Mandatory Valuation by Registered Valuer for Preferential Issue of Shares

The article clarifies that Rule 13(2)(g) of the Companies (Share Capital and Debentures) Rules, 2014 requires the pricing of shares issued on a preferential basis to be supported by a valuation report from a “registered valuer,” a term that specifically refers to valuers registered under Section 247 of the Companies Act, 2013. While earlier rules temporarily allowed valuations by Chartered Accountants or SEBI-registered Merchant Bankers, this was only a transitional arrangement until the formal registered valuer framework became operational. Following the notification of the Companies (Registered Valuers and Valuation) Rules, 2017 and a clarificatory circular issued in 2019, the transition period ended, making registered valuers mandatory for all valuations under the Act. Consequently, valuation reports issued by non-registered professionals no longer meet statutory requirements. Companies must now ensure strict compliance, as failure to appoint a registered valuer may render the allotment defective and attract regulatory consequences.

Mandatory Valuation by Registered Valuer for Preferential Issue of Shares

Rule 13(2)(g) of the Companies (Share Capital and Debentures) Rules, 2014 mandates that the price of shares issued on a preferential basis shall be determined on the basis of a valuation report issued by a “registered valuer.”

The term “registered valuer” is not generic or descriptive in nature. It specifically refers to a valuer registered under Section 247 of the Companies Act, 2013, read with the Companies (Registered Valuers and Valuation) Rules, 2017.

Historical Background and Transitional Relaxation

Earlier, the Explanation to Rule 13(2)(g) permitted the valuation to be carried out by:

• a Chartered Accountant, or

• a SEBI-registered Merchant Banker.

This relaxation was clearly intended as a transitional arrangement, operative only until the statutory framework for registration and regulation of valuers was formally notified and became functional.

End of Transitional Period

With the notification of the Companies (Registered Valuers and Valuation) Rules, 2017 and the establishment of a comprehensive regulatory ecosystem under the Insolvency and Bankruptcy Board of India (IBBI), the mechanism for registration, regulation, and oversight of valuers was fully operationalised.

The IBBI, vide Circular No. IBBI/RV/022/2019, expressly clarified that the transition period had concluded and that with effect from 1 February 2019, valuations under the Companies Act, 2013 are required to be conducted exclusively by registered valuers.

Consequently, the earlier relaxation permitting valuation by a Chartered Accountant or a Merchant Banker stands exhausted and is no longer legally sustainable.

Current Legal Position

As on date:

• Any preferential issue of shares under Section 62(1)(c) of the Companies Act, 2013

• Must be supported by a valuation report

• Issued only by a Registered Valuer

• Registered under Section 247 of the Companies Act, 2013.

Valuation reports issued by Chartered Accountants or Merchant Bankers who are not registered valuers do not meet the statutory requirement and may expose the company and its officers to regulatory non-compliance, invalid allotment risk, and potential penal consequences.

Conclusion

Companies proposing to issue shares on a preferential basis must exercise due diligence in appointing a duly registered valuer. Reliance on outdated practices, legacy interpretations, or expired transitional provisions is no longer permissible under law.

Strict adherence to Rule 13(2)(g) not only safeguards the legal validity of the preferential allotment but also strengthens corporate governance standards and ensures regulatory discipline.