CS Devender Jaglan

Devender Jaglan


In today’s world of extensive database, decisions are highly quantitative and appropriately assessed. To reach to the stage of qualitative and assessed decisions in business, one needs to acquire professional skills in valuation. In order to be successful finance professional, skills in valuation and financial modelling have become indispensable tool. It is one of the most sought after skill required in the field of investment banking, equity research, project management, commercial banking and predominantly in every major sector of financial services industry.

Valuation along with financial modelling constitute the art of building a model using excels to depict financial statements and investment analysis. It builds a structure that integrates various statements and schedules to enable decision making. A valuation model represents the performance of a business, a project or any other venture.

Section 247 of the Companies Act, 2013 (the Act) recognises the concept of Registered Valuers which is among the four section of the Act which are yet to be notified by the Ministry of Corporate Affairs. This new section prescribes the mechanism for valuation by registered valuers.  Any property, stocks, shares debentures, securities, goodwill or any other assets or net worth of the company or its assets or liabilities is to be valued by a person having such qualification and experience and registered as a valuer, in accordance with such rules as may be prescribed.


All valuation required to be done under the Act is required to be done by a Registered Valuer who is registered as Valuer under Chapter XVII of the Act. As per Section 247 read with the Draft Rules following are the person eligible to apply for being registered as a Valuer.

(a) a chartered accountant, company secretary or cost accountant who is in whole-time practice, or retired member of Indian Corporate Law Service or any person holding equivalent Indian or foreign qualification as the Ministry of Corporate Affairs may recognise by an order; (having at least 5 years continuous experience after acquiring membership of the respective institution).

(b) a Merchant Banker registered with the Securities and Exchange Board of India, and who has in his employment person(s) having qualifications prescribed under (a) above to carry out valuation by such qualified persons;

(c) member of the Institute of Engineers and who is in whole-time practice; (having at least 5 years continuous experience after acquiring membership of the respective institution)

(d) member of the Institute of Architects and who is in whole-time practice; (having at least 5 years continuous experience after acquiring membership of the respective institution)

(e) A person or entity possessing necessary competence and qualification as may be notified by the Central Government from time to time.

Persons referred to in (a) and (b) shall be in respect of requirement for a “financial valuation” and the persons referred to in (c) and (d) shall be in respect of requirement for a “technical valuation” and a person or a firm or Limited Liability Partnership or merchant banker possessing both the qualifications may act in dual capacity

Explanation: For the purposes of this rule, a person shall be deemed “to be in whole-time practice”, when individually or in partnership or in limited liability partnership or in merchant banker with other persons in practice who are members of other professional bodies, he, in consideration of remuneration received or to be received:

(i) engages himself in the practice of valuation; or

(ii) offers to perform or performs services involving valuation of any assets with the object of arriving at financial value of the asset being valued; or

(iii) renders professional services or assistance in or about matters of principle or detail relating to valuation.

An application for registration as valuer shall be made in prescribed form along with such fee as may be specified.


Registered Valuer shall be appointed by the by the Audit Committee, wherever applicable, or in its absence, by the Board of Directors of the company in a duly held Board Meeting of the company.


The Companies Act, 1956 despite using the term valuation in some sections, did not specified the basis on which such valuation shall be done or who will do it. This has been taken care in the present section. Following are the sections of the Act where valuation is required to be made:

  • Valuing further issue of shares [Sec 62(1)(c)]
  • Valuing assets involved in arrangement of non-cash transactions involving directors [Sec192(2)]
  • Valuing shares, property and assets of the company under a scheme of corporate debt restructuring (CDR) [Sec 230(2)(c)(v)]
  • Under a scheme of compromise/arrangement, where along with the notice of creditors/shareholders meeting, a copy of valuation report, if any, shall also be accompanied [Sec 230(3)]
  • Report of the expert with regard to valuation, if any, would be circulated for meeting of creditors/members [Sec 232(2)(d)]
  • Under a scheme of compromise/arrangement where the transfer or company is a listed company and the transferee company is an unlisted company and for exit opportunity to the shareholders of transfer or company, valuation may be required to be made by the Tribunal [Sec 232(3)(h)]
  • Valuing equity share held by minority shareholders [Sec 236(2)]
  • Preparing valuation report in respect of shares and assets to arrive at the reserve price for company administrator [Sec 260)(2)(c)]
  • Valuing assets for submission of report by liquidator [Sec 281(1)]
  • Report on the assets of the company for preparation of declaration of solvency under voluntary winding up [Sec 305(2)(d)]
  • Valuing the interest of any dissenting member of the transfer or company who did not vote in favour of the special resolution, as may be required by the Company Liquidator [Sec 319(3)(b)]


It is well known that valuation of shares is a complex exercise, and that the valuation of the shares of the same company by two different experts could never be the same. As long as the valuer is unbiased and has followed the accepted principles of valuation on proper materials and justifiable assumptions.

