Valuation is necessary not only for making critical business decisions but also to comply with provisions of various statutes.
Different type of valuation methodology and reporting is adopted for various regulatory requirements. There was no standardized way for doing valuation, making assumptions for it and uniformity in reporting. Due to this, there has been a huge difference in different valuation conclusions. On October 18, 2017 the Ministry of Corporate Affairs has brought into effect the provisions relating to Registered Valuers by notifying the Companies (Registered Valuers and Valuation) Rules, 2017 to regulate practice to valuation and thereby increasing credibility of valuation reports. Thus it has provided a new area to work for Professionals like Chartered Accountants, Cost and Management Accountants, Company Secretaries, Engineers etc.
Any person rendering valuation services after the commencement of the Companies (Registered Valuers and Valuation) Rules, 2017 may continue to render such services without a Certificate of Registration till 30th September 2018. If a Company has appointed a valuer before such date or if a part of the assignment has not been completed on or before 30th September 2018, the valuer shall complete the valuation within 3 months thereafter.
GOVERNING PROVISIONS FOR REGISTERED VALUERS:
Section 247 of the Companies Act, 2013 read with Companies (Registered Valuers and Valuation) Rules, 2017
These rules contain various aspects pertaining to Registered Valuers including:
- Provisions relating to qualification and experience to become a Registered Valuer
- Eligibility and Role of Registered Valuers Organization (RVO)
- Valuation Standards required to be adhered to
- Contents of the Valuation Report
- Professional Competence and Due Care and Independence of Valuer
- Regulation of the Profession
ACTS COVERED BY REGISTERED VALUERS PROVISIONS:
- Companies Act, 2013
- Insolvency and Bankruptcy Code, 2016
- SEBI Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) Regulations, 2016
Presently, these provisions will not apply to other laws except those mentioned above. But there is an expectation that in due course of time these may be adopted by other regulators also.
WHO CAN MAKE VALUATIONS NOW?
Registered Valuers are the eligible professionals who are registered members of an RVO and who possess the qualifications as specified in the Companies (Registered Valuers and Valuation) Rules, 2017. Even a Partnership Firm or a Company can register as Registered Valuers subject to the Conditions specified therein. It is also important to note that only persons resident in India can get themselves registered under these Rules.
A registered valuer shall not undertake valuation of assets in which he has direct or indirect interest during three years prior to appointment as valuer or may become interested during three years after valuation of assets is conducted by him.
RESPONSIBILITIES OF VALUERS UNDER THE ACT:
- Make impartial, true and fair valuation
- Exercise due diligence while performing functions
- Make valuation according to the rules prescribed
- A registered valuer shall not conduct valuation of the assets or classes of assets other than for which he/it has been registered by the authority.
ELIGIBILITY TO REGISTER AS VALUERS:
- He should have passed the Valuation Examination 3 years before date of making application. Exemption is given to individuals who are 50 years of age and involved in at least 10 valuation assignments of Rupees Five Crores or more during 5 years preceding the commencement of these rules.
- He must have a Post Graduate Degree with 3 years’ experience in the discipline or bachelor’s degree with 5 years’ experience or membership of a professional institute with 5 years’ experience after such membership.
- Must be a member (holding certificate of practice) of Professional Institute with at least 3 years of experience and who has a qualifications mentioned in (a) and (b) above.
Qualification for Different Kinds of Assets:
To conduct valuation of Land & Building – Graduates in the stream of Civil engineering, Architecture or Town Planning
To conduct valuation of Plant & Machinery – Graduates in the stream of Mechanical or Electrical Engineering
For valuation of Security and Financial Assets -Members of Professional Institutes (CA/CS/CMA) who are also Graduates in any stream or Post Graduates in Finance.
So far, IBBI has recognized two Registered Valuers Organizations, “the Institution of Estate Managers and Appraisers” in the asset class of “land and building” and “the IOV Registered Valuers Foundation” in all three asset classes of “land and building”, “plant and machinery” and “securities or financial assets”.
