Valuation Requirements Under Various Statutes By CS Shweta Dubey

Shweta Dubey | 6484 Views | 18 Mar 2020 Bookmark

Companies Act 2013, Corporate Law, Articles, IBC, Insolvency, Bankruptcy, Income Tax, Valuation,

“Valuating a business is part art and part science”

-Warren Buffet

This quote by Warren Buffet in itself defines Valuation as a blend of both Art and Science. Valuation isn’t about simple profit or loss but a Snapshot of the current financial existence of the Organisation. Valuation of Shares, is gaining widespread possibilities thereby bestowing infinite opportunities for the professionals.

The Ministry of Corporate Affairs by Notification dated 18^th October, 2017 notified the Provisions of Section 247 of Companies Act, 2013 (the Act) and also introduced the Companies (Registered Valuers and Valuation) Rules, 2017 ("Rules"). Section 247 of the Act deals with the Concept, functions and responsibilities of Registered Valuers and Valuation.

The concept of "Registered Valuer" (RVs) under Indian law was introduced for the first time vide Section 247 of Chapter VXII of the Indian Companies Act for matters requiring valuation under the said act. Thereafter, Companies Act, 2013 amended the Companies (Registered Valuers and Valuation) Rules, 2017 mandating the pre-requisites to be appointed as a Registered Valuers under the new regime.

Further, Insolvency and Bankruptcy Board of India came out with a circular dated 16.09.2019 in which the Valuation required under the provisions of the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 was mentioned which can only be conducted by A Registered Valuer as per Section 247 of the Act.

In this article it is an attempt to cover the requirement of Valuation under different segments to get a Comprehensive picture of the opportunities for the professionals in this field of Valuation prevailing in the current scenario: (the list is illustrative and not the comprehensive one).

Under Companies Act, 2013:

Serial No.	Particulars	Sections	Valuation Requirements
1	For further issue of shares (except right issue to Existing Shareholders and ESOP issue to employees)	62 (1)(c)	Valuation of Shares
2	Restriction on Non Cash Transactions involving Directors	192(2)	Asset Valuation
3	Scheme of Compromise or Arrangements (Compromise or arrangements with creditors and members)	Section 230(2)(c)(v) and Section 230(3) of Companies Act, 2013	Valuation of Shares and determination of Swap Ratio
4	Valuation for purchase of Minority Shareholders	236 (2)	Valuation of the Minority Shareholding
5	Corporate Debt Restructuring	232(2)(c)	Securities Valuation
6	Scheme of compromise / arrangement in case the transferor company is listed company and the transferee company is an unlisted company	232(3)(h)	Valuation of Shares and be made by the tribunal for exit opportunity to the shareholders of transferor company
7	Winding up of Company	281(1) (a) and 305 (2)(d)	Valuation of Assets
8	Issue of Sweat Equity Shares	Rule 8 of Companies (Capital and Debentures), Rules 2014	Valuation for ascertainment fair Value of Shares.
9	Creation of Security	Rule 6 of the Companies (Acceptance of Deposits), 2014	Ascertainment of the Market Value of the Assets on which charge is Secured.
10.	Allotment of Securities for consideration other than Cash	Section 39(4) of the Act	Valuation of the consideration
11.	Audit Committee terms of reference	Section 177	Valuation of undertakings or assets, wherever it is necessary

Under IBC: -This valuations to be conducted exclusively (except point 1) by the Registered Valuers as per Section 247 of the Act)

Serial No.	Particulars	Applicable Section/ Regulation(s)	Valuation Requirements
1.	Relevant period for avoidable transactions	Sec 46 (2) of IBC, 2016	Valuation of the Undervalued Transactions
2.	Voluntary liquidation of corporate persons	Sec 59(3)(b)(ii) of IBC, 2016	Valuation of the assets of the company
3.	Liquidation Process under IBC,2016	Regulation 35 of IBBI (Liquidation Process) Regulations, 2016	Valuation of assets intended to be sold.
4.	Corporate Insolvency Resolution Process	Regulation 27 read with regulation 35 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016	Ascertainment of Fair value and liquidation value of the Assets of the Corporate Debtor.
5.	Conduct of the Fast Track Process	Regulation 26 read with regulation 34 of the IBBI (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017	Ascertainment of Fair value and liquidation value of the Assets of the Corporate Debtor.
6.	Voluntary liquidation of corporate persons	Regulation 3 of IBBI (Voluntary Liquidation Process) Regulations, 2017.	Valuation of the assets of the Company.

Under SEBI regulations:

Serial No.	Particulars	Applicable Regulation(s)	Valuation Requirements
1.	Valuation of the REIT assets	Regulation 21 of SEBI (Real Estate Investment Trusts) Regulations, 2014	NAV Computation of the Real Estate Investment Trusts
2.	Valuation of the InvITs assets	Regulation 21 of SEBI (Infrastructure Investments Trusts) Regulations, 2014	NAV Computation of the Infrastructure Investments Trusts
3.	Valuation of Security receipts	Regulation 87A of SEBI (LODR) Regualtions,2015)	The Valuation is to be made quarterly.
4.	Delisting of Shares	Regulation 23 of SEBI (Delisting of Equity Shares) Regulations, 2009.	Fair Value determination of delisted equity shares.
5.	Issue of specified securities are issued on a preferential basis for consideration other than cash.	Regulation 163 of SEBI(Issue of Capital and Disclosure Requirements), 2018	In case of preferential issue of infrequently traded shares, Valuation of Assets are required.
6.	In case of Takeover of Companies	SEBI (Substantial Acquisition of shares and Takeovers) Regualtions,2011	Valuation of the infrequently traded on the stock exchange.

Under FEMA Regulations:

Issue or transfer of shares or convertible securities requires valuation to a Non- Resident.

The Institute of Chartered Accountants of India issued the ICAI Valuation Standards, 2018 in June, 2018 for uniform and best practices. Though the compliance with the Valuation Standards 2018 are recommendatory for chartered accountants who are not enrolled with ICAI Registered Valuers Organisation for Valuation under any Statute except under the Companies Act 2013.

Here we provide a summary of the contents of Valuation Report which a valuer shall at a minimum include the following in the valuation report:

(a) background information of the asset being valued;

(b) purpose of the valuation and appointing authority;

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

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

(f) inspections and/or investigations undertaken;

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

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

(i) valuation methodology used;

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

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

(l) conclusion; and

(m) caveats, limitation 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.

The rationale behind the change is to strengthen the governance and transparency in valuation method and to maintain the consensus among the professionals serving the industry, professionals, shareholders and government.