PROVISIONS RELATIONG TO VALUATION UNDER COMPANIES ACT, 2013

[Mr. M. GOVINDARAJAN]

Valuation

Section 247 of the Companies Act, 2013 (‘Act’ for short) 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 its liabilities under the provision of this Act, it shall be valued by a person having such qualifications and experience, registered as a valuer and being a member of an organization recognized, in such manner, on such terms and conditions as may be prescribed and appointed by the audit committee or in its absence by the Board of Directors of that company.

The valuer appointed shall-

• make an impartial, true and fair valuation of any assets which may be required to be valued;
• exercise due diligence while performing the functions as valuer;
• make the valuation in accordance with such rules as may be prescribed; and
• not undertake valuation of any assets in which he has a direct or indirect interest or becomes so interested at any time during a period of three years prior to his appointment as valuer or three years after the valuation of assets was conducted by him.

Valuation under Companies Act

Some provisions of the Act require the valuation to be done by the registered valuer.  The provisions that require valuation are-

• Section 62 (1);
• Section 192 (2);
• Section 230 (3);
• Section 232 (2) (d);
• Section 232 (3) (h);
• Section 232(2) (c);
• Section 236  (2);
• Section 281(1)(a).

Further Issue of shares

Section 62(1) of the Act provides that where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered-

•  to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the conditions;
• to employees under a scheme of employees' stock option, subject to special resolution passed by company and subject to such conditions as may be prescribed; or
• to any persons, if it is authorized by a special resolution, whether or not those persons include the persons referred to in above

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 the compliance with the applicable provisions of Chapter III and any other conditions as may be prescribed.

Restriction on non-cash transactions involving directors

Section 192 (1) of the Act provides that no company shall enter into an arrangement by which –

• a director of the company or its holding, subsidiary or associate company or a person connected with him acquires or is to acquire assets for consideration other than cash, from the company; or
•  the company acquires or is to acquire assets for consideration other than cash, from such director or person so connected,

unless prior approval for such arrangement is accorded by a resolution of the company in general meeting and if the director or connected person is a director of its holding company, approval under this sub-section shall also be required to be obtained by passing a resolution in general meeting of the holding company.

Section 192(2) provides that 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.

Compromise or arrangements

Chapter V of the Act deals with the procedure in respect of compromise, arrangements and amalgamations with sections 230 to 240.

Section 230 (1) of the Act provides that where a compromise or arrangement is proposed-

•  between a company and its creditors or any class of them; or
• between a company and its members or any class of them,

the Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator, appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs.

Section 230(3) of the Act provides that 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.

Mergers and amalgamations

Section 232 of the Act provides the procedure for merger and amalgamations.  An application is made to the Tribunal for sanctioning of a compromise or an arrangement proposed between a company  in connection with, a scheme for the reconstruction of the company or companies involving merger or the amalgamation of any two or more companies.   The Tribunal may on such application, order a meeting of the creditors or class of creditors or the members or class of members, to be called, held and conducted in such manner as the Tribunal may direct.  The following are to be circulated for the meeting ordered by the Tribunal-

• the draft of the proposed terms of the scheme drawn up and adopted by the directors of the merging company;
• confirmation that a copy of the draft scheme has been filed with the Registrar;
• a report adopted by the directors of the merging companies explaining effect of compromise on each class of shareholders, key managerial personnel, promoters and non-promoter shareholders laying out in particular the share exchange ratio, specifying any special valuation difficulties;
•  the report of the expert with regard to valuation, if any;
• a supplementary accounting statement if the last annual accounts of any of the merging company relate to a financial year ending more than six months before the first meeting of the company summoned for the purposes of approving the scheme.

Section 232(3) (h) of the Act provides that the Tribunal, after satisfying itself that the procedure specified in sub-sections (1) and (2) has been complied with, may, by order, sanction the compromise or arrangement or by a subsequent order, make provision where the transferor company is a listed company and the transferee company is an unlisted company,-

• the transferee company shall remain an unlisted company until it becomes a listed company;
• if shareholders of the transferor company decide to opt out of the transferee company, provision shall be made for payment of the value of shares held by them and other benefits in accordance with a pre-determined price formula or after a valuation is made, and the arrangements under this provision may be made by the Tribunal.

The amount of payment or valuation under this clause for any share shall not be less than what has been specified by the Securities and Exchange Board under any regulations framed by it.

Purchase of minority shareholding

Section 236 (1) of the Act provides that in the event of an acquirer, or a person acting in concert with such acquirer, becoming registered holder of 90% or more of the issued equity share capital of a company, or in the event of any person or group of persons becoming 90% majority or holding 90% of the issued equity share capital of a company, by virtue of an amalgamation, share exchange, conversion of securities or for any other reason, such acquirer, person or group of persons, as the case may be, shall notify the company of their intention to buy the remaining equity shares.

Section 236(2) of the Act provides that 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.

Submission of report by Company Liquidator

Section 281 (1) of the Act provides that where the Tribunal has made a winding up order or appointed a Company Liquidator, such liquidator shall, within sixty days from the order, submit to the Tribunal, a report containing the nature and details of the assets of the company including their location and value, stating separately the cash balance in hand and in the bank, if any, and the negotiable securities, if any, held by the company.  The valuation of the assets shall be obtained from registered valuers for this purpose.