Valuation by registered valuers

The provisions about valuation by registered valuers are contained in Section 247 of Chapter XVII of the Companies Act, 2013. Section 247 has been made effective from 18th October, 2017 vide MCA Notification F.No.7/27/2013-CLV. Consequent to notification of section 247, MCA also notified the Companies (Registered Valuers and Valuation) Rules, 2017. These rules are basically about who could become valuers and the process of registration and deregistration of these valuers with the Insolvency and Bankruptcy Board of India.

The Central Government has delegated its powers and functions vested in under section 247 of the Companies Act, 2013 related to valuation any property, stocks, shares, debentures, securities or goodwill or any other assets by registered valuers to the Insolvency and Bankruptcy Board of India vide its Notification Dated 23.10.2017.

A person, who is rendering valuation services under the Companies Act, 2013, may continue to do so without a certificate of registration up to 30th September, 2018 –  IBBI Press Release, Dated 02-04-2018.

1. Valuation to be carried out by a person having prescribed qualifications and experience and registered as a valuer

Section 247(1) provides that where a valuation is required to be made in respect of:

• any property, stocks, shares, debentures, securities or goodwill or any other assets (herein referred to as the assets); or
• net worth; or
• liabilities

of a company under the provision of this Act, it shall be valued by a person having such qualifications and experience, registered as a valuer and being a member of an organisation recognised, in such manner, on such terms and conditions as may be prescribed and appointed by the audit committee or in its absence by the Board of Directors of that company.

2. Duties of valuer

Section 247(2) provides that the valuer appointed under sub-section (1) 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 functions as 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 becomes so interested at any time during or after the valuation of assets.

3. Penalty

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 – Section 247(3).

It is further provided that 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 – proviso to Section 247(3).

4. Liability of valuer for refunding the remuneration and payment for damages

Where a valuer has been convicted under sub-section (3), he shall be liable to—

(i) refund the remuneration received by him to the company; and

(ii) 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 – Section 247(4)

5. Eligibility for registered valuers as an individual

Rule 3(1) of Companies (Registered Valuers and Valuation) Rules, 2017 provides that a registered valuer if he-

(a) is a valuer member of a registered valuers organisation;

Explanation─ For the purposes of this clause, “a valuer member” is a member of a registered valuers organisation who possesses the requisite educational qualifications and experience for being registered as a valuer;

(b) is recommended by the registered valuers organisation of which he is a valuer member for registration as a valuer;

(c) has passed the valuation examination under rule 5 within three years preceding the date of making an application for registration under rule 6;

(d) possesses the qualifications and experience as specified in rule 4;

(e) is not a minor;

(f) has not been declared to be of unsound mind;

(g) is not an undischarged bankrupt, or has not applied to be adjudicated as a bankrupt;

(h) is a person resident in India;

Explanation─ For the purposes of these rules ‘person resident in India’ shall have the same meaning as defined in clause (v) of section 2 of the Foreign Exchange Management Act, 1999 as far as it is applicable to an individual;

(i) has not been convicted by any competent court for an offence:

♦ punishable with imprisonment for a term exceeding six months; or

♦ involving moral turpitude,

and a period of five years has not elapsed from the date of expiry of the sentence:

 Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be registered;

(j) has not been levied a penalty under section 271J of Income-tax Act, 1961 and time limit for filing appeal before Commissioner of Income-tax (Appeals) or Income-tax Appellate Tribunal, as the case may be has expired, or such penalty has been confirmed by Income-tax Appellate Tribunal, and five years have not elapsed after levy of such penalty; and

(k) is a fit and proper person

Explanation─ For determining whether an individual is a fit and proper person under these rules, the authority may take account of any relevant consideration, including but not limited to the following criteria:

(i) integrity, reputation and character,

(ii) absence of convictions and restraint orders, and

(iii) competence and financial solvency.

6. Eligibility for registered valuers as partnership entity/ company

Rule 3(2) of Companies (Registered Valuers and Valuation) Rules, 2017 provides that no partnership entity or company shall be eligible to be a registered valuer if-

• 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 not a subsidiary, joint venture or associate of another company or body corporate;
• it is undergoing an insolvency resolution or is an undischarged bankrupt;
• all the partners or directors, as the case may be, are not ineligible under clauses (c), (d), (e), (g), (h), (i), (j) and (k) of sub-rule (1);
• three or all the partners or directors, whichever is lower, of the partnership entity or company, as the case may be, are not registered valuers; or
• none of its partners or directors, as the case may be, is a registered valuer for the asset class, for the valuation of which it seeks to be a registered valuer.

