RECOGNITION OF VALUATION PROFESSIONAL ORGANIZATIONS UNDER DRAFT COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017

[Mr. M. GOVINDARAJAN]

Introduction

Rule 2(1)(e) of the Companies (Registered Valuers and Valuation) Rules, 2017 (‘Rule’ for short) defines the expression ‘valuation professional organization’ as  a valuation professional organization recognized under Rule 13(5).  The following rules dealt with recognition of valuation professional organization (‘VPO’ for short)-

• Rule 12 – Eligibility for valuation professional organizations;
• Rule 13 – Application for recognition;
• Rule 14 – Refusal to grant registration;
• Rule 15 – Conditions for recognition.

Eligibility

Rule 12(1) prescribes the eligibility to recognize an organization as a VPO for valuation of a specific class or classes of assets of valuation.  The eligibility criteria are of two types – one is before the appointed date i.e., before 01.04.2017 and the other is after the appointed date.

An organization becomes eligible for recognition as a VPO on the appointed date if it has been-

• set up under an Act of Parliament; or
• registered under section 25 of Companies Act, 1956 or section 8 of Companies Act, 2013; or
• registered as a society under the Societies Registration Act, 1860 or any relevant State law, or;
• set up as a trust governed by the Indian Trust Act, 1882.

An organization established after the appointed date i.e., 01.04.20q7 shall be recognized only if it is registered under section 8 of the Companies Act, 2013 and has bye laws and governance structure as specified in Schedule III.  As per these provisions, the three professional institutes can be recognized as VPO.

Governance structure

Part I of the Schedule III provides the Governance structure for a VPO.  This part contains the following topics-

• Governance Structure;
• VPO to have bye-laws;
• Amendment of bye-laws;
• Composition of the Governing Board;

 The following are required for a VPO under Governance structure-

• its sole object is to carry on the functions of an VPO under the Companies Act, 2013;
• it is not under the control of person(s) resident outside India;
• not more than 49% of its share capital is held, directly or indirectly, by persons resident outside India; and
• it is not a subsidiary of a body corporate through more than one layer (in relation to a body corporate means its subsidiary);
• itself, its promoters, its directors and persons holding more than 10% of its share capital are fit and proper persons.

VPO to have bye-laws

The VPO shall submit to the Registration Authority its bye-laws along with the application for its registration as a VPO. The bye laws shall provide for all matters specified in the model bye laws in Part II of Schedule III.  The bye laws shall at all times be consistent with the model bye laws.  The VPO shall publish its bye-laws, the composition of all committees formed and all policies created under the bye-laws on its website.

Amendment of bye-laws

The Governing Board may amend the bye-laws by a resolution passed by votes in favor  being not less than 3 times the number of the votes, if any, cast against the resolution, by the directors.  A resolution passed shall be filed with the Registration Authority within 7 days from the date of its passing, for its approval.  The amendments to the bye-laws shall come into effect on the 7^th day of the receipt of the approval unless otherwise specified by the Registration Authority.  The VPO shall file a printed copy of the amended bye-laws with the Registration Authority within 15 days from the date when such amendment is made effective.

Governing Board

Rule 4 provides for the constitution of the Governing Board by a VPO.  The following are the points to be noted in composition of the Governing Board-

• The Governing Board shall have a minimum number of directors as fixed by the Board;
• More than 50% of the directors shall be persons resident in India at the time of their appointment, and at all times during their tenure as directors; (more than 50% shall be rounded off to the next higher number)
• Not more than 25% of the directors shall be the valuation professionals; (not more than 25% shall be rounded down to the next lower number)
• More than half of the directors shall be independent directors at the time of their appointment, and at all times during their tenure as directors;
• No meeting of the Governing Board shall be held without the presence of at least one independent director;
• An independent director shall be an individual-

• who has expertise in the field of finance, law, management or valuation;
• who is not a valuation professional;
• who is not a shareholder of the VPO; and
• who fulfills the requirements of Section 149(6) of the Companies Act, 2013;

• The directors shall elect and independent director as the Chairperson of the Governing Board.

