Valuation Reports after 1st Feb 2019 has to be obtained only from Registered Valuers registered with IBBI
Position before commencement of these rules and Transitional Arrangement:
Until effectiveness of section 247 of the Companies Act, 2013, the Valuation in case of Merger & Amalgamation has been done by Independent Merchant Banker registered with SEBI or Independent Chartered Accountant in practice having minimum experience of 10 Year (As specified in MCA Notification dated 14/12/2016).
The Ministry of Corporate Affairs (MCA) has notified the provisions governing valuation by registered valuers [section 247 of the Companies Act, 2013 (the Act)] and the Companies (Registered Valuers and Valuation) Rules, 2017 (the Rules), both to come into effect from 18 October, 2017.
Registered valuer: Rule (2)(1)(f) of the Rules, define registered valuer as a valuer registered with the Registration authority for carrying out valuation of assets belonging to a class or classes of assets. Rule (2)(1)(g) defines the registration authority as the Insolvency and Bankruptcy Board of India (IBC).
Transitional Arrangement.─ any person, who may be rendering valuation services under the Act, on the date of commencement of these rules, may continue to render valuation services without a certificate of registration under these rules upto 31st March, 2018:
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.
However, on 31st March the Valuation exam just commenced, hence there were no Registered Valuers were available. Considering this MCA extended the date to 30th September 2018 by way of issuing notification.
On 30th September the number of Registered Valuers was limited, hence MCA by way of notification dated 25th September 2018, further extended the date by 4 months more to 31st January 2019.
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 responsible authority. Hence IBBI will be regulator administer and perform the functions of Central Government. Thus IBBI has powers to regulate the valuation domain both under companies Act & IBC.
We also would like to bring to your notice circular of IBBI dated 17th October 2018 which mandates as under:
“In view of the above, every valuation required under the Code or any of the regulations made there under is required to be conducted by a ‘registered valuer’, that is, a valuer registered with the IBBI under the Companies (Registered Valuers and Valuation) Rules, 2017. It is hereby directed that with effect from 1st February, 2019, no insolvency professional shall appoint a person other than a registered valuer to conduct any valuation under the Code or any of the regulations made there under.
This notification was issued immediately after extension notification on 25th September 2018. IBBI being regulatory body for IBC 2016, has clear cut indicated that valuation under IBC has to be carried out through registered Valuers only post 1st February 2019. The powers of Central Government under Companies Act 2013 have been delegated to IBBI by way of notification on 23rd October. Hence it was evident that that the cutoff date for Companies Act may not get further extension.
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.
Deadline until which valuation services are permitted to be rendered without registration under IBBI is 31st January 2019. Hence the Valuation Reports after 1st Feb 2019 has to be obtained from Registered Valuers registered with IBBI only, however, if a valuation assignment has been accepted before 31st January 2019, it can be completed up to 30th April 2019.
Situations which require valuation report from a registered valuer:
1. Further issue of capital (Section 62 of CA, 2013):
When a company having share capital proposes to increase its subscribed share capital by a fresh issue of shares, such shares shall be offered to:
In all of the above cases, the price of the shares issued must be determined by the valuation report of a registered valuer subject to prescribed conditions.
2. Return of allotment: Rule 12 ofCompanies (Prospectus and allotment of securities) Rules 2014
After having made an allotment of securities, a company shall file a return of allotment within thirty days thereafter in the specified form with the Registrar of Companies. A valuation report of the consideration received by a registered valuer shall also be attached along with the return.
3. Issue of sweat equity shares: Rule 8 of Companies (Share capital and Debentures) Rules, 2014:
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.
4. Issue of shares on a preferential basis: Rule 13 of Companies (Share capital and Debentures) Rules, 2014:
This rule complements Section 62 as discussed above mandating a valuation report for shares issued on a preferential basis. It also prescribes guidelines w.r.t convertible securities issued on a preferential basis. The price of the shares pursuant to conversion shall be determined:
Upfront at the time of offer of convertible securities based on a valuation report by a registered valuer
When the holder of the convertible securities becomes eligible to apply for the shares or at the most thirty days before such eligibility, based on a valuation report by a registered valuer given not earlier than sixty days before the holder becomes eligible.
When the shares or securities are to be allotted for a consideration other than cash, the valuation of such consideration shall be performed by a registered valuer who shall submit a valuation report to the company giving justification for such valuation.
5. Provision of money by company for purchase of its own shares by employees or trustees of employees: Rule 16 of Companies (Share capital and Debentures) Rules, 2014:
An unlisted company shall not make a provision of money for purchase or subscription of its own shares, if such shares are to be held for the benefits of the employees, unless the valuation at which the shares are to be purchased is performed by a registered valuer.
