Valuation by registered valuers
Section 247 of the Companies Act, 2013(‘Act’ for short) provides for the valuation by registered valuers. Section 247 (1) provides that where a valuation is required to be made in respect of any-
- property;
- stocks;
- shares;
- debentures;
- securities; or
- goodwill or
- any other assets; or
- net worth of a company; or
- the liabilities under the provisions of this act,
it shall be valued by a person having such qualifications and experience and registered as a valuer in such manner, on such terms and conditions as may be prescribed.
Valuation report from a registered valuer under the Act
The Act requires the valuation reports from the registered valuer in the following cases-
- Section 62(1)(c) - Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares are offered to any person, if it is authorized by a special resolution, whether or not those persons include the persons, referred to in clause (a) or clause (b, either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer subject to such conditions as may be prescribed;
- Section 192(2) - Valuation of Assets Involved in Arrangement of Non cash transactions involving Directors - The notice for approval of the resolution by the company or holding company in general meeting under sub-section (1) shall include the particulars of the arrangement along with the value of the assets involved in such arrangement duly calculated by a registered valuer.
- Section 230 (2)(c)(v) – Sanction of scheme – a a valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable, of the company by a registered valuer;
- Section 230(3) - Where a meeting is proposed to be called in pursuance of an order of the Tribunal under sub-section (1), a notice of such meeting shall be sent to all the creditors or class of creditors and to all the members or class of members and the debenture-holders of the company, individually at the address registered with the company which shall be accompanied by a statement disclosing the details of the compromise or arrangement, a copy of the valuation report, if any, and explaining their effect on creditors, key managerial personnel, promoters and non-promoter members, and the debenture-holders and the effect of the compromise or arrangement on any material interests of the directors of the company or the debenture trustees, and such other matters as may be prescribed;
- Section 232(2)(d) - Where an order has been made by the Tribunal under sub-section (1), merging companies or the companies in respect of which a division is proposed, shall also be required to circulate the following for the meeting so ordered by the Tribunal, namely the report of the expert with regard to valuation, if any;
- Section 232(3(h) - The Valuation report to be made by the tribunal for exit opportunity to the shareholders of transferor Company –Under the scheme of Compromise/Arrangement in case the Transferor company is Listed Company and the Transferee-company is an unlisted Company;
- Section 236(2) – Purchase of minority shareholding - The acquirer, person or group of persons under sub-section (1) shall offer to the minority shareholders of the company for buying the equity shares held by such shareholders at a price determined on the basis of valuation by a registered valuer in accordance with such rules as may be prescribed;
- Section 260(2)(c) - Powers and duties of company administrator – The Company administrator may be caused to prepare a valuation report in respect of the shares and assets in order to arrive at the reserve price for the sale of any industrial undertaking of the company or for the fixation of the lease rent or share exchange ratio;
- Section 281 (1) - Valuing assets for submission of report by liquidator;
Rules
For the purposes of carrying out the provisions of section 247 of the Act, the Government floated draft rules, viz., the Companies (Registered Valuers and Valuation) Rules, 2017 (‘Rules’ for short) for the comments of the stakeholders. The Rules is having 5 chapters, 20 rules and 3 schedules. The rules prescribe-
- eligibility, qualifications and registration of valuers;
- recognition of valuation professional organizations;
- valuation standards;
- disciplinary proceedings.
A person shall practice as registered valuer only after obtaining a certificate of registration.
Effective date
The Rules shall come into force with effect from 15.07.2017.
Registered Valuer
Rule 2(1)(f) defines the expression ‘registered valuer’ as a valuer registered with the Registration Authority under Rule 7(6) for carrying out valuation of assets belonging to a class of classes of assets.
Registration Authority
Rule 2(1(g defines the expression ‘registration authority’ as the Insolvency and Bankruptcy Board of India established under the Insolvency and Bankruptcy Code, 2016.
Appointment of registered valuer
Section 247(1) provides that the registered valuer shall be appointed by the Audit Committee or in its absence by the Board of Directors of that company.
Eligibility
Any individual shall be eligible to be a registered valuer if he has passed the valuation examination in the three years preceding the date of making an application. If an individual has completed 50 years of age and has been substantially involved in at least 10 valuation assignments of the assets (for valuation of which class of assets he is seeking registration amounting to ₹ 5 crores or more, during the 5 years preceding the commencement of these rules, he shall not be required to pass the valuation examination.
Disqualifications
The following are the disqualifications prescribed for not becoming a registered valuer-
- if the applicant is a minor;
- he has been declared to be of unsound mind;
- he is an undischarged bankrupt, or has applied to be adjudicated as an bankrupt;
- he is a person of nonresident in India;
- he has been convicted by any competent court for an offence punishable with imprisonment for a term exceeding 6 months or for an offence involving moral turpitude, and a period of five years has not elapsed from the date of expiry of the sentence.
- he has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more;
- he is not a valuer member, holding certificate of practice, of a valuation professional organization; or
- he isnot a fit and proper person.
The following are the disqualifications prescribed for the partnership entity-
- it has incurred any of the following disqualifications-
- is a person non resident in India;
- has been convicted by any competent court for an offence punishable with imprisonment for a term exceeding 6 months or for an offence involving moral turpitude, and a period of five years has not elapsed from the date of expiry of the sentence.
- has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more;
- is not a valuer member, holding certificate of practice, of a valuation professional organization; or
- is not a fit and proper person;
- it is undergoing an insolvency resolution or bankruptcy process or is an undischarged insolvent;
- any of its partners have incurred the following disqualifications-
- if the applicant is a minor;
- he has been declared to be of unsound mind;
- he is an undischarged bankrupt, or has applied to be adjudicated as an bankrupt;
- he is a person of nonresident in India;
- he has been convicted by any competent court for an offence punishable with imprisonment for a term exceeding 6 months or for an offence involving moral turpitude, and a period of five years has not elapsed from the date of expiry of the sentence.
- he has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more;
- he is not a valuer member, holding certificate of practice, of a valuation professional organization; or
- he isnot a fit and proper person.
- if majority of its partners practicing in India are not registered valuers; or
- if none of its partners is a registered valuer for the class of assets, for the valuation of which it seeks to be a registered valuer.
Fit and proper person
The explanation to Rule 5(1) provides that for determining whether an individual is a fit and proper person under these Rules, the Registration Authority may take account of any relevant consideration, including but not limited to the following criteria-
- integrity, reputation and character;
- absence of convictions and restraint orders; and
- competence, including financial solvency and net worth.
Qualifications and experience
An individual shall have the following qualifications to be eligible for registration under this Rules-
- post graduate degree, in the specified discipline, from a University established, recognized, incorporated by law in India and at least 3 years of experience in the discipline thereafter; or
- a Bachelor’s degree kin the specified discipline, from a University established recognized or incorporated by law inIndia and at least five years of experience in the discipline thereafter; or
- membership of a professional institute set up under an Act of Parliament and at least 5 years’ experience after such membership.
Specific discipline
Specific discipline means the specific discipline which is relevant for the valuation of the class of asset for which registration is sought and a valuation professional organization recognized under these rules.
Valuation examination
The Registration Authority shall, either on its own or through a designated agency, conduct a Valuation Examination to test the knowledge, practical skills and ethics of individuals in respect of valuation.
The Registration Authority shall, on the recommendations of a Committee of Experts constituted by it, determine the syllabus of valuation Examination.
The format and frequency of the Valuation Examination, including qualifying marks, shall be published on the website of the Registration Authority at least 3 months before the examination.
A person who passes the Valuation Examination shall receive acknowledgement of passing the examination.
A person may appear for the Valuation Examination any number of times.
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