Obligation of a VPO

The following are the obligations imposed under Rule 12-

• to conduct an examination for the individuals who are its members or intend to be its members and, as applicable, possessing qualifications in specific discipline with regard to valuation of specific class of assets for which it is recognized as a VPO before granting membership or certificate of practice to them;
• to grant membership or certificate of practice, to individuals or partnership entities, who fulfill the requirements laid down by it in this regard, in respect of valuation of class of assets for which it is recognized as a VPO;
• to conduct training for the individual members before a certificate of practice is issued to them;
• to lay down a code of conduct for valuers who are its members, which includes all the provisions specified in Schedule I;
• to provide for continuing education of individuals who are its members;
• to monitor and review the functioning, including quality of service, of valuers who are its members; and
• to have a mechanism to address grievances and conduct disciplinary proceedings against valuers who are its members.

Application for recognition

Rule 13 provides the procedure for getting recognition as a VPO.  The following is the procedure involved for an organization to get recognition as a VPO-

• An applicant organization which meets the conditions specified may make an application for recognition as a VPO for specific class or classes of assets to the Registration Authority in Form D of the Schedule II.The Form D contains an application and five parts as detailed below-

• Name and address of the applicant and the classes of assets for which recognition is required,is to be furnished;
• Copies of the articles of association, memorandum of association, trust deed, bye-laws and code of conduct, as applicable are to be enclosed;
• The applicant is to affirm that the applicant is eligible to be recognized as a VPO for the classes of assets;
• Part I contains general information of the applicant such as name, address, CIN, details of authorized person to make the application and to correct with the Authority;
• Part II requires to provide the details of the applicant’s form of establishment, ownership structure and governance structure;
• Part III requires to provide the details of-

• Number of members who practice valuation already registered with the applicant;
• Specific discipline;
• Other criteria/qualifications for and manner of registration with the applicant;
• Details of any examination conducted for recognition of members with the applicant;
• Details of the requirements of continuous education of the applicant’s members;

• Part IV requires to state if the Code of Conduct of the applicant is in compliance with the Rules and to specify the clause number of provisions of the Code of Conduct which are in addition to the provisions of the model Code of Conduct prescribed in Rules.
• Part Vrequires to provide the details of-

• mechanisms employed by the applicant to monitor its members;
• mechanisms employed by the applicant to redress grievances against its members and itself;
• disciplinary mechanisms employed by the applicant; and
• any other as consider relevant in support of the application.

• The Registration Authority shall examine the application and give an opportunity to the applicant to remove the deficiencies, if any, in the application;
• The Registration Authority may require the applicant to submit, within reasonable time, additional documents or clarifications that it deems fit;
• The Registration Authority may require the applicant to appear, within reasonable time, before the Authority through the Authorized representative for explanation or clarifications required for processing the application;
• If the Registration Authority is satisfied, after such scrutiny, inspection or inquiry as it deems necessary that the applicant is eligible under these Rules, it may grant a certificate of recognition as a VPO in Form E of Schedule II.

Refusal to grant recognition

Rule 14 provides that if the Registration Authority is of the prima facie opinion that recognition ought not to be granted, it shall communicate the reasons for forming such an opinion within 45 days of receipt of the application.  This time given by the Authority for removing the deficiencies, presenting additional documents or clarifications, or appearing through authorized representative is to be excluded.

The applicant shall submit an explanation as to why its application should be accepted within 15 days of the receipt of the communication to enable the Authority to form a final opinion.

After considering the explanation, if any, the Authority shall communicate its decision to-

• accept the application, along with the certificate of registration; or
• reject the application by an order, giving reasons thereof

within 30 days of receipt of explanation.

Cancellation of recognition

Rule 15 provides that the recognition shall  be subject to the conditions that VPO shall-

• at all times continue to satisfy the requirements under Rule 12;
• maintain a register of members who are registered valuers, which shall be publicly available;
• make such reports to the Registration Authority as may be required by it;
• comply with any directions, including with regard to examination to be conducted by VPO issued by the Authority;
• be registered as company under section 8 of the Act with governance structure and bye laws within a period of one year from the commencement of these Rules, if it not a body set up under an Act of Parliament or a company registered under section 25 of the Companies Act, 1956 or section 8 of the Companies Act, 2013 on the date of recognition; and
• comply with such other conditions as may be specified by Registration Authority.