6. Rule 2 of Companies (Acceptance of deposit) rules 2014: Exclusions from Deposits
Per the rule, deposit includes any receipt by way of deposit or loan or in any other form by a company but does not include, among other things, money raised by issue of debentures secured by a charge on company’s assets. The amount of such debentures shall not exceed the market value of the assets as determined by a registered valuer.
7. Rule 18 of Companies (Share capital and Debentures) Rules, 2014: Debentures does not make reference to the market value of the assets against which issue of debentures is secured, such a requirement is highlighted by the definition discussed above.
8. Provisions related to restructuring of companies
Section 230: Power to compromise or make arrangements
In case of an application of a compromise or arrangement of a company proposed between a company and its members or creditors submitted to the Tribunal, the Tribunal may call for a meeting of the members or creditors. Among the disclosures to be made by the applicant to the Tribunal, a scheme of corporate debt restructuring submitted must include a valuation report by a registered valuer in respect of the shares, and tangible and intangible property of the Company.
9. Section 232: Merger and amalgamation of companies
When an application for a compromise or arrangement made to the Tribunal involves a merger or amalgamation, the Tribunal may order a meeting of the creditors or members as the case may be. The section enlists documents to be circulated for such a meeting including a report laying out the share exchange ratio, specifying any special valuation difficulties.
10. Section 236: Purchase of minority shareholding
This section deals with a scenario in which an acquirer becomes a registered holder of 90% or more of the issued equity share capital of the company, by virtue of an amalgamation, share exchange, conversion of securities or for any other reason, the acquirer shall notify the company of its intention to buy the remaining shares of the company. The price offered by the acquirer to the minority shareholders for their shares shall be determined on the basis of a valuation by a registered valuer.
11. Section 260: Powers and duties of Company administrator
A company administrator appointed by the Tribunal under section 258 of the Act to prepare a scheme of revival and rehabilitation of a sick company, shall perform such functions as may be directed by the Tribunal u/s 260. He/she may also cause to be prepared, inter alia, a valuation report in respect of the shares and assets in order to arrive at the reserve price for the sale of any industrial undertaking of the company or for the fixation of the lease rent or share exchange ratio.
12. Section 281: Submission of report by Company liquidator
In the event of a winding up order passed for a sick company, a Company liquidator is appointed by the Tribunal. The liquidator shall submit within 60 days of passing the order, a report which, inter alia, provides the value of the assets and securities held if any, of the company. The value shall be determined per a valuation report by a registered valuer.
13. Section 305: Declaration of insolvency in case of proposal to wind up voluntarily
Where a proposal for voluntary winding up has been made by a company, a declaration must be made by the board of directors that the Company has no debt or whether it will be able to pay its debt in full from the proceeds of assets sold in voluntary winding up. The declaration made must be accompanied by, among other things, a valuation report prepared by registered valuer of the assets of the company.
14. Section 192: Restriction on non-cash transactions involving directors
When a company enters into an arrangement with a director of the company or its holding, subsidiary or associate company to acquire assets for consideration other than cash or vice versa, such an arrangement shall be accorded by a resolution of the company and if the director is a director in the holding company, then a resolution in a general meeting of the holding company shall also be required. The notice for such resolution shall include a valuation report of a registered valuer for such assets.
15. Under IBC
Sec 27 Appointment of Registered Valuers : The IRP/RP 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:
16. Registered valuer under the SEBI (REIT AND INVIT) regulations, 2016 which requires valuation report from a registered valuer
|1||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.
|2||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.
|3||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.
|4||SEBI (Real Estate Investment Trust) Regulations, 2014||Valuation of Assets
21(4). A full valuation shall be conducted by the valuer atleast once in every financial year:
Provided that such full valuation shall be conducted at the end of the financial year ending March 31st within three months from the end of such year.
21(5). A half yearly valuation of the REIT assets shall be conducted by the valuer for the half-year ending on September 30 for incorporating any key changes in the previous six months and such half yearly valuation report shall be prepared within forty five days from the date of end of such half year.
|5||SEBI (Infrastructure Investment Trusts) Regulations, 2014||Valuation of Assets
21(4). A full valuation shall be conducted by the valuer not less than once in every financial year: Provided that such full valuation shall be conducted at the end of the financial year ending March 31st within two months from the date of end of such year
21(5). A half yearly valuation of the assets of the InvIT shall be conducted by the valuer for the half-year ending September 30th for a publicly offered InvIT for incorporating any key changes in the previous six months and such half yearly valuation report shall be prepared within one month from the date of end of such half year.
|6||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|