Registered Valuer is one among the many new concepts introduced by the Companies Act, 2013 to provide for a proper mechanism for valuation of the various assets and liabilities related to a company and to standardize the procedure thereof. This will not only help in eliminating doubts relating to arbitrary valuation and window dressing but will also act as an assurance to the concerned stake holders and regulators regarding the authenticity of the valuation of the asset or liability under consideration. It also throws open a new area of professional opportunity.
Section 247 of the Companies Act, 2013 contains provisions exclusively regarding registered valuers.
Definition (Rule 17.1):
‘Registered Valuer’ means a person registered as a Valuer under Chapter XVII of the Act.
Who can act as a registered valuer?
A person who is registered as a Registered Valuer in pursuance of Section 247 of the Act with the Central Government and whose name appears in the register of Registered Valuers maintained by the Central Government or any authority, institution or agency, as may be notified by the Central Government only can act as a registered valuer. An application for registration as valuer shall be made in Form No. 17.1 by individuals and firms and Form No. 17.2 by others, along with the fee as provided.
The following persons shall be eligible to apply for being registered as a valuer:
- A chartered accountant, company secretary or cost accountant who is in whole-time practice, or retired member of Indian Corporate Law Service or any Indian Citizen holding equivalent Indian or foreign qualification as the Ministry of Corporate Affairs may by an order recognize.
- A Merchant Banker registered with SEBI and having in his employment persons having qualifications as mentioned above to carry out valuation services by such qualified persons
- A member of the Institute of Engineers and who is in whole-time practice
- A member of the Institute of Architects and who is in whole-time practice
5 years of continuous post membership experience is mandatory in all the above cases.
In the case of merchant banker the valuation report shall be signed by the qualified person.
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
(iii) renders professional services or assistance in or about matters of principle or detail relating to valuation.
- A person or entity possessing necessary competence and qualification as may be notified by the Central Government from time to time.
What requires valuation by a registered valuer under the Act?
Any property, stocks, shares, debentures, securities or goodwill or any other assets or net worth of a company or its liabilities which requires valuation under the provision of the Companies Act, 2013 shall be valued by a registered valuer.
In the Act, specific mention about valuation by registered valuer has been made in the following Sections:
Section 62(1)(c) – Further issue of share capital, other than Rights Issue and Issue under a Scheme of Employee Stock Option.
Section 192(2) – Non cash transaction involving directors
Section 230(2) – Valuation report in case of a scheme of compromise or arrangement with creditors or members
Section 236(2) – Purchase of minority shareholding
Section 281(1)(a) proviso – Submission of report by company liquidator
Section 305(2)(d) – Declaration of solvency in case of proposal to wind up voluntarily
Section 319(3)(b) – Power of Company Liquidator to accept shares, etc., as consideration for sale of property of company.
Methods of valuation
- Before adoption of the methods of valuation, the registered valuer shall decide the approach to valuation based upon the purpose of valuation:
(a) Asset approach;
(b) Income approach;
(c) Market approach
- The valuer shall consider the following points while undertaking valuation
(a)Nature of the business and the History of the Enterprise from its inception;
(b) Economic outlook in general and outlook of the specific industry in particular;
(c) Book value of the stock and the financial condition of the business;
(d) Earning capacity of the company;
(e) Dividend –paying capacity of the company;
(f) Goodwill or other intangible value;
(g) Sales of the stock and the size of the block of stock to be valued
(h) 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.
- A registered valuer shall make a valuation of any asset as on valuation date, in accordance with any one or more of the following methods:
(a) Net asset value method – represents the value of an entity’s assets less the value of its liabilities
(b) Market Price method: Under this method the current price at which the subject of valuation is bought or sold in the market between unrelated third parties is taken into account;
(c) Yield method / Profit Earning Capacity Value (PECV): Under this method the value is calculated by capitalizing the average of the after tax profits for the preceding three years (or such other period. Provided adequate justification is available for choosing another period) at capitalisation rates specified in the report
(d) Discounted Cash Flow Method (DCF): This method expresses the present value of the business as a function of its future cash earnings capacity.
(e) Comparable Companies Multiples Methodology (CCM):This Method uses the valuation ratios of a publicly traded company and applies that ratio to the company being valued (after applying appropriate discount or premium, as the context may require).
(f) Comparable Transaction Multiples Method (CTM) – entails valuation on the basis of similar transactions among unrelated parties in the peer group companies.
(g) Price of Recent Investment method (PORI) – entails valuation on the basis of recent investment received in the company from an independent investor.
(h) Sum of the parts valuation (SOTP) – where each part of the business is valued according to method(s) appropriate to that business, and the results are summed up to obtain total value of the business
(i) Liquidation value – if the value is being calculated in a liquidation scenario
(j) Weighted Average Method– Under this method the weights are assigned to the values calculated under different valuation approaches.
(k) Any other method accepted or notified by the Reserve Bank of India, Securities and Exchange Board or Income Tax Authorities.
(l) 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.
- 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.
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.
Appointment of registered valuer [Section 247(1)]:
The registered valuer needs to be appointed by the audit committee or in its absence, by the Board of Directors.
Duties of Registered Valuer [Section 247(2)]:
(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.
Contents of Valuation Report
The report of valuation by a registered valuer shall be as near to and shall contain such information as set out in Form No. 17.3.
Furnishing of Particulars in certain cases by registered valuers
Where any person who is registered as a valuer under section 247 or who has made an application for registration as a valuer under that section is, at any time thereafter,—
(a) sentenced to a term of imprisonment for any offence; or
(b) found guilty of misconduct in his professional capacity by any association or institute or other body of which he is a member or with which he is registered;
he shall immediately after such conviction or finding, intimate the particulars thereof to the Central Government, institution or agency with which he is registered as a valuer and cease to act as valuer unless
- permitted by the Central Government, institute or agency with which he is registered as a valuer, or
- the order imposing penalty/sentence has been stayed by competent authority.
In case valuer is found guilty of professional misconduct or otherwise by the Institute of which he is a member or by NFRA 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.
Removal and restoration of names of valuers from register
The name of a registered valuer can be removed from the register by the Central Government if the government is satisfied –
- that his name has been entered in the register by error or on account of misrepresentation or suppression of a material fact
- that he has been convicted of any offence and sentenced to a term of imprisonment or has been guilty of misconduct in his professional capacity which, in the opinion of the Central Government or any authority, institution or agency, renders his name unfit to be kept in the register.
- that his performance is such that his name should not remain on the register of valuers, satisfied, after giving that person a reasonable opportunity of being heard and after such further inquiry, if any, as it thinks fit to make.
The Central Government or any authority, institution or agency may appoint one or more competent persons as enquiry officer(s) for conducting an enquiry as referred above. The officer(s) conducting an enquiry shall have the same powers as are vested in a Civil Court under the Code of Civil Procedure, 1908 while make an enquiry and he may also call upon such experts from the field of law, economics, business, finance, accountancy, international trade, management, technology or such other discipline as he deems necessary to assist him in conducting the enquiry.
A registered valuer aggrieved by an order passed for removal of name may prefer an appeal in accordance with the procedure laid down in the respective Acts, regulations or bye-laws governing the respective professional. An appeal against the order of the Central Government shall be preferred to the Tribunal.
The name can be restored on sufficient cause being shown to the satisfaction of the Central Government.
Penal Provisions [Section 247(3) & (4)]:
- 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 Rs. 25,000/- but which may extend to Rs. 1,00,000/-.
- 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 1 year and with fine which shall not be less than Rs. 1,00,000/- but which may extend to Rs. 5,00,000/-.
- Where a valuer has been convicted as above, 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.