Business valuation in India has shifted from being an optional, event-driven exercise to a mandatory compliance, regulatory, and strategic requirement in 2025. Whether a company is raising funds, restructuring debt, issuing shares, undergoing merger/demerger, or facing insolvency, valuation today forms the foundation for transparency, governance, and decision-making. In an economy driven by capital markets, investor confidence, tax scrutiny, and corporate accountability, valuation is no longer a formality — it is a necessity.
Here’s what every promoter, CFO, board member, and investor must know.
1. Corporate Laws Now Require Mandatory Valuation for Multiple Transactions
Under the Companies Act, 2013, valuation by a Registered Valuer is compulsory for:
- Issue of shares (private placement / rights issue / preferential allotment)
- ESOPs / sweat equity
- Buy-back of shares
- Mergers, demergers & amalgamations
- Transfer of shares by significant shareholders
- Purchase of minority shareholding
- Related party transactions involving securities
- Fundraising at premium or discount
Boards can no longer rely on internal estimates — regulators now demand independent valuation reports with transparent methodologies.
2. Income Tax Department Has Intensified Valuation Scrutiny (Angel Tax, FMV Rules)
In 2024–25, CBDT issued several clarifications to tighten Fair Market Value (FMV) testing for:
- Startups raising funds
- Issue of shares to non-residents
- ESOP valuations
- Transactions between related parties
- Conversion of CCPS/CCD into equity
Incorrect valuation leads to:
- tax additions,
- interest,
- penalties, and
- long-term scrutiny risk.
This makes valuation accuracy critical, especially for startups and PE/VC-backed companies.
3. RBI Regulations Now Require Valuation for Cross-Border Transactions
For any FDI/FPI inflow or outflow, including:
- issuance of shares to foreign investors
- transfer of shares between residents and non-residents
- exit by foreign shareholders
RBI mandates valuation by a Registered Valuer or Category-I Merchant Banker, depending on the transaction. A mismatch in valuation can delay filing of FC-GPR / FC-TRS, leading to penalties under FEMA.
4. Lending Institutions Are Demanding Valuation for Debt Restructuring
Banks and NBFCs now routinely require valuation before approving:
- One-Time Settlements (OTS)
- Debt restructuring
- Compromise arrangements under RBI’s Prudential Framework
- Lending against equity or hybrid instruments
For lenders, valuation provides:
- clarity on business viability,
- assessment of promoter capability, and
- justification for haircut decisions.
This shift has made valuation a necessity for banking, not just a corporate exercise.
5. In the IBC Ecosystem, Valuation Determines Recovery & Resolution
As Insolvency and Bankruptcy Code (IBC) matures:
- Resolution values
- Liquidation values
- Fair value assessments
- Going concern analyses
- OTS vs liquidation decisions
all depend on the valuation.
A professionally executed valuation impacts:
- CoC decision-making,
- bidder participation,
- Section 230 restructuring plans,
- and avoidance transaction outcomes.
Inaccurate valuation → reduced recoveries → litigation → delays.
6. SEBI Has Strengthened Valuation Regulations for Listed Companies
Listed entities now require valuation for:
- Preferential issues
- Delisting
- Related party transactions
- Schemes of arrangement
- Share swaps
- Equity-linked instruments
SEBI’s approach is simple:
Independence, transparency, and defensible valuation models.
Boards are increasingly engaging Registered Valuers to meet regulatory expectations.
7. Governance & Litigation Risks Have Increased Dramatically
Courts, regulators, and auditors are scrutinising valuation reports more closely than ever. 2025 has seen:
- More shareholder disputes
- Higher tax scrutiny
- NCLT challenges to valuation reports
- Investors demanding justification for pricing
- Banks questioning viability assumptions
A robust valuation is now a shield against litigation — not just a number on paper.
8. Valuation Is Now a Strategic Tool for Promoters & Investors
Beyond compliance, companies use valuation for:
- strategic planning
- performance benchmarking
- succession & estate planning
- investor negotiations
- internal ESOP pricing
- business restructuring
- management buyouts
Valuation helps companies understand what drives value — and what destroys it.
Conclusion: 2025 Marks the Era of Mandatory, High-Quality Valuation
Regulators demand it.
Investors expect it.
Auditors rely on it.
Courts enforce it.
A precise, defensible, and well-documented valuation is now essential for:
- regulatory compliance
- fundraising
- restructuring
- governance
- and business strategy.
Companies that treat valuation seriously will strengthen investor trust and improve decision-making. Those who treat it casually will face scrutiny, tax issues, and compliance risks.
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Author Note: The author is a Registered Valuer (Securities & Financial Assets) and Insolvency Professional with extensive experience in business valuation, financial modelling, restructuring, CIRP, and liquidation assignments. For valuation-related queries—such as fundraising, ESOPs, M&A, fairness opinions, IBC valuations, or regulatory compliance—you may reach out to Krit Narayan Mishra at kritmassociates@gmail.com | +91 99108 59116.
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