7. Qualifications and experience

Rule 4 provides that an individual shall have the following qualifications and experience to be eligible for registration under rule 3, namely:

(a) post-graduate degree or post-graduate diploma, in the specified discipline, from a University or Institute established, recognised or incorporated by law in India and at least three years of experience in the specified discipline thereafter; or

(b) a Bachelor’s degree or equivalent, in the specified discipline, from a University or Institute established, recognised or incorporated by law in India and at least five years of experience in the specified discipline thereafter; or

(c) membership of a professional institute established by an Act of Parliament enacted for the purpose of regulation of a profession with at least three years’ experience after such membership and having qualification mentioned at clause (a) or (b).

♦ For the purposes of this clause the ‘specified discipline’ shall mean the specific discipline which is relevant for valuation of an asset class for which the registration as a valuer or recognition as a registered valuers organisation is sought under these rules.

♦ Qualifying education and experience and examination or training for various asset classes, is given in an indicative manner in Annexure–IV[1] of these rules

8. Valuation Examination

Rule 5 provides that:

(1) Authority to conduct examination, recognise an educational course of registered valuers organisation and recognise master’s/ post graduate examination of University:

The authority[2] shall, either on its own or through a designated agency, 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 organisation, to test their professional knowledge, skills, values and ethics in respect of valuation:

Provided that the authority may recognise an educational course conducted by a registered valuers organisation before its recognition as adequate for the purpose of appearing for valuation examination:

Provided also that the authority may recognise 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.

(2) Authority shall determine the syllabus for various valuation specific subjects or assets classes:

The authority shall determine the syllabus for various valuation specific subjects or assets classes for the valuation examination on the recommendation of one or more Committee of experts constituted by the authority in this regard.

(3) Syllabus, format and frequency of the valuation examination, including qualifying marks, shall be published on the website of the authority:

The syllabus, format and frequency of the valuation examination, including qualifying marks, shall be published on the website of the authority at least three months before the examination.

(4) Acknowledgement of passing the examination:

An individual who passes the valuation examination, shall receive acknowledgement of passing the examination.

(5) Number of times an individual may appear for examination:

An individual may appear for the valuation examination any number of times.

9. Application for certificate of registration

Rule 6 provides that:

(1) Filing of application by an Individual in prescribed form with payment of prescribed fees:

An individual eligible for registration as a registered valuer under rule 3 may make an application to the authority in Form-A along with a non-refundable application fee of five thousand rupees in favour of the authority.

(2) Filing of application by a partnership entity/ company in prescribed form with payment of prescribed fees:

A partnership entity or company eligible for registration as a registered valuer under rule 3 may make an application to the authority in Form-B along with a nonrefundable application fee of ten thousand rupees in favour of the authority.

(3) Granting 21 days to the applicant to remove the deficiencies, if any:

The authority shall examine the application, and may grant twenty one days to the applicant to remove the deficiencies, if any, in the application.

(4) Requisition of additional documents:

The authority may require the applicant to submit additional documents or clarification within twenty-one days.

(5) Appearance of applicant before authority:

The authority may require the applicant to appear, within twenty one days, before the authority in person, or through its authorised representative for explanation or clarifications required for processing the application.

(6) Grant of certificate of registration:

If the authority is satisfied, after such scrutiny, inspection or inquiry as it deems necessary, that the applicant is eligible under these rules, it may grant a certificate of registration to the applicant to carry on the activities of a registered valuer for the relevant asset class or classes in Form-C within sixty days of receipt of the application, excluding the time given by the authority for presenting additional documents, information or clarification, or appearing in person, as the case may be.

(7) Refusal for granting certificate of registration:

If, after considering an application made under this rule, the authority is of the prima facie opinion that the registration ought not be granted, it shall communicate the reasons for forming such an opinion within forty-five days of receipt of the application, excluding the time given by it for removing the deficiencies, presenting additional documents or clarifications, or appearing in person, as the case may be.

(8) Submission of explanations by the applicant:

The applicant shall submit an explanation as to why his/its application should be accepted within fifteen days of the receipt of the communication under sub- rule (7), to enable the authority to form a final opinion.

(9) Order of authority for accepting or rejecting the application:

After considering the explanation, if any, given by the applicant under sub-rule (8), the authority shall either:

(a) accept the application and grant the certificate of registration; or

(b) reject the application by an order, giving reasons thereof.

(10) Communication of decision to the applicant:

The authority shall communicate its decision to the applicant within thirty days of receipt of explanation

10. Conditions of Registration

Rule 7 provides that the registration granted under rule 6 shall be subject to the conditions that the valuer shall:

(a) at all times possess the eligibility and qualification and experience criteria as specified under rule 3 and rule 4;

(b) at all times comply with the provisions of the Act, these rules and the Bye-laws or internal regulations, as the case may be, of the respective registered valuers organisation;

(c) in his capacity as a registered valuer, not conduct valuation of the assets or class(es) of assets other than for which he/it has been registered by the authority;

(d) take prior permission of the authority for shifting his/ its membership from one registered valuers organisation to another;

(e) take adequate steps for redressal of grievances;

(f) maintain records of each assignment undertaken by him for at least three years from the completion of such assignment;

(g) comply with the Code of Conduct (as per Annexure-I[3] of these rules) of the registered valuers organisation of which he is a member;

(h) in case a partnership entity or company is the registered valuer, allow only the partner or director who is a registered valuer for the asset class(es) that is being valued to sign and act on behalf of it;

(i) in case a partnership entity or company is the registered valuer, it shall disclose to the company concerned, the extent of capital employed or contributed in the partnership entity or the company by the partner or director, as the case may be, who would sign and act in respect of relevant valuation assignment for the company;

(j) in case a partnership entity is the registered valuer, be liable jointly and severally along with the partner who signs and acts in respect of a valuation assignment on behalf of the partnership entity;

(k) in case a company is the registered valuer, be liable alongwith director who signs and acts in respect of a valuation assignment on behalf of the company;

(l) in case a partnership entity or company is the registered valuer, immediately inform the authority on the removal of a partner or director, as the case may be, who is a registered valuer along with detailed reasons for such removal; and

(m) comply with such other conditions as may be imposed by the authority.

11. Conduct of valuation

Rule 8 provides that:

(1) 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 organisation.

(2) 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.

(3) Contents of valuation report: The valuer shall, in his report, state the following:

(a) background information of the asset being valued;

(b) purpose of valuation and appointing authority;

(c) identity of the valuer and any other experts involved in the valuation;

(d) disclosure of valuer interest or conflict, if any;

(e) date of appointment, valuation date and date of report;

(f) inspections and/or investigations undertaken;

(g) nature and sources of the information used or relied upon;

(h) procedures adopted in carrying out the valuation and valuation standards followed;

(i) restrictions on use of the report, if any;

(j) major factors that were taken into account during the valuation;

(k) conclusion; and

(l) caveats, limitations and disclaimers to the extent they explain or elucidate the limitations faced by valuer, which shall not be for the purpose of limiting his responsibility for the valuation report.

12. Transitional Arrangement

Rule 11 provides that 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:

Provided that if a company has appointed any valuer before such date and the valuation or any part of it has not been completed before 31st March, 2018, the valuer shall complete such valuation or such part within three months thereafter.

Explanation─ It is hereby 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.

13. Valuation Standards

Rule 18 states that 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.

14. Committee to advise on valuation matters

14.1. Constitution of Committee to advise on valuation matters:

Rule 19 provides that:

(1) The Central Government may constitute a Committee to be known as “Committee to advise on valuation matters” to make recommendations on formulation and laying down of valuation standards and policies for compliance by companies and registered valuers.

(2) The Committee shall comprise of:

(a) a Chairperson who shall be a person of eminence and well versed in valuation, accountancy, finance, business administration, business law, corporate law, economics;

(b) one member nominated by the Ministry of Corporate Affairs;

(c) one member nominated by the Insolvency and Bankruptcy Board of India;

(d) one member nominated by the Legislative Department;

(e) upto four members nominated by Central Government representing authorities which are allowing valuations by registered valuers;

(f) upto four members who are representatives of registered valuers organisations, nominated by Central Government;

(g) upto two members to represent industry and other stakeholder nominated by the Central Government in consultation with the authority

14.2. Tenure of Committee:

Rule 19(3) provides that the Chairperson and Members of the Committee shall have a tenure of three years and they shall not have more than two tenures.

[1] Not reproduced in the Article. Readers may refer the same at www.mca.gov.in

[2] “Authority” means an authority specified by the Central Government under section 458 of the Companies Act, 2013 to perform the functions under these rules

[3] Not reproduced in the Article. Readers may refer the same at www.mca.gov.in