Partnership Firms including LLPs and Companies:
Partnership Firms including LLPs and Companies shall be eligible to register themselves as Registered Valuers based on the following conditions:
- The firm/Company must have been set up for rendering professional or financial services, including valuation services and additionally in the case of a company, it should not be a subsidiary, joint venture or associate of another company or body corporate;
- If three or all the partners of the firm, whichever is lower, out of partners practicing in India are Registered Valuers. In case of a company, three or all directors, whichever is lower, are registered valuers.
- Any one of the partner must be a Registered Valuer for the class of assets, for the valuation of which it seeks to be a Registered Valuer.
PROCESS FOR ENROLMENT AS MEMBER:
Application has to be made by an individual or partnership firm with non-refundable fees of Rs. 10,000/- to Registration Authority. Upon satisfaction, the Authority may issue a Certificate to applicant to carry on activities as Registered Valuer for specific classes of assets within 60 days of application.
CONDITIONS FOR REGISTERED VALUERS:
A registered valuer has to comply with the Act, rules, and other provisions of the Act besides Code of Conduct and valuation standards specified. He has to maintain records of assignment at least for 3 years from date of completion.
A registered valuer may obtain inputs for his valuation report or get a separate valuation for an asset class conducted from another registered valuer, in which case he shall fully disclose the details of the inputs and the particulars etc. of the other registered valuer in his report and the liabilities against the resultant valuation, irrespective of the nature of inputs or valuation by the other registered valuer, shall remain of the first mentioned registered valuer. So outsourcing of Valuation Assignments must be carefully done to avoid liabilities.
A member may surrender his membership temporarily or permanently. There is also a chance that a person’s membership may be expelled on certain grounds.
The Registered Authority shall conduct the Valuation Examination after determining syllabus with the help of experts. A person who passes the examination shall receive acknowledgement of passing the exam. A person may appear for the Valuation Examination for any number of times.
IBBI has notified the syllabus for the Valuation Examination separately for Land and buildings, Plant and machinery and Security and Financial assets on 31st December 2017. It will be a Computer-based exam with flexibility to take up at any time during the year.
They must be compulsorily followed by a Registered Valuer in making valuations. Until they get notified by the Government, Valuer shall follow internationally accepted valuation methodology (or) standards adopted by any Valuation Professional Organization or Standards specified by RBI, SEBI or any other statutory regulatory body.
CONTENTS OF A VALUATION REPORT:
A Valuer shall state the following in his/her report:
- background information of the asset being valued;
- purpose of valuation and appointing authority;
- identity of the valuer and any other experts involved in the valuation;
- disclosure of valuer interest/conflict, if any;
- date of appointment, valuation date and date of report;
- sources of information;
- procedures adopted in carrying out the valuation;
- valuation methodology;
- major factors that influenced the valuation;
- conclusion; and
- Caveats, limitations 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.
So the valuers cannot disclaim their liability by using caveats in their report. They will be held liable for the assumptions and decisions pertaining to valuation exercise.
WHEN IS VALUATION MANDATORY?
62(1) C – Valuation report for Further Issue of Shares
192(2) – Valuation of Assets Involved in Arrangement of Non cash transactions involving Directors
230(2)(c)(v) – Valuation of shares, property and assets of the Company under a scheme of Corporate Debt Restructuring
230(3) – Valuation report along with Notice of creditors/shareholders meeting –Under scheme of compromise/Arrangement.
232(2(d) – The report of the expert with regard to valuation, if any, would be circulated for meeting of creditors/Members
232(3) (h) – The Valuation report to be made by the tribunal for exit opportunity to the shareholders of transferor Company – Under the scheme of Compromise/Arrangement in case the Transferor Company is Listed Company and the Transferee-company is an unlisted Company
236(2) – Valuation of equity shares held by the Minority Share Holders
260(2) (C) – Preparing valuation report in respect of shares and assets to arrive at the reserve price for company Administrator
281(1) – Valuing assets for submission of report by liquidator
305(2) – Valuation of assets in the Declaration of solvency in case of proposal to wind up voluntarily
Thus from this, it is evident that though a new avenue is opened for various professionals it comes with onerous responsibilities. It is evident that valuation reports in future will also be based on assumptions and subject to limitations which will be provided transparently in the report.