Valuation is a process to determine the value of assets. Generally, the term value and price are used interchangeably. However, both are different terms having different meaning. Price of an asset can be same for everyone but value of that asset can not be same for everyone. To ascertain the value, valuation is required.

As business valuation is a complex financial analysis, it should be undertaken by a qualified valuation professional with the professional integrity. Report of independent third party registered valuer help the business owners to negotiate a strategic sale of their business, minimize the risk of litigation matter, provide defence in a scrutiny cases along with many other benefits, which might not be available if valuation is done by the owner himself or his related party.

Profession of Registered Valuer in India

The Ministry of Corporate Affairs (MCA) vide its notification dated October 18, 2017, brought into  force the provisions of Section 247 of the Companies Act, 2013, which deals with the Valuation of, inter alia, property, stocks, shares, debentures or net worth of a company by the Registered Valuers.

As per the provisions of Section 247 of companies Act, 2013 any valuation required to be done under the Companies Act, 2013, has to be done by the professional called Registered Valuer hence no professional other than Registered Valuer is eligible to perform the valuation task under Companies Act, 2013.

At present IBBI (Insolvency and Bankruptcy Board of India) is the governing body for Registered Valuers.

There are three categories of registered Valuer: –

a. Registered Valuer for Securities and Financial Assets

b. Registered Valuer for Land and Building

c. Registered Valuer for Plant and Machinery

Numbers of Registered Valuers as on 30th September, 2020
Land & Building Plant & Machinery Securities and Financial Assets Total
1798 360 1252 3410

Below table is the brief introduction of various provisions of Companies Act, 2013, where Valuation is required: –

S. No. u/s Rule Subject Provisions
1. 62(1)(c) 8(6) of Companies (Share Capital and Debentures) Rules, 2014 Issue of Sweat Equity Shares The sweat equity shares to be issued shall be valued at a price determined by a registered valuer as the fair price giving justification for such valuation.
2. 62(1)(c) 8(7) of Companies (Share Capital and Debentures) Rules, 2014 Valuation of IPR/ know-how/Value addition for Issue of Sweat Equity Shares The valuation of intellectual property rights or of know how or value additions for which sweat equity shares are to be issued, shall be carried out by a registered valuer, who shall provide a proper report addressed to the Board of directors with justification for such valuation.
3. 62(1)(c) 13(2)(g) of Companies (Share Capital and Debentures) Rules, 2014 Issue of shares on preferential basis The price of the shares or other securities (Equity or Convertible Securities) to be issued on a preferential basis, either for cash or for consideration other than cash, shall be determined on the basis of valuation report of a registered valuer;
4. 67 16(1)(c) of Companies (Share Capital and Debentures) Rules, 2014 Provision of money by company for purchase of its own shares by employees or by trustees 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 valuer.
5. 192 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.
6. 236 Purchase of minority shareholding Majority shareholders (90%) 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 in accordance with such rules as may be prescribed.
 7. 305(2)(d) Declaration of solvency 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.
8. 281(1(a) 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 as per a valuation report by a registered valuer.
9. 260(2)(c) 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.
10. 230(2)(c)(v) Compromise or Arrangements with creditors and members 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.
11. 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.

The Institute of Chartered Accountants of India (ICAI), after recognising the need to have the consistent, uniform and transparent valuation policies and harmonise the diverse valuation practices in use in India, constituted the Valuation Standards Board (VSB) on 28th February, 2017. ICAI issued Valuation Standard applicable w.e.f. 01st July, 2018. Total 8 Valuation Slandered has been issued by ICAI till now.

S. No. ICAI Valuation Standard
1 101- Definitions
2 102- Valuation Bases
3 103 – Valuation Approaches and Methods
4 201 – Scope of Work, Analyses and Evaluation
5 202 – Reporting and Documentation
6 301 – Business Valuation
7 302 – Intangible Assets
8 303 – Financial Instruments

Author Bio

Qualification: CA in Practice
Location: GURUGRAM, Haryana, IN
Member Since: 01 Dec 2020 | Total Posts: 17
Practicing Chartered Accountant and Registered Valuer (Securities & Financial Assets). Can be reached at [email protected] For more info please visit View Full Profile

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February 2021