In order to have a uniformity in the recognition of organisation of valuers and the process of valuation of various assets of the organisation, the MCA has introduced for the valuation of any property, stocks, shares, debentures, securities or goodwill or any other assets or net worth of a company or its liabilities.
According to Section 247 of Companies Act, 2013 read with Companies (Registered Valuers and valuation) Rules, 2017 (hereinafter referred to as “The Act”) the valuation of assets can be done by a valuer registered in accordance with the Act having such qualification and experience.
However, the requirement of valuation and the valuer also depends upon:
√ the nature (listed or unlisted) of organisation;
√ the corporate action taken by the organisation;
√ the foreign investment made in the organisation.
In this broader analysis of valuation, I have tried to explain of becoming the registered valuer and to focus upon the valuation process under different corporate action taken by listed and unlisted company.
|S. No.||Scenarios||Companies Act, 2013||Foreign Exchange Management Act (FEMA)||Securities Exchange Board of India (SEBI)|
|Listed Entities||Unlisted Companies|
|1.||Preferential Allotment||Required to be done by Registered Valuer||Same as SEBI Regulation||valuation of capital instruments done as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant||Required to be done by Registered Valuer in accordance with the pricing guidelines of SEBI (ICDR) Regulation.|
|2.||Right Issue||Issue at a price as decided by the company||Issue at a price determined by the Company||Not be at a price less than the price offered to persons resident in India||Issue at a price as decided by the company in consultation with Lead Managers but not less than the face value of specified securities.|
|3.||Issue of Bonus Shares||Not required||Not required
|4.||Employee Stock Option Plan (ESOP)||Required to be done by Registered Valuer||Same as SEBI Regulation||Same as per Companies Act, 2013||Company have the option to determine the exercise price subject to conforming to the accounting policies.|
|5.||Issue of Sweat Equity Shares||Required to be done by Registered Valuer||Same as SEBI Regulation||Same as per Companies Act, 2013||Required to be done by Registered Valuer in accordance with the pricing guidelines of SEBI (ICDR) Regulation. However, if the shares are issued for consideration other than cash, then valuation shall be done by Chartered Accountant or Merchant Banker (for valuation of IPRs)|
|6.||Buy back of Shares||Buy back at a price as decided by the company||Same as SEBI Regulation||valuation of capital instruments done as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant or a SEBI registered Merchant Banker.||The valuation and price shall decide based on the method accept by the company for buy back:
1. Buyback from existing shareholders or odd lot holders: the price as decided by the Company.
2. Buyback through book building process: by Merchant Banker and the company based on the bidding process.
3. Buyback through Stock Exchange: price determined based on volume weighted average price of the shares or other specified securities bought-back
|7.||Compromise and Arrangement||Required to be done by *Registered Valuer.
However, in case of winding up, the company liquidator, if required can also make further report on the viability of the business of the company or can take steps which are necessary for maximising the value of the assets of the company.
|Valuation report shall be issued by valuer who is the member of a recognised professional body in the jurisdiction of the transferee company and further that such valuation is in accordance with internationally accepted principles on accounting and valuation.||**Valuation Report is required to be taken from Independent Chartered Accountant.|
|*As per general circular dated 16-09-19 issued by Insolvency and Bankruptcy Board of India (IBBI) mandates that the valuation required to be conducted under the code shall be done by Registered Valuer by virtue of Section 247 of Companies Act, 2013.|
|NOTE: in case of arrangement taken place between wholly owned subsidiary with its parent entity, no valuation report is required.
** In SEBI, there is a difference between Valuation Report, Fairness Report (taken from Independent SEBI Registered Merchant Banker) and Auditors Certificate (taken from company’s Statutory Auditor) required to be submitted by Listed Entity with authority. The Valuation Report taken from the Independent Chartered Accountant i.e. other than company’s statutory auditor.
Any member is eligible in terms of Rule 3 of the Act to become a “Registered Valuer” after qualifying the valuation examination as per Rule 5 of the Act if that person is a member of “Registered Valuer Organisation”.
|“Qualification” from University or Institute established, recognised or incorporated by law in India||“Experience” in specified discipline|
|post graduate degree or diploma||Atleast 3 years|
|Bachelor’s degree or equivalent||Atleast 5 years|
|Membership of Professional Institute||Atleast 3 years post membership|
For valuation of assets, the eligible valuer must make an application along with a non-refundable fee in FORM A or B as the case may be in terms of Rule 6 of the Act, for getting the certificate of registration of registered valuer.
The valuer may be appointed by the audit committee, or in its absence, by the Board of Directors. The terms and conditions of appointment of the valuer are required to be prescribed by the relevant appointing authority.
Registered Valuer Organisation:
Any organisation which comply the conditions laid down under Rule 12(2) of the Act and has been registered under section 8 of the Companies Act, 2013 with the sole object of dealing with matters relating to regulation of valuers of an asset class or asset classes or it is professional institute established by an Act of Parliament enacted for the purpose of regulation of a profession.
Basis of Valuation:
The valuation conducted by registered valuer shall make valuations based on “Internationally accepted valuation standards” or “valuation standards as adopted by any registered valuer organisation” until the specific valuation standards is issued under Rule 18 of the Act.
Punishment/ Penalty for Contravention:
Any person who is in contravention of the Section 247 of the Act read with Companies (Registered Valuers and valuation) Rules, 2017, shall be punishable with fine which may extend to Rs. 5000 and where the contravention is a continuing one, with a further fine which may extend to Rs. 500 for every day after the first during which such contravention continues.
However, in case issuance of false statement or report knowingly it to be false by any person shall be liable under Section 448.