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. In addition, to administer and perform functions under the said rules, the MCA by way of notification on 23 October, 2017, has specified the Insolvency and Bankruptcy Board of India (IBBI) as the responsible authority.
The concept of Registered Valuers was brought by The Companies Act, 2013 to regulate the practice of Valuation in India and to standardize the valuation in line with International standards. However the valuer’s qualification, experience, manner and process was not prescribed.
Valuation denotes the Value of the underlying assets as on a particular date. Business/Asset valuation is critical for strategic business decisions including fund raising, M&A, Sale/Liquidation of businesses, Strategic business decisions like Family or Shareholders disputes, Voluntary value assessment or may be just to comply with certain regulatory or accounting requirements in India under RBI, Income Tax, Companies Act, SEBI Laws etc. Better Corporate Governance is also leading to requirement of independent Business Valuations. Companies like Infosys have reported Valuation of Human resources as part of their Voluntary disclosures for many years.
Valuation itself is an evolving field and is an inexact science. Professional judgement of valuer is thus critical in any valuation exercise. Due to lack of Indian Valuation Standards and absence of any Regulatory Authority to control, guide and develop the practice of valuation in India, different valuers have been taking different assumptions leading to drastic differences in value conclusion. In many cases, the valuation also lacks uniformity and generally accepted global valuation practices.
The following persons shall be eligible to apply for being registered as a valuer:
5 years of continuous post membership experience is mandatory in all the above cases.
SPECIFIC PROVISIONS UNDER THE COMPANIES ACT, 2013 WHICH REQUIRES VALUATION REPORT FROM A REGISTERED VALUER
|1||62(1)C||Valuation report for Further Issue of Shares||If any company proposes to issue new shares (except rights issue to existing shareholders or to employees under employees stock options), the price of such shares should be determined by the valuation report of a Registered Valuer.|
|2||192(2)||Valuation of Assets Involved in Arrangement of Non cash transactions involving Directors||In case of sale or purchase of any asset involving a company and the directors of the company (or its holding, subsidiary or associate company) or a person connected with the Director for consideration other than cash, the value of the assets has to be calculated by a Registered V|
|3||230(2)(c)(v)||Valuation of shares, property and assets of the Company under a scheme of Corporate Debt Restructuring||In case of a compromise or arrangement between members (such as in mergers or amalgamations) or with creditors (such as in corporate debt restructuring), a valuation report in respect of shares, property or assets, tangible and intangible, movable and immovable of the company, or a swap ratio report by a Registered Valuer is required.
► In case of mergers, the directors are also required to circulate a report to members specifying, inter alia, any
|4||230(3)||Valuation report along with Notice of creditors/ shareholders meeting –Under scheme of compromise/ Arrangement||In case of a compromise or arrangement between members (such as in mergers or amalgamations) or with creditors, a valuation report in respect of shares, property or assets, tangible and intangible, movable and immovable of the company, or a swap ratio report by a Registered Valuer is required.|
|5||232(2(d)||The report of the expert with regard to valuation, if any, would be circulated for meeting of creditors/ Members||Same as above|
|6||232(3)(h)||The Valuation report to be made by the tribunal for exit opportunity to the shareholders of transferor Company –Under the scheme of Compromise/ Arrangement in case the Transferor company is Listed Company and the Transferee- company is an unlisted Company||Same as above|
|7||236(2)||Valuation of equity shares held by the Minority Share Holders||In case an acquirer or person acting in concert with the acquirer acquire 90% or more of the equity capital in a company, they can offer to the minority shareholder (or the minority shareholder can offer to the acquirer) to acquire the minority shareholding at a valuation determined by the Registered Valuer.|
|8||281(1)||Valuing assets for submission of report by liquidator||A valuation of assets of the company prepared by the Registered Valuer is required in case of winding up, voluntarily or otherwise.|
REGISTERED VALUER UNDER THE INSOLVENCY CODE INSOLVENCY AND BANKRUPTCY BOARD OF INDIA REGULATIONS, 2016 WHICH REQUIRES VALUATION REPORT FROM A REGISTERED VALUER
Under Insolvency Code and Insolvency and Bankruptcy Board of India Regulations, 2016 – Registered Valuer means a person registered as such in accordance with the Companies Act, 2013 and rules made thereunder
REGISTERED VALUER UNDER THE SEBI (REIT AND INVIT) REGULATIONS, 2016 WHICH REQUIRES VALUATION REPORT FROM A REGISTERED VALUER
Under SEBI (REIT and InvIT) Regulations, 2016 “valuer” means any person who is a “registered valuer” under section 247 of the Companies Act, 2013 and who has been appointed by the manager to undertake valuation of the REIT assets
Who will appoint Registered Valuers
Registered Valuers will be appointed by the audit committee, or in its absence, by the Board of Directors of the company. In case of company under Insolvency proceedings, the Registered Valuer will be appoint by Insolvency Resolution Professional.
