Cushman And Wakefield India Private Limited Vs Union of India & Anr (Delhi High Court)
The issue which falls for consideration is in a very narrow compass, whether a company, other than a subsidiary company, joint venture or associate of other company forms a separate class for the purpose of eligibility for registration as a valuer under the Companies (Registered Valuers and Valuation) Rules, 2017, and as such whether the said classification is reasonable. In other words, whether exclusion of a subsidiary company, joint venture or associate of other company, for purpose of eligibility for registration as valuer is reasonable. The answer to the same has to be in the affirmative, more so in view of the justification given by the respondents and as contended by Ms. Madhavi Divan.
High Court held that The objective and intention behind laying down the impugned Rule is clearly to introduce higher standards of professionalism in valuation industry, specifically in relation to valuations undertaken for the purpose of Companies Act and IBC, 2016. The Companies (Registered Valuers and Valuation) Rules, 2017 obviates the possibility of conflict of interest on account of diverging interests of constituent / associate entities which resultantly shall undermine the very process of valuation, being one of the most essential elements of the proceedings before NCLT.
Keeping in view the position of law and the reasoning given by the respondents and making eligible only companies other than subsidiary companies, associate companies and joint ventures for the purpose of registration as valuer, a separate class has been carved out based on classification which is founded on intelligible differentia and as such the Companies (Registered Valuers and Valuation) Rules, 2017 cannot be faulted.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
1. As these four writ petitions involve a common issue with common facts, the same are being decided by this common order and for the purpose of the facts, as counter affidavit has been filed in W.P. (C) 9890/2018, the facts are being culled out from that petition.
2. The present petition has been filed with the following prayers:
“In view of the facts and grounds stated herein above the petitioners herein prays that this Hon’ble Court may be pleased to:
a. Issue appropriate writ, order or direction declaring Rule 3(2) of the Companies (Registered Valuers and Valuation) Rules, 2017 as unconstitutional for violating Article 14, Article 19(1)(g) and Article 301 of the Constitution of India.
b. Pass any other order and / or direction, as this Hon’ble Court may deem fit proper under the facts and circumstances of the present case and in the interest of justice.”
3. In substance, the challenge in these petitions is to declare Rule 3(2) of the Companies (Registered Valuers and Valuation) Rules, 2017 as unconstitutional for violating Article 14, Article 19(1)(g) and Article 301 of the Constitution of India. The Rule 3(2) is reproduced as under:
X X X X X X
(2) No partnership entity or company shall be eligible to be a registered valuer if-
(a) it has been set up for objects other than for rendering professional or financial services, including valuation services and that in the case of a company, it is a subsidiary, joint venture or associate or another company or body corporate.”
4. It is the case of the petitioners and submitted by Mr. Vikas Singh, learned Senior Counsel appearing for the petitioners that the petitioners are engaged in the business of real estate consultancy services including provision of real estate valuation services. The petitioner being a subsidiary of a reputed body corporate, is universally recognized as a lauded leader in providing valuation service and enjoys a reputation beyond reproach both in India and abroad. The petitioner has over the years been instrumental in setting benchmark for high standards, transparency and fairness with respect to valuation services in India. Further the petitioner had invested time, money and experience in creating a pool of resources to carry out quality valuation services in India.
5. According to him, with the advent of Companies Act, 2013, the concept of ‘Registered Valuer’ was introduced for the first time. As per Section 247 of the Companies Act, where a valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets or net worth of a company or its liabilities under the provision of the Companies Act, it must be valued by a Registered Valuer.
6. On October 18, 2017, Section 247 of the Companies Act was notified along with the Companies (Registered Valuers and Valuation) Rules, 2017. According to him, Rule 3(2)of the RV Rules and in particular Rule 3(2)(a) explicitly provides that a company shall not be eligible to be a Registered Valuer, if it is a subsidiary, joint venture or associate of another company or body corporate, and this has impaired the right of the petitioners to carry on trade and business, which is guaranteed by the Constitution of India, as it ousts the petitioner from being a Registered Valuer merely on the ground of it being a subsidiary of a body corporate, which is patently discriminatory and arbitrary.
7. In other words, according to him, it imposes unreasonable restriction on the petitioner’s right to carry on trade and business. He also submits that the petitioner is not only discriminated against individuals and partnership entities but also such companies which are not subsidiaries, joint ventures or associates of other companies / body corporates. There is no intelligible differentia to support such classification. It is his endeavor to state that to pass the test of permissible classification two conditions must be fulfilled, namely, (i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group, and (ii) that differentia must have a rational relation to the object sought to be achieved by the statute in question. Regrettably, according to him, the impugned Rule fails on both the counts.
8. It is his submission that the subsidiaries or joint ventures or associates of globally recognized entities which have a rich and varied experience in the field of valuation are better equipped as opposed to individual valuers to carry out valuation pertaining to large corporations and in such a case it becomes necessary to engage companies such as the petitioner to carry out valuation. These subsidiaries or joint ventures or associates of foreign and Indian companies will continue to impart more professionalism, quality, high standards and transparency in valuation industry.
9. In fact, it is his endeavor to submit that the impugned Rule shall perniciously affect investment / acquisition of assets in India as both Indian and foreign investors rely on globally recognized valuation service providers, such as the petitioner. In support of his submissions he would rely upon the judgment of the Supreme Court in the case of Cellular Operators Association of India and Others vs. Telecom Regulatory Authority of India and Others (2016) 7 SCC 703.
10. On the other hand, Ms. Madhavi Divan, learned ASG appearing for the respondents would justify the impugned Rule. According to her, the Rules are self-contained code intended to apply for the purposes of valuation in respect of any properties / stocks, shares, debentures, securities or goodwill or any other assets on net worth of a company or its liabilities under the provisions of the Companies Act, 2013 or the RV Rules. She states that the explanation to Rule 1(3) clearly stipulates that the conduct of valuation under any other law other than the Companies Act, 2013 shall not be affected by the coming into the effect of the Rules in question.
11. It is also her endeavor to rely on Section 247 of the Act which introduced for the very first time the concept of valuation by a registered valuer having qualifications, and requisite experience so that an impartial, true and fair valuation may be made. Such a provision did not exist under the old Companies Act, 1956. She submits that credible valuation of assets is critical to the efficient working of the financial market. Till the commencement of the Act and the Rules, there had not been any generally accepted and uniform standards in asset valuation system in India. Valuers had been adopting divergent methodologies resulting in vast differences in their conclusions. Due to divergent valuation outcomes and criteria, asset valuation in India was not considered credibly. Lack of authentic valuation reports of assets pointed fingers at the method of asset valuation and even the credibility of valuers. It is in order to regulate valuation profession under a regulatory regime and to guide and develop the same, the Parliament decided to bring in uniformly acceptable norms and generally accepted global valuation practices in India by incorporating a separate Chapter in the Act to set regulatory norms for various classes of asset valuation for the purposes of Companies Act, 2013.
12. She stated that there are now myriad situations / statutory provisions under the Act and the Insolvency and Bankruptcy Code, 2016 under which valuation is required to be carried out. A perusal of the counter affidavit gives the following position:
