CA HOZEFA NATALWALA

researchbv@gmail.com
INTRODUCING THE PROVISIONS FOR REGISTERED VALUERS IS AN
APPRECIABLE STEP OF
THE COMPANIES ACT, 2013 : PORTRAYING A NEW AVENUE FOR
CHARTERED ACCOUNTANTS IN PRACTICE

The current economic and regulatory environment in India is on the verge of a major
revamp. Constant efforts are being made to amend and adapt the laws to suit the needs
of contemporary age, to update and make it globally compliant and more meaning full in
the context of investor protection and business friendliness.
BACKGROUND
Companies Act, 2013 (2013 Act) has been assented by the President of India on 29
August 2013 and published in Official Gazette on 30 August 2013. 2013 Act empowers
the Central Government to bring into force various sections from such date(s) as may be
notified in the Official Gazette. The new law will replace the more than 50 year old
Companies Act, 1956.
The new legislation concurs bringing easy and efficient way of carrying business in India.
The 2013 Act stipulates enhanced self-regulations coupled with emphasis on corporate
democracy and provides for business friendly corporate regulation, enhanced
accountability of management, e-governance initiatives, corporate governance,
introduction of Corporate Social Responsibility (CSR), improved disclosure norms, audit
accountability, protection for minority shareholders, investor protection and activism and
better framework for insolvency regulation and institutional structure.
It is the first time that the concept of Registered Valuers has been introduced. Though
business valuations are required in various situations such as court approved M&A, IPO,
FDI, etc., the concept of valuation as a code is new to India. The Companies Act, 1956,
despite using the term valuation in some sections, does not specify the basis on which
such valuations shall be done or who will do them. The 2013 Act has introduced the
concept of a 'Registered Valuer' under a separate chapter which intends to cover several
kinds of valuation requirements. As per Chapter XVII Section 247 of the 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 this Act, it must be valued by a Registered Valuer. The
underlying principle behind introducing this concept is to set and regulate the practice
which will bring transparency and better governance through defined valuation
standards in various business processes demanding valuation. Chapter XVII Section 247
of the 2013 Act, read with Rule 17 of Draft Rules lay down the eligibility criteria to work
as registered valuer, purpose oriented approaches and methods to be used by registered
valuers and contents of the Valuation Report. It defines their roles and responsibilities.
The draft rules are subject to change.

Provision of Companies Act, 2013

CHAPTER XVII
REGISTERED VALUERS

CA HOZEFA NATALWALA
researchbv@gmail.com
247.
(1) 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 of a company or its liabilities
under the provision of this Act, it shall be valued by a
person
having
such
qualifications and experience and registered as a valuer 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) 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) 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:
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.
(4) Where a valuer has been convicted under sub-section (3), he shall be
liable to
out of
o
o
o
o

(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
incorrect or misleading statements of particulars made in his report.

The silent features of the Provisions

Audit Committee or in absence of Audit Committee, the Board of Directors of the
company will appoint a valuer
The Valuer can not undertake or carry out valuation job of any assets in which he has a
direct or indirect interest.
The Valuer shall exercise due diligence and shall make an impartial, true and fair
valuation in accordance with prescribed rules.
In case of contravention of any provision/s of the Act or the Rules by the Valuer, he will
be punishable with imprisonment and fine and subject to be liable to refund the
remuneration and also to pay for damages.
As per the provisions of Companies Act, 2013, all valuations under the Act will be carried
out by a Registered Valuer. The below mentioned sections specifies valuation
requirement under the Act.

Sections

Details

Section 62(1)(c)

For Valuing further Issue of Shares

CA HOZEFA NATALWALA
researchbv@gmail.com
Section 192(2)
Section 230(2)
(c)(v)
Section230(3)
Section 232(2)
(d)
Section 232(3)
(h)

Section 236(2)
Section 260(2)
(c)
Section 281(1)
Section 305(2)
(d)
Section319 (3)
(b)

For Valuing Assets involved in Arrangement of Non Cash transactions

involving Directors
For Valuing Shares, Property and Assets of the company under a
Scheme of Corporate Debt Restructuring
Under a Scheme of Compromise/Arrangement, along with the notice
of creditors/ shareholders meeting, a copy of Valuation Report, if any
shall be accompanied
The report of the expert with regard to valuation, if any would be
circulated for meeting of creditors/members
Where under a Scheme of Compromise/Arrangement the transferor
company is a listed company and the transferee company is an
unlisted company, for exit opportunity to the shareholders of
transferor company, valuation may be required to be made by the
Tribunal
For Valuing Equity Shares held by Minority Shareholders
For preparing Valuation report in respect of Shares and Assets to
arrive at the Reserve Price for Company Administrator
For Valuing Assets for submission of report by Liquidator
For report on the Assets of the company for preparation of declaration
of solvency under voluntary winding up
For Valuing the interest of any dissenting member of the transferor
company who did not vote in favour of the special resolution, as may
be required by the Company Liquidator

Some of the stipulations under draft rules

The draft rules speaks about the definition of registered valuer, eligibility criteria to get
registered as valuer, provisions related with governance of registered valuers including
the information submission requirements, removal and restoration of name, appeal
procedures etc., and the consideration while conducting the valuation assignment
including procedures, methods and reporting contents.
REGISTRATION AS VALUER
The Draft Rules define "Registered Valuer" and state that a person to be eligible to act as
a valuer, must register with the Central Government or institution or agency notified by
the Central Government by filing an application for registration as a valuer.
The following persons shall be eligible to apply for being registered as a valuer:
a)
A chartered accountant, company secretary or cost accountant who is in wholetime practice, or any
person holding equivalent Indian or foreign qualification
(acquired by Indian citizen) as the Ministry of
Corporate Affairs may recognize by
an order; (having at least 5 years continuous experience after
acquiring membership
of the respective institution)
b)
A Merchant Banker registered with the Securities and Exchange Board of India,
and who has in his employment person(s) having qualifications prescribed under (a)
above to carry out valuation by such qualified persons; (having at least 5 years
continuous experience after acquiring membership of the respective institution)

CA HOZEFA NATALWALA
researchbv@gmail.com
c)
Member of the Institute of Engineers and who is in whole-time practice; (having at
least 5 years
continuous experience after acquiring membership of the respective
institution)
d)
Member of the Institute of Architects and who is in whole-time practice; (having at
least 5 years
continuous experience after acquiring membership of the respective
institution)
e)
A person or entity possessing necessary competence and qualification as may be
notified by the
Central Government from time to time.
-

Persons referred to in (a) and (b) shall be in respect of requirement for a

financial valuation and the persons referred to in (c) and (d) shall be in
respect of requirement for a technical valuation and a person or a firm or
Limited Liability Partnership or merchant banker possessing both the
qualifications may act in dual capacity.

Explanation: For the purposes of this rule, a person shall be deemed to be in

whole-time practice, when individually or in partnership or in limited liability
partnership or in merchant banker with other
persons in practice who are
members of other professional bodies, he, in consideration of remuneration
received or to be received :
(i) engages himself in the practice of valuation; or
(ii) offers to perform or performs services involving valuation of any assets with
the object of arriving at financial value of the asset being valued; or renders
professional services or assistance in or about matters of principle or detail
relating to valuation.

The Central Government or any authority, institution or agency, as may be notified by

the Central Government, shall maintain a register to be called as the Register of Valuers
in which there shall be registered the names, address and other details of the persons
registered as valuers in pursuance of section 247.
In case valuer found guilty of professional misconduct or otherwise by the Institute in
which he is a member or by National Financial Reporting Authority or where the SEBI
removed the registration of the merchant banker, such valuer shall cease to be the
valuer automatically and their name shall be removed from the register of valuer unless
such order has been stayed by the Competent Authority. Any ongoing assignment of
such valuer, who has ceased to be a valuer, shall be assigned to other valuer from the
panel maintained by Central Government or any authority or institution to complete the
assignment, if no stay is granted on such appeal, if any.
CONDUCTING VALUATION ASSIGNMENT
The Valuer shall conduct valuation in accordance with the provisions of rules.
The foremost things to start the valuation task are to finalize the purpose of valuation
and the date of valuation. Based on these, the approach will be finalized and will further
lead to select the methods of valuation to be used to arrive at concluding value
estimation.

CA HOZEFA NATALWALA
researchbv@gmail.com
A registered valuer shall make a valuation of any asset as on valuation date, in
accordance with the applicable standards, if any, as may be stipulated for this purpose.
And for the purposes of this rule, valuation date means the date on which the estimate
of value is applicable. It may be different from the date of the valuation report or the
date on which the investigations were undertaken or completed.
o

Approaches To Value

Following are the approaches to conduct purpose oriented valuation as prescribed in

draft Rules
1. Asset approach;
2. Income approach;
3. Market approach.
o

Important Points To Consider

The following points need to be considered while undertaking valuation:

a)
b)
c)
d)
e)
f)
g)
h)

Nature of the business and the history of the enterprise from its inception;
Economic outlook in general and outlook of the specific industry in particular;
Book value of the stock and the financial condition of the business;
Earning capacity of the company;
Dividend paying capacity of the company;
Goodwill or other intangible value;
Sales of the stock and the size of the block of stock to be valued;
Market prices of stock of corporations engaged in the same or a similar line of
business;
i) Contingent liabilities or substantial legal issues, within India or abroad, impacting
the business;
j) Nature of instrument proposed to be issued, and nature of transaction
contemplated by the parties.
o

Valuation Methods

The Draft Rules cover most of the frequently used methods of valuation as well as permit
valuers to apply other methods as appropriate and justified.
The Rules provides that the valuation of any asset as on valuation date shall be made in
accordance with any one or more of the following methods:
1. Net asset value method
2. Market Price method
3. Yield method / Profit Earning Capacity Value (PECV)
4. Discounted Cash Flow Method (DCF)
5. Comparable Companies Multiples Methodology (CCM)
6. Comparable Transaction Multiples Method (CTM)
7. Price of Recent Investment method (PORI)
8. Sum of the parts valuation (SOTP)
9. Liquidation value
10.Weighted Average Method

CA HOZEFA NATALWALA
researchbv@gmail.com
11.Any other method accepted or notified by the Reserve Bank of India, Securities
and Exchange Board or Income Tax Authorities.
12.Any other method(s) that the valuer may deem fit to adopt in the given
circumstances of the case, provided that adequate justification for use of such
method(s) (and not any of the methods above) must be included in the report.
o

Valuation Report

As per draft rules the valuation report shall be as near to and shall contain such
information as mentioned in form No. 17.3.

CA HOZEFA NATALWALA
researchbv@gmail.com

Format of
Valuation Report - Title [Pursuant to section 247(2)(c) and
rule 17.7]
Sr
.
N
o

Contents

1)

Valuer Details

2)

Description of Valuation
Engagement

3)

Description of Business/
Asset /
Liability being valued

4)

Description of the
Information
underlying the Valuation

5)

6)
7)

8)

Description of specific
Valuation of
Assets used in the
Business

Sub-Contents

a) Name of the Valuer

b) Address of the Valuer
c) Registration number of the Valuer
d) e-mail ID
a) Name of the client
b) Other intended users
c) Purpose for valuation
a) Nature of business or asset / liability
b) Legal background
c) Financial aspects
d) Tax matters
a) Analysis of past results
b) Budgets, with underlying assumptions
c) Availability and quality of underlying data
d) Review of budgets for plausibility
e) Statement of responsibility for information received
a) Basis or bases of value
b) Valuation Date
c) Description of the procedures carried out
d) Principles used in the valuation
e) The valuation method used and reasoning
f) Nature, scope and quality of underlying data
g)The extent of estimates and assumptions together
with considerations underlying them

that the valuation has been undertaken in accordance

Confirmation
with these Rules
Further it is certified that valuation has been undertaken after taking into account
relevant conditions/regulations/rules/notifications, if any, issued by the
Central/State Government(s) from time to time.
Valuation Statement :
Date
:
Signature of Valuer
Place :

Apart from this, some key/additional information needs to be included in the Valuation
Report:

CA HOZEFA NATALWALA
researchbv@gmail.com
i.

The valuation report must clearly state the significant assumptions upon which the
value is based. When reporting, there may be instances where there are confidential
figures, these must be summarized in a separate exhibit.
ii. In the valuation report, the Registered Valuer must set out a clear value or range of
values along with the reasoning.
iii. In case the Registered Valuer has been involved in valuing any part of the subject
matter of valuation in the past, the past valuation report(s) should be attached and
referred to herein. In case a different basis has been adopted for valuation (than
adopted in the past), the Valuer should justify the reason for such differences.