VALUATION BY REGISTERED VALUERS

  • INTRODUCTION

Registered Valuer is a new concept introduced by Section 247 of the Companies Act, 2013 to regulate the valuation of the various assets and liabilities related to a Company and to standardized the procedure of Valuation in line with International Valuation Standards.

Before introduction of the concept of Registered Valuer, the valuation of assets and liabilities was arbitrary, not the regulated one. There were a lot of doubts and window dressing in the arbitrary Valuation, a regulated valuation not only solve the above issues but also assure the authenticity of the valuation.

  • SECTION AND RULES

Section 247 of the Companies Act, 2013 and the Companies (Registered Valuers and Valuation) Rules, 2017 (the Rules), both came into effect from 18 October, 2017.

It was clarified that conduct of valuation by any person under any law other than the Act, or these rules shall not be effected by virtue of coming into effect of these rules unless the relevant other laws or other regulatory bodies require valuation by such person in accordance with these rules in which case these rules shall apply for such valuation also from the date specified under the laws or by the regulatory bodies.

MCA by way of notification on 23 October, 2017, to administer and perform functions under the said rules, has specified the Insolvency and Bankruptcy Board of India (IBBI) as the authority to regulate and administer the registered valuers. 

  • TRANSITIONAL PERIOD

Due to non-availability of Registered Valuers, the transitional period was allowed till 31st Day of Jabuary, 2019 (Date after two extensions), in other words any person who may be rendering valuation services under the Act, on the date of commencement of the rules, may continue to render valuation services without a certificate of registration under these rules upto 31st January, 2019.

Hence the Valuation Reports after 1st February, 2019 has to be obtained from Registered Valuers registered with IBBI.

  • PROVISIONS UNDER THE COMPANIES ACT, 2013 WHICH REQUIRES VALUATION REPORT FROM A REGISTERED VALUER                                  
Sr. No. Section / Rules Particulars Details
01 Rule 12(5) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 Allotment of Shares in consideration for Other than Cash In the case of securities (not being bonus shares) allotted as fully or partly paid up for consideration other than cash, there shall be attached to the Form PAS-3 a copy of the contract, duly stamped. A report of a registered valuer in respect of valuation of the consideration shall also be attached along with the contract.
02 Section 62 (1) (C) read with Rule13 of the Companies (Share Capital and Debentures) Rules, 2014 Further issue of Shares When a Company proposes to further issue the shares of Company to any person on preferential basis by passing the Special Resolution, the price for such preferential allotment shall be determined by REGISTERED VALUERS only. 
03 Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014 Issue of Sweat Equity Shares This rule applies to all companies except listed companies issuing sweat equity shares to its directors or employees. The rule prescribes that the sweat equity shares shall be issued at a price determined by a registered valuer as the fair price giving justification for such valuation. Also, the value of the intellectual property or know-how or any other value additions, for which the sweat equity shares have been issued to its directors or employees shall be determined by a valuation report of a registered valuer. If the sweat equity shares are issued for a non-cash consideration, the value of such non-cash consideration shall be based on a valuation report by a registered valuer. Additionally, if the sweat equity shares are issued pursuant to acquisition of an asset, the value of such asset shall also be determined based on a valuation report by a registered valuer.
04 Rule 16(1)(c) of the Companies (Share Capital and Debentures) Rules, 2014 Buy Back of Shares Where shares of a company are not listed on a recognized stock exchange, the valuation at which shares are to be purchased shall be made by a registered value
05 Rule 2(c)(ix) and Rule 6 (1) of the Companies (Acceptance of Deposit) Rules, 2014 Valuation of Secured Debentures The Secured Debentures if valued by the Registered Valuer will be excluded from the definition of Deposits.
06 177 (4) (vi) Valuation of Assets with reference of Audit Committee Valuation of undertakings or assets of the company, wherever it is necessary, shall be done by REGISTERED VALUERS only. 
07 Section  192(2) Valuation of Assets acquired for a Consideration other than Cash If a director of Company, 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 vice versa, the value of the assets involved in such arrangement shall be calculated by a registered valuer.
08 Section 230(2)(c)(v) & Section 230(3) Valuation of shares, property and assets of the Company  in case of a compromise or arrangement   A valuation report in respect of shares, property or assets, tangible and intangible, movable and immovable of the company, by a Registered Valuer is required in case of a compromise or arrangement between members (such as in mergers or amalgamations) or with creditors (such as in corporate debt restructuring.
Such Valuation Report is required to be shared with Notice of creditors / shareholders meeting – Under scheme of compromise / Arrangement
09 Section 232 (2)(d) and Section 232 (3)(h)(B) Valuation of Assets in case of Merger and Amalgamation The report of the Registered Valuer with regard to valuation, if any, would be circulated for meeting of creditors/Members. 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
10 Section 236(2) Valuation of Shares in case of 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.
11 Section 281(1)(a) Valuing assets for submission of report by liquidator Valuation of Assets for submission of report by liquidator in case of winding up is required to be done by Registered Valuer.
12 Section 305 (2) (d) Declaration of Insolvency Where a proposal for Voluntary winding up has been made by a Company, the Declaration of Insolvency given by Directors shall be accompanied with the Valuation report issued by Registered Valuer  
13 Section 319 (3)(b) Sale of property of the Company in consideration of Shares by the Liquidators Any member of the transferor company who did not vote in favour of the special resolution and expresses his dissent therefrom in writing addressed to the Company Liquidator, and left at the registered office of the company within seven days after the passing of the resolution, may require the liquidator to purchase his interest at a price to be determined by agreement or the registered valuer.
  • PROVISIONS UNDER THE INSOLVENCY AND BANKRUPTCY CODE, 2016 AND THE REGULATIONS, WHICH REQUIRES VALUATION REPORT FROM A REGISTERED VALUER