A registered valuer shall make a valuation of any asset as on valuation date, in accordance with any one or more of the following methods:

(a) Net Asset Value Method –representing the value of the business with reference to the asset base of the entity and the attached liabilities on the valuation date (represents the value of an entity’s assets less the value of its liabilities);

(b) Market Price Method Under this method the current price at which the subject of valuation is bought or sold in the market between unrelated third parties is taken into account;

(c) Yield method / Profit Earning Capacity Value (PECV) –Under this method the value is calculated by capitalizing the average of the after tax profits for the preceding three years (or such other period, provided adequate justification is available for choosing another period) at capitalisation rates specified in the report;

(d) Discounted Cash Flow Method (DCF) –This method expresses the present value of the business as a function of its future cash earnings capacity. This methodology works on the premise that the value of a business is measured in terms of future cash flow streams, discounted to the present time at an appropriate discount rate. The value of the firm is arrived at by estimating the Free Cash Flows (FCF) to Firm and discounting the same with Weighted Average cost of capital (WACC). In case FCF to equity or FCF to debt is used, the appropriate denominator (required return to equity or debt, as the case may be) shall be used;

(e) Comparable Companies Multiples Methodology (CCM) –This Method uses the valuation ratios of a publicly traded company and applies that ratio to the company being valued (after applying appropriate discount or premium, as the context may require). The valuation ratio typically expresses the valuation as a function of a measure of financial performance or book value (e.g. total revenue/revenue from operations, EBITDA, EBIT, EPS, operating cash flows, book value or other suitable parameter, with reasons being recorded for choosing each relevant parameter). Multiples used, if not derived from financial statements, can also be based on certain business performance parameters, provided that such valuation is deemed to be more appropriate than valuation based on financial parameters, in the facts of the case (for instance, price/subscriber for an internet portal);

(f) Comparable Transaction Multiples Method (CTM) which entails valuation on the basis of similar transactions among unrelated parties in the peer group companies;

(g) Price of Recent Investment method (PORI) –which entails valuation on the basis of recent investment received in the company from an independent investor;

(h) Sum of the parts valuation (SOTP) –where each part of the business is valued according to method(s) appropriate to that business, and the results are summed up to obtain total value of the business;

(i) Liquidation value –if the value is being calculated in a liquidation scenario ;

(j) Weighted Average Method –Under this method the weights are assigned to the values calculated under different valuation approaches;

(k) Any other method accepted or notified by the Reserve Bank of India, Securities and Exchange Board or Income Tax Authorities;

(l) Any other method(s) that the valuer may deem fit to adopt in the given circumstances of the case, provided that adequate justification for use of such method(s) (and not any of the methods above) must be included in the report.


> Before adoption of the methods of valuation as detailed above, the registered valuer shall decide the approach to valuation based upon the purpose of valuation:

(a) Asset approach;

(b) Income approach;

(c) Market approach.

> The valuer shall consider the following points while undertaking valuation:

(a) Nature of the business and the History of the Enterprise from its inception;

(b) Economic outlook in general and outlook of the specific industry in particular;

(c) Book value of the stock and the financial condition of the business;

(d) Earning capacity of the company;

(e) Dividend –paying capacity of the company;

(f) Goodwill or other intangible value;

(g) Sales of the stock and the size of the block of stock to be valued;

(h) Market prices of stock of corporations engaged in the same or a similar line of business;

(i) Contingent liabilities or substantial legal issues, within India or abroad, impacting the business;

(j) Nature of instrument proposed to be issued, and nature of transaction contemplated by the parties


The valuer appointed under Sec 247(1) of the Act shall-

(a) make an impartial, true and fair valuation of any assets which may be required to be valued;

(b) exercise due diligence while performing the function of a valuer;

(c) make the valuation in accordance with such rules as may be prescribed; and

(d) not undertake valuation of any assets in which he has a direct or indirect interest or become so interested at any time during or after the valuation of assets


Where any person who is registered as a valuer under section 247 or who has made an application for registration as a valuer under that section is, at any time thereafter,—

(a) sentenced to a term of imprisonment for any offence; or

(b) found guilty of misconduct in his professional capacity by any association or institute or other body of which he is a member or with which he is registered;

he shall immediately after such conviction or finding, intimate the particulars thereof to the Central Government, institution or agency with which he is registered as a valuer and cease to act as valuer unless permitted by the Central Government, institute or agency with which he is registered as a valuer unless the order imposing penalty/sentence has been stayed by competent authority.

In case valuer found guilty of professional misconduct or otherwise by the Institute which he is a member or by National Financial Reporting Authority or where the SEBI removed the registration of the merchant banker, such valuer shall cease to be the valuer automatically and their name shall be removed from the register of valuer unless such order has been stayed by the Competent Authority.

Further any ongoing assignment of such valuer, who has ceased to be a valuer, shall be assigned to other valuer from the panel maintained by Central Government or any authority or institution to complete the assignment, if no stay is granted on such appeal, if any.


The Central Government or any authority, institution or agency, may remove by order the name of any person from the register of valuers where it is satisfied, after giving that person a reasonable opportunity of being heard and after such further inquiry, if any, as it thinks fit,-

  • that his name has been entered in the register by error or on account of misrepresentation or suppression of a material fact; or
  • that he has been convicted of any offence and sentenced to a term of imprisonment or has been guilty of misconduct in his professional capacity which, in the opinion of the Central Government or any authority, institution or agency, renders his name unfit to be kept in the register.

A registered valuer aggrieved by an order passed, may prefer an appeal in accordance with the procedure laid down in the respective Acts, regulations or bye -laws governing the respective professional. An appeal against the order of the Central Government shall be preferred to the Tribunal.

The Central Government or any authority, institution or agency, may on application and on sufficient cause being shown and on being satisfied, restore in the register the name of any person removed there from.


  • If a valuer contravenes the provisions of this section or the rules made thereunder, the valuer shall be punishable with fine which shall not be less than twenty five thousand rupees but which may extend to one lakh rupees.
  • If the valuer has contravened such provisions with the intention to defraud the company or its members, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
  • Where a valuer has been convicted as above, he shall be liable to-
    • refund the remuneration received by him to the company; and
    • pay for damages to the company or to any other person for loss arising out of incorrect or misleading statements of particulars made in his report.


The above article is solely for informational purpose. It does not constitute professional advice or a formal recommendation. The author has undertook utmost care to disseminate the true and correct view and does not accept liability for any errors or omissions. You are kindly requested to verify & confirm the updates from the genuine sources before acting on any of the information’s provided herein above.

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