2019 (2) TMI 217 - HC - Companies Law

Constitutional validity of Rule 3(2) of the Companies (Registered Valuers and Valuation) Rules, 2017 - violation of Article 14, Article 19(1)(g) and Article 301 of the Constitution of India - eligibility of registered valuer - whether a company, other than a subsidiary company, joint venture or associate of other company forms a separate class for the purpose of eligibility for registration as a valuer under the subject Rules, and as such whether the said classification is reasonable? Held that - The Supreme Court in the case of Dr. Haniraj L. Chulani 1996 (4) TMI 517 wherein the issue which fell for consideration before the Supreme Court was whether the State Bar Council of Maharashtra and Goa was justified in refusing enrolment of the appellant before the Supreme Court as an Advocate under the Advocates Act, 1961 as he was also a medical practitioner, who did not want to give up his medical practice but wanted to simultaneously practice law. The objective and intention behind laying down the impugned Rule is clearly to introduce higher standards of professionalism in valuation industry, specifically in relation to valuations undertaken for the purpose of Companies Act and IBC, 2016. The impugned Rule obviates the possibility of conflict of interest on account of diverging interests of constituent / associate entities which resultantly shall undermine the very process of valuation, being one of the most essential elements of the proceedings before NCLT. Thus, making eligible only companies other than subsidiary companies, associate companies and joint ventures for the purpose of registration as valuer, a separate class has been carved out based on classification which is founded on intelligible differentia and as such the Rule cannot be faulted - petition dismissed.

Summary

Issues Involved:
1. Constitutionality of Rule 3(2) of the Companies (Registered Valuers and Valuation) Rules, 2017.
2. Alleged violation of Articles 14, 19(1)(g), and 301 of the Constitution of India.
3. Reasonableness and justification of the classification under Rule 3(2).

Detailed Analysis:

1. Constitutionality of Rule 3(2):
The petitioners challenged Rule 3(2) of the Companies (Registered Valuers and Valuation) Rules, 2017, which states that no partnership entity or company shall be eligible to be a registered valuer if it is a subsidiary, joint venture, or associate of another company or body corporate. The petitioners argued that this rule is unconstitutional as it violates Articles 14, 19(1)(g), and 301 of the Constitution of India.

2. Alleged Violation of Articles 14, 19(1)(g), and 301:
The petitioners contended that Rule 3(2) imposes unreasonable restrictions on their right to carry on trade and business, as guaranteed by the Constitution. They argued that the rule discriminates against them by excluding subsidiaries of body corporates from being registered valuers, which they claimed was arbitrary and lacked intelligible differentia. They asserted that subsidiaries of globally recognized entities with rich experience in valuation are better equipped to carry out valuations for large corporations, and the rule's exclusion of such entities is detrimental to the valuation industry.

3. Reasonableness and Justification of the Classification:
The respondents defended the rule, stating that it aims to ensure the integrity, impartiality, and professionalism of the valuation process. They argued that the rule is designed to avoid conflicts of interest and to develop valuation as a profession rather than a business focused on profit maximization. The respondents emphasized that the rule seeks to introduce higher standards of professionalism in the valuation industry, particularly for valuations under the Companies Act and the Insolvency and Bankruptcy Code (IBC), 2016.

The court considered whether the exclusion of subsidiaries, joint ventures, and associates of other companies for registration as valuers is reasonable. It upheld the respondents' justification, noting that the rule aims to maintain the independence and credibility of the valuation profession. The court referenced the Supreme Court's judgment in Dr. Haniraj L. Chulani vs. Bar Council of Maharashtra & Goa, which supported the idea that reasonable restrictions can be imposed on the right to practice a profession to maintain its integrity and standards.

The court concluded that the classification under Rule 3(2) is based on intelligible differentia and has a rational relation to the objective of ensuring professionalism and avoiding conflicts of interest in the valuation industry. The court found no merit in the petitioners' arguments and dismissed the petitions, affirming the constitutionality and reasonableness of Rule 3(2).

Conclusion:
The court dismissed the petitions, upholding the constitutionality of Rule 3(2) of the Companies (Registered Valuers and Valuation) Rules, 2017. The rule's classification was deemed reasonable and justified, aiming to maintain the integrity, impartiality, and professionalism of the valuation process. The court found no violation of Articles 14, 19(1)(g), and 301 of the Constitution of India.