Under Insolvency Code and Insolvency and Bankruptcy Board of India Regulations, 2016 – Registered Valuer means a person registered as such in accordance with the Companies Act, 2013 and rules made thereunder

Sr. No. Section / Regulation Particulars Details
01 Section 59(3)(b)(ii) of the Insolvency and Bankruptcy Code, 2016 Voluntary liquidation of corporate persons Where a proposal for Voluntary winding up has been made by a Company, the Declaration of Insolvency given by Directors shall be accompanied with the Valuation report issued by Registered Valuer.
02 Section 46(2) of the Insolvency and Bankruptcy Code, 2016 Relevant period for avoidable transactions In an application for avoiding a transaction at undervalue, The Adjudicating Authority may require an independent expert to assess evidence relating to the value of the transactions.
03 Regulation 27 read with regulation 35 of the IBBI(Insolvency Resolution Process for Corporate Persons) Regulations, 2016 Appointment of registered valuers; Fair value and liquidation value The interim resolution professional shall within seven days of his appointment, appoint two registered valuers to determine the liquidation value of the corporate debtor in accordance with Regulation 35. The resolution professional shall within 33[ seven days of his appointment, but not later than forty-seventh day from the insolvency commencement date], appoint two registered valuers to determine the fair value and the liquidation value of the corporate debtor in accordance with regulation 35
04 Regulation 35 of the IBBI(Liquidation Process) Regulations, 2016 Valuation of assets intended to be sold The assets to be sold by liquidator shall be valued by Registered Valuer.
05 Regulation 3(1)(b)(ii) of the IBBI (Voluntary Liquidation Process) Regulations, 2017 Initiation of liquidation The Declaration of Insolvency given by Directors shall be accompanied with the Valuation report issued by Registered Valuer.
06 Regulation 26 of the IBBI(Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 Appointment of registered valuer The resolution professional shall within seven days of his appointment, appoint one registered valuer to determine the fair value and the liquidation value of the corporate debtor in accordance with Regulation 34.  
07 Regulation 34 of the IBBI (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 Fair value and liquidation value The registered valuer appointed under regulation 26 shall submit to the resolution professional an estimate of the fair value and Liquidation value.
  • PROVISIONS UNDER SEBI, WHICH REQUIRES VALUATION REPORT FROM A REGISTERED VALUER
Sr. No.  Regulation Particulars
01 SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 Provisions of Preferential Issue not to apply in certain cases 158(6)(b). Conversion price of debt, as part of a debt restructuring scheme shall be certified by two independent valuer Disclosures to Shareholders   163(3). Where the specified securities are issued on a preferential basis for consideration other than cash, the valuation of the assets in consideration for which the equity shares are issued shall be done by an independent valuer, which shall be submitted to the stock exchanges where the equity shares of the issuer are listed:   Provided that if the stock exchange(s) is not satisfied with the appropriateness of the valuation, it may get the valuation done by any other valuer and for this purpose it may seek any information, as deemed necessary, from the issuer.   Pricing of Infrequently Traded Shares   165. Where the shares of an issuer are not frequently traded, the price determined by the issuer shall take into account the valuation parameters including book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies:   Provided that the issuer shall submit a certificate stating that the issuer is in compliance of this regulation, obtained from an independent valuer to the stock exchange where the equity shares of the issuer are listed.
02 SEBI (Appointment of Administrator and Procedure for refunding to the Investors) Regulations,2018 Functions of the Administrator 7(2)(b). the Administrator shall engage the services of a registered valuer to evaluate the properties of defaulter that are attached by the Recovery Officer and for submission of a certified valuation reporting accordance with the guidelines issued by the Board   Sale of Properties   8(1). The Administrator shall undertake the process of sale of properties after conducting an independent valuation of such properties by a registered valuer.
03 SEBI (Listing Obligations And Disclosure Requirements) Regulations, 2015 Valuation, Rating and NAV disclosure 87C(1)(ii). An issuer whose security receipts are listed on a stock exchange shall ensure that the valuation is conducted by an independent valuer.
04 SEBI (Issue and Listing of Securitized Debt Instruments and Security Receipts) Regulations, 2008. Valuation, Rating and NAV disclosure 38G(1)(a). An issuer whose security receipts are listed on a recognized stock exchange shall ensure that the valuation is conducted by an independent valuer.

Note: It also may be noted that Registered Valuers means valuers registered with IBBI. Hence while approaching Valuers, please check whether the proposed valuer has registration number allotted IBBI.

Author: HITESH JHAMB, Company Secretary, Registered Valuer, LLB

In case of any query Author can be reached on Email jassociates.cs@gmail.com and on Mobile: 9953001339 / 9654080119 or visit at www.registered-valuer.com

CS HITESH JHAMB is a Company Secretary in Practice and a VALUER registered under IBBI

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