Valuation by Company Secretary (CS) holding certification of registration as Registered Valuer is not acceptable in FDI reporting
In case of Foreign Direct Investment, the valuation of equity instruments should be done as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant or a Merchant Banker registered with the Securities and Exchange Board of India or a practicing Cost Accountant, in case of an unlisted Indian Company. [Rule 21(2) of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019].
Whereas under the Companies Act, 2013 (“Act 2013”), the valuation should be done by Registered Valuer. Till the introduction of the Act 2013, the valuation of shares, assets, net worth of companies etc. was conducted by Chartered Accountants or as prescribed by other laws such as the Foreign Exchange Management Act, 1999 (“FEMA”) and the regulations made there under. There was no provision in the earlier company law i.e. the Companies Act, 1956 for valuation or specified the persons who could conduct valuation of companies, shares etc. The concept of a “Registered Valuer” was introduced for the first time vide Section 247 of Chapter XVII of the Act 2013 for matters requiring valuation under the said act.
The Ministry of Corporate Affairs has notified the provisions governing valuation by Registered Valuers [Section 247 of the Act, 2013] and the Companies (Registered Valuers and Valuation) Rules, 2017 (“Valuation Rules”), both to come into effect from 18th October, 2017.
Section 247 of the Act 2013 provides that-
“where a valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other asset or net worth of a company or its 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 and on such terms and conditions as maybe prescribed and appointed by the audit committee or in its absence by the Board of Directors of that company”.
The Valuation Rules provides the eligibility criteria which need to be fulfilled for obtaining a certification for being a Registered Valuer and the manner in which the certification maybe obtained. The Valuation Rules also provide that the Insolvency and Bankruptcy Board of India (“IBBI”) established under the Insolvency and Bankruptcy Code, 2016 be the “Registering Authority” which will hold examinations and grant certifications of the designation of a “Registered Valuer”.
It is important to note that the extension for obtaining Valuation Reports from persons other than Registered Valuers has ended on 31st January 2019 under Companies Act 2013 as well as IBC 2016 & allied laws. Hence, all valuations under the Companies Act after January 31st 2019 must be conducted by a Registered Valuer registered with IBBI Only.
As per the Valuation Rules, an individual shall have the following qualifications and experience to be eligible for registration as Registered Valuer, namely:
a) Post-Graduate degree or post-graduate diploma, in the specified discipline, from a University or Institute established, recognised or incorporated by law in India and at least three years of experience in the specified discipline thereafter; or
b) A Bachelor’s degree or equivalent, in the specified discipline, from a University or Institute established, recognised or incorporated by law in India and at least five years of experience in the specified discipline thereafter; or
c) Membership of a professional institute established by an Act of Parliament enacted for the purpose of regulation of a profession with at least three years’ experience after such membership.
Now it is pertinent to mention that the above sections mandates that all any valuation as required to be done under Act 2013 shall be done by Registered Valuer as prescribed in Rules only. However, there is no such requirement under pricing guidelines under FEMA that the valuation should be done by Registered Valuer.
Please note that Registered Valuer should be Chartered Accountant or a Merchant Banker registered with the Securities and Exchange Board of India or a practicing Cost Accountant. Therefore, valuation by Company Secretary holding certification of registration as Registered Valuer, is not acceptable in FDI reporting.
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