|Asset Classes||Qualification||Experience||Valuation Examination|
|Land and Building||Graduate in Civil Engineering, Architecture or Town Planning of a recognized university||5 year of experience in discipline after completing graduation||As per Rule 5|
|Post Graduate in Civil Engineering, Architecture or Town Planning of a recognized university||3 year of experience in discipline after completing post-graduation||As per Rule 5|
|Graduate in a discipline specified by the Authority for a RVO in its conditions of recognition and Post Graduate in Valuation of land and building or real estate from a recognized university||5 year of experience in discipline after completing post-graduation||As per Rule 5|
|Plant and Machinery||Graduate in Mechanical or Electrical Engineering of a recognized university||5 year of experience in discipline after completing graduation||As per Rule 5|
|Post Graduate in Mechanical or Electrical Engineering of a recognized university||3 year of experience in discipline after completing post-graduation||As per Rule 5|
|Graduate in Valuation of machinery and plant from recognized university and Post Graduate in Valuation of machinery and plant from recognized university||3 year of experience in discipline after completing post-graduation||As per Rule 5|
|Securities or Financial Assets||Graduate in any stream and
Member of Professional Institute (CA/CS/CMA) or MBA/PGDBM specialization in finance or Post graduate degree in Finance
|3 year of experience in discipline after completing graduation||As per Rule 5|
|Any other graduate or post graduate level qualification as may be specified by Authority||5 year and 3 year of experience in case of graduate level degree and post graduate level degree respectively||As per Rule 5|
Contents of Valuation Report
The report of valuation by a registered valuer shall be as near to and shall contain such information as set out in Form No. 17.3.
RULE 5 : VALUATION EXAMINATION
The authority shall, either on its own or through a designated agency (i.e. IBBI), conduct valuation examination for one or more asset classes, for individuals, who possess the qualifications and experience as specified in rule 4, and have completed their educational courses as member of a registered valuers organization, to test their professional knowledge, skills, values and ethics in respect of valuation:
Provided that the authority may recognize an educational course conducted by a registered valuers organization before its recognition as adequate for the purpose of appearing for valuation examination:
Provided also that the authority may recognize an examination conducted as part of a master’s or post graduate degree course conducted by a University which is equivalent to the valuation examination.
In short, one need to possess not only required qualification and experience as mentioned above, but also need to pass the examination for particular asset class.
Format of Examination : The format of examination is as under:
1. The examination is conducted online (computer-based in a proctored environment) with objective multiple-choice questions;
2. The duration of the examination is 2 hours;
3. A candidate is required to answer all questions;
4. A wrong answer attracts a negative mark of 25% of the marks assigned for the question;
5. A candidate needs to secure 60% of marks for passing;
6. A successful candidate is awarded a certificate by the Authority;
Frequency of Examination
The examination will be available from a number of locations in the country. The examination is available on every working day;
RULE 8 : CONDUCT OF VALUATION
The registered valuer shall, while conducting a valuation, comply with the valuation standards as notified or modified under rule 18:
Provided that until the valuation standards are notified or modified by the Central Government, a valuer shall make valuations as per-
(a) internationally accepted valuation standards;
(b) valuation standards adopted by any registered valuers organization.
The registered valuer may obtain inputs for his valuation report or get a separate valuation for an asset class conducted from another registered valuer, in which case he shall fully disclose the details of the inputs and the particulars etc. of the other registered valuer in his report and the liabilities against the resultant valuation, irrespective of the nature of inputs or valuation by the other registered valuer, shall remain of the first mentioned registered valuer.
The valuation shall now be conducted based on the Valuation Standards. Unless these standards are made, the valuation shall be done taking reference of internationally accepted valuation standards.
There are International Valuation Standards, 2017 issued by the International Valuation Standards Council (IVSC) which may be relied upon. Further the existing regulatory provisions prescribed by other regulators including Income Tax, RBI, SEBI and the Valuation reports and Fairness Opinions on Scheme of Arrangement (available in public domain) may be reviewed.
In case a valuer has taken registration for one of the class of assets, but the assignment requires valuation of other class of assets as well, he/it may get valuation of other class of assets from another Registered valuer but it shall be fully disclosed and the liabilities, if any against the resultant valuation shall remain with the first mentioned registered valuer. Accordingly outsourcing of Valuation assignments would be done carefully after proper understanding of credentials of the other valuer.
RULE 18 : VALUATION STANDARDS
The Central Government shall notify and may modify (from time to time) the valuation standards on the recommendations of the Committee set up under rule 19.
ANNEXURE I : MODEL CODE OF CONDUCT FOR REGISTERED VALUERS
The Rules prescribe Code of Conduct for Registered Valuers. This code of Conduct is on the similar line as we have for other professional Institute.
Methods of Valuations will be discussed in the next part of this article next month.
The notified Rules attempt to bring in standardization in the valuation standards in India and ensure that valuation reports disclose a true and fair view and result in greater objectivity in valuation procedures. The increased transparency and fairness in the valuation system would also boost stakeholder confidence by bringing uniformity.
CMA already have Paper No 20 ‘Strategic Performance Management and Business Valuation’ in our curriculum. The Directorate of advance studies has offered certificate courses on Business Valuation & Corporate Restructuring.
CA / CMAs / CS are recognized to act as registered Valuers for asset class Securities or Financial Assets. Professionals can appear for the limited examination to take benefits of this new opportunity.
Author author : CMA Harshad S. Deshpande is practicing Cost & Management accountant from Pune and partner in M/S Harshad S Deshpande & Associates firm of practicing CMAs rendering professional services in the field of Finance, Indirect Tax and Cost & Management Accounting for more than 12 years of experience.
He is also Regional Council Member of WIRC of ICAI and presently Treasurer of WIRC.
(The author can be reached at email@example.com)