonable.
• Independence and Objectivity: Valuers must maintain impartiality and objectivity throughout the process. They should avoid conflicts of interest and disclose any potential conflicts to the parties involved.

7. Conduct and Ethics for Valuers

• Registered Valuers are required to adhere to a code of ethics that promotes integrity, objectivity, independence, and transparency in valuation practice.
• The Valuation Regulatory Authority (VRA) has the authority to investigate complaints of misconduct or negligence against valuers. If any malpractices or violations are found, the VRA can impose penalties or revoke the registration of the valuer.

8. Procedure for Conducting Valuation

The procedure for conducting a valuation under the Companies (Registered Valuers and Valuation) Rules, 2017 includes:

1. Engagement: The valuer is engaged by the company or an authorized representative (e.g., board of directors, creditors).
2. Valuation Report: After completing the valuation, the valuer prepares a detailed valuation report. This report should include:
   • Description of the assets being valued.
   • The methods and approaches used for the valuation.
   • Assumptions made during the process.
   • The final valuation outcome (monetary value).
3. Submission: The valuer submits the report to the company’s board or management, and the report may be presented in the relevant legal proceedings, such as mergers, acquisitions, or regulatory filings.

9. Penalties for Non-Compliance

The Companies (Registered Valuers and Valuation) Rules, 2017 provide for penalties in case of non-compliance, including:

• Fines and penalties for failing to register as a valuer, or for practicing without registration.
• If a registered valuer is found guilty of misconduct or negligence, they may face penalties, suspension, or even revocation of registration.

Additionally, a company that uses the services of an unregistered or unqualified valuer may be subjected to legal consequences and penalties under the Companies Act, 2013.

10. Conclusion

The Companies (Registered Valuers and Valuation) Rules, 2017 create a framework for professional valuation services in India, ensuring that valuations are carried out with transparency, reliability, and fairness. By regulating the process of valuation and the conduct of registered valuers, these rules aim to provide stakeholders with accurate and unbiased assessments of assets, securities, and liabilities, which are critical for corporate governance and decision-making.

The establishment of a Valuation Regulatory Authority helps strengthen the credibility and professionalism of the valuation process, promoting confidence in corporate transactions such as mergers, acquisitions, and financial reporting.